The appellant, the plaintiff in the substantive suit filed in the Federal High Court Warri is a limited liability company incorporated under the Companies Decree 1968 and carrying on business principally in Benin City. Sometime in 1975, the appellant and a German based company SEM Nigerian Holding G.H.B.H. and Company Hamburg agreed to set up a wire industry in NIGERIA. On the 27th October 1975 to be precise, they entered into an agreement for purposes of incorporating a Nigerian company to carry out the industrial project. This agreement which was prepared by the 2nd respondent herein, a legal practitioner, is a crucial element in this case. I shall therefore avert later in this Judgment to some of its provisions. Suffice it for present purposes to say that under the agreement the appellant was to subscribe 40% of the share capital of the proposed company while the foreign partner was to subscribe 60%. This was in accord with the Nigerian Enterprises Promotion Decree 1972 then in force, the activity of the proposed company having fallen within Schedule 2 thereof. The provisions of the agreement principally evinced a desire on the part of both parties (i.e. the appellant and the foreign partner) that only two of them should be shareholders of the proposed company. The provisions of this agreement by the partners were incorporated in the memorandum of association of the proposed company. Pursuant to the agreement of October, 1975, the Sem-Edo Wire Industries Limited, 1st respondent herein, was incorporated on 5th December, 1975. It is pertinent at this stage to mention that one of the provisions of the October 1975 agreement apportioned the appointment of the directors of the proposed company between the two partners. It was the appellant who was to nominate the chairman of the board of directors of the proposed company. Although the process by which the chairman of Sem-Edo Wire Industries Limited was appointed is one of the matters on which the parties have Joined issue, it is pertinent to mention that on incorporation, the 3rd respondent was appointed chairman of the board of directors.

On the 27th February 1976 the two partners, i.e. the appellant and the foreign partner entered into another agreement principally for the purpose of increasing the share capital of Sem-Edo Wire Industries Limited from N1,000 000 to N1,500,000. Following this agreement the company duly passed a special resolution increasing its share capital from N1,000,000 to N1,500,000. The share capital has remained at that level.

Subsequently, the company allotted 2% and 3% of the shares in Sem-Edo Wire Industries Limited to 2nd and 3rd respondents. This allotment was taken out of the 40% of the shares which appellant was to subscribe. The appellant protested in vain to the managing director of the 1st respondent company (a nominee of the foreign partner SEM Nigerian Holding Company Hamburg). It then instituted the suit in the Federal High Court earlier referred to. In that suit it claimed the following reliefs:

Pleadings were ordered, filed and exchanged. After the appellant had filed a statement of claim and an amended statement of claim to which the respondents' (defendants to the suit) replied with a joint and detailed statement of defence, the respondents in July 1980 brought an application before the said High Court praying that the appellant's action be dismissed. The application was brought under the inherent jurisdiction of the court and/or Order 27 rule 1 of the Federal Revenue Court (Civil Procedure) Rules LN.34 of 1976.

The application was made on the strength of the rule that: a company is not bound by a pre-incorporation contract, and that under the rule in Foss vs. Harbottle, if there is a question as to the allottment of snares in a company involving fraud, it is the company, and not the individual that ought to sue, the trial court re¬fused the application and the respondents applied to the Court of Appeal (Benin Division) and got Judgment.

Appellant appealed to the Supreme Court.