BARBUS & COMPANY NIG. LTD & ANOR V. OKAFOR-UDEJI (2018)

Background

This appeal arose from a dispute concerning the ownership and corporate structure of a business formerly operated as a partnership under the name and style of Barbus & Co. The original claimant, Mr. Azuka Joseph Okafor-Udeji, was subsequently substituted by Mrs. Gladys Oyiboka Okafor-Udeji following his death. He alleged that he and the second appellant had jointly owned and operated the partnership business. According to the claimant, the first appellant company was incorporated to take over that partnership business and its assets. He further alleged that, although the company continued the partnership business, the second appellant caused the company’s shares to be allotted to himself and members of his immediate family, excluding the claimant.

The claimant commenced proceedings at the Federal High Court, Lagos Judicial Division, by originating motion. He sought, among other reliefs, an order rectifying the first appellant’s register of members by entering his name as the bona fide holder of 50 per cent of the company’s total shareholding. He also sought a declaration that the company had been floated to take over the jointly owned partnership business and an order restraining the second appellant and his family from representing themselves as the exclusive owners or shareholders of the company.

The appellants filed a preliminary objection, arguing that the claimant had no reasonable cause of action, lacked locus standi, and that the action was incompetent and improperly constituted. The trial Federal High Court upheld the objection and dismissed the suit. On appeal, the Court of Appeal set aside that decision and remitted the matter to the Federal High Court for determination on the merits. The appellants then appealed to the Supreme Court. The respondent also filed a cross-appeal, principally concerning the failure of the Court of Appeal to determine the substantive dispute itself.

Issues

1. Whether the Court of Appeal was right to hold that the originating process disclosed a reasonable cause of action.
2. Whether the Court of Appeal was right to hold that the claimant had locus standi to institute the proceedings.
3. Whether the suit was competent and whether the Court of Appeal erred by failing to address that question.
4. Whether the Court of Appeal ought to have invoked section 15 of the Court of Appeal Act to determine the substantive dispute instead of remitting it to the trial court.

Ratio Decidendi

The Supreme Court held that a reasonable cause of action is a cause of action with some prospect of success. A claimant’s originating process must disclose the legal rights asserted, the obligations allegedly owed by the defendant, and the facts said to constitute an infringement of those rights or a failure to perform those obligations. At the preliminary stage, the court is not required to determine whether the claimant will ultimately succeed. It must examine only the claimant’s pleadings or, where the action is commenced by originating summons or motion, the affidavit supporting the originating process.

The Court found that the supporting affidavit set out the claimant’s alleged partnership with the second appellant, the agreement to incorporate a company to take over the partnership business, the transfer or use of the partnership assets by the company, and the alleged exclusion of the claimant from the company’s shareholding. Those allegations raised questions concerning the claimant’s civil rights and interests and, if proved, could entitle him to the reliefs sought. The weakness of the claim, or the possibility that it might fail at trial, was not a proper basis for striking it out at the preliminary stage.

On locus standi, the Court explained that the expression means legal capacity or standing to institute proceedings. A person has standing where he can show sufficient interest in the subject matter and that his civil rights or obligations have been infringed or are in danger of infringement. The relevant tests are whether the action is justiciable and whether there is a dispute between the parties. Applying those tests liberally, the Court held that the claimant’s allegation of a joint partnership interest and wrongful exclusion from the company demonstrated sufficient interest to sue. It was unnecessary, at that stage, to decide finally whether he was already a registered member of the company; that was a substantive question for trial.

Court Findings

The Supreme Court also rejected the appellants’ attempt to argue the competence of the suit as a fresh issue. An appeal presupposes an existing decision of a lower court. Since the Court of Appeal had not decided the alleged competence issue, there was no adverse decision on that point from which an appeal could properly be brought. A new issue cannot ordinarily be raised for the first time on appeal without leave. The issue was therefore incompetent and was struck out.

The Court further criticised the practice of combining arguments on competent issues with arguments on abandoned or incompetent issues. An appellate court is not required to separate valid submissions from invalid ones or sift the “chaff from the grains.” Doing so may draw the court into the arena of the dispute and obscure the proper determination of the appeal. Arguments based on the abandoned fifth issue, the fourth issue insofar as it was improperly combined with incompetent issues, and the newly formulated issues were consequently discountenanced.

Conclusion

The Supreme Court unanimously dismissed the main appeal and affirmed the Court of Appeal’s order setting aside the trial court’s dismissal and remitting the case to the Federal High Court for hearing on the merits before another judge. The Court awarded costs of N500,000 against the appellants in favour of the respondent. The cross-appeal was also dismissed because, following the order for trial on the merits, it had become academic and spent.

Significance

The decision reinforces the procedural distinction between testing the existence of a cause of action and deciding the merits of a claim. Courts must not prematurely evaluate evidence or determine the likely success of a substantive case when considering a preliminary objection. It also confirms that a claimant need not conclusively establish title or ultimate entitlement at the interlocutory or preliminary stage; it is enough to disclose a legally recognisable interest and an alleged infringement capable of judicial determination. Finally, the judgment restates the importance of competent issues and proper appellate procedure: parties cannot create an appeal on matters never decided below, nor introduce fresh issues without obtaining the required leave.