AN APPRAISAL OF THE LIABILITIES OF A

COMPANY FOR THE ACTS OF ITS DIRECTORS

By

ESSIET ESTHER EPHRAIM

MATRIC NO: 07/40IA200

BEING AN ESSAY SUBMITTED TO THE FACULTY OF

LAW,UNIVERSITY OF ILORIN,ILORIN,NIGERIA, IN PARTIAL
FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE
DEGREE OF BACHELOR OF LAW (LL.B. HONS.)IN COMMON LAW

APRIL, 2011

CERTIFICATION
This is to certify that this long essay: AN APPRASIAL OF THE LIABILITIES
OF A COMPANY FOR THE ACTS OF ITS DIRECTORS was written by
ESSIET ESTHER EPHRAIM. It has been read and approved as meeting part of
requirements for the award of Bachelor of Laws (LL.B Hons.) Degree in
common law in the Faculty of Law, University of Ilorin, Ilorin, Nigeria.

MR M.T. ADEKILEKUN

DATE

Supervisor

.........................

DR. MUHAMMED MUSTAPHA AKANBI

DATE

SIGNATURE
.....

SIGNATURE

HOD of Host Dept.

Dept. of .

...............

PROF A. ZUBAIR

DATE

...

SIGNATURE

HOD of Graduating Dept.

Dept. of ................

DR. WAHAB O. EGBEWOLE

DATE

......
SIGNATURE

Dean, Faculty of Law

.

.
DATE

EXTERNAL EXAMINER

SIGNATURE
...

ABSTRACT
A company can be described as a legal entity or a body corporate, having perpetual
succession and also a common seal, as well as the ability to sue and be sued in its
own corporate name. Suffice to state, also that the company upon its incorporation
can acquire property in its corporation name. This corporate personality, gives the
company the status of a person; albeit artificial, having all the qualities of a normal
human being.
It should be noted, that a company is by virtue of the celebrated case of Salomon V.
Salomon & Co. (1897) A.C. 22, an entity separate from its members having the
capacity to own assets, properties, liabilities, right and obligations incidental to the
activities of the company done, giving it responsibilities for all its acts and not its
members and/or officers.
The effect of this, is that the members or officers of the company are not in any way
under any form of liability for acts done in course of discharging their duties but the
company (a legal person) bears all such liability; even though its activities are carried
out by human beings whose acts are of paramount importance to the company.
At this juncture, it would not be out of place to state with particular reference to this
project work that the acts of directors as officers of the company are also accruable to
the company. Be that as it may; the meaning and nature of a director is without a
universally acceptable definition, neither could it lend itself an easy definition and a
much easier understanding. However, directors can be defined as managers of the
company. They are not employed by the company and as such cannot be said to be
employees of the company, servants or members there to but they can be seen as
officers of the company, for the purpose inter alia of making the company vicariously
liable for their acts and omissions while engaged in the business of the company.
In essence, this project work has as its sole aim; the consideration of the liabilities of
a company for the acts of its agents, with particular reference and emphasis on the
director of a company and it shall also consider, the position of the law, as it relates to
the above issue of liability of a director with reference to a company.

TABLE OF CONTENTS
COVER PAGE.........I
CERTIFICATION PAGE..II
ABSTRACT...III
TABLE OF CONTENTS..IV
DEDICATION.....VII
ACKNOWLEDGEMENT....VIII
TABLE OF CASES.......XI
TABLE OF STATUTES........XIII
LIST OF ABBREVIATIONS...XIV

CHAPTER 1
GENERAL INTRODUCTION
1.0.0: INTRODUCTION........1
1.1.0: BACKGROUND TO THE STUDY3
1.2.0: OBJECTIVES OF STUDY..5
1.3.0: FOCUS OF STUDY.....6
1.4.0: SCOPE OF STUDY.6
1.5.0: METHODOLOGY...........................6
1.6.0: LITERATURE REVIEW...7
1.7.0: DEFINITION OF TERMS..8

1.8.0: CONCLUSION...........................14

CHAPTER 2
THE DIRECTORS OF A COMPANY
2.0.0: INTRODUCTION..15
2.1.0: TYPES OF DIRECTORS..16
2.2.0: APPOINTMENT OF DIRECTORS20
2.3.0: POWERS OF DIRECTORS.25
2.4.0: PROCEEDINGS OF DIRECTORS.29
2.5.0: CONCLUSION...32

CHAPTER 3
DUTIES AND RESPONSIBILITIES OF DIRECTORS
3.0.0: INTRODUCTION.33
3.1.0: DIRECTORS AS TRUSTEES AND AGENT OF THE COMPANY....34
3.2.0: DIRECTORS CONFLICT OF INTEREST.....39
3.3.0: DIRECTORS INTEREST IN CONTRACT40
3.4.0: DIRECTORS AND SECRET PROFIT42
3.5.0: FIDUCIARY RESPONSIBILITIES.....45
3.6.0: CONCLUSION...46

CHAPTER 4
LIABILITIES AND REMEDIES OF DIRECTORS
4.0.0: INTRODUCTION48
4.1.0: LIABILITIES OF THE COMPANY FOR THE ACT OF ITS OFFICERS
AND AGENTS...50
4.1.1.0: CRIMINAL LIABILITIES.52
4.1.2.0: CIVIL LIABILITIES.55
4.2.0: REMEDIES.56
4.2.1.0: RELIEF FROM LIABILITY.62
4.3.0: CONCLUSION..........................65

CHAPTER 5
GENERAL CONCLUSION
5.0.0: CONCLUSION..67
5.1.0: RECOMMENDATION68
BIBLIOGRAPHY.70
ARTICLES IN JOURNALS.....70
BOOKS...........70

DEDICATION
To God Almighty for his supremacy over my life for making all things possible and
bearable.
You give me a reason to strive, take all adoration and glory.
To my parents, Mr. & Mrs. Ephraim S. Essiet; wonders of my world you guys know
when to push or part. I really do love you both (equally).
To my brothers what could I have asked for? A Sister? You guys are my team.

ACKNOWLEDGEMENT
To my parents, Mr. & Mrs. Ephraim Samuel Essiet I owe you a lot. Thanks for being
there all through it all.
To my brothers, Eng Nsikak-abasi Essiet, Edidiong Essiet and Ime Essiet you are all I
have I love you guys!
To Pastor Victoria, mummy you are a gift and blessing to our lives. May God
replenish you.
To Dr. and Dr. Mrs Olarinoye, you folks are amazing. I pray God never lets you
down and may angels stay guard of the kids like you have been.
To Dr. M.M. Akanbi, wonderfully and brilliantly made thanks for sharing.
Am particularly grateful to my supervisor, Mr. M.T. Adekilekun for going through
my work and being supportive time after time. You are simply the best!
To Mr. Omipidan, Mr. Ijaiya, Mr. B.L. Ijaiya, Mr. Abdulkadir, Mr. Owoade for
being supportive and understanding. May God bless you all.
My deep appreciation also goes to my family, friends and all my classmates who have
one way or the other contributed to supporting me. May God never let you walk
alone.

TABLE OF CASES
GHANA

Regal Hastings Ltd v. Gulliver (1942)1 ALL E.R.378;(1967)2 A.C.134

NIGERIA

Adeniji v. The State (2001) 4 NWLR, 248

Alexander Ward & Co v. Samyang Navigation Co (1975) 1

Allen v. Hyatt (1914)30 TLR 444

Artra Industries Nigeria v. The Nigeria Bank for Commerce and Industry
(1998)56/57LRCN 3255

Atwool v. Merryweather (1867)L.R.5Eq 464;37 L.T.CH.35

Automatic Self-Cleaning Filter Syndicate Co. Ltd. v. Cunninghame (1906)2

Ch 34 or 22 T.L.R.378

Barlett v. Barclays Bank Trust Co. No.1 &2 (1980)2 WLR 430

Belmont Finance Corporation v. Williams Furniture Ltd (No2) (1980)1 ALL

ER 393

Bissel v. Michigan Southern RR (1942)ALL ER 378

Boston Deep Sea Fishing and Ice Company v. Ansell (1888)39 ChD 339

Briess v. Woolley (1954) AC 333;2WLR 832

Canadian Aero Service v. Omally (1973)40 DLR(3d)371

Charitable Corporation v. Sutton (1972)1 WLR 19 CA

Delta Steel (Nigeria) Ltd v. American Computer Technology Inc (1999) 4

NWLR (Pt. 597)53 at 66

Diab Nasr v. Berini Beirut Ryad (Nig)Bank Ltd (1967)NCLR 414;(1968)1

ALL NLR 274

Ejekam v. Devon Indusries Ltd (1998)1 NWLR(Pt.533)417

Engineer Vassil Vassilen v. Paas Ind. Ltd (2002) FWLR PT19 418CA

Ferguson v. Wilson (1866) L.R.2.CH.77

Firebanks Executors v. Humphreys (1885)13 QBD 54 CA

Foss v. Harbottle (1843)2 HARE 461

Graham v. Allis Chambers Manufacturing Co. (1963)41 Del ch.78

Grant v. United Kingdom Switch Back Railway (1888)40 Ch.D 135 5 TLR 92

Halcomm (Western Nig) Ltd &Ors v. Scavuzzo &another (1974)3 ALR

Comm.73;

Irvine v. Union Bank of Australia(1877)2 App Cas 366;37 L.T. 176

Isle of Wight Railway Company v. Tahourdin (1883)25 Cd D 320

James v. Mid motors (1978)11&12 S.C.31

Joseph Asaboro Ltd v. Western Nigerian Finance Corporation (1974) NCLR

266

Kalu Onwuka v. Taymani (1965) LLR 62

Kurubo v. Zach-Motison (Nigeria)Ltd(1992)5NWLR(Pt.239)102 @ 115

Lenards Carrying Company Ltd. v. Asiatic Petroleum Co Ltd (1915) A.C.705

Lincoln Mills v. Gough VR 193

10

Longe v. First Bank of Nigeria Plc (2006)3 NWLR (Pt.976)228@ 261-262

Mandilas and Karaberis Ltd. v. Commissioner of police (1956)WNLR 147

Marquis v. Edmatie (1950)19 NLR 75 at 77

Mills v. Mills (1938)60 CLR 150

Milintock v.Campbell (1919)SC 960 @980

New Zealand Society v. Kuys (1973)WLR 1127

Okeowo v. Migliore (1979)11 SC 138

Pavlides v. Jensen (1956)Ch 565

Phibbs v. Boardman (1957)2AC 46

Perceival v. Wright (1902)2 CH 421:18 TLR 697

Piercy v. S.Mills Co Ltd (192o)Ch.77

R v. ICR Haulage Ltd (1944)KB 551

Re-Ambiose Lake Tin Co. (1880)11 CHD 390

Re-German Co. Expchipandale (1858)DL.G.M8C.19

Selangor United Rubber Estate v. Craddocks 3(1967)1 WLR 1555

Sheffield &South Yorkshire permanent building society v. Aizelewood (1889)2

AC 134n (H.L)

Smith v. Anderson (1880)15 ch D 247-275CA

Stephens v. T Pittas Ltd (1983)STC 376

Taiwo Okeowo &Ors v. Migliore &Ors (1979) 11 SC 138

11

Taupo totora Timber Co v Rowe (1977) All ER 123

Tika-tore press Ltd. v. Ajibade Abina(1973)1 ALL NLR Pt.1 Pg.401

The Marquis of Butes case Re-Cardiff Saving Bank (1892)2 CH 100

Transvaal land Co v. New Beligum (transvaal) Land and Development(1914)2

ch 488 CA

Trenco Co (Nigeria) Ltd v. African Real Estate Ltd (1978) 1 LRN 146

Vanni v. Niger Pak Ltd (1979) 4-6 CCHCJ. 148

Yalaju-Amaye v. AREC Ltd (1992)4 NWLR(PT.145)422 SC

UNITED KINGDOM

Aberdeen Railway Company v. BlaikeBros. (1854) IMACQ(H.L) 461

Bolton(Engineering)Co. Ltd. v. Graham and Sons (1957)1 QB 159

British Syphon Co. v. Home wood (1956)2 AER 897

Cook v. Deeks (1916)1 AC 554PC;114LT636

Directors of Public Prosecutions v. Kent & Sussex Contractors Ltd. (1944)

K.B.146

Elkington&Co v. Hurter (1892)2 CH 452

Lloyds v. Grace, Smith and Co (1912) AC 716 HL

Re City Equitable Fire Insurance Company (1925)Ch 407 @426;133L.T.520

Re El Sombrero Ltd, (1958)Ch.910

Re-Forest of Dean Coal Mining Company (1878)10 Ch 450

12

Re-Metropolitan Public carriage and Repository Co. (1873)9 Ch App. 1021

Reprinting, Telegraph & Construction company (1894)2 Ch 392

Royal British Bank v. Turquand (1856)6 E&B 327

Shaw (1935)2 K.B 113

Tesco Supermarket Ltd v. Nattrass (1971)2 ALL E.R.127

13

TABLE OF STATUTES
ENGLAND

English Companies Act 1948

NIGERIA

Companies and Allied Matters Act 1990

Companies and Allied Matters Act 2004

Nigerian Company Decree 1968

14

LIST OF ABBREVIATIONS

A.2d:

Atlantic Report, Second Series

A.C:

Appeal Cases

All ER:

All England Reports

All NLR:

All Nigerian Law Reports

A.L.R COMM:

African Law Reports, Commercial

BEAV:

Bevans English Rolls Court Report

Cap:

Chapter

C.A:

Court of Appeal

CH.A:

Chancery Appeal Cases

Ch.D:

Chancery Division

C.P.D:

Law Reports, Common Pleas Division

D.L.R:

Dominion Law Report

E&B:

Ellis and Blackburns Q.B Reports(1852-8)

EQ:

Equity

E.R:

English Report

Ex. D:

Exchequer Division

15

FWLR:

Federation Weekly Law Reports

H.L:

House of Lords

H&M:

Hay and Marriot

HARE:

Harris English Vice Chancellor Report

Ibid:

In the same place, book or source

JCA:

Justice of the Court of Appeal

JSC:

Justice of the Supreme Court

K.B:

Kings Bench

LFN:

Laws of Federation of Nigeria

L.R:

Law Reports of the House of Lords

L.L.R:

Law Reports of the High Court of Lagos State

LT:

Law Times

LQR:

Law Quarterly Report

NMLR:

Nigerian Monthly Law Report

NWLR:

Nigerian Weekly Law Report

Ors:

Others

P:

Page

16

Para:

Paragraph

P.C:

Privy Council

Per:

Through, According to

Q.B:

Queen Bench

R.P.C:

Ridgeways Parliament Cases

S.C:

Selected judgments of the Supreme Court of Nigeria

SCR:

South Caroline Report

T.L.R:

Times Law Report

W.A.C.A:

West African Court of Appeal

W.L.R:

Weekly Law Report

W.R.N.L.R:

Western Region of Nigeria Law Reports

V:

Versus, Between

Vol.:

Volume

17

CHAPTER ONE
GENERAL INTRODUCTION
1.0.0 INTRODUCTION
The need to keep pace with the realities of commerce and industry and comply with
the stipulations of the law may result in the carrying out of commercial activities or
business ventures by more than one person. This, when done in the main with a view
to profitability, which naturally results from the pulling together of resources; money
or moneys worth by investors, the creation of an entity, a vehicle called the company
is underscored.
Although one person can profitably carry on business alone, it is however not
guaranteed that the business would long continue especially if he becomes
incapacitated or dies1. The threat to the continuity of even the most viable business in
an economy as a result of death, inability to raise necessary funds, incapacity of mind
or other frailties of the sole proprietor recommend the incorporation of a company
which ensures ownership and participation in the management of the business by
more than one person for mention. The reasons for the preference of a company to

On the contrary, the death, incapacity etc. of a company does not bring the company to an end. This

is because it, among others, has perpetual succession.

18

other forms of business organizations hinge extensively on the fact that a company is
an artificial person recognized by law. It is within the limits of law detached from
those hinge extensively on the fact that a company is an artificial person recognized
by law. It has its duties, rights and obligations, which it attends to, through the
instrumentality of natural persons. To this end, the law recognizes any company
formed in accordance with the law of the land.
Furthermore, it is essential to note that when a Director acts as an agent on behalf of a
company, he is, like any other agent, not personally liable on the contract. This is an
application of the general principle of agency. On the whole a company can only be
liable for the acts of its Directors when he has duly acted on behalf of the company
even if the companys failure to carry-out the contract is due to the fault of the
Directors. The Directors may be liable personally where he contracts in such a way as
to assume liability
The Companies and Allied Matters Act has commendable provisions on how
accounts of the company are to be controlled as well as how Directors who manage
the affairs could be controlled. Furthermore, liability and penalty have become
enshrined statutorily as a means of checking erring directors and officers of a
company.

19

Therefore, this long essay will address the liabilities of a company for the acts of its
directors especially on issues relating to the Directors, in carrying out his duties and
responsibilities as a company Director.
1.1.0:

BACKGROUND TO THE STUDY

A company, being a corporate entity, can sue and be sued in its corporate name. As a
matter of law, it has separate existence, identity from the brains, minds, and hands
operating it to commercial functionality. The law therefore draws a clear cleavage
between the company as the artificial person and the natural persons with life and
limb who can operate it.
This is because a company, being an artificial person, can only act through its human
agents and officers. This position was adopted in Lennnards Carrying Co v. Asiastic
Petroleum Co Ltd by Lord Viscount Haldane2 in a passage quoted with approval by
Aniagolu, J.S.C in Trenco (Nigeria) Ltd. v. African Real Estate Ltd3 where he said,
inter alia a corporation is an abstraction.it has no mind of its own any more than it
has a body of its own; its active and directing will must consequently be sought in
the person of somebody for some purpose may be called an agent but who really is

[1915]A.C.705

[1978]1L.R.N.146

20

the directing mind and will of the corporation, the very ego and center of the
personality of the corporation
In Bolton (engineering) Co Ltd v. Graham and sons4, Denning, LJ characterized the
position as follows
A company may in many ways be likened to a human body.it has a brain
and nerve center which controls what it does.it also has hands which hold
the tools and act in accordance with directions from the center. Some of the
people in the company are mere servants and agents who are nothing more
than hands to the work and cannot be said to represent the directing mind
and will of the company, and control what it does

in Delta Steel (Nigeria) Ltd v. American Computer Technology Inc,5Aderemi,JCA,

referring to acts imputed to the company, explained as follows In cases where the
law requires the personal acts or faults of an individual so as to make a legal fiction
like a company to be liable, the directors, the manager or the managing director are,
in the eyes of the law, the directing mind and the will of the company; they control
what the company does; the state of mind of this special class of employees is the
state of mind of the company.

[1957] 1 QB 159

[1999] 4 NWLR (Pt. 597)53 at 66.

21

Also clear distinctions between company as the artificial person and the natural
person are mentioned in the case of Adeniji v. The State6 and also in James v. Mid
motors7,

1.2.0

OBJECTIVES OF THE STUDY

The objectives of this essay is to extensively discuss the duty and study the position
of the law as stated in the Companies Allied Matters Acts,2004 on the powers and the
proceedings of Directors and their personal liabilities. The duties and responsibilities
of directors etc, would be discussed, with a view to letting the directors know the
extent to which the company can be liable.
This project work would also aim at ensuring that the company is liable for the acts of
its directors during the operation of carrying out duties. Furthermore, it is also aims at
ensuring the position of CAMA, 2004 as it relates to when the company would be
liable for the acts of its Director and why?

6
7

(2001) 4 NWLR 248

[1978]11and12 S.C.31

22

1.3.0: FOCUS OF THE STUDY

This long essay will focus very importantly on the liabilities of a company for the acts
of its officers and agents for acting on its behalf, and also instances when the
company will not be liable for such acts of its agents and officers.

1.4.0: SCOPE OF THE STUDY

The long essay will give account of the origin of company law, definition of a
company, types, formation and the sources of powers of a company. Reference will
also be made to the study of directors of a company, their types, appointment, powers,
proceedings as well as their liabilities. Not leaving out the main purpose of the study
which is the liabilities of a company on the acts of its directors (both civil and
criminal liabilities).

1.5.0: METHODOLOGY
This write up, which has its motivation mostly from lectures delivered by my lecturer
on company law as well as the personal interest of the writer, It will be based on
primary and secondary sources. The primary source will include the Companies And
Allied Matters Act Cap 20 LFN 2004.The secondary source which would include

23

lecture notes, journals and relevant law reports on the subject matter and issues to be
addressed in the course of completing the project work.

1.6.0: LITERATURE REVIEW

The essence and needfulness of the project work is to examine the liabilities of a
company for the acts of its directors. It should be noted that various views of various
authors such as E.O.Akanki, J.Olakunle Orojo, Robert.R.Pennington etc. will be
put into consideration amongst many others.
According to E.O.Akanki on Essays on Company Law, he is of the view that the
law regulating the liability of the company for the acts of the various organs of the
company and the agents and the officers of such company is divided into two
(a) The acts of the primary organ of the company i.e. The general meeting and the
board of directors which are regarded as the acts of the company itself, and
(b) Those acts of its agent and officers, duly authorized, in respect of which the
company is liable on the basis of respondent superior.
Also, J.Olakunle Orojo8; is of the view that when a director contracts as agent on
behalf of the company, like any other agent, he is not personally liable on the
8

Orojo J.O, Company Law & Practice in Nigeria 5th Ed. (Interpak Books Pietermaritburg 2008)

24

contract. This is the application of the general principle of agency. So also under
those principles, the director may be personally liable where he contracts in such a
manner as to assume personal liability. Where the director expressly makes himself
liable, no difficulty arises, but he may be liable without express assumption of
liability as where he contracts in his own name without disclosing that he is acting for
a principal, in which case, he is personally liable to third parties on the contract as in
the case of Elkington and Co v. Hunter9.
Even where he contracts as a director but without using words that bind the company,
he will be personally liable.
Furthermore, Penningtons Company Law by Robert.R.Pennington10 is of the
view that the company will be liable for the acts of its agents and officers if their acts
are in utmost good faith i.e. in the benefit of the company and not in the officers
interest then the liability will be that of the companys.

1.7.0: DEFINITION OF TERMS

Considering the fact that the main focus of this essay is company law; it is trite at this
time to define the following viz. company, liability, director, act etc.
Pg 247
9

[1892]2 Ch.452

10

Quoting with approval Penningtons Company law (7th Ed,Butterworths,London,1995). Pg.247

25

The word Company is generally used to refer to a body or an association of persons

with distinct legal personality. Sometimes, however, it is used to refer to a body
without legal personality such as a partnership.
Therefore, Lord Justice James defines a Company as an association of persons
formed for a common object.
Lord Lindley in his own contribution defines a company as a voluntary association
or an organization of many persons who contribute money or moneys worth to a
common stock and employ it in some trade or business and who shares profit or loss
arising therefrom.
Felix C. Amadi11 defines company as a business entity with clear objects made up of
a body or association of persons who contribute to the capital of the business with a
view to, generally speaking, making profit or in rare cases, where they so choose,
pursuing only the promotion of the objects but in whichever case sharing in the loss
of the organization.

11

Amadi F.C. Fundamentals of Company Law &Practice in Nigeria 1st Ed. (Rodi Printing &

Publishing Company, Rivers State 2004)

26

Learners Dictionary12 simply defines a company as A number of persons united for

business or commerce whose partners are not named in the title.
Blacks Law Dictionary further puts it as a Joint stock union or association of
persons for carrying on a commercial or industrial enterprise, a partners corporation,
association or company.
Company according to L.C.B.Gower13 implies an association of a number of people
for some common objects the number need not be more than two and the interest of
one need not be more than nominal as in the so called one man company.
Liability can be described according to the Osborns Concise Law Dictionary14
defines liability as subjection to a legal obligation; or the obligation itself. The person
who commits a wrong or breaks a contract or trust is said to be liable or responsible
for it. Liability is civil or criminal according to whether it is enforced by the civil or
criminal courts.
The term director does not have a precise and accurate definition owing to
complexities of legal definitions. However, owing to various definitions given to a

12

6th Ed. Pg.226.(2000)

13

Gower Principles Of Modern Company Law 6th Ed.

14

9th London Sweet &Maxwell 2001

27

director, it becomes therefore pertinent to examine this term under three heads,
broadly grouped thus by the courts, by statutes and the legal writers.
CHARLSWORTH AND CAIN15 states that since a company has no physical but
only a legal existence, it becomes imperative to entrust the management of its affairs
to human instrument who are called directors, whose exact position in relation to
the company is rather hard to define. Furthermore, they asserted that directors are not
servants of the company, but that they are rather managers who in some certain
circumstances may be said to be in a position of quasi trustees and agent of the
company. To buttress this point Lord Johnstones dictum was cited in Milintock v.
Campbell16 where he stated that, the directors functions are in one vein those of an
agent and in another, those of a trustee but the former predominates over the latter.
Vincent Power and Smith17 hold the view that a director, as the name implies, is one
who directs. Although, they used short Oxford dictionary as basis of their definition
offered therein is a member of a board appointed to direct the affairs of a commercial
corporation.

15

Charlsworth and Cain Company Law 10th ed. P.260

16

[1919] S.C 960 at 980

17

Henry C. Blacks Law Dictionary 5th ed. 1979 p.414

28

Blackburn18 defined director as a person appointed, elected according to law.

Authorized to manage and direct the affairs of a corporation or company.
On the other hand Orojo defined directors simply as those who direct the affairs of
the company.
Almost all the case law definitions of director tends to say the same thing put in
different ways, but the following dicta embrace almost all the principles to be derived
from others:
Lord Cranworth L.C. in Aberdeen Railway Company v. Blaike Bros.19 stated thus, the
directors are a body to whom is delegated the duty of managing the general affairs of
the company. However, the most instructive definition of director is one offered by
Sir Jessel M.R. in Re Forest of Dean Coal Mining Company20 thus Directors have
sometimes been called trustees or commercial trustees and sometimes they have been
called managing partners. It does not matter what you call them so long as you
understand what their true position is, that they are commercial men managing a trade
for the benefit of themselves and all other shareholders of the company.

18

Orojo J.O. Nigerian Company Law & Practice p. 243

19

[1854] IMACQ 461-471-472(SC)

20

[1878]10 Ch.450

29

According to the Osborns Concise Law Dictionary21, a director is a person charged

with the management of a companys money and property, and having fiduciary
position.
Statutory definition on the other hand tends to adopt the same approach in dealing
with the above questions Section 650 of the Act defines Director as including Any
person occupying the position of the director by whatever name called.
Section 244(1) provides that Directors of a company registered under the Act are
persons duly appointed by this company to direct and manage the business of the
company22. Where a person is not duly appointed a director as such, his acts do not
bind the company. But where the company describes a person as a director, there is in
favor of any dealing with the company, a rebuttable presumption that all persons, who
are described as directors, whether as sales, executive or otherwise, have been duly
appointed23
A conglomeration of all the above definitions shows that the directors maintain quite
a unique and enviable position in the company and are to be regarded as the
framework within which the company stands. Company directors are in a privileged

21

9th London Sweet & Maxwell (2001)

22

Section 244(1)Company & Allied Matters Act 2004

23

Section 244(2)CAMA 2004

30

position within the companies, the reasons being that they have numerous and wide
powers of management of the companies.24

1.8.0: CONCLUSION
The law recognizes that although a company is a living person, it has no natural body
or organs, thus, an artificial person. As an artificial person, a company can only act
through the instrumentality of human beings who constitute the organs, officers and
agents of the company. In Trenco (Nigeria) Ltd v. African Real Estate Ltd25, The
Supreme Court recognized this position by observing a company, although having
a corporate personality is deemed to have human personality through its officers and
agents.
It is no doubt therefore, that for the company to carry out its activities, it needs a
living person to act on its behalf. The acts of such persons during the operation of
carry out its functions or duties, where liability comes to play such company would
be liable for the act as if he carried out the act himself. As long as the person i.e.
director can prove the act was done in the process of carry out his duty.

24

Oladeje Akani; Abuse of Power & Breach of Duty by Companys Directors, Nigeria Journal Of

Contemporary Law,Unilag.1975.Vol No. 1&2 Pg.1

25

[1978]1 LNR 146

31

CHAPTER TWO
THE DIRECTORS OF A COMPANY
2.0.0: INTRODUCTION
The company directors occupy a very unique and enviable position in a company and
are to be regarded as the framework within which the company stands. Many aspects
of the law are directed specifically at them and depend on them for effective
operation and actualization.
Their special role is stressed from the fact that they are the mind and the will, as well
as the limbs of the artificial entity called the company, as they are to attend to its dayto-day governance. This position is evidenced in the case of Lenards Carrying Co. v.
Asiatic Petroleum Co Ltd26.
In recognition of this position, companies legislation throughout history, have as a
matter of tradition, accorded special attention to the company Director, by regulating
his manner of appointment, his functions, powers and duties in order to achieve a
greater level of efficiency and effectiveness27. In accordance with tradition, the

26

[1915]A.C.705

27

Sofowora M.O, Modern Nigeria Company Law (2nd ed. Olakanmi & Co, Lagos 1997) p.179

32

Companies Allied Matters Act 1990 has introduced a great number of innovations in
this area.
A company as an abstract person cannot manage itself and it is not practicable for the
members in general meeting to do so. Accordingly, every company must have at least
one Director and a Public company must have a minimum of two28.
The question of who a Director is is a question of function. It is provided that
Directors include any person occupying the position of a Director, by whatever
name he is called. Therefore, if any of the members of the managing body are called
Trustees or Governors, they are nonetheless Company Directors by virtue of their
powers.

2.1.0: TYPES OF DIRECTORS

1. Alternate Director: He is appointed by a director to sit on the board in his place
under powers contained in the articles.29While the powers of an executive or
special director may be so limited as to take him out of the definition of directors
under section 567, an alternate director will be within the definition.

28

Section 18 CAMA 2004.

29

Palmer Company Law (3rd ed. Butterworths,London,1995)para.60-62

33

2. Executive Directors: Officers holding service contracts of the company appointed

to the board in a two-tier system comprising executive and non-executive directors.
Executive directors are responsible for the day to day running of the company and
their powers are usually circumcised by the articles. See further Longe v. First bank
of Nigeria Plc30
3. Managing Director: The managing directors are appointed and removable by the
board31. Yalaju-Amaye v. AREC Ltd.32
4. Shadow Directors: A person on whose direction and instruction the Directors are
accustomed to act33. Whether a person is or is not a Shadow Director is a matter of
fact to be decided on the circumstance of each case. But some indications are:
(a) Being a signatory to the companys bank account.
(b) The ordering of persons concerned, and of goods and services for the company.
(c) The signing of contracts or letters in the capacity of Director.
(d) Attendance at meeting of the board.

30

(2006)3 NWLR (Pt.967)228 at 261-262

31

Section 64(b)

32

(1992)4 NWLR (Pt.145)422 SC

33

Section 245 of CAMA Cap C20 LFN 2004

34

(e) Possession of detailed information about the company.

PERSONS WHO CANNOT BE DIRECTORS
This to some extent is a matter for the articles and they may provide that a minor or
an alien shall not be appointed a director of a company. Certain persons cannot be
appointed as directors by virtue of the statutes:
(1) AGE
A person who has reached the age of 70 cannot be appointed director unless the
company is a private and not the subsidiary of public company, or the articles
otherwise provide, or he is appointed or approved by a resolution of which special
notice, stating his age, has been given34; the exceptions are such as to make this
section effective.
A person who is first appointed a director of a company, other than a private company
which is not the subsidiary of a public company, after he has reached the age at which
the directors retire under the Act or the articles, must give notice of his age to the
company35.

34

Section 293

35

Section 294

35

(2) ARTICLES OF ASSOCIATION

Further disqualification may be imposed by a companys article. It imposes no such
disqualification, but merely specifying the grounds on which directors will vacate
office. Thus unless there are such express provisions, a person is not disqualified
merely because he is minor or an alien.
(3) BANKRUPTCY
An undercharged bankrupt must not act as a director of, or be concerned in the
promotion, formation or management of a company without the leave of the court by
which he was adjudged bankrupt36. Such a person may be liable if he acts whilst
disqualified.
(4) DISQUALIFICATION
A director who has been disqualified from acting as a director under the Company
Disqualification Act 1986 cannot be a director whilst so disqualified. The following
persons are disqualified from being directors:
(a) An infant, that is, a person under the age of 18years.
(b) A lunatic or a person of unsound mind.
36

Section 11 Company Directors Disqualification Act 1986

36

(c) A person disqualified under Section 253 (insolvent persons), Section 254
(fraudulent person), and Section 258 (vacation of office).
(d) A corporation other than its representatives appointed to the board for a given
period (Section257).
(5)A person cannot be a Companys Sole Director and its secretary at the same time
nor a Director and Auditor at the same time.37

2.2.0: APPOINTMENT OF DIRECTORS.

The appointment of directors is governed under the Act38. Every company registered
on or after the commencement of this Act shall have at least two directors and every
company registered before that date shall before the expiration of six months from the
commencement of this Act have at least two directors.
The Act further provides that the number of the directors and the name of the first
directors shall be determined in writing by the subscribers of the memorandum of
association or a majority of them, or the directors may be named in the articles. But

37

Orojo J.O. Company Law and Practice in Nigeria p.30.

38

Section 246 (1) CAMA

37

in the failure to do so, and where no other provision is made, they may be appointed
by the subscribers of the memorandum of Association.39
Subsequent directors are left to the members at the Annual General Meeting who
shall re-elect or reject directors and appoint new ones. In the event of all the directors
and shareholders dying, any of the personal representative shall be able to apply to
the court for an order to convene a meeting of all the person representative of the
shareholders entitled to attend and vote at a general meeting to appoint new director
to manage the company and if they fail to convene a meeting, the director, if any,
shall be able to do so.40 By Section 248(2) the articles may give power to some
particular persons to nominate a director.
Furthermore, in the event of any casual vacancy arising out of death, resignation,
retirement or removal, the board is empowered to appoint new directors, but this
however, is subject to the approval of the general meeting41.A concurrent power of
increasing the number of directors is given to both the directors at the general meeting

39

Sec. 247, Sec 251 CAMA 2004

40

Sec. 248(1)&(2)Company Act 1990

41

Sec 249(1)&(2) CAMA 1990

38

but is only the latter that shall exercise the power generally or increase and determine
in what rotation they are to retire42
The principles of holding out, is made operative against the company by virtue of
section 244(3).43Thus where a person not duly appointed acts or holds himself out as
a director of the company, he shall be guilty of an offence and upon conviction, is
liable to a fine or imprisonment or both and by section 25044, he shall further be
personally liable for such action.
In the case of Joseph Asaboro Ltd v. Western Nigerian Finance Corporation,45 a
person brought an action in the name of the company believing that he was a director
of the company. Indeed, he was not validly appointed a director neither did he act on
the authority of the Board of Directors. The court of Appeal held that the action in the
companys name had not been brought by an organ of the company, and that there
was no plaintiff before the court, because where the Articles vest the management of
company affairs in directors, matters of corporate litigation are normally within the
exclusive preserve of the board.

42

Sec 249 CAMA 1990

43

Ibid

44

Ibid

45

(1974)NCLR 266

39

In Ejekam. V. Devon Industries Ltd46, the burden of proving that one is a director of a
company was the issue. Here the learned counsel for the plaintiff submitted that the
burden of proving that a person who holds himself out as a director of a company
and acts on behalf of the company and has no such authority, is on the person who
challenges his authority to act as such director by proving that;
(a) He is a director
(b) Even if he is a director he has no authority to maintain the action in the first place.
Here, the court agreed with the learned counsel that the burden is on the director. To
be eligible for the appointment into the board, certain qualifications must be satisfied;
the most usual which is the share qualification may or may not be required by the
articles of association. And unless and until so fixed no shareholding qualification
shall be required47.
The object of this provision is to ensure that the director has an interest in the success
of the company and will consequently devote their best endeavor in its service, if only
to preserve the value of their own shares48. However, it has been held that directors

46

(1998)1 NWLR(Pt.533)417

47

S. 251(1)CAMA 1990

48

Re-Metropolitan Public carriage and Repository Co. (1873)9 Ch App.1021

40

are not bound to take this qualification shares from the company. The company
cannot also allot them to him without his request.49
The court is empowered to disqualify the following persons from taking part either
directly or indirectly in the management of the company for a period not exceeding
10years:
(1) A person convicted of an offence in connection with the promotion, formation or
management of a company.
(2) A person who in the winding up process of a company was found guilty of
fraudulent trading or while an officer of the company was found to be guilty of fraud
or breach of duty towards the company50.
The essence of this disqualification is not only to ensure that men of integrity are
placed in the management of the affairs of the company but also to incapacitate
persons subject to it from being appointed as director as well as acting as such. And
so, any attempted appointment during the period is void. Insolvent persons are also

49

Re Printing, Telegraph & Construction Company(1894)2 Ch 392

50

Section 253 and 254 CAMA 2004

41

disqualified from managing the affairs of the company and shall be liable to a fine of
N500, 000 or a conviction on acting contrary to this section.51
No exact age limit is set by the Act for the directors though a person of 70years or
more has a duty to disclose (his age) this fact to the members at the general meeting,
failure to do this renders him liable to a fine N50052. A person may be appointed a
director for life in which case no re-election is necessary but he is nevertheless
removable under section 262. If a director claims to be appointed for life or some
indefinite period, the terms of appointment must be clear and definite.

2.3.0:POWERS OF DIRECTORS
The power of the company as laid down in the memorandum of Association is
exercisable by the directors or the general meeting as the case maybe. Sec 63(3)
invariably entrusts the management of the company to the board of directors who
may exercise all such powers of the company as are noted by this Act, or of the
Articles required to be exercised by the members in general meeting, except as
otherwise provided in the companys articles. Sec 279(3) states a director shall act at
all times in what he believes to be the best interest of the company as a whole so as to
preserve its assets, further its business and promote the purpose for which it is formed
51

S. 253 CAMA 2004

52

S 252(1)&(2)CAMA 2004

42

and in such manner as a faithful, careful and ordinary skillful director would act in the
circumstance.
In the light of this provision, there is no doubt that the exercise of discretionary power
such as in this case falls within the management powers, which are by section 63(3)
of the CAMA conferred on the directors.
In Artra Industries Nigeria v. The Nigerian Bank for Commerce and Industry53.The
issue is whether the defendant had absolute discretion to grant or refuse to grant
consent to the plaintiff to create a further mortgage or change on its assets. The court
held in the instant case, using S. 279(3) as a guide.In exercise of such powers, the
directors must adhere strictly to the statutory provision, which enjoins them to
consider the interest of the company as paramount.The necessary implication of such
entrustment is that directors have power to carry out on behalf of the company all the
power of the company expressly or impliedly granted by the memorandum of the
company, certain act which were initially defective carried out by the directors could
be rectified by the general meeting as in Grant v. United Kingdom Switch Back
Railways54 where it was provided that such act is neither fraudulent nor ultra vires for
the company55. In Isle of Wight Railway v. Tahourdin56 the court refused an
53

(1998)56/57LRCN 3255

54

(1883)40 Ch.d 135 5 TLR 92

55

Cooks v. Deeks (1916)1 AC 554

43

application by the directors of a statutory company for an injunction to restrain the

holding of a general meeting. The purpose of which was to appoint a committee to
recognize the management of the company.
Under S. 223, where it is impracticable for any reason to call or conduct a meeting of
the company, the court may on its own motion, or on application of a director or a
person entitled to vote at such meeting, order a meeting to be called and conducted as
the court may direct. The court is empowered to give such ancillary or consequential
directors, including a direction that one member of the company present in person or
by proxy shall take a decision binding on the company. This was demonstrated in
Halcomm (Western Nigerian) Ltd and others v. Scavuzzo and another57. But the
recently held view is that, there is division of power between the board and the
company, the general meeting cannot interfere so long as they are acting bona-fide
intra vires the provision of the Act.
In Automatic Self-Cleansing Filter Syndicate Co.Ltd. v. Cunninghame58,Per Cozen
Hardy L.I The articles constituted a contract inter alia by which the members had
agreed to vest managerial power in the board which could not be curtailed in this
instance until an extra ordinary resolution has been passed to that effect as provided
56

(1883)25 Chd 320

57

(1974)(3)ALR Comm.73:Re E1 Sombrero Ltd,(1958)Ch.900

58

(1906)2 Ch 34;22 TLR 378

44

by the article or there was an alteration of the articles or a removal of the board. In
the same vein, Cree L.J in Shaw59 clearly stated that, if powers of management are
vested on directors, they and they alone can exercise these powers, and moreover,
what falls within the ambit of managerial power is a widely embracing one ranging
from litigations on behalf of the company to the payment of dividend as in Scot v.
Scot. The case law seem to suggest that what falls within exclusive preserve of
management is in-exhaustive, therefore the only way by which one can find out what
lies within the powers of management is by litigation.
On the other hand, the Act reserves to the general meeting, various powers such as
alteration of capital and all matter required to be effected by extra ordinary resolution.
With the authority of Alexander Ward and Co. v. Samyang Navigation Co60.The
directors and no one else are responsible for the management of the company except
in the matter specifically allotted to the company in general meeting.
The directors may delegate some of their powers to a committee of directors or a
managing director or whom they may entrust any of the powers as in Sec.263 (5).
Apart from the termination of the powers of the directors by their removal or vacation
of office, their powers will cease by making a compulsory winding up order.
59

(1935)2 KB 113

60

(1975)1

45

2.4.0:PROCEEDINGS OF DIRECTORS
Section 263(1) provides that The directors may meet together for the dispatch of
business, adjourn and otherwise regulate their meeting, as they think fit; provided that
the first meeting of the directors shall be held not later than 6months after the
incorporation of the company.
The need to hold a meeting within 6months of incorporation accords with the
provisions of section 33(4) that the directors must at their first meeting determine the
date to which their financial statements should be made up. Majority vote wins when
there is any question arising at any meeting but where there is equality of votes the
chairman has a second or casting vote section 263(3).
Director summons meeting of the directors at any time (section 263(3)).All notice of
meeting must be given to every director 14 days before the meeting and if its not
done the proceeds at the meeting will be void. In Kalu Onwuka v. Taymani61-The
plaintiff sought a declaration that he was a member and director of the company. He
alleged that he was not notified of the meetings, the court found that he had not been
given notice and held that the purported meetings held were invalid and that the
decisions taken there were void and of no effect. Section 266(1) says, Every director

61

(1965)LLR 62

46

shall be entitled to receive notice of the directors meetings, unless he is disqualified

by any reason under the action from continuing with the office of directors.
The quorum is the number of directors qualified to act as a board. The quorum
necessary for transaction of the business of the directors is (where there are not more
than 6 directors and where there are more directors), one third. So that where three
directors attend the meeting requiring a quorum of two but two of them were
disqualified from voting, it was held that the decision of the board at the meeting was
void. If the board is unable to act because a quorum cannot be formed, the general
meeting may act in its place and if it is the committee that cannot meet because a
quorum cannot be formed the board may act in place of the committee (Section 265).
In Taiwo Okeowo and others v. Migliore and others, the Supreme Court interpreted
Article 80 table A and held that where the board of directors was unable to act the
general meeting could act in matters of management. In that case appellants
contended that since the application was for a court directed meeting under Sec.128
Companies Act 1968 to consider terminating the service of the companys secretary,
the application should be granted as it was the board of directors and not the general
meeting which could appoint a secretary. The court held that where the board was
unable to act, the general meeting could act in such a matter. In Ukpilla Cement
Factorys case, where the manager exercised the power of the board of Director to
remove the secretary, it was held that such exercise of power was valid.

47

Section 241 states that every company shall:

(1) Cause minutes of all proceedings of general meetings.
(2) All proceedings at meeting of its director and;
(c) Where there are manager, all proceedings at the meetings of it managers, to be
entered in books kept for that purpose.
If directors fail to keep minutes of their deliberations in board meetings, they cannot
complain of inference drawn from the records even if this differs from what they
allege to be right. Where minutes are duly made, until the contrary is proved the
meeting is deemed to be duly held and convened, and all decisions taken there are
deemed to be validly taken62.
The directors may delegate any of their powers to committees consisting of such
member of their body as they think fit and any committee so formed, must in the
exercise of the powers to delegate, conform to any regulations that may be imposed
on it by the directors.

62

Section 241 (3) CAMA

48

2.5.0: CONCLUSION
Directors, being the managers of the company, are very important in the affairs of the
company and every limited company must have at least two company directors.
Though, the company is controlled at his instruction, he may be personally liable
where he contracts in such a way to assume personal liability. Directors of a company
are fiduciary agents and such power conferred on them cannot be exercised in order
to obtain some private advantages or for any purpose, foreign to the power.
Therefore, directors of a company have been safely referred to as quasi-trustee to the
company and not its members.

49

CHAPTHER THREE
DUTIES AND RESPONSIBILITIES OF DIRECTORS
3.0.0: INTRODUCTION
Directors for certain reasons may be described as an organ of a company as they are
in some circumstances agents of the company by whom its acts and the relation
between them is governed by the general principles of the law of agency. When they
are acting within the scope of their authority and on behalf of the company, they may
be regarded as agents of the company under Part III of the Act.63 Like other agents,
they incur no personal liability, and are accountable for any secret profits made, 64but
if they exceed their authority they may become liable for breach of warranty65and
they will also be liable if they contract in their own names or otherwise assume
liability as agents.66

63

CAMA, Cap. C20,LFN, 2004, Section 283(2)

64

Allen v. Hyatt( 1914)30 TLR 444.

65

Firebanks Executors v. Humphreys (1885)13 QBD 54 CA.

66

See Palmers Company Law para 62-02.See also Trenco v. African Real Estate Ltd (1978)4 SC

9;Ferguson v. Wilson (1866)LR 2 Ch 77.

50

3.1.0: DIRECTORS AS TRUSTEES AND AGENT OF THE COMPANY

Directors have in most cases been described as trustees as well as agents of a
company. The association of directors with the term trustee could be traced back to
the period prior to 1844 when most joint stock companies were incorporated and
depended for their validity on a deed of settlement vesting the property of the
company on trustees. With incorporation of companies, the court out of tradition and
analogy extended it to them due firstly as a result of usage and the fact that the court
of equity always tend to apply the label trustee, to anyone in fiduciary position.67 Per
Jessel, Mr. in Reforest of Cola Mining Company68 observed;
it does not much matter what you call them so long as you can understand what their
true position is, which is that they are really commercial men managing a trading
concern for the benefit of themselves and all other shareholder in it.
According to Cook69, directors were until the middle of the nineteenth century
trustees and managers of the join stock fund formed by way or deed of settlement.
Whatever may be the opinion of text writers and jurist, it appears that the better view
with regards to the position of directors vis a vis trustee is that described by Romer J.

67

Re-German Co Expdehipandale (1858)DC GM8C.19

68

(1878)10 Ch. 450

69

Cooks Corporation Trust and Company p.154

51

in Re city Equitable Fire Insurance Company70 when he said It is sometimes said

that directors are trustees. If this means no more than that directors in the
performance of their duties stand in fiduciary relationship to the company, the
statement are 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. I can see
but little resemblance between the duties of a director and those of a trustee. It is
indeed impossible to describe the duty of directors in general terms, whether by way
of analogy or otherwise.
The concept of a director as trustees arose, partly due to the need to impose certain
equitable obligation similar to those of a trustee, based mainly on the similarity of
fiduciary duties and obligation towards their beneficiary71.Therefore, as trustee, the
directors have control of company property, to be applied only for the specific
purpose of the company or the settlement72and in the interest of the company. A
director never enters into contract for himself, but he enters into contract for his
principal, the company. He cannot sue on such contract or be sued on them unless he
exceeds his authority73.In Piercy v.S.Mills Co. Ltd.74, the two directors of a company
70

(1925)Ch 425

71

Dr.O.Akanki- Abuse of Power &Breach Of Duty By Company Directors p. 43

72

Selangor United Rubber Estate Ltd v. Craddocks 3(1967)1 WLR 1555

73

Smith v. Anderson (1880)15 Ch. d. 247,275 CA

74

(1920)Ch.77

52

had under its article the power to issue new shares, though there was no need to issue
new shares, they did so to benefit themselves and some of their personal friend in
order to ensure voting control and to prevent the appointment of three more directors
which would have made these two directors a minority in the board. It was held that
the issue of new shares was void as it was not in the interest of the company
represented by the general body of shareholders but in their own personal interest.
Thus, whereas trustees are owners of trust property at law, directors are not trustees in
the full sense, there being significant differences. The legal title to a companys
property is, in general vested in the company not in its directors, and can only be dealt
with in the companys name and as businessmen managing a trading concern, may
take greater risk in the investment of companys fund than is proper for strict trustee
lacking express authorization from trust instrument75.Lord Russel in Regal Hastings
Ltd v. Guillier again stated this position of trustee76,thus: directors of limited
companies are the creatures of statute and occupy a position peculiar to themselves.
In some respect they resemble trustees, in other they do not. Directors are not exactly
trustee, if that meant that they are nothing more and nothing less

75

Sheffield& South Yorkshire Permanent Building Society V. Aizelewood (1889)2 AC 134n(H.L)

76

(1942)All ER 378.d 378

53

Therefore, directors of company have been safely referred to as quasi-trustees to the

company and not its member77.
Broadly speaking, the position of a director is somehow equated with that of an agent
and as such agent, they owe fiduciary duty of care to the company. Some judicial
authorities seem to deny the agent status to company director in the pronouncement
of Comstoch, L.J. In Bissel v. Michigain Southern RR78, while the decision of Lord
Hardwick in Charitable Corporation v. Gutton79and Lord Cain, L.J. in Ferguson v.
Wilson80gives agent status to direct. In between these two extreme, the better view
seem to be by Peddixon, In Mills v. Mills81 Directors of a company are fiduciary
agent, and a power conferred upon them cannot be exercised in order to obtain some
private advantages or for any purpose foreign to the power
In Tika-tore press Ltd v. Ajibade Abina,82following the death of the majority
shareholders, the directors allotted shares to themselves which enabled them to gain
control over the company by becoming its majority shareholders. The deceased
shareholders administrators sought a declaration that the allotment was ultra-vires,
77

Percieval V Wright (1902)2CH 421;18TLR 697

78

(1942)ALL ER 378

79

(1742)2 ATK 400 P.405

80

(1866)LR2CH 77

81

(1938)60 CLR 150

82

(1973)1 ALL NLR Pt1 Pg 401

54

void and of no effect. The Supreme Court held that the power to allot shares was a
fiduciary power which must be exercised bonafide, that although the directors acted
intra-vires in exercising their powers to issue shares. The allotment was in bad faith
and therefore in breach of their fiduciary duty and relying on Bamford v. Bamford, the
allotment was voidable and could be rectified by the members in general meeting.
Therefore, directors like other agent incur no personal liability on contract made by
them on behalf of the company, provided they act within the purview of their
authority. Moreover, directors being altered ego are ascribable to the principal; the
company is bound by a contract made by its director within their extensible authority
on behalf of the company. If however, director exceeds the power given to them but
still within the authority of the board, the board may rectify. And equally too, if the
board acts beyond the scope of its authority on act intra vires the holding a meeting
may be rectified by the company in a general meeting. Directors are not subject of
general rule of agency so that secret profit made by virtue of his office without the
consent of his principal is accountable. Director may be specially appointed agent for
the shareholders to negotiate a sale of the company share. In such situations the
shareholders are liable for their fraud.

55

In CAMA, S.28383 states that directors are trustees of the companys money,
properties and while acting within his authority and the power of the company are
regarded as agent of the company.

3.2.0: DIRECTORS CONFLICT OF INTEREST

Directors, once their appointment becomes effective, must display the upmost good
faith towards the company in their dealing with it or on its behalf as fiduciaries, they
must place themselves in a position in which their personal interest will not conflict
with their duties to the company. In Aberdeen Railway Co. v. Blackie Bros. A
company entered into a contract to purchase quantity of chairs from a partnership. A
director of the company was a member of the partnership to the company. It was held
that the company was entitled to avoid the contract and the director concerned in
breach of his fiduciary duty not to put himself in apposition where his personal
interest would conflict with his duty as a director. According to Sec 297 directors are
declared to be in a fiduciary relationship towards the company. The imposition of
fiduciary duty on directors is meant to prevent abuse of power and conflict of interest
on the part of directors in several area of private governance. For instance, transfer
and registration of share, in their contracts either with the company or on its behalf
with third parties, their dealing with physical assets or properties of the company and

83

CAMA

56

corporate opportunity and information in whatever form various principles have thus
been formulated and applied to prevent violation of directors fiduciary.Okeowo v.
Migliore84 also Tikatore press ltd v. Ajibade Abina85 This principle affect all person
who are subject to fiduciary duties that No one having such duty to discharge shall
be allowed to enter into engagement in which he has, or can have a personal interest
conflicting or which possibly may conflict with the interest of those whom he is
bound to protect86.
The underlying principle is that good faith must not only be done but must manifestly
be seen to be done.
3.3.0: DIRECTORS INTEREST IN CONTRACT
As far as the common law courts are concerned, in general meeting the nature of any
interest, which he has in a contract, to which the company is or is to be a party even if
the term of the contract were perfectly fair. The principle in Transvaal land co v. New
Belgium (transaal )land and development87 does not apply to contract directly with
the directors only, but also to those in which they are in anyway interested, whether
because they benefit personally, however indirectly or because they are subject to a
84

(1979)11 SC.138

85

(1973)1 All NLR Pt.1 Pg.401

86

Per Lord Cramworth Le Aberedeen Railway Company v. Blaike (1954)IMACQ (H.L)461

87

(1914)2 CH 488 CA

57

conflicting rule. In the event of a director failing to disclose his interest, it appears
that contract will be voidable at the option of the company against any party thereto
who has notice of the breach of the duty and any profit made is recoverable by the
company. Core Brown88 has submitted that. When all that he has done is failure to
disclose his interest in a sale to the companys property which he acquired in his own
right from any duty to holding it on trust for the company, his profit on the resales is
not accountable, and the company only remedy is to rescind quickly before anything
happens to bar this right. The only protection for the director is to have the general
house rectify the contract. In Nigeria, Section 27789 of the Act imposed a duty on the
directors to disclose their meeting of the act attracts a fine N100 and nothing in this
section shall be taken to prejudice the operation of any rules of law restricting
directors of a company90. Ademola J.(As he then was)following the case of Keech v.
Sandford said in Marquis v. Edmatie 91
A trustee or executor or other person standing in a fiduciary position is not allowed
to make a profit by the trust, either directly or indirectly. He is not allowed to put
himself in a position where his interest conflicts

88

Core Brown 43rd Ed 1978 P.27 .16

89

CAMA 2004

90

See generally S.277,280 CAMA 2004

91

(1950)19 NLR 75 at 77

58

3.4.0: DIRECTORS AND SECRET PROFIT

The general rule is that a company director shall not in the course of the management
or in the utilization of the companys property, make any secret profit or achieve any
unnecessary benefit. Secret profits include any financial or other advantage, which
the fiduciary receive which is above his proper remuneration and is not sanctioned by
the beneficiary. Gift of money or collection of bribe also falls within the class of
secret profit. In Diab Nasr v. Berini Beirut-Ryad (Nig) Bank Ltd92in the original suit
the plaintiff claimed that he was the owner of two plots of land in Lagos and had
entrusted the original deed of title to the respondent ban for safe keeping. This action
was for delivery of the original deed of lease. The bank counter claimed for
$40,719:19:4d as money paid to a contract or at instance of the plaintiff for the
purpose of erecting flats on the plaintiffs land. The bank claimed that the plaintiff,
who was one of its directors and deputy chairman of its board, had authorized its
manager to cause it to finance the construction and to charge all payments made to
the contractor to the account of one Emile Nasr (plaintiffs relative)who was not a
resident in Nigeria; and that the account in the name Emile Nasr was factiously
opened and operated by plaintiff to circumvent the provisions of the Banking Act
1938 and the Exchange control Act 1963.

92

(1967)NCLR 414,(1968)1 ALL NLR 274

59

Affirming the trial courts judgment the supreme court held that the plaintiff had
unjustly enriched himself at the expense of the bank and was liable to restitution that
a director is preclude from dealing on behalf of the company with himself and from
entering into transactions in which he has a personal interest which conflict with the
interest of the company to whom he is under a fiduciary duty to protect; that a
director may not negotiate a contract with the company which would put him in a
position to secretly profit at the expense of the company and that plaintiff was in
breach of the duties.
The case of Boston Deep Sea Fishing and Ice Company v. Ansell93 clearly illustrates
the courts attitude as regards making of secret profit by fiduciaries. In that case, the
defendant was a managing director of the plaintiff company. He placed orders for
supplies of good for and on behalf of the plaintiff with other companies from which
he received secret commissions. The court held that, he must account for the secret
profit and that his dismissal was justified. A fiduciary will not be permitted to retain
advantage obtained through the breach of duties even though the advantages are not
directly financial94.

93

(1881)39CHD 339

94

British Syphon Co. v. Home wood (1956)2 AER 897

60

In Regal hasting ltd v. Gulliver95, it was held that the directors were liable because
they had acquired the shares by reason and by reasons of the fact that they were
directors for Regals and in the course of their execution of that office. Similarly in
Phibbs v. Boardman96, the court held that as long as the director obtain information,
knowledge or opportunity to gain an advantage either directly or indirectly for
himself or a third party, he will be liable to account for any profit arising from such
use and this position was reaffirmed in Canadian aero service v.Omally97 where the
defendant was held liable for the misuse of corporate opportunity. A director is not
under any duty to account where the company with the full fact before it consent
expressly to the act as seen in the case New Zealand society v. Kuys98.In this case,
company secretary made use of an opportunity, which came to him by virtue of his
official capacity. He was held not to be liable to account as he had done so with the
full knowledge and consent of the company.
From the above established principles and statutory provisions, it is crystal clear that
a director who gains by means of corporate assets, information, opportunity or
knowledge is believed to have made a secret profit and therefore accountable to such
profit.
95

Supra

96

(1957)2 AC 46

97

(1973)40 DLR 3 (d) 371

98

(1973)WLR 1 127

61

3.5.0: FIDUCIARY RESPONSIBILITIES

As a director, you must act in good faith in the interests of the company as a whole.
1. The company is a separate legal entity from its directors, shareholders and
employees. The best interests of the company are not always the same as the best
interests of the shareholders. For example, it might be in the interests of the
shareholders of the company to declare a large dividend. But if the company faced a
cash shortage this would conflict with the interests of the company. A director must
also consider the interests of other stakeholders such as creditors and employees.
2. A director must give equal consideration to all shareholders. Even if a director
holds most of the shares, or act as the nominee of the major shareholders, a director
must consider the interests of shareholders as a whole. In practice, it is very difficult
for minority shareholder to have a significant say in decisions made by holders of the
majority of the shares.
3. A director must not use his position to make private profits at the companys
expense. If a director is found to have secretly profited from a contract he won
because he is a director of the company, he might be forced to hand it over to the
company.

62

4. A director is legally obliged to declare any potential conflict of interest. For

example, if a director has interests in another company with which his company is
planning to do business. A director should not vote on such a deal. If he does, his vote
should be disregarded.
5. If a director personally plans to enter into substantial deals with the company, they
must be approved by the shareholders in a general meeting. For example, if a director
wants to sell property to or buy property from the company.
6. A director must declare any dealings in the shares, within five days. This obligation
extends to shares held by his spouse and any children under 18.
3.6.0: CONCLUSION
It can rightly be said, that the Act99 has provided under various sections the duties and
interest of directors and the conflicts in between. Also Section 279100 which has taken
care to cover the fiduciary relationship. For instance in Briess v. Woolley101The
director of company X was authorized to sell the shares of the company to Y at the
general meeting of the company. The director made fraudulent misrepresentations in
the course of his acting as such agent which was not known to the shareholders. In an
99

CAMA 2004

100

CAMA 2004

101

(1954)AC 333;2WLR 832

63

action against the shareholders for fraudulent misrepresentation. The court held that
the shareholders are liable in damages because the director is liable not as a director
per se, but as an agent of the shareholders for the purpose of disposing their shares.
Therefore where the director acts on, and for the benefit of the company he is not
liable, and he is also expected to act in good faith, and his interest not conflicting with
that of the company or contradicting with the agreement of the company.

64

CHAPTER FOUR
LIABILITIES AND REMEDIES OF DIRECTORS
4.0.0: INTRODUCTION
A company being an artificial person can only incur liability through organs, agents
and officers. The position was explained by Viscount Haldane L.C. in Lennards
Carrying Company Ltd. v. Asiastic Petroleum Co Ltd102in a passage quoted by
Aniagolu J.S.C. in Trenco (Nigeria) Ltd v. African Real Estate Ltd103, as follows:
My Lords, a corporation is an abstraction. It has no mind of its
own, any more than it has a body of its own; its acting and
directing will consequently be sought in the person of
somebody who for some purpose may be called an agent, but who
is really the directing mind and will of the corporation, the very
ego and center of personality of corporation

More recently,in Kurubo v. Zach-Motison(Nigeria)Ltd104 Tobi,JCA observed as

follows In view of the fact that an artificial person or company vested with legal or
juristic personality lacks the natural or physical capacity to function as a human
being, those who work in it do all things for and on behalf of itIt is therefore the
law and the tradition for the human beings authorized to negotiate agreement for and
on behalf of the company. Where an agreement is so executed by a person in
102

(1915) A.C.705

103

(1978)1 L.R.N.146,153

104

(1992)5NWLR(Pt.239)102@115

65

authority, the company is liable or deemed to be liable for the act or acts of the
person.
But where an agreement is made by person A with person B of X Company Ltd when
the latter does not act on behalf of the company or so represent itself, the parties will
be deemed to contract personally.
This organic theory or doctrine of the alter ego of the company was reemphasized by
the striking analogy of Denning L.J in Bolton (Engineering) Co Ltd v. Graham &
Sons105. He said
A company may in many ways be likened to a human body. It has a brain and nerve
center which controls what it does. It also has hands which hold the tools and act in
accordance with directions from Centre. Some of the people in the company are
merely servants and agents who are nothing more than hands to do the work and
cannot be said to represent the will of the company. Others are the directors and
managers who represent the directing minds and will of the company, and control
what it does. The state of mind of the company and is treated by law as such
It is on this basis that a company is at common law, generally liable in crime, tort and
contract like an individual. This is now made statutory, for Section 65 of CAMA

105

(1957)1 Q.B.159

66

provides that any act of the members in general meeting, the board of directors or of
the managing directors while carrying on in the usual way the business of the
company, shall be treated as an act of the company itself and the company shall be
criminally and civilly liable therefore, to the same extent as if it was a natural person.
4.1.0: LIABILITIES OF THE COMPANY FOR THE ACTS OF ITS
OFFICERS AND AGENTS.
With regards to the acts of officers and agents of the company, Section 66 specifies
the circumstances in which the company will be liable either directly or vicariously.
Section 66 of the 1990 Decree expressly provides that the acts of an agent or officer
should not be deemed to be the acts of the company unless in the following
circumstances: he ought
(a)Where expressly or impliedly authorized by the company, or
(b)The officer or agent has been held out by the company as having such authority
unless such a third party had actual knowledge that the officer or agent lacks
authority, or by virtue of his position and relation to the company, he ought to know
of lack of such authority or the irregularity.

67

Section 66(3) preserves the common law rule by providing that nothing in Section 66
shall derogate from vicarious liability of the company for the acts of its servant within
the scope of their employment106.
Where the act of the agent or officer as the case may be, is out of the scope of
authority such act has been ratified.
PROVISIONS EXEMPTING OFFICERS AND AGENT FROM LIABILITY
Section 67(1) provides that
Any provision, whether contained in the articles of a company or in any
contract with a company or otherwise, for exempting the officer of the
company or any person (whether an officer of the company or not)
employed by the company as auditor from, or indemnifying him against,
any liability which by virtue of any rule of law, would otherwise attach to
him in respect of any negligence, default, or breach of trust of which he
may be guilty in relation to the company, shall be void.
(2)Notwithstanding the provisions of subsection (1) of this section(a)A person shall not be deprived of any exemption or a right to be
indemnified in respect of anything done or omitted to be done by him while
any such provision as mentioned in that subsection was in force; and
(b)A company may, in pursuance of any such provision as mentioned in
subsection (1) of this section, indemnify any such officer or auditor against
any liability incurred by him in defending any proceedings, whether civil or
criminal in which judgment is given in his favor or in which he is acquitted
or in connection with any application under section 641 of this Act in or in
which relief is granted to him by the court.

106

Lloyds v. Grace, Smith & Co (1912)AC 716 HL

68

The section provides that in any proceeding for negligence, default or breach of duty
or breach of trust against an officer of the company or a person employed by a
company as auditor it appears to the court hearing the case that the officer or person is
or may be liable in respect of the negligence, default or breach of duty or breach of
trust, but that he had acted honestly and reasonably and that, having regard to all the
circumstances of the case, he ought fairly to be excused for the negligence, breach of
duty or breach of trust, that court may relieve him, either wholly or partly, from his
liability on such terms as court may deem fit.
The rationale for the above provision (section 67) is to protect the company in
appropriate circumstances and at the same time protect the officer or auditor where
such officer has acted honestly and reasonably and ought in the circumstances to be
protected.
4.1.1.0: CRIMINIAL LIABILITIES
The modern general principle of criminal liability of companies was fully established
at common Law only in 1944 in the case of Directors of Public Prosecutions v. Kent
& Sussex Contractors Ltd. 107where it was held that

107

(1944)K.B.146

69

It is true that a corporation can only have knowledge and form an intention through
its human agents, but circumstances may be such that the body corporate, if the
responsible agent of a company, acting within the scope of its authority, puts forward
on its behalf a document which he knows to be false and by which he intends to
deceive, I apprehend, that his knowledge and intention must be imputed to the
company.
This case was soon followed by R v. ICR Haulage Ltd.108
The courts will, however, only convict if all the essential elements of the offence are
present. Because of the nature of a company, it cannot be indicted for certain
offences.
Section 65 now provides that a company may be criminally liable for the acts of its
members in general meeting, the board of directors, or the managing director as if the
company were a natural person. The doctrine of alter ego may even extend to
managers if, in fact, they are in control. But a distinction must be drawn between the
acts of these directors and managers who control what the company actually does and
the action of those servants who merely carry out the instruction of those who control
the company, account being taken of any delegation of authority and the extent of
108

(1944)KB 551; see also Mandilas and Karaberis Ltd. v. Commissioner of Police (1958) WNLR

147.

70

such delegation.109Thus, alter ego of a company is to be found not only among

directors, but also managers, secretary or other officers of the company, management,
with full discretionary powers, of some sections of the companys business.
Not only can a company be guilty of committing a contempt of court,

110

but it is

submitted that even with regard to those offences which a company cannot normally
or directly commit because of its artificial nature, it is possible for it to be liable under
section 7 of the Criminal Code for aiding, counseling or procuring the commission of
the crime.
In some circumstances, the court may refuse to impute to the company the knowledge
of its agents or directors, e.g. where the company is a victim of conspiracy of its
directors and others.111Furthermore, the company is not liable for misappropriations
from the crime committed by those in control of its affairs because such
misappropriations are not the acts of the company since the latter could not have
agreed to it and is in fact, a victim.112

109

See Tesco Supermarkets Ltd v. Nattrass (1971)2 ALL E.R.127

110

Charlesworth Company Law p 32 & 33

111

Belmont Finance Corporation v. Williams Furniture Ltd (No2)(1980)1 ALL ER 393

112

See Stephens v. T Pittas Ltd (1983)STC 376;Attorney-Generals Reference(No.2 of 1982)(1984)QB

624

71

4.1.1.0: CIVIL LIABILITIES

A company may be liable civilly for the acts of its primary organs or of its officers or
agents. Such liability may be in tort or in contract and, subject to the provisions of the
act, providing for the civil liability of the company, the relevant association of the
company together with special and extra-ordinary resolutions filed in the companies
registry are public documents and everybody was deemed to have notice of them. But
there are other internal rules of the company which are not required to be filed. For
example, where an agent has no authority or limited authority or if certain
prerequisites of the validity of his power have not been complied with, the rights of a
third party who deals with such agent or officer may be seriously prejudiced,since the
memorandum and articles filed in the registry will not show such internal
arrangements.
It is to protect such third parties and ensure that they cannot discover from an
examination of the documents in registry where the rule in Royal British Bank v.
Turquand,113was formulated as follows: while persons dealing with a company are
assumed to have read the public documents of the company and to have ascertained
that the proposed transaction is not inconsistent therewith, they are not required to do

113

(1856)6 E&B 327

72

more, they need not inquire into the regularity of the internal proceedings the
indoor management, and may assume that all is being done regularly.114
Under the Act, the doctrine of Constructive Notice of registered documents has been
abolished. Section 68 provide that except as mentioned in section 197 of the Act
which provides for the registration of charge, a person shall not be deemed to have
knowledge of the contents of the memorandum and articles of a company or of any
other documents, particulars, or the contents of documents merely because such
particulars or documents are registered by the commission or referred to in any
particulars or documents so registered, or are available for inspection at an office of
the company.
4.3.0: REMEDIES
Under the exception to the rule in Foss v. Harbottle115, a shareholder can sue to
redress a fraud perpetrated by those in control of the company. By Sec. 299 116, the
company shall where irregularity has been committed in the course of a companys or
by a minority member as remedy for breach of duty by directors. In Vanni v. Niger
Pak Ltd117.The plaintiff claimed against the defendant company for N9.180 as
114

Palmer Company Law p.247

115

(1843)2 Hare 461

116

CAMA 2004

117

(1979) 4-6 CCHCJ. 148

73

damages for breach of contract. The defendant denied liability and contended that the
personal/administration manager (Mr. Bello) who had entered into the agreement
with the plaintiff on behalf of the company had no authority to do so and that the
agreement should be regarded as invalid. In holding that the contract was binding on
the company. The court explained that a company may be bound either by the
ordinary rules or agency or by the rule in Royal British Bank v. Turquand118.It was
held that there was no evidence before it that Mr. Bello acted ultra vires or that only
the general manager of the defendant company can sign a binding agreement on
behalf of the company.
The term breach does not include a failure to observe a duty of good faith and
loyalty, care and skill, but also an act ultra vires the powers conferred upon the
director or, ultra vires the board as a whole or the company itself. Equally, if the
company is in liquidation, the liquidator will in general meeting have the conduct of
the action in the companys name though if the breach of duty falls within Sec.
310119of the Act, he or the official receiver, or any creditor or contributor etc., may
instead be able to invoke the simpler procedure of a summons in the liquidation.

118

(1856)6 E&B 327;119 ER 886

119

CAMA 2004

74

A right of petition under this provision is available to members who has been
unjustifiably excluded or removed from his position in the directorate or management
of a company120.The application shall be made to the court, the grounds being
misfeasance and the court may require the director to account. Once a director has
been guilty of a breach of duty and has no grounds for relief from liability, one of the
following remedies may be invoked.
INJUNCTION(S) OR DECLARATION(S)
Injunction as a remedy may be primarily adopted to prevent a director from further
breach or where a breach is threatened but has not yet occurred. The essence of a
derivative causation, but also problem or ultimately shifting liability back to the
shareholders through indemnification or insurance. It further went on to check the
potential problem of damages being excessive, in relation to the magnitude of the
directors sins, as well as promoting a dialogue between the court and the corporate
board with respect to the boards proper function.
Moreover, the prospect of being sued is itself a substantial deterrent for many
corporate executives or being enjoined for failure to perform ones duty. The court can
use its injunctive power in imaginative way such as to improve the management of
corporation either by removal of a fraudulent director or in pursuance of their
120

Sec 311 CAMA

75

inherent equitable powers. No removal of director except guilty of fraud. The

Delaware Supreme Court in Graham v. Allis-Chambers manufacturing Co121held that
the directors defendant had not breached their duty of care in failing to discover antitrust violation by several corporate officers.
Therefore, suits for equitable relief can motivate director to act prudently and in the
best interest of the company. According to Prof. Gower, this remedy appears to be the
most satisfactory course, provided the action is taken within a reasonable time.
DAMAGES OR COMPENSATION
At common law, damages are for breach of duty of care, whereas compensation is the
equitable remedy for breach of fiduciary duty. The distinction between these terms
seems to be vague as indicated in Barlett v. Barclays Bank Trust Co122where the court
held that the obligation of a fiduciary to restore the asset of which he had denied the
beneficiary may involve payment of a considerable larger sum than that would
normally be payable as damages for loss caused by a tort or breach of a contract.
It is unlawful for a company to make to any director of the company any payment by
way of compensation for loss of office, or as consideration for or in connection with
his retirement from office unless particulars, with respect to the proposed payment
121

41 DEL. CH. 78.188 A 2D 125(S.CT 1963)

122

No (1 & 2)(1980)2 WLR 430

76

and the amount, have been disclosed to members and the proposal is approved by the
company.123Similarly, if in connection with the with the transfer of the undertaking or
property of a company it is proposed to make any payment to a director by way of
compensation for loss of office, or as consideration or in connection with his
retirement from office, the payment will be lawful unless particulars of the proposal
and the amount have been disclosed to members of the company and approved by the
company.124Disclosure must be to all members.125If a director receives payment in
contravention of this provision, the amount received by him in trust for the
company.126
Where, in connection with a take-over bid, payment is to be made to a director as
compensation for loss of office, or as consideration for his retirement from office, it is
the duty of that director to do all things reasonably necessary to secure that particulars
of the proposed payment are included in or sent with the notice of the offer made to
the shareholders.127

123

Ibid. Section 271.

124

Ibid. Section 272(1).

125

Re Duomatic Ltd, ante; Taupo Totora Timber Co v Rowe (1977) All ER 123 PC; Lincoln Mills v

Gough VR 193.
126
127

CAMA, Cap. C20,LFN, 2004,Section 272(2).

Ibid. Section 273(1).

77

Payments prohibited under this head do not include any bona fide payment by way of
damages for breach of contract or by way of pension.128
REVISION OF CONTRACT IN WHICH THE DIRECTOR IS INTERESTED
Where there has been an arrangement, which derogates from the rules regarding
entering in to contract in which the director is interested, may be avoided at the
instance of the company, provided restitution in integrum is possible and the right of
a bonafide third party have not accrued.
ACCOUNTING FOR PROFIT
A director who makes secret profit out of the performance of his duty without the
fault of the general or ignorance of what had happened is accountable. As rightly
stated by Lord Denning in Boardman v. Philips129 thus,
It is quite clear that if an agent uses property with which he has been entrusted by his
principal so as to make profit for himself out of it without his principals consent, then
he is accountable for it to his principal so if he uses a position of authority, to
which he has been appointed by his principal so as to gain money by means of it for
himself, he is accountable to his principal for it Likewise with information or

128

Ibid. Section 274(3).

129

Supra

78

knowledge which he has been employed by his principal to collect or discover, of

which he has otherwise acquired for the use of his principal, then again if he turns it
to his own use so as to make profit by means of it for himself, he is accountable for
such information or knowledge is the property of his principal just as much as an
invention is .The company may claim an account of any profit made by director
whether or not he rescinds the contract, if the profit arises out of the contract with the
company. Also, if a director has sold his own property to the company, the right to an
account of profit will be lost if the company elects not to rescind or is too late to do
so130.But if profit arises out of contract between the director and a third or so party,
there will be no question of rescinding the contract since the company cannot be said
to be a party to the contract.
4.2.1.0: RELIEF FROM LIABILITY
As long as there is full disclosure to the general meeting and ratified by the passing or
an ordinary resolution, a director will be relieved of any liability arising thereto. He
could equally be indemnified against liability in respect of breaches of duty if he
acted on the orders of the company and within its powers. The court is empowered to
relief any officer from liability to negligence, default, breach of duty or trust it
appears to it that he acted honestly and reasonably and ought fairly to be excused

130

Re Amboise Lake Tin Co. (1880) 14 CHD 390

79

having regard to all the circumstances. The case of Barlett v. Barclays Bank (Supra)
is a useful pointer of courts attitudes as the trustee sought to be absolving from
liability. Directors are neither liable for not attending board meeting nor, as a
corollary, for failing to prevent their colleagues from negligent act. Liability is based
on personal wrongdoing, Re-Cardiff saving131.
Moreover, if a director fails to disclose an interest in a contract to which the company
is a part, or merely act in excess of power, though intra vires is a breach of duty, it is
rectifiable132.A director who obtains a secret profit in circumstances not involving any
misappropriation or misapplication of company, properly can have such breach
ratified. Regal (Hastings) Ltd v. Gulliver133.A breach of duty of skill and care is
rectifiable134.In all the circumstance, it is submitted that there should be an overriding qualification to the effect that the directors conduct must have been hones and
well intentioned.
Engineer Vassil Vassiler v. Paas Ind Ltd135.The plaintiff now respondents filed a suit
before the Plateau State High Court, claiming against the defendants jointly to
severally for a certain sum of money per-day, as per the agreement executed by both
131

(1877)2 AC 366

132

Irvine v. Union Bank of Australia(1877)2 AC.366; 37 L.T. 176

133

(1942)1 ALL E.R.378:1967 2 A.C. 134 M

134

Pavlides v. Jensen (1956) Ch 565

135

(2002)FL WE Pt 19 418 CA

80

parties, in 16th July, 1992.The case was heard without the defendants attending court
and judgment was entered against the defendants jointly and severally.
The second defendant, who was the managing director of the first defendant judgment
debtor, filed an appeal challenging the judgment in the basis that the claim against the
defendants was jointly and severally and thereby occasioned a serious miscarriage of
justice.
Per Akpabio I JCA: It is trite law, in this country, that a limited liability company is
a juristic person and can sue or be sued on its corporate name. It is separate and
distinct from its shareholders and directors, it is unnecessary, therefore to have joined
the present appellant as co-defendant at the court below.
The following conduct appears not to be rectifiable. Insurance claim in respect of a
criminal or fraudulent nature cannot be ratified, as this of course, is contrary to public
policy. A director who has fraudulently deceived the company, or who through,
otherwise deliberately pursuing his own interest of or those of outsiders has failed to
act in the companys interest, cannot plead the approval of the general meeting as a
defense to an action for breach of duty136,breaches involving fraud on the minority is
not rectifiable Cook v. Deeks137.Any breach of duty which result in the company
136

See Atwool v. Merryweather (1876)L.R.5 Eq.464;37 L.T.CH.35

137

(1916)A.C.554;114LT636

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performing an act which although lawful and intra vires, the company cannot be done
under the companys article without some special procedure being carried out and not
rectifiable. A breach of duty bearing directly upon the personal right of individual
shareholders as defined in the article or refusal to register a transfer of share for an
improper purpose cannot be ratified by the general meeting.
Finally therefore, whereas under some circumstances a director may be relieved or
not relieved from the liability, the directors are more vulnerable now in the
management of the affair of the company than at any time before. Hence prudent
directors may consider safeguarding their position qua director in respect of negligent
out of omission.
4.5.0: CONCLUSION
In conclusion, despite the fact that a company is a juristic person who act through its
agents and officers; who though are immune from liabilities, may be liable for their
acts in certain afore stated circumstances.
Finally no doubt, a closer look at the Act shows that, directors are neither liable for
not attending board meeting nor as a corollary for failing to prevent their colleagues
from negligent act. Liability is based on personal wrongdoing138.Therefore the

138

(The Marquis of Butes case) (supra)-In Re Cardiff Saving Bank(1892)2 CH 100

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company remains liable for the acts of its directors who are acting specifically under
the instructions and benefits of the company.

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CHAPTER FIVE
GENERAL CONCLUSION
5.0.0: CONCLUSION
The principle of corporate personality, though fundamental in company law was
never meant to be sacrosanct to the extent that it could be used to protect crime, fraud
or unethical commercial practice.
However, the corporate structure lends itself easily to numerous fraudulent
dimensions; it permits criminals to operate behind a veil of anonymity, it also fosters
notions of respectability based on a cooperate image which may have been carefully
contrived by dishonest insiders. The challenge posed to the law by persons who
deliberately use the corporate personality concept for dishonest or criminal motives
are formidable.
This is not to say however, that in every case where a company is involved in crime,
the agents and officers are responsible. The advantage of incorporations has been put
to dubious use by insiders to the disadvantage of the company.

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However, in recent times officers and agents of a company for whose act the
company will be held liable are equally held liable with the company as principal
offenders139
Corporate liability ensures that the offence committed either by agents or officers
while acting in their capacity as such will not go unpunished and the fine
proportionate to the gravity of the offence.
Thus, the imposition of liability on the company gives all those acting as the brains
and directing mind of the company an interest in the prevention of illegalities and
they are in position to prevent them.
Moreover, it will make them be on their guard since such convictions of the company
can give them a bad image in public.
5.1.0: RECOMMENDATION
An attempt has been made to examine the officers and agents of a company: their
appointment, duties, remuneration, removal and liabilities under the Company Allied
Matters Act 2004.The Act even though has made for the protection of the officers
also gave room for instances where these right can be boycotted that is, lifting the veil
of incorporation.
139

See Section 7 Criminal Code

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Be that as it may, there is the need for companies in Nigeria to employ committed
officers and agents who seek to uphold the course of the company at all times and not
people who run after their own selfish interest or means of defrauding the company.
The area of the law in Nigeria need further development as to curb the rate at which
fraud is being perpetrated by the officers and agents of the company who hide under
the principle of corporate personality to defraud the company. Therefore, a more
stringent method of appointment of officers and agents should be employed.

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BIBLIOGRAPHY
ARTICLES IN JOURNALS

Oladeje Akanki,Abuse of Power and Breach of duty by Companys directors,

Nigerian Journal of contemporary law, Unilag (1975) Vol. No 1&2

BOOKS

Akanki E.O, Essay on Company Law (4th Ed.University of Lagos Press, Lagos
1992).

Charlesworth & Morse, Company Law (5th Ed,Sweet & Maxwell.London 1997).

Davies P and Gower L Gowers Principles of Modern Company Law(6th Ed.

Butterworths London (1992) )

Sheila Bone The Osbornes Concise Law Dictionary (9th Ed. Clarendon Press
US 1995).

Della Thompson Encyclopaedia of Forms and Precedents (4th Ed. Sweet

Maxwell, London 1998)

Felix C.Amadi, Fundamentals of Company Law & Practice in Nigeria (1st Ed.
(Rodi Printing & Publishing Company, Rivers State 2004)

87

Henry Campbell Black M.A, Blacks Law Dictionary (5th Ed, West Publishing
Co. 1777)

Hon Dr. J Olakunle Orojo, Company Law and Practice in Nigeria (5th Edition
Interpak Books Pietermaritburg 2008)

Sofowora M.O. Modern Nigerian Company Law (2nd ed. Olakanmi & Co, Lagos

1992)

Palmer Company Law (24th Edition Pitman Publishing 2000)

Penningtons Company Law (7th Ed,Butterworths,London,1995).

Ranking & Spicers Company Law (13th Ed,Butterworths,London,1987).

Smith & Keenans, Company Law for Students (9th Ed, Pitman Publishing
1966).

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