CARNCO FOODS (NIG) LTD v. MAINSTREET BANK LIMITED & PRINCE ADESUPO ADETONA
COURT OF APPEAL (LAGOS DIVISION) (SAULAWA; IKYEGH;
PEMU, JJ.CA)
The 1st Respondent (formerly Afribank PLC) appointed the 2nd Respondent as Receiver/Manager of Nigeria Weaving, Spinning and Printing Company Limited (NEWSPIN Ltd). The 2nd Respondent in his capacity as receiver subleased the interest of NEWSPIN Ltd in a property situate at Plot 14, Iganmu Industrial Estate, Surulere, Lagos to the Appellant for a period of 18 years.
NEWSPIN Ltd instituted a suit at the Federal High Court Lagos against the Respondents and the Appellant and in May 2005, armed men said to be acting on the instruction of the Chief Executive Officer of NEWSPIN Ltd forcefully took possession of a section of the property which comprised of a warehouse accommodating several tenants.
The Appellant alleged that as a result of the forceful entry of NEWSPIN Ltd, it lost the rental income it would have earned from the warehouse and was also denied peaceful and quiet enjoyment of the property. Consequently, the Appellant sued the Respondents for breach of the covenant contained in the Deed of Sublease made between NEWSPIN Ltd (acting through the receiver appointed by the 2nd Respondent) and the Appellant.
The Respondents filed a preliminary objection to the suit contending that they were not proper parties to the suit and urged the court to strike out the suit on that ground. The trial court upheld the preliminary objection of the respondents and struck out the suit holding that the proper party to sue was NEWSPIN Ltd. Dissatisfied with the ruling, the Appellant appealed to the Court of Appeal.
The sole issue for determination as put forward by the appellate court was:
“Were the proper parties before the court below?”
In arguing this issue, the Appellant contended that the interpretation to be garnered from section 390 of the Company and Allied Matters Act 1990 (CAMA) is that a receiver appointed by a debenture holder is an agent of the debenture holder and therefore acts on his behalf.
Section 390 of CAMA provides that:
“ A receiver or manager of any property or undertaking of a company appointed out of court under a power contained in any instrument shall subject to Section 393 of this Act, be deemed to be an agent of the person or persons on whose behalf he is appointed”
Section 393 of CAMA provides thus:
“A person appointed a receiver of any property of a company shall subject to the rights of prior encumberances, take possession of and protect the property, receive the rents and profits and discharge all outgoings in respect thereof and realize the security for the benefit of those on whose behalf he is appointed”
Counsel argued that once a company’s secured creditors appoint a receiver, he takes control of the company’s property for the benefit of the debenture holders. He therefore contended that the 1st Respondent having appointed the 2nd Respondent as its receiver, must be held liable for the breach of the covenants contained in the sublease agreement entered into by the 2nd Respondent.
Consequently, he submitted that the 1st Respondent who is the principal in the instant suit is a proper and necessary party to be sued in the case.
The Court of Appeal noted the necessity of determining whether from the circumstances of the case, the 2nd Respondent can rightly be termed a proper party. The Court opined that the answer depends on whether it is found that the 2nd Respondent is an agent of the 1st Respondent, who can be safely termed as a disclosed principal. If so, whether the 2nd Respondent’s acts or omissions can be regarded as those of the 1st Respondent.
The Court of Appeal unanimously allowed the appeal holding that the presence of both Respondents is necessary to effectively determine the matter. The court held as follows:
“There is no doubt here that the 1st respondent appointed the 2nd respondent receiver over NEWSPIN LTD – pages 51 – 54 of the Record of Appeal. The 2nd respondent having been appointed under a power in a debenture or trust deed (herein a debenture), he is the AGENT of the debenture holders, and as such the debenture holders are liable as his principal, upon contracts he makes during the Receivership. They are also accountable for his defaults.
In Tanarewa (Nig) Ltd v. Arzai (2005) 5 NWLR (Pt. 919) 593, a case cited by the appellant, in his Brief of Argument (page 4 refers) the court held that a receiver manager of any property or undertaking is deemed to be an agent of the person or persons on whose behalf he is appointed.
… Acts done by an agent of a disclosed principal, as is the relationship between the 1st respondent (as disclosed principal) and 2nd respondent (as agent), binds the principal and the principal is liable for such acts of his agents. This is because the act of the agent is that of the principal.
With respect this is a total misconception. This is because when a receiver is appointed under power in a debenture or trust deed, he is the agent of the debenture holders and as such the debenture holders are liable as his principal upon contracts he makes during receivership. They are also accountable for his defaults.”
Counsel:
M.A. Agbamuche with M.C. Popoola for the Appellant
O. Adejuyigbe with O.T. Oyebanjo and O.J. Akokaike for the Respondents
This summary is fully reported at (2013) 12 CLRN
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