international journal of business law - baze university abuja

(2019) 3 IJBL

INTERNATIONAL

JOURNAL

OF BUSINESS LAW

November 2019, Issue 3

ISSN 2329-261X

Published by

© 2019 International Legal Platform

406 Jones Falls Ct.

Bowie, MD 20721, U.S.A.

www.journalofbusinesslaw.com

(2019) 3 IJBL

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ABOUT INTERNATIONAL JOURNAL OF BUSINESS LAW

The International Journal of Business Law (IJBL) is a peer-reviewed annual journal

published by International Legal Platform. The Journal provides a medium for the

publication of thoroughly researched articles, notes and commentaries on business law

subjects. It presents both academic and practical analysis of legal issues by business law

practitioners from the perspective of both the developed and developing nations. It also

provides avenue for examining the developments of the various aspects of Business

Law with a view to proffering recommendations for reform. IJBL particularly focuses

on topics from the following areas: Banking, Business Law, Commercial Arbitration,

Commercial Transactions, Consumer Law, Corporate Law, Finance Law, Intellectual

Property, International Trade, Investment Law, and Tax Law. Articles, notes and

commentaries published by the journal are written by seasoned experts in the various

fields. The articles are selected on the recommendations of a peer-review panel. The

three-member peer-review panel for each material is constituted from a pool of screened

leading professionals in their respective fields. The journal is edited by a team of

business law professionals under the guidance of an advisory editorial board made up of

foremost scholars.

The Publishers:

IJBL is published by International Legal Platform, Bowie, Maryland, United States of

America. The object of International Legal Platform is to promote cross-border

education and scholarship, particularly in the areas of law and social order.

(2019) 3 IJBL

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ADVISORY EDITORIAL BOARD

PROF. ANDREW TERRY

University of Sydney, Australia

PROF. ARTHUR COCKFIELD

Queens University, Kingston Ontario, Canada

DR. CHARLES QU

School of Law, City University of Hong Kong

EMMANUEL GAILLARD

Sciences Po Law School, Paris, France

PROF. FIDELIS ODITAH, Q.C.

South Square Chambers, Gray’s Inn, London, U.K.

GARY BORN

WilmerHale, London, U.K.

PROF. JODIE KIRSHNER

University of Cambridge, U.K.

DR. LAURA BENY

University of Michigan Law School, Michigan, U.S.A.

MICHAEL HWANG, S.C.

Chief Justice of Dubai International Financial Centre Court.

Editorial Committee

PROF. DOMINIC BADAIKI (Editor-In-Chief)

Faculty of Law, Ambrose Alli University, Ekpoma, Nigeria

TANIKIA ROBERTS-HEAD

Social Security Administration, Office of Appellate Operations, U.S.A.

DR. KUN FAN

Chinese University of Hong Kong

DR. RICHARD BAGUDU

Bagudu, Uba & Associates, Maryland, U.S.A.

MARGARITA SANCHEZ

Disan LLP, Washington D.C.

SUJATA CHAUDHRI

Sujata Chaudhri IP Attorneys, India

CHERYL KLUWE

Panum Group, LLC. Washington D.C.

(2019) 3 IJBL

iv

SUBMISSION OF ARTICLES AND BOOK REVIEWS

The International Journal of Business Law welcomes articles, commentaries and book

reviews in diverse areas of business law, including Banking, Business Law, Commercial

Arbitration, Commercial Transactions, Consumer Law, Corporate Law, Finance Law,

Intellectual Property, International Trade, Investment Law, and Tax Law.

All submitted articles are screened by the editorial committee and then evaluated by a

peer-review panel. Members of the panel are selected from a pool of accomplished

scholars and academics in their various fields. All articles submitted for consideration

must be original and must neither have been published nor submitted for publication

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Legal Platform.

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FOOTNOTES

All citations should follow the Uniform System of Citation (The Blue Book).

EDITING

The editors reserve the right to copy edit articles as they deem fit and suitable without

consulting the author. However, the editors will not do any substantive editing without

consultation with the author.

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ORDERS/SUBSCRIPTION

Subscription to International Journal of Business Law could be for the print or Online

edition or for both. An Online subscription grants unlimited access to the journal.

Yearly subscription for the print edition is as follows:

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Payment for subscription could be by credit cards bearing VISA, MASTERCARD or

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All articles, notes and commentaries published in the International Journal of Business

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International Journal of Business Law

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(2019) 3 IJBL

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CONTENTS

Delineation of the Legal Status of Directors: An Assessment of Conventional

Descriptions.

Dominic Badaiki 292

African Continental Free Trade Area Agreement: Is there a need for a

Continental Competition Law Regime?

Wiseman Ubochioma 318

Legal Framework for the Protection of Telecoms Consumers in Nigeria.

D. A. Akhabue 339

Historical Perspective of International Commercial Arbitration Laws

in Canada.

Blessing Badaiki 356

The Role of the Audit Committee in Securing Corporate Accountability

in Nigeria

Godwin Omonigho Emeriewen 372

Regulatory Compliance by Banks and Telecommunication Companies

in Nigeria: A Critique

Osariemen Sandra Akhionbare 399

Judicial Approach to Freedom of Mortgage Contract in Nigeria

Olumuyiwa Aremu Ogunseye 423

BOOK REVIEW

Commercial Arbitration Law and Practice in Nigeria through the Cases

Reviewer: A. D. Badaiki 433

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CONTRIBUTORS

DOMINIC BADAIKI, PhD: Professor, Faculty of Law, Ambrose Alli University,

Ekpoma, Nigeria.

WISEMAN UBOCHIOMA, PhD: Lecturer at Law, Baze University, Abuja; Partner,

Blackfriars LLP, Nigeria.

D. A. AKHABUE, PhD: Senior Lecturer, Faculty of Law, Ambrose Alli University,

Ekpoma, Nigeria.

BLESSING EGHE BADAIKI: Legal Practitioner, Hybrid Solicitors, Lagos Nigeria.

GODWIN OMONIGHO EMERIEWEN: Legal Practitioner and Chartered Accountant,

Manchester United Kingdom.

OSARIEMEN SANDRA AKHIONBARE: Lecturer, Faculty of Law, Ambrose Alli

University, Ekpoma Nigeria.

OLUWAMUYIWA AREMU OGUNSEYE, PhD: Legal Practitioner and Solicitor,

England and Wales.

International Journal of Business law, November 2019, Issue 3 (2019)3IJBL

292

DELINEATION OF THE LEGAL STATUS OF DIRECTORS: AN

ASSESSMENT OF CONVENTIONAL DESCRIPTIONS

Prof. A.D. Badaiki*

I. INTRODUCTION

A company is an artificial entity and so cannot act by itself. It carries on

its business and activities through human beings such as directors, vested with

direct or delegated powers. As a group, directors constitute a Board of Directors1

who functions as an organ of company management. A determination of legal

status of a person in law is relevant to knowing how the law regards that person,

and the powers, rights and duties of such a person. The article gives a legal

definition of “director”, his appointment and removal as well as an assessment of

conventional descriptions of the position of directors as an organ trustee, agent

and servant or employee.

II. LEGAL DEFINITION OF DIRECTOR

A number of sections in the CAMA define the term “director”. Section

244(1) defines a director as a person duly appointed by the company to direct and

manage the business of the company.2 Further, section 245(1), like the second

arm of section 650 of CAMA defines a director to include a shadow director, that

is, “any person on whose instructions and directions the directors are accustomed

to act”. There is a need to reconcile the two sections. Essentially, one has to look

at the context in which the word is used. Section 245(1) is not necessarily

inconsistent with section 244(1). It can be argued that by giving instructions and

directions, such persons are directing and managing the business of the company.

But that reasoning should be taken with a pinch of salt because a person may be

giving instructions and yet not be a director within the definition. It has to be

instructions which director has to obey. Such will be a director representing

special interest. Section 245(3) states that a person who is given advice by a

person in professional capacity and on which a director acts is not a shadow

director. However, in Re a Company (No. 005009 of 1987)3 where a creditor

bank gave instructions upon which an insolvent company was managed, it was

held that the bank could be regarded as a shadow director. Who then is a shadow

director? He is a person who pulls the strings from behind the “shadow” – an

invisible hand that directs affairs.

In a more general way, the first arm of section 650 of the CAMA defines a

director to include “any person occupying the position of director by whatever

*Faculty of Law, Ambrose Alli University, Ekpoma, Edo State, Nigeria. 1 Other nomenclatures include governors, governing body, governing committee or any other

similar expression: J. OLAKUNLE OROJO, COMPANY LAW AND PRACTICE IN NIGERIA, 3rd ed., Mbeyi & Associates (Nig.) Ltd., Lagos, 1992, p. 295.

2 See Charitable Corporation v. Sutton (1742) 2 At. K. 400 p. 405 where Lord Hardwicke referred to directors’ power to “direct and superintend the affairs of the corporation”.

3 (1988) 4 BCLC 242

292

Badaiki: Delineation of the Legal Status of Directors: An Assessment of Conventional Descriptions.

293

name called”.4 The definition in section 650 of the CAMA covers those in

sections 244 and 245 CAMA. It is quite wide and capable of interpretation to

incorporate all persons who, by their activities, irrespective of their nomenclature,

perform the functions of a director or hold themselves out as directors5 or are

being held out by the company6 as directors. It is tempting to aver that persons

who are not duly appointed by the company to direct and manage the business of

the company” within the meaning of section 244(1) of the CAMA but who, in

fact, direct and manage the business of the company or hold themselves out may

sometimes qualify as directors on the basis of appointment arising by estoppel or

holding out, and thereby become liable in damages, to account, and be restrained

from so directing and managing.7 That would amount to saying that a de facto

director is as much in a fiduciary position as a de jure director.8

However, the major caveat is that section 244(3) of the CAMA makes it a

criminal offence for a person not duly appointed to act or who holds himself out

as a director, such a person can be restrained by the company. “If it is the

company that holds him out as a director, it shall be liable to a fine of N1,000.00

each day it holds him out, and he and the company may be restrained by any

member from so acting unless or until he is duly appointed”.9 It would be absurd

to regard a person as a director for holding himself out as such within the

provision of section 244(3) CAMA. Clearly, such a person is still not a director

within sections 244, 245 or 650 of the CAMA. When a person holds himself out

as a director, there is misrepresentation and the prescription of punishment for

such a fraudulent misrepresentation is well intended.10 By the implication of

section 244(4) CAMA, a company may never be deemed to appoint a person as

director by agency relationship so as to bind the company to a third party. The

proviso to section 250 CAMA states that where a company holds out a person as a

director, it is bound by his acts. This accords with the right conferred on the

company to contract like the individual, albeit on agency basis.11 It is also

consistent with the doctrine of agency or estoppel under which it can be bound12.

It is strange therefore that section 244(4) CAMA penalises a company which

4 The definition in S. 650 CAMA is in pari materia with s. 395(1) Companies Act, 1968 which was

applied in Iwuchukwu v. Nwizu (1994) 21 LRCN 68; (1994) 7 NWLR (Pt. 357) 379. See also S. 275(1) CAMA. This wide definition of the director may, in the intent of the legislator serves a particular purpose as in S. 20(5) of the Banks and Other Financial Institutions Act (BOFIA) 1991 which elongates the meaning of director to director’s wife, husband, father, mother, brother, sister, son, daughters and their spouses for the purpose of restricting grant of advances, loans and credit facilities and the remittance of debts owed by directors and former directors.

5 S. 24493) CAMA. 6 S. 244(4) CAMA. 7 Dipcharima v. Alli (1974) 1 All N.L.R. 420. 8 Coventry and Dixon’s case (1880) 14 Ch. D. 660 at 670. 9 S. 244(4) CAMA. 10 It is akin to a common law action by a third party for deceit or breach of warranty of authority

in the law of agency. 11 See S. 71(2) CAMA. 12 U.A.C. Ltd. v Owoade (1955) 13 WACA 207; (1955) A.C. 130; (1955) 2 WLR 13; (1955) 3 All ER

216.

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makes a representation that a person has its authority to act as its director and a

third party relies on such to his detriment and the company accepts responsibility

under the contract.

Of particular importance is the meaning of “a person duly appointed by

the company to direct and manage the business of the company”. The reference

to a “person” in this regard may extend beyond the natural person to the artificial

because the Interpretation Act defines person to include “corporation”.13 By that

principle, a limited company was held to be a director of another company.14 To

allow an artificial person to be a director may defeat the essence of the functions

of a director, which, to a large extent are personal. The word “individual” is to be

preferred if artificial corporate persons are to be excluded. Section 257 CAMA

rightly disqualifies a corporation but the representative of a company appointed to

the board for a fixed term is intended. The phrase “duly appointed” suggests that

a person’s appointment as a director must be expressly made. Further, it is

tempting to think that a person who though appointed a director, yet without the

necessary due process cannot fall within the definition. Such a process would

include a notification of the appointment to the Corporate Affairs Commission.15

The Corporate Affairs Commission is notified after appointment, so absence of

notice does not affect the validity of appointment. The company, must under the

provisions, be the appointor of the persons to be directors. Although the company

is regarded as a recognised legal entity at law, that power of appointment is vested

in the shareholders at General Meeting. By such power, the shareholders stand in

the position to choose persons, who in their estimation are qualified and

competent to manage their investments. Such a vantage position which the law

places the shareholders depends on how in reality the directors are appointed and

the actual role the shareholders play in the scheme.

Also, the definition suggests that the director is charged with the functions

of “directing and managing the business of the company”. In this context, the

director is one who “directs” and “manages” the business of the company. “To

direct”, in its ordinary sense, is to tell or show somebody how to do something; to

manage; to control.16 Similarly, the word “manage” is defined as to control the

business operations of a company.17 Thus, on appointment, directors are given

the power of management of the business18 of a company. This explains why

directors are sometimes regarded as controllers.19 The general management of the

company is thereby vested in the directors.20 In that sense, Mellish L.J. in Re

Marseilles Extension Railway21 defined a director thus: “A director is simply a

person appointed to act as one of a board, with power to bind the company when

13 See S. 14 Interpretation Act Laws of the Federation of Nigeria 1990, Vol. X, Cap. 192 14 Re Bulawayo Market Co. (1907) 2 Ch. 458. 15 S. 555(c) CAMA 16 A. S. HORNBY, OXFORD ADVANCED LEARNERS’ DICTIONARY, Oxford University Press, London,

p. 245. 17 Op. Cit., p. 524. 18 That is commercial enterprise: See A. S. Hornby, Op. Cit., p. 115. 19 Moriarty v. Regent’s Garage Co. Ltd. (1921) 1 K.B. 446. 20 See S. 63(3) CAMA; Iwuchukwu v. Nwizu, supra. 21 Ch. 161.

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acting as a board but having otherwise no power to bind them”. As an organ, a

board of directors can bind the company. A director may be executive or non-

executive.22 The shareholders have no power by ordinary resolution to give

directions to the board of directors, or overrule its business decisions, or to usurp

its management prerogative even where the board validly delegates its powers.23

That principle of non-interference by shareholders reinforces that the law-makers

intended to make directors persons charged with governance of a company. In

order to remove the hotch-potch definitions of a director under CAMA, the

following definition of a director is suggested: “A director means any individual

appointed by the shareholders in General Meeting or a representative of a

corporate body given the responsibility to direct and manage the business of a

company. For the purpose of this definition, a director includes a shadow

director. Any person on whose instructions and directions directors are

accustomed to act is a shadow director. Any person who without being appointed

is held out as a director by the company or makes a false representation that he is

a director shall not be regarded as a director.”

III. APPOINTMENT OF DIRECTORS

A. Mode of Appointment of First and Subsequent Directors

Directors of a company can be appointed on the formation of a company

and thereafter when there is a vacancy of the office of directors. Section 246

CAMA provides that the first directors shall be appointed in writing by the

subscribers of the memorandum of association or a majority of them24 or may be

named in the articles. Section 248 CAMA vests that power in the members at the

Annual General Meeting to appoint directors by electing, re-electing or rejecting

directors and appointing new ones. Osunbor has rightly taken an exception to the

use of the phrase “or reject” directors under the section as it does not state

precisely what it is intended by it since “removal of directors” has been covered

in section 262 CAMA.

For such appointment to be valid, it should be made in such a properly

convened and conducted Annual General Meeting25 In Onwuka v.Taymani &

Ors,26 the articles provided that the number and names of the first directors

22 The executive director (full-time or outside) devotes his full-time to the business of the

company and is paid a salary unlike the non-executive (part-time independent) who merely attends board meetings and uses his connection to attract business to the company and he is paid a meagre fee of allowance. However, their status, duties and liabilities and so on are the same.

23 Ukpilla Cement Co. Ltd. v. Igiekhume (1979) 1 F.C.A. 64; Automatic self-Cleansing Filter Syndicate Co. v. Cunnighame (1906) 2 Ch. 34; Gramaphone & Typewriters Ltd. v. Stanley (1908) 2 K.B. 89 at 98 & 105; Quin & Axtens v. Salmon (1909) A.C. 442; John Shaw & Sons (Salford) Ltd. v. Shaw (1935) 2 K.B. 113; Scott v. Scott (1943) 1 All E.R. 582; Grundt v. Great Boulder Proprietory Gold Mines Ltd. (1948) Ch. 145 at 157; S. 65(4) CAMA. These cases contrast with Marshall’s Valve Gear Co. V. Manning Wardle & Co. (1909) 1 Ch. 267.

24 This provision is in pari materia with Article 75 of Table A, Schedule 1, Companies Act, 1968. 25 The Central Bank of Nigeria had rejected the Board of Directors of Savannah Bank of Nigeria

Plc after privatisation, on ground of irregularity in procedure of the bank’s General Meeting. 26 (1965) L.L.R. 62.

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“should be determined in writing by a majority of the subscribers to the

memorandum of association. The plaintiff and defendants who subscribed to the

memorandum of association of the company were allegedly appointed at the first

General Meeting of the company as its first directors. In an action by the plaintiff

seeking a declaration that he had been validly appointed as director, but that the

defendants had not been validly appointed, Alexander, J. held that the meeting at

which the purported appointments were made was invalid. Where the plaintiff’s

witnesses gave evidence that they were directors of the company in whose name

they initiated an action, but the minutes of the meeting were not tendered in

evidence, it was held that there were no sufficient evidence that any director of

the company had been appointed after its first directors had died and the ipsi dixit

of and unauthorised assumption of office were not sufficient27. Where the

appointment of a director was defective in that it was originally never made

because the meeting of the board in which the purported appointment was made

was contrary to a provision in the Articles of the company, the court would

restrain the purported director from acting as such.28

It is noteworthy that the court has no inherent power to appoint directors

for a company even if the purpose for such an appointment is to prevent it from

contravening the provision of the section.29 Accordingly, the court had declared

invalid and of no effect the appointment by “co-option” of directors pursuant to a

court-ordered meeting.30

In a public limited company, the shareholders must vote on a resolution

for the appointment of directors individually as two or more directors cannot be

appointed on a single resolution, except that procedure is first unanimously

agreed on in the General Meeting. Where there is an appointment of a director by

a General Meeting at which the result of a poll is announced at a date other than

the date of the poll, it has been held that the poll itself dates from the

ascertainment and not the taking of the poll31. The rationale for this prohibition of

a composite motion is to enable the shareholder to appoint a particular director he

approves of without compelling them to appoint others of whom he disapproves32.

If that procedure is not adopted, any appointment of a director is void and of no

effect33.

In companies in which government has the majority shareholding,

appointment of first and subsequent directors or some of them is by the

appropriate governmental authority as stipulated by the articles of the company.

27 Asaboro v. Western Nigeria Finance Corporation (1974) 1 A.L.R. Comm. 266; Bozak (Nig.) Ltd. v.

Ziregbe (1978) 4 F.R.C.R. 84 where Okunribidu, J. found that there was no evidence that two brothers who gave evidence and said that they and their other two brothers are the four directors of the plaintiff company.

28 Miroslavprichlik v. Marsh and Others (1961) 1 N.L.R. 59. 29 Fadipe v. The Manager U.B.A. Ltd. Ikeja (1973) 3 F.R.C.R. 154. 30 Iro v. Park (1973 – 74) 1 F.R.C.R. 184. 31 Holes v. Keyes (19590 Ch. 199. 32 PALMER’S COMPANY LAW Vol. 1 (1982) p. 796. 33 PALMER, id. where that view was expressed on S. 183 of the English Companies Act, 1948.

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Such articles would provide for a reserve power of appointment of directors or

some of them to the government.34

Where the articles give power to an outsider to appoint one or more

directors, the company is bound to accept the appointee and an injunction will lie

at the instance of the appointor, if the company refuses except it is shown that the

appointee is unsuitable on personal grounds35. That situation is to be distinguished

from where an outsider is merely given a right to nominate persons for the

appointment for under the later situations; neither injunction nor specific

performance will lie.36

B. Casual Vacancy

If there is a casual vacancy on the Board of Directors, arising out of the

death, resignation, retirement or removal of a director, the Board may fill it,37 but

in that case the appointed director may be approved by the next Annual General

Meeting; if not so approved, he shall forthwith cease to be a director.38 Casual

vacancy is restricted to the situations under which a director vacates office under

section 249(1) CAMA. It may not include any vacancy caused by effluxion of

time or retirement by rotation.39 Any article empowering a director to assign his

office to another person entails that any such assignment is ineffective until

approved by a special resolution of the company40.

The power granted to the board to fill a casual vacancy is consistent with

the power to direct and manage the business of a company, which the functions of

the director entail under the law, but it does not extend to create vacancies. It is

part of the ostensible authority of the directors as agents of the company. The

subsequent approval by the shareholders at Annual General Meeting amounts to

ratification. Failure to give such an approval will merely render the appointment

voidable and not void. If the appointment of a director is subsequently discovered

to be defective, the validity of the acts of such a director cannot be impugned

notwithstanding any defects that may afterwards be discovered in his appointment

or qualification41. As long as the acts of such de facto directors affect the interests

of the public and third persons, the law on ground of policy and justice will hold

the acts valid42. However, where the articles stipulate that the directors shall have

exclusive power to appoint additional directors, a General Meeting has no power

to do so.43 The ambit of such article provision is a matter of construction whether

it takes away the power of the company in General Meeting.44 The power given

to the directors to fill casual vacancy in the position of a director ensures the

34 For e.g. see the articles of association of Owan West Development Co. Ltd. 35 British Murac Syndicate Ltd. v. The Aperton Rubber Co. (1915) 2 Ch. 186 36 Plantations Trusts v. Poila (Sumaira) Rubber Lands (1916) 85 L.J. Ch. 801 37 S. 249(1) CAMA 38 S. 249(2) CAMA 39 Munster v. Cammel Co. (1882) 21 Ch. D. 187. 40 The same provision was in S. 204 of the 1948 English Companies Act. 41 S. 260 CAMA. 42 Pool House Group Nig. (Ltd.) v. African Continental Bank Ltd. (1969) NMLR 47. 43 Blair Open Hearth Furnace v. Reigart (1913) 108 L.T. 665. 44 Worcester Cousetry Ltd. V. Witting (1936) Ch. 640.

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appointment of their choice of new directors and can foster a system of self-

perpetuation of directors and thereby have effective control over the running of

the company while eroding shareholders’ control.

C. Duration of Appointment

A resolution to appoint a director would of necessity stipulate the duration

of such an appointment. Duration is determined by the articles or the resolution of

a company as stated in the letter of appointment. Where a determinable date of the

duration of the director is not so stated, it is submitted that the appointment

determines at the next Annual General Meeting. A person may be appointed a

director for life but such an appointment does not confer any special privilege or

guarantee longevity of office since he can be removed at any time

notwithstanding the article provision or any other term of contract45. The terms of

the appointment of a director for life or some indefinite period must be clear and

definite.

However, if all the directors and shareholders die46, any of their personal

representatives shall be able to apply to the court for an order to convene a

meeting of all the personal representatives of the shareholders entitled to attend

and vote at a General Meeting to appoint new directors to manage the company47.

D. Number of Directors

For the purpose of discussing the minimum number of directors required

by law for companies to have, two situations arise based on companies registered

before the first day of January, 1990 and those registered on or after that date. A

company registered on or after that date must have a minimum of two directors. A

company registered before that date must have at least two directors within six

months from the commencement date of the CAMA48. Section 246(2) provides

that where the number of “directors falls below two, the company shall within one

month of its falling appoint new directors and shall not carry on business after the

expiration of one month, unless such new directors are appointed”. A director or a

member of a company who knows that a company carries on business after the

number of directors has fallen below two for more than 60 days shall be liable for

all liabilities and debts contracted by the company during that period when the

company so carried on business49. Osunbor disagrees with the principle of making

director and member liable. 50 Where the articles of a company provide for the

minimum number of directors and the number falls below that minimum, the

remaining directors cannot validly act unless the articles provide that their acts

shall be valid notwithstanding any vacancy, in their number. Such an article may

45 S. 262 CAMA. 46 As in Re Noel Tedman Holding Property Ltd. (1967) Qd. L. 561 referred to by Gower (4th ed.)

pp. 105, 114. 47 S. 248(2) CAMA. 48 S. 266 (V) CAMA. This applies to the companies registered before 1st October, 1968 and which

were permitted by the Companies Act, 1968 (s. 168) to continue to operate with one director. 49 Odulana v. Globe Fishing Industries Ltd. (Unreported) Suit No. FHC/L/55/60 of 30/6/81. 50 O. A. Osunbor, The Company Director: His Appointment, Power and Duties in ESSAYS ON

COMPANY LAW, (ed) E. O. Akanki, University of Lagos Press, Akoka, Lagos (1992) p. 132.

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either be imperative51 or directory52. In order for such a provision to validate an

act, it must not be done with less than the statutory minimum53.

The purpose of having a minimum of two directors is to use two heads in

the management of the affairs of the company and to prevent fraudulent

machinery by a one-man management54.

To what extent is the power of the shareholders in General Meeting in

determining the minimum and maximum number of directors, reduce or increase

such numbers? Section 249(3) CAMA provides as follows: “The directors may

increase the number of directors so long as it does not exceed the maximum

allowed by the articles, but the General Meeting shall have power to increase or

reduce the number of directors generally and may determine in what rotation the

directors shall retire: provided that such reduction shall not invalidate any prior

act of the removed directors”. It would appear that the intention of the law –maker

by the language of the sub-section is to give unrestricted power to the

shareholders in General Meeting to increase and determine the maximum number

of directors. Every company has an article of association and the number of

directors is a matter which should be stated in the articles and the exercise of the

power under the sub-section must be read subject to and not in contravention of

the articles of a company.

The minimum number of directors that a company must have is a

prescription of law55. However, the number of directors that a company may have

is entirely left for the company to determine provided that it does not exceed the

maximum allowed by the articles. The General Meeting is empowered to reduce

or increase though not below the statutorily prescribed minimum and as

prescribed by articles in respect of the maximum. That is the only interpretation

that can be derived from the provisions of section 249(3) CAMA. A desire by the

shareholders to increase the number of directors above the number prescribed by

the Articles would, as a matter of procedure, entail that the articles be first

amended to reflect the new maximum number of directors.

There remains how to reconcile the power of the General Meeting to

increase the number of directors with that also vested in the board of directors.

The board can increase the number of directors within the number stipulated in

the articles but has no power to enlarge the number stated in the articles; it is only

the General Meeting that can do so. The power granted to the board does not

conflict or derogate from that granted the General Meeting; it is intended to

enable the board meet the exigencies of business management. The power granted

the directors to increase the number of directors is of little or no use since it is

circumscribed by the articles and the board cannot appoint directors except to fill

casual vacancy.

51 Re Bank of Syria (1900) 2 Ch. 272; Re Cottish Petroleum Co. (1883) 23 Ch. D. 413; Re Alma

Spinning Co., Bottomley’s case (1880) 16 Ch. D. 681. 52 Re Sly Spink & Co. (1911) 2 Ch. 420; Re Alma Spinning Co. (supra). 53 Thomas Haven Dock & Cly, Co. v. Rose (1842) 4 Mars. & Co. 552. 54 Re Sly Spink & Co. (supra); Re Bank of Syria (Supra), Re Scottish Petroleum Co. (Supra). 55 PALMER, op. cit. p. 795

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E. Alternate and Associate Directors

Where the articles of a company allow it, an alternate56 director and

associate director57 may be appointed58. Such an appointment is not made by the

shareholders in General Meeting. An alternate director is appointed by a director

at whose pleasure he holds office. An associate director is appointed by the Board

of directors. The mode of appointment of alternate and associate directors does

not derogate from the shareholder’s power to appoint directors. While it is not a

delegation of shareholders’ power to appoint directors, it enhances the directors’

power of management because it gives an opportunity to the directors to have

persons needed to carry on the responsibility of managing the business of the

company.

F. Executive or Special Directors

The Articles of Association of a company may at times give the company

or the directors power to appoint executive or special directors. In practice, the

“executive” or “special director” is an employee of the company whose status has

been raised to that of a director, but who continues essentially as such employee.

His status is usually limited by the articles but may eventually be elevated to full

directorial status.59 However, there are at times when a person is appointed an

executive director with full directorial status by a company right from when his

appointment was first made.

G. Qualification and Disqualification of Directors

Apart from the provisions of the law disqualifying a person from

becoming a director, a company may set out qualifications for directors and that

has been regarded as part of its inherent powers to adopt reasonable regulations

for its governance. In order to qualify for appointment as a director, a person does

not need any special qualifications, academic or professional. The common law

position is that the office of a director does not constitute a profession because no

special skill is required to be a director. However, an academic or professional

qualification may give an advantage to a person who is being proposed for the

position of an executive director especially60.

Ownership is not mandatory for a person to qualify for appointment as a

director except the articles of the company impose a share qualification within

two months of his appointment. That makes possession of share a condition

precedent to election or if elected, to de jure directorship. The consequence of

56 S. 246 CAMA. That is a person to whom a director has temporarily delegated his powers and is

allowed to attend meetings of the board of directors in place of his appointor. He may be another director or an outsider. He is subject to the duties imposed on directors and may be personally liable for breach of these duties.

57 That is usually a very senior management officer who is conferred with the title more as a mark of distinction rather than legal status. He is not a member of the board of directors but he may attend board meetings if he is invited when his opinion on technical or professional matters is required.

58 K. D. Barnes, CASES AND MATERIALS AND NIGERIAN COMPANY LAW, Obafemi Awolowo University Press Ltd., Ile-Ife, 1992.

59 Iwuchukwu v. Nwizu, supra. 60 This is so in the case in which the professional expertise has a bearing with the position and

duty of such a director, for examples, in the bank, stock exchange, media, etc.

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failure to obtain the share qualification after that period or any time is that a

director will lose his office61 as he does not become a director de jure.62

Furthermore, such a director is liable to pay a fine of N50.00 for every day that he

acts as a director63. However, if a director inadvertently acts without having

acquired his share qualifications, he may be relieved of liability for the acts by the

court64. It is submitted that the liability from which the court should relieve the

director extends to criminal liability because the requisite mental element (mens

rea) for criminal liability becomes non-existent. In relation to other persons,

where a director acted after ceasing to hold his share qualifications, his acts may

be valid as the defect is saved65 unless the person has actual knowledge of the

defect at the time of the act.66

The rationale for a requirement for directors’ share qualification,

according to its proponents, is that directors are likely to perform their functions

better because of the higher level of commitment to company matters if they hold

shares in their companies than if they do not.67 The empirical basis for such a

view is not conclusive and after all, directors who are not necessarily the main

shareholders of companies enjoy more benefits as directors than as shareholders.68

The shares are not necessarily held beneficially even where a director is required

to acquire shares “in his own right.” 69 Usually, unless the articles of the company

otherwise stipulates, the amount of shareholding qualifications is very small to

enable all directors to pay.70 Furthermore, a director’s fiduciary duty does not

arise in his separate capacity as a shareholder. In Mills v. Mills71 a company’s two

largest shareholders were also its directors. One of them voted with a majority of

directors to capitalize profits and to increase his voting power. The court upheld

the validity of the resolution even though the defendant director would gain by it.

Lathan, C.J stated as follows:

Directors have an interest as shareholders in the

company of which they are directors… Ordinarily,

therefore, in promoting the interests of the

company, a director will also promote his own

interests. I do not read the general phrases, which

are with reference to the obligations of directors to

act solely in the interest of the company as meaning

61 S. 251(3) CAMA. 62 See Jenner’s case (1877) 7 Ch. D. 132. 63 S. 251(5) CAMA. 64 Re Barry and Staines Linoleum (1934) Ch., 227. 65 Dawson v. African Consolidated Land and Trading Co. (1898) 1 Ch. 6; Mahoney v. East Holyford

Mining Co. (1875) L.R. 869 where the decision was based on an article similar to the provision of S. 260 CAMA on validity of acts of directors whose appointments are defective.

66 Pool House Group v. ACB Ltd. (1969) NCLR 347; Onwuka v. Taymani (1965) L.L.R. 62; Morris v. Kansen (1946) A.C. 459.

67 See the statement of Lindley, L.J. in Re North Australian Territory Co. (1892) 1 Ch. 322 at 324. 68 O. A. Osunbor, The Company Directors: His Appointment, Powers and Duties, op. cit., p. 135. 69 Pulbrok v Richmond, etc. Mining Co. (1878) 9 Ch. D. 610. 70 See OROJO, J.O. op. cit. p. 301. 71 (1938) L.R. 60 C.L.R. 150.

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that they are prohibited from acting in any matter

where their own interests are affected by what they

do in their capacity as directors… It would be

ignoring realities and creating impossibilities in the

administration of companies to require that

directors should not advert to or consider in any

way the effect of a particular decision upon their

own interests as shareholders… A director who

holds… shares is not… required by the law to live

in an unreal region of detached altruism and to act

in a vague mood of ideal abstraction from obvious

facts, which must be present to the mind of any

honest and intelligent man when he exercises his

power as a director. It would be setting up an

impossible standard to hold that, if an action of a

director was affected in degree by the fact that he

was a … shareholder, his action was invalid and

should be set aside.72

Therefore, it is unsupportable the view that directors who do not own shares in

their company will be more inclined to use the company for their own benefit

than those who are shareholders.73

Under the law, it is not every person that can qualify for appointment as a

director. Section 257 CAMA disqualifies the following persons from being

directors –

(a) an infant, that is, a person under the age of 18 years;

(b) a lunatic or person of unsound mind;

(c) insolvent persons,74 fraudulent persons75 and bankrupts or persons who

make any arrangement or composition with his creditors generally,76

(d) a corporation other than its representative appointed to the board for a

fixed term.

If a representative of a corporation is appointed, it can be said that the

corporation and not its representative is appointed. After all, a corporation has a

legal personality and the right to be a representative of a corporation is conferred

by the corporation which cannot act by itself. This provision allows for

government-controlled corporations to have representatives in board of

companies. Similarly, section 258 CAMA provides as follows:

72 Mills v. Mills (1938) 60 C.L.R. 150 at 163. 73 See L. Noyes, Transactions in Corporate Control 104 U. PENN. L.R. (1956)725 at 729. 74 S. 253 CAMA. 75 S. 254 CAMA. 76 S. 258 (1)(b) CAMA. Ss. 253(1) and 254(6) CAMA make it a criminal offence for an insolvent or

fraudulent person to act as directors. Once a person has been convicted for an offence under the ss, he ceases to hold the office as director and cannot be appointed subsequently for such a person becomes a fraudulent person.

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The office of a director shall be vacated if the

director –

(a) ceases to be a director by virtue of section

251 of the Act, or

(b) becomes bankrupt or makes any

arrangement or composition with his

creditors generally; or

(c) becomes prohibited from being a director by

reason of any order made under section 254

of the Act or

(d) becomes of unsound mind; or

(e) resigns his office by notice in writing to the

company.

If a director is disqualified by any of the events named in section 258 CAMA, he

ceases to hold office and it cannot be waived by the directors.77 An insolvent and

fraudulent person is disqualified from becoming a director. 78 Some other statutes

may for the purpose of management of certain forms of business provide

additional disqualifications of persons from being directors.79

An old person is not ipso facto disqualified from being a director. A

person may be appointed a director of a public company notwithstanding that he

is 70 years or more of age80. However, such a person who is appointed or to his

knowledge proposed to be appointed director of a public company shall disclose

to the members in General Meeting the fact as to his being 70 or more years.

Special notice shall be required of any resolution appointing or approving the

appointment of such a director and the notice given company to its members shall

state the age of the person to whom it relates.81 Shareholders are thus given the

opportunity to be informed of the age of an old person proposed as a director and

decide on their choice of persons, irrespective of old age, who shall manage their

business.

Apart from disqualification, a director may vacate his office as a result of

resignation, retirement, removal, and appointment of liquidator or death.

H. Retirement and Rotation of Directors

Unless the articles otherwise provide, at the first Annual General Meeting

of the company, all the directors shall retire from office, and at the Annual

General Meeting in every subsequent year one-third of the directors for the time

being, or if their number is not three or a multiple of three, then the number

nearest one-third shall retire from office.82 It is clear from the provision of

section 259 CAMA that the shareholders have an opportunity to determine in the

articles the order in which they want the directors to retire. Even where that

77 Re The Bodega Co. Ltd. (1904) 1 Ch. 276. 78 S. 256 CAMA. 79 For example, s. 44 of the Banks and Other Financial Institutions Act disqualifies a person if he is

disqualified or suspended from practising his profession. 80 S. 256 CAMA. 81 S. 256 CAMA. 82 S. 259(1) CAMA.

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opportunity is not utilized or is abused, the provision of the law enables the

shareholders at the first Annual General Meeting to discontinue with all the

directors since the tenure of office of the directors ends by operation of law. An

early opportunity thus exists for the shareholders to exercise their control over

those to whom they assign the business of management. However, the principle of

rotation by which one-third of the directors shall retire from office at the Annual

General Meeting in every subsequent year is capable of entrenching miscreant

directors in the company for too long before they retire. A subtraction of one-

third of miscreant directors from all directors leaves a substantial number of

undesirable directors on the board. A method by which all directors except a

Managing Director who has performed satisfactorily retire, with not more than

two chances of offering themselves for re-election even if it is in principle, at

every Annual General Meeting is to be preferred to the rule that if the number of

directors is two, neither need retire.83

In that way, the excesses of some directors who become lord and master

of the shareholders by reason only of their long stay in office will be curbed

without necessarily doing so by the ultimate power of the shareholders to remove

directors.

The directors to retire in every year shall be those who have been longest

in office since their last election, but as between persons who became directors on

the same day those to retire shall (unless they otherwise agree among themselves)

be determined by lot.84 The criterion of longevity of office obviously can debar

directors from firmly rooting themselves in a company at the detriment of

performing their duties to the shareholders. It is speculative and unnecessary the

use of lot to determine the directors to retire. Such a method neglects the power

of the shareholders to take a decision on who should serve as a director, but rather

subject it to fortuity in which the directors concerned play the active role.

The company at the meeting at which a director retires as stated in section

259(1) and (2) CAMA, may fill the vacated office by electing a person to that

office and in default the retiring director shall, if offering himself for re-election,

be deemed to have been put to the meeting and lost.85 There is a great advantage,

in terms of the control power of the shareholders, for a rule on the election and re-

election of retiring directors. It enables the shareholders to enjoy the best of two

worlds, retiring directors who cannot serve the business management needs of the

company and re-electing directors who can do the shareholders’ bidding.

No person other than a director retiring at the meeting unless

recommended by the directors, shall be eligible for election to the office of

director at any General Meeting unless not less than 3 nor more than 21 days

before the date appointed for the meeting there shall have been left at the

registered office or head office of the company notice in writing, signed by a

member duly qualified to attend and vote at the meeting for which such notice is

given, of his intention to propose such persons for election, and also notice in

83 Re Moseley Sons Ltd. (1939) Ch. 719. That rule is borne out of 2 as the minimum number of

directors. 84 S. 259(2) CAMA. 85 S. 259(3) CAMA.

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writing signed by that person of his willingness to be elected.86 The requirement

that shareholders be notified of a member’s intention to propose a person other

than a retiring director for election is wise. It gives room for the shareholders to

make an independent investigation about the person proposed in order to enable

them exercise sound judgment during election of directors. While exercising their

right to so elect directors, the notices of consent to the directors give an assurance

to the shareholders that the person proposed as a director is aware and willing to

serve. One cannot but treat with disavowal the requirement that the minimum

length of such notice be 3 days because shareholders are scattered all over the

nooks and crannies of the country, sometimes too far from the registered office of

the company or to enable shareholders get the notice in three days. Furthermore,

the recommendation by the directors should be cumulative and not alternative to

the notice in question otherwise the directors, in a sense, become the repository of

power of appointment of directors, and companies stand the risk of being

managed by an oligarchy of directors who may conveniently emerge, govern the

companies in a manner oppressive and exploitative of the shareholders and defy

any form of control.

IV. REMOVAL OF DIRECTORS The golden rule of capitalism to the effect that he who has the right to “hire” also

has the right to “fire”20 is very much true of the power of the company to remove

directors. This power is set out in section 262(1) CAMA as follows: “A company may by

ordinary resolution remove a director before the expiration of his period of office,

notwithstanding anything in its articles or in any agreement between it and him.”

This power is quite wide and extends to power to remove all types of directors in

all cases at any time by an ordinary resolution. Even if a person is appointed as a

“director for life” in the articles or by any other form of agreement, he, like other

directors, can be removed by a simple majority of the votes cast by the members

at the General Meeting. It does not matter that in doing so, the articles have not

been complied with21 or the director to be removed has not completed his tenure

of office. For a director generally has no claim to any kind of tenure22 because the

power conferred on the shareholders to remove the director is a statutory one.

A great advantage lies in this powerful measure of control by the

shareholders over directors’ conduct. It gives an immense opportunity to the

shareholders to dismiss summarily, a director whose conduct is likely to

jeopardise the business interest of the company. This statutory power of removal

of directors by shareholders is the gravemen of shareholders’ control of corporate

management. Osunbor puts it succinctly as follows:

The statutory power conferred on members to

remove from office a director of whose conduct

they disapprove is one of the most potent weapons

for the way the company’s affairs are managed and

86 S. 259(4) CAMA. 20 P. S. FLORENCE, OWNERSHIP, CONTROL AND SUCCESS OF LARGE COMPANIES, (1961) p. 60. 21 Contrast s. 175 Companies Act 1968; Iwuchukwu v Nwizu, supra. 22 BARNES, op. cit., p. 249.

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a symbol of the authority which they exercise over

the directors23.

It enables “the shareholders to assert themselves against the directors, if

need be, and make it clear that the ultimate control is in the hand of the

proprietors of the company if they are not the directors.”24

As easy as the removal of directors is, neither the member nor the board of

directors of a company have power to remove them at will.25 The removal of a

director must comply strictly with the procedure laid down in the CAMA and the

articles otherwise it is null and void26. Where a director is removed before an

ordinary resolution was passed by the company, the removal was incompetent and

ineffective.27 In Hutchfull v Kweku Biney and others,28 it was held that the

requirement of the articles had not been complied with when the general manager

removed a director when in fact, the articles gave the power to do so to a

governing director. The common law right of a master to remove a servant cannot

be a valid plea because removal is governed by a statutory provision29. Where

however, an appointment of a director is validly terminated, it is effective30.

The removal of an executive director is governed by his service contract

and is distinguishable from that of a director appointed under sections 247 and

248 CAMA. The procedure for removal of the latter stated in section 262(2) and

(3) CAMA requires a special resolution to remove a director or to appoint some

other person instead of a director so removed. That means that notice must be

given to the company of any intended resolution for such a removal or

replacement. On receipt of such a notice, the company must forthwith, send a

copy of it to the director concerned, and the director (whether or not he is a

member of the company) is entitled to be heard on the resolution at the meeting.

By section 262(3) where the director concerned makes, with respect to the notice,

representations in writing of a reasonable length to the company and requests that

they be notified to members of the company, the company must, unless the

representations are received by it too late for it to do so, state on the notice the

fact of the representations having been made, and send a copy of the

representations to the members invited for the meeting. If a copy of the

representations is not sent as required due to the default of the company or

because it is received too late, the director may (without prejudice to his right to

be heard) require that the representations be read out at the meeting. On the

application either of the company or any other person who claims to be aggrieved,

the court may order that copies of the representations need not be read out at the

meeting if the court is satisfied that the rights conferred by this section are being

23 O. A. Osunbor, The Bank Director and the Law, Financial Institutional Training Centre, Lagos

(1997) p. 50. 24 PALMER’S COMPANY LAW, op. Cit., p. 698. 25 Iwuchukwu v. Nwizu, supra. 26 Eronini v. Harbour (1957) 2 FSC 43 where the articles provided that the director may only be

removed by an ordinary resolution, it was held that the article provision must be complied with. 27 Iwuchukwu v. Nwizu (supra) 28 (1971) All N.L.R. 268; See also Iwuchukwu v. Nwizu, supra. 29 Awoyemi v. Solomon (1976) FRCR 165. 30 Misroslav Prichlik v. Edward Lovel Marsh & Ors. (1961) W.N.L.R. 59.

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abused to secure needless publicity for defamatory matter. The court may also

order that the company’s cost be paid in whole or in part by the director,

notwithstanding that he is not a party to the application31.

The provision on right of a director to receive notice and make

representation before his removal provides a safeguard against arbitrary removal

of directors by shareholders and imports fairness into the process of removal.

Secondly, there is the director’s right to sue the company for compensation or

damages in respect of the termination of his appointment, or derogating from any

power to remove a director, which may exist apart from the statutory provision32.

In Iwuchukwu v. Nwizu,33 it was held that the removal of a director does not

prejudice any right, which he has to compensation for loss of office or to damage

for wrongful dismissal. The law was articulated in Iwuchukwu v. Nwizu,34 which

though decided on the basis of the Companies Act 1968, is relevant in many

ways, in understanding the rules on the removal of a director.

Quite apart from those safeguards, there are other limitations to the

exercise of shareholders’ power to remove directors35. For instance, an injunction

can be granted by the court to restrain the General Meeting from removing a

director if the removal would amount to a breach of statutory contract in the

articles of association of the company36. Damages for wrongful removal may be

claimed by a director and, if proved, awarded by the court37. A director can

however, not enforce the articles qua director. It was once stated that a director

who had been removed may be able to move the court to be satisfied that the

manner of exercise of power of his removal by the company constituted a just and

equitable ground for the company to be wound up38. Such ground though exists

under section 408 of CAMA a director cannot petition for winding up of a

company under section 410 CAMA. To the pleasure of the shareholders, the

power of removal can no longer be defeated through the device of “weighted”

vote as in Bushell v. Faith39 for the current law prohibits weighted shares, though

not in absolute terms in view of rights of a preference share to more than one

vote.40

31 See proviso to s. 262(3) CAMA. 32 S. 262(6) CAMA; Odulana v. Globe Fishing Industries Ltd, supra; Hutchful v. H.K. Biney

(Unreported) Suit No. LD/88/68 of 1/12/69; Southern Foundries Ltd. V. Shirlaw (1940) A.C. 701. 33 Supra. 34 Supra. 35 BARNES, O Op. cit., p. 266. 36 Obikoya v. Ezenwa (1968) 2 All NLR 133; See also Martins v. Shaahu (1978) 4 F.R.C. 110 where

Anyaegbunam, J. granted an order for an interim injunction restraining the removal of a managing director. That position contrasts with Khodra v. International Metal Industries Ltd. (1973) 2 F.R.C.R. 84 where Akpamgbe, J. held inter alia that “the court will require very cogent reasons to order an injunction restraining a company from exercising a power conferred on it by statute (s. 173)”.

37 Engineer Yalaju – Amaye v Associated Registered Engineering Contractors Ltd. (1990) 4 N.W.L.R. (Pt. 145) 422.

38 Re Westbourne Galleries (1972) 2 W.L.R. 1289; A.R.E.C. Ltd. V Amaye, supra. 39 (1970) A.C. 1099. 40 S. 143 CAMA.

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A court may sometimes accede to a prayer by shareholders for the

removal of a director.41 In Prince Ayodele v. Nigeria Foam Ltd. and Ors42, the

Federal High Court granted such request and revoked the appointment of the two

plaintiffs and 2nd to 5th defendants as directors and approved the appointment in

their place of the 2nd plaintiff, 3rd and 5th Defendants. The court found a breach of

trust, which disqualifies the four Defendants by their diverting company’s cheque

to open an account with a bank that granted the company overdraft facilities to

execute the awry contract by reason of which the cheque was issued to the

company. This, however, does not mean that a court has an inherent jurisdiction

in equity to remove a director as a corporate officer; the remedy is purely to

compel compliance with provisions such as are contained in section 279 of

CAMA.

V. ASSESSMENT OF CONVENTIONAL DESCRIPTIONS OF THE

LEGAL POSITION OF DIRECTORS

Any understanding of the bundle of expectations from directors can be

based only on an appreciation of the legal position of directors. The position

ascribed to directors has been variously described as that of “organs”, “trustees”,

“agents” and “servants” or “employees” of the company.

A. Directors as Organs

In working out the basis of separate corporate personality, the courts

developed some principles by which directors are regarded as organs of company.

The implication of this is that when an organ acts, it is the corporation and not

agents that act and such acts cannot be repudiated by the company43. In Bath v

Standard Land & Co,44 Neville, J. said that the Board of Directors is the brain of

the company. The approach of likening the company to a human body with brain,

nerve centre and hands continued in subsequent cases and was well put by

Denning, L.J. in Bolton (Engineering) Co. Ltd v. Graham & Sons45 thus:

A company may in many ways be likened to a

human body. It has a brain and nerve centre, which

controls what it, does. It also has hands, which hold

the tools and act in accordance with directions from

the centre. Some of the people in the company are

mere servants and agents who are nothing more

than hands to do the work and cannot be said to

represent the mind or will. Others are directors and

managers who represent the directing mind and will

of the company, and control what it does. The state

41 S. 116(1)(a) CAMA. 42 (1973 – 74) 1 F.R.C.R. 175. 43 Carlen Nig. Ltd. V. University of Jos (1994) 1 NWLR (Pt. 323) 631; James v. Mid-Motors Ltd.

(1978) 11 –12 S.C. 31; (1978) 2 LRN 187; S. 65 CAMA. 44 (1910) 2 Ch. 408 at 416. 45 (1957) 1 Q.B. 159; Boulting v. ACTAT (1963) 2 Q.B. 606 at 624 and 646; H.M.S. Truculent (1952)

2 All E.R. 968.

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of mind of these managers is the state of mind of

the company and is treated by law as such….

Earlier, in Lennard’s Carrying Co. Ltd. v. Asiatic Petroleum Ltd.46

Viscount Haldane L.C. stated as follows:

… a corporation is an abstraction: it has no mind of

its own; its active and directing will must

consequently be sought in the person or somebody

who for some purposes may be called an agent, but

who is really the directing mind and will of the

corporation; the very ego and centre of the

personality of the corporation. That person may be

under the direction of the shareholder in General

Meeting; that person may be the board of directors

itself …

In that case, section 502(1) of the Merchant Shipping Act, 189447 had to be

interpreted. Mr. Lennard, the managing director of a limited company and hence

knew or had the means of knowing that the boilers were defective but did not

take any steps to prevent the ship putting to sea with defective boilers. Neither

did he give instructions to the captain or chief engineer of the ship with regard to

their supervision. A cargo of benzine on board the ship was lost by fire, which

was caused by the unseaworthiness of a ship. The issue was whether the loss

suffered by the plaintiff has occurred within the meaning of “without the actual

fault or privity” of the defendant company in section 502(1) of the Merchant

Shipping Act, 1895. The defendant company, while conceding that the loss

resulted from a default by Mr. Lennard, its managing director, argued that it had

no “actual fault or privity” in the events that led to the loss. The House of Lords,

in rejecting the argument, held that Mr. Lennard’s act was that of the defendant

company which in this case is liable. It did not matter that Mr. Lennard was just

a director48.

The organic theory has also been extended to some company officers as

the chairman49 and the assistant managing director50 of a company both of whom

have been held to be organs of the company. Any “responsible officer” as a

director, manager, secretary and so on of the company has also been regarded as

an organ of a company51. Aside that the test of a “responsible officer” appears to

46 (1915) A.C. 705 at 713 – 714; See also Mitchell v. Egyptian Hotels (1915) A.C. 1022 at 1037. 47 See the equivalent provisions in ss. 338 and 383 Shipping Act, Laws of the Federation 1990,

Vol. XIII, Cap. 224. 48 Per Lord Dunedin in Lennard’s case (supra) at p. 715; Houghton & Co. v. Northard Lowe & Wills

Ltd. (1928) A.C. 1 at p. 14. 49 Ibadan City Council v. Odukale (1972) 1 All N.L.R. 319 where the Supreme Court upheld the

view of the lower court that the Chairman of Ibadan City Council was an alter ego of the Council.

50 The Lady Gwendolen (1965) 2 All E.R. 283 at 295. 51 Per Lord Parker in Daimler Co. Ltd. v. Continental Tyre and Rubber Co. Ltd. (1916) 2 A.C. 307 at

340.

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be too wide and there is a need to narrow it down52 and that the CAMA does not

state who can qualify as an organ of a company, it cannot be true of Nigerian law

to regard company officers as organs. The CAMA created two principal organs,

the members in General Meeting and Board of Directors. Section 63(1) states:

A company shall act through its members in

General Meeting or its board of directors or through

officers or agents, appointed by or under authority

derived from the members in General Meeting or

the board of directors.

By the provision, the directors as a board can properly be termed an organ

of a company. Under section 65 CAMA the managing director is recognized as a

subsidiary organ. Thus, a director or officer or agent appointed by or under

authority derived from the board of directors are only agents of appointing organs

and can only bind the company to the same extent as any agent can bind his

principal – whether expressly or vicariously.

B. Fiduciary and Trustee Position of Directors (Directors as Trustees)

The law has always regarded directors of a company as a standing in

fiduciary position even though they may not always be seen as trustees. Two

broad views have been advanced to explain the origin of the law regarding

directors as trustees. The first and popular view is that directors first began to be

treated as trustees when as a result of companies formed by deeds of settlement,

some of the property of the companies were vested in the directors53. In support of

this view is the case of Charitable Corporation v. Sutton54 where Lord Hardwicke

held that the committee men (now regarded as directors) of a chartered

corporation were liable for breach of trust for misapplying the funds of the

corporation and violating its bye-laws.

On the contrary, the second view states that it is wrong to trace the idea of

directors as trustees to the era of companies formed by deed of settlement.

Sealey55 gave three reasons to support this view. One, that the directors of

companies formed by deeds of settlement were not generally the trustees of the

company. Two, that the earliest known cases which held directors to be trustees

were not companies formed by deeds but corporations. Three, that it was not clear

from the early cases that directors’ obligations were those of trustees. However,

Sealey56 had earlier expressed the view that the word “fiduciary” in present time

52 James v. Mid-Motors, supra on the attempt of the court to draw a distinction between an

officer who should be regarded as an organ and those who should not be regarded. 53 COOK, CORPORATION TRUST AND COMPANY Manchester (1950) p. 154 traced the modern

emergence of directors as trustees to the mid 19th century; Keeton, “The Director as Trustee” (1952) 5 C.L.P. 11 at pp. 13 and 15; GOWER, MODERN COMPANY LAW ed. op. cit. p. where the learned author stated that property of companies formed by deed of settlement before the Joint Stock Companies Act 1844, were vested in trustees who were regarded as directors; G. A. OLAWOYIN, STATUS AND DUTIES OF COMPANY DIRECTORS, op. cit., pp. 4 – 5; Sealey, THE DIRECTOR AS TRUSTEE (1967) Camb. L.J. 83 at 84.

54 (1742) 2 Atk. 400; Keeton, op. cit., this case is the authority of the origin of the principle that directors are trustees in the full sense in the company formed by deed of settlement.

55 “The Director As Trustee”, ibid. 56 Sealy, Fiduciary Relationships (1962) CAMB. L.J. 69 at 72 & 76 note 12.

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as against trusts proper, covers trust – like circumstances but are not strictly

speaking trusts. A better view is that directors are fiduciaries and not trustees in

the strict sense of the use of the word though a trust obligation can be imposed on

them with regard to monies and property held on behalf of the company by

directors. According to Scott, fiduciary relationship “is one in respect of which if

a wrong arises, the same remedy exists against the wrongdoer on behalf of the

principal as would exist against a trustee on behalf of the cestui que trust”. Since

the directors are within the “fiduciary” concept in the eye of the law, one cannot

but agree with Olawoyin that “the concept of directors as trustees arose partly out

of the need to impose certain equitable obligations, similar to those of trustees in

the strict sense of the word”57. Little wonder, therefore, that the judges who held

directors liable as trustees up until the 19th century had a frame of mind

influenced by the need to impose trust-like obligations on the directors as

fiduciaries58. After all, some courts regarded directors as a special class having its

own business interest to protect.59

The policy of the legislation in Nigeria is to put a director in a fiduciary

position. Section 279(1) CAMA provides: “A director of a company stands in a

fiduciary relationship towards the company and shall observe the utmost good

faith towards the company in any transaction with it or on its behalf.” This can be

interpreted to mean that a director is a fiduciary while involved in any transaction

or relationship with the company as well as acting on behalf of a company (as an

agent) occupies a fiduciary position.

Section 279(2) CAMA states the other circumstances under which a

director shall owe fiduciary relationship with the company to be

(a) where a director is acting as agent of a particular shareholder;

(b) where even though he is not an agent of any shareholder, such a

shareholder or other person is dealing with the company’s securities.

These provisions appear to be akin to the principles established in two cases60

decided before the CAMA, but are inelegantly couched to truly represent those

principles. A director can act as an agent of a particular shareholder, and if he

does, section 279(2) CAMA provides that the director can owe fiduciary

relationship to the company. While the fiduciary position can be to the

shareholder, the director’s principal the sub-section makes the director a fiduciary

of the company indicating the extreme policy of the legislation. The implication

of such a policy is to make it very difficult to exonerate a director from

57 OLAWOYIN, op. cit., p. 4. The rationale for the obligations is to ensure that the person holding

a fiduciary position is not swayed by interest rather than by duty, and thus prejudicing those whom he was bound to protect: Lord Herschell in Bray v. Ford (1896) A.C. 44 especially at pp. 51-52.

58 Flitcroft’s case (1882) 21 Ch. D 519 at 534 and 535; Ferguson v. Wilson (1866) L.R. 2 Ch. App. 77 at 90; Great Eastern Railway Company v. Turner (1872) L.R.8 Ch. 149 at 152; Smith v. Anderson (1880) 15 Ch.D. 247. On similarities and differences between trustee and directors, see OLAWOYIN, op. cit., pp. 5-8.

59 See for example, Hirsche v. Sims (1894) A.C. 654 especially pp. 660-661. 60 Allen v Hyatt (1914) 30 T.L.R. 444; Briess v. Wolley (1954) A.C. 33.

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discharging his fiduciary duties to the company. Sub-section (2) appears to

maintain the same intention61 particularly when read with sub-section (1) .62

The CAMA does not just regard directors as fiduciaries; it also treats them

as “trustees of the company’s moneys, properties and their powers …”63 This

contrasts with the age-long view of Romer, J. in Re City Equitable Fire

Insurance64 that directors were neither trustees of the company property nor in

relation to the performance of their duties even though they stand in a fiduciary

relationship to the company and should exhibit good faith in the performance of

their duties. His Lordship said:

It has sometimes been said that directors are

trustees if this means no more than that directors in

the performance of their duties stand in a fiduciary

relationship to the company, the statement is true

enough. But if the statement is meant to be an

indication by way of analogy of what those duties

are, it appears to me to be wholly misleading.

The provision of section 283(1) CAMA regarding directors as trustees simply

means that the directors stand in a fiduciary position and in that case the directors

can be said to have the same duties as ordinary trustees albeit in a limited sense in

terms of the company’s monies, properties and their powers. The same view

cannot quite be maintained where the legal position of directors goes beyond that

of a fiduciary.65 Section 279 CAMA which has a wider ambit deals with fiduciary

duties. Trustee and fiduciary are not exactly the same.

C. Agency Position of Directors (Directors as Agents)

By the nature of a corporate body, it cannot and does not act by itself but

through the agency of natural persons. The principal agents are directors. Does it

then mean that directors are agents and if so, whose agents are they –– the

company’s or shareholders’? Three judicial opinions have been advanced as to

whether or not directors are agents. The first view is that directors are agents of a

company. English judicial attitude favours this viewpoint. As far back as 1742,

Lord Hardwick in Charitable Corporation v. Sutton66 stated that directors are

“most properly agents to those who employ them in this trust, and who empower

61 As O. A. Osunbor, The Company Directors; His Appointment Powers and Duties, op. cit. p. 141

has pointed out the obscurity created by reference to the shareholder a second time in the sub-section. in the first version of the legislation. That word would appear to be a printer’s devil, which has been corrected in Cap. 59 LFN 1990.

62 Apart from that the legislator leans in favour of tautology or surplusage, such a removal of “shareholder” and substituting “director’ which can only be safely done by the legislator harmonises with the object of the statute.

63 S. 283(1) CAMA. 64 (1925) 1 Ch. 407 at 426. 65 See OLAWOYIN, op. cit, pp. 6-9 on the similarities and differences between a director and a

trustee in the law of trust. 66 (1742) 2 Atk. 400 at 405.

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them to direct and superintend the affairs of the corporation”. Similarly, Cains,

L.J. in Ferguson v. Wilson67 referred to directors as agents in the following terms:

They are merely agents of a company. The

company itself cannot act in its own person, for it

has no person; it can only act through directors, and

the case is, as regards those directors, merely the

ordinary case of principal and agent. Whenever an

agent is liable those directors would be liable;

where the liability would attach to the principal, and

the principal only, the liability is the liability of the

company.

In Yesufu v. Kupper International N.V.68, the Supreme Court held that a

director of a company is, in the eyes of the law, an agent of the company for

which he acts and the general principle of the law of agency would apply. Thus,

where a director enters into a contract in the name of or purporting to bind the

company, it is the company, the principal, which is liable on it, not the director

unless it appears that he undertook personal liability. So also a director of an

incorporated company cannot be held liable for the loan granted in favour of the

company unless he is either a surety or guarantor of the loan granted to the

company.

The second view on the position of directors as agents is that directors of a

company are not agents. In the American case of Bissel v. Michigan Southern69,

Comstock, C.J. gave support to this view when he declared:

These corporation had boards of directors in whom

were vested every power faculty or function which

belonged to the bodies they represented. We have

then no question in the law of agency; for the

agents, if that be the proper terms, had all the

powers of the principals. Indeed, in an important

sense, they were the principals.

Also, Anglo-Nigerian judicial opinion sometimes maintains that directors do not

act as agents of the company.70

The third and moderate view is that directors are not exactly agents. In Re

Imperial Hydopathic Hotel Co.71, Bowen L.J. put the point quite succinctly:

67 (1866) L.R. 2 Ch. 77 at 89 – 90; see Parker v. McKenna (1874) L.R. 10 Ch. App. 96 at 118 and

124 – 125; Jessel, M.R. in Re Forest of Dean Coal Mining Co. (1878) 10 Ch. 450 at 452 described directors as “mere commercial men, managing a trading concern for the benefit of themselves and all other shareholders in it”; see also Smith v. Anderson (1880) 15 Ch. D. 247 at 276 and 280; Lagunas Nitrate Co. v. Lagunas Syndicate (1899) 2 Ch. 392 at 434; C. R. N. Winn, The Criminal Responsibility of Corporations 3 CAMB. L.J. (1929) 398; Welsh, The Criminal Liability of Corporations 62 L.Q.R. (1946), 345; L. H. Leigh, THE CRIMINAL LIABILITY OF CORPORATIONS IN ENGLISH LAW 1969.

68 (1996) 5 N.W.L.R. (Pt. 446) 17; Co-operative Bank Ltd. v. Obokhae (1996) 8 N.W.W.L.R. (Pt. 468) 579.

69 R.R. 22 N..Y. 267. 70 Gramophone & Typewriter Ltd. v. Stanley (1928) 2 K.B. 89; Atewologun v. Metro Motors Ltd.

(1978) 2 L.R.N. 46.

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When persons who are directors of a company are from time

to time spoken of by judges as agents, trustees, or managing

partners of the company, it is essential to recollect that such

expressions are used not as exhaustive of the powers, but

only as indicating useful points of view from which they

may for the moment and for the particular purpose be

considered – points of view at which they seem for the

moment to be either cutting the circle or falling within the

category of the suggested kind. It is not meant that they

belong to the category, but that it is useful for the purpose of

the moment to observe that they fall protanto within the

principles which govern that particular class… directors are

not exactly agents, not exactly servants – perhaps not

servants at all – nor exactly trustees, nor exactly managing

partners, if by that is meant that they are nothing more and

nothing less.

Olawoyin favours this moderate view asserting that directors in certain ways act

like agents although their position is sui generis.72

Where directors are taken as agents, are they agents to the company they

direct and manage or to shareholders in such a company? In Charitable

Corporation v. Sutton,73 Lord Hardwicke expressed the view that directors are

“most properly agents to those who employ them in this trust; and who empower

them to direct and superintend the affairs of the corporation”. His Lordship’s

reference to “those who employ them… who empower them” appears ambivalent

as it may refer to the company or the shareholders. However, since it is the

company and not the shareholders per se that employ and empower directors,

more often than not, in this context, his Lordship can be understood to mean not

the shareholders but the company. In another reasoning, apart from that it is the

shareholders that constitute the company, by their power to appoint the directors

through majority rule, the empowerment of the directors is derived from the

shareholders.

The general rule established by cases74 is that directors are agents for the

company and not for the shareholders of the company. That rule applies with

equal force even where directors can deal with company securities.

Notwithstanding the general rule, by the actions of the shareholders and directors,

situations may arise where directors can be held to be the agents of shareholders.

Before the CAMA came into force, the position was well expressed by a number

of cases. In Briess v. Wolley75, the General Meeting of a company authorised the

managing director of the company to enter into certain transactions. A fraud was

71 (1882) 23 Ch.D. 1 at 12 – 13. 72 OLAWOYIN, op. cit., p. 10. 73 Supra. 74 See Automatic Self-Cleansing Filter Syndicate Co. v. Cunninghame 91906) 2 Ch. 34;

Gramophone & Typewriter Ltd. v Stanley (1908) 2 K.B. 89 at 106’ Salmon v Quin & Axtens Ltd. (1909) 1 Ch. 311 at 319.

75 A.C. 333.

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subsequently committed by the majority directors. The House of Lords held that

the managing director, was for the purpose of the transaction, the agent of the

shareholders and as such the shareholders were vicariously liable for the fraud of

the managing director. Also, in Allen v. Hyatt,76 the directors of a company

represented to the shareholders of a company that in order to effect an

amalgamation with another company, it was necessary to sell the shares of the

shareholders. The directors then induced the shareholders to sell the shares and

the shareholders accordingly gave the directors an option to sell the shares. That

option was exercised by the directors who made profits thereby. The Privy

Council held that the profits so made were held on trust for the shareholders

because according to Viscount Haldance L.C., “the directors must be taken to

have held themselves out to the individual shareholder as acting for them on the

same footing as they were acting for the company itself, and that was, as

agents”.77

It is this principle that is encapsulated in section 279(2) CAMA. Further,

section 283(2) CAMA provides: “A director may when acting within his authority

and the powers of the company be regarded as agents of the company under part

III of this Act”. The sub-section uses the word “may” and thereby suggests that a

director cannot ipso facto be regarded as an agent of a company. The

circumstances under which a director acts will help to determine when to so

regard him as an agent. Such a director should have acted within his authority.

That authority may be conferred prior to any action by him or by subsequent

ratification, and knowledge of such action by the agent and acquiescence therein

by all the members of the company or by the directors for the time being or by the

managing director for the time being shall be equivalent to ratification by

members in General Meeting, board of directors, or managing director, as the case

may be.78 The provisions of the CAMA recognise that a director can be an agent

not only under the paradigm case of agency,79 but also by operation of law.80 By

section 66(1) CAMA the acts of such a director as an agent shall not be deemed to

be acts of the company unless –

(a) the company, acting through its members in General Meeting, board of

directors, or managing director, shall have expressly or impliedly

authorised such officer or agent to act in the matter; or

(b) the company, acting shall have represented the officer or agent as having

its authority to act in the matter. Thus, the power of authorisation and

ratification of agency of directors is partly derived from members in

General Meeting. In order to regard the directors as an agent, he must also

act within the powers of a company as enshrined in the memorandum and

articles of association.

76 (1914) 30 T.L.R. 444. 77 P. 445. 78 S. 66(2) CAMA. 79 F.M. B. REYNOLDS, & B. J. DAVEPORT, BOUSTEAD ON AGENCY, Sweet & Maxwell, London,

1976, (14th ed.). 80 See Boardman v. Phipps (1967) A.C. 46; (1966) 3 All E.R. 721; (1966) 13WLR 1009.

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Notably, the company will not be liable for acts of a director acting as an agent if

there is a collusion between the director and the third party notwithstanding that

the agent acted fraudulently or forged a document purporting to be sealed by or

on behalf of the company.81

From the point of view of duty, a director who is regarded as an agent has

additional duties in respect of a particular transaction. He may be taken to have a

duty to be loyal, not to delegate and so on; duties which ordinarily are not

imputed to directors qua directors. On the other hand, such a director incurs no

personal liability but if he exceeds his authority, he may be liable for breach of

warranty of authority.82 He will also be liable if he contracts in his own name.83

Where a director is regarded as an agent to a shareholder or group of

shareholders, the causes of action open to the principal under agency law, for

example, where the director takes a bribe84 may arise.

D. Service or Employment Position of Directors (Directors as Servants or

Employees)

Generally, directors are not servants or employees or members of staff of

the company.85 The reason is that by the test of control directors occupy

‘managerial’ position and cannot be servants or employees. For this purpose, the

managing director was in no way different from any other directors but for special

powers given to the former.86 While the test of control does not qualify the

managing director as a servant or employee, his job is full-time and based on a

contract of service. In Boulting v. Association of Cinematograph, Television and

Allied Technicians87, the plaintiffs were joint managing directors of a film-

producing company. Both of them were for management and the technical

department of the company. The trade union rules provide that the union

membership was open to all employees in the technical section of the company.

The issue was whether the plaintiffs were entitled to be members of the union. It

was held that while ordinary directors were not, the managing directors were

eligible. In his dissenting judgment, Lord Denning, M.R. expressed the view that

the chairman, directors or managing directors of a company cannot properly be

regarded as employees.88 In Road Transport Industry Training Board v Readers

Garage Ltd.89, it was held that a controlling managing director having majority of

shares in a private company was an employee of the company.

The managing director and executive directors serve on a full-time basis

under separate service contracts. To this end, they had been regarded as servants

81 S. 70 CAMA. 82 Firebanks Executors v. Humphrey (1885) 13 Q.B.D. 547. 83 Trenco v. African Real Estates Ltd. (1978) 4 S.C. 9. 84 (1978) 2 All E.R. 405. 85 Lee v. Sheard (1956) 1 Q.B. 192 at 196; Kan v. Walker (1933) S.C. 458; Re Lee Behrens & Co.

Ltd. (1932) 2 Ch. 46; Mariarthy v. Regents Garage (1921) 1 K.B. 423; Normandy v. Ind. Cooper & Co. (1908) Ch. 84; Burland v. Earle 91902) A.C. 83 at 100 – 101; Hutton v. West Cork Ply. Co. (1883) 23 Ch. D. 654 at 672; PALMER’S COMPANY LAW op cit., p. 875.

86 Cozens – Hardley, J. in Re Newspaper Proprietary Syndicate (1900) 2 Ch. 349. 87 (1963) 2 Q.B. 606. 88 Lea v. Sheard (1956) 1 Q.B. 192 at 196. 89 The Times, 31st January 1996.

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or employees under the service contracts90. However, in Engineer Yalaju-Amaye

v. A.R.E.C. Ltd.,91 Nnaemeka-Agu, J.S.C. stated that “it would be wrong to hold

that because the relationship of a managing director and the company was based

on contract, it was ipso facto a matter of master and servant for which the Federal

High Court had no jurisdiction. A managing director does not cease to be a

director simply because he is managing the company. However, Olawoyin had

suggested that the circumstances of each case rather than a general rule should be

employed by our courts to determine whether a director is a servant or

employee.92 Once it is decided that a director is not an employee of the company,

he cannot take a benefit or burden of an employee93 or priority such as

preferential payment of salary under section 494 CAMA.

VI. CONCLUSION

A director is a quintessential person in the affairs of a company. He is

charged with directing and managing the business of the company. His

appointment and removal are regulated by law, nevertheless, he can be removed

by an ordinary resolution of the members of the company in general meeting.

Where, however, he remains a director, he is entitled to notice of meeting of

Board of Directors. The fact that he is on suspension does not obviate the legal

requirement of giving him such notice; otherwise, any purported decision or

resolution removing him is a nullity. Longe v. First Bank87 establishes firmly that

principle which is anchored on the letter and spirit of section 266 of the CAMA.

While the legal position of a director simpliciter hardly fits that of a servant or

employee, it cannot be denied that it is consistent with the expectations from

trustees, fiduciaries and agents of the company.94 A better view therefore is to so

regard a director. In respect of being an organ, it is only when the directors act as

a board that they can properly be regarded as an organ of the company.

90 Lee v. Lee’s Air Farming Ltd. (1961) A.C. 12; Lincoln Mills Australia Ltd. v. Gough (1964) V.R.

193. 91 Supra pp. 463 – 464. 92 OLAWOYIN, The Status of Directors, op. cit., p. 17. 93 PALMER’S COMPANY LAW, op. cit., p. 876. 87 Id. 94 See Northern Counties Securities v. Jackson & Steeple Ltd. (1974) 1 W.L.R. 1133 at 1144;

Selangor United Rubber Estates Ltd. v. Gradock (No. 3) (1988) 1 W.L.R. 1555; Hogg v. Cramphorn Ltd., (1967) 1 Ch. 254.

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AFRICAN CONTINENTAL FREE TRADE AREA AGREEMENT: IS THERE A NEED

FOR A CONTINENTAL COMPETITION LAW REGIME?

Wiseman Ubochioma, Ph.D*

ABSTRACT

Africa has been termed as a continent with the least intra-continental trade regime. In an effort

to address this challenge, African leaders signed the African Continental Free Trade Area

(AfCFTA) agreement in 2019. The agreement aims at boosting trade, investment,

competitiveness, and overall economic welfare of Africans. However, this new trade regime

raises the risk of phalanx of antitrust practices that would transcend national boundaries and

defeat the aims of the agreement. This paper, therefore, argues that a supranational competition

law regime is necessary to address potential antitrust practices that would negatively affect the

attainment of the goals of the AfCFTA agreement. It opposes the use of national competition

laws and institutions to determine antitrust disputes during the AfCFTA era because of the

inherent limitations of such approach. Such limitations include conflicting legal and regulatory

outcomes in determination of competition issues, national bias, high transaction costs, lack of

resources and expertise on competition law. The paper acknowledges that the establishment of

the continental competition law and authority would not by any means be easy because of factors

such as sovereignty, national interest and different legal traditions of AfCFTA countries.

However, it is possible if African leaders show political will and recognize that the potential

benefits of the use of such supranational law and institution outweigh these concerns.

Keywords: AfCFTA, Continental Competition Law, Continental Competition Authority, Anti-

competitive, Africa.

I. INTRODUCTION

In July 2019, the leaders of fifty four African States gathered in Niger and signed the

AfCFTA agreement.1 It is widely believed that the agreement would eliminate barriers to trade

and investment, create competitive markets, improve economic welfare of Africans and launch

Africa into the pantheon of powerful continental economic blocs in the world. The creation of a

competitive market, however, may lead firms to engage in various forms of anti-competitive

conduct. Some of the practices may have both national and transnational effects. Currently, most

African States have passed competition laws and created competition authorities.2 The question

* Lecturer, Faculty of Law, Baze University, Abuja, Nigeria; Partner, Blackfriars LLP, Nigeria. 1 Grace Shao, What You should Know About Africa’s Massive, 54-Country Trade Bloc, (Jul. 11, 2019,

http://www.cnbc.com/2019/07/11/africa-free-trade-what-is-the-afcfta.html. See also, BBC, Nigeria Signs Africa

Free Trade Area Agreement, (Jul. 7, 2019) https://www.bbc.co.uk/news/world-africa-48899701 2 See Deloitte, Competition Law in Africa: Maximizing Competitor Advantage/Consumer Value Chain Spotlight, at

6,https://www2.deloitte.com/content/dam/Deloitte/za/Documents/risk/ZA_Competition_Law_in_Africa_RA_07111

6.pdf, noting that between 1990 and 2013, a dedicated competition law regime has been implemented by 26

countries in Africa. Over the past six years, new competition law regimes have spread across Africa.”

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Ubochioma: African Continental Free Trade Area Agreement: Is there a Need for a Continental

Competition Law Regime?

319

that arises is: in the light of the new continental trade agreement, would the use of national

competition authorities be the best option for addressing anti-competitive conduct during the

AfCFTA era? This paper examines this question. It argues that a supranational competition law

regime is necessary if the continent desires to attain the goals of the AfCFTA agreement. The

creation of such regime would obviate the challenges inherent in the use of national competition

laws. Such challenges include conflicting legal and regulatory outcomes in determination of

competition issues, national bias, high transaction costs, lack of resources and expertise on

competition law.

The paper acknowledges that the establishment of the continental competition law and

authority will be difficult because of issues such as sovereignty, national interest and different

legal traditions of the AfCFTA countries. However, it is achievable if African leaders show the

necessary political will. As a caveat, this paper does not intend to discuss how the proposed

continental competition authority would operate. Instead, it posits, using the indices discussed

therein, that there is a need to establish such institution in the light of the AfCFTA regime. This

paper proceeds in six parts. Part one discusses the establishment and the aims of the AfCFTA

agreement. Part two examines the connection between continental free trade policy and

competition policy. Part three discusses potential antitrust practices during the AfCFTA era. Part

four discusses the indices that make the establishment of a continental competition law and

institution imperative. Part five analyses the problems and prospects of the continental

competition law regime. Part six concludes the paper.

II. AfCFTA AGREEMENT: THE BIRTH AND AIMS.

Africa has long desired to improve the economic conditions of the people in the

continent. This quest is largely driven by the fact that the vast number of the poor people in the

world live in the continent. According to a recent report, Africa ‘has lower levels of success

economically than the other six continents around the world”3 and “one in three Africans live

below the global poverty line.”4 Part of the problem of the poor living conditions of the people in

the continent is lack of regional trade and economic integration. For instance, it has been noted

that “more than 85 percent of exports from African economies are sold outside the continent.”5

As at 2017, the total value of trade in the continent was nearly $150 United States Dollars.6 As

part of the effort to improving trade within the continent, many countries have entered into

regional economic and trade arrangements. For instance, countries in the West African region

3 World Population Review, Poorest Countries in Africa 2019, http://worldpopulationreview.com/countries/poorest-

countries-in-africa/ 4 Kristofer Hamel, Baldwin Tong, & Martin Hofer, Poverty in Africa is Now Falling- But Not Fast Enough, (March

2019), https://www.brookings.edu/blog/future-development/2019/03/28/poverty-in-africa-is-now-falling-but-not-

fast-enough/ 5 Harry G. Broadman, Can Africa’s Continental Free Trade Area Overcome its High Risks, (Sept. 19, 2019)

https://www.ft.com/content/5400dcd6-90ae-3850-97b8-29583d2bbe10 6 SHAO, supra note 1.

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established the Economic Community of West African States (ECOWAS).7 The East and South

African countries created the East African Community (EAC)8 and the South African

Development Community (SADC)9 respectively. These are in addition to the Common Market

for Eastern and Southern Africa (COMESA) which were created by the two regions.10 The States

in the Northern part of Africa created the Arab Maghreb Union (AMU) 11while the Central

African States established the Economic Community of Central African States

(ECCAS).12Although countries have entered into regional arrangements for trade liberalization,

some of the arrangements have not yielded much positive results. Access to markets remains a

challenge in such regions.13 Apart from access to markets, fragmented regional trade blocs do not

afford the continent the opportunity to trade as a single market. This, in turn, affects the

competitiveness of the continent at the global arena.

As a result on the above challenges, the African Union began negotiations for the

establishment of AfCFTA in South Africa in 2015.14 In 2018, forty four member States of the

Africa Union met at the 10th Extra-ordinary Summit of Heads of State and Government of the

Union in Rwanda and signed the AfCFTA agreement.15 In July 2019, the number of signatories

to the AfCFTA agreement increased when the leaders of fifty four African countries met in

Niamey and signed the agreement.16 Of the fifty four countries that signed the agreement, twenty

eight countries have ratified it and it is anticipated that twenty six additional States will join the

ratification trend in a short time.17 The AFCFTA has been touted as “the largest free trade

7 On Analysis of ECOWAS, see Bruce Zagaris, The Economic Community of West African States (ECOWAS): An

Analysis and Prospects, 10 (1) CASE WESTERN J. INT’L L. 93-122 (1978). 8 See Frederick Onyango Ogola et al, A Profile of the East African Community, 1(4) AFRICAN JOURNAL OF

MANAGEMENT 333-364 (2015). 9 Jephias Mapuva & Loveness Muyengwa-Mapuva, The SADC Regional Bloc: What Challenges and Prospects for

Regional Integration, 18 LAW, DEMOCRACY AND DEVELOPMENT, 22, 23 (2014). 10 Luwam Dirar, Common Market for Eastern and South African Countries: Multiplicity of Membership Issues and

Choices, 18 (2) AFRICAN J. OF INT’L & COMP. L. 217, 217 (2010). 11 For the history of the AMU, see Robert W. McKeon Jr, The Arab Maghreb Union: Possibilities of Maghrebine

Political and Economic Unity, and Enhanced Trade in the World Community, (1992) 10(2) DICKINSON J. INT’L

L. 263, 263-268 (1992). 12 O.C. Asuk, From Pan-Africanism to Regional Integration: The Limits of Conventional Approaches, 11 (1)

INTERNATIONAL JOURNAL OF INTEGRATIVE HUMANISM, 54, 56 (2019). 13 Nahanga Verter, International Trade: The Position of Africa in Global Merchandise Trade, 82-83,

https://www.intechopen.com/books/emerging-issues-in-economics-and-development/international-trade-the-

position-of-africa-in-global-merchandise-trade. 14 G.D. Zaney, African Continental Free Trade Agreement is a Good Choice for Ghana – Experts, (Sept. 19, 2019)

http://www.ghana.gov.gh/index.php/media-center/news/6025-african-continental-free-trade-agreement-is-a-good-

choice-for-ghana-experts. 15 Fanstin Ntezilyayo, High Expectations as the African Continental Free Trade Area Agreement Enters into Force,

1. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3404093. 16 The East Africa, AfCFTA: Officials Push for all Member States to Ratify Free Trade Deal, (Sept. 26 2019)

https://www.theeastafrican.co.ke/business/Focus-now-on-ratification-of-free-trade-deal/2560-5284200-

ayquyz/index.html. 17 Giacomo Zandonini, A United Africa may Give China its Moment to Shine, (Aug. 2 2019),

https://www.aljazeera.com/ajimpact/united-africa-give-china-moment-shine-190801211213476.html.

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agreement since the creation of the World Trade Organization (WTO).”18 The AFCFTA

agreement aims at establishing a common market for trade of goods and services.19 It also seeks

eliminate barriers to trade and services. Such barriers could be tariff and non-tariff that would

negatively distort investments in trade and services.20 These, in turn, would “raise Africa’s low

productivity and promote higher investment, thereby helping to increase income levels and

reducing poverty”.21 These objectives are embedded in the words of the African Union when it

stated that the AFCFTA intends to:

a. Create a single continental market for goods and services, with free movement

of business persons and investments, and thus pave the way for accelerating the

establishment of the Continental Customs Union and the African customs union

b. Expand intra African trade through better harmonization and coordination of

trade liberalization and facilitation regimes and instruments across Regional

Economic Communities (RECs) and across Africa in general.

c. Expedite the regional and continental integration processes; and

d. Enhance competitiveness at the industry and enterprise level through exploiting

opportunities for scale production, continental market access and better

reallocation of resources.22

The above intentions of the AfCFTA agreement have been strengthened with further

arguments that the agreement “could unite 1.3 billion people, create a $3.4 trillion economic bloc

and boost trade within the continent itself.”23 Some commentators have also estimated that if the

agreement is properly executed, the economy of the continent would be stimulated through

investments in businesses and consumers’ expenditures to the tune of $6.7 trillion in the next

decade.24 At a didactic level, Africa is not alone in the drive to establish a continental trade bloc.

Other continents have long had continental trade blocs. For example, the European countries had

long established a single market under the aegis of the European Union (EU). Also, the North

America Countries created the US-Mexico- Canada Agreement (USMCA) which would replace

the North American Free Trade Agreement (NAFTA).25

18 Chijioke Odo, The African Continental Free Trade Area: Unfolding Changes, (Sept. 30 2019),

http://www.mondaq.com/Nigeria/x/849386/international+trade+investment/The+African+Continental+Free+Trade+

Area+Unfolding+Changes 19 NTEZILYAYO, supra note 15 at 1. 20 ODO, supra note 18. 21 Lisandro Abrego et al, The African Continental Free Trade Agreement: Welfare Gains Estimates from a General

Equilibrium Model, 3, International Monetary Bank Working Paper, WP/19/124, May 2019,

https://www.imf.org/~/media/Files/Publications/WP/2019/WPIEA2019124.ashx. 22 African Union, CFTA- Continental Free Trade Area, https://au.int/en/ti/cfta/about 23 SHAO, supra note 1 24 Landry Signe & Collete Van Der Ven, Keys to Success for the AfCFTA Negotiations, Policy Brief, Africa Growth

Initiative, 1 (May 2019) https://www.brookings.edu/wp-

content/uploads/2019/05/Keys_to_success_for_AfCFTA.pdf 25 BBC, USMCA: Agreement Reached on NAFTA Trade Deal Replacement, (Dec. 10, 2019),

https://www.bbc.com/news/business-50733120

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With the signing of the AfCFTA agreement, there is bound to be competition and quest to

acquire dominant market power among firms in various countries. This may lead to a situation

where firms engage in anti-competitive practices that will not only harm their rivalries, but also

harm consumers and defeat the aims of the Agreement. In recognition of this problem,

competition policy is part of the second phase of the Agreement.26 Although the AU recognizes

competition policy as a critical component of the new trade regime, there is uncertainty about the

structure of the legal and institutional framework of the policy. Before this paper discusses this

critical issue, it is important to briefly examine the nexus between regional trade liberalization

and competition policy.

III. CONTINENTAL FREE TRADE POLICY AND COMPETITION POLICY:

THE NEXUS

Continental trade policies and competition policy are akin to Siamese twins. From a welfare

perspective, continental trade policies could seek to improve the lives of the people in a continent

through promotion of competitive trade among firms. Such competition could lead firms to lower

the prices of their products so that they would remain in the industry. By implications,

consumers would benefit from the price reduction. This goal has a connection with the core aim

of competition policy. Indeed, competition policy seeks to protect consumers from harm by

firms. It is axiomatic that without a competition regime, foreign firms can raise the prices of

goods at supra-competitive level in order to extract surplus from the consumers in their host

States. Foreign firms could use the surplus to subsidize the cost of production or the consumer

price in their home States.

Apart from the above, the goal of competition policy is to promote competition in the market

place. Competition policy does not permit acts that would create barrier to entry. This is in view

of the fact that a barrier to entry in a market could restrict competition and create a monopoly

power. In international trade, private firms may create barriers to entry through unwholesome

practices. In addition, governments may endorse barriers to entry through promulgation of laws

and policies that protect local firms. Likewise, this goal of competition policy, a continental free

trade policy aims to eliminate both tariff and non -tariff barriers to trade and open markets for

foreign trade and investments. This will allow firms, domestic or foreign, to compete in a

transparent manner and strive towards attaining the economic efficiencies under the competition

law.27

Lastly, competition policies punish firms that engage in anti-competitive conduct. An anti-

competitive conduct could affect the efficient allocation goods and services. Indeed, a firm may

26 NTEZILYAYO, supra note 15, at 4. 27 Kevin C. Kennedy, Foreign Direct Investment and Competition Policy at the World Trade Organization, GEO.

WASH. INT’L L. REV. 585, 589 (2001) noting that “a liberal trade policy also seeks to remove barriers to trade in

order to achieve allocative, productive and dynamic efficiencies.”

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engage in anti-competitive practice in a geographical area through creation of artificial scarcity

of goods. The firm will then raise the prices of the goods and consumers will be compelled to

purchase the goods at the increased rate. In the same vein, a firm could engage in an anti-

competitive conduct to squeeze out its rivals in the market. In such circumstance, the firm may

not be able to meet the consumer demand of the product but still maintain monopoly power in

the market. In all these circumstances, the allocation of goods would be highly inefficient. As

one of the goals of continental free trade policy entails encouraging “the efficient allocation of

resources by ensuring that markets are open and competitive”,28such goal would hardly be

achieved in the absence of strong competition laws and enforcement.29 Indeed, firms would be

incentivized to engage in anti-competitive practices if they know that they would not be

sanctioned under law. Therefore, a strong competition law and enforcement would play both ex

post and ex ante role30 in regulating or preventing harmful practices by firms. Thus, such regime

would also penalize a firm who engaged in anti-competitive act. The penalization of a firm under

competition law will, in turn, serve as a deterrent to other firms that wish to engage in conduct

that will distort competition in the market place.

From the above, it could be gleaned that continental free trade agreement alone cannot foster

efficient or competitive market and promote consumer welfare. A strong competition law and

institution must be put in place to complement such agreement.31 These correlations are captured

in the pith and substance of the AfCFTA agreement. Indeed, as pointed out earlier, the AfCFTA

agreement seeks to “enhance competitiveness at the industry and enterprise level through

exploiting opportunities for scale production, continental market access and better allocation of

resources.”32

IV. AfCFTA AND THE POTENTIAL ANTITRUST PRACTICES.

Free trade policies raise the risk of exploitation of markets by cartels. Cartels could be

competitors who have agreed to abandon their cut throat rivalry for ascendancy in markets and

choose to work together to exploit markets. The exploitation could take the form of agreement to

fix prices, share markets or consumers, or reduce the production of goods and services with a

28 Id. at 588 29 Id. 30Brendan Sweeney, Globalisation of Competition Law and Policy: Some Aspects of the Interface between Trade

and Competition, 5 MELBOURNE J. INT’L L. 1, 2 (2004), noting that “preventing anti-competitive private conduct

(including market access barriers) is one of the cornerstones of competition law and policy”. 31 Seung Wha Chang, Interaction between Trade and Competition, Why a Multilateral Approach for the United

States? 14 (1) Duke J. Of Comp. & Int’l L. 1, 7 (2004), noting that “both policies by their nature, pursue identical

goals and are mutually supportive of the other.” 32 African Union, supra note 22.

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view to increasing their prices.33 With the free trade mantra of the AfCFTA agreement, firms

from different countries in the continent who were hitherto rivalries in their respective sectors

can agree to form a cartel and engage in these practices. Such practices would have severe

implications for countries. First, the unjust increase in prices of goods would extract unnecessary

surplus from consumers. This would further impoverish consumers whose welfare is at the heart

of the Agreement. Further, “overcharges allow for the misallocation of resources from more

productive users.”34 This would also have negative impact for countries in the continent who

have limited resources and whose economies are not big. One of the deleterious effects of

overcharges in such countries is that it could atrophy economic expansion because firms in the

distribution chain may increase the costs of their inputs to reflect the charges.35 This could, in

turn, affect the competitiveness of such countries in attracting foreign direct investment because

foreign investors would have the impression that the costs of producing goods and services in the

countries are high.36

Private firms could also engage in unilateral or collusive exclusionary conduct.37 Indeed,

firms may enter into agreement with customers that would require the latter to exclusively deal

or purchase the products of the firms. This agreement would potentially affect competition in the

affected market because it would enable the firms to consolidate their position in the market,

foreclose their rivals from an important input in the industry or create barrier to access to

purchasers which their rivals would ordinarily have had in the absence of the exclusive dealing

agreement.38

Apart from cartelization, the AfCFTA agreement would create opportunities for

increased transnational mergers. The mergers could take the form of horizontal, vertical or

conglomerate mergers. While a horizontal merger entails a merger of two firms in the same line

of business, a vertical merger involves the merger of two firms that are in the same business but

in dissimilar levels in the supply chain.39 In a conglomerate merger, the merging firms are

neither in the same line of business nor “in any production-supply relationship”.40 These

mergers could have significant effects on competition in a market. With respect to horizontal

mergers, not only that it would decimate competition between the firms, the post-merger regime

would make the firm to achieve dominance in the market and increase the price or output of the

33 Daniel D. Sokol, Monopolists without Borders: The Institutional Challenge of International Antitrust in a Global

Gilded Age, 4 BERKELEY BUS. L.J. 37, 53 (2007). 34 Id. at 55. 35 Id. 36Id. 37 Brendan Sweeney, International Competition Law and Policy: A Work in Progress, 10 MELBOURNE J. INT’L

L. 1, 4 (2009). 38 BRIAN A. FACEY & DANY H. ASSAF, COMPETITION AND ANTITRUST LAW: CANADA & THE

UNITED STATES, 358 (3rd ed., LexisNexis 2006). 39 CHRISTOPHER L. SAGERS, ANTITRUST: EXPLANATIONS AND EXAMPLES, 275(2nd ed. Wolters Kluwer

Law & Business 2014). 40 JOHN W. COLLINS, BUSINESS LAW: TEXT AND CASES, 1027 (John Wiley & Sons 1986)

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product without any obligation to justify the decision to any party.41 In vertical mergers, “the

newly acquired firm may decide to deal only with the acquiring firm, thereby altering

competition in three markets: among the acquiring firms’ suppliers, customers, or competitors.”42

With respect to conglomerate mergers, they raise the risk that the post-merger regime would

create a firm that is too dominant and may foreclose competition in the distinct markets of the

merging firms.43 It could also produce a quid pro quo arrangement that would be geared towards

eliminating competition or creating barrier to entry in a market. In the words of Jane Mallor et al:

A conglomerate merger may create a risk of potential reciprocity if the acquired

firm produces a product regularly purchased by the acquiring firm’s suppliers.

Such suppliers, eager to continue their relationship with the acquiring firm, may

thereafter purchase the acquired firm’s products rather than those of its

competitors.44

In all of the above mergers discussed, common competition issues exist. Thus, if the

mergers are not properly scrutinized, the merging firms may acquire monopoly powers after the

mergers. They can use the powers to squeeze out competitors out of the market or create barrier

to entry in the market. Eventually, these practices will substantially lessen competition in the

market.

Apart from anti-competitive practices of firms, governments may create policies that

have anti-competitive effects. This could take the form of regulations that put domestic firms in

an advantageously competitive position over foreign firms. Governments could make policies

that would tacitly protect indigenous export cartels. The implication of such policies “is that

consumer welfare in the country of importation may be sacrificed for the benefit of the country

of exportation”.45 Also, a government may discretely and unjustifiably provide subsidies to a

domestic firm. The subsidies may give the domestic firm a competitive advantage over a foreign

firm both domestically and in the foreign firm’s home State. This is in view of the fact that

subsidies, “create artificially large demand for the subsidized product which is sold below

cost.”46 The subsidies could also provide a veritable tool for the government to take over the

political and economic power of the home State of the foreign firm. The potential for this form of

anti-competitive behavior is rife under the AfCFTA agreement because there is no guarantee that

governments in the continent would not hide under the cloak of protection of national interests to

provide unfair incentives for their domestic firms.

41 ERNEST GELLHORN & WILLIAM E. KOVACIC, ANTITRUST LAW AND ECONOMICS, 354 (4th dd. St.

Paul Minn. West Publishing Co 1994). 42 Id. at 356-357. 43 Id. at 359. 44 JANE P. MALLOR ET AL, BUSINESS LAW AND THE REGULATORY ENVIRONMENT: CONCEPTS

AND CASES, 1135 (11th ed. McGraw-Hill Irwin 2001). 45 KENNEDY, supra note 27 at 592. 46 Eleanor M. Fox, Competition Law and the Agenda for the WTO: Forging the Links of Competition and Trade,

4(1) PACIFIC RIM LAW & POLICY JOURNAL, 1, 26 (1995).

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As it is shown, all these practices could have transnational effects and affect the overall

welfare of the continent and the core objectives of the AfCFTA agreement. The cardinal issue in

the circumstance is: should Africa rely on national competition laws and institutions to address

these potential anti-competitive practices? The next section would use some factors to argue that

instead of using the national competition laws and institutions during the AFCFTA era, the

continent needs a continental competition law and institution

V. AfCFTA: THE CASE FOR A CONTINENTAL COMPETITION LAW AND

INSTITUTION

A. Conflicting Legal and Regulatory Outcomes

As noted in the introductory part of the paper, most countries in Africa have enacted

competition laws and created competition authorities to administer the laws. This is largely due

to the wave of privatization and economic liberalization policies of the 1980s to early 2000s. The

implication of existence of national competition laws and authorities is that countries are

expected to regulate anti-competitive practices that occur within their domestic markets. It is

pertinent to note that in some instances, the laws47 and jurisprudence48 of some countries enable

them to assume jurisdictions to adjudicate anti-competitive practices that occur outside their

territories but have effects on their markets.49 In these circumstances, there is a possibility that

the national competition laws and authorities of the countries may conflict with each other. This

possibility is worrisome considering the fact that the goals of competition policy of countries

differ and every country would strive to enforce its competition law to meet her smorgasbord of

47 For instance, s. 6 of the Kenyan Competition Act No. 12, 2010 (as amended) stipulates that:

The Act shall apply to conduct outside Kenya by:

a. A citizen of Kenya or a person ordinarily resident in Kenya; b. A body corporate incorporated in Kenya or carrying on business within Kenya; c. Any person in relation to the supply or acquisition of goods or services by that person into or within Kenya;

and d. Any person in relation to the acquisition of shares or other assets outside Kenya resulting in the change and

control of a business, part of a business or an asset of a business in Kenya. Also, s.87(3) of the Federal Competition and Consumer Protection Act of Nigeria 2018 provides that:

Nothing in any order made under s.86 of this Act shall have effect so as to apply to any undertaking in relation to its

conduct outside Nigeria unless that undertaking is:

a. A citizen of Nigeria; or A body corporate incorporated under the Companies and Allied Matters Act and carry on business in Nigeria either

alone or in partnership with one or more undertakings. 48 For instance, see the South African case of America Natural Soda Ash Corp. & Anor. v. Competition Commission

of South Africa, C.N. 49/CR/2000 49 This principle is termed the extraterritorial application of competition laws. For the literature on this principle,

see, Thanh Phan, The Legality of Extraterritorial Application of Competition Law and the Need to Adopt a Unified

Approach, 77(2) LOUISIANA L. REV. 425-477 (2016); Won-Ki Kim, The Extraterritorial Application of U.S.

Antitrust Law and its Adoption in Korea, SINGAPORE J. INT’L & COMP. L. 386-411 (2003); and Roger P.

Alford, The Extraterritorial Application of Antitrust Laws: The United States and European Community

Approaches, 32 VA. J. INT’L L. 1-50 (1992)

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goals. Indeed, the goal could be social, economic and political.50 For example, one of the goals

of the South African competition law is to integrate black South Africans into the mainstream

economy.51 Among the goals of the Nigerian competition law is to ensure “sustainable

development of the Nigerian economy.”52 With respect to Zimbabwe, competition law seeks “to

maintain competition in the economy.”53 This divergence of goals would have serious

implications under the AfCFTA regime. Indeed, the disparity in the purpose of competition law

of various countries would raise the risk that firms whose conduct does not amount to anti-

competitive practice under their domestic laws would be found liable for breaching competition

law of another country. This could affect the firms’ incentive to conduct transactions in such

country and affect the welfare and free trade goals of the AfCFTA agreement.

Apart from the risk of bifurcated substantive laws, there is also the risk that the

procedural and remedial laws of the countries may differ.54 The procedure for instituting or

defending an anti-trust claim in one of the affected countries may be complex. A clear practical

challenge in such circumstance is that a foreign firm may find it difficult to comply with the

procedure. This would place the domestic firm in an advantageous position over the foreign firm.

Additionally, the reliefs in the laws of the countries that assume jurisdiction to adjudicate an

antitrust dispute may diverge. For instance, the remedies in the domestic law of a country may be

sufficient to offset the harm caused by an anti-competitive behavior of a firm while the relief in

the legal regime of the other country may be insufficient. In such circumstance, the country

whose citizens suffer serious losses would impose maximum sanctions on the firm while the

country whose firm engaged in the anti-competitive conduct would get a lenient legal sanction

on the firm. A firm could use such pluralistic statutory relief regimes as a propaganda chip to

justify a claim that its conduct is not as egregious as claimed by the country that imposed a

maximum punishment, when in fact the firm knows the gravity of harm that the conduct caused

to the citizens and markets of that country. By contrast, a country could also impose the

maximum sanction on a firm when the conduct of the firm does not deserve such sanction. The

country may do so because of domestic factors.55 In such circumstance, “the welfare costs

involved in erroneous decisions might be significant and may well extend beyond the direct

50 MAHAR M. DABBAH, THE INTERNATIONALIZATION OF ANTITRUST POLICY, 6 (Cambridge

University Press, 2003), noting that “political ideology and initiative serve as the basis for enacting different

antitrust laws in different countries”. 51 Long Title to the South African Competition Amendment Act No. 18 of 2018. See Fiona M. Scott Morton, How

do you Enforce Antitrust in a Global Marketplace? (Jun. 16, 2016), https://insights.com.yale.edu/insights/how-do-

you-enforce-antitrust-law-in-global-marketplace. See also the Long Title to the South African Competition

Amendment Act No. 18 of 2018 which states that the aim of the law is “to protect and stimulate the growth of small

and medium businesses and firms owned and controlled by historically disadvantaged persons…” 52 Federal Competition and Consumer Protection Act of Nigeria 2018, supra note 47, s. 1(e). 53 The Long Title to the Zimbabwean Competition Act 2001. 54 Brendan Sweeney, International Competition Law and Policy, 10 MELBOURNE J. INT’L L. 1,1 (2009). 55 Id.

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effects of the conduct of the parties in a specific case.”56 Essentially, such regimes could create

false positives and false negatives that would negatively affect competition in markets.57

Although, some scholars have argued that countries have made significant progress in

relying on informal arrangements such as bilateral and non-bilateral agreements to resolve this

challenge,58 such approach may be inadequate in every case. A country may consider its national

interest in adjudicating a dispute. In such circumstance, the country may hold that a clear anti-

competitive practice of a domestic firm is pro-competitive. In addition, some of the bilateral and

non-bilateral arrangements only require countries to voluntarily comply with their obligations. A

country could renege on its obligations for political or national economic policy reasons. This

situation would not only create a frisson of tension and an estranged relationship between the

countries, it would also create uncertainties for firms with respect to the laws or judicial process

that would determine their rights and liabilities.59 More importantly, countries which engage in

such agreements may suffer from collective action problem60 in the sense that they may not be

able to coordinate their enforcement of the law to achieve efficient outcomes.

The challenges noted above could be resolved through a continental antitrust law and

institution. Thus, a continental legal and enforcement regime would provide a uniform law that

would regulate anti-competitive practices. This, in turn, would allow firms to know the

prohibited anti-competitive practices under the AfCFTA regime. Firms would be able to act with

some predictability because such legal and institutional regime would provide a “one-stop

shopping rather than a parallel regulation.”61 The predictability would, in turn, make the firms to

be more innovative and consumers in the continent get value for their money.62

B. National Bias

56 Michal S. Gal, When the Going Get Tight: Institutional Solutions when Antitrust Enforcement Resources are

Scarce, 41(3) LOYOLA UNI. CHICAGO L.J. 417, 423 (2010) 57 Koren W. Wong-Erwin, Testimony of International Antitrust Enforcement, 7, George Mason University Law and

Economics Research Paper Series 17-30, (May 19, 2017) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2965568, paper presented before the United States House of

Representatives Committee on the Judiciary, Subcommittee on Regulatory Reform, Commercial and Antitrust Law,

noting that false positives occur when “pre-competitive conduct is mistaken condemned” while false negatives occur

when “we fail to condemn conduct that is actually anticompetitive.” 58 ELEANOR M. FOX & DANIEL CRANE, GLOBAL ISSUES IN ANTITRUST AND COMPETITION LAW,

637, (2nd Ed. West Academic Publishing 2017). 59 DABBAH, supra note 50 at 5. 60 For the literature on collective action problem, SEE MANCUR OLSEN JR., THE LOGIC OF COLLECTIVE

ACTION: PUBLIC GOODS AND THE THEORY OF GROUPS (Harvard University Press: 1971). 61 Michal S. Gal, Regional Competition Law Agreements: An Important Step for Antitrust Enforcement, 10 U.

TORONTO, L.J. 239, 244 (2010). 62 Eleanor M. Fox, Extraterritorial Jurisdiction, Antitrust, and the EU INTEL Case: Implementation, Qualified

Effects and the Third Kind, 42(3) FORDHAM INT’L L.J. 981-997 at 996 (2019), arguing that “firms constrained by

a hundred sovereigns cannot be as inventive as firms with one governmental master. With an increasing application

of nations’ antitrust laws to successful global firms, innovation will decline and consumers and the world would be

worse off”.

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It is axiomatic that most national competitions laws are tailored towards promoting

national interests as opposed to regional, continental or even international welfare.63 This

preferential treatment equally applies in enforcement of the laws. A domestic firm could engage

in anti-competitive practice in another country. Once the practice yields revenue for the home

State of the firm or does not have an effect on the domestic market, it is unlikely that the

domestic competition policy would find the firm liable even if the conduct affects regional or

continental welfare.64 The issue of national bias is already evident in some national competition

laws in Africa. For instance, the Federal Competition and Consumer Protection Act of Nigeria

allows the Nigerian Competition Authority to permit certain anti-competitive acts if is satisfied

that they help “to the improvement of production or distribution of goods, services or promotion

of technical or economic progress, while allowing consumers a fair share of the benefit.”65

Similarly, the Kenyan competition law empowers the competition authority to grant exemptions

to firms who engage in any agreement or practice that would have otherwise violated the

competition law if such agreement or practice promotes exports, production of goods and

services, technical and economic progress, stability in a sector or any public benefit that

outweighs the anti-competitive effect.66 Under the South African competition law, the

Competition Commission is empowered to exempt some anti-competitive practices if they

enhance “economic development, growth, transformation or stability of any industry designated

by the Minister.”67

National bias could also take the form of intentional refusal of a national competition

authority from investigating or prosecuting a domestic firm alleged to have committed an anti-

competitive act. Leaving aside the problem of refusal to investigate or prosecute, national bias

may occur when a national competition authority decides to investigate or prosecute a domestic

firm but political interference at the domestic level frustrates such effort. For instance, in

Kodak/Fuji’s case, the government of Japan was “accused of protecting Fuji by failing to

challenge vertical restraints that acted as a barrier to Kodak”.68 Also, Europe supported Airbus in

opposing Boeing’s acquisition of McDonell Douglas and America supported Boeing in

63 Ann Bradford, International Antitrust Negotiations and the False Hope of the WTO, 48(2) Harv. INT’L L.J. 383,

384 (2007). 64 Alen Balde, Competition in the Global Market: A Way Towards an Autonomous International Court for Global

Competition Cases, 6(2) MANAGING GLOBAL INSTITUTIONS 207, 209-210 (2008) 65 Federal Competition and Consumer Protection Act of Nigeria 2018, supra note 47, s. 60. 66 Id. s. 26(3) (a)-(d), Kenya Competition Act No. 12, 2010 (as amended) supra note 47. Often, States engage in

State action that endorses an anti-competitive conduct. For this analysis, see, Eleanor M. Fox & Deborah Healey,

When the State Harms Competition- The Role for Competition Law, 79 ANTITRUST L.J. 769, 774 (2014), noting

that “State action is an old issue in the United States and some other jurisdictions, but only a possible defense to be

asserted by market actors (usually private firms) that perform anti-competitive acts and contend that the State has

triggered or blessed their conduct”. 67 South African Competition Amendment Act No. 18 of 2018, supra note 50, s. 7 (iv). 68 Mario Mariniello, Damien Neven & Jorge Padilla, Antitrust, Regulatory Capture and Economic Integration, E15

Initiative, 2 (Geneva: International Centre for Trade and Sustainable Development and World Economic Forum,

2015), www.e15initiative.org

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completing the acquisition.”69 Further, it was alleged that the South African government was

loath to regulate the activities of diamond cartels that conducted their activities in the country.70

Guzman captured this fact when he opined that:

“When the domestic firms engage in activities that might be considered anti-

competitive, the great majority of the harm is felt by the foreigners, whereas the

benefits are felt by local firms. Policymakers, looking only to local costs and

benefits, will take into account all of the resulting benefits enjoyed by firms, but

will consider only that fraction of the harm that is felt by local consumers”71

At the very least, such outright abstinence from enforcement or lax enforcement will not

only lead to regulatory arbitrage where countries will seek and use benevolent regulations in one

jurisdiction to offset the loss of non-beneficial laws in another jurisdiction,72 it will also create a

regulatory race to the bottom in the sense that other countries would adopt similar measure to

protect their domestic firms.73 This raises further concerns that national antitrust laws and

authorities will create or morph into “antitrust havens”74 for African countries that breach their

obligations under the AfCFTA agreement.

Countries may justify decisions that are evidently bias against foreign firms on the

grounds that they are complying with the electoral or constitutional mandate to protect their

citizens. Indeed, the decision of the body might be based on political expediency as opposed to

continental economic or trade policy objectives. The major concerns about national bias in

application of competition law are that it may be implemented with slavish consistency and in

some instances, it will hardly be noticed. In fact, the State of the domestic firm would in theory

enact the law for both domestic and foreign firms, but in practice apply the law more stringently

on foreign firms.75 This subtle method of protectionism is worse than open trade barriers.76

Generally, national bias may “create a market access problem”77 for foreign companies because

it will place domestic companies in a highly advantageous operating platform over foreign

69 Eleanor M. Fox, Antitrust and Regulatory Federalism, 75 NEW YORK UNI. L. REV. 1781, 1803 (2000). 70 Michal S. Gal, Antitrust in a Globalised Economy: The Unique Enforcement Challenges Faced by Small and

Developing Jurisdictions, 33 FORDHAM INT’L L.J. 1, 10 (2009). 71 GUZMAN T. ANDREW, THE CASE FOR INTERNATIONAL ANTITRUST, IN RICHARD A. EPSTEIN &

MICHAEL S. GREVE EDS, COMPETITION LAWS IN CONFLICT: ANTITRUST JURISDICTION IN THE

GLOBAL ECONOMY, 101 (The American Enterprise Institute, 2004). 72 See Annelise Riles, Managing Regulatory Arbitrage: A Conflict of Laws Approach, 47 CORNELL INT’L L. J.

63, 65 (2014). 73 See Yoshizumi Tojo, Trade and Competition Policy in a Global Economy: Convergence or Divergence, 7, https://www.jftc.go.jp/eacpf/06/6_01_09.pdf stating that “another but related question is whether there should be a

risk of race-to-the-bottom in competition policy field. Two opposing views exist. The first view is that without

international competition rules, countries will select those internal and external policies that maximize welfare at the

expense of global welfare.” 74 See Diane P. Wood, The Internationalization of Antitrust Law: Options for the Future, 44 DE PAUL L. REV.

1289, 1292 (1995) 75 Paul B. Stephan, Global Governance, Antitrust and the Limits of International Cooperation, 38 CORNELL INT’L

L.J. 173, 180 (2005). 76 Id. at 185 77 FOX, supra note 69 at 1804

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companies. This, in turn, could chill the decision of foreign corporations to invest in a domestic

market because it would promote uncertainty and substitute ingenious and competent foreign

corporations with uninventive and inefficient domestic corporations.78

Also, while acknowledging the importance of protection of national interests and

sovereignty, such protection cannot achieve positive outcomes in todays globalize economy

where multinational firms engage in anti-competitive practices that could have effects in both

national and transnational markets. In such situation, it would be difficult for a country to depend

solely on its competition policy.79 If the promotion of intra-African trade and continental welfare

is the sincerest and most cardinal aims of the AfCFTA regime, then the emphasis on national

interests and sovereignty becomes a ruptured narrative and loses its normative value.

Essentially, competition law and institution at continental level would reduce the

possibility of bias. From a public choice theory perspective, “governments may deviate from a

welfare-maximizing policy for the sake of other non-economic ends, such as protecting national

champions”80 and domestic consumer welfare. The risk of this problem will be minimal under a

continental competition regulatory regime. Indeed, unlike national competition law regimes

which often favor anti-competitive practices of domestic firms that export goods, a continental

antitrust regime may not be susceptible to such degree of bias. This is because the guiding

principle of such regime will be that “it belongs to every country who is signatory to the

AfCFTA agreement and belongs to no particular country who is a signatory to the agreement.’

Accordingly, the focus of such institution will be on achieving the core objectives of the

agreement as opposed to unnecessary nationalistic sentiments.

From a similar strand, the law and institution would not be accountable to the electorates

or politicians of a particular country but to all African businesses and consumers. Thus, unlike a

regulatory regime that is based on national competition laws and institutions, under a continental

legal regime, undue political influence would be limited because members of the enforcing

authority will be drawn from all the AfCFTA countries.81 This will not only enhance both

substantive and procedural fairness in the adjudication of disputes, it will also reduce the risk of

trade war82 that will arise from bias from national laws and adjudicatory processes.

Also, under a supranational competition law regime, the risk of bias would be limited

because the decision of the institution will be accessible to countries, evaluated and, where

necessary, subjected to criticism. As a result, the institution will, in its adjudicatory process, limit

the skirting the provision of the law. In the same vein, it will know how to balance the national

78 Mario Mariniello, Damien Neven & Jorge Padilla, Antitrust, supra note 68 at 5 79 Phanomkwam Davahastin Na Ayudhaya, ASEAN Harmonization of International Competition Law: What is the

Most Efficient Option? INT’L J OF BUS. ECONS. & LAW 1, 1 (2013). 80 KENNEDY, supra note 27 at 591. 81 GAL, supra note 61 at 247. 82 FOX, supra note 69 at 1805, noting that “systems clash may lead to hostilities, possibly culminating in a trade

war”.

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interests of the States objectively and dispassionately and also foreground “the notion of a

community of nations commonly striving to create robust and competitive

business”83environment in its decisions.

C. Transaction Costs Problem

As noted earlier, most African countries have enacted antitrust laws and created generic

antitrust bodies to administer the laws. This is in addition to sector-specific regulatory

institutions that act as quasi antitrust agencies in their respective sectors. The implication of this

arrangement in a liberalized continental trade regime is that if firms engage in transnational

transactions that may affect competition in markets, the firms must get regulatory approval from

the competition authorities and sector-specific bodies that regulate competition in the sector.

This problem usually arises in transnational mergers because such mergers require the merging

firms to comply with the competition laws of the affected jurisdictions.84 The laws of the

antitrust agencies in the jurisdiction may be different. This would impose huge transaction costs

on the firms because the firms must pay for the statutory fees for the review and approval in

different jurisdictions. Aside the costs that would be borne by firms, the affected antitrust

agencies would also incur costs in reviewing the merger and acquisition documents.85In addition

to the regulatory costs, firms will incur the cost of professional fees of lawyers in the various

jurisdictions.86

More fundamentally, merger laws in most jurisdictions may require pre-merger and post-

merger notification requirements. In such circumstance, it will be difficult for the antitrust bodies

in the jurisdiction to approve the merger expeditiously.87 Such delay may affect the productivity

of the merging firms or even frustrate the deal.88 These patent problems could affect

transnational transactions envisaged under the AfCFTA agreement. They could also affect the

incentives of firms to engage in transactions that transcend their borders. Indeed, given the

hodge-podge of laws and regulatory approvals, firms will withdraw from trans-border

transactions because of the associated costs of complying with them. This would even affect

allocative efficiency because firms may pull out of a transaction in jurisdictions where

consumers require the goods or services the most on the ground that the transaction costs arising

from regulatory approvals in multiple jurisdictions are high. Further, even when the merger

83 FOX, supra note 46 at 29 84 See Lucio Lanucara, The Globalization of Antitrust Enforcement: Governance Issues and Legal Responses, 9(2)

INDIANA J. OF GLOBAL LEGAL STUDIES, 433, 439 (2002), stating that “many….mergers have a substantial

transnational effect even when they are conducted by subjects in a single market. Such activities could become

objects of scrutiny by two or more competition authorities.” 85 GUZMAN, supra note 72 at 100. 86 SOKOL, supra note 33 at 61. 87 Id. See also Daniel A. Crane, Substance, Procedure and Institutions in the International Harmonization of

Competition Policy, 10 CHICAGO J. INT’L L. 143-159 at 147 (2009). 88 Id. at 61

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transaction is approved, firms would incorporate the compliance costs in the costs of the goods

and services in the continent. This would, in turn, affect consumer welfare since such costs

amount to indirect extraction of surplus from consumers, especially where firms exaggerate the

costs. The creation and use of a continental antitrust law and institution would obviate these

problems. Such regime would provide “a common clearing house option for merger filings, so

that one document filed in one place can provide all the necessary preliminary information”89 or

satisfy the full requirement for the transaction.

.

D. Resources and Experts to Solve Competition Law Issues

Lack of financial and quality human resources affect enforcement of competition laws in

several respects. First, poor financial and human resources would affect the investigation,

detection and imposition of sanctions against firms that violate antitrust laws. Investigation and

detection of anti-competitive practices require huge resources and qualified personnel. If firms

that are the subjects of investigation have more resources than the competition authority, it raises

the risk that they may capture a competition authority. This also extends to a situation where the

firms devise means of engaging in antitrust practices. In such circumstance, if the anti-trust body

lacks skilled staffs, it may not detect the practices and punish the firms. More importantly, these

two critical institutional factors often impact on the expectations and incentives of firms to

indulge in business practices that offend competition laws because if firms are aware that a

competition authority has the financial strength and competent personnel to detect, prosecute and

punish them for anti-competitive behavior, the firms will be cautious to engage in such

practices.90

The major challenges facing national competition authorities of some developing countries in

enforcement of their competition laws are lack of resources and expertise on competition

policies.91 These two challenges have severe implications for a free trade regime like the

AfCFTA. Indeed, identifying and prosecution of firms that are involved in cartelization and other

forms of anti-competitive practices under the AfCFTA will be difficult if national competition

authorities undertake such responsibilities. The paucity of resources of some of the national

competition authorities will create an avenue where cartels or firms with financial power would

compromise the officials of the authorities and influence their decisions. More fundamentally,

lack of funds could affect the ability of national competition authorities on the continent to

conduct thorough investigations of an anti-competitive practice that has a multi-jurisdictional

effect. This perspective is very critical for poorer countries in Africa. A situation could arise

where dominant and rich foreign firms engage in an anti-competitive conduct that has significant

effects in a poor country than a rich country. The rich country will have the resources to

89 ELEANOR M. FOX & DANIEL CRANE, GLOBAL ISSUES IN ANTITRUST AND COMPETITION LAW,

640 (2nd Ed. West Academic Publishing 2017). 90 Michal S. GAL, supra note 56 at 423 91 William E. Kovacic, Getting Started: Creating New Competition Policy Institutions in Transition Economies, 23

BROOK J. INT’L L. 403, 419 (1997)

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investigate and enforce its competition law against the firms. The poor country will lack the

resources to do so notwithstanding the fact that its citizens and economy suffered a significant

portion of the harmful effect of the conduct. With a continental competition authority, resources

would be pooled together to investigate and prosecute the firms that engage in the anti-

competitive behavior. By so doing, the poor country would benefit from the arrangement which

would not have been possible if it were left alone to investigate and prosecute the firms.92

Essentially, a continental competition regime under AfCFTA will guarantee that resources

are pooled together from various governments to combat cartels and other anti-competitive

practices. The approach of the Organization of East Caribbean States (OECS) is instructive here.

The member States contributed resources and established a regional competition authority that

does not only address anti-competitive practices within the region but also assist the States to

fulfill their obligations towards the Caribbean Community and Common Market (CARICOM)

member States to implement their national antitrust rules.93

With respect to expertise, some of the national competition authorities, arguably, do not have

the expertise to deal antitrust practices within their jurisdiction. As noted earlier, AfCFTA will

create more complex forms of anti-competitive conduct. The question that arises is: would

national competition authorities that struggle to address less complex anti-competitive practices

be able to combat the most complex anti-competitive practices under a free trade regime? It

would not be a blinkered argument to posit that it would be difficult for them to do so. As a

result, a continental competition authority is important. Such a regime will create an avenue

where experts from States with strong national competition authorities would be pooled together

to conduct rigorous investigations of anti-competitive practices. Additionally, the experts will

make rigorous legal and economic analysis before arriving at decisions on anti-competitive suits.

More importantly, such a regime will create a platform where expertise and knowledge are

shared to address anti-competitive practices that distort trade under the AfCFTA. This latter

argument is important in view of the fact that most countries in Africa recently enacted antitrust

laws and created anti-trust authorities. For instance, Nigeria only passed and created a generic

competition law and institution in late 2018.94 The implication is that the officers of the antitrust

body are less likely to have the expertise to investigate and prosecute anti-competitive practices.

VI. THE CONTINENTAL COMPETITION LAW AND AUTHORITY: SNAPSHOT

OF THE CHALLENGES AND PROSPECT.

The argument of this paper that the establishment of a continental competition law and

institution is imperative during the AfCFTA era does not dismiss the fact that the creation of

92 For the narrative in this respect, see Eleanor M. Fox, Linked-in: Antitrust and the Virtues of a Virtual Network,

43(1) INT’L LAWYER, 151, 154 (2009). 93 GAL, supra note 61 at 244. 94 See the Federal Competition and Consumer Protection Act 2018, supra note 47, which was signed into law on

30th January 2019.

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such regime would not by any means be easy. As subtly noted in the previous analysis, issues

such as sovereignty, national interest, and variation in legal traditions95 will rear up. Indeed, it is

expected that countries may not be willing to cede or subject the exercise of powers of their

economic regulatory institutions to an international body.96 Further, countries will be disposed to

protect their economic interests or the interest of their citizens as opposed to the interests of

foreign States or citizens.97 Also, the legal traditions of most African States differ because of

Western colonization. For example, former British colonies will apply the English Common

Law, prefer the doctrine of judicial precedent and rely heavily on case laws in administration of

justice. By contrast, countries that were colonized by France, Germany, Netherlands, and

Belgium will apply civil law and adjudicate disputes based on the provision of Codes and

Statutes.98 Also, countries that apply Civil Law will use inquisitorial system while those that

apply the English Common Law will use the accusatorial approach. These differences in legal

culture will affect the decision of countries to be bound by a supranational competition law and

institution. These issues logically cast doubt on the possibility of a creation of a continental law

and institution that would regulate competition during the AfCFTA era. Also, they provide the

impetus to the opinion of skeptics that AfCFTA countries may prefer the use of bilateral

agreements to address anti-competition issues. In fact, these concerns informed the withdrawal of

consent of some countries to the establishment of an international competition regime under the

World Trade Organization Doha Trade Round.99

Admittedly, these concerns, to some extent, are theoretically and practically plausible.

However, since the core objectives of the AfCFTA agreement are to promote continental trade,

boost the economy of States and enhance the welfare of consumers in Africa, these concerns

should not trump the objectives of the AfCFTA agreement. With respect to the concern about

sovereignty, there is a shift in modern times towards less emphasis on sovereignty when States

wish to address issues that affect their collective interests. As a scholar notes, “a reaction by

States has been to decentralize the exercise of sovereignty, particularly in fields such as antitrust,

in which complex economic environment is coupled with peculiarities that require the

involvement of specially qualified officers and agencies.”100 This argument seems plausible

considering the fact that African States that endorsed the AfCFTA agreement seem to share the

95 BALDE, supra note 64 at 213, 216. 96 JOYCE KARANJA-NG’ANG’A, EAC COMPETITION LAW, IN EMMANUEL UGIRASHEBUJA ET AL,

EAST AFRICAN COMMUNITY LAW, 435 (Brill Nijhoff 2017). On the issue of difference in norms of countries,

see FOX, supra note 62 at 996. 97 SWEENEY, supra note 37 at 1-2. 98 For this possibility, see Percy R. Luney Jr., Traditions and Foreign Influences: Systems of Law in China and

Japan, 52(2) LAW & CONTEMPORARY PROBLEMS, 129, 145, 147 (1989) noting this challenge in China and

Japan. 99 See Eleanor M. Fox, Competition Policy: The Comparative Advantage of Developing Countries, 79 LAW &

CONTEMPORARY PROBLEMS, 69, 80 (2016). See also Kathryn McMahon, The International Harmonization of

Competition Law: The Use of Settlement Agreements, 22(4) LAW & BUSINESS REVIEW OF THE AMERICAS

293, 300 (2016). 100 LANUCARA, supra note 84 at 443.

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view that “deeper economic integration”101 is the best route to enhance trade, achieve

competitiveness, promote investment within the continent and improve the welfare of Africans.

More fundamentally, such regime will minimize power imbalance that exists under a national

competition law and enforcement regime. Indeed, it “may reduce the comparative advantage of

some countries relative to their neighbors, given their different unilateral enforcement

capabilities.”102

Core antitrust practices are not sensitive to legal traditions. Indeed, they negatively affect

consumer welfare and market integration. As a result, the argument about variations of legal

tradition is tenuous and problematic. The proposed continental competition law and authority

should, however, focus on the core antitrust practices that would negatively affect trade at the

continental level and overall consumer and economic welfare of the continent.103 This approach

will also minimize fears that the sovereignty or the powers of the national competition authorities

would diminish. The EU approach is worth mentioning here. In the EU, members States are

allowed to enforce their competition laws. However, they are enjoined to model their

competition laws in tandem with Articles 101 and 102 of the Treaty for the Functioning of the

European Union.104 More so, if any anti-competitive act affects EU markets, the EU law would

prevail over a domestic law.105

The argument that the creation of a supranational competition law and institution for the

AfCFTA era will be unrealistic106 may be unfounded. In fact, there has been a progressive

realization of a supranational regime in East Africa following the region’s policy to enhance free

trade and consumer welfare. The Council of Ministers of East African States agreed that the

region would have a competition law and authority in 2004. Pursuant to the agreement, the East

African Legislative Assembly passed the East African Community (EAC) Competition Act of

2006 and the East African Community Competition Regulations of 2010.107 The enforcing body,

the East African Competition Authority, has also commenced work.108 The East African

Competition authority has the “exclusive original jurisdiction in the determination of violation of

the EAC Competition Act”.109 Consequently, the competition authorities of member States lack

the power to adjudicate disputes arising from the breach of the Act.110 This restricts the

101 GAL, supra note 61 at 249. 102 Id. at 250. 103 Such practices are cartelization, price fixing, anti-competitive mergers and acquisitions, abuse of dominant

position, anti-competitive State aid, collective refusal to deal, and market or consumer sharing. 104 RICHARD WHISH & DAVID BAILEY, COMPETITION LAW, 58 (9th ed. Oxford University Press, 2018). 105 Id. at 76 106 BRADFORD, supra note 63 at 401, noting concerns about the snail speed and cost implications of establishing

such regime. 107 See KARANJA-NG’ANG’A, supra note 96 at 434. 108The East African, East African Competition Watchdog Begins Operations, Market Studies Ongoing, (Mar. 28,

2018), https://www.theeastafrican.co.ke/business/East-African-competition-watchdog-operations-market-

studies/2560-4361580-1rqaquz/index.html 109 See KARANJA-NG’ANG’A, supra note 96 at 435. 110 Id.

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adjudicatory powers of competition bodies of member States to their domestic statutes.111

Similarly, ECOWAS and COMESA member States recently established the ECOWAS regional

Competition Authority (ERCA)112 and the COMESA Competition Commission113 respectively.

The optimism of creation of such law and institution is further supported by the fact that

in the past, African States have been able to come together and create institutions that solve other

problems that negatively impact on the life of Africans. For instance, at a regional level, the

West African States have been able to create Economic Community of West African State Court

of Justice which resolves cases bordering on treaties, Conventions, Protocols and human rights

abuses in the region.114 Similarly, at a continental level, the African Union had created the

African Court on Human and Peoples’ Rights which inter alia had determined international

human rights disputes that could not be resolved at the domestic level.115 In view of these

apodictic positive efforts, the creation of a continental competition law and institution is

possible. What is required is the political will from African countries to establish such regime.

The challenge of demonstrating the political will is realistic considering the fact that in the past

the delay in creation of supranational legal regimes and institutions could be attributed to the

lack of demonstration of political will by leaders of African States.116 However, the

demonstration of political will to create a continental competition law and institution now is

more important than ever because the AfCFTA agreement would improve trade, investment,

economic welfare of Africans, and make Africa one of the powerful continental economic blocs

in the world.

111 Id. 112 Further Africa, The Growth of Competition Laws and Enforcement in Africa, (Oct. 31, 2019),

https://wwwfurtherafrica.com/2019/10/31/the-growth-of-competition-laws-and-enforcement-in-africa. 113 Pieter Steyn, Africa Competition Law Developments in 2018 and the Outlook for 2019 (13 Mar. 13 2019),

https://www.inhousecommunity.com/article/african-competition -law-developments-2018-outlook-2019. 114 International Justice Resource Center, Economic Community of West African States Court of Justice,

www.ijrcenter.org/regional-communities/economic-community-of-west-africa-states-court-of-justice/ 115 For instance, see the case of African Commission on Human and Peoples’ Rights v. Republic of Kenya,

Application No. 006/2012 (2017) in which the court held that the Kenyan government violated the land and

indigenous rights of the Ogiek community. It is pertinent to note that the Court is now called the African Court of

Justice and Human Rights. For the history, jurisdiction and functions of the court, see Gino J. Naldi & Konstantinos

D. Magliveras, The African Court of Justice and Human Rights: A Judicial Curate’s Egg, 9 INT’L ORG. L. REV.

383-349 (2012). For some of the human rights decisions of the court, see Ogwuche & Anor v. The Federal Republic

of Nigeria ECW/CCJ/APP/10/15; and Boley v. Republic of Liberia & Ors ECW/CCI/APP/46/17. Apart from these

institutions, the African Committee of Experts on the Rights and Welfare of the Child which was created by the

African Union has been able to determine a dispute on statelessness and rights of the Nubians in Kenya. The

Nubians were historically regarded as aliens. As a result, they were deprived of their rights in Kenya. The

Committee held that these acts of discrimination breached the African Human Rights standards. See Institute for

Human Rights and Development in Africa and Open Society Justice Initiative on behalf of Children of Nubian

Descent in Kenya v. The Government of Kenya, Com/002/2009, 22 March 2011. For a critical discussion of this

case, see Elvis Fokala & Lilian Chenwi, Statelessness and Rights: Protecting the Rights of Nubian Children in

Kenya through the African Children’s Committee, 6 (2-3) AFRICAN J. LEG. STUD. 357-373 (2013). 116 It is important to note that Nigeria, one of the largest economies in Nigeria, delayed in signing the AfCFTA

Agreement. See Aloysius Uche Ordu, It’s Time for Nigeria to Sign the African Continental Free Trade Area

Agreement, (Feb. 22 2019), https://www.brookings.edu/blog/africa-in-focus/2019/02/22/its-time-for-nigeria-to-sign-

the-african-continental-free-trade-area-agreement/

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VII. CONCLUSION

The AfCFTA agreement holds huge promises for Africa with respect to competitive

market, economic development and welfare of consumers. However, anti competitive practices

may erode these potential benefits. As demonstrated in the paper, reliance on national

competition laws and institutions to combat antitrust practices under the continental free trade

regime may not be the best approach. Issues such as conflicting legal and regulatory outcomes,

national bias, transaction costs and pooling of resources and expertise would remain a challenge

under the national law and enforcement regime. Consequently, the creation of a supranational

competition law and institution is imperative during the AfCFTA era because it will not suffer

the limitations of national competition laws and institutions discussed in the paper. Admittedly,

the establishment of such international regime may face serious opposition because States will

strive to protect their national interest and sovereignty. Additionally, the divergence in legal

culture will also affect the adoption of such regime. However, as shown in the paper, these

concerns should not be allowed to defeat the aims of the AfCFTA agreement because the general

economic welfare of the continent should outweigh these concerns. Finally, African leaders

should demonstrate the political will to create the law and institution because it is interest of

Africans and, by extension, nationals of the individual States that such regime be created.117

Indeed, without such will, the creation of the institution will be elusive and anti-competitive

practices would truncate the continent’s quest to become a respected economic bloc.

117 KENNEDY, supra note 27 at 619, noting that “…the legal approach taken to address the issue matters very little

if the political will is lacking to conclude an international agreement. Moving the key players to the point where they

perceive it to be in their national interest to have such international rules is the crucial first step.”

338

Akhabue: Legal Framework for the Protection of Telecoms Consumers in Nigeria.

339

LEGAL FRAMEWORK FOR THE PROTECTION OF TELECOMS

CONSUMERS IN NIGERIA

D. A. Akhabue, Ph.D.*

ABSTRACT

Various industries, trade or professional associations make rules and regulations

to improve on the quality or goods and services they provide to the public. This

can be achieved through the code of practice regulation of the industry or

professional associations in question. There are four elements that safeguard

consumer rights: consumer rights law, competition law, telecoms and internet law

and self-regulatory frameworks. The government is also saddled with the

responsibilities to make laws and rules for the regulation of telecommunication

industries in Nigeria. These rules are procedures and guidelines for formation,

management, supervision and control of telecommunication industries. These laid

down legal guidelines and rules sometimes also prescribed penalties for

telecommunication industries. In general, telecommunication industries are

regulated by legal and institutional framework with a view to achieving the

purposes for establishing the industries. This paper examines the legal framework

for the protection of telecoms consumers.

Key words: Protection, Telecoms and Consumers.

I. INTRODUCTION

That there is a high incidence of poor network coverage, billing for dialled

not heard, unsolicited text messages and calls in Nigeria is an uncontroversial

truism. More often than not, consumers of telecommunication services in Nigeria

find themselves saddled with poor network coverage, billing for dialled not heard

provided the send key had been pressed, unsolicited text messages and calls. This

constitutes a big problem to the consumer. Consumer is denied proper worth for

his money.

In the light of the above, the Government feels concerned about this

problem, by giving the consumer public protection in enacting statutes which

impose server penalties for consumer offences. Apart from the above public

protection, an aggrieved consumer is entitled to pursue his civil rights. It is against

this background that this article deals with the legal frame work for the protection

of telecom consumers by highlighting the role of civil and criminal law in

protecting the consumers whose right had been breached by service providers. The

aim is to determine the extant legal framework for protection of consumers of

telecommunication services and determine the effectiveness of the framework.

___________________________ *Senior Lecturer, Faculty of Law, Ambrose Alli University, Ekpoma, Edo State, Nigeria.

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International Journal of Business Law, November 2019, Issue 3 (2019) 3 IJBL

340

II. CIVIL LAW REGIME

The strength enjoyed by service providers and the consumers’ poor

knowledge of their rights requires that the consumer protection laws and

mechanisms be strengthened. In Nigeria, there is no civil liability for accurate puff

except there was a specific promise. Similarly, when there is unsolicited marketing

calls and short message services (SMS), there is no contractual obligation to pay

for unsolicited goods or services. In the same vein, when there is a poor network

coverage by service providers, the consumer is entitled to repudiate the contract

due to breach of conditions of fundamental terms and of course a claim for

damages for breach of warranty.

Although there have been some improvements in the performance levels

among the service providers since 20111, and new regulations made pursuant to the

Nigerian Communications Act2 (NCA) to reflect safety and service quality

concerns3, GSM consumers in Nigeria still experience dissatisfaction with the cost

and poor quality of internet services, as well as poor network coverage outside the

major cities and urban centres. And these issues are not adequately addressed in

the Key Performance Indicators (KPIs) currently employed by the Nigerian

Communications Commission (NCC) for the regulation of operations. Another

major source of dissatisfaction among consumers is unsolicited marketing of

various value-added services through calls and SMS from operators. There has

been a directive from the NCC restricting the unsolicited calls and SMS to the

hours between 8am and 8pm daily4. However, many consumers believe that this

does not go far enough to protect them from being distracted during the course of

their daily lives and the procedure for opting out of receiving such calls and SMS,

where possible, is often unclear. A GSM service consumer, who suffers injury as a

result of a breach by a service provider, can maintain a civil action in contract or

tort of negligence.

(i) Contract: The contract between the GSM service consumer and a service

provider is one of a special class. Once a consumer acquires and activates the

mobile phone line of a service provider, a contract is extant between the parties.

This contract subsists for so long as the consumer recharges his account with the

service provider following the pay-as-you-go system of Nigerian GSM sector5.

The service contract usually lapses at the end of the access period of a consumer

on the mobile service provider’s network. It again revives on a consumer’s

1. Nigerian Communications Commission, Summary of GSM Operations Key Performance Indicators February 2013 to September 2013. See May 11, 2015 http://www.ncc.gov.ng/index.php?option=comcontent&id=332:key-perfomance-indicator&catid=76:cat-standards-qos&itemid=104, 2 Cap. N97 LFN 2010. 3For instance, see the SIM Card Registration Regulations of 2010, and the Mobile Number Portability Regulation, 2013. 4NIGERIAN COMMUNICATIONS COMMISSION, SUMMARY OF THE COMMISSION’S COMPLIANCE AND MONITORING AND ENFORCEMENT ACTIVITIES FOR QUARTER THREE 3(2013). 5P. Obani, Exit, Voice and Indifference: Case Study of Consumers in the Nigerian Global Systems for Mobile (GSM) Service Market, UNIVERSITY OF BENIN JOURNAL OF BUSINESS LAW 1(1) (2013), p.129.

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subsequent recharge of his service account6. Failure to recharge before the expiry

of the validity period7 offered by the service provider is a repudiation of the

contract. In consequence, the service provider “blocks”8 the Subscriber Identity

Module (SIM), and the only option open to the consumer is to enter into a new

mobile service contract by acquiring another phone line. The consumer also

contracts with other parties who provide accessories like mobile handsets, recharge

card and voucher, mobile phone pouches. During the subsistence of a GSM service

contract, the consumer is entitled to the rights and privileges conferred by the

terms of the agreements.

In case of a breach of any contract term, it is opened for an aggrieved GSM

service consumer to institute an action against the Defendant service provider, or

any other person responsible for the breach in the distribution chain. More often

than not, all efforts to contact the Customer Care Unit of MTN, Airtel and

Globacom in order to obtain the terms and conditions for their prepared services

and verify this claim proved unsuccessful. Although in contract cases, the courts in

the absence of any overriding consideration9give effect to the terms of contract

between the parties. The relevant terms to be considered include not only those

expressed by the parties but also the implied terms of the contract. Thus, in

telecommunication services, the problem that often arises is one of determining

what the service provider has promised to the consumer from the words that the

service provider has used in her claim and also from her conduct which led to the

consumer’s belief. These must be weighed against the consumer’s perceptions, that

is, what the consumer has been led to believe by the words and the conduct of the

service provider. It is these two considerations together that produce an objective

test for ascertaining the intentions common to the parties.

A general rule was laid down in Oscar Chess Ltd. v. Williams10 that

whether a statement amounts to a term of the contract and hence a binding promise

or is only a representation, depends on the intention of the parties and this intention

is to be deduced from the whole of the evidence including all the circumstances,

conduct of the parties, their words and lots more rather than their subjective

intent.11 Against this sort of things, the maxim “Caveat emptor”applies. Where the

representation amount to a substantial inducement by the service providers to enter

into the contract the consumer can sue depending on whether the representation

was fraudulent or innocent, though, generally parties are bound by the terms of the

agreement they willingly entered into12.

However, where there is a departure from the requirement of the statute,

the contract is illegal and the court cannot close its eyes against illegality even

6 Id. 7 Usually within a period of 6 months of the last recharge. 8This is distinct from SIM block during SIM retrieval. In the latter case the consumer has entire Old SIM replaced. However, his phone number remains the same. 9Such as policy considerations. 10(1957) I WLR 370. 11Abba v. Mandilas & karaberis Ltd., (1966) 2 ALR Comm. 241. 12Artra Industry Ltd. v. N.B.C. I (1997) 1NWLR (Pt.483) P.593; Idufueko v. Pfizer Product Ltd. (2014) 41 WRN P.38; Koiki v. Magnusson (1998) 8NWLR (Pt. 615) 492; Union Bank of Nigeria Ltd. v. Umeh and sons Ltd. (1996) 1NWLR (Pt. 426) 565.

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where illegality has not been pleaded13. In telecommunication industry, it is not

always easy to obtain the terms and conditions for their prepared services in order

to verify the claim. In most cases, all efforts to contact the customer care unit of

the service providers have never yielded the desired result.

A representation may be made a part of the contract. Where a

representation is agreed to be a term of the main contract, it must further be

decided whether it is a condition or a warranty, for the remedy for its breach may

depend on the category under which it is classified. Although in contract cases, the

Court in the absence of any overriding consideration often considered not only

those expressed by the parties but also the implied terms of the contract, as in the

case of Abba v. Mandilas & Karaberis Limited14. In U.K., the court is under

obligation to consider whether the term is fair even if none of the parties to the

proceedings has raised that issue or indicated that it intends to raise it. A term of a

contract must be regarded as unfair if it has the effect that the consumer bears the

burden of proof with respect to compliance by a distance supplier or an

intermediary with an obligation under any enactment or rule implementing the

distance marketing directive. Similarly, an unfair notice is not binding on the

consumer. This does not prevent the consumer from relying on the term or notice if

the consumer chooses to do so.15

(a) Terms implied by custom and usage: Generally, terms implied by custom

and usage are accepted by members of particular trade or profession. In Hutton v.

Warren16 Park, B., stated that the aggrieved consumer may adduce extrinsic

evidence to prove that a particular custom was intended to apply to the contract

and that custom has been breached by the defendant. This common law position

has been given statutory approval in the Sale of Goods Laws of the various

states17.Nevertheless, it is a well-established rule that no evidence of custom or

practice can override the terms of a written contract, although a contract may be

subjected to terms that are implied by custom or trade usage, the latter does not

apply to written agreement.18

(b) Terms implied by courts: Terms implied by courts refer to those terms

which the courts imply into contract to give it business efficacy. A term will only

be implied by the court if it is obvious that the parties adverted their minds to it at

the time of the contract. The nature of remedy available to an aggrieved consumer

depends on whether implied term breached is a condition, warranty, in nominate

term or fundamental term. A condition is a term that goes directly to the substance

of a contract of sale, such that its non-performance may reasonably be considered

13Corporate Ideal Insurance Ltd. v. Ajaokuta Steel Company Ltd. &Ors (2014) Vol. 235 LRCN P.199; Sadipo v. Lemminkainen Oy (No.2) (1986) 1NWLR (Pt.15) 220 14 (1966) 2 ALR Comm. 241. 15Section 62 (1) (2) (3) (4) and (5), U.K. Consumer Rights Act 2015. 16(1836) 1 M & W, 466. 17Section 15(c), Sale of Goods Law of Lagos State; section 25(4) of the Sale of Goods Edict of Plateau State. 18Kaydee Ventures Ltd. v. Minister FCT. (2010) Vol. 181 LRCN P. 78.

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by the other party as a substantial failure to perform the contract, giving rise to the

right to repudiate the contract and reject the goods or services in addition to

claiming damages19.

Warranty on the other hand, is an undertaking expressed or implied that a

certain fact regarding the subject of a contract is or shall be a breach of which

gives rise to a claim for damages but not to a right to reject the goods and treat the

contract as repudiated20. Where a consumer acquires a (Subscriber Identification

Module) SIM Card, it can be implied that the line when activated will enable the

consumer make voice calls. A breach of this condition entitles the consumer to

repudiate the contract, and claim for damages. However, it may be impossible to

clearly distinguish between a condition and a warranty in a real-life situation. In

recognition of this reality, the courts have introduced innominate terms. Under this

category, if the breach is so grave as to deprive the consumer substantially the

whole benefit which the parties intended to accrue from the contract, then the

remedy would be repudiation; otherwise, it would be damages21.

A fundamental term underlies the whole contact, so that, if not complied

with, the performance becomes totally different from that which the contract

contemplates22. According to Sagay, a fundamental term is a term of greater

importance than a condition. “It is a term which constitutes the main purpose of the

contract, and failure to comply with it is equivalent to not performing the

contract.23

(c) Terms implied by statutes: The statutes which are relevant to the terms of

the contracts in the Nigerian GSM service sector are the Sale of Goods Laws, the

Nigerian Communications Act, and the Consumer Protection Council Act. With

regard to the products consumed in Nigeria’s GSM service sector, the Sale of

Goods Laws of various states imply certain terms into every contract of sale. In a

contract of sale, unless the circumstances of the contract are such as to show a

different intention, there is an implied condition that the seller has the right to sell,

an implied warranty that the buyer shall have and enjoy quiet possession of the

goods, and an implied warranty that the goods shall be free from any encumbrance

at the time when the contract is made24. Where there is a contract for the sale of

goods by description, there is an implied condition that the goods shall correspond

with the description, and if the sale be by sample as well as by description, it is not

sufficient if the bulk of the goods correspond with sample if the goods do not also

correspond with the description25. However, this follows the common law

principle established in the case of Randall v. Newson..26

19Section 2(1) Sale of Goods Law (Edo State) 1976. 20Section 62(1) of the Sale of Goods Act 1893. 21Cehave NV v. Bremer HandelsgesellschaftmbH (The Hansa Nord) (1975) 3 All ER 739. 22Smeaton Hanscombe & Co. Ltd. v. Sasson I. Setty Sons and Co. (No. 1) (1953) W.L.R 1468 at1470 23I. E. SAGAY, LAW OF CONTRACT, Ibadan, Spectrum Books Ltd., 2nd ed., (2000). P.137. 24Section 13 Sale of Goods Law of Bendel State Cap. 150,1989. 25Section 14 Sale of Goods Law of Bendel State Cap. 150,1989. 26(1876) 45 LJCB 464

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(d) Limitation to implied conditions and warranties: On the basis of the

implied conditions and warranties in contract of sale, a consumer could approach

the court for a redress or protection. But this head of liability has many grave

limitations. According to Badaiki:27

The implied conditions and warranties have a limit

to affording protection to the consumers. Generally,

they are matters of contract which can be excluded

by virtue of the sale of Goods Acts. Further, traders

frequently sought to exempt themselves from those

basic obligations by inserting appropriate exclusion

clauses in their contracts. In the name of “freedom

of contract” and “sanctity of contract”, the court

allowed such exemptions clauses to be effective.

The court refused to formulate any general

principles of unconstitutionality.

In contract of sale, there are implied conditions that the seller has the right to sell28

and that the goods sold by description shall correspond with description29.

Similarly, there are implied warranties; that the goods are free from encumbrances;

that the buyer shall have right of enjoyment, failure which the seller shall be liable.

Thus, where a consumer acquires a customised cellular phone and SIM card from a

service provider, there is implied condition that the service provider has the right

to sell while the consumer has implied warranty that the buyer shall have the right

of enjoyment and also that the goods shall be free from any encumbrance, failure

which the service provider will be liable. Subject to the provisions of sale of goods

law and any other written law, there is no implied condition or warranty as to

quality or fitness for purpose except where the buyer relies on the skill of the

seller30. Simply put, where the buyer relied on the skill or judgment of the seller,

fitness for purpose can be implied except where there is something to exclude the

inference.

In the light of that, where a consumer acquires a customised cellular phone

and SIM card, it is deemed that the consumer relied on the skill or judgment of the

service provider unless there is something to exclude the inference. The

presumption is rebuttable where two knowledgeable merchants deal with each

other. Thus, goods shall be free from any defect31. Where the defect is drawn to

the buyer’s attention, the seller will not be liable32. Nevertheless, merchantability

does not mean that the buyer must be entitled to a perfect article33.

27A. D. Badaiki, Deceptive and unfair trade 2(3) MPJFIL, (1988)184 P. 186. 28Akoshile v. Ogidan (1950) 19 NLR 87. 29 Section13 Sale of goods Act 1893; Christopher Hill Ltd v. Ashington Piggeries Ltd (1972) A.C. 441. 30Id. Section 14. 31Id. Section 16(2) (c). 32John Holt (Nig.) Ltd v. Ezeafulakwue (1990) 2 NWLR 520. 33Jones v. Just (1818) L.R. 3 Q.D 197 CL 205.

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Where a buyer buys goods, the purpose of which is disclosed, fitness for

purpose is implied. In the case of Grant v. Australian Knitting Mill34 where

woollen underpants purchased from a departmental store caused rashes to the

buyer, the seller was held liable. To this end Bankole35 posited that fitness for

purpose means fitness for the purpose of general users and not for the special

sensitivity of a particular user. In Beckley v. Sierra Leone Brewery Ltd36 where a

consumer asked for “star beer” and not a “beer,” it was held that the term “star”

was a part of the description of the goods. In Beale v. Taylor37, the seller of a car

advertised it as “Herald convertible white 1961.” The buyer saw the car and

bought it, but he later found that while the rear of the car was part of 1961 Herald

convertible, the front half was part of an earlier model. The court held that there

was a breach and the buyer was entitled to damages.

Another challenge in this connection is the use of exemption clause. The

present position of the common law would appear to be that the consequence or

effect of an exemption clause on a fundamental breach of contract or breach of a

fundamental term is not a rule of law but in each case, the question is one of

interpretation of the contract to determine whether the exemption clause was

intended to give exemption from the consequences of a fundamental breach.38 This

rule of common law has been modified by the revised law of Anambra State.39 The

expression, “fundamental breach” is used to denote a performance totally different

from that which the contract contemplated or a breach of contract more serious

than one which would entitle the other party merely to damages and which at least

would entitle him to refuse further performance of the contract and the defendant

who committed such a breach is not entitled to be protected by the exemption

clause.40

Where there is poor network coverage, the civil remedies available for the

consumers against the service provider is to repudiate the contract due to breach of

conditions of fundamental terms and of cause a claim for damages for breach of

warranty, and the administrative control available for the consumers is for the

Nigerian Communications Commission to persuade the service providers to

improve on infrastructure and network coverage, especially outside the main cities.

The Nigerian Communications Commission can also persuade the service

providers to provide an enabling environment for good service delivery, and of

cause in some cases, penalise service providers for poor service. When there are

unsolicited calls and text messages, the NCC can issue enforcement orders to stop

breaches of consumer’s right of privacy as administrative control.

34(1936) A.C. 85. 35B. BANKOLE, SALE OF GOODS AND HIRE PURCHASE, Lagos Libriservice Ltd 1994 P. 11. 36(1972) 10 ALR Comm. 276. 37(1967) 3 ALL E.R. 38Messengers Ltd. v. Peg for Industries Ltd. (2005) Vol. 127 LRCN P.1137. 39Section 190, Contract Law, Cap. 32, Revised Laws of Anambra State, 1991, provides that “Nothing in the foregoing shall be construed as to enable a party guilty of fundamental breach of a contract, or a breach of a fundamental term to rely upon an exemption clause so as to escape liability”. 40Ibid.

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(ii) Tort: A GSM service consumer who suffers injury as a result of a breach of

a duty of care by a service provider can maintain a civil action in negligence. In

fact, in the case of Lonchgelly Iron & Coal Co. v. McMullan, the court said: In

strict legal analysis, negligence means more than heedless or careless conduct,

whether in omission or commission; it properly connotes the complex concept of

duty, breach and damage thereby suffered by the person to whom the duty was

owed.41

An aggrieved consumer who seeks to maintain an action in negligence for the

enforcement of rights must prove a duty of care owed by the defendant service

provider, manufacturer, distributor or seller; breach of that duty of care by the

defendant and damage to the claimant consumer resulting from the breach.

The burden of proof must always be upon the injured party to establish.

Negligence must be averred and proved. Once a claimant has successfully shown

and proved that he suffered personal injury resulting from the breach of duty of

care by the defendant service provider, the claim for pain and suffering must be

considered by the court, and no principle can be laid down upon which damages

for pain and suffering can be awarded in terms of the quantum. When the totality

of evidence is considered with the peculiar circumstance of each case, the award is

said to be usually generous, yet should not be excessively high or grossly low.42

Case law43has sought to ameliorate or reduce this vulnerability by providing for

protection for the consumer. These have not completely achieved adequate

41(1934), A.C 1 at 25; per Lord Wright. 42Ighreriniovo v. S.C.C. Nig. Ltd. (2013) Vol. 224 LRCN (Pt. 1) P. 71; C & C Construction Co. Ltd. v. Okhai (2003) 18 NWLR (Pt. 51) 79; (2003) 12 SCM 65; (2003) 16 NSCQR 328;(2003) 113 LRCN 2447. 43Donogue v. Stevenson(1932) A.C.560, Osemobor v. Niger Biscuits Co. Ltd. (1973) NCLR 382; (1973) CCHCJ 74, Nigeria Bottling Co. Plc v. Okwejimunor & Anor (1993) 8 NWLR PT. 295, Nigeria Bottling Co. Ltd. v. Ngonadi(1985) 5 s.c. 317; (1985) 1 NWLR (PT. 4) 739, Okonkwo v. Guinness (Nig.) Ltd & Anor (1980) 1 PLR 583; Ogbidi v. Guinness (Nig.) Ltd & Anor (1983) 1 FNLR 67, Ebelamu v. Guinness (Nig.) Ltd. (1983) 1 FNLR 42, Abouzaid v. Mother Care (U.K) Ltd. 2000 B3/00/227, G.K.F Investment Nigeria Limited v. Nigeria Telecommunication PLC (2009) vol. 174 LRCN P. 1-43, All Progressive Congress v. NCC & 5 ors Unreported FHC/CS/16/15, Onwuka & Anor v. Omogui (1992) 3 N.W.L.R (Pt. 230) 393. Usual practice adopted by the plaintiff is to demonstrate a fool proof system of production. The court may easily be swayed by such evidence and the Plaintiff may not be in a position to counter same. Even where expert witnesses are called for the Plaintiff, chances are that the Defendant’s witnesses may be more conversant with the relevant manufacturing process. See also the case of Onakome v. Nigerian Bottling Company PLC & Anor (unreported) suit no. B/319/06, where the evidence of the Plaintiff’s witness who had his first degree in micro biology, 2nd degree in food industrial micro biology and PhD in both with master degree in physical health was rejected after giving evidence to the effect that a bottle of fanta is not transparent rather a bottle of fanta is translucent and also that the entire production process of the Defendant cannot be full proof right from the time of manufacturing of the products-starting from the pre-sorting, inspections of the empties after washing and filling up-to the point where the bottles passes through the scanner and finally to the warehouse of the manufacturer and the accredited agent of the manufacturer, more so that the machines are subject to wear and tears and the full proof is subject to the efficiency of the entire system including the machines, not mindful of the fact that the 2nd Defendant submitted to the claim of the Plaintiff. It is disheartening that the court refused to give judgment against the 2nd Defendant who submitted to the claim of the Plaintiff. Moment later, the National Agency for Food and Drugs Administration and Control imposed one billion naira sanctions on Guinness Nigeria PLC on

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protection for the consumer. This is all the more so in the case of consumers of

telecommunication services, a kind of service that are recently being offered to

numerous persons within the country. The strict liability rule has not been

encapsulated in any Act in Nigeria, unlike United Kingdom where a consumer who

suffers loss as a result of defective product can sue for compensation without

having to prove negligence. There is still false-misleading statement by service

providers in telecommunication industry in Nigeria.

(a) Strict liability rule: A rule is strict if it obviates the necessity of proving

fault or negligence to grant liability in a claim. In U.K, one does not need to prove

negligence to grant liability in a claim. The locus classicus of this principle is the

English case of Rylands v. Fletcher.44 In Abouzaid v. Mother Care U.K. Ltd.,45 the

English Court of Appeal did rule for the first time going against the trend of

judgment in lower courts that the product supplier though not negligent, the

claimant was entitled to damages. It is enough to prove that the actual product is

indeed defective. However, reliance on the foreign authority in the apparent

absence of such decisions on product liability in Nigeria can only be persuasive as

judges are not bound to follow.

(b) Advertising: Where there are false-misleading statement and

advertisements by a service provider, there is no civil liability for inaccurate puff

except there was a specific promise. The administrative control available is to

regulate advertisement. Similarly, where there are unsolicited calls and short

message service (SMS) by a service provider, there is no contractual obligation to

pay for unsolicited goods and services. The administrative control available to the

consumer is for the Nigerian Communications Commission to issue enforcement

orders stopping breach of consumer’s right to privacy. The Nigerian consumer has

been perpetually subjected to frustration by self-evident truth. The dictum –

“consumer is the king” has been made invalid and irrelevant in Nigeria46.

Nevertheless, a lot of Nigerians have always expressed anguish over the manner in

which telecommunication companies appear to wilfully violate their customers’

right to privacy. Against this background of the obvious inconveniences,

discomfort and the embarrassment being suffered by the consumers, Justice Jude

Okeke of the Federal High Court, Maitema, Abuja on the 3rd day of November

alleged infractions relating to a rented off-site warehouse, where raw materials were stored by them. See Sola Ogundipe, 1bn fine: Guinness Optimistic, reaffirms, Vanguard, Tuesday 17th November 2015, at http://www.Vanguard.com/2015/11/1bn-fine-Guiness-optimistic. NAFDAC insisted that its authorisation was required before Guinness Nigeria PLC could destroy the expired raw materials. This is a confirmation that the raw material stored is not a production facility an issue canvassed by the learned counsel D. A. Akhabue, Esq., in the case of Onakome v. Nigerian Bottling Company PLC & Anor (unreported) suit no. B/319/06 which the court over ruled and dismissed the case. 44(1886), L.B 1 EX 265. 452000 B3/00/227. 46Olaniyi Opnaiga, National Concord Newspaper, Tuesday, Nov. 25th 1986 P. 5.

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2016, slammed a fine of N5 million on Airtel Nig. Ltd in favour of Emmanuel

Anene for continues disturbance through unsolicited messages to his line47.

In fact, there has been several calls from very many quarters including jurists

for a hard look at the right of consumers who continually have to spend their hard

earned money for products and services which prove to be less than worth the

cost48 after being misled by a piece of advert not minding the pieces of legislation

prohibiting advert.

As in the words of Akande,49 “it is however possible that the consumer

may not have been unprotected but probably not aware of such protection as are

already available in law.” In a society where there is mass and massive illiteracy,

the law may be less effective unless it is made in such a way as to take into

consideration the circumstances and state of development of the people for whose

benefit it is being enacted.

With regards to products and services, advertising is an information system

carried out by various mass media aimed at the target groups most likely to

purchase and uses them. Black’s Law Dictionary50 defines advertising as the action

of drawing the public attention to something to promote its sale and it also means

the business of producing and circulating advertisements. Statutorily, the term

advertising means: Any form of representation, which is made in connection with a

trade, business, craft or profession in order to promote the supply or transfer of

goods or services, immovable property right or obligations.51

The term “advertising” in relation to consumer protection law is the act of

drawing the public attention to the existence and availability of a product,52 with a

view to stimulating sales and marketing of the advertised product. There is no

doubt that advertising is both stimulating and interesting if the message is well

presented to the public and it helps the manufacturer of the product being

advertised to create brand loyalty in the minds of consumers. The effectiveness of

advertising can be seen or measured by the responses or impression it has in the

minds of consumers whereby a consumer may buy a particular product in

preference to other similar article or services. Being that as it may, advertising

could be very misleading due to glamorous claim by advertisers, such as, drink

palace beer and be majestic, use GLO SIM card and rule your world, MTN

everywhere you go and lots more. This of course may encourage a poor man to

spend all his money on the beer called palace, only to find out later that he is not

majestic at all. Similarly, a poor man may use GLO SIM card yet he is not ruling

his village let alone ruling the world. Hence it goes without saying that advertising

often creates the impression that by consuming a particular product, one become

more prosperous, special and respected and thereby exploits those who are easily

47Lawyard Staff, Right to Privacy: Court Fines Airtel N5m for Harassing Customer with Text Messages. Jan.28, 2017 http://bit.ly/2wiq2X3. 48 J. O. Akande, Consumer Protection in CURRENT LEGAL PROBLEMS IN NIGERIA, Enugu FDP, (1988), P. 269. 49Id. 50B. A. GARNER, (ED), BLACK’S LAW DICTIONARY, 8th ed., West Publishing Co. 2004, P. 59. 51The British Fair Trading Act, 1973. 52Product as used here means goods and services.

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taken in by such claims or the vulnerable, gullible and susceptible to spurious

claim.

Misleading advertising is akin to misrepresentation which is an untrue

statement made by one party to a contract to the others, either at the time of

contracting or before contracting, which is one of the causes that induces the

contract.

(c) Puff: Advertising is puff where it is not intended to create legal relation

such as being important, be successful use Maclean tooth paste.” The question now

is can a person sue if he uses Maclean tooth paste and refuses to be important and

successful? In the light of the above analysis, this is a puff and not an offer. The

court uses a reasonable man test i.e. what would a reasonable man infer from the

circumstances of the case53. Consider an advertising which says “drink Milo

chocolate for future changing.” A consumer cannot take a legal action against the

advertiser after buying and drinking a tin of Milo chocolate and you refuse to

change. Similarly, it is a common thing seeing MTN advertising, “MTN

everywhere you go,” and GLO rule your world. Supposing a consumer using MTN

SIM card and he travel to a place in the eastern part of Nigeria, and there is no

MTN network can he take action? Supposing the consumer is using GLO SIM

CARD and he is not among the ruling class, can he take action? The answer is no.

This is a puff and not an offer.

(d) Misrepresentation: Misrepresentation, in the context of advertising,

means advertisement with misleading statement or untrue statement. Where there

is advertisement with misleading statement one can either sue in contract for

rescission or in tort for deceit54. In the light of the above, a GSM consumer who

suffers injury as a result of advertisement with misleading statement or untrue

statement can either sue in contract for rescission or in tort for deceit.

Where a manufacturer, manufacture the products and advertise them, if

there is misrepresentation, it is the manufacturer that will be liable. And where the

manufacturer employed an advertiser to advertise the products and there is

misrepresentation, it is still the manufacturer that will be liable because the

manufacturer is the principal while the advertiser is the agent. A principal who acts

through an agent is ordinarily liable for the misconduct of the agent.55

III. CRIMINAL LAW REGIME

In course of this work, it is necessary to look at the role of criminal law

with regard to protection of consumers of telecommunications services whose right

have been breached by network providers. Criminal law means the body of law

defining offences against the community at large, regulating how suspects are

investigated, charged and tried and establishing punishments for convicted

53Appleson v. Little Wood Ltd. (1939),1 All E.R. 464. 54Derry v. Peak (1889), 14 A.C. 331; Banerman v. White (1861), 10 CBNS 844. 55Asafa v. Alraine (2002) 10 M.J.S.C. P. 162 at P. 166.Ataguba& Co. v. Gura (Nig.) Ltd (2005) 6M.J.S.C. P. 156 at P. 164; (2005) All FWLR (Pt. 256) P. 1219 at P. 1221.

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offenders56.The above definition goes to show that it is the interest of the state that

is paramount in the war against crimes and criminals. The question that can arise

from the above is, what then does the victim of the consumers of

telecommunications products and services whose right have been breached by

network providers get from such a convicted offender? Many laws are in place to

regulate crime in Nigeria. The primordial law in this area is the criminal code and

the penal code.

(i) Criminal Code: The emergence of low-cost computing, the internet, and

advances in the wireless telecommunications has fuelled one of the most

significant developments of our time. In addition to the numerous advantages of

this progress, significant challenges face society today57.The impact of

telecommunication on the development of economic and social life has had some

unwelcome effect, as some individuals have taken advantage of technology to

commit crime. Crime in the digital age catalogues current and emerging criminal

techniques involving telecommunication system and the internet, in addition to

identifying measures that potentially can mitigate future risk to society58. Today,

there are so many communication related crimes including theft of services,

communication in furtherance of criminal conspiracies, information piracy,

dissemination of offensive materials including, extortion threats, electronic money

laundering, electronic vandalism and terrorism, telemarketing fraud, illegal

interception, electronic fund transfer fraud and lots more59.

The Criminal Code did not adequately address the criminal conduct arising

from modem telecommunication system, this is because the Criminal Code was

promulgated decades ago when the knowledge, use and potentials of digital

communication was at its infancy. Nevertheless, Sections 161 to 189 of the

Criminal Code60 deals with offences relating to posts and telecommunications but

a careful perusal of the above sections of the Criminal Code shows that it does not

actually cover telecommunication offences arising from the use of modern

telecommunications system.

(ii) Penal Code: Like the Criminal Code, the Penal Code did not address the

criminal conduct arising from modern telecommunication system. The legal

provision of the penal code in relation to product liability can be gleaned from

sessions 449,460, 451, and 452. These sessions deal with offences relating to

Weight and Measures which imposes one-year imprisonment or fine or both for

violators. These criminal provisions are not without some setbacks. For example,

where criminal sanctions are imposed, the consumer may not have personal

satisfaction given that criminal remedy are treated separately from civil as the

wrongs committed are strictly against the state.

56B. A. GARNER, (ED) BLACK’S LAW DICTIONARY, 8th Ed., West Publishing Co. Ltd. 2004, P. 403. 57P. GRABOSKY, AND R. G. SMITH, CRIME IN THE DIGITAL AGE; CONTROLLING TELECOMMUNICATIONS AND CYBERSPACE ILLEGALITIES, Rutgers University press, Australia 1998. 58Peter Grabosky, Computer Crime In A World Without Borders, Nove. 18, 2015 http://www.crime-research.org/library/Peter.htm, 59O. B. Longe, & S. C. Chiemeke, Cybercrime and criminality in Nigeria-What Roles are Internet Accessed Points Playing? EUROPEAN JOURNAL OF SOCIAL SCIENCES, 6(4) (2008) 132-139. 60Cap. C38 LFN 2010.

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A major disadvantage of the criminal remedies relates to the inadequacy of

fines imposed by law where immediate remedy is desired. Furthermore, the

presumption of innocence of an accused person until found guilty presupposes that

the trading activity for which the producer is accosted may not abet during the

period of the trial.

The Nigerian Communications Act did not make any specific provision or

penalty for telecommunication offences save that it provides to the effect that,

a licencee shall use his best endeavours to prevent the network

facilities that he owns or provides or the network service,

application service or content application service that he

provides from being used in, or in relation to, the commission

of any offence under any law in operation in Nigeria61.

In all the regulations and guidelines made by the NCC there is none that

touches on the issue of telecommunication crimes. But the UK Communications

Act provides several sanctions for telecommunication offences ranging from

dishonestly obtaining electronic communication services, possession or supply of

apparatus for contravening, cloning, reprogramming to improper use of public

electronic communications network. A person guilty of an offence under this

provision shall be liable on summary conviction to imprisonment for a time not

exceeding six months or a fine or to both62. In view of the lacuna in the Nigerian

Communications Act, Nigeria should borrow a leaf from what is obtainable in UK.

Offences in the Criminal Code are investigated and prosecuted by the

Police subject only to the powers of the Attorney-General63. The process of

reporting cases to the Police and Police investigation are cumbersome criminal

procedure. Prosecution in court and delayed justice can hinder the desired

protection for aggrieved consumers of defective products and services. The

pertinent question for consideration here is what does the state and consumer gain

from the prosecution of manufacturer of defective products and services? The

answer to the question can be found in the dictum of Chukwudi Oputa J.S.C in the

case of Josiah v. State,64 where he held that,

Justice is not a one-way traffic......... it is really three-way

traffic, Justice for the accused of a heinous crime of murder,

Justice for the victim, the murdered man, the deceased, ‘whose

blood is crying to heaven for vengeance and finally justice for

the society at large, the society whose social norms and value

had been desecrated and broken by the criminal act complain.

The Advanced Fee Fraud and other Fraud Related Offences Act addresses

the criminal conduct arising from modern telecommunication system, this is

because the Act, unlike the Criminal and Penal codes was enacted when the

61 Section 146 (1) of the Nigerian Communications Act. Cap. N97 LFN 2010. 62 Sections 126 and 127 of the UK Communications Act, 2003. 63 Section 23 Police Act Cap. P19 LFN 2010 and also sections 150, 174,195, &211 of the 1999 constitution as amended. 64[1985] N.W.L.R (Pt.1), P.125.

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knowledge, used and potentials of digital communications was at its zenith. The

Act discussed the duties of telecommunication and internet service providers and

internal cafes as it affects the management of the Global System of Mobile

Communications (GSM) and provides that any person or entity providing the

electronic communication service or remote computing service either by e-mail or

any other form, who fails to comply to obtain information from the subscriber or

customer commits an offence and is liable on conviction to a fine of one hundred

thousand naira and forfeiture of the equipment used in providing the service.

The Cyber Crime Act65also addresses the criminal conduct arising from

modern network electronic communications. Part III of the Act which deals with

offences and penalties states that a person who, with intent commits any offence

punishable under this Act against any critical nation information infrastructure

designated under section 3 of this Act, is liable on conviction to imprisonment for

a term of not more than 10 years without option of fine.66

IV. ANTI-COMPETITION LAWS

The embracing of Global System of Mobile Communications (GSM) in

Nigeria has brought about unprecedented demands in telecommunication industry.

It is a fact that the system has been embraced by all workers ranging from the

lowest income earner to the highest paid worker. Even the unemployed have

embraced the system. The unprecedented demand has necessitated the legislative

measures to control anti-competition practices which are contained in the Nigerian

Communications Act and its subsidiary legislation, the Nigerian Communications

Competition Practices Regulations 2007.

The Nigerian Communications Act which is the principal Act prohibits

licensees from engaging in any conduct which has the purpose or effect of

substantially lessening competition in any aspect of the Nigerian Communications

Market67. The subsidiary legislation prohibits among other things failure to supply

interconnection or other essential facilities to a competing licensee in accordance

with interconnection agreement between them or any direction, rule, order or

regulation issued by the Commission, supplying communications services at prices

below long run average incremental costs or such other cost standard as is adopted

by the Commission.68

That Nigeria as a country needs competition law is a statement of fact

which cannot be overemphasised. This is in view of the numerous anti-competitive

activities that abound in the market place. Some of these existing anti-competitive

practices in the Nigeria economy include allegations of cartel in the cement

industry, tariff fixing and other charges, cartel in the mobile telecommunications

industry, possible cartel in the downstream petroleum sector, price fixing and entry

barrier by trade associations, opportunity for bid rigging in government

procurement system and tied selling in soft drink industry.69

65Cyber Crime Act, 2015. 66Id. Part III. 67 Section 91(1) Nigerian Communications Act. 68Regulation 8, Nigerian Competition Practices Regulations 2007. 69Guardian, 28th April 2010.

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Given the relevance and the need for a competition law, a number of efforts

have in the past been made either by the executive or private citizens to sponsor

competition bills before the National Assembly. No fewer than six attempts have

been made in the past but without success. The first draft bill was the Federal

Competition Bill 2002- this was a bill for an Act to set up Federal Competition

Commission, to provide the necessary conditions for market competition, to

protect consumers, to regulate anti-competitive activities and to establish the

Federal Competition Commission for the effective implementation and

enforcement of this bill and for matters connected there with. This was an

Executive Bill sponsored by the Federal Government through the Bureau of Public

Enterprises (BPE). The second was the National Anti-trust (Prohibitions,

Enforcement, etc.) Bill 2004. It was for an Act to regulate and prohibit unfair

competition and unreasonable combinations in restraint of commerce, trade and

industry, ensuring unrestrained competition and establishing a level playing field,

in business in the Federation and to make provision for other matters relating

thereto. In 2007, a yet another bill, this was the Competition, (Anti-trust) Bill 2007

was presented to the House of Representatives.

In 2008, a fourth bill –Nigerian Trade and Competition Commission Bill

2008, which was first read on the 6th day of November 2008, was referred to Joint

Committee on establishment and Public Service matters, Judiciary, Human Rights

and Legal Matters, and Commerce. The 5th was the Nigerian Anti-trust

(Enforcement, Miscellaneous Provisions, etc.) 2008, which was a Bill for an Act to

prohibit monopolies to trade, commerce or industry and to foster the sustenance

and development of a free market system. Then came the 6th Competition and

Consumer Protection Bill 2009, which bill sought to promote the welfare and

interests of the consumers and provide them with competitive prices and choices. 70 In the light of the fore going, the only conclusion anybody could reasonably

reach in the circumstance is that the National Assembly has not reckoned with the

issue of a competition law as a matter of priority. What appears to be the practice

now is a sector-specific regulation. In telecommunication sector there is the

Nigerian Communications Act, in capital market there is the Securities and

Exchange Commission (SEC), and in the electricity sector, there is the Nigerian

Electricity Regulatory Commission (NERC). Though a competition policy would

also imply the elimination of public restrictions, and unbridled competition could

also be detrimental to an economy especially a one which is without necessary

structures on ground71

In April 2013, with the aim of deepening competition in the industry, the

Nigerian Communications Commission flagged off an exercise which enables

subscribers to move from one telecommunication network to other networks

without needing to buy another SIM card. In the month of October 2016, the

Nigerian Communications Commission declared that a total number of 35,655

Mobile Number Porting (MNP) activities were recorded. The report revealed that

70Ibid. 71 T. S. Shankyula, Reflections on Consumer Protection and Competition Policy in Nigeria, in LAW AND PRINCIPLES OF CONSUMERS PROTECTION, A. Adedeji, T. S. Shankyula, (ed) NIALS, Lagos, 2013, P.252.

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in the outgoing table, 6,409 subscribers moved from telecommunication giant,

MTN Nigeria, to other networks through MNP in October. According to the report,

5,234 customers moved from Airtel Nigeria to other networks in the month under

review. The report said 4,638 subscribers moved from Globacom to others, while

1,369 customers of Etisalat Nigeria ported to other networks within the same

period. However, in the incoming table, the report said Etisalat enjoyed the

exercise most as it led with an additional 14,027 customers on its network in

October. MTN came second on the gainers’ list, as it added 1,563 subscribers to its

customer strength. Also on the gainers’ list 1,475 subscribers moved to Airtel

network, while Globacom gained 931 customers as well in October 2016.72

V. THE ROLE OF THE COURT

The Federal High Court has exclusive and original jurisdiction to try civil

cases and matters connected with or pertaining to the administration or the

management and control of the Federal Government or any of its agencies73.

Where the action is rooted on a breach of contract74, it is the State High Court that

has jurisdiction to entertain the suit. The Supreme Court upheld the judgment that

action for breach of contract such as the Appellant’s claim falls within the residual

jurisdiction of State High Court. The suit started in Federal High Court and the

Court gave judgment for the Plaintiff in part and dismissed the claim for damages

for breach of contracts on ground that it lacked jurisdiction to award same. The

court also pronounced to the effect that matters of simple contract bringing about

issues of debt cannot be entertained by the Federal High Court.

Section 251 of the 1999 Constitution of the Federal Republic of Nigeria as

amended is clear and unambiguous. It is the section that confers jurisdiction on the

Federal High Court, which jurisdiction clearly do not include dealing with cases of

simple contract or damages for negligence. In Wada v. Senator Adesanya75, the

Appellant who was a Minister of the Federal Republic of Nigeria and by that virtue

a public officer was sued at the Lagos State High Court for libel, following a

publication in the punch newspaper. The Appellant objected to the jurisdiction of

the court and argued that as a public servant, he ought to be sued in his official

capacity and at the Federal High Court. The court dismissed his objection on the

ground that a Plaintiff had a choice to decide whether he wishes to sue a Defendant

(tort-feasor) in his private capacity and that his choice was not open to the

Defendant.

The jurisdiction of the Federal High Court is wide, but it is no means

unlimited and while that Court, as any other Court, can expand its jurisdiction, it

cannot expand it to include any matter over which the law creating it, did not vest

72Vanguard (Mobile Edition) Tuesday, 20th December 2016. Porting activities reduce to 32,873 in June, says NCC. http://www.vanguardngr.com/2017/07/porting-activities-reduce-32873-june-says-ncc/ 73Section 251 (P) of TheConstitution of the Federal Republic of Nigeria 1999as amended. 74Babington-Asha v. E.M.A.G.Ent. (Nig.) Ltd. (2008), All FWLR, (Pt.256) P.1356. 75(2011), 10 NWLR (Pt. 1256) P. 479.

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it with powers to determine.76 In the light of that it is a settled law that the Federal

High Court lacks Jurisdiction in matters of simple contract.77

VI. CONCLUSION

The central theme of this work is the legal framework for the protection of

Telecom Consumers. In discussing, it was noted that a GSM consumer who suffers

injury as a result of a breach by a service provider can maintain a civil action in

contract or tort of negligence. It was also found that, it is a criminal offence for any

person or entity providing an electronic communication service not to obtain from

customers his full name and address. It was further found that the impact of digital

convergence has fused telecommunications, broadcasting, media, and information

technology (IT) into what is now called communication. In the light of that an

ATM service consumer and EMT service consumer who suffers injury as a result

of a breach of care, can maintain a civil action in negligence and where there is

poor network coverage by the service providers, the consumer is entitled to

repudiate the contract and sue for damages. The urgent issues and areas for

regulatory intervention are the anti-competition law, increase in tele density, the

accessibility of website, invasion of privacy and cyber fraud.

76Ports and Cargo Handlings Services Co. Ltd. &Ors. v. Migfo (Nig.) Ltd & Anor. (2012) Vol. 212 LRCN P.8. 77Id.

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HISTORICAL PERSPECTIVE OF INTERNATIONAL

COMMERCIAL ARBITRATION LAWS IN CANADA

Blessing Eghe Badaiki*

I. INTRODUCTION

History gives an understanding of present events and the need to chart a

better future. This is no less the case in legal development and the laws on

international commercial arbitration in Canada. In this article, the focus is the

interplay between the history of Canada as a diverse country and evolution of

international commercial arbitration laws in the country. The effect of the

existence of two legal systems, the common law and the Civil Law (Romano-

Germanic system) is examined. Furthermore, an attempt will be made to show

how these historical antecedents influenced legislative enactments on

international commercial arbitration. Reference is made copiously to the effect of

the developments on judicial intervention in international commercial arbitration

in Canada. Focus is also on the impact on Canadian arbitration laws by the advent

of the United Nations Commission on International Trade Law (UNCITRAL)

Model Law on international Commercial Arbitration (“the Model Law”)1 and its

adoption by Canada and her accession to the United Nations Convention on the

Recognition and Enforcement of Foreign Awards (“the New York Convention”).

II. CONCEPTS OF ARBITRATION AND INTERNATIONAL

COMMERCIAL ARBITRATION

‘Arbitration’ has been defined by statute, scholars, the courts and

international instruments. Section 57(1) Nigerian ACA states as follows: “’arbitration’ means a commercial arbitration whether or not administered by a

permanent arbitral institution”. This is exactly the definition of arbitration given

by section 2 International Commercial Arbitration Act 20072 and Federal

Arbitration Act, Article 2 of Schedule 1 to the Commercial Arbitration Act 1985

as amended in 2015;3 Section 2(1) (a) of the Indian Arbitration and Conciliation

Act 1996 (as amended in 2015).4 This definition does not give the meaning of

arbitration. Arbitration is not defined by the Arbitration Act 1996 (United

Kingdom). The Ghanaian Alternative Dispute Resolution Act 2010 defines

arbitration as “the voluntary submission of a dispute to one or more impartial

persons for a final and binding determination”. This definition is comprehensive

and contains the main elements of arbitration.

*LL. B (Hons); LL.M; B.L; ACIArb, Hybrid Solicitors, Lagos. 1 Adopted by the United Nations Commission on International Trade Law on June 21, 1985. 2 Supplement to Official Gazette No. 105 dated 20th December, 2007. 3Federal Arbitration Act Supplement to Official Gazette No. 105 dated 20th December, 2007. 4 See also South Australian Commercial Arbitration 2011.

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Badaiki: Historical Perspective of International Commercial Arbitration Laws in Canada

357

In 1810, Jeremy Bentham, in The Rationale of Evidence5 described

arbitration as a process by which parties consent to the judgment of a third person

without recourse to the courts. The Halsbury’s Laws of England defines

arbitration as “the reference of a dispute or difference between not less than two

parties for determination after hearing both sides in a judicial manner by a person

or persons other than a court of competent jurisdiction”6 This definition is very

comprehensive, and has been adopted by a number of Nigerian scholars such as

Ezejiofor7, Orojo and Ajomo8. The definition has also been used by Nigerian

courts including the Supreme Court. In NNPC v. Lutin Investment9 the Supreme

Court quoted this definition verbatim.

Martin Domke defines arbitration as a

process by which parties voluntarily refer their disputes to an

impartial third person, an arbitrator, selected by them for a

decision based on the evidence and arguments to be

presented before the arbitration tribunal. The parties agree in

advance that his determination, the award, will be accepted

as final and binding upon them10.

The author correctly identifies arbitration as a process. He also identifies the

parties freedom of choice (autonomy of the parties), impartiality of the arbitrator,

adjudication, and binding resolution of the dispute as essential features of

arbitration.

Gary Born defines arbitration as

a process by which parties consensually submit their dispute

to a non-governmental decision maker selected by or for the

parties who renders a binding decision resolving the dispute

in accordance with neutral adjudicative procedures affording

the parties an opportunity to be heard11.

This definition is comprehensive because it contains important elements of

arbitration process. Bagudu defines arbitration as

a private, non-judicial adjudicatory process of resolving a

dispute between two or more persons by a neutral third party

chosen by, or whose choice is mutually consented to by the

disputants, who voluntarily agreed or submitted to such

5 fn bit. ly/12a F51d.

6 HALSBURY’S LAWS OF ENGLAND, 4th edition, vol. 2, par. 501, p.250. 7 GAIUS EZEJIOFOR, THE LAW OF ARBITRATION IN NIGERIA, (Longman, Lagos, 1977), p. 3. 8 J. O. OROJO, & M. A. AJOMO, LAW AND PRACTICE OF ARBITRATION AND CONCILIATION IN

NIGERIA, (Mbeyi & Associates Nigeria Limited, Lagos, 1999). 9 (2006) 25 N.S.C QR. 77 at 111 See also Miss Nigeria v. Oyedale (1960) Nigerian Commercial Law

Reports p.191 at 194. As far back as 1858, Sir John Romilly, M.R. defined arbitration in Collins v. Collins 28L.J Ch.186; (1858) 26 Beav 306; 5.R.E.R. 916 as “a reference to the decision of one or more persons either with or without an umpire of some matter or matters in difference between the parties”.

10 MARTIN DOMKE, THE LAW AND PRACTICE OF COMMERCIAL ARBITRATION 1(1968), EDOMONSON, L.E. (ED.) DOMKE ON COMMERCIAL ARBITRATION (The Law and Practice of Commercial Arbitration) 3rd ed., (Thomas West Vol. 1 Paragraph 3:2 (2012)) 11 GARY BORN, INTERNATIONAL COMMERCIAL ARBITRATION, Vol. 1, 252 (2009)

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dispute resolution method, and expecting fair hearing, also

agreed to be bound by the outcome of the process”.

This is also very comprehensive.

BLACK’S LAW DICTIONARY defines arbitration as follows: “A

method of dispute resolution involving one or more neutral third parties who are

usually agreed to the disputing parties and whose decision is binding.12

Some international instruments do not define arbitration while some do,

but not satisfactorily. The United Nations Convention on the Recognition and

Enforcement of Foreign Arbitral Awards (the New York Convention), the

Convention on the Execution of Foreign Arbitral Awards 1927 (Geneva

Convention), the Protocol on Arbitration Clauses (Geneva Protocol) 1923, and the

Convention on Settlement of Investment Dispute between States and Nationals of

other States (ICSID Convention) do not define arbitration. The United Nations

Commission on International Trade Law (UNCITRAL Model Law) in its Article

2(a) provides that arbitration “means any arbitration whether or not administered

by a permanent arbitral institution”. This definition does not give the meaning of

arbitration but merely states some types of arbitration. It is, however, the

definition that the legislation on arbitration in Nigeria, the Indian and Canada

adopted. Article 1(2) (b) of the European Convention on International

Commercial Arbitration 1961 defines arbitration as follows: “The term

‘arbitration’ shall mean not only settlement by arbitrators appointed for each case,

(ad hoc arbitration) but also by permanent arbitral institutions”. This again only

describes some types of arbitration.

Arbitration is a process of submission of a dispute between two or more

parties to an arbitrator or arbitrators to take decision in resolving the dispute and

such decision being binding on the parties.

International arbitration is in contradistinction with domestic or national

arbitration in that it transcends national boundaries13. International commercial

arbitration is a major part of the focus of this study, and it is essential to know

what it means. International commercial arbitration can be easily understood by

defining “international arbitration” and “commercial” separately and then get the

meaning of the entire phrase. This approach is adopted in the UNCITRAL Model

Law, 1985 with amendments as adopted in 2006 (Model Law) and national

legislation of nations (including those under case studies) that have adopted this

Model Law.

Article 1(3) of the Model Law on International Commercial Arbitration

defines international arbitration as follows:

An arbitration is international if:

(a) the parties to an arbitration agreement have, at the time of

the conclusion of that agreement their places of business

in different states; or

12 B. A. GARNER, BLACK’S LAW DICTIONARY, 9th edition, (West Publishing Co., St Paul Minnesota,

2009), p. 119. 13 A. REDFERN, & M. HUNTER, LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION, (Sweet and Maxwell, London, 2004), p. 4.

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(b) one of the following places is situated outside the state in

which the parties have their place of business;

(i) the place of arbitration if determined in, or pursuant to,

the arbitration agreement;

(ii) any place where a substantial part of the obligations of

the commercial relationship is to be performed or the

place with which the subject matter of the dispute is most

closely connected; or

(c) the parties have expressly agreed that the subject matter

of the arbitration agreement relates to more than one

country.14

The above definition is reproduced in section 57(2) Nigerian ACA and

section 3(2) (b) and (3) Alberta ICAA. Under these legislation, four elements

constitute international arbitration. First, the parties and their nationality or seat of

management in the case of a corporation or government. Second, the international

nature of the dispute. Third, the foreign nature of the choice of the place of

arbitration. Fourth, if the parties on their own have expressly agreed that any

dispute arising from the commercial transaction should be treated as an

international arbitration15. By the provisions, an international arbitration may take

place in or outside the country concerned. The Arbitration Act 1996 (United

Kingdom) employs a nationality-based definition of international arbitration.

International arbitration is anchored on international arbitration

agreement. This presupposes that there is an arbitration agreement. Article 7 of

the Model Law defines ‘arbitration agreement’ as:

an agreement by the parties to submit to arbitration all or

certain disputes which have arises or which may arise between

them in respect of a defined legal relationship whether

contractual or not.

By the combined effect of sections 2 (1) (b) and 7 (1) Indian ACA, this definition

is incorporated into the Indian legislation, word for word. Nigerian, United

Kingdom and Canadian arbitration legislation do not have this definition or any

other definition of ‘arbitration agreement’. International arbitration agreement has

been defined by Article 1(1) of the European Convention of 1961 to mean

“arbitration agreements concluded for the purposes of settling disputes arising

from international trade between physical or legal persons having, when

concluding the agreement, their habitual place of residence or their seat in

different contracting states”. In this respect, an international agreement is one of

international trade and involving persons ordinarily resident in different countries

at the time of the conclusion of the agreement.

International trade is a form of international transaction. International

transaction can be determined by two tests. The first is the parties test which

presupposes that if the parties are of different nationalities or reside in different

states, the transaction between them is international. The second test is the

14 Article 1(3) of the Model Law on International Commercial Arbitration. 15 These are called criteria by G. C. NWAKOBY, THE LAW AND PRACTICE OF COMMERCIAL ARBITRATION IN NIGERIA, 2nd edition, (Snaap Press Nigeria Ltd., Enugu, 2014), p. 177.

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transaction test which regards a transaction as international if it cuts across

national borders or involves the interest of parties in two or more States16.

As regards the word ‘commercial’, there is no agreed meaning. A footnote

to the Model law provides that a wide interpretation should be given to the term

“commercial” in such a way as to cover all matters arising from all relationships

of a commercial nature irrespective of whether or not it is contractual. It further

lists expansively relationships of a commercial nature by using the word

‘include’17. The Model law states:

The term commercial should be given a wide interpretation so

as to cover matters arising from all relationships of a

commercial nature, whether contractual or not. Relationship of a

commercial nature include, but are not limited to the following

transactions; any trade transactions for the supply or exchange

of goods or services; distribution agreement, commercial

representatives or agency; factoring; leasing; construction of

works; consulting; engineering; licensing; investment;

financing; banking; insurance; exploitation agreement or

concession; joint venture and other forms of industrial or

business co-operation; carriage of goods or passengers by air,

sea, rail or road.

This provision appears as the footnote to Article 1(1) of the Model Law which

states that it applies to international commercial arbitration. This provision is

somewhat replicated in section 57(1) Nigerian ACA as follows:

“Commercial” means all relationships of a commercial

nature including any trade transaction for the supply or

exchange of goods or services, distribution agreement,

commercial representation or agency, factoring, leasing,

construction of works, consulting, engineering licensing,

investment, financing, banking, insurance, exploitation

agreement or concession, joint venture and other forms of

industrial or business co-operation, carriage of goods or

passengers by air, sea, rail or road.

These provisions admit wide connotation of what can be regarded as commercial.

Similarly, section (3) (2) (a) Alberta ICAA provides for an extensive meaning of

‘commercial’. It reads:

S. 3 (2) For the purpose of this Act,

(a)the term “commercial” shall be given a wide interpretation so

as to cover matters arising from all relationships of a commercial

16 The two tests are reflected in the works of W. W. RIESMAN, ET AL INTERNATIONAL COMMERCIAL ARBITRATION: CASES, MATERIALS AND NOTES ON THE RESOLUTION OF INTERNATIONAL BUSINESS DISPUTES, University Casebook Series, (The Foundation Press Inc., New York, 1997), p. 397. 17 See A. D. BADAIKI, INTERPRETATION OF STATUTES, (Tiken Publishers, Lagos, 1996), p. 87; See also A. D. Badaiki, Interpretation of Statutes: The Letter or Spirit of the Law? 29thInaugural Lecture, (Ambrose Alli University Publishing House, Ekpoma, 2011), pp. 50-51.

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nature, whether contractual or not and relationships of a

commercial nature include the following transactions:

(i) any trade transactions for the supply or exchange of goods or

services, (ii) distribution agreement, (iii) commercial

representation or agency, (iv) factoring, (v) leasing, (vi)

construction of works, (vi) consulting, (vii) engineering, (ix)

licensing, (x) investment, (xi) financing, (xii) banking, (xiii)

insurance, (xiv) exploitation agreement or concession, (xv) joint

venture and other forms of industrial or business cooperation, and

(xvi) carriage of goods or passengers by air, sea, rail or road.

In the same vein, section 5(4) of the Canadian Federal ICAA gives the meaning of

“commercial” with greater certainty. It provides:

(4) For greater certainty, the expression commercial arbitration in

Article 1(1) of the Code includes

(a) a claim under Article 1116 or 1117 of the Agreement, as

defined in subsection 2(1) of the North American Free Trade

Agreement Implementation Act;

(b) a claim under Article G-17 or G-18 of the Agreement, as

defined in subsection 2(1) of the Canada-Chile Free Trade

Agreement Implementation Act;

(c) a claim under Article 819 or 820 of the Agreement, as defined

in section 2 of the Canada–Peru Free Trade Agreement

Implementation Act;

(d) a claim under Article 819 or 820 of the Agreement, as defined

in section 2 of the Canada–Colombia Free Trade Agreement

Implementation Act; and

(e) a claim under a provision, set out in column 1 of Schedule 2,

of an agreement that is set out in column 2.

The United Kingdom Arbitration Act and Indian ACA do not have any provision

in them that defines ‘commercial’. By the wide and elastic definition, the word

‘commercial’ extends to multifarious activities including employment or labour

activities and disputes as well as other borderline commercial activities such as

intellectual property licensing and technology transfer. The definition couched in

the language of the Model Law has been criticised as being confusing,

unworkable and unnecessary.18 Nwakoby has rightly posited that this criticism is

unfair because it is only an offer of possible options to States on definition of

international commercial arbitration.19 The law only attempts to illustrate the

expansive meaning of the term ‘commercial’ and internationally refrain from

developing an exhaustive list of the relationships that should be considered as

18 Lord Justice Kerr, Arbitration and the Courts, The UNCITRAL Mode” LAW QUARTERLY, vol. 34, 1985, p1 at p.17. 19 G. C. NWAKOBY, THE LAW AND PRACTICE OF COMMERCIAL ARBITRATION IN NIGERIA, 2nd edition, (Snaap Press Ltd, Enugu, 2014), p. 178.

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commercial in nature20. It is against this backdrop that Gary Born’s literal

definition is all inclusive. According to him, commercial refers to “a relationship

involving an economic exchange where one (or both) parties contemplate

realising a profit or other economic benefit21.

The Indian approach of defining “international commercial arbitration

instead of only the word “commercial” is quite innovative and reflects the

flexibility and adaptability principles in the Model Law.22 Section 2(1) (f) Indian

ACA provides the following definition:

International commercial arbitration” means an arbitration relating

to disputes arising out of legal relationships, whether contractual or

not, considered as commercial under the law in force in India and

where at least one of the parties is-

(i) An individual who is a national of, or habitually resident in, any

country other than India; or

(ii) A body corporate which is in corporate in any on n try other

than India; or

(iii) A company or an association or a body of individuals whose

central management and control is exercised in any country other

than India; or

(iv). The Government of a foreign country.

Under the International Arbitration Acts of the federal government and the

provinces in Canada, an arbitration is international if the parties to the arbitration

agreement have their places of business in different countries, if one of the parties

has its place of business outside Canada, if a substantial part of the commercial

obligation is to be performed outside Canada or if the place with which the

subject matter of the dispute is mostly closely connected is outside Canada. With

the exception to the law in Ontario, arbitration is also international in Canada if

the parties have agreed that the subject matter of the arbitration agreement relates

to more than one country. If the arbitration agreement is not in writing, it is not

governed by the International Commercial Arbitration statutes. Rather, by default,

it is governed by the respective Domestic Arbitration statutes.

The word ‘commercial is given a broad meaning by the courts in Canada.

Any commercial matter, contractual or not, is prima facie arbitrable in Canada.

Such matters would include the supply and exchange of goods, exploitation and

concession, joint venture and industry or business cooperation, carriage of goods,

construction of works, insurance, licensing, factoring, leasing, consulting,

engineering, financing, banking and investments.

The courts have regarded arbitration of copyright matters as enforceable in

Canada23. So also are regarded securities and inter-company disputes24. Simple

20 M. E. McNerney, & C. A. Esplugues, International Commercial Arbitration: The UNCITRAL Model Law, BOSTON COLLEGE INTERNATIONAL AND COMPARATIVE LAW REVIEW, vol. 9, Issue 1, 47 (1986 http://Lawdigitalcommons.bc.edu/iclr/vol/19/issi/3 p. 49. 21 GARY BORN, INTERNATIONAL COMMERCIAL ARBITRATION, vol. 1, Kluwer International Law, 2009, p. 266. 22 M. E. McNerney, & C. A. Esplugues, supra, note 20. at p. 48. 23 Desputeaux v. Editions Chouette (1987) Inc; (2003) 1 SCR 178.

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employment contract, however, is not considered an inter-corporation arbitration,

hence, not a commercial matter amenable to arbitration25. The view has been

expressed, however, that private non-employment restraint of trade covenants and

other contractual provisions may be subject to arbitration if the parties so

choose26.

In theory, the distinction between international and domestic arbitration is

clear, in practice, it can become blurred. This is because some arbitrations that

would otherwise be considered international become non-international when the

foreign party is involved in the arbitration through a subsidiary company in a

given country. Furthermore, in a given country, typically Canada, for instance,

parties to an international arbitration sometimes choose to make the arbitration

subject to a domestic arbitration legislation rather than applicable international

legislation, either by mistake or deliberately, because they wished to turn an

international arbitration into a domestic arbitration so as to have judicial review of

the arbitral tribunal’s award on questions of law. The question whether such a

choice is valid is “very much open to debate and disagreement”27.

International commercial arbitration may therefore be defined as an

arbitration in which any or all of the parties in an economic exchange

relationship, at the time of conclusion of an arbitration agreement, is a national of,

or place of business is in a foreign State; or where the agreed place of arbitration

or the performance of the obligations under the commercial relationship or the

subject matter of the dispute is outside the State where the parties have their place

of business; or the subject matter of the arbitration agreement relates to more than

one country. For an arbitration to be an international commercial one the

relationship between the parties to an arbitration agreement should be one of

economic or exchange, and any or all of the following four entities or factors

should be a national of, or in a foreign country: (a) any or all of the parties in the

relationship; (b) place of business, (c) agreed place of arbitration or the

performance of the obligations under the commercial relationship or the subject

matter of the dispute, and (d) subject matter of the arbitration agreement. In

satisfying the requirement under (c), it is sufficient if any of the three events listed

is outside the State in which the parties have their place of business.

III. THE HISTORY OF INTERNATIONAL COMMERCIAL

ARBITRATION IN CANADA

The history of international commercial arbitration law in Canada is

influenced by the history of Canada. Canada was colonised by Britain and France

in terms of the different territories that are now known as Canada. This colonial

24 Carbonic Financiêre Banque Nationale, (2004) JQ No. 7254 (SC). 25 Borowski v. Heinrich Fiedler Perforiertechnik Gmbh (1994) 29 CPC (3d) 264) (Atla GB). 26 J. P. Brown, E. Gertner, & G. Bazov, Canada, in Arbitration in 42 Jurisdictions Worldwide Global Arbitration Review, W. Wegen, & S. Wilske (eds) THE INTERNATIONAL JOURNAL OF PUBLIC AND PRIVATE ARBITRATION, p. 32. 27 See K. J. Glasner, & W. G. Horton, Judicial Review of Commercial Arbitration Awards North of the 49th Parallel, 32 (10) ALTERNATIVES (November 2014) p. 151; See Sativa Capital Corporation v. Moly Corporation, (2014) 4 SCC 53 on of appealing an arbitration award, and ability to appeal commercial contract.

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experience led to Canada having two legal systems: common law system which

Britain gave to one part of the country and civil law system which France

introduced into another part of the country, specifically Quebec province.

Colonisation by Britain and France also resulted in the existence of two

languages, English and French in the country with Quebec province officially

adopting French as its official language.

The reception of English law or French law in the respective Canadian

province depended on the province’s history. In all common law provinces, since

the end of the nineteenth century and the beginning of the twentieth century, the

existing legislation were based on or were same as English law. The reception of

English law in each of the Canadian provinces depended on the history of each

province. By virtue of the Hudson’s Bay Company’s Charter of 3rd May, 1670,

the British settlers brought common law and statutory law to the Canadian West

in that year through the Hudson’s Bay Company. Reception of English law in

provinces acquired by settlement, however, official only started when the colonial

legislature enacted its first statute28. From 1758 to 1870 all the Canadian

provinces except Quebec received English common law officially29.

In 1869, the first legislation, Civil Procedure Ordinance, was enacted and

regulated the procedure relating to arbitration. By this, the English arbitration

laws had become a model for the legislators of the Canadian Common Law

provinces. In this regard, in 1873, Prince Edward Island enacted the first

legislation, the Judicature Act, which contained some provisions in sections 211-

225 on arbitration, and found in the English statutes prior to 1889. The English

Arbitration Act, 1889 which amended and consolidated the enactments relating to

arbitration and the Code of Civil Procedure modelled on the French civil law in

the common law provinces and Quebec respectively also constituted the old legal

framework for arbitration in Canada. There were no federal statutes on arbitration,

but there was one law on arbitration that was applicable to both international and

non-international and commercial and non-commercial arbitration30. Between

1893 and 1919, eight other common law provinces enacted their arbitration

statutes based on the English Arbitration Act, 1889. British Columbia enacted the

Arbitration Act in 1893; Nova Scotia in 1895; Ontario on 1897; Manitoba in

1900; Alberta and New Brunswick in 1907; Saskatchewan in 191931. Subsequent

28 G. GAU, THE CANADIAN LEGAL SYSTEM, 3rd edition, Corowell, Toronto, 1990, pp. 51-52. 29 According to Gau, id, p. 51, English Law was officially received in New Brunswick and Nova Scotia in 1958, prime Edward Island in 1773, Ontario on 15th October, 1972, Newfound land in 1832, British Columbia on 19th November, 1958; North West Territories, Manitoba, Alberta and Saskatchewan on 15th July, 1870 or after the British North America Act of 1867, 271, established the Dominion of Canada. 30 L. Kos-Rabcewicz-Zubkowski, International Commercial Arbitration in the Common Law Provinces of Canada, 44, 3 ARB. J., (1989) 14 at p. 14. 31 B. Claxton, Commercial Arbitration under Canadian Law, (1943) 21 CANADIAN BAR REVIEW, 174.

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arbitration acts of these common law provinces up until 1927 were still based on

the English Arbitration Act 188932.

It was against this background that the 1931 Conference of

Commissioners on Uniformity of Legislation regardless of the existence of eight

common law jurisdictions33 found that the common law provinces of Canada had

achieved a sufficient level of uniformity similar to the English Arbitration Act,

1889 and that any further unification at the federal level was unnecessary.

According to Davidson, in view of the framework of the English Arbitration Act,

1889 and the English common law, the arbitration in all provinces except Quebec

was understood as “a somewhat suspicious departure from the court’s normal

jurisdiction and something that courts only tolerate as long as the courts

controlled the process”34. The court’s approach was to exercise broad supervisory

powers over arbitration. In Carveth v. Fortune35, it was held that the court should

always incline to support awards unless they appear to be manifestly unjust and

that a liberal interpretation should be given to submission, with a view to carrying

out the intention of the parties. The courts, however, hesitated to give a reference

to arbitration in some situations36.

Canadian legal framework comprises special features which impact on

how disputes arising from international commercial transactions are settled by

arbitration in Canada. One such feature is that it is a culturally diverse country in

which two legal systems are applied. They are common law system in most

provinces and civil law systems37 in only Quebec. Canada is constitutionally

bilingual: English and French. Three provinces, namely, Ontario, Quebec and

New Brunswick offer court services in English and French. Canada is a federal

state composed of ten provinces38 and three territories39. Each provincial

jurisdiction has its own government while the federal government has its own

responsibility for national matters. Accordingly, under Canada’s Constitution Act,

186740 as amended (hereinafter called “Constitution Act), there is constitutional

division of legislative powers between the federal and provincial governments.

32See Alberta, R.S. 192 C.98; British Columbia, RS 1924, C.13; Manitoba, R.S. 1913, C9; New Brunswick R.S. 1927, C126; Nova Scotia, R.S. 1923 C227; Ontario, R.S. 1927, C. 97; Saskatchewan R.S. 1920, C55. 33The eight jurisdictions are Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia Ontario, Prince Edward Island and Saskatchewan. While Newfoundland was not included in the Report of the Conference on Uniformity of Legislation because it joined Canada in 1949, Quebec was excluded because it was a civil law jurisdiction. 34 P. J. Davidson, International Commercial Arbitration Law in Canada. 12 NORTHWESTERN JOURNAL OF INTERNATIONAL LAW AND BUSINESS, (1991) 97 at 98. 35(1962) U.C.C.P., 504. 36 Carveth v. Fortune, 37 See P. DAVID, & J. E. C. BRIERLY, THE MAJOR LEGAL SYSTEMS IN THE WORLD TODAY, 2nd ed. Stevens and Sons, London, 1978. 38 The provinces are Alberta, British Columbia, Manitoba, Ontario, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Quebec and Saskatchewan. 39 The three territories (provincial jurisdictions) are the Northwest Territories, Nunavut and Yukon. 40 (U.K) Chap. 3. It was previously known as the British North America Act, 1867, 30 & 31 Vict. C.3.

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Section 91 of the Constitution Act sets out the enumerated classes of matters over

which the federal government has exclusive legislative competence. Section 92 of

the Constitution Act sets out the enumerated classes of matters over which the

provincial governments have exclusive legislative competence. Both the subjects

of ‘arbitration’ and ‘enforcement of arbitral awards’ are not specifically

enumerated among the matters listed in sections 91 and 92 of the Constitution

Act. It is stated, however, that it has been traditionally held that the two

aforestated matters fall within provincial legislative competence under section

92(13) (‘Property and Civil Rights in the Province’) and section 92(14) (‘The

Administration of Justice in the Province’)41. These powers were interpreted to

cover legislation on arbitration and the enforcement of arbitral award42. Every

provincial government (with the exception of Quebec) has enacted two separate

legislation governing arbitration, that is, a Domestic Arbitration Act and an

International Arbitration Act43. In the province of Quebec, both domestic and

international arbitrations are governed by the Civil Code of Quebec and the Code

of Civil procedure44. The federal government has enacted its own Commercial

Arbitration Act45 (hereinafter called “Federal Commercial Arbitration Act”) to

deal with all arbitral disputes within its constitutional jurisdiction.

The enactment of International Arbitration Acts in Canada was the result

of adoption of the Model Law by Canada. In 1986, Canada, with the consent of its

provinces, adopted the Model Law, and became the first country in the world to

do so. That year, the Model Law was implemented by legislative enactment at

both the federal and provincial levels in Canada, but, in some cases, by making

some modifications to the Model Law text, or by adopting the Model Law as an

appended schedule to the legislation with minor modifications46. In Quebec

41 P. J. Davidson, International Commercial Arbitration Law in Canada, 12 NORTHWESTERN JOURNAL OF INTERNATIONAL LAW AND BUSINESS, (1991) 97 17 p. 99, quoted in C. R. Thomas, & A. M. K. Finn, International Commercial Arbitration: A Canadian Perspective, ARBITRATION INTERNATIONAL, vol. 18, No. 2, 2002, 205 at p. 206; International Commercial Arbitration in the New Millennium, 2001. 42 Id. 43International Commercial Arbitration Act, S.A. 1986, c. 1-6.6 (hereinafter called ‘Alberta International Commercial Act’); International Commercial Arbitration Act R.S.B.C. 1996, c. 233 (hereinafter ‘British Columbia International Commercial Arbitration Act’); International Commercial Arbitration Act, S.M. 1986-87, c. 32, Chap. C151; International Commercial Arbitration Act, S.N.B. 1986, c. 1-122; International Commercial Arbitration Act, R.S.N, 1990, c. 1-15; International Commercial Arbitration Act, R.S.N.W.T. 1988, c. 1-6; International Commercial Arbitration Act, R.S.N.S. 1989, c. 234; International Commercial Arbitration Act, R.S.P.E.I. 1988, c. 1-5; International Commercial Arbitration Act, S.S. 1988-89, c. 1-10.2; International Commercial Arbitration Act, R.S.O. 1990, c. 1.9 (hereinafter ‘Ontario International Commercial Arbitration Act’). 44 International Commercial Arbitration Act, S.Y. 1987, c. 14; An act to Amend the Civil Code and the Code of Civil procedure in Respect of Arbitration, S.Q. 1986, c. 73 (hereinafter ‘Quebec Act to Amend the Civil Code and the Code of Civil Procedure’); see also 45 R.S.C.1985, c. 17 (2nd supp.). 46For example, the British Columbia International Commercial Arbitration Act added several provisions including those on the following subject matters: the consolidation of proceedings (section 27(2)), conferment of discretion on arbitral tribunals to apply the rules of law as it

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province, which had the same body of legislation governing international and

domestic arbitration like the federal government, the relevant Quebec legislation

adopted the governing principles of the Model Law. Although the Quebec codes

are also based on the Model Law, there are some differences between the codes

and the Model Law. Here are some differences between the codes and the Model

Law. The Federal Commercial Arbitration Act 198647 applies to domestic and

international commercial arbitrations, but the scope of the legislation is

restrictive. It is limited to maritime or admiralty arbitrations or those disputes that

involve at least one party, that is, Her Majesty in right of Canada, or a Canadian

federal crown corporation or department. The international commercial arbitration

statutes applicable in the province in which the arbitration is brought apply to

international commercial arbitrations between private parties where one of the

parties is a foreigner and where the federal Commercial Arbitration Act does not

apply.

Between 1986 and 2002, the Canadian provinces enacted relevant

legislation adopting the Model Law as the law applicable to international

commercial arbitration. In 1986, Alberta enacted International Commercial

Arbitration Act48; Quebec also enacted the Act to Amend the Civil Code and the

Code of Civil Procedure in Respect of Arbitration49. Quebec did more in 1986

than just incorporate the Model Law; it also modified the Civil Code of Quebec to

introduce substantive articles on arbitration contracts in both domestic

arbitration50 and international arbitration51. Article 940.6 of the Code of Civil

Procedure provides:

Where matters of extra provincial or international trade are at issue

in an arbitration, the interpretation of this Title, where applicable,

shall take into consideration:

(1) the Model Law on International Commercial Arbitration as

adopted by the United Nations Commission on International Trade

Law on 21 June 1985;

(2) the Report of the United Nations Commission on International

Trade Law on the work of its eighteenth session held in Vienna

from 3 to 21 June 1985;

(3) the Analytical Commentary on the draft text of a model Law on

international commercial arbitration contained in the report of the

considers to be appropriate given all the circumstances surrounding the dispute whereby arbitrators may act as mediator or conciliators in the dispute (section 30(1)), and interest and costs (section 31(7) and (8). In the same vein, in adopting the basic principles of the Model Law, Quebec province amended its previous legislation by adding Title 13A of Arbitration Agreements’ to the Civil Code and by replacing Book VII ‘Arbitrations’ of the Code of Civil procedure. Examples of provinces that effected minor modifications to the Model Law in their legislation and appended the Model law as a schedule to that legislation are Alberta and Ontario. 47RS 1985, Chapter 17 (2nd supp): http:Illois.justice.gc.ca/en/frame/cs/c.34.6///en. 48 1986, chapter 1 to 6.6: www.canlii.org/ab/law/sta/i-5/20061113/whole.html 49 SQ1986, chapter 73. 50 Articles 2638-2643 Civil Code of Quebec. 51 Articles 940.6, 948-951.2 Code of Civil Procedure.

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Secretary-General to the eighteenth session of the United Nations

Commission on International Trade Law.

There was the British Columbia International Commercial Arbitration

Act52 as well as those of the Prince Edward Island53; Saskatchewan54, Nova

Scotia55, Ontario56, Newfoundland57, Manitoba58 and New Brunswick59.

International Commercial Arbitration Acts were also enacted by the three

respective Canadian terror ties: Nunavut60, North West61 Territories in 1988 and

Yukon Territory62 in 2002.

Another significant development in the history of international

commercial arbitration in Canada is the reception of the United Nations

Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the

‘New York Convention’)63. In 1986, Canada, with the consent of its provinces,

acceded to and ratified the New York Convention. In implementing the New York

Convention, the federal government enacted the United Nations Foreign Arbitral

Awards Convention Act64. The Canadian provinces implemented the New York

Convention either within the respective International Commercial Arbitration

legislation as in the cases of Alberta, Manitoba, New Brunswick, Newfoundland,

the Northwest Territories, Nova Scotia, Prince Edward Island, Ontario65 and

Quebec66 or by providing for it in a separate legislation as in the cases of British

Columbia67, Saskatchewan68 and Yukun Territory.69

52 1986-87 and later RSBC, chapter 233: www.qp.gov.bc.ca/statreg/stat/1/96233_01.htm 53 RSPEI 1988, chapter 1-5: www.gov.pe.ca/law/statutes/pdf/i-05.pdf 54 RS 1988-89, chapter 11-2, section 2: www.qp.gov.sk.a/documents/English/Statutes/states/pdf/i-05.pdf 55 RSNS 1989, chapter 234: www.gov.ns.ca/legislature/legalc/statutes/internlc.htm 56 RSO 1990, chapter 1.9: www.e-laws.gov.on.ca/html/statutes/english/elaws_statutes_9oiog_e.htm 57 RSN 1990, c 1-15: ww.hoa.gov.nl.ca/hoa/statutes/il5.htm 58 CCSM, chapter C151: http://web2gov.mb.ca/laws/statutes/ccsm/c/151e.php 59 SNB, chapter 1-12.2: www.gnb.ca/acts/acts/i-122.htm 60 RSNWT 1988, chapter 1-6: www.can;oo.org/nu.sta/cons/pdf/Type098.pdf 61 RSNWT 1988, chapters 1-6: www.canlii.org/nt/laws/sta/i-6/20061114/whole.html 62 RSY2002, chapter 123: www.canlii.org/yk/laws/sta/12.3/20060728/whole.html 63 This international instrument came into existence on 10th June, 1958, New York, 330 U.N.T.S. 88 (1958), No. 4738. 64R.S.C. 1985, c. 16 (2nd supp.) 65 Section 10 of the Ontario International Commercial Arbitration Act, S.O. (1988, c. 20 section 14 states that for the purpose of articles 35 and 36 of the Model Law, an arbitral award includes a commercial arbitral award made outside Canada. In essence, the provision is authority for implementation of the New York Convention in Ontario. The Ontario International Commercial Arbitration 1988 repealed and repealed the Ontario Foreign Arbitral Awards Act, 1986, S.O. 1986, c. 25. 66Article 948 of the Quebec’s Code of Civil Procedure, Book VII ‘Arbitrations; Title II ‘Of Recognition and Execution of Arbitration Awards Made Outside Quebec’, states that the interpretation of this title shall take into account the New York Convention. 67 Foreign Arbitral Awards Act R.S.B.C. 1996, c. 154. 68 Enactment of Foreign Awards Act, R.S.Y. 1986, c. 70. 69 Foreign Arbitral Awards Act, R.S.Y. 1986, c. 70.

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Thus, prior to 2011, all jurisdictions in Canada, except for the federal

jurisdiction, provinces of British Columbia and Saskatchewan, and the territory of

Yukon, had enacted a single statute that incorporates or is based on both the

Model Law and the New York Convention. These four jurisdictions had separate

statutes for international commercial arbitration and for the recognition and

enforcement of foreign arbitral awards.

In 2006, the Model Law, which was the foundation for international

commercial legislation in Canada, was altered70. While Canada had not

implemented the 2006 amendments in legislation, some other countries including

Nigeria, United Kingdom and India had done so.

In 2011, as a result of lack of absolute uniformity in the legislation on

international commercial arbitration and the potential to complicate arbitration

and related proceedings, the Uniform Law Conference of Canada (ULCC)

decided to revisit international commercial arbitration in Canada. In august 2012,

the Working Group released its initial report, and in January 2013 its detailed

Discussion Paper, entitled ‘Towards a New uniform International Commercial

Act’. The report included comments on twenty-three (23) issues arising from the

jurisdictional differences in international commercial arbitration and the

amendments in the 2006 Model Law71, several policy recommendations and a

proposal for a new draft Uniform International Commercial Arbitration Act (‘the

Draft ICAA’). The five policy recommendations are to:

(a) continue to base the Uniform International Arbitration Act on

the New York Convention and the Model Law;

(b) prepare a single statute that appends both the New York

Convention and the Model Law;

(c) depart from the text of the Model Law only for ‘good reasons’

(departures should be few if any, and only as necessary);

(d) continue to keep legislation for domestic arbitration separate

from the legislation for international commercial arbitration;

and

(e) promote uniformity among Canadian jurisdictions to avoid

undue complexity.

These policy recommendations have been largely followed in most

Canadian jurisdictions and are reflected in the ULCC’s existing template

legislation. As regards international commercial arbitration in Quebec which

operated two statutes, the Civil Code and the Civil Procedure, the Working Group

concluded that in implementing these policy recommendations, ‘uniformity in

substance is more important than any necessary differences in form’. In the Draft

International Commercial Arbitration Act (Draft ICAA), proposed by the ULCC,

the New York Convention is attached as Schedule A and the 2006 Model law as

Schedule B. Its provisions include the meaning of ‘competent courts’; uniform

70 As amended by the United Nations Commission on trade Law on 7th July, 2006. 71The issues raised included Articles 17B and 17C of the 2006 Model Law on applications for preliminary orders and conditions for granting preliminary orders such as order for ex parte interim measures of protection, and the difference between provinces in limitation periods for the recognition and enforcement of awards.

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limitation period for applicants to recognise and enforce awards under Articles

III, IV and V of the New York Convention or Articles 35 and 36 of the 2006

Model Law72. The new Draft ICAA was scheduled to be presented to the ULCC

in August 2013. It was, however, not obligatory on the part of the federal

government, province and territories to adopt the language in the Draft ICAA, but

if approved by the ULCC, the model legislation should influence and persuade all

Canadian jurisdictions in reforming their arbitration legislation.

IV. CONCLUSION

The history of Canada some of which territories were once under British

colonial rule and some others under French colonial rule influenced development

of its laws including arbitration. Apart from that a part of present day Canada

operates common law legal system and another part, namely, Quebec province

adopts civil law legal system, the differences in the type of legal system in the

country reflect in the arbitration legislation that exist in the different parts of the

country. Variations also exist in provinces and territories that belong to the

common law family. In all, however, the Model Law and New York Convention

are adopted in all jurisdictions. The province of Quebec, however, went further

than merely adopting these international instruments. It adopted the Model Law

and went further to modify the Civil Code of Quebec. One of the modifications

was the introduction of substantive articles on arbitration contracts. Article 940.6

of the Code of Civil Procedure is one of such articles. That article provides, inter

alia, that the Model Law should be one of the international instruments to be

taken into consideration, where applicable, when matters of extra provincial or

international trade are at issue in an arbitration.

In June 1986 Canada proactively adopted the UNCITRAL Model Law on

international Commercial Arbitration. It was the first country in the world to do

so. Moreover, the federal government of Canada and each and every of the ten

provinces and three territories that comprised Canada adopted the Model Law and

adapted it according to their own legal standards, hence, the Quebec Codes

though based on the Model Law, have differences between them and the Model

Law. There have been three different approaches in the adoption of the Model

Law. The first approach is a system of attaching the Model Law as a schedule to a

short enactment with minor clarifications. This approach is the one in the

legislation of the Canadian federal government in 1986, and those of Ontario in

1990 and Alberta in 1986. The second approach is one of reproducing the Model

Law in the form of a stand-alone statute with minor additions as in the legislation

of the province of British Columbia in 1996. The third approach is one of

adopting the Model Law in Quebec’s Code of Civil Procedure in 198673. Quebec

also adopted the New York Convention74.

The range of the Model Law also depends on the underlining jurisdiction.

For instance, British Columbia and Ontario modified the Model Law to exclude

72 This is by virtue of section 16 of the Draft ICAA which incorporates language similar to Article 34 of the Model Law. 73 Articles 940-945.8 Civil Procedure Code. 74 Articles 948-951 Code of Civil Procedure.

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interprovincial arbitration from its application. Quebec decided that the Model

Law would be applicable for every arbitration, whether domestic, extra provincial

or international.

In discussing the grounds for judicial intervention in international

commercial arbitration it is shown that there are two broad parameters for

intervention. The first consist of parameters of the Model Law. All the

jurisdictions have legislation that endorse these parameters. The second

parameters are those outside the Model Law but consist of policy

recommendations reflected in the ULCC’s existing template legislation that most

Canadian jurisdictions have been following. It was found that the

recommendations were made in the 2013 Reports of the Working Group of the

ULCC. Under the Model Law parameters, the issues of court intervention in

arbitration discussed include appointment of arbitrators, reference of parties and

matters to arbitration, stay of judicial proceedings, interim measure of protection,

challenge of arbitrators, failure or impossibility of arbitrators to act, determination

of arbitrators’ jurisdiction, assistance in taking evidence, judicial review of

awards, setting aside of arbitral awards and recognition and enforcement of

arbitral awards.

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International Journal of Business Law, November 2019 Issue 3 (2019) 3 IJBL

372

THE ROLE OF THE AUDIT COMMITTEE IN SECURING CORPORATE

ACCOUNTABILITY IN NIGERIA

Godwin Omonigho Emeriewen, Ph.D*

I. INTRODUCTION

High profile business failures and corporate misconducts have galvanized

more interest in and discussion on the proper oversight of Audit Committee. The

success of Audit committee in fulfilling its oversight responsibility depends on its

working relationships with other participants in corporate governance, including the

board of directors, management, external auditors, internal auditors, legal counsel,

professional advisors, regulators and standard setting bodies. Audit committees have

been advocated by many as a deterrent to fraudulent financial reporting. In the US,

it was recommended that the Securities and Exchange Commission (SEC) should

require public companies to maintain Audit committees composed exclusively of

independent directors.1 The audit committee system was singled out as a panacea

for reducing fraudulent financial reporting. Accordingly, it was argued that

mandatory audit committees would have significant benefits: This decision on

mandatory Audit Committees reflects our commission’s views that an informed,

diligent Audit Committee represents the single most potentially effective influence

for minimising fraudulent financial reporting….’2

The creation of an audit committee as a mechanism to check the power

imbalance between the board of directors, the internal and external auditors in most

business organisations has the potential of promoting good corporate governance

and accountability. The nature of the role assigned by the law to such committee and

how, in reality, the expectations are achieved to foster good corporate governance

and accountability in Nigeria is the main focus of this article. The article comprises

a brief historical analysis of the audit committee, its functions and duties, its

composition and requisite qualifications for its membership.

II. HISTORY OF THE AUDIT COMMITTEE IN THE US, UK AND

NIGERIA

The idea of establishing the audit committee of the board of directors to enhance and

promote good corporate governance and accountability started first in the US before

many other jurisdictions bought into it. The concept of the audit committee was first

endorsed in 1939 by the New York Stock Exchange (NYSE). During the 1970s, the

audit committee’s role was very welcome due to the great demands for corporate

governance and corporate accountability.3 In 1972, the US Securities and Exchange

Commission (SEC) recommended that public companies should create an audit

committee comprised of directors from outside the relevant companies’

*Legal Practitioner and Chartered Accountant, Manchester, United Kingdom. 1 National Commission on Fraudulent Financial Reporting US 1987, p.40. 2 Id. 33 W.D. Spangler, and L. Bralotta, Jr., Leadership and Corporate Audit Committee Effectiveness. GROUP & ORGANISATION MANAGEMENT, 15(2) (1990), p. 134-157.

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Emeriewen: The Role of the Audit Committee in Securing Corporate Accountability in Nigeria.

373

management. This noble idea of establishing the audit committee in the US soon

became an idea cherished by most other jurisdictions, developed and developing

alike. Examples of jurisdictions that embraced the idea are the UK and Nigeria. For

this purpose, these two countries are selected to show the history of the

establishment of the audit committee outside the United States.

(a) History of Audit Committees in the US.

Historically, the creation or the inclusion of the audit committee in the board

was not legally mandatory. A board could operate without an audit committee

depending on the choice of the organisation. Audit committees were first suggested

as vehicles of communications between external auditors and boards of directors in

the aftermath of the Mckesson and Robin’s case in the 1930s and have been

recommended by both the New York Stock Exchange (NYSE) and the SEC since

1940.4 During this period, only NYSE-listed domestic companies were required to

have independent audit committees. The American Institute of Certified Public

Accountants (AICPA) in 1967 made a recommendation that audit committee boards

be established so that external auditors can communicate and interact with the audit

committee whenever any question having any material importance on the

company’s financial statements has not been satisfactorily resolved with

management. Prior to that date, the whole idea of audit committee received very

little accolades and the expected functions of this committee were uncertain. By

1972, however, audit committee system received a boost when for the first time in

the world the US Securities and Exchange Commission5 (SEC) recommended that

public companies should create an audit committee comprised of directors from

outside the relevant companies’ management. The aim, at that time, was to give

protection to investors who relied upon the financial statements for decision making.

During this period, the SEC identified that the key to poor quality of financial

statements is regulatory oversight. Consequently, they resolved that, to improve

financial reporting effectiveness there is a need for the establishment of audit

committees.

It was also observed that, to enhance the effectiveness and the efficiency of

the audit committee, the New York Stock Exchange (NYSE) in 1977, required that

all audit committee members should be independent directors. In its statements on

Auditing Standards,6 the American Institute of Certified Public Accountants

(AICPA) provided that “communication with audit committee” regarding the

relationship between the audit committee, external auditors and management of

public companies must be harmonised. Similarly, in February 1989, the National

Association of Securities Dealers (NASD, the self- regulatory organisation for the

over- the counter market) approved a requirement that National Market System

Companies (a subset of the over-the counter market) must have an audit committee

with a majority of independent directors. The American Stock Exchange (ASE)

recommends, but does not require, audit committee for its listed companies. The

evolution of audit committees shows that many companies voluntarily created audit

4 id. 5 SEC. Accounting Series Release 123 “Standing Audit Committee.” 1972 6The US Statement on Auditing Standard 61 1988. (herein referred to as SAS)

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committees in the mid-twentieth century to provide more effective communication

between the board of directors and external auditors.7 This has now changed in

modern times as current audit committees are expected to oversee corporate

governance, financial reporting, internal control structure, internal audit functions

and external audit services. More importantly, the SEC rules on audit committees

significantly affect the structure, composition, functions and responsibilities of audit

committees.

Despite the long history of encouragement, the audit committee was

relatively rare until the mid-1970s. One of the earliest surveys on the audit

committee of large public companies observed that, interest in audit committees was

not wide-spread and their use was not general.8 Furthermore, the survey found out

that the meetings between boards of directors and auditors were infrequent.9 The

growth of audit committee in the 1970s however, was explosive. In a follow-up

study, it was observed that out of a sample of the largest public companies,

approximately 87% had formed audit committees, with more than half the

committee being less than 5 years old.10 In 1978, the NASD surveyed the nearly

2,600 companies then in the over-the counter National Association of Securities

Dealers Automated Quotation System (NASDAQ). Of the responding firms, about

68% had audit committees.11 In 1988, a follow-up survey on the implementation of

the National Commission on Fraudulent Financial Reporting (NCFFR) was

conducted, 8564, a questionnaire was issued only 1014 responded out of which 82%

of the respondents (including NYSE companies) had an audit committee, including

about 73% of the responding non-NYSE companies.12 It should be noted that the

results must be interpreted with caution due to the possibility of non-response bias.

Among the smaller companies, 53% had an audit committee.

Menon13 observed that most of the United States over-the counter (OTC)

firms which form an audit committee appears not to rely on them. Reliance on audit

committees appears to depend upon board composition and audit committee activity

is associated with firm size. Although, the concept of Audit Committees had long

been recognised as a vital tool to promote transparency and accountability in

business organisations, legislation to back up their establishment was lacking until

in 2002 when in the US the Sarbanes Oxley Act of 2002 was introduced. It fully

defines, entrenches and integrates the functions and responsibilities of Audit

7 Z. REZAEE, FINANCIAL STATEMENT FRAUD: PREVENTION AND DETECTION. John Willey and Sons, New York, (2002), pp. 25-46. 8 R. J. MAUTZ, AND F. L.NEUMANN, CORPORATE AUDIT COMMITTEE, CHAMPAIGN, 111, Bureau of Economic and Business Research, University of Illinois. (1970) At p. 2 9 id at pp. 51 10 id at pp.11. 11 Securities and Exchange Commission (SEC), July 1979. Report to Congress on the Accounting Profession and the Commission’s Oversight Role. Prepared for the Subcommittee on Governmental Efficiency and the District of Columbia of the committee on Governmental Affairs, United States Senate. At pp. 426. 12 Committee of Sponsoring Organizations of the Treadway Commission, Sept. 1988. Report on a Survey of Business Practices. New York: American Institute of Certified Public Accountants. 13 K. Menon, and J. D. Williams, The use of audit committees for monitoring. JOURNAL OF ACCOUNTING AND PUBLIC POLICY (1994), 13 (2), 121-139.

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Committees, to evaluate risk management in the management of public companies.14

The Act specifically states that financial experts must be on Audit Committees.15 It

creates protection for whistle blowers.16 Finally, it creates the Public Company

Accounting Oversight Board (PCAOB) which oversees the performance of Audit

Committees.17 All Audit Committees in non-public companies are regulated by the

US Auditing Standard Board established in 1978.

(b) History of Audit Committee in the UK.

In the UK, Audit Committees developments reflect the impact of US

experiences, but the adoption of the practice in companies was slow. Audit

committees were unusual but not unknown in the UK and the concept of audit

committees had not been generally accepted.18 Up to the time the Cadbury

Committee’s Report was published in 1992 the idea of audit committees had

gradually become more wide spread among the larger companies.19 It was further

recommended in 1992 that all listed companies should establish an audit

committee.20 Although, compliance was not mandatory it was expected that all listed

companies must disclose their degree of compliance with the annual reports and

accounts, so that shareholders are aware of the situation.21 The involvement of the

London Stock Exchange is limited to ensuring that the degree of compliance is stated

and that reasons are given for any non-compliance.22 Since the Cadbury Committee

Report in 1992, the pressure to conform has increased, by 1994, 83.8% of UK listed

companies had formed audit committees.23 Recent initiatives such as the Smith

Report24 have focused on improving the effectiveness of mechanisms such as the

audit committee. The report emphasised the essential role the audit committee

should play in ensuring the independence and objectivity of the external auditor as

well as in monitoring the company’s internal audit function and management.

Further, to promote good corporate governance and accountability, the UK

Corporate Governance Code25 provides that listed company boards in the UK should

14 Sec. 301 SOX. Act 15Sec.407 (a) SOX. Act 16Sec. 806 SOX. Act 17Sec. 101 SOX. Act 18 Accountants International Study Group (AISG). Audit Committees – Current Practices in Canada, the UK and US. Accountants International Study Group, London, 1977. 19P. A. Collier, The Rise of audit committees in UK quoted companies: a curious phenomenon. Accounting, Business and Financial History 6(2) JOURNAL OF FINANCE AND ECONOMICS. (1996), 121-140. 20 CADBURY COMMITTEE, Committee on the Financial Aspect of Corporate Governance London, Gee. (1992) p.65 21 LONDON STOCK EXCHANGE. THE LISTING RULES. LONDON STOCK EXCHANGE, London. (1993) pp. 128. 22 id at pp. 128. 23 P. A. Collier, Audit Committees in smaller UK companies. JOURNAL OF FINANCE AND ECONOMICS 4(2) (1997) 125- 146. See also K. Keasey, and M. Wright, CORPORATE GOVERNANCE: RESPONSIBILITIES, RIGHTS AND REMUNERATION, Wiley, Chichester, England, (2003), pp. 93-120. 24 Smith Report 2003 25 United Kingdom Corporate Governance Code para. C.3.1 2016

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establish an audit committee of at least three, or in the case of smaller companies’

two, independent non-executive directors. In smaller companies the company

chairman may be a member of, but not chair, the audit committee in addition to the

independent non-executive directors, provided he or she was considered

independent on appointment as chairman. The purport of this provision is to enhance

a balance in the composition of the audit committee and independence of the

members of the audit committee.

(c) History of Audit Committee in Nigeria.

In Nigeria, the clamour for the inclusion of audit committee as part of the

corporate governance regulating mechanism was the consequence of the series of

corporate failures occasioned by lack of corporate accountability and ineffective

board management. The Accounting Profession in Nigeria has been under intense

pressure due to rising public expectations. The rise in public expectations was

occasioned by the series of corporate failures that occurred during the recessionary

years of late1980’s and early 1990s.26 `In stemming the tide, Government,

Professional bodies, Stock Securities operators and corporate managers devised a

way of reducing corporate failures in order to build up public confidence in

corporate financial reporting. This led to the establishment of Audit Committees

which enable directors to increase their efforts in attending to other matters while

assigning specific issues to the Audit Committees.

The need for Audit Committee in Publicly Quoted Companies in Nigeria as

a means of restoring the confidence in financial Reporting was long

recognised.27Consequently, the concept of Audit Committees in Nigeria was

introduced by Section 359 (3) Companies and Allied Matters Act28 (herein after

referred to as CAMA). It provides for the establishment of Audit Committees.

Section 359 (4) CAMA states that Audit Committees shall be made up of directors

and shareholders of the same public company subject to a maximum of six members

and that the committees shall examine auditors reports and make recommendations

therein to the Annual General Meetings (AGM). The functions of the Audit

Committees which is discussed below were also listed.

Apart from the provisions of CAMA, to sustain good corporate governance

and accountability, other legislation include29 Securities and Exchange Commission

Code 2003; The Code of Corporate Governance for Banks in Nigeria Post-

Consolidation issued by the Central Bank of Nigeria 2014. (CBN); National

Insurance Commission (NAICOM); the National Pension Commission (PENCOM)

and Financial Reporting Council of Nigeria (FRCN).

26 A. O. Atu, The Role of Audit Committee in Financial Reporting 43(2) THE OFFICIAL JOURNAL OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA. ( April/June 2010), 46-52. 27 A. Olowokure, A Case for Audit Committee in Nigeria, 41(2) THE OFFICIAL JOURNAL OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA. Lagos, 1989 pp. 35-45 28 Cap C.20 Laws of the Federation of Nigeria 2004. 29 O. Nat, An Appraisal of Audit Committees of Public Companies in Nigeria, Available online at http//ssm.com/abstract=1641603 (Accessed on20/08/2013).

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III. THE REQUIREMENT OF AUDIT COMMITTEE UNDER

NIGERIAN LAW

A requirement of the Nigerian CAMA is the introduction of audit

committees as an additional layer of control and certification in the bid to make

annual accounts of public corporations more acceptable and reliable.30 Prior to the

enactment of the CAMA in 1990, the only statutory requirement for the certification

of annual accounts of public corporations in Nigeria was the provision that such

account is audited by external auditors.31 The idea of appointing external auditors

arose in the quest to find more efficient ways of promoting accountability in

complex organisations where management interests could differ from shareholders’

interests. Initially the focus was on explicitly spelling out the characteristics of

auditors in order to ensure their independence and competence.32 The law usually

stipulates that external auditors should be appointed by shareholders and report to

shareholders at annual general meetings, the independence of external auditors was

further enhanced by the fact that their reports were treated as professional opinions

and thus attracted some degree of liability in the event it is shown that they have

been negligent in the conduct of their duty.33 Over time, however, various

accounting and reporting scandals have led to corporate failures and

embarrassments. This has led to the questioning of the very concept of auditor

independence. Although the law usually provides that auditor should be appointed

by shareholders in annual general meetings, the reality is somewhat different. In

practice, annual general meetings are no more than rubber stamps for a board

decision on such matters. Within the board itself, executive directors usually have

an upper hand since they deal with auditors on a day to day basis. Under such

circumstances, the ability of such external auditors to remain truly independent,

especially if there is a need to express reservations about management’s accounting

policies is whittled down.

The idea, thus, developed that accountability will be enhanced if a

subcommittee of the board: audit committee, comprising only of independent

directors, be appointed to act as an arbiter between external auditors and

management.34 The assumption is that such a committee is more likely able to

protect interest of the shareholders.35 This has been the guiding principle behind the

establishment and codification in the laws of the audit committee requirement all

30 A. Al-Twaijry, J. Brierley, and D. Gwilliam, An Examination of the Role of Audit Committee in Saudi Arabian Corporate Sector, 10(4) CORPORATE GOVERNANCE (2002) pp.288-297. 31 D. Archambeault, and F. T. DeZoort, Auditor Opinion Shopping and the Audit Committee: An analysis of suspicious Auditor SWITCHES INTERNATIONAL JOURNAL OF AUDITING, 5(2001), pp.33-52 32J. Armitage, and r. Bradley, Audit Committee, THE NIGERIAN ACCOUNTANT JOURNAL (1994) Jan-March pp.3-5. 33 D. SASEGBON, NIGERIAN COMPANIES AND ALLIED MATTERS LAW AND PRACTICE, vol. 1 Lagos, DSC Publishing Ltd., Lagos (1991) pp.588-9 34 R. Buckly, R. Audit Committee: Their role in UK Companies, INSTITUTE OF CHARTERED ACCOUNTANTS OF ENGLAND AND WALES (1979) pp.35-50. 35 E. Ogbuagu, and U. Chibuike, Audit Committee in Nigeria, JOURNAL OF CORPORATE OWNERSHIP OF CONTROL (6) 3 (2009) p.117

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over the world. Thus, effective corporate governance has become the heartbeat of

world economies. The recent business and governance failures demonstrated that a

great step in corporate governance restructuring is a must.

Corporate governance mechanism involves the shareholders, board of

directors, management, internal and external auditors. The board of directors and

shareholders are not directly involved in the day to day running of the organisation

and thus appoints an audit committee to bridge the gap. The use of audit committee

has become more relevant in modern day corporate governance and most developed

and developing economies have introduced more conditions that will make the audit

committee more effective. An effective audit committee will enhance effective,

reliable, efficient and dependable corporate governance. The financial report of such

an establishment becomes more reliable for investment decisions and policy

formulation.

It is not certain as to the date and time that audit committee was first used in

Nigeria, what is sure is the fact that audit committee was first given statutory

recognition by section 359 (3)36 it provides for the establishment of the audit

committee. Section 359 (4)37 provides for the composition and function of the audit

committee as follows:

the audit committee shall consist of an equal number of directors and

representatives of the shareholders of the company subject to a

maximum number of six members and shall examine the auditors

report and make recommendation thereon to the annual general

meeting as it may think fit.

Apart from the provisions of CAMA creating the audit committee, the

Securities and Exchange Commission Code 200338 (hereinafter referred to as SEC)

states that every public company is required under section 359 (3) and (4) of CAMA

to establish an audit committee. It states further that it is the responsibility of the

Board to ensure that the committee is constituted in the manner stipulated and is

able to effectively discharge its statutory duties and responsibilities. At least one

member should have knowledge of accounting or financial management. It stated

further in section 30(2)39 that members of the committee should have basic financial

literacy and should be able to read financial statements. In section 30(3) it states that

whenever necessary the committee may obtain external professional advice. Similar

provisions that deal with the role of the audit committee is also contained in the

CBN Codes of Corporate Governance in para 2.5(1)40 Central Bank of Nigeria Code

of Corporate Governance 2014 (hereinafter referred to as CBN Code), the National

Insurance Commission 2014 (hereinafter referred to as NAICOM) in para 7.0, 7.01

and 7.02.41 The wide acceptance of audit committee suggests their importance as

36 CAMA 37 CAMA 38 SEC Code 30 (1) 39 Sec Code 2003 40 CBN Code of Corporate Governance 2014 41 NAICOM Code of Corporate Governance 2014.

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part of corporate accountability and transparency, where audit committees are

expected to serve as the watchdog of stakeholders.

An efficient audit committee plays a pivotal role in ensuring credibility in

the preparation and presentation of financial statement reports. To achieve this

efficiency such audit committee must be independent of the board. According to the

Treadway Commission,42 the independence of audit committee helps to ensure that

management is transparent and will be held accountable to stakeholders where they

fail in their duties. It is expected that independent audit committee members will be

more objective and less likely to overlook possible deficiencies in the

misappropriation and manipulation of financial reporting. Klein43 posited that the

independence of audit committee increases with board size and board independence.

To be an effective independent overseer, the audit committee must be positioned

between senior management and the external auditors.

This organisational structure allows the audit committee to question

management’s judgement about financial reporting matters and to suggest

improvements in the internal control systems. The committee’s charter defines its

mission, duties, and responsibilities; plans its annual agenda and documents its

findings and conclusions. Apart from the independence of an audit committee, its

financial expertise plays a dominant role in their being efficient. The appointment

of members of the audit committee with accounting and financial literacy, will have

greater interactions with their internal auditors and are less likely to have problems,

they are equally more likely to understand the external auditors and support the

auditors in conflict situations with management. The efficiency and effectiveness of

the audit committee towards ensuring corporate accountability are further enhanced

with regular attendance of meetings by the members, since the number of audit

committee meetings is an indication of audit committee effectiveness. Bryan44

posited that the audit committee that meets regularly improve the transparency and

openness of reported earnings and therefore improves earnings quality. Other

requirements of the audit committee under Nigerian law necessary to promote

corporate accountability are the size and the composition of the audit committee.

This is the focus of the next section.

IV. SIZE AND COMPOSITION OF AUDIT COMMITTEE OF THE

BOARD OF DIRECTORS

To secure good corporate governance and accountability, requires an

efficient and effective audit committee team in place. This is further affected by the

size and composition of the audit committee of the board. The size and composition

of the audit committee will largely depend on the size of the company, the size of

the board, the nature of business activities of the company, policies of the company

and the financial base of the company. There is no universal acceptable template on

42 Treadway Commission Report of the national commission on fraudulent financial. American Institute of Certified Public Accountants. New York 1987. 43A. Klein, Audit Committee, Board of Directors characteristics and earning Management, 33(3) JOURNAL OF ACCOUNTING AND ECONOMICS, 129-150 44 D. Bryan, M. Liv, The influence of Independent and effective audit committee on earning quality, working paper State University of New York Buffalo (2005), p. 23

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the size and composition of the audit committee. The appropriate size and

composition are further discussed below.

(a) The Size of the Audit Committee of the Board of Directors.

To perform effectively and efficiently, the size of the audit committee must

be at an optimal level. What constitutes an optimal size of the audit committee has

been a subject of debate all around the globe. The size must not be too large as larger

audit committee members risk a delay in decision making. Neither should it be too

few as that may narrow the scope of expertise view. Hackman45 argues that

“excessive size is one of the most common and also one of the worst impediments

to effective collaboration, small teams are more efficient and far less frustrating.” It

has been argued that where a large audit committee member exists, it is likely that

possible challenges emanating from financial reporting task have the likelihood of

being exposed and settled.46 Lipton47 remarked that the ability of the audit

committee oversight function rises when the figure of its membership increases.

Similarly, Mansi48 noted that an audit committee size that is large spends a

considerable period and means to check the financial reporting process and internal

control mechanisms. Further, Yermack49 posited that a lesser audit committee

magnitude improves on firms’ worth. This stand corresponds with Jensen’s assertion

that a small sized audit committee enhances the efficiency with which the audit

committee engages in oversight and control.50 The views argued by the above

scholars represents the fact that the audit committee should not be too large in size.

As there is no universal template on what the optimum size of the audit

committee should be, different jurisdictions formulate what number could constitute

the size of the audit committee. In the US no particular number was given; rather

the Sarbanes-Oxley Act stipulated that all members must be independent outside

directors with at least one qualifying as a financial expert. In the UK, under the

Corporate Governance Codes,51 it states that listed Company Boards in the UK

should establish an audit committee of at least three, or in the case of smaller

companies’ two, independent non-executive directors. In smaller companies the

company chairman may be a member of, but not chair, the audit committee in

addition to the independent non-executive directors, provided he or she was

considered independent on appointment as chairman. In Nigeria, section 359 (4)52

45 J. R. Hackman, Six common misperceptions about team work, HARVARD BUSINESS REVIEW (2011) p.3. 46A. Mohammed, M. N. Nor, et all, Corporate Governance and Audit Report Lag in Malaysia, ASIAN ACADEMY OF MANAGEMENT JOURNAL OF ACCOUNTING AND FINANCE. 6(2)(2010), 51-84. 47M. Lipton, and J. Lorsch, A Model Proposal for Improved Corporate Governance BUSINESS LAWYER, 48(1) (2011) 59-77. 48 S. Mansi, and D. M. Reeb, Board Characteristics, Accounting Report Integrity and the cost of Debt, JOURNAL OF ACCOUNTING AND ECONOMICS 37 (3) (2004) 11-20. 49 D. Yermack, Higher Market Valuation of Companies with small Board of Directors. JOURNAL OF FINANCIAL ECONOMICS. 9(3) (1996), 295-316. 50M. Jensen, Modern Industrial Revolution, Exist and Failure of Internal Control System, JOURNAL OF FINANCE. 48(3) (1993), 831-880. 51 UK Codes of Corporate Governance provision C.3.1. 2016. 52 CAMA .

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states that the audit committee shall be made up of an equal number of directors and

shareholders of the same public company subject to a maximum of six members.

Globally, there is no agreed size of audit committee, different jurisdictions

adopt what best suits them as there is no universal template to determine an optimum

size of the audit committee. Factors such as the size, the nature of business activities,

the funding requirements and availability should also be put into consideration while

determining the optimum size of the audit committee team. Apart from the size of

the audit committee, the composition of the audit committee is another factor worthy

of discussion. The next section shall examine the composition of the audit

committee.

(b) The Composition of the Audit Committee.

The efficiency and effectiveness of the audit committee to ensure

transparency, good corporate governance and accountability, to a larger extent,

depend on how well the audit committee is composed, in terms of the independent

non- executive outside directors and the executive directors of the company. Since

the independent non-executive outside directors usually act as monitors of the

executive management thereby enhancing their independence to perform credibly,

it, therefore, follows that an audit committee with more independent non-executive

members will promote transparency and good corporate governance.

In the US a qualified audit committee is required for listed publicly traded

companies. To qualify, the committee must be composed of independent outside

directors with at least one qualifying as a financial expert. Accordingly, the Audit

Committee Charter53 provides for the composition of the audit committee in the US.

Based on the charter, the audit committee of the board of directors shall be composed

of at least three, but not more than five members of the Board, each of whom shall

meet the independence and other qualification requirements of the New York Stock

Exchange, Sarbanes-Oxley Act of 2002 and all other applicable laws and

applications. Each member of the audit committee shall be financially literate and at

least one member of the audit committee shall have accounting or related financial

management expertise, as each such qualification is interpreted by the Board of

Directors in its business judgement. To the extent practicable, at least one member

of the audit committee shall be an ‘audit committee financial expert’ as such term is

defined by the SEC, in its rules and regulations. The number of members of the

Audit Committee shall be determined from time to time by resolution of the board

of directors. The members of the Audit Committee and its Chairperson shall be

nominated by the Corporate Governance Committee and elected by the Board.

This blue print on the composition of the audit committee sets a standard for

the composition of the audit committee in the US. It represents a comprehensive

requirement for members of the audit committee. This was the fall out of the collapse

of one of the biggest corporate entities in the US (The Enron Plc.).

53 The United States of America Audit Committee Charter 2003.

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In the UK, the Audit Committee composition is provided for by the Code of

Corporate Governance.54 It states that

the Board should establish an Audit Committee of at least three, or in

the case of smaller companies’ two, independent non-executive

directors. In smaller companies the company chairman may be a

member of, but not chair, the audit committee in addition to the

independent non-executive directors, provided he or she was

considered independent on appointment as chairman.

The Board should satisfy itself that at least one member of the audit

committee has recent and relevant financial experience. The appointment of the

audit committee should be made by the Board55 on the recommendation of the

nomination committee, in consultation with the audit committee chairman. The

appointment should be for a period of up to three years, extended by no more than

two additional three years periods, so long as member continue to be independent.56

In both the US and the UK specification as to the minimum and maximum members

to compose of the committee was well spelt out. The qualifications and other

requirements such as financial literacy and majority of whom shall be independent

non-executive directors to be met are clearly stated. The fulfilment of these basic

requirements in appointing the members of this committee, by implication, is very

germane to the enhancement of the audit committee independence, efficiency and

effectiveness towards achieving good corporate governance accountability and

transparency.

In Nigeria, section 359 (3)57 made it mandatory for public companies in

Nigeria to establish audit committees, section 359 (4)58 states the composition of the

audit committee as follows:

it shall consist of an equal number of directors and representatives

of the shareholders of the company subject to a maximum of six

members and shall examine the auditor’s report and make

recommendations thereon to the annual general meeting as it may

think fit.

The above provision appears not clear enough in terms of the qualities and

qualification of members of the audit committees of the board. That apart, the word

‘equal number of directors and representatives of the shareholders’ appears too vague

to comprehend given the enormous task required of the members of the audit

committee. The composition of the audit committee is a fundamental issue that seeks

to enhance the success of Financial Reporting Standards and Disclosure requirements

of any business entity. If it is not well composed the consequence is that the attainment

54 Financial Reporting Council Guidance on Audit Committee. Para 2.3 55 Id. at para. 2.4 56 Id. at para. 2.5 57 CAMA. 58 CAMA.

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of good corporate governance and accountability will be in jeopardy. The provision

of CAMA on the composition of the audit committee, when compared to other

jurisdictions are far from meeting international best practices with regard to

qualifications and qualities of the members of the committee.

Given the above composition of the audit committee in the US, UK and

Nigeria, while in both US and UK, the manner in which the audit committee will be

composed was stated specifically, the composition of the audit committee in Nigeria

appears to be too general and not specific. The appointment could be politicised

thereby sacrificing merit for mediocracy. It is suggested that the law regulating the

appointment of the members of the audit committee should be reviewed in such a way

that there should be majority of independent non-executive directors as members of

the committee, at least one of the members of the committee must be financially

literate, (having knowledge of financial transactions), the committee should appoint a

chairman from the independent non-executive directors. The composition of the audit

committee, in this manner, will enhance the independence of the committee thereby

instilling discipline in the activities of the board which will in turn promote good

corporate governance transparency and accountability in line with international best

practices.

V. DUTIES AND FUNCTIONS OF AUDIT COMMITTEE IN NIGERIA.

The duties and functions of the audit committee are provided for by statute

and Codes of Corporate Governance. The articles of association of a company may

also state the functions of the audit committee. These functions contained in the

articles of association vary from one organisation to another. By implication, it is

not possible to have a single template of what the duties or functions of the audit

committee can look like under the articles of association of a company.

(a) Statutory Duties and Functions of Audit Committee.

In Nigeria, the statutory functions of the audit committees are as stipulated

in Section 359(6) of the CAMA provides as follows:

Subject to such other additional functions and power that the

company’s Articles of Association may stipulate, the objectives and

functions of the audit committee shall be to: Ascertain whether the

accounting and reporting policies of the company are in accordance

with legal requirements and agreed ethical practices; Review the

scope and planning of audit requirements; Review the findings on

management matters in conjunction with the external auditor and

departmental responses thereon; Keep under review the

effectiveness of the company’s system of accounting and internal

control; Make recommendations to the board in regards to the

appointment, removal and remuneration of the external auditors of

the company; and Authorise the internal auditor to carry out

investigations into any activities of the company which may be of

interest or concern to the committee.

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These duties demand a high sense of responsibilities. It puts upon the audit

committee the responsibilities of the board in preparing credible, accurate and

reliable financial statements. For example, under section359 (6) (a)59 the objectives

and functions of the audit committee shall be to “ascertain whether the accounting

and reporting policies of the company are in accordance with legal requirements and

agreed ethical practices.” These financial reporting standards are stated in the

CAMA Section 33160 states that “the company must keep proper accounting records

sufficient to show and explain the transaction of the company.” Under section 332,61

the audit committee must ensure that “accounting records of the company shall be

kept at its registered office address in Nigeria or such place as the director thinks fit

but shall at all times be open to inspection by officers of the company”. In a nutshell,

the purport of section 359 (6) (a)62 is to the effect that the audit committee of a

company is to that ensure all the company’s accounting and financial reporting

standards and policies contained in sections 331-356 of the CAMA are complied

with. These cover the preparation and publication of financial statements, auditors

reports, balance sheets, profit and loss accounts, directors reports, each made to the

general meetings, board of directors, Corporate Affairs Commission, Financial

Reporting Council of Nigeria, other regulatory authorities designated by the

Minister such as Securities and Exchange Commission and Pension Board.

Further, section 359 (6) (b states that the audit committee shall “review the

scope and planning of audit requirements.” This provision means that the audit

committee is also to supervise the scope and planning of all audit requirements of

the company. These requirements are generally stated in the CAMA Section 35763

provides that “every company shall at each Annual General Meeting (AGM) appoint

an auditor or auditors to audit the financial statements of the company and to hold

office till the next AGM”. The company is also to give notice of appointment to the

Corporate Affairs Commission. Section 358,64 list of the qualifications of auditors

to be considered as members of the audit committee for appointment to include (a)

he is a member of a body of accountants in Nigeria established from time to time by

the Act (Institute of Chartered Accountants of Nigeria (ICAN) or Association of

National Accountants of Nigeria) (ANAN); (b) he is not an officer or servant of the

company; (c) he is not a partner or in employment of an officer of the company or

renders professional advice in a consultancy capacity in respect of secretarial,

taxation or financial management; (d) a body corporate whose auditor shall not be

regarded as either an officer or servant of it. Section 35965 states that the auditor of

the company shall make a report to its members on accounts examined by them on

every balance sheet, profits and loss accounts and all group financial statements

which are to be laid before the company in AGM during the auditor’s tenure. In the

59 CAMA. 60 CAMA. 61 CAMA. 62 CAMA. 63 CAMA. 64 CAMA. 65 CAMA.

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case of a public company, the auditor shall make a report to the audit committee

which shall be established by the company.

In addition, section 36166 states that the audit committee is to monitor the

remuneration of the auditors especially if appointed by the directors. By virtue of

section 36267, audit committee shall monitor the removal by ordinary resolution of

auditors before the expiration of their tenure. The audit committee must ensure the

compliance with the provisions of sections 363-368 of the CAMA which deals with

the notification of meeting and presence of the auditor at the AGM,68 requirement

of a special notice for a resolution at AGM to appoint a person as an auditor other

than a retiring auditor, fill a casual vacancy, or re-appoint an auditor69; the

resignation of an auditor70; the calling for an Emergency General Meeting by the

Auditor to discuss the resignation of the auditor before the expiration of his tenure71;

the auditor shall in the performance of his duties exercise all such care, diligence

and skill as is reasonably necessary for each circumstance72. Where the company

suffers loss or damages as a result of the failure of the auditor to discharge the

fiduciary duty imposed on him by the law, such auditor shall be liable. In all these

transactions the audit committee must be involved to ensure fairness and

transparency in the management of the affairs of the company and boosting the

independence of the auditor of the company. Further, in section 357,73 the audit

committee are to supervise and monitor the appointment of auditors, evaluate their

qualifications, examine their functions of examining the accounts of the company,

every balance sheet and profit and loss account, ensure that auditors discharge their

functions and finally ensure that the procedure for fixing their remuneration is in

accordance with the laid down procedure of the company.

The task of the audit committee is a herculean one that requires a person of

skill, diligence and carefulness, a person having independence as an attribute, not

biased or tainted with incredibility. The audit committee has contributed towards the

entrenchment of financial reporting standards and the establishment of corporate

democracy, it has fortified the internal and external accounting procedure, financial

reporting standards, disclosure requirements standards, assisted regulators beam

searchlight on corporate finances, ensure internal and external auditors are

supervised and monitored, ensure the company makes regular statutory returns. The

result inherent in the duties of the audit committee is that, it has helped in

strengthening good corporate governance and accountability.

66 CAMA. 67 CAMA. 68See section 363 CAMA. 69 Section 364 CAMA. 70 Section 365 CAMA. 71 Section 366 CAMA. 72Section 368 (1) CAMA 73CAMA.

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Other statutory bases for audit committee functions are the companies

Income Tax Act74, Value Added Tax Act75, Petroleum Profit Tax Act76, and the

Federal Inland Revenue Service Act77. The audit committee is also to supervise the

scope and planning of all tax requirements of the corporate company under various

tax Acts in Nigeria. There are several types of taxation laws applicable to Nigerian

Companies namely, Company Income Tax Act (CITA), Petroleum Profit Tax Act

(PITA), Federal Inland Revenue Service (Establishment) Act, (FIRS), Value Added

Tax Act (VAT), Education Tax Act (ETA), Capital Gains Tax Act (CGTA) ETC.

Under the CITA, all operating companies in Nigeria are assessable to tax including

private and public companies at the rate of 30%. Of taxable profit. The above tax

laws provide laws and regulations for financial reporting disclosures and accounting

practices in various forms to the FIRS. Audit committees have the responsibility to

coordinate these financial reporting standards within and outside the company.

Audit committees are also to regulate tax financial compliance requirements for

International Financial Reporting Standards (IFRS) compliant companies.

Apart from the statutory provisions on the functions of the audit committees,

there are also provisions of Codes of Corporate Governance which stipulate the

duties and functions of the audit committee.

(b) Duties/ Functions of the Audit Committees under the Codes of

Corporate Governance.

The audit committees of board of directors are also regulated by the

provision of the Securities and Exchange Commission Codes of Corporate

Governance in Nigeria (hereinafter referred to as SEC Code). Section 9 (1) (2) of

the SEC Code states that “the Board of a public company should determine to what

extent to which its duties and responsibilities should be undertaken by committees.

It should determine the number and composition of committees ensuring that each

committee comprises of the relevant skills and competences and that its members

devote sufficient time to the committee’s work…” Under clause (2) of section9,78

“the Board may in addition to the audit committees required by CAMA establish a

governance/remuneration committee and a risk management committee and such

committee as the Board may deem fit.” Section 30(1)79 provides for the

establishment of the audit committees as stated in section 359 (3) (4).80

The Board is to ensure that the audit committee is properly constituted and

discharges its duties and responsibilities properly. This power vested in the board is

to enhance the achievement of good corporate governance, transparency and

accountability and at the same time boost the independence of the audit committee

in the course of performing their functions. Section 30 (4)81 lists the statutory

74 Cap C 59 LFN. 2004. 75 Cap V-1 LFN. 2004. 76 Cap P 13 LFN. 2004. 77 Section (1) and (2) FIRS Act 2007. 78 SEC Codes of Corporate Governance 2014. 79 SEC Codes of Corporate Governance 2014. 80 CAMA. 81 SEC Codes of Corporate Governance 2014

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functions of the audit committees to include the following: the audit committee is to

assist in the overall integrity of the company’s financial statements, compliance

with legal and other regulatory requirements, assessment of qualification of external

auditors and the performance of the internal and external auditors. The audit

committee complimentary effort towards achieving transparency and accountability

is very vital in the sense that they act as a catalyst to the enhancement of checks and

balances on the board the internal and external auditors.

Other functions under the SEC Codes include: establish and monitor the

internal audit functions of the company; develop an internal audit framework;

oversee management fraud risks by putting in place adequate detection, prevention

and reporting mechanisms; evaluate the internal auditor’s report at least annually;

discuss annual audited statements, half yearly statements; discuss risk assessment

and management policies; meet regularly with management and internal and

external auditors; ensure adequate ‘whistle blowing’ procedure is in place; ensure

there are no limitations in the scope of external Auditors tasks; review the

independence of external auditors and ensure there are no conflicts of interest; set

clear hiring policies for hiring of external auditors and preserve auditors

independence; invoke the authority to investigate any matter including assisting

external auditors; consider party related issues and finally reporting to the Board

regularly.82 The functions of the audit committee, as provided by the SEC Codes of

Corporate Governance, are similar to the functions under CAMA except in some

few cases like the idea of whistle blowing and conflict of interest being introduced.

The fact remains that the tasks of the audit committees under CAMA and SEC Codes

appear quite enormous and challenging. It requires people of high integrity,

commitments, firm and courageous ability. The appraisal of the role of audit

committee in securing corporate accountability in Nigeria, is another factor that can

enhance the efficiency and effectiveness of the audit committee towards achieving

good corporate governance and accountability. Hence the next section will examine

the role of the audit committee towards achieving good corporate governance and

accountability.

VI. AN APPRAISAL OF THE ROLE OF THE AUDIT COMMITTEE IN

SECURING CORPORATE ACCOUNTABILITY IN NIGERIA

Audit committees play a very important role in the financial aspects of

governance as they help ensure audit quality while at the same time protecting the

interest of investors. An x-ray of the ideal usefulness of the audit committee and the

factors that tend to diminish their importance to good corporate governance and

accountability in Nigeria, is being appraised in this section.

(a) Ideal Usefulness of Audit Committee.

Over the years, the emphasis has been laid on the role of the audit committee

towards the attainment of board efficiency, protecting the shareholders interest and

increasing the public confidence on Financial Reports. The audit committee is

arguably the most important of the board sub-committees. As a tool of the board of

82 Id.

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directors, the audit committee plays a very significant role in corporate governance.

Locatetelli argues that the audit committee can be very effective not only in

providing objective oversight of the accounting of an organisation, but also in

helping to set an ethical ‘tone at the top.’83 To do this, there is a need to strengthen

and equip the audit committee team established by an organisation. Similarly, the

Smith Report84 focused on improving the effectiveness of mechanisms such as the

audit committee. While all directors have a duty to act in the best interests of the

company, the audit committee has a particular role, acting independently from the

executive, to ensure that the interests of shareholders are properly protected in

relation to financial reporting and internal control.85 The Report86 emphasised the

essential role that the audit committee should play in ensuring the independence and

objectivity of the external auditor, as well as in the monitoring of the company’s

management.

Further, it provided detailed guidance on the role of the audit function:

the main role and responsibilities of audit committees should be

to monitor the integrity of companies’ financial statements;

review companies’ internal financial control systems; monitor

and review the effectiveness of companies’ internal audit

functions; make recommendations to the board in relation to the

appointment of the external auditor and approve the

remuneration and terms of engagement of the external auditor;

monitor and review the independence, effectiveness and

objectivity of the external auditor; develop and implement policy

on the engagement of the external auditor to supply non-audit

services.

Similarly, Williams87 stated that the audit committee can enhance, if not

ensure the credibility of corporate financial reporting. To him, “an informed and

vigilant audit committee represents one of the most effective influences for

minimising fraudulent financial reporting.” Effective audit committee enhances the

credibility of annual audited financial statements and thus assist the board of

directors which is charged with safeguarding and advancing the interests of

shareholders.88 The existence of an effective audit committee also benefits the

external auditor. An audit committee of outside directors enhances auditors’

independence and effectiveness and allows more extensive exploration of problems.

83M. Locatelli, Good Internal Control and Auditor Independence. 72 (10) CPA JOURNAL (2002), 12-15 84 Smith Report, 2003. p 6, para 2.1 85 C. A. MALLINE, CORPORATE GOVERNANCE. Oxford University Press London 2004 p.128. 86 id. 87H. William, Audit Committee- the public sector’s view JOURNAL OF ACCOUNTANCY (1977) 156 pp.71-74 88 A. Alchian, and H. Demsetz, Production, information, costs, and economic organisation, AMERICAN ECONOMIC REVIEW (1972), pp. 777-795. See also E. F. Fama, and M. C. Jensen, Separation of ownership and control, JOURNAL OF LAW AND ECONOMICS. (1983). pp. 301-326.

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As part of their oversight function, audit committee asks questions of both

auditors and management, and thus, may reduce the risk of material errors in the

financial statements by providing an information flow among the board of directors,

external auditors, internal auditors and company management. Audit committees are

identified as effective means for corporate governance that reduce the potential for

fraudulent financial reporting. Audit committees oversee the organisations’

management, internal control and external auditors to protect and preserve the

shareholder’s equity and interests. For example, the audit committee should require

periodic written reports from the internal audit department.89 These reports should

describe the audit work performed, and summarise any significant issues, including

internal control weaknesses. More importantly, the internal audit reports should

make recommendations for improvements in controls or procedures, and document

management responses to each recommendation. Audit committee members should

ask probing questions about these and any other matters until they are satisfied with

the answers.90 The audit committee are usually referred to as the committee of the

board. They are usually appointed by the board of directors. The Board of directors

outline the duties, authority and responsibilities of their audit committee. Audit

committee provide vital oversight of the corporation’s financial reporting system in

a process that is independent of management. The audit committee are thus a tool in

the hands of the Board to enhance proper functioning of the corporate entity towards

achieving good corporate governance and accountability.

Similarly, Al-Baidhani91 argues that to ensure effective corporate

governance, the audit committee report should be included annually in the

organisation’s proxy statement, stating whether the audit committee has reviewed

and discussed the financial statements with the management and the internal

auditors. To him, this will serve as a corporate governance monitor and as a means

of providing the public with a correct, accurate, complete and reliable information.

The scope of the internal function is determined by the audit committee. One of the

main responsibilities of the audit committee is to enhance and maintain the internal

auditor’s independence in order to enable them to achieve their duties. The internal

auditor and management provide the audit committee with the necessary

information to enable the audit committee to accomplish oversight and monitoring

mission. On the other hand, audit committee supports the position of the internal

audit function and submits management’s irregularities and other relevant

managerial and financial issues to the board of directors after discussing such issues

with internal auditors and relevant other parties. In this role, the audit committee

seeks to check the abuse of power by the management team. The audit committee is

also concerned with recruiting and terminating the head of the internal audit, and the

frequency and duration of the meetings with the internal auditors, as well as ensuring

that auditors, especially their head, can communicate directly with the audit

committee anytime. Thus the audit committee’s meeting with the head of the internal

89 id. 90 id. 91 A. M. Al-Baidhami, The Effects of Corporate Governance on Bank Performance Corporate Ownership & Control. http//ssm.com/abstract=2284814 (accessed 14th February 2014)

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audit enhances the independence of the internal audit function, supporting the

parties’ discussion about management’s errors irregularities, violations and fraud.

Furthermore, Lindsell,92 observed that “the clamour for the formation of

audit committees around the world shows the relevance of the audit committee as a

governance mechanism.” To him, the audit committee, is a mechanism of corporate

governance to check the quality, credibility, and objectivity of financial reporting; it

performs an oversight function in the financial reporting process and communicates

to users through a report in the financial statements. He opined further that this

committee has a monitoring responsibility for management and external auditors

alike. They are therefore intermediaries or watchdogs. The audit committee,

according to Solomon,93 is also viewed as a standing committee established to

enhance corporate accountability by working with the internal auditors and

management to improve and strengthen the financial reporting practices of an entity

and ensure proper conduct of corporate affairs in accordance with generally accepted

ethical and legal standards.

Moreover, since audit committee members are voted for by shareholders

they indirectly link the organisation to investors and other users of financial

statements. To this extent, the audit committee is considered monitoring

mechanisms that link the various groups involved in the financial reporting process

in order to improve the quality of financial reporting which ironically, is a panacea

to good corporate governance and accountability.

Although the law usually provides that audit committee should be appointed

by shareholders in annual general meetings, the reality is somewhat different. In

practice, annual general meetings are no more than rubber stamps for a board

decision on such matters. Within the board itself, executive directors usually have

an upper hand since they deal with audit committee members on a day to day basis.

Under such circumstances, the ability of such committee members to remain truly

independent, especially if there is a need to express reservations about

management’s accounting policies is whittled down. To this extent therefore the

audit committee independence is affected.

Significantly, the Smith Report highlighted the need for the audit committee

to be proactive, raising issues of concern with directors rather than overlooking the

issue. The Report stressed that all members of the audit committee should be

independent non-executive directors. Companies’ annual reports should disclose

detailed information on the role and responsibilities of their audit committee and

action taken by the audit committee in discharging those responsibilities. The audit

committee can be regarded as a standing committee established to enhance corporate

accountability by working with the internal auditors and management to improve

and strengthen the financial reporting practices of an entity and ensure proper

conduct of corporate affairs in accordance with generally accepted ethical and legal

standards.

92 D. Lindsell, Blueprint for an effective audit committee. ACCOUNTANCY JOURNAL, 110 (1992), p.104. 93J. SOLOMON, CORPORATE GOVERNANCE AND ACCOUNTABILITY John Wiley and Sons, Ltd. Publishers UK. (2009) P.43

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Given this expanded idealistic role of the audit committee, the question is

the extent to which these ideals have been reflected in Nigerian Laws, and more

importantly, practised in Nigeria in achieving the goals of securing good corporate

governance and accountability.

(b) Appraisal of Laws and Practice of Audit Committee in Nigeria.

Basically, the enactments and codes regulating the practice of audit

committee in Nigeria is the CAMA, the regulation of the Financial Reporting

Council of Nigeria Act Code of Corporate Governance 2016 (hereinafter referred to

as FRCN Code)94, the SEC Code, NAICOM Code and PENCOM Code. Nigeria has

witnessed a series of corporate collapse and related frauds that have raised doubts

about the credibility of corporate governance in the country. There have been several

instances of mismanagement which have led to diminished corporate values and

reduction in shareholders wealth. For example, the audit failure in Cadbury (Nig.)

Plc in 2006, the bank’s failure in 2009. Despite the provisions of the laws and the

various codes of corporate Governance available in Nigeria to regulate the practice

of audit committee in Nigeria, corporate failures resulting from the corporate abuse

of powers still persist. Accordingly, Okaro,95 argued that despite the fact that this

provision has been in existence for more than fifteen years, its utility value especially

with respect to enhancing the information value and credibility of financial accounts

remain suspect. It is not immediately clear whether these corporate abuses arise as

a result of weak regulatory measures that are meant to prevent their occurrences.

The fact that these challenges have occurred despite the existence of the CBN

Corporate Code for banks 2007, the Corporate Governance Codes for Public

Companies in Nigeria 2011, the FRCN Codes of Corporate Governance 2013, the

Companies and Allied Matters Act 1990 and other regulatory corporate

mechanisms, may appear to suggest otherwise. The continuous occurrence of

corporate abuses despite the existence of these regulatory mechanisms may suggest

that either the existing regulatory framework is insufficient or that their enforcement

and implementation process have not been satisfactory. The search for a mechanism

to ensure reliable and high-quality financial reporting has largely focussed on the

structure of audit committees whose function is to oversee the financial reporting

process and to audit financial statements.

A series of well-publicised accounting scandals around the world prompted

the US congress to pass the Sarbanes-Oxley Act (hereinafter referred to as SOX), in

2002. In line with congressional efforts, the New York Stock Exchange (NYSE) and

the National Association of Securities Dealers Automated Quotations (NASDAQ)

adopted new corporate governance rules for exchange-listed firms which were

approved by the Securities and Exchange (SEC) in 2003. Person96 observed that

both SOX and the new corporate governance rules of the NYSE and NASDAQ

emphasised greater independence and effectiveness for the board of directors and

audit committee. Similarly, in the UK, the Robert Maxwell’s Corporate Abuse in

94 Para 8,4 FRCN code 95 S. C. Okaro, Empowering the Audit Committee for more Effective Role in Corporate Governance NIGERIAN JOURNAL OF MANAGEMENT SCIENCES (2001) p.157 96 Id.

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1991, the failure of barring’s Bank, fraudulent practices, conflict of interest and lack

of transparency in Financial Reporting by directors led to the setting up of the Adrian

Cadbury Committee in 1991.

It is against this background that an appraisal of the law, the codes of

Corporate Governance and the practice of audit committee itself in Nigeria is

appraised. The law provides for the establishment of an audit committee by each

public company in Nigeria. Specifically, the audit committee is charged with the

following responsibilities: to ascertain whether the accounting and reporting policies

of the company are in accordance with legal requirements and agreed ethical

practices; to review the scope and planning of audit requirements; review the

findings on managements matters in conjunction with external auditors and

departmental responses thereon; keep under review the effectiveness of the

company’s system of accounting and internal control; make recommendation to the

board in regard to the appointment, removal and remuneration of the external

auditors of the company and; authorise the internal auditor to carry out investigation

into any activity of the company which may be of interest or concern to the

committee.97

Section 359(4)98 further requires “the audit committee to examine the

auditor’s report and make recommendation thereon to the annual general meeting as

it may deem fit.” It is this provision that appears to be the basis for an audit

committee report which is found on the accounts of all public companies in Nigeria.

A standard format/sample of Audit Committee Report will read thus: in compliance

with section 359(6), we have (a) reviewed the scope and planning of the audit

requirements (b) reviewed the external Auditors’ Memorandum of

Recommendations on Accounting Policies and internal control together with

management responses (c) ascertained that the accounting and reporting policies of

the company for the year ended 30th June XXXX are in accordance with legal

requirements and agreed ethical practices. In our opinion, the scope and planning

of the audit for the year ended 30th June XXXX were adequate and the Management

Responses to the auditors’ findings were satisfactory.

Such reports trigger a number of concerns. First, it raises a fundamental legal

question. It could for instance be legitimately asked if such reports can be relied

upon by shareholders and investors and if so whether audit committee members can

be held liable for the opinion so expressed in such reports? This question is

particularly pertinent given the fact that the CAMA imposed civil liability on

external auditors whose reports and procedures are reviewed by the audit committee,

should they be found to be negligent in the conduct of their duty. This is provided

for by section 368(2).99 Secondly, despite the above, the CAMA, does not explicitly

extend such liability to audit committee members. This fundamentally questions the

very essence of such audit committees and the utility value of their reports. The

matter is further complicated by the fact that the CAMA specifies no qualification

for audit committee members. The implication is that a person who has little

understanding of financial reports could actually be elected into such an important

97 Section 359(6) CAMA 98 CAMA. 99 CAMA

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committee. Given the fact that audit committees can only be as good as its members,

such appointment turns the entire concept of audit committees on its head.100 It is in

recognition of such lapses in the law that some regulatory agencies, in their codes

of best practices, which are not enforceable in law, have advised on some basic

qualifications for audit committee membership. For instance, the Code of Corporate

Governance in Nigeria co-authored by Securities and Exchange Commission and

Corporate Affairs Commission recommends “members of audit committees should

be able to read and understand basic financial statements.”101 The Code of Corporate

Governance for Banks released by the CBN also recommends “some of them (audit

committee members) should be knowledgeable in internal control processes.”102

Despite these improvements, the above recommendations, even if enshrined

in the statute do not cure the deficiency. Given the technical nature of auditing, all

members of the audit committee should be knowledgeable enough in accounting in

order to be effective and make their opinion credible. To this extent, Collier,103

argues as follows: “in view of the complex accounting and auditing issues faced by

the audit committee, it has also been recommended that committee members should

have some degree of financial knowledge”.

Further, the Public Oversight Board suggests that the effectiveness of the

audit committee is primarily affected by the expertise of its members in the area of

accounting, financial reporting, internal controls and auditing.104 Similarly, the Blue

Ribbon Committee (hereinafter referred to as ‘BRC’) recommends that

an effective audit committee should comprise at least three members

all of whom should be financially literate and at least one of whom

should have accounting and management expertise…. Such

expertise is regarded as important if the audit committee is to

effectively carry out its role of overseeing the work of both external

and internal auditors.105

Another provision of the CAMA with respect to audit committee relates to

composition of its membership. Section 359(4)106 specifically states that: “such a

committee shall consist of an equal number of director and representatives of

shareholders of the company subject to a maximum number of six members.” The

section further states that members of such audit committee shall be subject to re-

election annually and shall not be entitled to remuneration. There are a number of

controversies surrounding the above provisions. For example, the issue of the

composition of the membership of the audit committees, the convention in most

parts of the world is for the audit committee to be seen as a sub-committee of the

100 2J. Cotter, and M. Silvester, Board and Monitoring Committee Independence, 39(2) ABACUS, (2003), pp. 211-232. 101 Section 30(1) SEC Code 2003 p.13. 102 Para 2.5(1) CBN Code 2006 p.19. 103 id. 104 id. 105 id. 106 CAMA.

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board whose members are independent directors of the board. The inclusion of non-

board members in the committee is therefore unusual. Despite this, the inclusion of

non-board members in audit committee is a welcome development. This is because

according to Sasegbon,107 the idea that some directors could be truly independent

could actually be a ruse. Further, he opined that

the expectation that certain directors will be semi-detached, orient

themselves to interests outside the board, and actively safeguard the

shareholders, may be somewhat optimistic. It underestimates the

ability of boards to reproduce themselves in their own images

electing people like themselves, and the incorporation and the partial

weakening of independence that follows from socialisation into a

powerful board room culture.

The above view is even more pertinent in a developing country like Nigeria

with underdeveloped capital markets. In several cases, non-executive directors of

publicly quoted companies are substantial shareholders in such companies.

Carcello108 observed that, owning large shareholdings in a company no doubt has

the potentials of impairing the performance of audit committee members. The above

is true to the extent that audit committee members that have strong economic ties to

the company are likely to view financial reporting issues from a perspective similar

to that of management. Such an audit committee would for instance like

management prefer that their companies going concern problems are not discussed

in the pages of the accounts.109 Under such circumstances, non-board members, who

do not have substantial financial investments in the company, are likely to be more

useful in ensuring that audit committees are effective. Further, the method of

electing these outside members, and the duration of their tenure, give reasons for

concern. The requirement that such members be elected yearly at annual general

meetings essentially means there is no guarantee of tenure for such outside

members. It is for instance, possible for such outside members to be replaced yearly

during the Annual General Meetings. In this kind of situation, the most experienced

members of the committee will therefore be the board nominees who are rarely

changed.

Although, the law requires that audit committee members be elected at

annual general meetings, the practice is that board usually agree on its nominees

before the annual general meetings. The situation for shareholders members of the

audit committee is further worsened by the fact that board may indeed be in a strong

position to influence those who are elected to the committee. To guide against the

excessive wield of power of the board, it has been argued that although section

107 id. 108 J. V. Caecello, and T. L. Neal, Audit Committee Characteristics and Auditors Dismissals following “New” Going Concern Reports’. 78(1) (2003a) THE ACCOUNTING REVIEW, pp.95-117 109 J. V. Carcello, and T. L. Neal, Audit Committee Independence and Disclosure: Choice for Financially Distressed Firms, 11(4) CORPORATE GOVERNANCE JOURNAL (2003b), pp. 289-299

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359(4)110 provides for the appointment of an equal number of directors and

shareholders as members of an audit committee of a public company, it does appear

the director members are the one determining the activities of the committees even

when a shareholder is chairman of the committee. Accordingly, Deli111 argues that,

it is perceived that, instead of trying to see how to better the lot of the shareholders,

what usually happens as major attributes of the shareholders’ members of the

committee is how to perpetrate themselves in office as a member of the committee.

To him, the annual election, re-election of shareholders members of the committee

has not only polarised their groups but has resulted in a situation in which some

members have become a rubber stamp of the management a matter of you rub my

palm and I rub your back.

Under such circumstances, persons who are likely to be elected into audit

committee will be men of little substance and integrity who are willing to sacrifice

shareholder goals for personal gains. The fact that CAMA does not specify any

minimum qualification or experience requirements for audit committee members

encourages the availability of a steady army of volunteer shareholders who are

willing to pally with the board and compromise the interests of shareholders.112 This

position is further reinforced by the absence of any obvious liability on the part of

the audit committee members. The result is that audit committee practice in Nigeria

has in the main become a ritual. It is against this background that there is a greater

need to review and upgrade the laws and other regulatory mechanisms aimed at

ensuring the effectiveness of the audit committee members. There is the need to

define clearly the tenure of both board and non-board members of the audit

committee. This will, at the very least, promote certainty and allow for the

development of constructive change strategy that will enable the injection of new

ideas into the audit committee process. Further, recruitments and exit from audit

committee could be made more systematic in order to encourage continuity. Based

on the above, there is need to strike a balance between continuity and rotation.

Strictly speaking, the idea of rotation of members is desirable for two reasons, first,

to strengthen the independence of the committee, and second to spread the

responsibility and experience of audit committee work among as many directors as

possible. The requirements to rotate membership should not, however, be allowed

to interfere with the committees’ effectiveness. It will take time for an audit

committee to learn its job properly and each member will have more to contribute

once he or she has the experience of several years’ service. According to Buckley,113

a suitable compromise might be to rotate both chairmanship and membership every

three years on a staggered basis, but to allow the chairman and the individual

members to be reappointed on expiry of their terms of office if the board believes

that this additional continuity will strengthen the audit committee’s effectiveness.

110 CAMA. 111 D. Deli, and S. Gillan, On the demand for independent and active Audit Committees, JOURNAL OF CORPORATE FINANCE 6 (2000), pp.427-425. 112 F. T, Dezoort, An Investigation of Audit Committees’ Oversight Responsibilities, 23(2) ABACUSS (1997), pp.208-227. 113 R. Buckley, Audit Committees: Their Role in UK Companies, INSTITUTE OF CHARTERED ACCOUNTANTS OF ENGLAND AND WALES) (1979), p.38.

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In line with international best practices, it is suggested that no member of the audit

committee should serve for more than two terms consecutively. This will, at the

very best, help prevent possible collusion that familiarity between executive

directors and audit committee members may bring. Given the ranking of Nigeria as

one of the most corrupt countries in the world, this constitutes a real danger.

In fact, a worrying innovation in the CAMA is section 287(3)114 which

permits directors of companies to receive unsolicited gifts as ex-post gratification

from persons who have had dealings with the company. Such gifts should however

be declared before the board and recorded in the minute books of the directors. The

problem, however, is that for a company which can be taken as a going concern and

dealing in a particular line of business, ex-post gratification, even if unsolicited,

could well amount to ex-ante bribe for a future contract. It can equally be argued

that directors are likely to be more favourably disposed, with regard to future

dealings towards companies that come to say ‘thank you’ without being solicited

than those companies that rightly believe that directors are fiduciary officers of the

company whose judgement should not be clouded by such gifts.

The requirements that recipient board members disclose such gift in minute

books also makes little sense. Most board decisions need the approval of the entire

board. Under such circumstances, it may not be illogical for the benefiting company

to gratify the entire board. In such a case disclosure among fellow directors also

amounts to secret profits.115 The fact that minutes of board meetings are not

normally available to shareholders further reinforces this position. Although,

shareholders are at liberty to make request for such minutes of board meeting and

the Board are oblige to grant such a request. In fact, such a provision is a threat to

the independence of both the board and audit committee members. It is, for instance,

possible for auditors to regularly say ‘thank you’ to both audit committee members

and if need be the members of the entire board. Such an action will no doubt

negatively impact on the judgement of audit committee member in the conduct of

their oversight audit and accounting function. It could impair their objectivity

especially in their statutory responsibility of making recommendations to the board

in regards to the appointment, removal and remuneration of the external auditors of

the company.

Another area of concern is the provision that audit committee members

should not be remunerated in Nigeria. This is rather puzzling. At a very basic level,

the same CAMA allows the remuneration of the board members, if an audit

committee is a sub-committee of the board as is the convention in most parts of the

world, it can meaningfully be argued that such committee work should not attract

additional compensation. Assuming this is the intention of the legislator, it does

make sense not to remunerate the representatives of the Board who are on the audit

committee. The same however, cannot be said for the representative of the

shareholders. To suggest that they should employ their expertise and time towards

a venture mainly aimed at enhancing the outlook, credibility and performance of

business enterprises motivated mainly by profits is absurd.

114 CAMA. 115 C. Uche, Ethics in Nigerian Banking, 8(1) JOURNAL OF MONEY LAUNDRY CONTROL (2004), pp. 66-67.

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A likely economic consequence of the above rule is that there will be a

shortage of supply of competent audit committee members. Admittedly, the

evidence in Nigeria suggests otherwise. A speculative explanation for this variance

is that management, despite the explicit regulation on the issue use covert ways to

remunerate audit committee members. Another possible explanation is that there are

other intrinsic benefits derived from being a member of an audit committee. Either

way, the independence of the audit committee members is compromised. Whatever

the reason may be, the codification of non-remuneration of audit committee

members is an abnormality that should be corrected. On the basis for remunerating

audit committee, it is hereby suggested, that, in addition to the remuneration paid to

all non-executive directors, each company should consider the further remuneration

that should be paid to the audit committee to recompense them for the additional

responsibilities of membership. Consideration should be given to the time members

are required to give to the audit committee business, the skills they bring to bear,

and the onerous duties they take on, as well as the value of their work to the

company. The level of remuneration paid to the members of the audit committee

should also take into account the level of fees paid to other members of the board.

The chairman’s responsibilities and time demands will generally be heavier than the

other members of the audit committee and this should be reflected in his or her

remuneration.116 Given the enormous task of the audit committees, there is need to

upgrade the existing regulatory frame work in Nigeria such as the laws and codes

of Corporate Governance to be in line with international best practices, such as the

requirements of the US, SOX Act 2002 particularly the aspect that deals with the

independence of the audit committee,117 and the UK codes of Corporate Governance

that relates to Audit Committee.

VI. CONCLUSION

This article examines the role of the Audit Committees of the Board of

Directors. It reveals that the Audit Committee was first established in the US, and

the success of the committee there influenced other jurisdictions such as the UK and

Nigeria. In all jurisdictions, the Audit Committee became recognised as an important

instrument to strengthen financial reporting and disclosure requirements of

corporate entities.

Beyond the origin of the Audit Committee and its influence globally, it is

also appraised the issue of the role of the audit committee as a tool of the board of

directors to harmonise the relationship between the board, management, external

and internal auditors towards ensuring reduction of risks, errors, fraud and enhance

internal control system. This, in turn, enhances credibility and act as a boost to

financial statements prepared by the managements of the company. The overall

effect is, that, it helps in securing public confidence, promote good corporate

116 Financial Reporting Council UK, Audit Committees Combined Code guidance: A Report and proposed guidance by an FRC Appointed Group Chaired by Sir Robert Smith (London, Financial Reporting Council)2003 p.8. 117 Section 301 SOX Act.

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governance and accountability. While examining the size and composition of the

audit committee, an important feature that goes a long way in determining the

effectiveness and efficiency of the committee towards achieving transparency, good

corporate governance and accountability, it was observed that the provisions of the

Nigerian laws seem to be inadequate in terms of minimum and maximum number

of members, qualification and qualities of members. For example, the requirement

of at least a financially literate member in the committee as stipulated by both the

US and the UK will go a long way in boosting the activities of the committee. The

inclusion of more independent non-executive directors on the list of members of the

committee is a step in the right direction. Well composed members of the audit

committee in terms of size and qualifications will facilitate the achievement of good

corporate governance and accountability. Finally, it is suggested that there is a need

to review the laws in Nigeria regulating the composition of the audit committee in

Nigeria so as to align it with international best practices such that the audit

committee should be made to be both watchdogs and bloodhound towards achieving

good corporate governance and accountability in Nigeria

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Akhionbare: Regulatory Compliance by Banks and Telecommunication Companies n Nigeria:

A Critique

399

REGULATORY COMPLIANCE BY BANKS AND

TELECOMMUNICATION COMPANIES IN NIGERIA: A CRITIQUE

Osariemen Sandra Akhionbare*

I. INTRODUCTION

This chapter attempts an assessment of the extent to which commercial

corporations comply with the rules stipulated in regulatory instruments. It is a

herculean task to examine compliance level by all corporations and in all sectors

considering the limited resources that are available for this research. For this reason,

an assessment is to be made using corporations in two sectors of the Nigerian

economy as case studies. These are case studies of commercial banks and

telecommunication (telecom) sectors. The discussion will be on how the commercial

corporations in these sectors are regulated by the regulatory authorities and the way

and manner in which the corporations – banks and telecom industries and services

providers comply, and the consequences in form of sanctions that are imposed on

the commercial corporations for non-compliance. Reference will also be made to

some foreign jurisdictions on how regulatory compliance is guaranteed and the

lessons that can be learnt by Nigeria.

II. CASE STUDY OF COMMERCIAL BANKS

An essential feature of a good financial system in the banking industry is the

existence and enforcement of a well developed and defined set of rules, regulations

ensuring compliance and enforcement of sanctions in the case of breach or

contravention1. The uniqueness of banking in Nigerian system singles it out for

much heavier regulations and assessment of compliance level. Commercial banks

are generally all purpose retail bankers. They mobilise deposits at all size and from

all and sundry in a retail as well as wholesale markets. They engage mainly in

borrowing and lending activities. The lending activities of Nigerian commercial

banks have increased steadily over the years and recently, the pace of increase has

acquired a tempo that needs to be assessed based on compliance.

The Central Bank of Nigeria2 has been mandated by various legislations such

as Banks and Other Financial Institutions Act3 (BOFIA) to regulate, supervise,

manage and control the commercial banks in Nigeria. CBN has been given wide

powers to handle all issues relating to banks from licensing to liquidation. The CBN

performs its role in dual capacity as regulatory agency to commercial banks as well

as banker to them. Regulations, in the sense of banking, refer to rules of directive

made and maintained to prescribe or proscribe conducts for commercial banks by

controlling its creation, operation and liquidation. The regulatory roles of the CBN

*Lecturer, Faculty of Law, Ambrose Alli, University, Ekpoma. 1A. B. Fuani, O. L.Kuye, and O. J. K. Ogundele, An Assessment of the Efficiency of Government Regulatory Agencies in Nigeria. Case Study of NAFDAC, 1(3) ACADEMIC JOURNAL OF ECONOMIC STUDIES, (2015), pp. 9-26. 2 See Central Bank of Nigeria in (Establishment) Act Cap. C4 Laws of the Federation of Nigeria, 2010. 3 Cap. B3 Laws of the Federation of Nigeria 2010.

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over commercial bank is aimed at protecting the interest of depositors and ensure

effective functioning of the banking industry and ensure stability as commercial

banks played a key role in the banking industry4.

Over the years, the regulatory institutions have not been performing their

role credibly hence the commercial banking system has experienced setback in

recent years thereby undergoing tremendous reforms. Due to the consumer deposits

crisis, several high profile commercial banks compliance level has broken down,

and increased emphasis is placed on consumer protection. The federal and state

regulatory agencies, legislators, and general public are focused on commercial

corporate institutions, customer practices, and regulatory compliance enforcement

like never before. To effectively implement rules and regulations, compliance

failure can result in litigation, financial penalties, regulatory constraints and abuse

of reputation which can strategically affect such corporate commercial financial

organisation5.

III. CBN REGULATORY COMPLIANCE MEASURES

Central Bank regulatory and supervisory department is well qualified and

functional to assist banking regulatory requirements, expectations and practices are

met and complied with. The various ways adopted by CBN to ensure compliance

and assess it include assessment of institutional and functional problem, adoption of

Swift Sanction Screening for Nigerian banking community (SWIFTS), sanctioning

for non-compliance with terms for loan approvals, and for failure to return deposit

to Treasury Single Accounts (TSA), and over holden charges. Other ways are

requirements of appointment of compliance officers by commercial banks and

whistle blowing policy.

(a) Assessing Institutional and Functional Problems

At any time commercial banking institution regulated by CBN failed to meet

the set down goals and objectives with the indication of its desire to suspend

payment or admit a state of insolvency (liquidation) problem, the CBN speedily and

accurately conduct a thorough and special investigation, examination or enquiry into

the affairs of such commercial bank. If the enquiry exhibits in appropriation,

contraventions and other numerous problems accumulating from financial

inconsistencies thereby prohibiting the bank from further credit activities can cause

removal of director from office6. The CBN, with range of powers, is empowered by

the Act in dealing with breach of duties and distresses in the banking sector in order

to enforce public confidence, accountability and transparency to the general public.

4M. Shehu, The Impact of Banking Regulation and Supervision in Nigeria Commercial Banks, Research Project Topics and Materials in Nigeria, (2016), p. 1-55. 5 A. J. C. Onu, Assessment of the Impact of Universal Banking on Bank Performance in Nigeria, 5(19) EUROPEAN JOURNAL OF BUSINESS AND MANAGEMENT, (2013), p. 1-8. 6For instance removal of bank directors of Oceanic Bank; Longe v. First Bank of Nigeria, Suit No. SC 116/2007: Mr. Longe subsequently won his case at the Supreme Court where the Court held that his removal was unlawful being contrary to section 266 of the Companies and Allied Matters Act (CAMA) Cap. C20 Laws of the Federation of Nigeria 2010: See Longe v. First Bank Plc 6NWLR (pt. 1198) 1.

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(b) Strict Implementation of “SWIFTS”

Due to the inherent problems, inadequacies and poor level of compliance of

commercial banks with their regulatory instruments, the Central Bank of Nigeria

has advocated for the adoption of Swift Sanction Screening for Nigerian banking

community. Nigeria’s central bank is implementing “SWIFT’s Sanctions Screening

Service and is actively promoting the hosted service for implementation by the entire

Nigerian banking community especially the commercial bank that deals on

customer’s deposits. The CBN Sanctions Screening Service gained international

recognition. For instance, in Johannesburg, on 2nd, October, 2014, the Society for

Worldwide Interbank Financial Telecommunication (SWIFT) announces that the

Central Bank of Nigeria is implementing its Sanctions Screening Service and is

mandating use of the hosted service by country’s banking community in order to

strengthen the Nigerian financial market and ensure it meets global best practices

for financial crime compliance.

With financial crime becoming more prevalent globally, it is now one of the

biggest challenges facing the world’s financial industry and every bank must play a

role in combating this challenges. The Central bank of Nigeria wants to ensure that

Nigerian’s financial community adheres to global best practice and comply with all

international regulations including national. Implementing SWIFT’s sanction

screening is an essential element of this strategy” said Suleiman Barau, Deputy

Governor, Central Bank of Nigeria (CBN).

The Central Bank directed that the deadline to complete the implementation

by the commercial banks in Nigeria should be the end of January 2015. To assist the

country’s commercial banks to meet this deadline, the CBN has created a sanctions

screening service committee, comprising 15 people from various departments, in

operations, IT, legal, treasury and payments. The committee will work with the

Nigerian banking community and SWIFT. According to Hugo Smith, Head of

Africa South, SWIFT, said “Sanctions Compliance is complex and expensive, the

penalties for non compliance can be very severe.

Banks using the Sanction Screening Service can send their transactions to a

screening engine which filters the messages in real time and checks against the

bank’s selected sanctions lists. The service covers the majority of the messages used

in cross border financial transactions and is expected to support all types of financial

messages, including Single European Payment Area (SEPA) payments in 20157.

(c) Central Bank of Nigeria Sanction Bank over Loans to DISCOs

Another way to ensure compliance is through sanctions. The Central Bank

of Nigeria (CBN) said that it had approved a sanctions grid to commercial banks

participating under the Nigerian Electricity Market Stabilisation Facility (NEMSF),

the loans meant for Discos and GENCOs. This was disclosed in a circular signed by

the Director, Financial Policy and Regulation Department CBN, Kelvin Amugu, and

7 SWIFT – Central Bank of Nigeria advocates SWIFT Sanction Screening in Nigerian Banking Community, THE NIGERIAN VOICE, 2 October 2014 or Aderibigbe-Ventureafrica.com/cbn-advocates-swifes-sanction-screening-far-nigerian-banking-community/ accessed 20-11-2016.

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posted on its website to all banks. The CBN has approved sanction grid to ensure

compliance with the terms and conditions of the facility.

The CBN Governor, Mr. Godwin Emefiele stated that a total sum of N1

20,000.000.000 (One Hundred and Twenty Billion) out of (one hundred and thirty

billion) has been disbursed in four tranches. The CBN in its statement said that

commercial banks would pay N10 million as penalty where its collection banks fail

to provide the refinancer with a register of all accounts operated by a DISCO and

domiciled with it. He also said that the penalty was also based on failure to disclose

all existing feeder collection account in respect of each Distribution Companies

(Disco) in accordance with the terms of the Accounts Administration Agreement.

The CBN, however, disclosed that commercial banks should provide the

information with two working days and further infraction would lead to termination

of their participation as a mandate bank. In addition, in a circular issued by Kelvin

Amugu, Director, Financial Policy and Regulation Department, dated September 1,

2016, it was stated that the banks would be made to pay fines as high as N500,000

daily for cases of infractions and failure to comply with the terms of agreements on

facilities which are established against them8.

(d) Sanctions for Failure to Return Deposit to Treasury Single Account

(TSA)

The Central Bank of Nigeria (CBN) enforced the sanction imposed on banks

that failed to return Nigerian National Petroleum Corporation (NNPC/Nigerian

Liquefied Natural Gas (NLNG) company dollar deposits to the federal government’s

Treasury Single Account by not selling dollars to them when it intervened on the

interbank foreign exchange market. The CBN barred non-banks from participating

in Foreign Exchange (FX) market for not remitting a total of 2.334 billion to the

Treasury Single Account9.

The nine banks still face the prospect of further financial fines, which was

communicated to them by the CBN subsequently. Having complied with the CBN

directive, however, the United Bank of Africa (UBA) was re-admitted into the FX

market10.

(e) CBN to Sanction Banks over Holden Charges

The Central Bank of Nigeria (CBN) disclosed that it would penalise erring

Deposit Money Banks (Commercial banks) for fleecing bank customers with illegal

charges. Already, the bank stated that it had recovered about N6.2 billion of excess

charges imposed on customers by banks in 2015. A statement issued by the Director,

Corporate Communications Development of CBN, Mua’zu Ibrahim, acknowledged

the series of complaints from customers of DMBs alleging excessive and in some

cases illegal charges by their respective banks. He explained that the Revised Guide

8 E. Ujah,, CBN to Sanction Over Power Fund, Vanguard Newspaper, September 6, 2016. 9 Among the banks affected are: United Bank of Africa (UBA), First Bank of Nigeria (FBN), Diamond Bank PLC, Sterling Bank Plc, Skye Bank Plc, Fidelity Bank Plc, Keystone Bank Ltd, First City Monument Bank (FCMB) and Heritage Bank Limited. 10 O. Chima, TSA: CBN Enforces Sanction, Shuns Nine Banks in Dollar Sales, This day Newspaper, August, 25, 2016.

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A Critique

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to Bank charges issued by the CBN clearly specifies allowable charges for all

banking services, adding, “the CBN does not in any way condone the fleecing of

bank customers with illegal charges under any guise”. He said the apex bank would

continue to enforce the revised guidelines of bank charges, stating that any customer

who has been illegally charged should report to the Customer Protection Department

of the CBN. He urged members of the public to report cases of infringement to

enable it investigate and apply sanctions on any erring Deposit Money Bank11.

(f) Requirement of Compliance Officers by Commercial Banks

Another compliance mechanism that the Central bank of Nigeria has put in

place mandatory requirement of appointment of compliance officers by commercial

banks in order to enforce compliance by commercial banks. Accordingly, the CBN

has, for this purpose, established Financial Policy and Regulatory Department where

circulars are issued from time to time to commercial banks to adopt strict adherence

to its rules and enforcement of compliance at all levels. In this way, the CBN

recently set New Standard for banks on compliance. The CBN has directed all

Deposit Money Banks (Commercial banks) in the country to appoint new Executive

Compliance Officers (ECOs) who must not be below the level of an Executive

Director. In the circular posted by the bank recently, the CBN also set a new

qualification standard for the banks in their appointment of people into the position

of Chief Compliance Officers (CCOs) in line with its decision to enhance minimum

qualification for the position in order to make sure that capable and experience hands

are in operation12.

A Chief Compliance Officer (CCO) is a corporate official in charge of

overseeing and managing compliance to regulatory requirements within the banking

organisation and that the corporation and its employees are complying with internal

policies and procedures. The DMBs are required to appoint not only Chief

Compliance Officers (CCOs) who must not be below the rank of a General Manager

regardless of the category of institution, but also an Executive Compliance Officer

(ECO) who should not be below the rank of an Executive Director. To the CBN, the

aim is to ensure strict compliance with all extant rules and regulations particularly

those relating to foreign exchange transactions, Financial Action Task Force

(FATF). The CCO will report to the ECO while the ECO will in turn report directly

to the Board of Directors. The apex bank stated:

The CBN will hold the Executive Compliance Officer

responsible and accountable for any breach of any extant

11B. Udunze, CBN to Sanction Banks Over Hidden Charges, The Sun February 2, 2016. See also D. Adams, CBN to Sanction Banks over Hidden Charges, Omojuwa.com December 2nd, 2016. 12Status and Reporting Line of Chief Compliance Officers of banks, https//www.cbngov.ng/…/ accessed 1/12/2016.

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regulation in the DMBs” the CBN in addition, “for wanting in

the discharge of his/her responsibility.13

(g) Whistle Blowing Policy

In April 2015, the central bank also came up with Whistle Blowing Policy

Procedure Manual14 with objectives of disclosing or reporting of misconduct and

impropriety so that appropriate remedial action can be taken if concerns are deemed

legitimate. It intended to encourage staff and other relevant stakeholders in the

banking industry to report unethical or illegal conduct or conduct of employees,

management, directors and other stakeholders to appropriate authorities in a

confidential manner without any fear of harassment, intimidation, victimisation or

reprisal of anyone for raising a concern under the policy. The CBN has, however,

provided procedure for both internal whistle blowing and external whistle blowing

for effective and efficient management of compliance level of commercial banks in

Nigeria.

Compliance laws, rules and standards generally covers matters such as

observing proper standards of market conduct, managing conflicts of interest,

treating customers fairly and ensuring that suitability of customer advice are

maintained. This also includes specific areas such as the prevention of money

laundering and terrorist financing15.

In spite of these laws, rules and regulations and various measures put in place

to ensure that the level of compliance by commercial banks is enhanced as stated

above, the level of compliance by commercial banks has not been encouraging to an

extent. This can be deduced from the behaviour of commercial banks towards their

customers especially in areas of unnecessary deduction from customer’s account

based on one form of transaction or the other. In most cases, customers get alert on

various deductions unknown to them despite rules and regulations prohibiting such

deductions. In some cases, customers get contradictory alerts and alerts that do not

reflect their true statement of account.

As stated earlier on the CBN sanction on hidden charges and the recovering

of N6.2 Billion on excess charges imposed on customers by banks in 2015, the

question is what measure has CBN put in place to ensure compliance by banks to its

rules in that aspect aside sanctions. On the other hand, investigation has shown that

in commercial banks desperation for higher profit margins, some commercial banks

have continued to defy the directive on the cancellation of Cost of Transaction

(COT) by banks. It was learnt that over 747 complaints against some commercial

banks in the country involving the sum N8.09 billion was received by the CBN

between January and June 2015.

In its financial report recently released, the CBN stated that these statistics

represented a marginal drop of 4.48 percent from the previous complaints it received

13 M. Itibor, CBN Sets New Standard for Banks on Compliance, Leadership Newspaper, October, 2. 2016. 14 Whistleblowing … Whistleblowing Policy. First Bank of Nigeria. http//www/.First-bank-Nigeria.com accessed 1/12/2-16/ 15Basel Community on Banking Supervision: Compliance and the Compliance function in banks. Bank for International Settlements, 2005.

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in the first half of 2014. The apex bank also added that during the period a total of

481 cases, which included some outstanding ones, were involved. At the last count,

however, no fewer than 10 identifiable charges were associated with banking

activities, which are currently raising concerns among customers of banks16. The

most interesting part is how illiterate customers are protected when it is stated by

CBN that any customer who has been illegally charged by commercial banks should

report to Customer Protection Department of the CBN17. The challenge is that most

illiterate customers do not even have an idea of what Central bank is all about or its

Customer Protection Department, most especially, when central bank is located in

capital territories unreachable to those in urban and villages. It is therefore advisable

for CBN to adopt other measures to ensure compliance by commercial banks with

its regulatory rules, because from all indications, it is obvious that most of its rules

and regulations are not complied with by commercial banks to the extent that

information available to CBN has revealed that Chief Compliance Officers of some

banks are below the grade of General Manager without prior approval of the CBN.

It is equally worrisome, that most of them do not report directly to the Board of

Directors of CBN and also most banks in Nigeria have just ECOs who are often

appointed not based on special or laid down laws but the whims and caprices of their

Board of Directors. It stands to reason to posit some compliance principles and rules

issued by CBN are not complied with by commercial banks thereby leaving the

customers in a state of jeopardy.

IV. FACTORS AFFECTING COMPLIANCE OF COMMERCIAL

BANKS IN NIGERIA

Corporations face tightening regulations that nowadays affect their entire

value chain. In addition, the complexity encountered in regulatory projects rises with

new bills, code or directive. There are various factors affecting compliance level of

corporation in Nigeria. Full compliance, however, with specific rules and

regulations will not result in the achievement of regulatory compliance if the rules

underlying the design of the rules are flawed, and compliance with them is not

always a full test for determining the effectiveness of regulation in achieving its

goals.

Several factors account for the level of compliance with CBN regulatory

rules by commercial banks in Nigeria. Commercial banks are facing unprecedented

complexity in their regulatory and risk environments as a wave of regulatory

changes in the industry which have come with an increasing speed and impact since

financial crisis in past. As a pressure on financial institutions to comply with the

evolving and challenging regulatory landscape continues to escalate, scrutiny from

regulators and investors intensifies in crisis environment where compliance demand

are now far more intensive. With new rules being introduced, and existing ones

16Daily investigation carried out by Sun Newspaper on the outcome of CBN sanction on commercial banks over hidden charges. 17 G. Okpara, A Synthesis of the Critical Factors Affecting Performance of the Nigerian Banking System, 17 EUROPEAN JOURNAL OF ECONOMICS, FINANCE AND ADMINISTRATIVE SCIENCE, (2009), p. ; EURO JOURNALS INC., 2009 http://www.eurojournals.com.

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tightened, commercial banks are faced with a host of challenges in keeping abreast

of these changes and managing regulatory and compliance issues18.

It has been stated earlier that Central bank and Nigerian Deposit Insurance

Corporation are the main regulators of commercial banks in Nigeria with such other

bodies as CAC, SEC, NIPC, etc. The Central bank and NDIC, in past years, reveal

that factors affecting the compliance level of commercial banks include insider

abuse, bad loans and advances, fraudulent practices, under capitalisation, rapid

changes in government laws and policies, bad management, lack of adequate

supervision, undue reliance on foreign exchanges, economic depression, political

crisis, bad credit policy and undue interference from board members are some of the

factors responsible for the level of compliance of commercial corporations to rules

and regulations.

Some of the factors are discussed below:

(i) Insider Abuse: Most commercial banks suffer from incessant or frequent

changes of board membership and many appointments are based on political

affiliation rather than expertise consideration. When a strategy for high

compliance level is built, before the full enforcement of the stipulated

programme, the members or some members of the board might have been

removed and replaced by another board, thereby truncating the plan, purpose

and objective of the bank in implementing such regulatory compliance.

Secondly, if it is privately owned banks, shareholders may constitute a

problem by allowing more of their personal decisions to affect the banks own

set objectives. In this way, the system is susceptible to insider abuse or

trading.

(ii) Weak or Bad Corporate Administration: As a result of lack of

experienced personnel to hold key position in most commercial banks, there

is deterioration of management culture and weak internal control system

instigated by the squabbles among the high risk management decision

making team, which may result to non-compliance with rules, regulations

and prudential standards. Management plays a major role to ensure the

compliance level of commercial banks is maintained.

(iii) Under Capitalisation and Poor Risk Management: It has been noted that

the major factors responsible for the precarious financial condition of most

banks were huge uncollectible loans and advances which adversely disturb

the proper functioning of commercial banks is alarming to the healthy

growth of most banks thereby hindering the level of compliance of most

commercial banks. Second, a number of banks have poor credit facilities and

policies that most loans are granted without proper securities or the ability

of the borrowers to pay back. In this situation, the bank manager might

device available means to ensure stability of the bank thereby breaching

most rules and regulations which leads to poor compliance level.

(iv) Economic Situation: The banking industry, being the pillar of every

economy, is invariably affected by economic downturn which is usually

affected by political, economic and social and environmental conditions

18 O. Nwankwo, Implications of Fraud on Commercial Banks Performance in Nigeria. 8(15) INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT, (2013), p. 1-7.

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which is experienced in Nigeria today. Most activities are grounded, issues

like borrowing a huge sum from foreign banks to finance the economy might

lead to recession to depression, thereby putting the state in jeopardy,

economic mess and non-compliance with rules and regulations.

(v) CBN and NDIC Regulatory and Supervisory Measures: The

regulatory and supervisory measures adopted by CBN/NDIC are unable to

keep pace with the rapid changes in the banking industry. In recent

development, the CBN noted that the ability to perform its regulatory role

has been affected by inadequate manpower in terms of quality and quantity.

NDIC, in its brief, discusses the challenges associated with bank liquidation

and deposit pay off. It noted that closing a bank requires specialised services

of technically skilled personnel in banking, accounting, legal, quantity

surveying, estate management, information management and technology as

well as facility support which are lacking, and the manpower constituted to

enforce compliance to rules and regulations of commercial corporations are

inadequate and inexperienced thereby standing as a blockage in maintaining

compliance level of commercial banks to its regulatory instruments.

V. LESSONS FROM SOME FOREIGN JURISDICTIONS

(a) United States of America (USA)

In 2014, banks were scrambling to comprehend ware of new regulations

triggered by Donald Frank and the residual effects of economic downturn. As they

enter 2015, the focus shifts to the even bigger task of enforcement and compliance.

Fewer new regulations were being introduced with most designed to clarify or refine

existing rules. In addition, the themes of ethics and culture were emerging frequently

in the regulatory dialogue taking place now as fines and penalties can lead to

questions about corporate culture that lead to them. The report took a look at these

trends and offers some possible steps that banking institutions can take as part of

their continual efforts to meeting heightened regulatory expectations and the

compliance level.

Before this time, there were three traditional components to U.S. banking

regulation: safety and soundness, deposit insurance, and adequate capital. The

Dodd-Frank Wall Street Reform and Consumer Protection Act added a fourth

component refer to as systematic risk. Many current regulatory initiatives in the

United States are derived from Dodd-Frank Wall Street Reform and Consumer

Protection Act (Dodd Frank Act) which was enacted in 2010 in response to the

financial crisis of 2007 - 2009. Many provisions of the Dodd Frank Act focus on the

largest financial institution due to their perceived role in causing the financial crisis

and the perception of such institution as “too-big-to-fail”19.

The Dodd-Frank Act was an enormous statutory undertaking that enhanced,

reorganised, or overhauled various components of what was already a complex

framework that featured a myriad of federal regulatory agencies having overlapping

19 Dodd-Frank Act (2006). Home Practice Areas Banking Regulation, 2016 Banking. Regulation 2016 3rd Edition, USA.

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responsibility for banking regulation. A brief mention of the relevant regulatory

agencies will illuminate understanding of the issues.

(i) The Board of Governors of the Federal Reserve System (“Federal

Reserve”): This is the central banking system of the United States and

conducts its monetary policy. In addition, the Federal Reserve supervises

BHCC and (BHC’s) state-chartered banks that are members of Federal

Reserve System.

(ii) The Federal Deposit Insurance Corporation (FDIC): The FDIC is the

primary regulator for state chartered banks that are not members of the

Federal Reserve Systems as well as state-chartered thrifts. It also insures

banks and thrift deposits and have receivership power over banks and certain

other institutions.

(iii) The Office of the Comptroller of the Currency (OCC): This is an

independent bureau of the U.S. Department of the Treasury led by five

comptrollers of the currency that charters, regulates and supervises all

national banks and federal savings associations as well as federal branches

and agencies of the foreign banks.

(iv) The Consumer Financial Protection Bureau (CFPB): The CFPB has the

primary authority to develop consumer protection regulation applicable to

other banks and non-banks and to enforce compliance with such laws by

banks with 10bn or more in assets and their affiliates as well as by certain

non-banks.

(v) The Financial Stability Oversight Council (FSOC): This is an agency that

is chaired by the secretary of the U.S. Treasury and comprises the heads of

eight financial regulators and one independent member with insurance

experience.

There are various Acts that have been promulgated in U.S. to ensure

safety and soundness of the banking system to the U.S. such recent

legislations are:

(i) The International Banking Act of 1978 (IBA): establishes the framework

for federal supervision of foreign banks operating in the United States.

(ii) The Gram-Leach Bililey Act (1999) generally repeated the securities

restrictions of the Banking Act of 1933 and authorised the creation of FHCs.

Basically, the Dodd-Frank Act of (2010) was the greatest legislative

overhaul of financial service regulation in the United States since the 1930s and

made significant changes to the US bank regulatory framework20. Dodd-Frank Wall

Street Reform and Consumer Protection Act.

The long title states:

an Act to promote the financial stability of the United States

by improving accountability and transparency in the financial

system, to end “too big to fail” to protect the American tax

20“Dodd-Frank Act” Searchfinancialsecurity.techtarget.com/definition/Dodd-frank-Act. Accessed December 1, 2016. See also Mason, J.R., “Overview and Structure of Financial Supervision and Regulation in the U.S., European Parliament”, Directorate General for Internal Policies, Policy Department A: Economic and Scientific Policy, 2015, p. 1-58.

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payer by ending bailouts, to protect consumers from abusive

financial services practices and for other purposes21.

The Dodd-Frank Act (fully known as the Dodd-Frank Wall Street Reform

and Consumer Protection Act) is a federal law that places regulation of the financial

industry in the hands of the government. The legislation aims to prevent another

significant financial crisis by creating new financial regulatory processes that

enforce transparency and accountability while implementing rules for consumer

protection. Due to the “Great Recession” of the late 2000s which was caused by low

regulation and high reliance on large banks, one of the main goals of Dodd-Frank

Act is to reduce federal dependence on the banks by subjecting them to more

stringent regulation and breaking up any companies that are “too big to fail”. The

Act created the Financial Stability Oversight Council (FSOC) to address persistent

issues affecting the financial industry and prevent another recession. Banks are now

required to have “funeral plans” for a swift and orderly shutdown in the event that

the corporation goes under. By keeping the banking system under closer watch, the

Act seeks to eliminate the need for future tax-payer funded bailouts22. The

legislation also created the Consumer Financial Protection Bureau (CFPB) to protect

consumers from large, unregulated banks. The CFPB consolidated the consumer

protection responsibilities of a number of existing branches, including the

Department of Housing and Urban Development, the National Credit Union

Administration and the Federal Trade Commission. The CFPB works with

regulators in large banks to stop business practices, such as risky lending, that

ultimately hurt consumers. In addition to regulatory controls, the CFPB provides

consumers with access to truthful information about mortgages and credit scores23.

VI. CASE STUDY OF TELECOM SECTOR

Great strides have been made in the area of telecommunication sector in

recent years in Nigeria. These developments have created positive and negative

changes in the economy. Various laws have been enacted to form, supervise, control,

and manage the operations of the information and telecommunication sector which

is the one of the major commercial corporation service provider in Nigeria. Nigerian

communications Act24 and National Information Technology Development Act are

the major laws enacted to regulate this sector. The Act created and established the

regulatory institutions that directly regulate the affairs of this sector. The legal

framework for regulating the telecoms sector is the Nigerian Communication

Commission (NCC) and other agencies such as the Information Technology

Development Agency, the National Frequency Management Council etc. With

the roll out of the global system for mobile communications in commercial quantity

21The Preamble of the Dodd-Frank Act 2010 in United States to improve accountability and transparency in the financial system. 22S. KENNETH, BANKING REGULATION, ITS PURPOSE, IMPLEMENTATION, AND EFFECTS, Federal Reserve Bank of Kansas City, Fifth Edition, 2010, p. 1-281. 23 Financial Service Regulatory Compliance KPMG. 24 Cap N 97 LFN, 2010.

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in Nigeria, regulation of telecommunications is of utmost importance as a tool for

regulatory reform in order to enhance transparency, coherence and also for

comprehensive management of this sector in the economy.

(a) Instruments of Regulation and Standardisation of Telecom Sector

There are various instruments of regulation and standardisation. The basic

instruments are:

(a) Standardising equipment and services

(b) Responding to changes in the communication industry by developing

appropriate policies and guidelines to tackle all new service.

(c) Outlining all available services and determining all their needed resources.

(d) Defining different categories of licence.

(e) Not granting licences indiscriminately to applicants. In so doing, the system

might be over flooded.

(f) Transparency and accountability of the regulator in all its business

transactions.

(g) Approval of the types of telecommunication and numbering plan for the

entire country.

(h) Finally, organising workshops, interactive seminars and trainings for

stakeholders in the industry, the regulators, service providers and the

consumers.

Employing the above instruments of regulation by the commission will help

to reposition and strengthen the telecommunication sectors in Nigeria as well as

protect and educate the consumer from harmful products and services25. Since the

telecommunication sectors are service providers to the people, there is great

relevance in regulating this sector in order to provide quality and qualitative services

and also to protect the public from unfair conduct. In order to effect these

responsibility, the telecommunication sector has put in place various measures to

regulate the activities of these service providers. One of the ways is the setting up

of the commission’s compliance monitoring and enforcement sector to regulate its

activities, enforce and ensure compliance of commercial corporations in telecom

business to their regulatory instruments26. The summary of activities for the third

and fourth quarter of the 2015 and first quarter of 2016 are stated below.

VII. SUMMARY OF THE COMMISSIONS COMPLIANCE

MONITORING AND ENFORCEMENT ACTIVITIES FOR

QUARTER THREE (3) 2015

Consistent with section 89 of the Nigerian Communications Act 2003 which

mandates the commission to monitor all significant matters relating to the

performance of all license of telecoms service providers, the Compliance

Monitoring Enforcement Department has developed monitoring strategies to

prosecute the above mandate and achieve the commission’s objectives of fair

competition, ethical market practices and optimal quality of service in the Nigerian

telecoms industry.

25 E. C. Ndukwe, How Telecommunication has fared in 2004. P. 15. 26 Section 17-20 N.C.A. 2003.

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VIII. OUTCOMES AND ACHIEVEMENTS OF MONITORING AND

ENFORCEMENT ACTIVITIES IN QUARTER THREE 2015

The following represent the outcomes and achievement of the major

compliance monitoring and enforcement activities in Quarter (3) 2015.

(i) Commission Sanctions Mobile Network Operators for Sales of Pre-

Registered Sim Cards

The commission sanctioned four (4) network mobile operators, namely,

MTN, Airtel, Globacom and Emts (Etisalat) a total sum of N40,000,000, (Forty

Million Naira) for sales of pre-registered Sim Cards. The breakdown of the fees is

as follows:

(1) MTN: N21,800,000 (Twenty one Million Eight Hundred Thousand Naira)

(2) Airtel: N3,800,000 (Three Million, Eight Hundred Thousand Naira)

(3) Globacom: N7,400,000. (Seven Million, Four Hundred Thousand Naira)

(4) EMTS: N7,000.000 (Seven Million Naira)

The sanctions were in accordance with the provisions of the NCC Regulation

on Telephone Subscribers Registration, 2011 and the operators have since paid the

above amounts.

(ii) Notice of Sanction to MTN Nigeria Communication Limited Regarding

Failure to Deactivate 402 (Four Hundred and Two) Improperly

Registers MSISDN

The commission has fined MTN Nigeria Communications Limited the sum

of N80,400,000 (Eighty Million, Four Hundred Thousand Naira) for failure to

deactivate a total of 420 (Four Hundred and Two) MSISDN that were incomplete

and improperly registered. The fine has been paid.

(iii) Commission Seals Off Skannet for Operating with Expired Internet

Provider (ISP) Licence

During the quarter, the office of Messrs General Data Engineering Services

Nigeria Limited (SKANNET) was sealed for operating with an expired ISP licence

and failure to fulfil its financial obligations in line with the terms and conditions of

the licence.

(iv) Directive to Wakanow.Com to Discontinue the Sale of Global Travel

Sim

The commission’s surveillance and intelligence gathering exercise revealed

unauthorised sale of Global Travel SIM Cards by Wakanow.com. Whereas our

investigation confirmed that Wakanow.com did not have any valid

telecommunication licence, it also revealed that the SIM cards were not registered

consisted to the provisions of the NCC Telephone Regulation on Subscriber

Registration.

Arising from the above findings, the commission directed wakanow.com as

follows:

(i) To immediately deactivate all Global Travel SIM Cards from being used

within the Nigerian Telecom space.

(ii) To immediately suspend the sale of its Global Travel SIM Cards until the

organisation obtain all necessary authorisations from the Commission.

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Whereas the Wakanow.com had notified the Commission of its full

compliance, the Commission could continue to monitor the activities of the

company to ensure that it remains in full compliance with the NCA 2003 and other

subsidiary legislation.

(v) Commission’s Direction of Mobile Networks Operators Against auto

Migration of Subscribers to Pay-As-You-Go on Data Services

The Commission has continued to receive complaints from subscribers on

automobile migration of data bundle package to PAY-AS-YOU-GO Billing on

depletion of data bundle. Consequently, and pursuant to section 53(1) of the

NCA2003, the Commission on 3rd August 2015 directed all mobile services

providers operators to comply with the following directives:

(i) That where a subscriber data bundle account its full depleted before the due

data, service providers should notify the subscriber via SMS, giving

information regarding the tariff/billing rate for automatic migration;

(ii) That all service providers should henceforth stop auto-migration of

subscriber’s data service to Pay-As-You-Go (PAYG) account upon

depletion of the data bundle account, except with the express consent and

authorisation of the subscriber via SMS.

A follow-up compliance check by the Commission revealed the following:

(a) Etisalat is in compliance with direction No. 1 & N0. 2 of the Commissions;

(b) Globacom is in compliance with No. 1 direction as subscribers receive SMS

detailing tariff rate for auto-migration on depletion of their data bundle.

However, Globacom failed to obtain express consent from subscribers

before migration to PAYG and therefore in violation of direction No. 2;

(c) MTN in compliance with direction No. 1 but failed to highlight the tariff rate

for PAYG billing. In addition, data services is not suspended on depletion of

the data bundle account even without an authorisation via an SMS from the

subscriber.

(d) Airtel is not in compliance with the above directions.

Consequently upon the above, the Commission has issued a notice of

intention to sanction the concerned service providers.

(vi) Compliance Monitoring of Mobile Number Portability (MNP)

The Commission monitored the Mobile Number Portability Scheme with the

quarter.

Summary of Porting Activity in July and August, 2015 SN MONTH SUCCESSFUL

SMS

PORTING

REQUEST

COMPLETED

PORTS

FAILED

PORTS

1 JULY 35,098 28,707 22.886 5,740

2 AUGUST 30,076 24,499 19,645 3,873

(1) were a total of 28,707 porting requests received from the recipient network

in the month of July, 2015;

(2) were a total of 22,886 successful completed ports in the months under

review;

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(3) were a total of 5,740 failed ports in the month of July, 2015;

(4) were a total of 30,076 porting requests received from the recipient network

in the month of August 2015;

(5) were a total of 19,645 successful completed ports in the months under

review;

(6) were a total of 3,873 failed ports in the month of August, 2015.

Please note that as at the time of the report, the figures for September 2015

was being compiled.

(vii) Mobile Number Portability (MNP) Scheme

To address the increasing cases of port request rejections, the Commission

has resolved to monitor and sanction violations with MNP process time obligations.

Consequent upon the above, series of compliance checks were carried out regarding

their violations by donor operators with respect to validation and deactivation

responses which have timeliness of two (two) 2 hours and 1 hour respectively. Some

examples of time violations by the service providers are outlined below:

(a) Time Violations by Etisalat

A timer deactivation violation by Etisalat regarding Corporate Port Request

of over 63 lines belonging to Neoconde Energy Limited. The company had initiated

a corporate port out request from Etisalat to Airtel on 7th August 2015 at 9.13am but

was partially completed at 1.52pm on the same day. As a result, these subscribers

were unable to receive calls from Etisalat network.

(b) Time Violation by MTN

A timer deactivation violation by MTN regarding a Corporate Port Request

of over 109 lines belonging to Nigerian Breweries PLC. The company had initiated

a corporate port out request from MTN to Glo via lead MSISDN: 07036735494 on

11th August, 2015 at 1.20pm but was partially completed as at 11.22am on 14th

August, 2015. As a result, these subscribers were not been able to receive calls from

MTN subscribers. In the same vein, a timer violation by MTN regarding four (4)

individual port requests from MSISDNS: 08139382308, 08143810152,

08135485305 and 08162108093. MTN breached the timer of two (2) hours for

validation of four (4) port requests from NPC as stated in the MNP Business Rules.

(c) Time Violation by Globacom

A timer violation by Glo regarding eleven (11) validation and one (1)

corporate port request. Glo had breached the two (2) hours allowable for validation

of six (6) port requests from the NPC as stated in the MNP Business Rules.

Glo validated one of these port request over nine (9) hours after receipts from the

MNP administrator. Glo also breached the one (1) allowable hour for the donor to

deactivate one hundred and forty seven (147) ported out lines belonging to Reckitt

Limited consistent with provision of the MNP Business Rules.

All the above timer violations are currently undergoing enforcement actions.

(viii) Improper Port-in Transaction by Emerging Market

Telecommunications Services Limited.

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The Commission’s surveillance and intelligence gathering exercise revealed

an improper port-in transaction by Etisalat on 1st and 3rd September, 2015. Etisalat

limited had initiated the porting of 296 lines belonging to Etisalat on 1st September,

2015. However, Etransact International PLC confirmed that it did not authorise the

port out of any of its number currently with various other network operators.

Etisalt has been directed to repatriate the lines back to the legitimate operator

while the case is currently enforcement attention.

IX. SUMMARY OF NCC’s COMPLIANCE MONITORING AND

ENFORCEMENT ACTIVITIES FOR QUARTER FOUR (4) 2015

Regulation 2(4) of the Nigerian Communication Commission (Enforcement

Process etc.) Regulation 2005, requires the commission to publish on its website on

quarterly basis details of its monitoring and enforcement activities.

X. OUTCOMES AND ACHIEVEMENTS OF MONITORING AND

ENFORCEMENT ACTIVITIES IN QUARTER FOUR, 2015

The following represent the outcomes and achievements of the major

compliance monitoring and enforcement activities in Quarter 4, 2015.

(i) Compliance Monitoring of the Commission’s Direction against

Automatic Migration of Subscribers’ Data Services to Pay-As-You-Go

(PAYG) Without Authorisation

The commission has been inundated with complaints from consumers

regarding the current practices by Mobile Network Operators (MNO’s)

automatically migrating subscribers from their data plan account to Pay As You Go

(PAYG) account upon the depletion of their data account, thus leading cases of bill

shock to the subscriber.

Pursuant to section 53(1) of the NCA, the Commission issued a direction all

Mobile Network Operator (MNO) against automatic migration of subscriber’s data

services to Pay As You Go (PAYG) billing platform up on data depletion with effect

from the 24th August 2015. Details of the Commission’s Direction are as follow:

(i) That where a subscriber’s data bundle account is fully depleted before the

due date, service provides should notify the subscriber via SMS, giving

information regarding the tariff/billing rate for migration to PAYG billing.

(ii) That all service providers should henceforth stop auto-migration of

subscriber’s data service to Pay-As-You-Go (PAYG) account upon

depletion of the data bundle account, except with the express consent and

authorisation of the subscriber via SMS.

Following from the above therefore, the commission carried out a

compliance monitoring exercise (Technical Audit) of operator’s auto migration

platform from 7th – 11th December 2015 to ascertain their level of compliance with

this direction.

Arising from the exercise, operators were directed to oblige the commission

with the following data:

(a) figure of active data service subscribers for the month of September,

October, November 2015;

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(b) list of subscribers whose data got exhausted in each of these months;

(c) list of subscribers who opted for bundle purchase, including evidence of their

authorisation;

(d) list of subscriber who neither selected the PAYG nor identified a bundle plan

purchase (no action);

(e) all data provided must come with Audit trail.

The submissions received are currently being analysed to guide the commission’s

further regulatory actions on the matter.

(ii) The Commission’s Direction to Mobile Network Operators (MNOs)

Dedicate a Short Code for the Purpose of Opting into the Do Not Disturb

(DND) List on their Networks

The Commission had received various complaints from telecoms subscribers

regarding unsolicited text messages and nuisance calls from mobile network

operators in the industry. Follow up these complaints, the Commission had

monitored the networks to ensure that mobile Network Operators (MNO) create Do

Not Disturb (DND) database for subscribers who do not want to receive unsolicited

messages on their lines.

Whereas, the commission’s compliance checks revealed that most MNO’s

have set up the DND facility on their networks, however, the awareness of existence

of this facility is very low because the MNO’s are reluctant to sensitise their

subscribers on the availability of this facility and how to opt into same. Further

investigation suggests that operators were not actually keen on the DND as this may

affect their revenue stream from value added services.

The commission has therefore commenced the process of issuing a Direction

that Mobile Network Operators (MNO’s) dedicated a Short Code on their network

for use by subscribers to apt in the Do Not Disturb Database restricting unsolicited

marketing messages (voice and SMS) on their phone.

(iii) Sanction on MTN Nigeria Communications Limited for Failure in

Deactivate Incomplete/Improperly Registered Sim Cards-Notice of

Sanction

MTN Nigeria Communications Limited during the quarter under review was

fined the sum of N1,040,000,000.000 (One Trillion Forty Billion Naira) for its

failure to deactivate 5.2 Million improperly registered MSISDN (SIMS).

(iv) Sanction on Breach of the Mobile Number Portability (MNP) Business

Rules and Regulations: Notice of Sanction

During quarter under review, Globacom Limited and MTN Nigeria

Communications Limited were fined the sum of N22,000,000 (Twenty Two Million

Naira) and N12,000,000 (Twelve Million Naira) respectively for non-compliance

with the MNP Regulations. Both companies have paid up the fines.

(v) Public Notice in Respect of Companies Owing Spectrum Fees to the

Commission

The Commission as issued a public notice as a final pre-enforcement notice

and warning to the companies owing Spectrum fees. Sequel to the public notice (3)

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companies has so far settled their outstanding spectrum fees namely: Gicell Wireless

Limited, Galaxy Information Technology and Telecommunications Limited, and

LM Ericsson Nigeria Limited.

The following companies have up till date not settled their indebtedness:

(1) Indorama Eleme Petrochemicals Limited

(2) Allied Bond Standard Limited

(3) Disc Communications Limited

(4) Eltel Communications Limited

(5) EM West Africa Limited

(6) Fybertel Communications Nig. Limited

(7) Global I. Burst Nig. Limited

(8) Global Touch (WA) Limited

(9) Imperial Telecoms Limited

(10) Independent Telephone Networks Limited

(11) International Monitor Co. Limited

(12) LT Mobile Nig. Limited

(13) Midmane Investment Limited

(14) Mobitel Limited

(15) Omar Communications Limited

(16) Peace Global Satellite Limited

(17) Prest Cabel & Satellite TV Sys. Limited

(18) Rainbownet Limited

(19) Reliance Telecommunication (RELTEL) Zoom Mobile

(20) Renna Telecoms Limited

(21) Saxel Limited

(22) Siemens Group Nig. Limited

(23) Syntel I.G. Wills Comm. Limited

(24) TC Africa

(25) Topcom Nigeria Limited

(26) Webcom Nigeria Limited

The commission intends to commence enforcement action against all

defaulters to recover the debt.

Laws and regulations are meant to be obeyed in order for the smooth running

of any economy. For any economy to survive, development of telecommunications

system will no doubt be enhanced. It is imperative that the consumers, investors,

shareholders and the environment should not be undermined. In order to engender

successful enforcement of and compliance with the rules and regulations, the

instruments for regulations of these commercial corporations must ensure that

appropriate measures are put in place to monitor compliance with standards and

when they are flaunted, enforcement of sanctions should be melted on defaulters to

enhance compliance and operational standards.

XI. SUMMARY OF THE NCC’s COMPLIANCE MONITORING

ENFORCEMENT ACTIVITIES FOR QUARTER ONE (1), 2016

(i) Commission Sanction Visafone Communications Limited

The commission pursuant to its regulatory oversight sanctioned Visafone

Communications Limited with the fine of N5,000,000 (Five Million Naira) in March

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2016 for non-compliance with the commission’s directive on the End of Call

Notification (EOCN) to subscribers on their networks. The commission for

regulation of telecommunication networks also sanctioned Visafone

Communications Limited.

(ii) Second, Warning/Desist Order to Aretic Spatial Limited and Vodacom

Business Africa Nigeria Limited over Breach of terms and Conditions

of Automated Vehicular Tracking Services License (AVTS)

Aretic Spatial Limited entered into a joint venture agreement with

Vodaphone Business Africa Nigeria Limited for due market and distribution of

AVTS services without obtaining approval from the commission contrary to

condition 13 of the terms and conditions of its license. The commission in

furtherance to paragraph 14 of the Nigerian Communications Enforcement

(Enforcement Process etc) Regulations 2005 considered the plea for leniency by the

licenses and given that the licenses are first time offenders, hence issues them with

warning/desist order in this regard.

(iii) Compliance Monitoring of Commissions Direction of Routing of a

Minimum of 10% of Interconnect Traffic Through Interconnect

Exchange Licenses

The commission pursuant to section 51(1) of the NCA 2003 issued a

direction in April 2009 that all operators should route a minimum of 10% of their

inter-operator traffic through licensed Interconnect Exchange Operators in locations

where they have point of presence (POP) across the country. This direction is aimed

at providing interconnection across the networks and encourage routing of traffic

through interconnect exchange operators which is necessary to reduce network

congestions and mitigate the quality of service challenges.

Content with this mandate of the commission to monitor and ensure

operator’s compliance with extant rules, regulations, directions and guidelines, the

Compliance Monitoring and Enforcement department carried out a compliance

monitoring check to conform the level of compliance to the above direction. Their

monitoring process involved collecting traffic data for the period of December 2015

and January 2016 (inbound and outbound) from the network operators as well as

from the major interconnects Exchange Houses.

Having review the data, it was revealed that all the Net Mobile Network

operators except Globacom complied with the 10% minimum threshold of

interconnect traffic to be routed through the interconnect exchange operators.

Consequently, the commission has connected the necessary enforcement action for

this breach.

(iv) Enforcement Session with Mobile Network Operator and Value Added

Service Providers Regarding Unsolicited Measures and other Unfair

Practices

The commission continues to be inundated with complaints by the Nigerian

mobile service telephone subscribers regarding unsolicited text messages and

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unauthorised subscription of Value Added Services (VAS) in Nigeria

Telecommunication industry.

In the same vein, the National Assembly as the representatives of the

Nigerian people has also raised concerns regarding this menace and has directed the

commission and industry stakeholders to find a lasting solution to this problem. In

furtherance of the above, the commission had an engagement session with service

providers (MNO’s & VAS Providers) on Friday March 18, 2016 in Lagos. The

engagement session was aimed at proffering immediate and lasting solution to the

nuisance of unsolicited messages and other unfair practices by VAS providers and

the Mobile Network operators. The commission has since commenced the process

of implementing the resolutions reached during the engagement session.

(v) Compliance Monitoring Regarding the Engagement of Licensed Service

Provider for the Provision of Internet/Data Access by Some Financial

Institutions in Nigeria

Following the commission’s surveillance and intelligence gathering

exercise, it was discovered that some financial institutions in Nigeria engaged the

service of unlicensed service providers for their internet and data services. In line

with the commission’s compliance process, these banks were requested to provide

the names and details of their service providers in this regard.

Arising from this compliance check, the commission has discovered that

forty-one (41) commercial corporations engaged were operating without the

requisite authorisation. To this end, the commission has commenced the necessary

enforcement process in line with the provisions of the Nigerian Communication Act

2003.

XII. UNITED STATES REGULATORY COMPLIANCE

(a) Regulatory Filings and Compliance

Administrative regulations affect nearly every type of commercial activity

in the United States to some degree. Corporate businesses such as commercial banks

are responsible for knowing and complying with the regulations that affect them and

their industries. Administrative regulatory agencies charged with enforcing

regulations may do so by instigating complaints and bringing enforcement actions

by many regulatory agencies also require corporate entities to demonstrate

regulatory compliance through regulator or occasional filings. Failure to meet filling

requirements is often a regulatory infraction itself.

(b) Regulatory Compliance

People with managerial authority in business entity, such as corporate

directors and officers are responsible for ensuring that other corporations’ activities

comply with all applicable local, state and federal regulations. The field of

regulatory compliance has arisen to assist managers with this responsibility.

“Regulatory Compliance” generally refers to an organisation’s adherence to any and

all applicable regulations, guidelines, specifications, and other legal requirements.

The federal and state may create a new agency to carry out its goal or enforce its

provisions, or may charge existing agency with new responsibilities. But, large

corporations and organisations may have executive-level positions whose primary

job is to oversee compliance with applicable regulations. This may include the

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creation of internal regulatory compliance monitoring and reporting systems. In

addition to reporting or filing requirements enforced by government agencies,

business consultants, attorneys, and other professionals may offer regulatory

compliance consulting or monitoring services to other corporations27.

(c) Non-Government Regulatory Compliance

Some establishments and financial institutions have also established

organisations with regulatory authority over their members. For instance, The

Financial Industry Regulatory Authority (FINRA) has authority to investigate and

discipline members for violations of its own regulations and federal financial

regulations. These organisations do not exempt corporations or individuals from

investigation or prosecution by public agencies, but they can serve as an important

supplement to those agencies’ abilities28.

(d) Regulatory Filings

Many statutes in the United States require corporate businesses and other

organisations to file certain forms and produce documents as a prerequisite for

certain acts. The Securities Act, for example, requires registration of many types of

public officers to sell or buy securities. State laws require series of filing in order to

obtain professional licenses, such as permits for certain business activities. This is

to ensure compliance with regulatory laws.

Some Untied States Regulatory Agencies

i. Office of Insurance Regulation

ii. Securities and Exchange Commission (SEC)

iii. Commodity Future |Trading Commission (CFRC)

iv. Federal Reserve System (“Fed”)

v. Financial Crimes Enforcement Network (FINCEN)

vi. Financial Industry Regulatory Authority (FINTRA)

(f) Chief Compliance Officers

Another approach by United States is the appointment of Chief Compliance

officers.

Due to the increasing number of regulations and the need for operational

transparency, organisations are increasingly adopting the use of consolidated and

harmonised set of compliance controls by the appointment of Chief Compliance

Officers. The Chief Compliance Officer (CCO) of a corporation is the office primary

responsible for overseeing and managing regulatory compliance issues within an

organisation. The CCO is typically the Chief Operation Officer. This role operates

in heavily regulated industries such as financial services and health care.

XIII. UNITED KINGDOM (UK) REGULATORY COMPLIANCE

27 Justia, Regulatory Filings and Compliance Overview, http://www:justia.com/administrative-law/regulation-filings-compliance/ accessed December 1, 2016. 28 U.K. Hampton, 6 Compliance, Enforcement, Appeals 123, Better Regulation in Europe: United Kingdom OECD 2010. The Hampton Review Sought to embed a new policy approach to enforcement based on proportionality and risk-based assessments to help target resources on high risk organisations that are unlikely to comply with regulations, and reduce the administrative burden on those that do so.

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There is considerable regulation in the UK, some of which is from EU

legislations. Various areas are policed by different bodies, such as the FCA

(Financial Conduct Authority), Environment Agency and Scottish Environment

Protection Agency, Information Commissioner’s Office, CQC and others. Important

compliance issues for all organisations, large or small, include the Data Protection

Act 1998 and, for the public sector, Freedom of Information Act 2000.

The U.K Corporate Governance Code (formerly the Combined Code) is

issued by the Financial Reporting Council (FRC) and sets out standards of good

practice in relation to board leadership and effectiveness, remuneration,

accountability and relations with shareholders.

The practical roll-out of Hampton recommendations has been a fundamental

and comprehensive effort to embed risk based regulatory management at ground

level. The Hampton recommendations just like the Dodd-Frank Act in United States,

energetically spearheaded by the BRE (Better Regulation Executive), were

innovative and have been a source of inspiration to other countries. The change

brought by the recommendations was particularly necessary given its complex and

overlapping structures for enforcement. Consistent change across all regulatory

agencies and local authorities will take time. The major objectives are rebalancing

enforcement, monitoring compliance rate and ensuring regulatory sanctions such as

flexible civil administrative sanctions powers as an alternative to criminal

prosecution.

XIV. LESSONS TO BE LEARNT

There are many lessons to be learnt from some foreign jurisdictions. There

is the lesson of assessing the level of compliance with regulations by business and

targeted groups, and possible explanations for why compliance levels are low or

high. Explanations for the level of non-compliance or low compliance fall into three

categories:

(i) The degree to which the target group knows of and comprehends the rules.

(ii) The degree to which the target group is willing to comply, either because of

economic incentives, positive attitudes arising from a sense of good

corporate citizenship, acceptance of policy goals, or pressure from

enforcement agencies or activities.

(iii) The degree to which the target group is able to comply with the rules.

For regulatory compliance to be promoted the government must be active to

take each of these steps into consideration, and ensure that following steps are

employed to make regulatory compliance effective:

(a) The regulators should recognise that a key element of their activities will be

to allow, or even encourage, economic progress and only to intervene when

there is a clear case of protection.

(b) Regulators should provide authoritative accessible advice easily and

cheaply.

(c) The regulators, and the regulatory system as a whole, should use

comprehensive risk assessment to concentrate resources in the areas that

need them most.

(d) No inspection should take place without reason.

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(e) Businesses should not have to give unnecessary information or give the same

piece of information twice except when necessary action is not taken.

(f) The few corporate businesses that persistently break rules and regulations

should be identified quickly and face appropriate and meaningful sanctions.

(g) Regulators should be accountable for the efficiency and effectiveness of their

activities while remaining independent in the decision they take.

XV QUESTION OF ENFORCEMENT

Enforcement is cardinal in any assessment of the level of compliance by

commercial corporations with their regulatory instruments. Enforcement, in this

context, refers to compelling obedience by commercial corporations and making the

laws and all other instruments effective. Apart from the government agencies

mentioned in chapter four, organs of enforcement include the Attorney-General of

the Federation, Chief Law Officer of the country, the Police, Board of Customs and

Excise, Law Courts, correctional or penal institutions such as the prisons.

These methods of enforcement by government law enforcement organs and

agencies can be identified, namely, non-adjudicatory (informal) enforcement and

prior clearance procedures, adjudicating administrative hearing29. The machinery

for enforcement is both government and private, that is citizens, who are aggrieved

by action or inaction of commercial corporations.

In evaluating the existing enforcement machinery, one would agree with the

joint submission of Fabunmi, Popoola and Ajai:

…generally there is no dearth of legislative measures to enforce

the laws relating to or regulating commerce and industry… that

often times the legislative measures are shoddily implemented.

Sometimes they are never resorted to or are resorted to only

infrequently betraying a lack of a well thought out enforcement

policy of the law by the enforcement agency30.

There is also the problem of weak enforcement because of existence of weak

enforcement institutions that have no infrastructure, fund and facilities, and weak

men (personnel) who are corrupt and sometimes unqualified and incompetent.

Ethnicity, nepotism and political and other primordial considerations are other

factors.

29 J. O. Fabunmi, A. Popoola, and O. Ajai, The Machinery for Commercial Law Enforcement in Nigeria, Now And in The Future, 5(19) THE GRAVITAS REVIEW OF BUSINESS AND PROPERTY LAW, April-June 1992, pp. 49-58 at p. 50. Where the writers identified the first two methods and classified the third as in between the two. 30 J. O. Fabunmi, A. Popoola, and O. Ajai, Some Aspects of Commercial Law Enforcement in Nigeria, 1 O.S.U LAW J (1990), 107 at p. 117.

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XVI. CONCLUSION

From the two case studies of the banking sector (commercial banks) and

telecom sectors, the choice of the two sectors is justifiable because of the importance

of commercial banking services in the economy and usefulness of the telecom sector

to drive, like commercial banking, other sectors. As regards the commercial banks,

it is shown how the relevant instruments vest powers in the Central Bank of Nigeria

to issue rules, guidelines, ensure control, monitor and sanction erring banks. The

CBN mandate spans from the stage of licensing to that of liquidation of commercial

banks, while the Nigeria Deposit Insurance Corporation takes regulatory

responsibility for insuring customers’ deposits in such banks. There is high level of

compliance by the banks with Central Bank of Nigeria measures including SWIFTS,

Bank loans to Discos, Treasury Single Account (TSA), holden charges, requirement

of compliance officers and whistleblowing. Some lessons from the United States

Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank Act)

2010 include reducing federal dependence on the banks by subjecting them to

stringent regulations, creation of Financial Stability Oversight Council (FSOC) to

address persistent issues that affect the financial industry and guard against future

recessions; need for banks to have “funeral plans” to be able to shut down in an

orderly manner, if the need arises, and creation of the Consumer Financial Protection

Bureau (CFPB) to stop financial malpractices and provide consumers with truthful

information.

With regard to the telecom sector, although there is much standardisation by

the Nigeria Communication Commission (NCC), the level of compliance by

telecom service providers is not as high as in the commercial banking sector. There

is much dissatisfaction by consumers of telecom services. The assessment model

adopted is an examination of the NCC’s compliance monitoring enforcement

activities for quarter (3) 2015, quarter four (4) 2015 and quarter one (1) 2016. These

show the outcomes and achievements of the monitoring and enforcement for the

period. They reveal the sanctions that were imposed for non-compliance by the

service providers. From the United States and United Kingdom and also drawing

from the European Union, there is the need for use and more use of Compliance

Officers and practice of assessing the level of compliance by commercial

corporations and target groups with regulatory instruments with a view to seeking

explanations for whatever level of compliance that is relevant after each assessment.

This will be useful in making compliance effective.

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Ogunseye: Judicial Approach to Freedom of Mortgage Contract in Nigeria

423

JUDICIAL APPROACH TO FREEDOM OF MORTGAGE

CONTRACT IN NIGERIA

Olumuyiwa Aremu Ogunseye, Ph.D*

I. INTRODUCTION

It is a fundamental principle of law, which is constantly being proclaimed by

international courts, that contractual undertakings must be respected. The rule pacta

sunt servanda is the basis of every contractual relationship.1 As a general principle

of law, parties are said to be free to contract as they wish and deem fit.2 The popular

exceptions to this rule are that parties cannot contract to commit a crime or to

perpetrate an illegal act, such as fraud, duress and misrepresentation.3 The

contractual freedom of parties’ to contract freely is unimpeded. According to Blum,4

the power to enter contracts and formulate the terms of the contractual relationship

is regarded in our legal system as an exercise of an individual, autonomy an integral

part of personal liberty.

It then follows that once parties have entered into an agreement, which said

agreement has been reduced into writing, the said contract forms a ‘matrimonial'

union between the parties with regard to the terms stated therein.5Such contract is

sacrosanct and the only jurisdiction which court can exercise over same is their

interpretative jurisdiction (as the courts cannot make contract for the parties).6The

Supreme Court of Nigeria stated it is settled law that parties are bound by the

contract they voluntarily enter into and cannot act outside the terms and conditions

contained in the said contract7

Adekeye, JSC stated in BFI Group Corp. v. BPE8 that “in law, parties to a

contract are free to conclude their bargain on whatever terms they are deemed

appropriate…’’ This is a confirmation of term freedom of contract. It is clear from

the various judicial pronouncements that parties to a contract have the freedom to

agree on the terms that will govern their relationship. The agreed terms will be

*Lecturer, Lagos State University, Lagos, Legal Practitioner and Solicitor of England and Wales. 1Arbitral award in Sapphire v. National Iranian Oil Company, 1963, I.L.R. 1967, 136 at 181. 2 See Unilife Development Company Ltd v. Adeshigbin (2001) 2 S.C. 43 3See Onyiuke III v. Okeke (Unreported) Supreme Court of Nigeria, Suit No. SC/430/74 delivered on May 5, 1976; A.C.B. Ltd v. Alao (1994) 7 NWLR (Pt. 358) 614; JFS Investment Ltd v. Brawal Line Ltd & 2 Ors (2010) 12 S.C. (Pt. 1) 110. 4 B.A. BLUM, CONTRACTS: EXAMPLES AND EXPLANATIONS, Aspen Publishers, USA, 4th ed. (2007) p. 8 5 See J. Nwobike, Jurisdiction and the Contractual freedom of parties- Does Expropriatory Contracts really expropriate,’

https://www.jnclawfirm.com/articles/JURISDICTION%20AND%20THE%20CONTRACTUAL%20FREEDOM%20OF%20PARTIES.pdf (last accessed on August 17, 2017) 6 See Alade v. ALIC (NIg.) Ltd &Ors (2010) 12 S.C. (Pt. II) 59 at 95; Ekiadolor v. Osayande (2010) 6 NWLR 423 C.A 7A. G. Ferrerro & Co. Ltd v. Henkel Chemical Nig. Ltd. [2011] 5-7 (Pt. 1) M.J.S.C. 55 at 69; see also Onyekwelu v. ELF P.N. Ltd. [2009] 2 M.J.S.C. (Pt. 1) 25 AT 42-43. 8 [2012] 6-7 M.J.S.C. P.124 at 161-162

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binding on them and neither party will be able to act outside the terms. It has been

observed by the courts that parties’ freedom is essential and central to the

bindingness of their contract and none of them will be allowed to resile from such

terms and conditions except for good and genuine reasons.9 The court has been

consistent in its stand on the freedom of the parties to a contract and on the need for

the parties to freely choose the terms of their contract. Thus it could be stated that

the courts have recognised the components; party freedom and term freedom as the

two components of freedom of contract. This article appraises judicial approach to

freedom of contract doctrine in the sphere of mortgage contract in Nigeria.

II. CONTRACT NEGOTIATION AND FREEDOM OF CONTRACT.

The importance of the law with respect to contract negotiation and its effect

on freedom of contract cannot be overlooked. An agreement to enter into a contract

in itself is not enforceable, and given that an agreement in a contract to agree on a

material term of that contract may render that contract unenforceable for want of

certainty.10 There is, however, the question whether or not such an agreement in

itself can be enforced. An agreement, in similar circumstances, merely to negotiate

as to what the terms of a contract that is yet to be negotiated should be, without any

necessity to reach an agreement, must a fortiori, render the contract even more

uncertain and thus unenforceable.11

This position was perhaps responsible for the opinion expressed by Denning

M. R, when he stated: “If the law does not recognise a contract to enter into a contract

(when there is a fundamental term to be agreed) it seems to me it cannot recognise

a contract to negotiate.’’ The House of Lords had held that contract to negotiate in

good faith with a view to reach an agreement is not capable of enforcement and has

no legal basis.12 The theoretical existence of the rule was rejected by Lord Denning

M. R in Courtney and Fairbairn Ltd v. Tolaini Brothers (Hotels) Ltd.13 This has

failed to prevent multiplicity of cases by litigants that are interested in enforcing this

type of agreement. The case of Walford v. Miles14 however, welcomed as it restated,

the already existing position of the law. Lord Ackner, was of a different view when

he opined as follows: “[this] would indirectly impose upon the [defendants] a duty

to negotiate in good faith. Such a duty...cannot be imposed.’’ The learned Judge

eventually submitted that a duty to negotiate in good faith is as unworkable in

practice as it is inherently inconsistent with the position of a negotiating party. He

stated further that it is here that the uncertainty lies, while negotiations are in

existence either party is entitled to withdraw at any time and for any reason.15

Though the House of Lords failed to state the reasons why an agreement to

negotiate is unenforceable, it may be suggested that their decision was based on the

9Kaydee Ventures Ltd v. Hon. Minister of FCT [2010] 1-2 M.J.S.C 129 at 154. 10 See May v. Butcher, [1934] 2 KB 17n 11J. Cumberbatch, In Freedom Causes: The contract to Negotiate, 12(4) OXFORD JOURNAL OF LEGAL STUDIES, (1992) P. 587 12 . See Lord Akner in Walford v. Miles [1992] 2 WLR. 174 13 . (1975) 1 W. L. R 297. 14 [1992] 2 WLR 174 15id. at p. 588

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existing principle of law that such contract is unenforceable. Cumberbatch suggested

that such an agreement is unenforceable because it lacks certainty.16 He observed

that the adversarial position of the negotiating parties in most cases leads to a

reluctance in enforcing such contract on the ground of public policy of freedom of

contract, rather than on the basis of the expectation of the parties. Certainty of terms

is therefore a necessary requirement of the law regarding the validity and

enforceability of a contract.

Where the terms to be negotiated are the terms of the very agreement, they

may be valid and enforceable. Where, however, the terms to be negotiated are that

of an entirely new contract not yet entered into, such an agreement will not be

enforceable. In Walford v. Miles,17 the purported agreement was for the negotiation

of an entirely new contract rather than for the negotiation of a term of the very

contract which itself allegedly created the duty to negotiate. Whereas in the latter

context, as in Mallozzi v. Carapelli18 the issue would arise whether the contract was

sufficiently complete as to be reasonably certain and therefore itself capable of

enforcement.19 In contractual relationship, parties will seek to have the best deal for

themselves. When parties enter into a contract, court plays a fundamental policing

role to ensure that such contract is within the set of contracts recognised by law.

Where parties to a given contract enter into a contract forbidden by law or contrary

to public policy, the court will not give effect to it.20 A party cannot claim freedom

of contract and decide to enter into contract that is contrary to public policy such as

contract prohibited by statute.21 Another instance where the court will not allow a

contract to stand based upon the claim of freedom of contract is where there is no

intention to create legal relations.22Where an agreement to negotiate does not show

any intention to enter into contract since the agreement is devoid of legal contents,

it will be unenforceable. The situation would have been different if the contract had

been entered into, but negotiations of the terms have not been concluded. In this

case, agreement to negotiate the terms of such contract in order to conclude will be

enforceable.23

Freedom of individual and other entities recognised by law to enter into

contract is an important aspect of public policy. An Individual is free to choose the

person he wishes to contract with and the terms of such contract should be agreed

by the parties. To force a party to negotiate with another without his free will to do

so, will constitute a flagrant infringement of his party freedom of contract as well as

his constitutional right to contract. If however, he freely gives his consent and

16 J. Cumberbatch, Freedom Causes: The Contract to Negotiate’, 12(4) OXFORD JOURNAL OF LEGAL STUDIES, (1992), p. 586. 17id. 18 [1976] 1 Lloyds Rep. 407. 19Hilas & Co. Ltd v. Arcos Ltd. (1932) 147 LT 503. 20 See Alao v. A.C.B. (1998) 3 NWLR (Pt. 542) 339 Ratio 2 at 355; Sodipo v. Lemminikanen Oy (No. 1) (1985)2NWLR (Pt. 8) 547. 21 See Benson & Co. v. Krainische Industries Gasallschaft [1918] 1 KB 331, 342; See also Guiness Nigeria Plc., v. Nwoke (2001) FWLR (Pt. 36) 981 CA; Afegbai v. A.G Edo State. (2001) FWLR (Pt. 69) 1352; JFS Investment Ltd v. Brawal Line & 2 Ors., (2010) 12 SC (Pt. 1) 110. 22 See Balfour v. Balfour [1919] 2 KB 571 (C.A). 23Hilas & Co Ltd v. Arcos Ltd. (1932) 147 LT 503.

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promise in the commercial context, and for good consideration, to be bound by

performance of an obligation, there will be no objection. He will be seen as freely

entering into a contractual relationship without any form of imposition. Where there

is an imposition of obligation to negotiate by law on a party, which has left the price,

for example to be agreed, then, there is no freedom.

The concept of negotiation in good faith is not so vague as to be incapable

of formulation. The policy of freedom of contract might better be exemplified, in

this context, by holding the parties to what has been agreed, rather than by using a

dubious absolving power to ‘unmake’ a ‘contract’ for one party.24It is a settled law

that parties are bound by the contract they voluntarily entered into and cannot act

outside the terms and conditions contained in the said contract.25The reason is that

where the terms as agreed by the parties are given effect the doctrine of freedom of

contract will manifestly be seen to be operational. The parties’ intention would be

clearly seen in their respective expression of intention to contract. This is one of the

pillars of negotiating in good faith. It is necessary to consider each of the examples

of types of contracts earlier on stated.

III. FREEDOM OF CONTRACT AND MORTGAGES

(a) Definition of Mortgage

Mortgage may be defined as “a conveyance of land or assignment of chattels

as a security for the payment of a debt or the discharge of some other obligation for

which it is given.”26Chesire stated that “a mortgage arises where land is conveyed

or otherwise dealt with in order to secure the payment of a debt or the discharge of

some other obligations.”27Megarry offered a more comprehensive definition of

mortgage when he stated that “the most important kind of security is mortgage. The

essential nature of a mortgage is that it is a conveyance of a legal or equitable interest

in property with a provision for redemption...The borrower is known as the

‘mortgagor’ the lender the ‘mortgagee.’’28 From these definitions, certain features

stand out. These include the fact that mortgage has to do with the idea of conveying

or assigning a property by one person known as a mortgagor to another known as a

mortgagee with the intention of using the said property as a security for payment of

a debt or discharge of some other obligation.

A judicial definition of mortgage was given in Olowu v. Miller Bros (of Liverpool)

Ltd29when Pennington, J, (as he then was) defined it as “a security created by

contract for the payment of a debt already due or to become due.’’ A mortgage was

defined as

24.J. Cumberbatch, In Freedom’s Cause, id, p. 589. 25 See A. G Ferrerro & Co. Ltd v. Henkel Chemical Nig. Ltd. [2011] 5-7 M.J.S.C. P. 55, 69 (Para C-G); See also Chukwumah v. Shell Petroleum Development Corp. (1993) 4 NWLR (Pt. 289) 512; UBN v. Ozigi (1994) 3 NWLR (Pt.. 333) 385 at 404; Best (Nig.) Ltd v. Blackwood Hodge (Nig.) Ltd [2011] 1-2 M.J.S.C. 55 at 76 (Paras. C-D). 26 See A. GIBSON, GIBSON’S CONVEYANCING; LEGAL TREATISES, 1800-1926 at p. 326. 27G. C. CHESIRE, THE MODERN LAW OF REAL PROPERTY, Butterworth, 9thed. at p. 547. 28R. MEGARRY, A MANUAL OF THE LAW OF REAL PROPERTY, Stevens and Sons, Ltd, London, (4th ed.), (1969) at p.460. 29(1922) 3. N. L. R. 110.

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the creation of an interest in a property defeasible (i.e. annullable) upon

performing the condition of paying a given sum of money with interest

at a certain time. The legal consequence of the definition is that the

owner of the mortgaged property becomes divested of the right to

dispose of it until he has secured a release of the property from the

mortgagee.30

From the definitions, a mortgage arises where an interest has been created

on a given property due to a loan given to the owner with an agreement to repay the

sum to the creditor at an agreed time together with interest. The effect is that the

mortgagor no longer has absolute right to deal with the property the way he wishes

until he has repaid the money and the interest. Pennington’s definition tend to agree

with the definition given by Tyer31 when he described a mortgage as a form of

security created by contract, conferring an interest in property defeasible (i.e.

annullable) upon performing the condition of paying a given sum of money, with or

without interest. Mortgage is viewed from the stand point of personal contract where

the mortgagor voluntarily covenants with the mortgagee without any form of

coercion. In a mortgage transaction, there is freedom of contract the mortgagor

freely approaches the mortgagee for loan advance. He is not under any form of

coercion to enter into the contract. His freedom will however be lost when the terms

of the mortgage stipulates his loss of right to deal with the property the way he

wishes since in most cases, such property is used as collateral for the loan.

A mortgage may be defined as an act of a person called mortgagor conveying

or pledging his property or chattel to another person called mortgagee as security

for the payment of debt he owes the mortgagee or for the discharge of any obligation

owed the mortgagee. A mortgage may be legal or equitable. A legal mortgage

involves execution under seal and the transfer of the legal title from the mortgagor

to the mortgagee, subject to mortgagor’s right of redemption, which is a right to a

conveyance on payment of the mortgage monies in accordance with the covenant

with the mortgagee. On the other hand, equitable mortgage is an agreement to enter

into a legal mortgage. Anything that can be construed as such an agreement will

constitute an equitable mortgage.32 In Nigeria, a legal mortgage is created when the

mortgagor, by the rules of common law, conveys the whole of his beneficial interest

to the mortgagee; with a covenant by the mortgagee that upon repayment of the loan

on an agreed date which extends usually to six months33the property will revert back

to the original owner. In the process of creating a legal mortgage freedom of contract

can be said to be present to some extent in that the mortgagor has the free will to

approach the prospective mortgagee when he is seeking for the loan that results in

the creation of the mortgage. He wilfully agrees to the terms and conditions of the

30Adetono v. Zenith Bank Plc [2011] 12 M.J.S.C. (Pt. III) p. 75 at 90 (Paras E-G). 31E. L.G. TYER, FISHER AND LIGHTWOOD LAW OF MORTGAGES (9th ed.) pp 4-9 cited by Badaiki, A.D. in Modes of Mortgaging Land in Nigeria, 4(1) EDO STATE UNIVERSITY LAW JOURNAL Vol. (1994) p. 43. 32 See P. A. OLUYEDE, NIGERIAN LAW OF CONVEYANCING, Ibadan University Press, (1978) at pp. 161 and 162. 33 See N. TOBI, CASES AND MATERIALS ON NIGERIAN LAND LAW, Mabrochi Books, Lagos (1997) at p. 129.

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mortgagor. It may, however, be stated that the freedom here is not absolute in that

where the mortgagor agrees to the execution of the mortgage deed which has been

pre-prepared (as often seen in Bank cases), as presented to him, his freedom ceases.

The mortgage document often contains many terms that are printed in unreadable

manner and which the mortgagor may not understand most of these terms. Also, he

does not have the opportunity to negotiate any of the terms.34 Term freedom of

contract is obviously negated.

Apart from this, the desperate need of the money often play important role

in the mind of mortgagor at the inception of entering into a mortgage relationship.

Since there arises a need to secure finances which are required to provide a linkage

for individual economic advancement,35 efforts are made to raise funds for this

purpose by various means which includes through mortgages contracts. In mortgage

transaction, freedom of contract is apparently absent, because, the mortgagor in most

cases is at the mercy of the mortgagee. The desperate need of the mortgagor is

usually exploited by the mortgagee who in most cases is in a stronger bargaining

position against the mortgagor.

The mortgagor’s desperation arises from his urgent need of fund as a result

of which he enters into the mortgage deal. As such, any term contained in the deed,

no matter how unfavourable they may be, the mortgagor will sign it. There is no

opportunity to negotiate such odious terms. This places the mortgagee at an

advantage over the mortgagor. Therefore, on a close look at mortgage relationship,

freedom of contract is conspicuously absent. Where the title deed is deposited as a

security without a memorandum, in order that the mortgagee can exercise the

statutory powers of sale, or of appointing a receiver, it must contain an irrevocable

power of Attorney or a declaration of trust in favour of the mortgagee to remove the

mortgagor from the trusteeship and appoint a new trustee to his place. In Kadiri v.

Olusoga36 the Federal Supreme Court held that a mere deposit of title deeds as

security for a loan does not create a legal but an equitable mortgage, which is also a

form of security. It was also held by the court in the case of Molade & Another v.

Molade & Others37that the legal estate in a mortgaged property passes to the

mortgagee if it is a legal mortgage. In a situation like this, where a legal mortgage is

created and legal estate passes to the mortgagee the freedom of the mortgagor is

compromised in dealing with the property until he repays back the loan taken. Since,

he voluntarily entered into the contract at the inception he has agreed to be bound

by the terms of the mortgage agreement.

(b) Creation of Mortgage

Badaiki’s discussion of modes of mortgaging land in Nigeria shows that a

legal mortgage of free hold interest is created in different ways in Nigeria, for

example in the North, East and title non-registrable part of Lagos State, it is effected

by a conveyance of the fee simple to the mortgagee with a proviso for redemption if

34 See P.A. OLUYEDE, id. at 165 and 166, 35A. D. Badaiki, Modes of Mortgaging Land in Nigeria,’ 4(1) EDO STATE UNIVERSITY LAW JOURNAL (1994) p. 43. 36 [1956] S.C.N.L.R. 150. 37 [1958] S. C. N. L. R. 206.

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the mortgage debt was paid on the fixed date.38 This has reduced the mortgagor’s

interest in his property to equitable interest he no longer has legal interest until he

repaid the debt. As such, the mortgagee becomes the absolute owner of the

mortgaged land or property where the mortgagor is unable to pay the sum within six

months. The mortgagor only has possessory right he forfeits the land as soon as he

is not able to repay his debt. It is clear from the operation of legal mortgage that

freedom of contract is obviously lacking. The moment the mortgagor fails to repay,

he loses his property to the mortgagee, if freedom of contract is present, he would

be able to negotiate for further time to pay the debt as against forfeiting his property.

More so, the terms of the mortgage are provided by the mortgagee, the mortgagor

does not have the opportunity to negotiate the terms at all. This is also an instance

where freedom of contract is missing. Therefore, in mortgage contracts, there is no

absolute freedom of contract. Freedom of contract normally exist at the beginning,

there is party freedom, he choose the mortgagee by himself but after the execution

of such contracts, the freedom initially enjoyed by the mortgagor is lost as he loses

his right over the property used as security for the procurement of the loan. He is

bound by the terms of the mortgage as given by the mortgagee, which terms he could

not negotiate. His last hope is to redeem the property back by repaying the loan taken

at the earliest possible time.

In other parts of Nigeria governed by Property and Conveyancing Law which

are majorly the former Western States39 a legal mortgage is effected in two ways,

by a demise for a term of years absolute subject to a provision for cesser on

redemption and by a charge by deed expressed to be by way of legal mortgage.40

This is governed by section 109 of the Property and Conveyancing Law. The effect

of the first method enables the mortgagor to retain his legal fee simple interest and

the equity of redemption. He can create subsequent or lesser interests while the

second method does not give the mortgagee any actual term of years but mere

powers and remedies as if he actually has a term of years. He has the same

protection, power and remedies as if the mortgage has been created by demise.

Under this method, freedom of contract is assured as the mortgagor still has the

charge of his property and can create subsequent interests on the same property. The

second method seems to have the same effect as no actual term seems to have been

created but enjoys protection power and remedies. Under the two systems freedom

of contract is assured in mortgage creation under the property and conveyance law

which operates in the Western states than in the North, East and the Non-registrable

part of Lagos State.

It should however be mentioned that the method of creating mortgage

contract discussed was before the enactment of the Land Use Act of 1978. The Land

Use Act brought changes to concept of land ownership especially in the southern

part of the country, with wide implication on mortgage contracts.41 The effect of

Land Use Act is that freehold estates, for example fee simple can no longer be

conveyed it has been converted into a right of occupancy since the lands both in the

38 See Badaiki, id. 39 These are Oyo, Ogun, Ondo, Osun, Edo and Delta states. 40 Badaiki, id. p. 46. 41 id, p. 47.

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urban areas and the rural area have been vested on the Governor and the Local

Government respectively. In the North and East, a legal mortgage of a right of

occupancy can be created by assignment or the right of assignment.42

Badaiki opined that this method may not be preferable and indeed advisable

if the covenants in the right of occupancy granted by the grantor (Governor or the

Local Government) to the occupier or holder of that right, are onerous although there

is no privity of contract (between the grantor and the assignee/mortgagee). The

assignee (mortgagee) will be liable on the covenants if they touch and concern the

land.43 This raises the issue of freedom of contract. Where the right of occupancy

contains onerous terms which cannot be negotiated by the assignee, the contract then

becomes one of adhesion because the assignee will either take it or leave it. Freedom

of contract is denied, the terms are imposed and the contract will be binding on the

assignee with no choice than to accept the terms as contained in the grant. It is

submitted that freedom of contract is substantially absent in the modes of creating a

legal mortgage contract. Equitable mortgage can be created in many ways one of

which is after creating a legal mortgage, the mortgagor holds equitable interest.

(c) The Role of Equity

Equity, however, provides succour for the hardship of common law by

allowing equity of redemption to set in. Equity of redemption simply means a

situation whereby after the expiration of the six months stipulation, the mortgagor

will still be able to redeem his property back so far he is able to pay the loan, all the

interest and the costs. This is an equitable interest only.44 This principle applies only

to mortgages, but not to other types of transactions. The right of redemption is

inviolable since the object of the mortgage is merely to secure the mortgagee, any

provision which directly or indirectly prevents the recovery by the mortgagor of his

property upon performance of the obligation for which the security is created is

repugnant to the very nature of the transaction and therefore void, for when

performance is completed there is no longer any need or justification for the

retention of the security.45

The principle of equity of redemption applied only in mortgages, but not in

a conditional sale. Thus, in Olowu v. Miller Bros Ltd46 in 1911, Messrs Miller

Brothers by arrangement with Olowu paid off the sums due from him to the Bank

of Nigeria Ltd to which he had earlier on mortgaged certain premises. A deed was

executed whereby Olowu described as conveyed the mortgaged premises to Messrs

Miller Brothers, who were described as ‘’purchasers’’ for a period of five years, in

consideration of the sum of £2,400 in satisfaction of the trading debt for which they

have been secured. A provision stating that Olowu should pay Messrs Millers the

said sum at the expiration of five years together with any sum incurred by way of

compensation for improvements made. Olowu failed to pay at the expiration of five

years, but after that, he insisted that he was ready to pay but Messrs Millers remained

42 Id. See J.A. OMOTOLA, THE LAND USE ACT REPORT OF A NATIONAL WORKSHOP, Lagos University Press Akoka, Lagos (1982) p. 87. 43 id. p.48. 44 See T. O. ELIAS, NIGERIAN LAND LAW, Sweet and Maxwell (fourth edition) 304 at -305 45 See G.C. Chesire, id. at p. 564. 46 (1911) 3 N. L. R. 110.

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in possession as the owner. It was held that the parties intended conditional sale, and

that in conditional sale, the right to redeem the property is lost the moment he was

unable to meet up with the payment after five years.

Equity of redemption provides another chance for redemption of the property

of the mortgagor this is in tune with the doctrine of freedom of contract. The

mortgagor has another opportunity to redeem his property after he has lost the

opportunity to redeem it by his inability to pay on the due date. Equity looks at the

fairness of the circumstances and allows the mortgagor another opportunity to

redeem after the due date. However, equity of redemption limits the freedom of

contract, by allowing the mortgagor more time to redeem the mortgaged property

despite lack of such agreement for more time beyond the agreed time. This happens

as a result of the operation of the law, it also showed one of the instances where the

law interferes with the operation of freedom of contract.

The principle of law, however, that ‘once a mortgage, always a mortgage’

seem to accord with the concept of freedom of contract. The principle means that no

contract between a mortgagor and a mortgagee made at the time of the mortgage and

as part of the mortgage transaction, or in other words, as one of the terms of the loan,

can be valid if it prevents the mortgagor from getting back his property on paying

of what is due on his security. So any bargain with such clause is invalid and is

inconsistent with the transaction being a mortgage.47 It may be submitted that equity

of redemption,48 though tend to protect the mortgagor, limits the spirit of freedom

of contract, in mortgage. Equity does not allow foreclosure which arose from the

willingly entered contract between the parties as long as the person pays back all his

debt. In other words, equity though protects the mortgagor limits freedom of

contract. The parties especially the mortgagor voluntarily entered into the contract,

he agreed to be bound by the terms which includes forfeiting the security if he fails

to repay at an agreed date. This is one of the instances where law interferes in the

operation of the notion of freedom of contract. The law declares any clause

preventing redemption as invalid where the mortgagor pays back his loan. Time is

of essence, equity of redemption only allow the mortgagor more time to be able to

repay. Equity of redemption limits freedom of contract of the parties in mortgages.

The effect of equitable right to redeem on freedom of contract is that despite the fact

that the mortgagor voluntarily entered into the contract, his right to lose the security

if he is unable to pay as agreed is being prevented. This is a form of limitation to

term freedom of contract by not allowing what the parties voluntarily agreed to be

given effect.

47See Viatonu v. Odutayo and Kuyoro (1950) 19 N. L. P. 119; Omo-Base v. New Nigeria Bank (1986). 1 S.C. 77. 48 The difference between equity of redemption and equitable right to redeem is that while equity of redemption only allows the mortgagee more time to pay back his loan and redeem his property used as security, equitable right to redeem is such that prevents foreclosure and guarantees the mortgagor’s right to redeem his property.

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IV. CONCLUSION

Like in many other types of contractual relationships, freedom of contract is

present in mortgage contracts, but its application is not absolute. It is partially

present in these contracts because the mortgagor is at the receiving end in Nigeria.

While party freedom is strongly present, the same cannot be said of terms of freedom

because mortgage contracts are not freely negotiable. They are, more or less in

standard forms; the mortgagor who is often in dire need of money from the

mortgagee, either takes it or leaves it. It is recommended that in mortgages where

the mortgagor does not have the opportunity to negotiate the terms of the mortgage

which in most cases are already in existence before the contract is made, a law be

enacted to empower the mortgagor be able to negotiate the terms of such

relationship. The same positions play out with respect to landlord and tenant

contracts. This will definitely reduce the menace of imposition of unsuitable terms

on the weak party.

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Badaiki: Commercial Arbitration Law and Practice in Nigeria through the Cases.

433

BOOK REVIEW

Prof. A.D. Badaiki*

Title: Commercial Arbitration Law and Practice in Nigeria through

the Cases.

Author: Adedoyin Rhodes-Vivour (SAN)

Publisher: Lexis Nexis

Pages: 760 pages

Year of Publication: 2016

Reviewer: Prof. A. D. Badaiki

One of the greatest books globally on arbitration is Commercial, Arbitration

Law and Practice in Nigeria through the Cases written by Adedoyin Rhodes-

Vivour, a quintessential world acclaimed doyen of arbitration. There is hardly a need

to justify the title of the book because arbitration is commonly resorted to in

resolution of disputes in commercial transactions. Law and practice of arbitration

are necessarily resorted to in the resolution of such deputes. Of course, precedent

cases are central in the application of law and practice in commercial arbitration,

like in other forms of arbitration. The choice of Nigeria as a case study is

underscored by the vibrancy of her economy and volume of commercial transactions

in the hub of sub-Saharan economic network with the rest of the world.

The worth of a book depends on the competence of the author to write it and

as reflected in its contents. From the forward1 written by a retired Justice of the

Supreme Court of Nigeria, Honourable Justice Olufunlola O. Adekeye, who himself

is a fellow of Chartered Institute of Arbitration, and the pages about the author 2, the

writer of the book possesses intellectual pedigree that eminently qualifies her to

write on the subject matter of the book. Aside from being a legal practitioner and

Notary Public of repute, with over three decades of practice including in particular

commercial law practice, most significantly, she is a colossus in international and

domestic arbitration and possesses very rich cognate experience in alternative

dispute resolution especially mediation and commercial arbitration.

Gleaned from pages v-vii; xiii-xiv, the author is a thoroughbred solicitor,

advocate and chartered arbitrator. She holds the Bachelor of Laws and Master of

Laws Degrees from the University of Lagos, Nigeria; Master of Arts Degree in

International Peace and Security, called to the Nigerian Bar and is a fellow of the

*Faculty of Law, Ambrose Alli University, Ekpoma. 1 ADEDOYIN RHODES-VIVOUR, COMMERCIAL ARBITRATION PRACTICE IN NIGERIA THROUGH THE CASES, LexisNexis ( 2016), v-vii. 2id. at xiii-xiv.

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Chartered Institute of Arbitrators, United Kingdom. She also holds a practice

Diploma in International Arbitration Law conferred by the College of Law of

England and Wales in conjunction with the International Bar Association.

The author, who was conferred with the chartered Arbitrator status by the

Institute of Arbitrators United Kingdom, is an accredited mediator of the Centre for

Effective Dispute Resolution (CEDR) United Kingdom. She is a member of the

Court of the Permanent Court of Arbitration (PCA), the Hague, the Netherlands and

a member of the ICC Commission on Arbitration and ADR. She is a member of the

International Law Association (ILA) and its International Committee on

International Commercial Arbitration. She was an officer of the Mediation

Committee of the Legal Practice Direction of the International Bar Association

(IBA) and was the Committee’s Regional Representative for West Africa. She is a

member of Arbitral Women, an international non-governmental organisation

committed to the promotion of women in the field of Arbitration and Alternative

Dispute Resolution.

She has served in various capacities on the Executive Council of the

Chartered Institute of Arbitrators, Nigerian Branch and was at all material time the

first Vice Chairperson of the Branch. She is the Pioneer Chairperson of the

Committee on International Commercial Arbitration of the Nigerian branch of the

International Law Association. She was Pioneer Chairperson of the Nigerian Bar

Association Section on Business Law Arbitration and ADR Committee (2005-2010)

and also a founder member and pioneer President of the Maritime Arbitrators

Association of Nigeria (MAAN) (2006-2010) and remains on the Executive Council

of the Association. She is a member of the pioneer board of the Lagos Court of

Arbitration and member of the pioneer board of the Lagos Chamber of Commerce

International Arbitration Centre.

Mrs. Rhodes-Vivour is listed on various arbitration panels including the

panel of the Chartered Institute of Arbitrators UK, the database of London Court of

International Arbitration Panel of Neutrals (LCIA), the database of LCIA-MIAC

Arbitration Centre, International Centre for Dispute Resolution (ICDR), Singapore

International Arbitration Centre (SIAC), Maritime Arbitrators Association of

Nigeria (MAAN), Kuala Lumpur and the Lagos Regional Centres for International

Commercial Arbitration and Kigali International Arbitration Centre. She is listed as

a supporting member of the LMAA who is generally prepared to take up

appointment as arbitrator. She is also listed on the Panel of Neutrals of the Lagos

and Abuja Multi-door Courthouses. Thus, the author’s interlaced arbitration

intellectualism and practice adds to the credibility of the author’s competence in the

venture of arbitration book writing.

The author’s passion for arbitration was pungently captured in the last

paragraph to the preface of the book. While not expressly stating the necessity for

the book, its essence was expressed in the same paragraph as an attempt “to produce

a reference guide on arbitration law and practice in Nigeria”3 by “providing the

reader materials on almost every facet of arbitration law and practice 4 in the country.

3 id. at ix. 4 id.

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435

In a bid to achieving these objectives, the book is set out in sixteen

preliminary pages in Roman numerals, 760 pages out of which 656 pages are of text,

followed by ten pages of bibliography, fourteen pages of Table of statutes, twenty-

nine pages of Appendices, namely, Rules, Codes and Guidelines; Arbitration

Organizations in Nigeria; Glossary and Abbreviations. In its layout, the book

consists of sixteen chapters which according to the author, is on a “subject by subject

and case by case”5basis. In a unique style, each of the chapters embodies three parts:

statutory framework, case law and commentary. By this, the author guides the reader

on the court’s interpretation of the relevant arbitration statutes by summarizing the

decisions of the courts with relevant quotations from respective cases. Commentary

on each chapter encapsulates information about the statutory provisions, comparison

of the provisions of the respective legal regimes, namely, ordinance based law,

Federal Arbitration Act and the Lagos State Arbitration Law. The commentary

portion also highlights and reviews court cases and other notable features of the

subject under consideration. The merit of comparative knowledge is brought to play

by the use of relevant references to the applicable law in some other jurisdictions.

By that, the author sought to give a “guide to best international practice with the aim

of encouraging the development of arbitration law and practice in Nigeria in

accordance with global trends in the field”.6

In departing from the conventional choice of chapter topics in arbitration

textbook and in line with the utility of the book for purpose of practice of arbitration,

all sixteen chapters in the book virtually are selectively reflective of these purposes.

Although chapter one is titled “definition and nature of arbitration”, it gives an

overview of the legal framework for arbitration in Nigeria with a discussion of the

sources of arbitration law in the country. A contribution to the debate on the tier of

government vested with constitutional powers to legislate on arbitration is partly the

preoccupation of chapter two. It deals with the applicability of the relevant

application of arbitration statutes including the arbitration and conciliation Act7

(ACA) and Lagos State Arbitration Law, Arbitrability, its definition, importance, its

relationship to jurisdiction of arbitral tribunal and the role of law and public policy

in determining arbitrability as well as non-arbitrable matters occupy chapter two. In

chapter three, the all-important gravamen of arbitration agreement is exhaustively

discussed. The office of an arbitrator or umpire is the focus of chapter five. It covers

all facets of arbitrator from his appointment to the point of terminating his mandate

and making decision. Jurisdiction, the subject matter of chapter six is espoused as

the last part of preliminary issue or pre-arbitration proceedings, with emphasis on

sources of jurisdiction, consequences of lack of jurisdiction and the question of

determination of issues of jurisdiction by arbitral tribunal.

While chapter seven delves into duties and powers of the arbitral tribunal,

chapters eight, nine, ten and eleven are on arbitration proceedings. Although chapter

eight is on conduct of the arbitral proceedings, it extends to commencement of

arbitral proceedings, contents of the notice of arbitration, party autonomy (a

fundamental arbitration principle) arbitration application proceedings and pending

5 id. 6 id. 7 Cap A18 Laws of the Federation of Nigeria, 2004.

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court action including stay of proceedings, law applicable to the substance of the

dispute limitation of actions and waiver of rights. The essential elements in the

conduct of arbitration are impressively exhaustively discussed in the chapter. Costs

of arbitration together with fees payable to arbitrators are the contents of chapter

nine. Chapter ten deals with award of interest while award itself is discussed in

chapter eleven.

Two chapters, twelve and thirteen are devoted to post-arbitration

proceedings. Chapter twelve dwells on challenging the arbitral award, remittal of

awards and setting aside of awards. Recognition and enforcement of awards are

comprehensively incorporated into chapter thirteen where the procedure for

enforcement of awards including ICSID awards in Nigeria are discussed in practical

terms. Furthermore, the chapter includes an examination of the documents required

for enforcement.

Chapters fourteen, fifteen and sixteen are the concluding parts of the book,

each dealing with independent topics related to the title of the book. They are

application of limitation laws in chapter fourteen, court support and intervention as

well as extent of such intervention including power to grant anti-arbitration

injunctions and anti-suit injunctions in chapter fifteen and the role of counsel in

arbitral proceedings and the relevant applicable professional ethics in chapter

sixteen.

In all the chapters, there are copious references to the relevant provisions of

the ACA, the Lagos State Arbitration Law, other Arbitration and non-arbitration

statutes of other states in the country, and foreign statutes. Equally significant and

useful for arbitration practice is the discussion of all relevant cases on arbitration in

the country and many other countries. Footnoting which is an expression of

authoritative sources of information and widespread research, is demonstrated in the

book and enriches it in a great measure. In addition, the layout, the contents and

discussion syncronise with the title and objectives set for writing the book. It is a

rare asset to arbitration law and development. The book, being the brain child of an

intellectual cum practitioner of law and arbitration with international reputation, is,

in all modesty, a compendium in its own right. Its language is laden with simplicity,

lucidity and professional linguistic style.

Errors in the book are infinitesimal. For a better syncronisation of the topics

covered, some observations about structural layout are remarkable. First, some

fundamental principles of arbitration in chapter eight under conduct of the arbitral

proceedings may be discussed alone in a separate chapter or as part of the pre-arbitral

proceedings. “Awards” in chapter eleven may be better discussed before “interest”

in chapter ten than it is presently. Table of cases and Table of Statutes may be

brought to the preliminary section rather than the end of the book. The same

suggestion is commended for Glossary and Abbreviations which are presently

located as an appendix.

Adeloyin Rhodes- Viour has contributed imperishably to knowledge of not

only law and practice of commercial arbitration in Nigeria, but also to arbitration

generally and scholarship in international sphere. It is a breakthrough in academic

research and provision of intersection of law and practice of arbitration. The book is

of very high value, and therefore, has my highest recommendation to arbitrators,

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legal practitioners, academicians, members of the bench, court officials,

businessmen, corporate executives, students and the general public.

437