Protecting Minority Shareholders in Nigeria: A Comparative Analysis of the Remedy for Oppressive or Unfairly Prejudicial Conduct in Nigeria and Canada.

By Oyetola Muyiwa Atoyebi, SAN FCIArb. (U.K)

INTRODUCTION

This article scrutinizes minority shareholder protection in Nigeria and Canada by evaluating their oppression remedies. Focusing on the effectiveness of these statutory provisions in safeguarding minority shareholders’ interests, the analysis reveals strengths and weaknesses in each jurisdiction’s legal landscape. The remedy for oppressive and unfairly prejudicial conduct, considered a versatile tool for addressing shareholder grievances, takes centre stage in this exploration. Through an examination of its specific clauses and judicial interpretations, the article aims to reveal the practical realities of protecting minority shareholders in Nigeria in comparison with Canada.

REMEDY FOR OPPRESSIVE OR UNFAIRLY PREJUDICIAL CONDUCT UNDER NIGERIA’S CORPORATE REGIME.

For minority shareholders in Nigerian companies, navigating the corporate landscape can be fraught with challenges. Thankfully, the Companies and Allied Matters Act 2020 (CAMA) comes equipped with a powerful tool—the remedy for oppressive and unfairly prejudicial conduct—designed to safeguard their rights against unfair or prejudicial treatment. This remedy, enshrined in CAMA[1], empowers a diverse range of actors beyond just minority shareholders to petition for relief when a company engages in oppressive, unfairly prejudicial, or discriminatory conduct. This includes directors, officers, creditors, and even the Corporate Affairs Commission (CAC) acting on behalf of members.[2]   

CAMA meticulously defines the grounds for seeking remedies for oppressive and unfairly prejudicial acts, ensuring protection against actions that harm or disregard the interests of members. This is particularly crucial in the context of the “one share, one vote” system, where minority shareholders may lack enough voting power to effectively defend themselves. The grounds for seeking relief by members include:

• Conduct in the management of the company that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members, or in a manner that is in disregard of the interests of a member or the members as a whole.[3]
• Any act or omission or a proposed act or omission, by or on behalf of the company or a resolution, or a proposed resolution, of a class of members that is or would be oppressive, unfairly prejudicial to, or unfairly discriminatory against a member or is or would be in a manner that is in disregard of the interests of a member or the members as a whole.[4]

Moreover, while CAMA empowers the CAC to act as a guardian of both member and public interests, its intervention powers in CAMA[5] remain surprisingly underutilized. This raises questions about the efficacy of the CAC’s role and a potential lack of awareness among shareholders regarding this recourse. This necessitates continued efforts to educate and empower investors while simultaneously exploring avenues to enhance the CAC’s effectiveness in protecting minority interests.

The flexibility of the remedy for oppressive and unfairly prejudicial conduct lies in its broad scope and the substantial discretion granted to courts in crafting tailored remedies. These can range from drastic measures like winding up the company[6] to more targeted interventions like:

• Regulating the company’s future conduct[7]
• Mandating the purchase of a member’s shares by other members of the company itself[8]
• Varying or setting aside disadvantageous transactions[9]
• Restraining specific conduct or actions[10]
• Requiring specific actions or compliance[11]

However, this very flexibility introduces a degree of uncertainty for applicants. CAMA doesn’t guarantee any particular remedy, leaving the final decision squarely in the hands of the court. This lack of concrete guidelines presents a challenge, making it difficult for potential applicants to predict judicial outcomes.

One key hurdle lies in the ambiguity surrounding the central terms of the remedy: “oppressive” and “unfairly prejudicial.” While CAMA offers no precise definitions, Nigerian courts have drawn on English precedents and their interpretations to navigate these terms. This has produced a loose framework, differentiating “oppression” as deliberate, significant misconduct targeting minority interests (e.g., Re Jermyn Street Turkish Baths Ltd [12]) from the broader scope of “unfair prejudice” encompassing unintentional acts that disadvantage minority shareholders (e.g., Re R.A. Noble & Sons (Clothing) Ltd[13]).

However, solidifying clarity in practice remains a challenge. Case studies like Ogunade v. Mobile Films (WA) Ltd[14] reveal inconsistencies in applying CAMA’s terminology. The court upheld the need for a continuous pattern of intentional harm for “oppression,” potentially neglecting singular acts of significant harm. Conversely, cases like Aero Bell Nig. Ltd. v. Fidelity Union Merchant Bank Ltd[15] applied “unfair prejudice” to the singular act of declaring lower dividends, highlighting its broader reach. This lack of consistent guidelines generates uncertainty for potential applicants and undermines the deterrent effect on dominant shareholders.

Addressing this ambiguity demands a two-pronged approach. Legislative reform offering specific factors for judicial consideration could improve clarity, but its rigidity might struggle to encompass the ever-evolving landscape of corporate misconduct. Alternatively, the courts themselves could build stronger, iterative guidelines through case-by-case analysis, balancing flexibility with consistency. In conclusion, while CAMA’s oppression remedy presents a promising framework for protecting minority shareholders, its effectiveness hinges on overcoming critical challenges. Enhancing clarity surrounding key terms, addressing the underutilization of the CAC’s powers, and fostering consistent judicial application of the remedy are all crucial steps.[16]

Remedy for Oppressive or Unfairly Prejudicial Conduct under the Canadian Corporate Regime.

The Canadian corporate landscape places the remedy for oppressive and unfair discriminatory acts as a powerful tool in the hands of minority shareholders, who face unjust and oppressive activities by firms and their directors. This adaptable and broad remedy promotes fairness by discarding rigid legal or statutory rights to guarantee equal outcomes for minority stakeholders, independent of ownership or voting power.[17]

Modeled after the UK Companies Act of 1948, the framework for this remedy lies in Section 241 of the Canadian Business Corporations Act (CBCA). A broad definition of “complainant” allows any party, including shareholders, directors, etc., to seek relief if:

• Corporate actions are oppressive; this entails behaviors exceeding acceptable standards of fair dealing and violating the trust shareholders place in the company.
• Corporate actions that are unfairly prejudicial—acts that unjustly or inequitably harm the rights of minority shareholders—fall under this category.
• Corporate actions unfairly disregard stakeholder interests. This addresses situations where the corporation blatantly ignores the legitimate concerns of minority shareholders.

Proving a valid claim hinges on the “reasonable expectations” test. The complainant must demonstrate that the conduct in question falls short of what they could reasonably expect based on their investment and the established corporate practices.[18] The court, considering factors like industry standards, past corporate behaviour, and shareholder agreements, assesses whether these expectations were met.[19]

However, the second hurdle involves proving that the violation resulted in one of the three aforementioned categories: oppression, unfair prejudice, or unfair disregard. While the “reasonable expectations” test provides some context, the determination of this second prong primarily rests on judicial discretion, leading to a degree of uncertainty for complainants.[20]

Despite this uncertainty, the CBCA, through Section 241(3) of the Canadian Business Corporations Act (CBCA), grants courts broad remedial power. This allows them to issue various orders to rectify the situation, including:

• Requiring financial statements or amending corporate documents.
• Appointing new directors or regulating corporate affairs.
• Ordering compensation for aggrieved parties or rectifying corporate records, etc.

This extensive remedial discretion makes the oppression remedy a powerful tool for safeguarding minority shareholders in Canada. It provides a vital check on corporate misconduct and ensures that even those with limited voting power have a voice in ensuring fair and equitable treatment.[21]

COMPARATIVE ANALYSIS OF THE NIGERIAN AND CANADIAN OPPRESSION REMEDY

This section compares the remedies for oppressive and unfairly prejudicial act provisions in the Nigerian Companies and Allied Matters Act 2020 (CAMA) and the Canadian Business Corporations Act (CBCA). Under CAMA, an action for remedies for oppressive and unfairly prejudicial acts has a narrow scope, unlike in CBCA. Under CAMA, it may be used against the corporation, its directors, or officials. Under CBCA, which has a broader scope, remedies for oppressive and unfairly prejudicial acts can be brought against the corporation, its directors or officials, and its affiliates or subsidiaries.[22]

Section 241 of the CBCA gives a complainant the ability to focus on actions or inactions committed by the corporation’s subsidiaries, unlike the CAMA, which depends on judicial discretion to allow actions against subsidiaries, as it does not contain express provisions for such powers.  As this may restrict shareholders’ ability to pursue remedies for oppressive and unfairly prejudicial acts in matters pertaining to subsidiaries, it is expedient for the Nigerian legal landscape to recognize subsidiaries as part of the category of entities to sue, and an action for the remedies for oppressive and unfairly prejudicial acts can be brought against them.[23]

The method of assessing oppressive and unfair prejudicial acts chosen by each jurisdictional court is an important aspect of this comparative analysis. Canadian courts have exhaustively laid out standards for determining oppression and unfairly prejudicial acts, such as the use of the reasonable man expectations test as well as the oppressive, unfair prejudice, and unfair disregard tests. Nigerian courts are yet to develop an equivalent system. The test of reasonable expectations is a key component of the Canadian remedy for oppression and unfairly prejudicial acts, providing a systematic approach that requires the development of reasonable expectations prior to establishing the remedy’s applicability. The absence of such guidelines in Nigeria has increased confusion, providing the possibility of judicial discretionary choices.[24]

CONCLUSION

In summary, the comparative analysis unravels disparities between CAMA and CBCA on the provisions of remedies for oppressive and unfairly prejudicial acts, shedding light on intricate details, such as parties authorized to seek remedies and against whom, and the level of judicial discretion given to courts in ascertaining a remedy for litigants. The Canadian-inspired test of a reasonable man and the test of oppressive, unfairly prejudicial, and unfair disregard emerge as pivotal developments, emphasizing the need for Nigeria to incorporate similar refinements to enhance clarity and fortify the protection of minority shareholders in remedy for oppressive and unfairly prejudicial act cases.

Snippet: CAMA 2020 equips Nigerian minority shareholders with a powerful tool: the oppression remedy. It tackles not just voting disparity but also unfair dividends, manipulative directors, and even discriminatory practices.

Keywords: Minority Shareholder Protection, Oppression Remedy, Corporate Governance, Equitable Incomes, Investors’ Rights, and Shareholders’ Interests.

Author: Oyetola Muyiwa Atoyebi, SAN FCIArb. (U.K)

Mr. Oyetola Muyiwa Atoyebi, SAN, is the managing partner of O. M. Atoyebi, S.A.N., & Partners (OMAPLEX Law Firm).

Mr. Atoyebi has expertise in and vast knowledge of corporate and commercial law, and this has seen him advise and represent his vast clientele in a myriad of high-level transactions.  He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.

He can be reached at atoyebi@omaplex.com.ng  

Contributor: Cyril Samuel Dandison  

Cyril is a member of the Corporate and Commercial Team at OMAPLEX Law Firm. He also holds commendable legal expertise in corporate and commercial law.

He can be reached at cyril.dandison@omaplex.com.ng

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[1] Companies and Allied Matters Act 2020, s.353 and 354 

[2] Companies and Allied Matters Act 2020, s.353 (1)

[3] Companies and Allied Matters Act 2020, s.354 (2) (a) (i)

[4] Companies and Allied Matters Act 2020, s. 354, (2) (a)(ii)

[5] Companies and Allied Matters Act 2020, s.353 353 and 354

[6] Companies and Allied Matters Act 2020, s. 355(2)(a)

[7] Companies and Allied Matters Act 2020, s. 355(2)(b)

[8] Companies and Allied Matters Act 2020, s. 355, (2) (b) & (c)

[9] Companies and Allied Matters Act 2020, s. 355(2)(f)

[10] Companies and Allied Matters Act 2020, s. 355(2)(i)

[11] Companies and Allied Matters Act 2020, s. 355(2)(j)

[12]  (1971) 1 WLR 1059

[13] [1983] BCLC 273

[14] (1976) 2 FRCR 101.

[15] (2018) LPELR-45338 (CA) 

[16] O. C Aduma & C. S. Ibekwe, “Protection of Minority Shareholders under Nigerian Company Law,” Nnamdi Azikiwe University Journal of International Law and Jurisprudence [2019], Vol. 8, No. 2.

[17] D.H. Peterson & M.J. Cumming, Shareholder Remedies in Canada (Markham: LexisNexis, 2009)

[18] K.P. McGuinness, Canadian Corporations Law (Toronto: LexisNexis Canada Inc, 2017)

[19] Ibid

[20] B. Welling, Corporate law in Canada (London: Scribblers Pub., 2006)

[21] See Ontario Inc v Harold E Ballard [1991] 3 BLR (3d) 113 at 186; B. Cheffins, “The Oppression Remedy in Corporate Law: The Canadian Experience” (2014) Available at The Oppression Remedy in Corporate Law: The Canadian Experience (upenn.edu) accessed January 22, 2024

[22] Canadian Business Corporation Act, s.241 241; and Companies Allied Matters Act 2020, s.353

[23] Canadian Business Corporation Act, s.241 241; and Companies Allied Matters Act 2020, s. 353, s. 354, and s. 355.

[24] D. Morritt, S. Bjorkquist, & A. Coleman, The Oppression Remedy (Toronto: Canada Law Book, 2006)