➥ CASE SUMMARY OF:
Fasel Services Limited & Anor. v. Nigerian Ports Authority (NPA) & Anor. (2009) – SC
by “PipAr” Branham-Paul C. Chima.
Supreme Court – SC.88/2003
➥ JUDGEMENT DELIVERED ON:
Friday, the 24th day of April, 2009
➥ AREA(S) OF LAW
➥ PRINCIPLES OF LAW
⦿ PLEADED OR NOT, COURT WILL NOT CLOSE ITS EYES TO ILLEGAL CONTRACT
The attitude of the Courts to the issue of apparent or ex-facie illegality is certainly well settled. When a contract is ex-facie illegal, whether the alleged illegality has been pleaded or not, the Court would not close its eyes against illegality, as it is the duty of every Court to refuse to enforce such a transaction. In other words once illegality has been brought to the attention of the Court, it must be considered and resolved. See Gedge v. Royal Exchange Assurance Corporation (1900) 2 Q.B. 214 at 220; Akagbue and Ors. v. Romaine (1982) 5 S.C. 133; Nasr v. Berini (Betrut-riyad (Nigeria) Bank Ltd. (1968) 1 All N.L.R. 274 and Sodipo v. Lemminkainen (1986) 1 N.W.L.R. (Pt. 15) 220. — Mohammed, JSC.
⦿ WHEN A CONTRACT IS VOID AB INITIO
The position of the law is that where a statute declares a contract or transaction between parties not only void but also imposes a penalty for violation, that contract or transaction is illegal ab initio. However where the legal sanction is merely to prevent abuse or fraud and no penalty is imposed for the violation of the provision of the statute, the violation is merely voidable and not illegal. See Solanke v. Abed (supra); Oil-field Supply Centre Ltd. v. Johnson (1987) 2 N.W.L.R. (Pt. 58) 265 and Ibrahim v. Osim (1988) 3 N.W.L.R. (Pt. 82) 257 and Pan Bishbilder (Nigeria) Ltd. v. First Bank of Nigeria Ltd (2000) 1 N.W.L.R. (Pt. 642) 684 at 693 where Achike JSC (of blessed memory) clearly stated the position of the law:- “Permit me to digress generally on illegality. It is common ground that illegality and voidness of the loan contract between the parties is the main subject matter of controversy in this appeal. Definition of the term illegal contract has been elusive. The production of clarity of the classification of illegality appears to be almost confounded and rendered intractable primarily because – writers and the Judges have continued to use the terms ‘void’ and ‘illegal’ interchangeably. Halsbury’s Laws of England (3rd ed. vol. 8 p. 126 para. 218) states that – ‘A contract is illegal where the subject matter of the promise is illegal or where the consideration or any part of it is illegal.’ Without getting unduly enmeshed in the controversy regarding the definition or classification of that term, it will be enough to say that contracts which are prohibited by statute or at common law, coupled with provisions for sanction (such as fine or imprisonment) in the event of its contravention are said to be illegal. There is however the need to make a distinction between contracts that are merely declared void and those declared illegal. For instance, if the provisions of the law require certain formalities to be performed as conditions precedent for the validity of the transaction without however imposing any penalty for non-compliance, the result of failure to comply with the formalities merely renders the transaction void, but if a penalty is imposed, the transaction is not only void but illegal, unless the circumstances are such that the provisions of the statute stipulate otherwise. See Solanke v. Abed & Anor. (1962) N.R.N .L.R. 92, (1962) 1 S.C.N.L.R. 371 and P. Kasumu & Ors. v. Baba-Egbe 14 WACA 444.” — Mohammed, JSC.
➥ LEAD JUDGEMENT DELIVERED BY:
⦿ FOR THE APPELLANT
Larry with F. Ayaegba (Miss).
⦿ FOR THE RESPONDENT
Titilayo Akinlawon (Mrs.).
➥ CASE FACT/HISTORY
Fasel Services Limited, the 1st Appellant in this appeal is a Limited Liability Company which was incorporated on 22nd August, 1978 with the then registered name of Fag Africana Services Limited. The 2nd Appellant Chief M. O. Kanu is the Chairman and Chief Executive of the Board of Directors of the 1st Appellant. Between 1983 and 1986, the 2nd Respondent which is a body or fund established and funded by the 1st Respondent, a body created by the Federal Government of Nigeria by statute, bought and was duly allotted with 1,330,000 Ordinary Shares of the 1st Appellant Company. When between 1987 and 1989, the 1st Appellant found itself in financial stress resulting in the appointment of a receiver manager by one of its creditors; it approached the 2nd Respondent to further invest in the Company by the purchase of additional shares and provision of loan through acquisition of Debentures secured by Deed of Mortgage.
Although the 2nd Respondent as shareholder of the 1st Appellant had received dividends in the sum of N1,413,445.00, N1,919,700.00, N2,559,600.00 and N2,557,571.83 for the financial years of 1992, 1993, 1994 and 1995 respectively, and despite the declaration of 13 kobo, 10 kobo and 20 kobo respectively as dividends per share of the Company for the financial years of 1996, 1997 and 1998, only the sum of N763,558.74 representing dividends payment on only 1,300,000 units of shares out of the number of shares of 28,639,687 held by the 2nd Respondent, was actually paid to the 2nd Respondent. The refusal of the 1st Appellant to pay the correct amount of dividends due to the 2nd Respondent having regard to the number of shares held by it in the 1st Appellant which apparently regarded the entire investment of the 2nd Respondent in it as illegal being in violation of the Trustee Investments Act, gave rise to the dispute between the parties resulting in the Respondents’ action as Plaintiffs by Originating Summons.
This Originating Summons of the Plaintiffs now Respondents filed on l5th June, 1999 at the trial Federal High Court Abuja, came before Auta J., who in a considered judgment delivered on 31st January, 2000 found in favour of the Plaintiffs/Respondents. Part of this judgment at pages 137 – 138 of the record reads – “In conclusion the best the Defendants can do now that they are bouyout is to buyout the Plaintiff and pay them the correct market price of their shares, and also pay them their due, dividend. In view of the observation made by me above I find that the 1st Defendant and 2nd Defendant, cannot deny the Plaintiff their rights as shareholders of the said 27,309,687, Units of Ordinary Shares. The provisions of Trustees Investments Act CAP 449 LFN do not render the said 27,309,687 Units of Ordinary Shares by the 2nd Plaintiff in the 1st Defendant Company illegal. The Defendants are therefore ordered to pay forthwith, dividends to the 2nd Plaintiff on the said 27,309,687 Units of Ordinary Shares for 1996, 1997 and 1998 years, till date. The application of the Plaintiff accordingly succeeds.”
The Appellants were not happy with this decision of trial Court against them and therefore decided to appeal to the Court of Appeal. The Appeal was dismissed.
This is a further appeal.
➥ ISSUE(S) & RESOLUTION(S)
Whether having regard to the provisions of the Trustee Investments Act CAP 449 of the Laws of the Federation 1990, the investments of the 2nd Respondent in the 1st Appellant Company is illegal and therefore unenforceable?
RULING: IN RESPONDENT’S FAVOUR.
A. THAT THE STATUTE IS MERELY A SAFEGUARD AS TO WHAT TO INVEST IN – NO PENALTY
“Indeed Section 2 of the present statute being relied upon by the Appellants to say that the transaction between them and the Respondents is illegal is merely in the statute to safeguard investments under the Act by guarding against abuse of power and fraud and not to make investments made in disregard of the provisions of the statute illegal in the absence of any sanctions for ignoring the provisions of the statute. In other words the restriction placed by Section 2 of the Trustee Investments Act on the 2nd Respondent to avoid investing the funds under its care and management in private Companies and Companies whose prices of Shares and Debentures are not quoted on the Lagos Stock Exchange, is only to ensure the security and safety of the investments. It is therefore not in the interest of public policy for the transaction of investment between the parties herein to be treated or regarded as illegal. This is because public policy can adequately be taken care of or safeguarded by the ultimate Government’s power through the parent Ministry of the Respondents, now the Ministry of Transport, to direct the withdrawal of the 2nd Respondent’s investments from the 1st Appellant without any loss being incurred to the funds invested. It is for the foregoing reasons that in the circumstances of this case, I also entirely agree with the two Courts below that the contract of investment between the parties is far from being illegal. Thus, the contract or transaction not being illegal, the question of whether or not it is enforceable between the parties herein is not at all in doubt.”
“On the whole, this appeal has no merit at all and the same is accordingly hereby dismissed. The judgment of the trial Court as affirmed by the Court below are hereby further affirmed. There shall be N50,000.00 costs to the Respondents against the Appellants.”
➥ MISCELLANEOUS POINTS
➥ REFERENCED (STATUTE)
➥ REFERENCED (CASE)
➥ REFERENCED (OTHERS)