Nigerian Law Firm:Adejumo, Ekisola and Ezeani

Fixing squeaky springs

The recent sacking of the board of Spring Bank Plc by the Central Bank of Nigeria and its immediate reconstitution has once again raised debate on the powers of the Central Bank over corporate boards in the financial industry vis a vis the right of shareholders of those companies to choose who may run their business.

On 5^th June 2007, the CBN Governor removed certain directors of Spring Bank Plc upon being satisfied that the bank was in a grave situation having become insolvent with negative shareholders’ fund. However, by subsequent press release, the Governor of the CBN indicated that they cannot rely on the board chosen (or to be chosen by the shareholders) to be able to move the bank forward and consequently constituted a new board for the bank 7 days later.

Spring bank was formed in the last days of the recapitalization exercise ordered by the Central bank in 2004. She emerged from a merger of Guardian Express Bank, Citizens Bank Plc, Omega Bank Plc, Fountain Trust Bank Plc and African Continental Bank Plc.

In as much as one does not dispute the duty of the CBN or her Governor to protect the public from failed or failing banks, it appears that the sacking of the board of directors of a limited liability company and its reconstitution in order to achieve this otherwise worthy goal may be powers improperly exercised by the CBN in view of the provisions of the Companies and Allied Matters Act (CAMA) and the 1999 constitution.

S. 35 (2) (d) of the Banks and other Financial Institutions Act, provides that notwithstanding the provisions of any written law or the memorandum and articles of association, the Governor of the CBN has power to remove or appoint anyone from or to office as director of a bank in certain situations. These situations occur when the Governor is satisfied that a bank is in a grave situation as regards her assets or the public interest, or the manner of carrying on business vis a vis her depositors and creditors or is in contravention of the Act (BOFIA).

By contrast, S 244 of the CAMA provides that directors of a company are persons duly appointed by the company to manage and direct her business. Appointment or removal of directors of a company are matters typically reserved for the company in general meting, (S214, 247 & 248 CAMA). It is a right attached to each share in the company and is exercisable only by members (S. 81, 114) save in the case of casual vacancies on the board (S.249). The view that the CBN exercises the above powers improperly is backed by S. 44 of the constitution of Nigeria 1999. That section prohibits the compulsory acquisition of any movable or immovable property or any right or interest therein without, amongst other things, prompt payment of compensation. The BOFIA does not provide for payment of compensation in circumstances where the CBN acts like it did with Spring Bank and from the various documents and orders from the CBN, no compensation has been offered to the shareholders of Spring Bank or the bank itself for this infraction of their rights. The argument goes therefore that the said S 35 (2) (d) of BOFIA being inconsistent with the provisions of S 44 of the constitution is null and void.

The Spring bank saga is definitely not ended and we hope that the courts will have the opportunity to consider and pronounce on this very important issue sometime soon.

What’s in a name? Time for a central registry for Companies, /Business Names and Trade marks.

Shakespeare wrote, ‘What is in a name? A rose by any other name will smell as sweet.’ But in the corporate and business world all names are not equal. Whilst most business promoters may not spend time choosing names for their companies and ventures, experience shows that as the business grows they begin to pay much attention. This is because a lot of goodwill attaches to a corporate name or her trade marks. These promoters begin to build a wealth of value round the name, to brand it and give it a life and visibility of its own. Imagine their frustration if at this time they discover that their company’s name infringes another’s trade mark or someone’s business name.

This is very likely with the way the trade mark registry and the corporate affairs commission are run currently. The two are separate organs and operate separate registries for their work. The Trade Mark registry is maintained by the Nigerian Intellectual Property Commission while the Corporate Affairs Registry is run by the Corporate Affairs Commission (CAC). But by law the two registries are complimentary: the Companies Act prohibits the registration of any company with a name registered by another as a business name or a trade mark unless the consent of the owner of the mark or business name is obtained.

The disturbing truth is that the Corporate Affairs Commission does not have a comprehensive register of trade marks and business names to assist her in the registration process and this leaves much to be desired. In truth, the way the Trade Mark Registry has operated until now means that no one can have a comprehensive list of registered marks in the country. It takes years to register a trademark and the Trademark journal is not published with any regularity.

With regard to the business names register, the difficulty appears to stem from the provision of the Act that the CAC establish registries in each state of the Federation. Without a central data base containing all the business names registered in all the states, the potential for conflict or disputes arising as to priority claims is increased. The observed practice has been for the officials at the CAC simply match the proposed name(s) with the names of registered Companies under Part A of CAMA 2004 to see whether they are similar or identical. This can be confirmed from the print-out made available to the Solicitor/individual making the application: it does not show that any comparisons were made with any registered trade marks or business names.

The position therefore is that anyone desirous of avoiding the scenario described above will have to conduct a thorough search at the Trademark registry and all offices of the Corporate Affairs Commission to ascertain that his name is not in conflict with a registered mark or business name.

This unfortunate scenario can be avoided if the Corporate Affairs Commission and the new Nigeria Intellectual Property Commission (NIPCOM) develop a synergy that will help forestall this unfortunate situation particularly as regards registered trademarks.

But first the Trademark registry needs to be thoroughly overhauled to make it efficient and customer oriented as the CAC itself. This requirement for synergy can be introduced into the bill establishing NIPCOM which is now before the National Assembly. It is hoped that in its current computerization project the CAC plans to establish a central data base to enable it perform its duties better and save unsuspecting entrepreneurs and promoters from future disappointments, litigation and loss.

Commercial Litigation

Boomerang- How companies can recover for losses caused by strike actions

Economic experts estimate that the last nationwide strike action cost the country about N200 billion in lost production, approximately some N50 billion for each day off the 4 day strike action.

The reasons for the strike action were the recent increase in fuel prices, the increase in VAT, the quest for increased pay by civil servants and a cancellation of the sale of the Port Harcourt refinery. On the first day of the strike, the government agreed to reduce the fuel price, revert to old VAT rate, increase salary of civil servants by 15% and review the sale of the Port Harcourt refinery. Despite these gestures, labour leaders went on with the strike for an additional 3 days.

The notable thing is that the dispute was about political and economic decisions or policies of the government. It had nothing really to do with employers and other people in the private sector and did not arise as a result of a dispute between them and their workers. Yet in prosecuting the strike, labour leaders had in their usual manner, threatened action against any person who or any private business which dared to open or attempted to venture out during the strike.

As life returns to normal in the country, the managers of these private businesses will be reviewing the damage and losses caused by broken contracts and also strategizing on how to recover for past and curtail future losses. One of the options open to them, as suggested by a recent decision of the Court of Appeal in Oshiomole v FGN [2007] 8 NWLR (pt 1035) 58, will be to claim damages from the labour leaders for injuries caused by their interference with contracts. This is a very wide area of tort that has been relatively unexplored in Nigeria but which is very relevant in the face of present business realities. Between 1999 and 2007, fuel prices have been increased about 8 times and almost on each occasion there was a nationwide strike resulting in huge losses to business in the private sector.

In Oshiomole, the Federal Government sued the Nigeria Labour Congress and her leader claiming declaratory and injunctive orders against them for indicating they will resume a strike action because of a planned increase in fuel and diesel prices (about N1.50). Amongst the reliefs were declarations that the notice of intention to resume strike served by the defendants amounted to the tort of ‘…unlawful inducement of breach of their number of workers various and individual contracts of employment with their various employers including the Plaintiffs…’ The court upheld the claims of the government and granted all the reliefs and the appellate court upheld the judgment.

This tort of unlawful interference with a contract has been recognized in Nigeria since 1955. In British & French Bank (for commerce and industry ltd) v Owodunni Trading Co 1956 SCNLR 23, the Federal Supreme Court acknowledged the tort but denied judgment to the Plaintiffs because the bank acted within her rights, i.e. lawfully.

There are two main examples of this tort of interference with contracts. These are inducing (procuring) a breach of contract and intimidation. For the tort of inducing a breach of contract to lie, the key requirement is that the action of the person complained of must result in a breach of contract entered into between the plaintiff and some other person as in the British & French Bank case. The facts were that the Respondent was approached by the Manager of the Appellant bank to help a customer-Obasuyi & Co- who had letters of credit but had no money to enable them use the credits. On the strength of that, respondent advanced 2,000 pounds and signed an agreement drafted by the Bank Manager in his office. Respondent was also a customer of the bank. As soon as the money was paid into Obasuyi’s account, the bank deducted all sums owed it by Obasuyi prior to the agreement leaving just under 600 pounds as working capital for the company. This rendered it impossible for Obasuyi to repay the 2000 pounds on due date and reduced Respondent’s profit on the transaction.

The tort of intimidation is committed when a person suffers loss as a result of a threat issued to her contractual partner by a third party. In Tarleton v McGawley, the Court of Common Pleas held in 1793, that the Master of a Ship who fired at a canoe trying to do business with another vessel was liable for intimidation.

These leaders may however be free from liability if they can show that their action comes within the immunity granted by S.44 of the Trade Union Act. For the provisions of the section to come into play at all the acts of the labour leaders must have been done in contemplation or furtherance of a trade dispute. In Oshiomole case and also in Attorney General of Oyo State v NLC, the Court of Appeal identified the ingredients of a trade dispute. One such feature is that the dispute must be between employers and workers or between workers and workers. The question then is whether the last nationwide action was embarked upon as a result of a trade dispute, particularly as it relates to private sector employers and businesses. The reasons for the last strike were given as increase in fuel prices and VAT rates, sale of the Port Harcourt refinery and quest for better pay for civil servants. The government however granted the increase on the first day of the strike. None of these can be subject of a dispute between employers and their workers. Consequently the immunity offered by the section cannot avail any labour leader with respect to the last strike action.

As resort to strikes grow more frequent and the effect on businesses grows also, private sector employers and business owners should be aware of this window and may not be able to resist the allure of assuaging their losses by a claim against them brought under these heads. Labour leaders have to be careful and desist from calling strikes when the issues they have do not amount to trade disputes properly so called.

News

Mortgage Courts in Lagos:

The Lagos State High court now has a mortgage division to deal with the many disputes between banks and their customers in this area. The development came on the heels of a new government in the state headed by Mr Babatunde Fashola, himself a Senior Advocate of Nigeria.

The Mortgage division is seen as the latest in the series of reforms embarked upon in the state to ensure faster and a more efficient dispensation of justice and security of private ownership of real property. These reforms have been targeted at the Judiciary and the Ministry of Lands. The reforms include introduction of new Rules of Court, provision of ultra modern court halls and computerization of the lands registry. Other reforms have seen the whittling down of bureaucracy in the application for consent to land transactions.

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