BERNARD LONGE V FIRST BANK OF NIGERIA

BERNARD LONGE V FIRST BANK OF NIGERIA A Review of the Supreme Court decision on the effect of a failure to notify a Director of a Board meeting in a Nigerian Company (delivered on March 5, 2010) Several questions have arisen, particularly in the minds of corporate bodies, lawyers and the general public as regards the rationale and implications of the Supreme Court decision in the case of Bernard Longe v. First Bank of Nigeria Plc. (Longe) delivered on March 5, 2010. Has the Supreme Court by its decision in Longe affirming the illegality of the appellant removal as the Managing Director of First Bank Plc overruled a chain of authorities which upheld the applicable Common Law Master’s right to sack his Servant for good, bad or no reason at all (as was decided, for instance, in Chukwumah v. Shell Petroleum Development Company of Nigeria Limited (1993) 4 NWLR (Pt. 289) 512)? As the Supreme Court of Nigeria does not often have the opportunity to pronounce on the incidence of company Directors (the last notable instance being the well known case of Yalaju-Amaye v. AREC (1990) 6 SC 157) when it does, same is bound to elicit a discernable degree of comment. Even more, the recent unprecedented sacking of bank chief executives by the Central Bank of Nigeria has served to further raise the ante of whatever pronouncement is made by the apex court on company Directors. It is in this context that the sizzle around the Longe case is to be understood. It is the contention of the authors of this piece that Longe’s case has not, in reality, decided anything novel. To be sure, there is nothing to indicate that the issue for determination has ever been argued or pronounced upon but as we intend to demonstrate, the Supreme Court has not displaced the position of the Common Law. Perhaps at best, what this case illustrates is the sui generis status of a company Director under Nigerian Law and the need for parties not to derogate from the strictures of the law particularly when it concerns the rights and protections afforded a citizen. Facts The case under review arose from the “revocation” of the appointment of Mr. Bernard Longe, the appellant, by First Bank of Nigeria Plc, the respondent in this case. Admittedly, “revocation” is a somewhat unusual term in Common Law Master/Servant relationship, nevertheless it was the word used by the respondent in severing its relationship with the appellant. It is our understanding that in the context in which it was used, it was as a synonym for dismissal and it is in that sense in which “revocation” is also used herein. By a resolution of the Board of Directors of the respondent dated February 24, 2000, the appellant was appointed Managing Director/Chief Executive of the respondent for a period of 6 years subject to an annual assessment of the appellant’s performance. In 2002, the appellant was alleged to have negligently granted an unauthorized facility to Investors International (London) Limited for the purchase of shares in NITEL - which occasioned substantial losses to the respondent. As a sanction for this, the appellant was on April 22, 2002 suspended by the respondent’s Board and requested to take steps to recover the facility so granted. Subsequently and while the suspension was still pending, on June 13, 2002, the Board of Directors of the respondent convened a meeting where it was resolved that the appellant’s appointment be “revoked”. Significantly, the appellant was not notified of the Board meeting of the respondent at which his appointment was revoked. The appellant thereafter instituted a suit at the Federal High Court, Lagos, challenging the propriety of the meeting convened by the Board of Directors of the respondent at which it was resolved that the appointment of the appellant be revoked. The crux of the appellant’s claim was to the effect that having not being afforded notice of the Board meeting at which his appointment was revoked as required by the provisions of section 266(1) of the Companies and Allied Matters Act (“CAMA”), the meeting and resolutions passed at the meeting are unlawful, invalid, null and void and incapable of having any legal effect. The appellant also prayed the Court for declaratory reliefs in this regard seeking his entitlement to remain in the premises allocated to him by the respondent together with all associated services until his appointment with the respondent was validly terminated. In its defence, the respondent argued that by virtue of the suspension of the appellant by the Board of Directors of the respondent, the appellant was not entitled to a further notice of the meeting of the Board of Directors whereat it was resolved that his appointment be revoked. The respondent further argued that it was entitled to terminate the appointment of the appellant for any reason or for no reason at all without notice and without any benefits to the appellant. Upon conclusion of trial, the Federal High Court dismissed the appellant’s claims and the appellant appealed to the Court of Appeal. In upholding the judgment of the Federal High Court, the Court of Appeal considered the relationship between the appellant and the respondent as one of a Common Law Master-Servant relationship on the grounds that the status of the appellant as a Managing Director arose merely from his appointment by the Board of Directors of the respondent as opposed to his being appointed as a Director under CAMA. The Court of Appeal further reasoned that the effect of the appellant’s suspension from his duties by the Board of Directors was to put his status as Managing Director in abeyance and to that extent, he was not entitled to receive a further notice of the meeting whereat the Board of Directors resolved to revoke his appointment. Dissatisfied with the judgment of the Court of Appeal, the appellant appealed to the Supreme Court. Issue before the Supreme Court and the judgment Even though there were a surfeit of issues before the Supreme Court, Oguntade JSC (as he then was) rightly identified the case as resting on a sole narrow issue: whether having regard to the provisions of section 266 of CAMA, the appellant was entitled to receive a notice of the meeting of the Board of Directors at which a resolution to revoke his appointment was passed? The Supreme Court considered the judgment of the Court of Appeal with respect to the alleged creation of dual tiers of Directors in a Nigerian Company and stated that by virtue of section 244 (1) of CAMA, a Director is simply a person duly appointed by the Company to direct and manage the business of the Company irrespective of the fact that he was appointed by the Board of Directors of the Company. Further to this, the Court affirmed the status of a Director in a Nigerian Company to be one governed by the CAMA. At the heart of this case was the construction to be placed on section 266 of CAMA. Its subsections (1) and (2) states as follows: “Every Director shall be entitled to receive notice of the Directors’ meeting…there shall be fourteen days notice in writing to all Directors entitled to receive notice…” while its subsection (3) states that “Failure to give notice in accordance with subsection (2) of this section shall invalidate the meeting”(our emphasis). Not surprisingly, the determination of the case fell on these provisions. At the Court of Appeal, it was decided that notwithstanding the fact that the appellant was not notified of the Board meeting, the meeting was saved from being invalidated as (in the opinion of the Court of Appeal): “On suspension of the appellant’s appointment [as] Managing Director/Chief Executive, all his rights, privileges and powers consequential or attached to the employment, including attending Board meetings ceased. The notice of Board meetings is not given for the fun of it”. The Supreme Court firmly rejected this line of reasoning viewing it as capable of breeding a mischievous circumvention of s.266 of CAMA. Contrary to the opinion of the Court of Appeal, the Supreme Court stated that “suspension of an employee from work only means the suspension of the employee from performance of the ordinary duties assigned to him by virtue of his office. Suspension is not a demotion and does not entail a diminution of rank, office or position. Certainly, it cannot import a diminution of the rights of the employee given to him by law…”. There was uncontroverted evidence that the appellant was not notified of the meeting at which the Board revoked his appointment, the Supreme Court therefore decided that by this, there was a clear breach of s.266 of CAMA by the respondent and accordingly, the appellant remained a Director of the respondent. Consequently, in the absence of a compliance with the provisions of s.266 of CAMA, the appellant was legally deemed to remain the Managing Director/Chief Executive of the respondent. The Ripples Predictably, the Supreme Court’s judgment has created a certain disquiet; was the Court curbing the employer’s power to “hire and fire” for good, bad or no reason at all? Would this case offer some relief to bank Directors currently being prosecuted by the Economic and Financial Crimes Commission (EFCC)? It is the strongly held view of these authors that Longe’s case must be read within the context of the issue it resolved. It should not be read with such infinite elasticity as to dilute the essence of its pronouncement. As against a number of other cases (Chukwuma v. Shell, supra; Osisanya v. Afribank (Nig.) Plc [2007] 6 NWLR (Pt.1031)565) that have consistently seen the Supreme Court affirming the employer’s right to terminate an employee’s services for good, bad or no reason at all, Longe’s case merely made declarations as regards the protections ordinarily afforded a company Director under CAMA. Put in another way, Longe merely declared what was already provided for in CAMA and nothing else. This may explain why the lead judgment was not suffused with innumerable references to previous authorities; there was simply no need for this. The case of Yalaju-Amaye v. AREC supra has a faint resonance with Longe’s case but the facts are materially different. In Yalaju-Amaye, a central issue for determination was whether the resolution accepting the purported oral resignation and relinquishment of shares was valid and whether the appellant was a proper plaintiff in an action against the defendant. In Longe, the crucial point of distinction to be noted is that the appellant’s status as a Director entitled him to certain statutory protections which is not available for other category of a company’s employees (except perhaps the Auditor). This is why it cannot be correctly asserted that Longe has altered the state of the law as enunciated in the Chukwuma and Osisanya cases and several others to that effect, which uphold the Common Law right of a master to terminate his servant’s services for good, bad or no reason at all. At a wider level, is this case to be interpreted as implying that an employer, a school authority or a constituted authority cannot dispense with a person during the pendency of his suspension? More specifically, a student or a manager has been suspended from school or an office, while the suspension is pending, the same school or office decides to dismiss the student or terminate the services of the manager. Has Longe precluded the exercise of this power? On the one hand, we again refer to Oguntade JSC’s statement about the consequence of a suspension. On the other hand, it is the submission of these authors that Longe has not encroached on the exercise of this power by any constituted authority. The point must repeatedly be made that Longe was so decided because the appellant was at all material times, a company Director whose status is a creation of and regulated by statute. In the other examples this is clearly not the case. The position in England The position in England is noticeably different from that in Nigeria. In England, the Companies Act 2006 is silent regarding the consequence of a default in furnishing notice for the meeting of Directors. This may therefore be a matter that the Articles of individual companies can regulate. Some English Company Law texts (Palmer’s Company Law and Gore-Browne on Companies) however give differing interpretations to the available pre-2006 cases: Harben v. Phillips (1883) 23 Ch.D and Young v. Ladies Imperial Club Limited (1920) 2 KB 523. Palmer’s submits that the consequence of a default of notice is an irregularity (which may, arguably, be subsequently cured); Gore-Browne describes same as invalidating the meeting. This is unlike what prevails in Nigeria under CAMA which expressly invalidates a Board meeting at which a Director was not notified. It is fair to presume that the different social milieu in which the applicable laws operate in both England and Nigeria explains the differences. The moral The emphasis of the Supreme Court in Longe has been to ensure utmost fidelity with the prescriptions of the Law; Oguntade JSC stated in his lead judgment: “To accept as the court below [that is, the Court of Appeal] did, that suspension of the plaintiff would deny him the protection afforded him under s.266 is to confer the right on the defendant to vary the status of the plaintiff without complying with the [statutory] procedure laid down for doing so…The court cannot grant to a litigant the right to disobey the law under any artifice or guise”. But His Lordship was not done yet, he went further at the conclusion of his judgment to admonish First Bank as follows: “Let me observe here that the defendant has by its unwillingness to respect the provisions of section 266 brought about this unfortunate situation on itself. The plaintiff’s suit was filed on 4-7-02 about a month after he was purportedly removed. All the defendant needed to do on being served with the summons was [to] rescind the ill-advised action and follow the prescription under section 266. Within a few weeks thereafter, the defendant would have been able to effectively remove the plaintiff. What could have been done validly within 3 months has been made to last eight years” There will, naturally, be unsettling questions arising from this judgment. It is a known fact that the ‘incumbent’ Managing Director of First Bank is the third successive person appointed since the “revocation” of the appellant’s appointment. Can it therefore be argued that an implication of this judgment, strictly speaking, is to nullify all decisions purportedly taken by the respondent’s Board while the appellant was “out” of its services? Will this case open a floodgate of litigation against the respondent? Will the appellant have to resign or continue in office? And what options are open to the respondent itself regarding its actions in the past eight years? These are all troubling thoughts and whatever maybe one’s opinion, the Supreme Court has interpreted the law as regards the facts before it regardless of the inconvenience it may cause. Indeed, it is not a known practice for a court to refrain from making a pronouncement on account of the ostensible inconvenience it may occasion; all the more so when such ostensible inconvenience is self-induced. Company Secretaries and Legal Advisers generally have a duty to be circumspect when convening Board meetings. They must ensure that all Directors are notified in writing of the scheduled meeting, anything less would peremptorily invalidate such meeting. It is even better still to ensure that there is a written acknowledgment of receipt of the notice. The embarrassment which the judgment of the Supreme Court has exposed First Bank to was clearly avoidable but the lesson is for all who find themselves in similar positions to take heed accordingly. Kunle Ajagbe is a partner in the commercial law firm of Perchstone and Graeys