SHONOWO & ORS V. ADEBAYO & ORS

• Pages: 143-160

SHONOWO & ORS V. ADEBAYO & ORS

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143

tion proposed by Exhibit A be restored. The cautioner shall pay the costs of the

objector fixed in this Court at 82 guineas and in the High Court at 10 guineas.

Appeal allowed..

5

SHONOWO & ORS V. ADEBAYO & ORS

10

JOHN OJO ADEBAYO

V

1. MR. OLUSEYE JOHNSON

2. MR. W.B. DAWODU

15 3. CHIEF M.A.K. SHONOWO

4.

MR. E.O. WILLIAMS

5.

MR. D.A.O. SALIU

6.

MR. S.O. KAMSON

In Re

20 1. CHIEF M.A.K. SHONOWO

2. D.A.O. SALLU

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APPELLANTS

3. S.O. KAMSON

4. W.B. DAWODU

V

25 1. J.O. ADEBAYO

2.

OLUSEYE 0. JOHNSON

3.

W.B. DAWODU

4.

B.O.E. WILLIAMS

5.

D.A.O. SALIU

30 6. S.O. KAMSON

7. M.A.K. SHONOWO

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RESPONDENTS

SUPREME COURT OF NIGERIA

COKER,

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J.S.C.

LEWIS,

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J.S.C.

35



MADARIKAN,

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J.S.C.

11th April, 1969.

Commercial Law - Companies - Officers - Who are officers - Auditors - Duties

and liabilities of Auditors - Auditor engaged for ad hoc inquiry not company

40

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officer liable for misfeasance under Companies Act (Cap.37) S.211 - Directors

-

Liabilities - Liable for loses avoidable but for own inaction amounting to

gross negligence - Not liable for losses due to concealed fraud or undisclosed

error of suitable staff - Powers and duties of directors - Directors as trustees

-

Position fiduciary but not that of trustees of settlement - Chairman

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Chairman and Managing Director have duties and liabilities inherently similar

to other Directors but should be better informed - Winding-Up - Contributories

-

Misfeasance proceedings not maintainable by contributory unless has interest

in result - Creditors - Misfeasance proceedings may be commenced by motion

on notice - Breach of trust within Companies Act (Cap.37) S.211 - Differs

50

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from breach of trust by settlement - Includes both conscious wrong-doing and

deliberate inadvertence - No! capable of definition - Each case to be decided

on own facts.

144

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NIGERIAN SUPREME COURT CASES

[1969] N.S.C.C.

ISSUES:

1.

Whether an Auditor engaged for an

ad hoc

inquiry into a company's affairs not

being the company's regular Auditor can be liable for misfeasance under 5.211

Companies Act (Cap.37).

2.

Whether the Chairman and Managing Director of a company are expected to

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5

be more informed about the company's affairs than an ordinary Director.

3.

Whether a Director of a company can be held for loss due to concealed fraud

or undisclosed errors of suitable staff.

4.

Whether a creditor or contributory can maintain misfeasance proceedings

under 5.211 of the Companies Act against a Director.

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10

5.

Whether misfeasance proceedings can be commenced by way of motion on

notice.

6.

Whether a Director of a company can be held liable for losses due to his gross

negligence.

FACTS:

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The first respondent applied by motion on notice for orders under the Com-

panies Act (Cap. 37) 5.211, alleging misfeasance by the second respondent and

the fourth appellant as liquidators and the first, second and third appellants as Di-

rectors of a limited liability company.

The first, second and third appellants were Directors of a banking company

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and the first appellant was Chairman. The Director and companies in which they

were interested had large unsecured or inadequately secured overdrafts with the

bank. They completely disregarded the duty imposed on them by the Articles of

Association of causing true accounts to be kept and there were falsifications and

forgeries connected with widespread defalcations.

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The Managing Director, not a party to the present proceedings, disputed the

Annual Accounts when they came before the Board, and named a large sum as

unaccounted for. The other Directors did nothing, and when the first respondent,

an Accountant employed by the Managing Director to examine the Accounts,

presented a report drawing attention to a deficiency of a similar but larger amount,

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they would not consider it and refused to pay his fees, for which he later sued the

Bank.

That year, the fourth appellant's firm, who were not the Bank's regular Auditor,

were called in to examine the accounts, and the fourth appellant submitted a re-

port showing a still larger sum not correctly accounted for. Shortly afterwards the

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bank's licence was revoked and it closed.

The second respondent and the fourth appellant were appointed liquidators in

a voluntary winding-up which was subsequently ordered to proceed under the

supervision of the court. The first appellant got judgment against the Bank for

£20,000 on a claim supported by the fourth appellant's evidence that he had ad-

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vised a posting of that sum to the first appellant's account during his examination

of the Bank's books before it closed. The first appellant was paid in full, unse-

cured creditors received a dividend and the first respondent got nothing.

The first respondent instituted the present proceedings against the liquidators

as respondents for an order compelling them to restore the £20,000 and directing

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them to prosecute the first, second and third appellants and another Director to

enable the court to examine their conduct and compel them to repay the sums dis-

closed in the reports of the first respondent and the fourth appellant. The four Di-

rectors having appeared to show cause, the High Court made orders involving

payment to the assets of the bank of £20,000 by the fourth appellant and of the

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total of the amounts in the two audit reports by the four Directors.

The appellants contended that the proceedings were a nullity not having been

brought by summons as provided in the Companies (Winding-Up) Rules, 1949

Rule 68, and that the first respondent had no

"locus standi"

to maintain the pro-