The Need for a Revision of Nigerian Corporations and Securities Laws in the
Context of the Principles of Federalism and the Decision in AG Lagos State v
Eko Hotels (2007) 18 NWLR (PT 1011) 378. Part 1
By Olumide K. Obayemi*
I. Introduction
When did an isolated private sale of stock by a shareholder to another
shareholder become an issue for a federal court? Is this not an ordinary contract
between two private individuals? Can a private sale of shares not be
distinguished from a public offering of shares by a corporation to the entire public?
This writer has always been on the side of federalism in the operations and
regulations of the business sector in Nigeria . Ever since Nigeria became a
republic on October 1, 1963, actual practice of federalism has always been on
paper only. The attendant military regimes and the pauperization of the individual
states have not helped the matter as well. It is in this regard that the Nigerian
Supreme Court’s decision in AG Lagos State v Eko Hotels (2007) 18 NWLR (PT
1011) 378, calls for a revisit of the “Exclusive List” and the sole jurisdiction of the
Federal High Court on matters affecting the regulations of companies under the
Companies and Allied Matters Act, Cap 59 of 1990 (“CAMA”). Without much ado,
this work will submit that the decision in AG Lagos State v Eko Hotels (2007) is
not only anachronistic, but also overtaken by developments in other common law
and federal jurisdictions. In a nutshell, any trading in stock that does not involve
“interstate” transactions—across the borders of different states, i.e., transactions
that are purely “intrastate” have nothing to do with the Federal High Court.
In concluding, we shall call upon the Nigerian National Assembly to amend Item
32 of the Exclusive Legislative List of the 1999 Constitution of the Federal
Republic of Nigeria and section 251(1)(e) of the 1999 Constitution which,
presently, vests exclusive jurisdiction in civil causes or matters arising from the
operation of the CAMA on the Federal High Court. This is because, under
principle of federalism, it can not be implied that the Federal High Court has
jurisdiction over every matter or cause relating to or connected with a Limited
Liability Company which are intrastate. The new amendment must clearly state
that the jurisdiction so conferred does not extend to a dispute arising from
ownership of shares in a limited liability Company, which are not across the
states and which do not involve foreign investors.
The new laws must allow State Assemblies to make laws for the incorporation,
regulation and winding up of corporations within each state. For instance, in the
United States , Delaware , New York , California , etc have provisions allowing for
incorporation, regulations and winding up of corporations formed within each
state. This is what federalism is about and not a unitary corporation regulator. The
only times that corporations are sued in United States District Courts is where the
plaintiff is a citizen of a separate state, and where the defendant corporation
(usually) is registered and has no substantial activities in the local state.
As we shall presently see, even trading in stocks is sometimes left to state
regulators. The time has come for a change in Nigeria .
II. The Facts of AG Lagos State v Eko Hotels (2007) 18 NWLR (PT 1011) 378.
Eko Hotels Limited was incorporated in 1972 as a private limited liability
Company with the Lagos State , the Lagos State Government owning the majority
shareholding of 51% of the entire equity in the fully paid and issued capital while
Oha Limited owned 49% thereof. This situation continued until the 30th day of
January, 1997 when Lagos State Government, represented by Brigadier-General
Buba Marwa, the erstwhile Military Governor of Lagos State and the Secretary to
the Military Government by a Share Purchase Agreement disposed of 26% of the
total number of shares owned by the Lagos State Government in Eko Hotels Ltd
by sale to the Oha Limited. By the said sale transaction, Lagos State Government
became a minority shareholder while the Oha Limited replaced Lagos State
Government as the majority shareholder in the Eko Hotels.
However on the 23rd day of August, 1999, after Bola Tinubu became the
Governor, Lagos State Government published a Lagos State Legal Notice No 10
of 1999 setting up a Standing Tribunal of Inquiry Into The Sale And Acquisition of
Shares of Eko Hotel in 1995, which year (1995) was subsequently corrected to
read 1997 - see Lagos State Legal Notice No 87. The aforesaid Legal Notice No
10 of 1999 was made pursuant to powers conferred on the Governor of Lagos
State by section 12 of the Tribunals of Inquiry Law, Cap 190, Laws of Lagos State
of Nigeria , 1994.
The panel was composed of five members with Hon. Justice Ayo Phillips (Mrs) as
Chairman. The Panel, in the course of executing its duties issued summonses to
four witnesses to appear before it; these were the Company Secretary, Eko
Hotels Ltd, Mr Samuel Alabi, Mr. Olumide Adewunmi, Mr Richard Herb and Mr
Mark Devroye, who were, apart from Mr Alabi, Director, Chairman and General
Manager respectively of the Eko Hotels. The summonses warned the witnesses
to attend the Tribunal proceedings, or “fail at their peril.” The receipt of the
summonses resulted in Counsel for the Oha Limited writing a protest to the
Tribunal against the summonses issued to its officials and functionaries.
When the four witnesses so summoned by the Tribunal failed to attend the
proceedings of that body on 2nd September, 1999, the Tribunal issued warrants
of arrest against them as a result of which Mr. Alabi, the Company Secretary of the
Eko Hotels was arrested and put in police custody and later produced before the
Tribunal. It was at this stage that the Eko Hotels and Oha Limited filed the action
at the Federal High Court, Lagos claiming, inter alia, that Lagos State acted ultra
vires regarding matters outside its competence. The Federal High Court decided
the matter in favour of the Eko Hotels and Oha Limited and granted the relief
claimed which decision resulted in an appeal to the Court of Appeal, Lagos
Division which dismissed same for lack of merit. The present appeal is therefore
a further appeal by the Lagos States.
The major issue for this paper is whether the sale of 26% of the shares by Lagos
State (acting in its capacity as a shareholder) on January 30, 1997 to Oha Limited
(also, acting in its capacity as a shareholder) was an act that is purely civil in
nature, i.e., a contract between two individual parties, or whether it is an act, as
Eko Hotel and Oha Limited argued, “…arising from the operation of the
Companies and Allied Matters Act ...... regulating the operation of ....... (a
Company) ........ incorporated under the Companies and Allied Matters Act,….”
According to Lagos State, though section 251(1)(e) of the 1999 Constitution vests
exclusive jurisdiction in civil causes or matters arising from the operation of the
CAMA on the Federal High Court, it does not imply that the Court has jurisdiction
over every matter or cause relating to or connected with a limited liability Company
Lagos State went on to argue that the jurisdiction so conferred on the federal
court does not extend to a dispute arising from ownership of shares in a limited
liability Company. Learned Counsel then proceeded to define the phrase “arising
from” as well as the word “operation” as used in section 251(1)(e) of the 1999
Constitution and urged the Court to adopt the definitions and consequently hold
that the sale of shares of Lagos State in Eko Hotels is not a cause or matter
arising from the operation of the CAMA, that the questions for determination and
the reliefs claimed clearly show that the action is not about the management of
the Eko Hotels and or assets of Eko Hotels but the constitutionality of legal Notice
No 10 of 1999 vis-a-vis item 32 of the Exclusive Legislative List
Lagos State also argued that whereas item 32 confers power on the National
Assembly to legislate on “incorporation regulation and winding up of bodies
corporate ......” the Legal Notice in issue does not directly or indirectly deal either
with incorporation, regulation or winding up of the Eko Hotels. Lagos State , finally
submitted that it is the State High Court that is clothed with jurisdiction in this
case, and that the attack on the Legal Notice in issue was not predicated on
whether or not the Notice as a subsidiary legislation is cognizable under the
provision of section 1(i) of the Tribunals of Inquiry Law Cap. 190, Laws of Lagos
State 1994 but on sale of shares of the Lagos State in the Eko Hotels and
therefore that the question as to whether the Tribunal of Inquiry was set up to
inquire into any of the matters stated in section 1(i) of Cap 190 is academic and
irrelevant.
However, Eko Hotel and Oha Limited, while conceding that the making of the
Legal Notice No 10 of 1999 in exercise of the powers conferred on the Governor
of Lagos State by section 1(i) of Cap. 190 was not ultra vires, unconstitutional, null
and void, submitted that to the extent that the Tribunal of Inquiry empanelled; by
the said Legal Notice No 10 of 1999 purports to go outside the parameters of
persons and functions prescribed in section 1 of the law to conduct an enquiry,
the making of the Legal Notice in question is ultra vires the powers of the
Governor, unconstitutional, null and void.
*Olumide K. Obayemi hails from Ijebu-Jesa, Osun State , Nigeria .
To be continued
Context of the Principles of Federalism and the Decision in AG Lagos State v
Eko Hotels (2007) 18 NWLR (PT 1011) 378. Part 1
By Olumide K. Obayemi*
I. Introduction
When did an isolated private sale of stock by a shareholder to another
shareholder become an issue for a federal court? Is this not an ordinary contract
between two private individuals? Can a private sale of shares not be
distinguished from a public offering of shares by a corporation to the entire public?
This writer has always been on the side of federalism in the operations and
regulations of the business sector in Nigeria . Ever since Nigeria became a
republic on October 1, 1963, actual practice of federalism has always been on
paper only. The attendant military regimes and the pauperization of the individual
states have not helped the matter as well. It is in this regard that the Nigerian
Supreme Court’s decision in AG Lagos State v Eko Hotels (2007) 18 NWLR (PT
1011) 378, calls for a revisit of the “Exclusive List” and the sole jurisdiction of the
Federal High Court on matters affecting the regulations of companies under the
Companies and Allied Matters Act, Cap 59 of 1990 (“CAMA”). Without much ado,
this work will submit that the decision in AG Lagos State v Eko Hotels (2007) is
not only anachronistic, but also overtaken by developments in other common law
and federal jurisdictions. In a nutshell, any trading in stock that does not involve
“interstate” transactions—across the borders of different states, i.e., transactions
that are purely “intrastate” have nothing to do with the Federal High Court.
In concluding, we shall call upon the Nigerian National Assembly to amend Item
32 of the Exclusive Legislative List of the 1999 Constitution of the Federal
Republic of Nigeria and section 251(1)(e) of the 1999 Constitution which,
presently, vests exclusive jurisdiction in civil causes or matters arising from the
operation of the CAMA on the Federal High Court. This is because, under
principle of federalism, it can not be implied that the Federal High Court has
jurisdiction over every matter or cause relating to or connected with a Limited
Liability Company which are intrastate. The new amendment must clearly state
that the jurisdiction so conferred does not extend to a dispute arising from
ownership of shares in a limited liability Company, which are not across the
states and which do not involve foreign investors.
The new laws must allow State Assemblies to make laws for the incorporation,
regulation and winding up of corporations within each state. For instance, in the
United States , Delaware , New York , California , etc have provisions allowing for
incorporation, regulations and winding up of corporations formed within each
state. This is what federalism is about and not a unitary corporation regulator. The
only times that corporations are sued in United States District Courts is where the
plaintiff is a citizen of a separate state, and where the defendant corporation
(usually) is registered and has no substantial activities in the local state.
As we shall presently see, even trading in stocks is sometimes left to state
regulators. The time has come for a change in Nigeria .
II. The Facts of AG Lagos State v Eko Hotels (2007) 18 NWLR (PT 1011) 378.
Eko Hotels Limited was incorporated in 1972 as a private limited liability
Company with the Lagos State , the Lagos State Government owning the majority
shareholding of 51% of the entire equity in the fully paid and issued capital while
Oha Limited owned 49% thereof. This situation continued until the 30th day of
January, 1997 when Lagos State Government, represented by Brigadier-General
Buba Marwa, the erstwhile Military Governor of Lagos State and the Secretary to
the Military Government by a Share Purchase Agreement disposed of 26% of the
total number of shares owned by the Lagos State Government in Eko Hotels Ltd
by sale to the Oha Limited. By the said sale transaction, Lagos State Government
became a minority shareholder while the Oha Limited replaced Lagos State
Government as the majority shareholder in the Eko Hotels.
However on the 23rd day of August, 1999, after Bola Tinubu became the
Governor, Lagos State Government published a Lagos State Legal Notice No 10
of 1999 setting up a Standing Tribunal of Inquiry Into The Sale And Acquisition of
Shares of Eko Hotel in 1995, which year (1995) was subsequently corrected to
read 1997 - see Lagos State Legal Notice No 87. The aforesaid Legal Notice No
10 of 1999 was made pursuant to powers conferred on the Governor of Lagos
State by section 12 of the Tribunals of Inquiry Law, Cap 190, Laws of Lagos State
of Nigeria , 1994.
The panel was composed of five members with Hon. Justice Ayo Phillips (Mrs) as
Chairman. The Panel, in the course of executing its duties issued summonses to
four witnesses to appear before it; these were the Company Secretary, Eko
Hotels Ltd, Mr Samuel Alabi, Mr. Olumide Adewunmi, Mr Richard Herb and Mr
Mark Devroye, who were, apart from Mr Alabi, Director, Chairman and General
Manager respectively of the Eko Hotels. The summonses warned the witnesses
to attend the Tribunal proceedings, or “fail at their peril.” The receipt of the
summonses resulted in Counsel for the Oha Limited writing a protest to the
Tribunal against the summonses issued to its officials and functionaries.
When the four witnesses so summoned by the Tribunal failed to attend the
proceedings of that body on 2nd September, 1999, the Tribunal issued warrants
of arrest against them as a result of which Mr. Alabi, the Company Secretary of the
Eko Hotels was arrested and put in police custody and later produced before the
Tribunal. It was at this stage that the Eko Hotels and Oha Limited filed the action
at the Federal High Court, Lagos claiming, inter alia, that Lagos State acted ultra
vires regarding matters outside its competence. The Federal High Court decided
the matter in favour of the Eko Hotels and Oha Limited and granted the relief
claimed which decision resulted in an appeal to the Court of Appeal, Lagos
Division which dismissed same for lack of merit. The present appeal is therefore
a further appeal by the Lagos States.
The major issue for this paper is whether the sale of 26% of the shares by Lagos
State (acting in its capacity as a shareholder) on January 30, 1997 to Oha Limited
(also, acting in its capacity as a shareholder) was an act that is purely civil in
nature, i.e., a contract between two individual parties, or whether it is an act, as
Eko Hotel and Oha Limited argued, “…arising from the operation of the
Companies and Allied Matters Act ...... regulating the operation of ....... (a
Company) ........ incorporated under the Companies and Allied Matters Act,….”
According to Lagos State, though section 251(1)(e) of the 1999 Constitution vests
exclusive jurisdiction in civil causes or matters arising from the operation of the
CAMA on the Federal High Court, it does not imply that the Court has jurisdiction
over every matter or cause relating to or connected with a limited liability Company
Lagos State went on to argue that the jurisdiction so conferred on the federal
court does not extend to a dispute arising from ownership of shares in a limited
liability Company. Learned Counsel then proceeded to define the phrase “arising
from” as well as the word “operation” as used in section 251(1)(e) of the 1999
Constitution and urged the Court to adopt the definitions and consequently hold
that the sale of shares of Lagos State in Eko Hotels is not a cause or matter
arising from the operation of the CAMA, that the questions for determination and
the reliefs claimed clearly show that the action is not about the management of
the Eko Hotels and or assets of Eko Hotels but the constitutionality of legal Notice
No 10 of 1999 vis-a-vis item 32 of the Exclusive Legislative List
Lagos State also argued that whereas item 32 confers power on the National
Assembly to legislate on “incorporation regulation and winding up of bodies
corporate ......” the Legal Notice in issue does not directly or indirectly deal either
with incorporation, regulation or winding up of the Eko Hotels. Lagos State , finally
submitted that it is the State High Court that is clothed with jurisdiction in this
case, and that the attack on the Legal Notice in issue was not predicated on
whether or not the Notice as a subsidiary legislation is cognizable under the
provision of section 1(i) of the Tribunals of Inquiry Law Cap. 190, Laws of Lagos
State 1994 but on sale of shares of the Lagos State in the Eko Hotels and
therefore that the question as to whether the Tribunal of Inquiry was set up to
inquire into any of the matters stated in section 1(i) of Cap 190 is academic and
irrelevant.
However, Eko Hotel and Oha Limited, while conceding that the making of the
Legal Notice No 10 of 1999 in exercise of the powers conferred on the Governor
of Lagos State by section 1(i) of Cap. 190 was not ultra vires, unconstitutional, null
and void, submitted that to the extent that the Tribunal of Inquiry empanelled; by
the said Legal Notice No 10 of 1999 purports to go outside the parameters of
persons and functions prescribed in section 1 of the law to conduct an enquiry,
the making of the Legal Notice in question is ultra vires the powers of the
Governor, unconstitutional, null and void.
*Olumide K. Obayemi hails from Ijebu-Jesa, Osun State , Nigeria .
To be continued
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