by Oluyemisi Dansu
Partner at Argyle & Clover Attorneys at Law
It is rather easy for the
rights of minority shareholders to be infringed upon however minority
shareholders are afforded some protection under the Companies and Allied
Matters Act (CAMA) to protect their rights/interests.
While it is trite in line
with the provisions of Section 299 of CAMA[1], that where a wrong has been done
in the course of a company’s affairs to the company (by the majority or the
alter ego of the company), only the company can sue to remedy the wrong. This
is commonly known as the rule in Foss .v. Harbottle. There are some exceptions
to this general principle provided for under Section 300 of CAMA. These
exceptional instances are discussed hereafter.

•Entering into any transaction which is illegal or ultra vires2:

In the case of Yalaju-Amaye
v Associated Registered Engineering Co Ltd (AREC)[2], a minority shareholder
was allowed to sue where the purported appointment of new directors by the
board was held ultra vires the board as there was no such power granted in the
articles of association.

•Purporting to do by ordinary resolution any act which by the Company’s
Articles or the CAMA is required to be done by special resolution[3]:
The law guards against the
risk of majority/controlling shareholders ratifying an act which is in itself
wrong, by a wrong procedure. For minority shareholders to effectively bring an
action under this exception, it must be clearly established that irregular and
illegitimate procedures were adopted by the majority and this requires a good
knowledge of the provisions of the company’s articles as well as the provisions
of CAMA.

•Any act or omission affecting the Minority Shareholders’ individual rights as
members of the Company:
This occurs where the
shareholders membership rights are the facts in issue, for instance where
minority shareholders are systematically denied the right to vote at general
meetings, or consistently denied the right to receive notice of general
meetings of a company. In the case of Edokpolo & Company Ltd v Sam-Edo Wire
Industries Ltd[4], a minority shareholder holding 40% of the company’s shares,
alleged collusion between the company’s Chairman and Solicitor, the result of
which was the allotment of shares to other parties out of the 40% belonging to
the minority shareholder.
The Supreme Court held
that the minority shareholder was entitled to sue in its personal capacity to
protect its personal right to the shares held by it. In the words of Aniagolu,
J.S.C; “it appears to one that this is a clear case in which a minority
shareholder should, in the interest of justice, be allowed to sue as one of the
exceptions to the rule in Foss v. Harbottle”.

•Committing fraud on either the company or the minority shareholders where the
directors fail to take appropriate action to redress the wrong done[5]:
Examples of this is where
there is expropriation of the company’s property by majority shareholders or
where majority shareholders have obtained certain unfair advantages by dealing
with the company’s property, or an attempt to release the directors’ from
liability arising from breach of the duty of good faith owed to the company. In
the case of Yalaju-Amaye v AREC[6], the minority shareholders were allowed to
sue where the directors of the company went on a withdrawal spree from the bank
account of the company, falsified minutes of meetings to cover up a
non-existence board resolution to change the signatories to the company account
on the ground that a fraud had been committed against the company. A broader
definition of fraud was given by the Supreme Court in this case as “Any act
which may amount to an infraction of fair dealing, or abuse of confidence or
unconscionable conduct, or abuse of power as between a trustee and his
shareholders in the management of a company.”
In light of the above
definition, “fraud’’ is used in a loose, wider and equitable sense thus an
abuse or misuse of power and indeed breach of duty on the part of the majority
shareholders or controlling directors opens the way for minority shareholders
to sue to correct the wrong done to the Company.
What may be imputed as
fraud on the company or on the minority shareholders varies from case to case,
and the entire circumstances surrounding a particular case would usually be
examined to determine whether or not it meets the requirements. In the case of
Omisade v Akande[7], the parties involved in the suit were both directors and
shareholders and had shares in equal proportions in the company.
In a contract entered into
between the company and a US-based airline, it was agreed that in consideration
for patronage of the flight services of the airline by Muslim pilgrims through
facilitation by the company, the airline would pay a certain amount of money as
commission to the company. Omisade alleged that Akande falsely represented to
the US-based airline, with which the company had a contract; that the company
was being wound up, in order to divert the commission due to the company to
another establishment in which Akande was the majority shareholder.
It was held that Akande
had clearly committed a breach of his fiduciary duty as a director of the
company by making false representations about the company in order to divert
profit from it, and that this amounted to a fraud on the company for which a
minority shareholder, or any other interested shareholder could bring an action
on behalf of the company.
•Where a company meeting cannot be called in time to be of practical use in
redressing a wrong done to the company or to minority shareholders[8]:
This situation may arise
where an irreversible wrong is about to be done and the facilities for
convening a proper meeting of shareholders or the board are not available, or
where urgent action is required to abate the wrong. It will be unreasonable to
wait for a formal meeting requiring notice to be convened to address the wrong
thus the law allows a shareholder in this instance to apply to court to abort
or nip the wrong in the bud.

•Where the directors are likely to derive a profit or benefit, or have profited
or benefited from their negligence or from their breach of duty[9]:
In this circumstance, a
shareholder/member[10] of the company may apply to court for redress. The
rationale behind this is that the directors are the wrongdoers and are also the
ones in charge of the day to day running of the company, it is to be expected
that they would not take any action against themselves for breach of their

•Where the interest of justice demands:
In its effort to apply
equitable principles to corporate relationship for the purpose of minority
shareholders protection, the Nigerian Supreme Court, in Edokpolor & Co Ltd
v Sam-Edo Wire Industries Ltd recognised a further exception to the rule in
Foss v Harbottle now known as the “interest of justice” exception. This
principle is to the effect that where, considering all the circumstances of a
case, it is in the interest of justice that the application of the rule in Foss
v Harbottle be suspended, the court has a duty to suspend application of the
rule even where the circumstances of the case do not fall under any of the
preceding six categories of exceptions.
Types of Action that can
be commenced by Minority Shareholders
In line with the
exceptions to the rule in Foss .v. Harbottle, there are 3 types of actions that
Minority shareholder(s) can bring:

•Personal Action
A personal action may be
commenced by a member to enforce a right due to him personally where such
rights have been abused by an act deemed to be the act of the company[11] See
Section 301 of CAMA. An example of personal action is where a shareholder commences
an action to enforce the term of a contractual obligation with the company.

1.Representative Action
A representative action is
commenced where an individual member’s right has been infringed, and the
infringement affects other members in the company, the appropriate action will
be a representative action i.e. a member will be suing the company on behalf of
himself and other aggrieved members. See Section 301 (2) of CAMA.

1.Derivative Action
A derivative action is
when minority members/shareholders bring an action in the name of the company
to correct the wrong done to a company by majority/controlling shareholders.
There are however various impediments to the minority shareholder’s ability to
enforce company’s rights as the minority shareholder(s) has to satisfy the
provision of Section 303 of CAMA, which provides that:

•“Subject to the provisions of subsection (2) of this section, an applicant may
apply to the court for leave to bring an action in the name or on behalf of a
company or to intervene in an action to which the company is a party, for the
purpose of presenting, defending or discontinuing the action on behalf of the

•No action may be brought and no intervention may be made under subsection (1)
of this section unless the court is satisfied that:
 •The wrongdoers are the directors who are in
control and will not take necessary action.

1.The applicant has given reasonable notice to the directors of the company of
his intention to apply to the court under subsection (1) of this section if the
directors of the company do not bring, diligently prosecute or defend or
discontinue the action.
In light of the foregoing
provision, minority shareholders before they can validly commence a derivative
action must first apply to the Court for leave to commence the action and where
they are unable to establish factually and based on the provision of CAMA that
the conditions for a derivative action has been met, the court will refuse
[1] CAP C20 LFN 2004
[2] (1986) 3 NWLR (pt. 31)
[3] S. 300(b) CAMA
[4] (1989) 4 NWLR (Pt.
116) 473
[5] S 300(d) CAMA
[6] Supra
[7] (1987) 2 NWLR (pt. 55)
at 158; (1987) 18 NSCC 486
[8] S 300(e) CAMA
[9] S 300 (f) CAMA
[10] According to S. 302
CAMA, “member” includes the personal representative of a deceased member and
any person to whom shares have been transferred or transmitted by operation of
[11] S. 301 CAMA

Ed’s Note: – This
article was originally posted by the author on 29th June, 2016 at https://www.linkedin.com/messaging/thread/6131850926308286467
(Last Accessed on May 6, 2016)