[PDF copy of this judgment can be sent to your email for N300 only. Just order through lawnigeria@gmail.com and info@lawnigeria.com or text 07067102097]





11TH APRIL, 1969

SUIT NO. S.C. 151/67

3PLR/1969/6 (SC)











  2. MR. W. B. DAWODU
  5. MR. D. A. O. SALIU
  6. MR. S. O. KAMSON In Re
  8. D. A. O. SALIU
  9. S. O. KAMSON
  10. W. B. DAWODU



  1. J. O. ADEBAYO
  3. W. B. DAWODU
  4. B. O. E. WILLIAMS
  5. D. A. O. SALIU
  6. S. O. KAMSON
  7. M. A. K. SHONOWO



Antachree (with him Tomisin & Thomas) for 1st Appellant-ChiefShonowo

  1. A. Cole for 3rd Appellant-S. O. Kamson

Chief F. R A. Williams for 4th Appellant-W. B. Dawodu

  1. O. Adebayo-1st Respondent-in person
  2. O. K. Ajayi for 2nd Respondent-Liquidators






COKER, J.S.C.: This appeal concerns the affairs of the Merchants Bank Ltd. According to its Memorandum of Association (produced at the trial and marked exhibit ‘28’) it was founded on the 24th December, 1951, and according to the evidence in these proceedings it was closed down for business on the 23rd September, 1960 following the revocation of its licence by the Federal Government pursuant to the provisions of the Banking Act, Cap. 19. It would appear that on the 27th April, 1962, an extraordinary general meeting of the bank was held and it was there resolved that the bank should be wound-up voluntarily and that Messrs. Oluseye Johnson and W. B. Dawodu, both accountants, be appointed as the liquidators of the bank. This resolution was confirmed at a subsequent meeting held on the 17th May, 1962. Apparently during its existence and certainly during the latter part of that period the affairs of the bank were not running smoothly and one Chief Patrick Osoba, who was the managing director of the bank since its foundation, was criminally prosecuted in 1960 for offences involving the misappropriation of some £35,000 of the bank’s money and was convicted. Apart from Chief Patrick Osoba the following were and had always been the directors of the bank:-

(i)      Chief M. A. K. Shonowo, Chairman of the Board of Directors; (ii) Benjamin O. E. Williams;

(iii)    Daniel A. O. Saliu;

(iv)    Samuel O. Kamson, one-time managing director.

The manager/secretary of the bank was a Mr. N. O. Soremekun, now deceased.

Chief Patrick Osoba was jailed for a term of five years and whilst in prison, he presented a petition, dated 19th June, 1962 to the High Court, Lagos (Suit No. M/93/1962) praying the court:-

“1.     That the Merchants bank Ltd. may be wound up subject to the supervision of the court under the provisions of section 198 to 202 of the Companies Act, Cap. 37; and that an additional liquidator in the person of John Adebayo, Accountant of 87 Brickfield Road, Ebute Metta, be appointed;

OR ALTERNATIVELY, that the company be wound up by the Court.

  1. That such other order may be made in the premises as shall be just.”

The petition contains a number of complaints about irregularities being committed in the bank, deficiencies in accounting, wide-spread defalcations and paragraph 17 of the petition reads as follows:-

“Also, the investigations showed that large sums of money had been misappropriated, of which the sum of £37,177.7s.3d. had been ascertained.”

Some documentary exhibits, to some of which we shall have cause to refer in the course of this judgment, were attached to the petition. On the 3rd September, 1962, when the matter was mentioned in the High Court, Lagos, an order was made by Onyeama, Ag. C. J., and he then was, as follows:-

“BY CONSENT:- It is ordered that the voluntary winding-up of the company proceed subject to the supervision of the court.”

No order was made with respect to the prayer for the appointment of an additional liquidator.

To revert to the loss or shortage of the amount of £37,177.7s.3d. alleged in paragraph 17 of the petition, it would appear that on the 29th July, 1959, a meeting of the directors, attended by all of them, was held and the record of the minutes (produced at the trial as exhibit ‘138’) contains the following:

“196. ACCOUNTS FOR THE YEAR 1958. The audited accounts of the Bank for the year 1958, copies of which had been sent to all directors, were laid before the Board. The managing director gave a rough estimate of the position of the account, which showed a net profit for the year of £1,812.4s.8d. Attention of the directors were invited to the auditors’ report on the accounts, particularly the paragraph referring to Loans and Advances and section 7(1) of the Banking Ordinance.

After this, the managing Director informed the meeting that he had tried a reconciliation of the account with the present position and he had some differences of about £30,000 un-accounted for. The manager explained that the system of reconciliation employed by the managing director could not be correct because it did not include the over-all balances of all accounts, both debit and credit, at a given date. He assured the directors that either quarterly or half-yearly statement of position could be produced. The Board therefore directed that the manager should prepare and submit to the directors a statement of the position of all accounts of the Bank as at the close of business on 31st July, 1959.”

Throughout the proceedings there was no evidence either that the Manager did what he was asked by the Directors to do or that the directors themselves took any action to secure compliance with their directive contained in minute 196. A letter dated the 31st July, 1959 (exhibit ‘G’) was however addressed by Chief Patrick Osoba in his capacity as the managing director of the bank to one Mr. John O. Adebayo of the accounting firm of Messrs. John Adebayo & Co., requesting him to carry out an investigation of the accounts of the bank and to submit a report. Mr. Adebayo carved out the necessary investigation and on the 10th September, 1959, he submitted a report which was put in evidence in the proceedings as exhibit ‘H’. On the 9th September, 1959, however, a day previous to the submission of exhibit H, Chief Osoba had been replaced by the Board of Directors with Mr. S. O. Kamson as the managing director. Mr. Adebayo sent a bill for £105 to the bank for his professional services but the bank would not pay him. Eventually in 1960 he instituted legal proceedings against the bank for payment of his fees and obtained judgment for the amount with costs against the bank on the 18th August, 1964. In the meantime the winding-up of the bank had continued and it would seem that the creditors of the bank were being paid 3s.4d. in the £. One of the directors indeed, Chief M. A. K. Shonowo, Chairman of the Board of Directors, made a claim against the bank for an amount of £20,000 in respect of Treasury Bills claimed by him to have been deposited with the bank by him, got judgment for the amount and was paid in full. Mr. Adebayo got nothing and so he maintains that he is a creditor of the bank within the provisions of the Companies Act.

On the 3rd February, 1964, Mr. Adebayo applied to the High Court, Lagos, by way of motion, to which only the liquidators were respondents, praying the court for an order or orders in the following terms:-

“1.     For an order compelling the respondents as liquidators of the Merchants Bank to restore the money £20,000 or any part thereof respectively with interest at such rate as this Honourable Court thinks just in respect of which through their misfeasance they had paid to the director of the Bank Mr. M. A. K. Shonowo, an unsecured creditor who, through their nonfeasance, had been enabled to obtain a judgment to which he was not entitled: when the genuine creditors got only 3s.4d. in the £ and the Applicant got none at all; and

  1. For an order directing the respondents as liquidators of the Merchants Bank to prosecute these four delinquent directors of the Bank:

(a)     Moses Afoluwaso Kolawole Shonowo, 59, Docemo Street, Lagos.

(b)     Benjamin Osibanjo Emmanuel Williams, 1, Cole Street, Lagos.

(c)     Daniel Akintunde Oluseye Saliu, 67, Strachan Street, Ebute-Metta.

(d)     Samuel Olatunji Kamson, 64, Idoluwo Street, Ebute-Metta, Lagos.

to enable this Honourable Court to examine the conduct of the said four directors of the Bank, and to compel them to repay or restore the money £37,771.7s.3d. and £63,684.5s.1d. totalling E100,455.12s.4d. or any part thereof respectively with interest as the Honourable Court thinks just in respect of the breach of trust on the part of the said four directors, as alleged by the applicant and shown in his audit report; and as alleged by the very liquidators as shown in their audit report and for such further order or orders as the Honourable Court may deem fit to make.”

The application was supported by an affidavit of Mr. Adebayo and paragraphs 3 and 8 of the affidavit read:-

“3.     That I was informed and verily believe that the director of the Bank Mr. M. A. K. Shonowo, an unsecured creditor, obtained a judgment for £20,000 and that the respondents, as liquidators paid the unsecured debt in full that is they paid the director 20s. in the £ when the genuine creditors got only 3s.4d. in the £ and the applicant got nothing at all!

  1. That apart from my report that shows shortages of £37,771.7s.3d.

the very liquidators themselves investigated the affairs of the Bank before they were nominated liquidators by the four directors. They made a report that there were irregularities and frauds in the accounts of the Bank and that some various amounts totalling £63,684.5s.1d. were not correctly accounted for.”

The application of Mr. Adebayo came before Onyeama, Ag. C.J., as he then was, on the 17th February, 1964, and after hearing, the arguments of counsel on the matter the judge ruled as follows:-

“The £20,000 was paid out by order of court and the respondents can-not be called upon to refund it. Regarding the second prayer in the motion paper, I have not enough material in the affidavit to suppose that the directors have been guilty of any criminal offence. It seems to me however, that they ought to be called to explain certain matters in the report of the liquidators.

Pursuant to section 211(i) of Cap. 37 it is ordered that the directors named in the motion paper do appear before this Court on Monday the 24th February, 1964 to show cause why there should not be an examination into their conduct.”

Summonses were therefore issued and served on the remaining four directors, three of whom are now appellants before us, directing them to appear in court on the 24th February, 1964, “to show cause why there should not be an examination into their conduct”. On that day, that is the 24th February, 1964, or subsequently, the directors appeared in court and were represented by counsel who asked for and obtained an order of the court that the applicant, Mr. Adebayo, do file and deliver full particulars of his complaints. In pursuance of the order the applicant, Adebayo, filed a very elaborate treatise in which he pin-pointed several cases of defalcations involving in some cases instances of undisguised embezzlement of the bank’s money. The applicant called it a “Statement of Delinquencies” and attached to it many documentary exhibits with which he claimed to support his censures. Each of the directors did file an affidavit in reply to the allegations of the application, Adebayo, in his Statement of Delinquencies and there followed a full hearing of all the parties including the applicant Adebayo, the directors of the bank and the liquidators and indeed the addresses of their respective counsel. One of the points canvassed at the hearing by the applicant, Adebayo, is that one of the liquidators, i.e. Mr. W. B. Dawodu, had been privy to the making of entries m the books of the bank and by virtue of which entries it was made possible for the director, Chief Shonowo, to obtain judgment for the amount of £20,000. It was alleged and actively asserted that the claim for £20,000 by Chief Shonowo was fraudulent; that the Merchants Bank Ltd. at that time held no treasury bills in his favour for that amount or any other amount and that the judgment of the court had been obtained by fraud.

At the end of the hearing and in a reserved judgment, Sowemimo, J. acceded to the prayers of the applicant Adebayo and made orders involving payments to the assets of the Bank of some £100,455.12s.4d. against the directors and some £20,000 against the liquidator Dawodu. Against this judgment three of the directors of the bank have appealed to this Court and the liquidator Dawodu, for obvious reasons, has as well by leave appealed to this Court.

The appeal raises a large number of points of such extreme importance to lawyers and businessmen alike that we therefore have allowed counsel in their arguments to cover a very wide compass, oftentimes outside their grounds of appeal. The issues canvassed range around the implications of a misfeasance summons under section 211 of the Companies Act, Cap. 37 (1958 Laws of the Federation), the nature and extent of the duties and liabilities of directors and other officers of a limited liability company and indirectly the amount of involvement in the affairs of business-men in the conduct of their business allowed to courts of law by the Companies Act. We were not referred in the arguments of counsel to any local authorities on the matters discussed before us and it seems to us that this case raised, as well for the first time in this country, in a neat form, the problems described. We were referred, however, by learned counsel for the parties, to a plethora of authorities to some of which we shall refer in the course of this judgment since we are clearly of the view that the numerous authorities have succeeded in maintaining the same views and in pointing to the same direction. What is far more difficult than the recapitulation of the decided cases is the application to the facts of each case of the accepted principles which have been established for so long. No case can be considered in the abstract and the facts of each case are so material and indeed so fundamental that they must assume a crucial role. in the process of judicial decisions.

We have already stated that the Merchants Bank Ltd., came into being on the 24th December, 1951. It was not suggested in the lower court and certainly not contended before us that any one of the appellant-directors was seen counting monies of the Bank and removing them from the premises of the Merchants Bank: what has always been said is that the directors by their conduct or misconduct have rendered themselves liable to the creditors of the Merchants Bank Ltd. by virtue of the provisions of section 211(1) of the Companies Act. That section reads as follows:-

“211.(1) Where in the course of winding up a company it appears that any person who has taken part in the formation or promotion of the company, or any past or present director, manager, or liquidator, or any officer of the company, has misapplied or retained or become liable or accountable for any money or property of the company or been guilty of any misfeasance or breach of trust in relation to the company, the court may, on the application of the official receiver, or of the liquidator, or of any creditor or contributory, examine into the conduct of the promoter, director, manager, liquidator, or officer, and compel him to repay or restore the money or property or any part thereof respectively with interest at such rate as the court thinks just, or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance, or breach of trust as the court thinks just.

(2)     This section shall apply notwithstanding that the offence is one for which the offender may be criminally responsible.”

The phrasing of the section is familiar to lawyers who exercise them-selves in the practice of commercial laws and the authorities established clearly that in the application of the apparently many side implications of this section, the courts have consistently adopted the view that they would not, as Parliament has thought it fit not to, embarrass or unsettle business-men in the performance of their vocations. Those who organise, manage or control trade or business or both are generally entitled to depend upon their own ability, prudence and judgment; they are not bound to presume frauds and could not be held liable criminally or otherwise if complaints against them were no more than that although they are morally innocent they have failed to discover the wrongs concealed from them by those whom they are rightly entitled to trust. In such cases a meticulous examination of all relevant evidence is called for and the courts must refuse to succumb to any invitation or temptation to apply the findings of fact in one case in deciding other cases of negligence or abnegation of duties in another case or other cases. Section 211(1) of the Companies Act appears to be concerned with cases where the person charged has:-

(a)     misapplied money or property of the company; or

(b)     retained money or property of the company; or

(c)     become liable for money or property of the company; or

(d)     become accountable for money or property of the company; or (e) been guilty of misfeasance in relation to the company;

(f)      been guilty of a breach of trust in relation to the company.

On a careful analysis of it the section appears to have in its contemplation two categories of delinquency depending on whether a respondent to the summons is charged with the commission of a positive wrongful act or with a remissness of a significant degree. In the ambit of positive acts fall cases of misapplication, retainer, misfeasance or breach of trust, whilst in the sphere of remissness fall cases of liability or accountability for money or property of the bank. The analysis seems easy to perform and indeed to comprehend and in our view needs only little elaboration. Cases involving breach of trust are however not easily classified into one or the other of the categories since the authorities clearly show that the breach of trust envisaged by section 211 of the Companies Act is clearly not of the same nature as is contemplated when it is said that a trustee of a settlement had commit-ted a breach of trust. In this connection the words of Romer, J. in re City Equitable Fire Insurance Co. Ltd. [1925] Ch. 407, 426 to the following effect are pertinent:-

“It has sometimes been said the directors are trustees. If this means no more than that directors in the performance of their duties stand in a fiduciary relationship to the company, the statement is true enough. But if the statement is meant to be an indication by way of analogy of what those duties are, it appears to me to be wholly misleading.”

It is imprudent as it is impossible to lay down any abstract definition of what within the contemplation of misfeasance proceedings in the winding-up of a limited liability company will be tantamount to a breach of trust. The responsibilities of directors must vary with the nature of the company or their special position as defined or regulated by the Articles of Association and so with the breach of their regulated duties. The thing or matter complained of must be judged against the background of the realities of the case and a combination of circumstances may in one case constitute whilst in another fail to constitute a breach of trust. A conscious act of wrong-doing as well as a culpable and deliberate inadvertence to an obvious duty may so constitute a breach of trust and to this extent cases generically described as breaches of trust do fall within either of the two categories to which we have referred.

We are satisfied that the evidence relied upon in these proceedings on appeal before us is directed to showing that the directors of the Merchants Bank Ltd. had been remiss in their duties and that they are guilty of such negligence as can only be the result of a tendentious and culpable inadvertence in circumstances making them liable or accountable to the Bank for money or property of that Bank. Evidence was led to show that the Articles of Association had been breached. Articles 48 and 49 of the Articles of Association of the Bank, exhibit ‘28’, read as follows:

“48.   The directors shall cause true accounts to be kept:-

(a)     of the sums of money received and expended by the company and the matter in respect of which such receipt and expenditure takes place, and

(b)     of the assets and liabilities of the company.

  1. The books of account shall be kept at the registered office of the company, or at such other place or places as the Directors think fit, and shall always be open to the inspection of the directors and also shall be open to the inspection of members at what times and place and under what conditions or regulation to be determined and approved by the directors.”

In his judgment, Sowemimo, J., in the court below, took the same view of the facts when he said in the course of his judgment:

“If one therefore compares the report, exhibit `15′, with the obligations which the directors were to observe under the Memorandum and Articles of Association of the Merchants Bank Limited, then without much ado the directors are liable for the refund of a total amount of loss which I have indicated has been found to be £100,455.12s.4d., exclusive of their indebtedness on their overdraft accounts.”

One of the directors of the Bank, Benjamin O. E. Williams, has not appealed against the judgment of the High Court; another of the directors, Daniel A. O. Saliu did not appeal but at the hearing of the appeal he was neither present nor represented. With respect to the remaining two directors, i.e. Chief M. A. K. Shonowo and Mr. S. O. Kamson, and on their behalf the skill and industry of counsel were freely exercised in their illuminating arguments before us. The former was the Chairman of the Board of Directors of the Merchants Bank Ltd., throughout the period of its existence and the latter, always a Director of the Bank, was its Managing director from the 9th September, 1959, until the Bank closed down.

It is appropriate at this juncture to deal with some of the other matters bearing on this case. One such is the locus standi of the applicant Adebayo in these proceedings. His position was challenged by Mr. Cole, learned counsel for the appellant Kamson, and we think his position might as well be clarified at once for if it turns out that he had no locus standi he would not have been entitled to institute the present proceedings. In our review of the history of the winding-up of the bank we referred to the matters that culminated in the filing of this application by the applicant Adebayo. He obtained a judgment against the bank for the sum of £105 (and costs) being his professional fees. He stated that a number of creditors of the bank were paid 3s.4d. in the £ on the monies owing them; that the Director, Shonowo, secured a payment to himself of 20s. in the £ for a total amount of £20,000; that he, the applicant, was paid nothing and that the result of the present proceedings would be such that money will then be available to the liquidators to enable them to pay him in full as well as the other creditors. In this connection we are of the view that he was entitled to call in question, as he did, the Directors or other persons falling within section 211(1) of the Companies Act. In Cavendish-Bentinck v. Fenn [1886-90] All E. Rep. 333 at p. 342, Lord MacNaghten, dealing in the House of Lords with a similar point, observed as follows:-

“I cannot think that Parliament intended that a person coming under the description of a creditor, or a contributory, should take upon him-self the novel position and the important functions of a public prosecutor in a matter in which he had no concern. It was, therefore, in my opinion, necessary for the appellant to show first that Mr. Fenn had committed a breach of trust, or a misfeasance in the nature of a breach of trust, as a director of the Cape Breton company; secondly, it was necessary for him to show that by reason of that misfeasance the company had sustained loss; and it was also necessary for him to show that he had an interest in the result of the application.”

Except in the address in the High Court of counsel for the respondents there is no evidence challenging any or all of the facts alleged by the applicant Adebayo with respect to his locus standi in these proceedings. We would not like to think that in submitting that Adebayo had been paid in full counsel was not acting within his instructions but there was not a shred of evidence in support of such a manifestly important statement the truth of which could have had a decisive effect on the entire proceedings. We must conclude that the applicant Adebayo is competent to institute the present proceedings.

Then it is complained that the proceedings have been irregularly commenced by way of an interlocutory motion and not, as they should have been, by way of summons. These are clearly proceedings in a winding-up of a company under the supervision of the court and it is common ground that in the circumstances the English Companies Winding-up Rules, 1949, apply. Reference is then made to rule 68(1) of the Winding-up Rules, 1949, which reads as follows:-

“68(1) An application made to the Court under any of the following provisions of the Act:-

(a)     Section 333;

(b)     Subsections (1) or (2) of section 332; (c) Section 188;

(d)     Subsection (2) of section 448,

shall in any court other than the High Court be made by motion to the Court. In the High Court, the application shall be made by a summons returnable in the first instance in Chambers. The summons shall state the nature of the declaration or order for which application is made, and the grounds of the application, and, unless otherwise ordered, shall be served, in the manner in which an originating summons is required by the Rules of the Supreme Court to be served, on every person against whom an order is sought, not less than eight days before the day named in the summons for hearing the application. Where any such application is made by summons no affidavit or report shall be filed before the return of the summons.”

It is common ground that section 333 of the English Companies Act is in pari materia with section 211(1) of our own Companies Act and learned counsel for the appellant Kamson submitted that in as much as the proceedings were not commenced by way of summons, the proceedings are a nullity. He did not give or show to us any authority for such a submission and we are rather surprised that counsel had treated his submission as axiomatic.

We must observe that the English Companies Winding-up Rules, as indeed all sections of the received English law in Lagos, depend for their reception on the provisions of section 12 of the High Court of Lagos Act, Cap. 80. That section reads thus:-

“The jurisdiction vested in the High Court shall, so far as practice and procedure are concerned, be exercised in the manner provided by this or any other Ordinance, or by such rules and orders of court as may be made pursuant to this or any other Ordinance, and in the absence of any such provisions in substantial conformity with the practice and procedure for the time being of Her Majesty’s High Court of Justice in England.”

Rule 68 of the Winding-up Rules, 1949, postulates the issuance of a summons returnable in the first instance in Chambers. The rule does not refer to an “originating summons” as portions of the arguments of counsel for the appellant had suggested. The procedure contemplated has no counter-part in this country and indeed in Lagos, although it is manifest that in substance what is stipulated is an interlocutory application in the winding-up process. Section 12 of the High Court of Lagos Act requires that in such cases the procedure to be adopted shall be “in substantial conformity” with what obtains in England and it was the submission of learned counsel for the liquidator, Johnson, that the procedure adopted here by the applicant, Adebayo, was in substantial conformity with rule 68. We consider this submission of learned counsel to be sound and that to hold otherwise would be tantamount to denying the applicant, on a purely technical ground, a chance of applying to the court in aid of a right which undoubtedly he possesses.

Even if the procedure adopted by the applicant Adebayo were wrong, we think that it is now much too late in the day for the directors to complain about it. They failed to challenge the correctness of the procedure at the commencement of the proceedings or on their entry into the case and sought unsuccessfully to get the Statement of Delinquencies filed by the applicant Adebayo struck out. Clearly in those circumstances the adoption of a wrong procedure would be no more than an irregularity, and would not render the entire proceedings a nullity as was submitted by learned counsel for the director Kamson: so unless a miscarriage of justice is thereby alleged and proved, the proceedings would not be struck out. See in re Kellock (1887) 56 L.T.R. 887; also Allen vs. Oakey (1890) 62 L.T.R. 724. Learned counsel for the appellant Kamson has referred us to the case of Ives & Barker vs. Willans [189412 Ch. 478 as an authority that the directors should have been granted an order to strike out the Statement of Delinquencies when they applied for it, as it was applied for before any other step in the proceedings was taken by them. The case is useful but it is easily distinguishable from the present one. The appellant-directors in this case, never sought to strike out the proceedings but asked for further particulars of their delinquencies to be shown as was later done in what the applicant Adebayo called the Statement of Delinquencies. For the reasons which we have given we conclude that the present proceedings are properly constituted.

One of the appellants is a Mr. Dawodu who at one time audited the accounts of the bank by virtue of his being a member of a firm of accountants-Messrs. Thomas, Silva, Dawodu & Co.-invited by the directors of the Merchants Bank Ltd. to audit their accounts. A complaint of the applicant Adebayo is that the Chairman of the Board of Directors of the Bank, Chief Shonowo, was not entitled to the amount of £20,000 adjudged to be paid to him by the court as at the time he made the claim the Bank held no treasury bills in his favour. The appellant, Dawodu, in his capacity as an auditor, is said to have been privy to the making of entries in the books of the Bank by which Chief Shonowo was able to claim and obtain judgment for the sum of £20,000, as shown in the proceedings produced in evidence as exhibit ‘9 ‘. What the applicant Adebayo said was that the bank Advice (exhibit ‘32’) shows that the treasure bills owned by Chief Shonowo had been sold and the proceeds credited to his account as far back as June, 1960. What was alleged against Dawodu is that he had sworn to one of the affidavits in support of the application by which Chief Shonowo obtained judgment for £20,000 and that in that affidavit Dawodu had stated that he had advised that an entry for an amount of £20,000 shown under “Sundry Persons Account” should be transferred to the personal account of Chief Shonowo. After finding that Chief Shonowo was not entitled to claim, much less to receive, the amount of £20,000 from the liquidators, the learned trial judge in his judgment stated as follows:-

“I will also order that one of the liquidators, a Mr. Dawodu, who was responsible for the forgery by which a sum of £20,000 was paid out to the 1st respondent should also be compelled to refund this amount to the Bank. I will also make this consequential order that Mr. Dawodu, in view of his action in this case, should be removed as one of the liquidators.”

The complaint of Mr. Dawodu on appeal before us was that the judge was wrong to make the order referred to as against him. The affidavit of Mr. Dawodu in which he deposed to the facts described is dated the 9th April, 1963, at a time when he was one of the liquidators of the Bank, but the affidavit referred to his conduct and action in 1960 when his firm of accountants was called in to audit the books of the Merchants Bank Ltd. The firm of Messrs. Thomas, Silva, Dawodu and Co. were not the regular auditors of the Merchants Bank Ltd. but had been engaged ad hoc in view of the disturbing state of the financial affairs of the Bank at that time. In those circumstances we are clearly of the view that it cannot be said that Mr. Dawodu was an officer of the Bank so as to bring him within the provisions of section 211(1) of the Companies Act. See in re Western Counties Steam Bakeries & Milling Co. [1897] 1 Ch. 617 (esp. per Lindley, L. J. At p. 627 and per Smith and Rigby, L.JJ. at p. 631) and dicta in the more recent criminal case of Regina V. Shacter [1960] 2 Q.B.D. 252. Section 211(1) of the Companies Act does not include an auditor in the persons falling within its provisions and if, as indeed it is, the appellant Dawodu was not at the time of the alleged irregularity complained of against him an officer of the company, an order cannot rightly be made against him under section 211(1) of the Companies Act. Besides this, it should be pointed out that Mr. Dawodu was not specifically charged with any impropriety before the court and certainly no application so to deal with him was made by any person, nor was he given any opportunity to answer any such charge. We must and do conclude therefore that the orders made against Mr. Dawodu are not justified by the materials before the court and in any case they cannot be supported in law.

To revert now to the four directors of the bank, we again observe that their liability must be ascertained by reference to the law as we had earlier on in this judgment explained. A director of a company is not expected to fill all the positions in the company himself and he should be entitled to assume that qualified staff are performing the duties of their offices with competence. He is certainly not expected to abdicate his responsibility but he is undoubtedly entitled to rely on the judgments of responsible assistants with the requisite knowledge, training and expertise. We do not think that any inherent distinction lies in the duties and liabilities of categories of directors; but the Chairman of the Board of Directors and the Managing Director may by the Articles of Association of the company and must by the nature of their special access and connection with the detailed machinery of control be expected to know better than the other directors.

In the case in hand allegations had been made and substantiated against the directors that:-

(i)      every one of them as well as companies in which they are interested is indebted by way of overdrafts in the bank in considerably large sums of money and which overdrafts are in most cases unsecured and in others not adequately secured;

(ii)     wide-spread defalcations exist in the accounts of the bank involving falsifications and forgeries concerning large sums of money;

(iii)    losses of huge sums of money have taken place in the Bank and the directors have failed to do anything to arrest the continuation of this state of things;

(iv)    they have woefully failed to comply with article 48 of the Articles of Association of the Bank requiring true accounts to be kept, and their evidence at the trial depicted a state of mind of complete inadvertence to responsibility in this regard.

There may be other charges but those listed were freely canvasses in the court below and the learned trial judge, not without some justification, found them proved substantially. Before us the findings as to the incidence of these abnormalities were not challenged. Learned counsel for the appellants admitted their existence but contended vigorously that the directors could not be made liable by way of restitution under section 211(1) of the Companies Act. Indeed counsel did contend that the degree of blame-worthiness which is tantamount to such serious lapse as would make the directors liable was not established as it should have been on the true comprehension of the principles established by a long line of authorities some of which are:- in re Denham & Co. (1883) 25 Ch. 752 (esp. per Chitty, J. at pp. 767, 768); Dovey v. Corey [1901] A.C.477 (per the Earl of Halsbury, L.C. at pp.484-486); in re City Equitable Fire Insurance Co. Ltd. [1952] Ch. D. 407 (esp. at pp. 452) et seq.).

We recall that at the end of his judgment, Sowemimo, J. observed as follows:-

“After making necessary deductions it would seem that the amount now outstanding, apart from the £20,000 which I had stated was obtained by fraud in a court proceeding by the 1st respondent, is £100,455.12s.4d. I will therefore order in compliance with section 211 of the Companies Act that the four respondents should be made liable severally and jointly for the payment of the amount stated above.”

We do know for what the learned trial judge had held the appellants liable. It is for an amount of £100,455.12s.4d. representing the total of an amount of £37,177.7.3d. found to be lost to the Bank by virtue of defalcations revealed in the report of the applicant Adebayo, exhibit H and an amount of £63,684.5s.1d. about which the accountants Thomas, Silva, Dawodu and Co. in their report, exhibit ‘15’ have said as follows:-

“BILLS PAYABLE ACCOUNT – £77,013.13s.7d.

We discovered that bills amounting to £63,684.5s.Id. which have been cleared and paid for have not been deducted from the above amount. The correct balance of this account should be £13,329.8s.6d.”

Strictly speaking the arithmetic is not correct for the total of these amounts should have been £100,861.12s.4d. Now, what is it that has been said about the conduct and action of the directors? With respect to the amount of £20,000 stated to be obtained by Chief Shonowo, we do not think we should consider ourselves entitled to pursue that in this judgment. The facts are there for anyone who cares to pursue the matter to have the situation put right; but until the judgment, howsoever perverse it may prove to be when the true facts are elicited, is set aside it subsists as a judgment and must be deemed to constitute the cover under which the amount was paid to Chief Shonowo. This is trite law but if authority be needed for the proposition reference can be made to the decision of the House of Lords in Jonesco v. Beard [1930] A.C. 298.

We have earlier on in this judgment referred to the meeting of the Board of Directors of the Merchants Bank Ltd. held on the 29th July, 1959, and also to minute No. 196 referring to the proceedings at that meeting. All the present appellant-directors were present at that meeting and heard of the loss of an amount of about £30,000 unaccounted for in the books of the bank and reported to the meeting by the managing director. According to that minute they directed that the manager should prepare and submit to them a statement of the financial position of the Bank as at the 31st July, 1959. The minutes of that meeting, including No. 196, were confirmed at the Board meeting of the 21st August, 1959, at which meeting it was decided that matters arising on the minutes of the 29th July, 1959, should be left over for a subsequent meeting (see minute No. 198 of the 21st August, 1959, in exhibit ‘138’). Still another meeting of the directors was held on the 9th September, 1959, but no mention was made of the matter of minute No. 196 nor did any of the directors express any concern about the loss of this amount of about £30,000 or any expectation that the situation should be righted. What is worse still is the fact that none of them, except the managing director, Chief Osoba, took any steps to see that the manager complied with their directives, if only to request an investigation of the report. Then we know that Chief Osoba, possibly as the managing director but almost certainly in his personal capacity (as the subsequent conduct of the other directors demonstrated) invited the firm of accountants of which the applicant Adebayo is the principal partner, to investigate the accounts of the Bank.

It was given in evidence, and we think it was established, that when on the 10th September, 1959, the applicant Adebayo submitted his report to the directors, they all repudiated responsibility for the instructions for the report and told Adebayo in clear language and very blunt terms that the Board of Directors was not interested in his report. There was no evidence that they ever even studied it. Learned counsel for the liquidator Johnson has urged us to take the view that by their conduct the directors had wilfully shut their eyes to what must be regarded as a clear notice to them of the deficiencies described in the report, exhibit ‘H’. On the other hand learned counsel for the appellant-directors contend that the directors did not authorise exhibit ‘H’ and were not bound even to look at the contents. We have considered both submissions and we are of the view that although the directors should have taken the rather prudent course of studying the report, exhibit ‘H’, yet in view of their stand in relation to the appointment of Adebayo they were not bound to accept exhibit ‘H’. The learned trial judge took the view that they were bound by exhibit ‘H’ but we are of the opinion that this was not justified. The submission of the report exhibit ‘H’ to the directors as well as its effect must however be considered against the background of the whole story.

As far back as the 29th July, 1959, all the directors certainly knew of the apparent loss of some £30,000 in the Bank, although there was no evidence that they know of this loss before then. They however did nothing about it until exhibit ‘H’ arrived on the 10th September, 1959, when they refused to look at exhibit ‘H’ which report had spot-lighted a total deficiency or loss of £37,177.7s.3d. At that time the managing director Chief Osoba had refused to sign the annual account (produced in evidence as exhibit ‘L’) in which, among other things, their own auditors had drawn their attention to cases in contravention of section 7(1) of the Banking Act. Although one may fairly say that until that time the directors were not aware and could not be assumed to be aware of the position, it would be straining common sense not to observe that they did nothing whatsoever thereafter to arrest the situation and there is abundant evidence that despite it their own loans accounts and those of companies in which they were interested continued to soar higher and higher until September, 1960, it was decided by them to invite the accounting firm of Messrs. Thomas, Silva, Dawodu and Co. to investigate the affairs of the Bank (see exhibit ‘89’ of 7th September, 1960). It is apposite here to refer to the evidence of the liquidator Dawodu describing how his firm came to be instructed to audit the accounts of the Bank. He said in the course of his evidence:-

“This is the letter of instruction to our firm. Tendered and marked exhibit `89′. Before we could carry out the instructions certain developments happened viz: (1) Auditors of the Bank objected, (2) there was a report from the banking examiner which advised the Bank to increase the liquidity ratio in respect of the Bank holding. The four directors who are the respondents gave me oral instruction to report on the financial position of the Bank and to advise them as to the cash that would be needed in order that the Bank could continue to function. As a result of this oral instructions I prepared exhibit `15′.

We had already adverted to the observations in exhibit ‘15’ with respect to the shortfall of an amount of £63,684.5s.1d. In September, 1960, the Merchants Bank was short of cash and it is apparent that the liquidity ratio fell short of what the law required for its continued existence. An amount of £200,000 deposited with the Bank by the Western Nigeria Marketing Board on a fixed deposit in September, 1959, had been frittered away by a carefully designed exercise of purchasing and realising of securities. Concerning the amount of £63,684.5s.1d. which Mr. Dawodu in his report has thumb-nailed, he also gave evidence as follows:-

“The four directors told me that they were aware of the release of bills without payments. I told them that some bills were missing and they told me that they were aware.”

The report, exhibit ‘15’ reached the directors on or about the 18th September, 1960, and the Bank was closed down for business on 23rd September, 1960. Between the 18th September, 1960, when exhibit ‘15’ was received by the directors, and the 29th July, 1959, when they were first apprised at the Board meeting of the loss of some £30,000, it was some fourteen months and the loss at the earlier date was averaged at £37,177.7s.3d. By the latter date the loss stood at the figure of £63,684.5s.Id. Applying the principles of the law which we have earlier on set out, we think that Sowemimo, J. wrongly concluded that it was proved that at the time when the report was first made to them of the loss of some £30,000 the directors could legally be made liable. But granted that they could not be so made liable, it cannot be doubted that the evidence established that at that time they were made aware of this loss and invited to exercise their sense of responsibility. If only the directors had then and since done their duty in compliance with Article 48 of their own Articles of Association, in furtherance of their decision in their Board Meeting of the 29th July, 1959, and in accordance with simple business-like management, the increased loss could certainly have been avioded. In the interval a great many irregularities occurred in the Bank to some only of which we have made reference, and by our reasoning the loss of the Bank had increased by £26,506.17s.IOd., being the difference between the earlier and the latter figures. The evidence of the directors themselves pointed unequivocably to their blame-worthiness. The appellant, Chief Shonowo, who had always been the Chairman of the Bank, in his evidence stated. inter alia, as follows-

Whether the books are well kept or not I would not care to look at them unless there is a report from the Audit …..

Sometimes on 26th September, 1959, the Western Region Marketing Board deposited £200,000 with the Merchants Bank Limited. ….

Exhibit ‘S9’ was signed by me. According to exhibit ‘15’ a lot of the money had been used in paying some bills. I did not know anything about the payment of those bills …..

I do not know why Osoba did not sign the balance sheet. The managing director was paid £400. Before the balance sheet was published i.e. exhibit ‘L’ the Board of Directors had a meeting on 29th July, 1959. The managing director never directed our attention to loans and advances and that from a reconciliation he had made he found a short-age of £30,000 but he mentioned a shortage of £37,000. He then made a report to the Police and the Police came to investigate and found a shortage of £35,000.”

In his own evidence the appellant Kamson, who was the managing director of the Merchants Bank Ltd. from the 9th August, 1959 until the Bank closed down, testified, inter alia, as follows:-

“1st respondent (i.e. Chief Shonowo) was in complete control of the Bank. I was not happy at all. The other directors were helpless because 1st respondent was completely almighty. All disagreements of the directors were never recorded in the minutes book …..

I was the managing director when the sum of £200,000 was deposited with Merchants Bank. 1st respondent was the person who conducted the transaction exclusively. He told me that £150,000 was paid to London and £50,000 cheque was issued to him and this he had deposited with Bank of West Africa. The money deposited in London was being used by 1st respondent in running the affairs of Messrs. Gaiser & Co …..

I do not know what happened to the £50,000 deposited with Bank of West Africa. Although the Board of Directors was informed that he and general manager had got cheque for £50,000 from Ibadan, nobody knew what was to happen to the money. If I had been allowed to carry out my normal functions as the managing director, I would have known what would have happened. It was the 1st respondent who pre-vented me from knowing what happened to the money. I did not know anything of the £150,000 transferred to London.”

It is true that on the receipt of the report, exhibit ‘15’ the appellant Kamson called in the Police; his action was justified but surely he was trying to lock the stable door after all the horses had bolted. The two other directors, i.e. Mr. D. A. O. Saliu and Benjamin O. E. Williams, apart from filing replies to the Statement of Delinquencies, had shown no further interest in the proceedings.

If one looks again at the authorities on the subject and examines the con-duct of the directors, it is impossible in our view to resist the inference that with respect at least to the amount representing the increase in the losses of the Bank from some £37,000 in July, 1959 to some £63,000 in September, 1960, they were guilty of such conduct as is tantamount to gross negligence of their responsibility and we do not entertain any doubt that the loss of this amount of £26,506.17s. 10d. was due entirely to this condition. In the events that have happened, they must pay over this amount into the assets of the company and they will be jointly and severally liable to do so.

We have been invited by learned counsel for the liquidator Johnson to make an order for a further enquiry into other instances of lapses on the part of the directors, as for instance, over the improper overdrafts they each got either for themselves or for their companies, and the disappearance of the amount of £200,000 put on fixed deposit with the Bank by the Western Nigeria Marketing Board, or even to hold the directors liable for them on the evidence before us. We are not willing to accede to this request, which in view of the authorities to which we have referred must necessarily involve a detailed examination of numerous documentary exhibits and a re-evaluation of the oral evidence of witnesses whose performances we have had no opportunity of watching. We do not however by this mean, and do not intend thereby to be taken as having suggested, that other irregularities such as those which have been alleged have now been determined, and that the directors are only liable for the amount of £26,506.17s.10d. which we have indicated they must pay. The judgment appealed against, apart from the amount of £20,000 which the liquidator Dawodu was ordered to repay, referred only to the payment of the amount of some £100,455.12s.4d. arrived at by the learned trial judge in the way which we have described. It is now the duty of the liquidators to take such court or other action as the matters disclosed warrant. It is fair to say that no pronouncement or in some cases even adequate investigation has been made in respect of the other irregularities. In every case, however, the standards which we have described must be alluded to in determining the liability or otherwise of the directors of any of them within the provisions of section 211(1) of the Companies Act.

With respect to the appellant Dawodu, the result is that he succeeds in his appeal and the judgment of Sowemino, J. in Suit No. M/93/1962 in the Lagos High Court, insofar as it ordered the appellant Dawodu to pay an amount of £20,000 to the Bank and insofar as it ordered his removal as a liquidator, is set aside. The appellant Dawodu is entitled to his costs of this appeal which we fix at 100 guineas to be paid to him from the assets of the Bank. It is ordered that he be reinstated as a liquidator.

With respect to the other appellants, that is the directors of the Merchants Bank Ltd., Chief Shonowo, Mr. Kamson and Mr. Saliu, their appeals are dismissed but the amount which they were adjudged to pay by the High Court is hereby amended to £26,506.17s.10d. They will also pay to each of the respondents to this appeal, i.e. the applicant Adebayo and the Merchants Bank Ltd., as represented by the liquidator Johnson, the costs of this appeal fixed at 130 guineas and they will be liable jointly and severally for the payment.

We have considered all the circumstances of this case and in particular the large number of documentary exhibits which were produced in evidence. The winding-up proceedings are all but complete and it is easy to foresee that much more use will be made or required to be made of the exhibits. We will therefore order that all these exhibits be deposited with and kept by the Chief Registrar of the High Court, Lagos, and that no-one of them shall be removed or inspected except by and with the permission of the Chief Registrar or the High Court.

Appeals of directors dismissed but of liquidator allowed.


error: Our Content is protected!! Contact us to get the resources...