Fair Hearing in Derivative Actions Under the Companies and Allied Matters Act, 2020: Procedural Safeguards, Judicial Intervention, and Minority Protection

CONTRIBUTOR: OLUGBADE JOHNSON ABIOLA

Introduction

The principle of fair hearing, encapsulated in the maxim audi alteram partem (hear the other side), occupies a fundamental position in the administration of justice in Nigeria.^[1] Its observance is so sacrosanct that any breach may render judicial proceedings a nullity, irrespective of the correctness or merit of the decision reached.^[2] Its observance is so sacrosanct that any breach may render judicial proceedings a nullity, irrespective of the correctness or merit of the decision reached. Within corporate law, where disputes often arise from competing interests between company management and minority shareholders, the requirement of fair hearing assumes even greater significance. This is because a company, as a separate legal entity,^[3] ordinarily acts through the decisions of its majority shareholders and directors. At the same time, courts traditionally refrain from interfering in the internal management of corporate affairs.^[4] This principle was established in the celebrated case of Foss v Harbottle,^[5] codified in section 341 of the Companies and Allied Matters Act (CAMA) 2020.^[6]

However, the strict application of the rule in Foss v Harbottle often produced injustice, particularly where those responsible for the wrongdoing controlled the company and prevented it from instituting proceedings against them. In such circumstances, minority shareholders lacked an effective remedy, even where the company had suffered harm through fraud, breach of fiduciary duty, mismanagement, asset diversion, or oppressive conduct by directors and controlling shareholders. This deficiency in the traditional rule led to the development of recognised exceptions, one of the most significant being the derivative action.

This article examines the role of fair hearing in derivative actions under the Companies and Allied Matters Act 2020 (CAMA). It analyses the statutory requirements for instituting derivative proceedings, particularly the leave of court requirement, and considers the extent to which courts must uphold the constitutional guarantee of fair hearing in balancing the interests of minority shareholders, the company, and alleged wrongdoers.

Drawing on judicial authorities and comparative perspectives, the article evaluates procedural safeguards in derivative actions and their significance in protecting minority shareholders, promoting corporate accountability, and ensuring procedural justice.

Fair Hearing in Derivative Actions under Companies and Allied Matters Act 2020

The right to fair hearing is arguably the most fundamental of all constitutionally guaranteed rights. It forms the bedrock of the administration of justice and underpins the protection and enforcement of all other rights. In Halilu v. Katsina State,^[7] the Supreme Court described fair hearing as a trial in which all parties are afforded equal opportunity to present their cases before an impartial court. The Court further explained that the doctrine rests on the twin pillars of audi alteram partem (hear the other side) and nemo judex in causa sua (no one should be a judge in his own cause).^[8]

Fair hearing therefore connotes a judicial process conducted in accordance with the principles of justice, equity, and impartiality, ensuring that all parties are given a reasonable opportunity to present their case before an independent and unbiased tribunal.^[9] The doctrine occupies a central position in derivative actions under the CAMA 2020.^[10] As derivative actions constitute a statutory exception to the rule of corporate autonomy and majority control, their legitimacy depends on strict compliance with constitutional due process. Consequently, the fair hearing provisions of section 36 of the Constitution apply with full force to derivative proceedings, notwithstanding their representative and exceptional nature.^[11]

A derivative action is an action brought by a minority shareholder to enforce the rights of a company against a wrongdoer where the company itself is unwilling or unable to act. It has been described as “a claim asserted by a shareholder on behalf of the corporation.”^[12] Derivative actions typically arise from allegations of negligence, breach of fiduciary duty, default, mismanagement, or abuse of corporate power by directors, officers, or controlling shareholders. Because such proceedings directly affect the reputational, proprietary, and managerial interests of those accused of wrongdoing, any procedure that authorises litigation in the company’s name against its management must afford the alleged wrongdoers a fair opportunity to be heard before adverse judicial decisions are made.

Procedural Safeguards, Judicial Intervention, and Minority Protection

The CAMA 2020 establishes several procedural safeguards designed to prevent the abuse of derivative actions while protecting the constitutional rights of all parties involved. These safeguards are particularly important because derivative actions are exceptional proceedings instituted by shareholders on behalf of the company.^[13] Consequently, courts must exercise considerable caution in determining whether such actions should be permitted to proceed.

One of the principal safeguards under CAMA 2020 is the requirement that an applicant obtain leave of court before instituting a derivative action. This requirement serves as a judicial filter intended to prevent frivolous, vexatious, speculative, or malicious claims against directors and controlling shareholders. Before granting leave, the court must be satisfied that the applicant is acting in good faith, that the proposed action appears to be in the best interest of the company, and that there is a serious question to be tried.^[14] These conditions underscore the court’s supervisory role in ensuring that derivative proceedings are not used as instruments of personal vendetta or corporate harassment.^[15]

The leave requirement also reinforces the principle of fair hearing. Since derivative actions frequently involve allegations of fraud, breach of fiduciary duty, negligence, mismanagement, or abuse of power against directors and officers, the persons against whom such allegations are made must be afforded a reasonable opportunity to respond before the court makes any decision capable of adversely affecting their rights or interests.^[16]

Another important procedural safeguard is the requirement of proper representation. Since a derivative action is instituted on behalf of the company, the court must ensure that the company’s interests are adequately represented throughout the proceedings. Accordingly, the applicant shareholder must demonstrate that the company is unwilling or unable to institute the action because it is controlled or influenced by the alleged wrongdoers.^[17] This requirement prevents unnecessary judicial interference in companies’ internal management while preserving the integrity of corporate governance structures.

Judicial intervention remains indispensable in derivative proceedings because of the delicate balance between corporate autonomy and minority shareholder protection.^[18] The court performs a gatekeeping function by scrutinising the applicant’s motives, the nature of the alleged wrongdoing, and the company’s overall interests.^[19] This supervisory role helps prevent abuse of the derivative remedy while ensuring that genuine acts of corporate misconduct do not escape judicial scrutiny merely because the alleged wrongdoers control the company.

The rigidity of the rule in Foss v Harbottle^[20] tempered by well-established common law and statutory exceptions designed to prevent injustice. These exceptions are expressly provided for in section 343 of CAMA 2020.^[21] The Supreme Court recognised these exceptions in Mainstreet Bank Reg. Ltd. v. Oshinuga,^[22] where it held that individual members may institute actions against a company in the following circumstances: to restrain an illegal or ultra vires act; to prevent a fraud on the minority, particularly where those responsible for the wrongdoing use their controlling interest to prevent the company from taking action; to restrain the implementation of an act requiring a special resolution where the resolution was improperly passed; and to protect the individual rights of a member.

The Court further observed that, like the rule itself, these exceptions have received statutory recognition under company law legislation. Under CAMA 2020, they are codified in sections 343 and 344, thereby providing minority shareholders with a legal basis for challenging corporate wrongdoing where strict adherence to the rule in Foss v Harbottle would otherwise deny them an effective remedy.

Conclusion

The doctrine of fair hearing remains a fundamental pillar of the Nigerian legal system and occupies a central position in derivative actions under the CAMA 2020. Given the exceptional nature of derivative proceedings and their departure from the principle of majority rule established in Foss v Harbottle, strict compliance with constitutional due process is essential to their legitimacy. Derivative actions provide an important mechanism for protecting minority shareholders by enabling them to seek redress on behalf of the company where those in control are responsible for corporate wrongdoing.

The effectiveness of derivative actions ultimately depends on the ability of Nigerian courts to balance corporate autonomy, minority shareholder protection, and procedural fairness. Courts must continue to exercise their supervisory powers in a manner that prevents oppression, protects the rights of all parties, and promotes corporate accountability. By maintaining this balance, derivative actions will continue to serve as an effective tool for corporate governance and procedural justice under CAMA 2020.

Reference:

1. Success Alabi & Ifeoma Ezenwa, ‘Understanding the Concept of Fair Hearing in Nigeria’ (2025) https://oal.law/understanding-the-concept-of-fair-hearing-in-nigeria/ accessed 9 April, 2026. ↑
2. Adigun v Attorney-General of Oyo State (1987) 1 NWLR (Pt 53) 678 (SC). ↑
3. Section 37 and 38 of Companies and Allied Matters Act, (CAMA), 2020 ↑
4. Foss v Harbottle (1843) 2 Hare 461; 67 ER 189. ↑
5. (Supra); Edwards v. Halliwell (1950) 2 ALL E.R. 1064. ↑
6. Companies and Allied Matters Act, 2020, section 341. ↑
7. (2025) 6 NWLR (Pt. 1986) 289 ↑
8. (P. 321, paras. B-D); State v. Yanga (2021) 5 NWLR (Pt. 1769) 375 ↑
9. Kotoye v Central Bank of Nigeria, CBN, (1989) 1 NWLR (Pt. 98) 419 ↑
10. Companies and Allied Matters Act, 2020 ↑
11. Section 36 of the Constitution of the Federal Republic of Nigeria, 1999 (as amended) ↑
12. B Welling, Corporate Law in Canada: The Governing Principles (2nd edn: Toronto: Butterworths, 1991) p. 544; G K Sahu, ‘Investors Protection: The Derivative Action’, (2017) 3(3) International Journal of Law, 101. ↑
13. Section 346 of CAMA, 2020 ↑
14. Knight v Frost 1989) BCLR 364 ↑
15. Unity Bank Plc v. Chori [2021] LPELR-55720[CA] 27 ↑
16. Robbins LLP, ‘Shareholder Rights & Fiduciary Duties’ (2026) https://robbinsllp.com/practice-areas/shareholder-rights-fiduciary-duties/ accessed 12 May, 2026. ↑
17. Yahia Nazroo & Fatema Mohidinkhan, ‘Derivative Action: A Shareholder’s Remedy to Protect the Interests of the Company’ (2026) https://www.mondaq.com/shareholders/1414784/derivative-action-a-shareholders-remedy-to-protect-the-interests-of-the-company accessed 12 May, 2026. ↑
18. Sean Tan Yang Wei and Asha Khoo Sue Ann, ‘The Shareholders’ Derivative Action: An Overview’ (2020) https://www.thomasphilip.com.my/articles/the-shareholdersr-derivative-action-an-overview/ accessed 12 May, 2026. ↑
19. Celcom (M) Bhd v Mohd Shuaib Ishak [2011] 3 MLJ 636; Abdul Rahim bin Suleiman & Anor v Faridah bt Md Lazim & Ors [2016] 6 MLJ 449 ↑
20. (Supra) ↑
21. CAMA, 2020, s. 343 ↑
22. (2025) 5 NWLR (Pt. 1984) 727 ↑