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Legal Alert for July 2010 – Money Laundering Law in Nigeria
 
In this Issue:
1. Legal News
2. Legal Alert for July, 2010 – Money Laundering Legislations in Nigeria
3. Subscribe & Unsubscribe to Legal Alerts.
4. Disclaimer Notice.
Legal News
The Lagos State Government has signed into Law a bill for the regulation, standardisation and grading of Hotels and other Tourism businesses in Lagos State. This new law amends the Hotel Licensing Law 2003, and requires that no person, whether corporate or an individual, shall operate a Hotel establishment or practice any form of tourism business in Lagos State without it first obtaining a license from the Lagos State Hotel and Tourism Licensing Authority. Any contravention of this law attracts a fine ranging from N100,000 to N500,000 or a term of imprisonment of two years.
LEGAL ALERT— Money Laundering Legislations in Nigeria
There is no definitive statutory definition of what constitutes a Money Laundering offence. The Anti-Money Laundering/Combating Financing of Terrorism Regulations 2009 however defines Money Laundering as the process whereby criminals attempt to conceal the origin and or ownership of property and other assets that are or were derived from a criminal activity or activities. These regulations go further to acknowledge that money laundering and terrorism financing are now a global phenomena and malaise which pose major threats to international peace and security, national development and progress, if left un-combated.
The combined provisions of the Money Laundering Act, 2004 and the Anti-Money Laundering/Combating Financing of Terrorism Regulations 2009 provide a guide on what financial activity could constitute money laundering. While there is currently before the Nigerian National Assembly the Money Laundering Act (Repeal and Re-enactment) Bill 2010 which Bill seeks to, among other things, increase the cash amount(s) or withdrawal(s) that a financial institution or a non-financial institution must statutorily report to the financial regulators, a consideration of the existing Money Laundering Law is vital to both financial institutions and non-financial institutions and their customers.
Money Laundering (Prohibition) Act, 2004
The Money Laundering (Prohibition) Act, 2004 ("the Money Laundering Act") makes various provisions prohibiting the laundering of the proceeds of a crime or of any criminal or illegal activity, and provides for appropriate penalties for money laundering infringements.
According to the provisions of the Money Laundering Act, no person or corporation or organisation is allowed to make or accept cash payments of a sum in excess of N500,000.00 or its equivalent in the case of an individual, and N2,000,000.00 or its equivalent in the case of a corporation, unless such cash payment or acceptance is undertaken through a financial institution. Also, a transfer of funds or securities to or from a foreign country in excess of US$10,000 or its naira equivalent must be reported to the Central Bank of Nigeria ("CBN") or the Securities and Exchange Commission ("SEC") in the case of a public corporation.
The mandatory reporting of all monetary transfers to or from outside the country must indicate the nature of the transfer, the amount of the transfer, the names and addresses of the sender and the receiver of the funds or securities that were transferred, and the ultimate beneficiary of the transfer if different from the latter persons. The Nigerian Custom Service ("NCS") is also mandatorily required to forward all monetary declarations it collates to the Central Bank of Nigeria.
The Central Bank of Nigeria with the Securities and Exchange Commission are in turn required to forward weekly reports of the above mentioned declarations, submitted to them, to the Economic and Financial Crimes Commission ("EFCC"). Despite this provision, the EFCC is itself empowered to directly demand and receive these reports or declarations directly from the Financial Institutions concerned.
Another money laundering prevention mechanism is the requirement that all financial institutions must verify their customers' identity and physical address before establishing any business relationship with such a customer or customers. The business relationship contemplated by this Act, between the financial institution and the customer, includes the opening of any form of account, safe deposit box and other kinds of fiduciary relationship accounts. The types of a customer identification contemplated by this Act include a valid official document like a Driver's License, an International passport issued in the last three months preceding its submission, utility bills, etc all of which must bear the customer's full names and or photograph. A corporation on the other hand is required to provide proof of its legal existence by presenting its certificate of incorporation and other valid registration documents attesting to its existence as a body corporate recognised by law.
In the event that a financial institution suspects or has reasonable grounds to suspect that the amount involved in a transaction is derived from the proceeds of a crime or from an illegal activity, such financial institution must require from its customer physical evidence attesting to the customer's identification notwithstanding that the amount involved in the transaction is less than US$5,000 or its equivalent. Where the customer is not acting on its own behalf but for a principal, all the information on the identity of the principal must be obtained as if the principal were the customer.
Casino owners, dealers in jewelry, cars, luxury goods, professional consultants including Lawyers, Doctors, Accountants, etc, Hotels, Supermarkets and other designated non-Financial Institutions are required to also obtain and verify the identity of their clients and or customers by keeping a record or register of the particulars of the names of these clients or customers, their addresses and the nature of each transaction. The Federal Ministry of Commerce, to whom these records are forwarded for non-Financial Institutions, is required to in turn forward the reporting records and or declarations to the EFCC. The Register of this information, that is collated or assembled, must be preserved by the non-Financial Institutions for a period of at least five years after the last transaction recorded in the Register.
Where a designated financial institution fails to verify the identity of its customers or does not submit the returns of financial transactions undertaken by its customers with it, within seven days from the date the transaction was undertaken, such a financial institution commits an offence, and if convicted is liable to a fine of N25,000 for each day that the offence continues un-remedied; this is in addition to, and as may be appropriate, such an institution suffering a suspension or revocation or withdrawal of its operating license by the appropriate licensing or regulatory Authority.
Special money laundering surveillance and investigation could occur where a transaction or transactions involves a frequency which is unjustifiable or unreasonable, or is surrounded by conditions of unusual or unjustifiable complexity, or appears to have no economic justification or lawful objective. The financial institution or designated financial institution involved in such a transaction must seek from its customer information or clarification as to the origin and designation of the funds, the objective of the transaction and the ultimate beneficiary. The reporting institution must also draw-up a report which it must forward to the EFCC. Where necessary, the institution should take action to prevent the laundering of the proceeds of a crime or of any illegal financial activity, whether the transaction is completed or not. Such preventive actions include the very short-term freezing of the account of the customer pending when the EFCC is informed and EFCC takes action. Failure to comply with these provisions attracts a fine, on conviction, of N1,000,000 for each day during which the offence continues.
The protective rules on banker/customer confidentiality are not applicable to money laundering investigations and prosecutions especially where an ex-parte order of the Federal High Court is obtained to place a bank account or such other fiduciary account under surveillance, tap every telephone or electronic system of the suspected customer or institution.
Any person who converts or transfers or conceals or disguises or collaborates or aids and abets the concealing or disguising of the genuine nature, origin, location, movement or ownership of a right, asset or property which is derived directly or indirectly from illicit traffic in narcotic drugs or psychotropic substances or from any other criminal or illegal activity is guilty of an offence which on conviction carries a prison sentence of not less than 2 years or more than 3 years. The fact that the various acts constituting the offence were committed in different countries or places shall not be a bar to the prosecution and conviction of such a person neither will the substantive illicit traffic in narcotic drugs or psychotropic substances be exempted from further separate prosecution and conviction.
Also, any person who retains the proceeds of a crime or of any illegal activity on behalf of another person commits an offence and will be liable on conviction to imprisonment for a term of not less than 5 years or to a fine equivalent to five times the value of the proceeds of the criminal conduct or to both such fine and term of imprisonment. Where a corporation is convicted of an offence under the Money Laundering (Prohibition) Act, the Federal High Court may order that the corporation be wound up and its properties forfeited to the Federal Government of Nigeria.
The Federal High Court has the exclusive jurisdiction to try offences under the Money Laundering (Prohibition) Act, 2004. In the trial of offences under this Act, the Federal High Court is authorise to admit collaborating evidence establishing that an accused person is in possession of property for which he or she cannot satisfactorily provide an account and which property is disproportionate to his or her known sources of income.
To facilitate the obtaining of evidence, the Director of investigation or an authorised officer of the Economic and Financial Crime Commission (''EFCC''), duly authorised in that behalf, may demand, obtain and inspect financial records of any financial institution to confirm its compliance with the provisions of this Act. Any willful obstruction of EFCC or its authorised officers in the discharge of their duties under this Act is an offence which on conviction carries a term of imprisonment of not less than two years and not more than three years in the case of an individual. The punishment for a corporation is a fine of One Million Naira (N1,000,000).
Conclusion
The provisions of the Money Laundering (Prohibition) Act remains one of the most effective measures to combating terrorism, narcotic related crimes, embezzlement of public funds, which latter offence is more commonly known in Nigeria as corruption. Unfortunately, the lack of sufficient political will has not provided the minimum enforcement results required. Of equal concern are the human capacity capabilities of the enforcing agencies in Nigeria in the area of modern day sophisticated money laundering technological advances. While continuing amendments to our legislations, including this one, are commended, greater enforcement of the existing legislations is urgently required in order for the minimum levels of development and advancement that Nigeria urgently requires, can be achieved.
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DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment purposes ONLY. This Alert, by itself, does not create a Client/Attorney relationship between yourself and our Law Firm. Recipients are therefore advised to seek professional legal counselling to their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always welcomed with many thanks.
This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is always acknowledged and this Disclaimer Notice is attached.
Legal Alert for June 2010 – Directors: Appointment, Duties & Removal
 
In this Issue:
1. Legal Alert for June, 2010 – Directors: Appointments, Duties & Removal
2. Subscribe & Unsubscribe to Legal Alerts.
3. Disclaimer Notice.
LEGAL ALERT—Directors, Appointment, Duties & Removal
The very important roles that the Directors of a company play in a company's success or failure, which in turn affects national development, are often not seriously appreciated, understood or highlighted by both the directors themselves and or by the other parties related to a company. Also, the failure or inability of the board of directors of a company to direct and manage a company in a responsible manner has contributed enormously to corporate governance failures and the current global economic crises.
It is a trite principle of law that a company, even though recognised under the law to be an artificial, separate and distinct legal entity from its owners, cannot manage or direct her own affairs because a company is an "abstract" person. This is the reason why the law requires that every company in Nigeria must have at least, at all times, two directors and two shareholders.
Who is a Director?
The Companies and Allied Matters Act ("CAMA") describes a Director as any person appointed by a company to direct and manage the business affairs of the company. The Companies and Allied Matters Act further describes a Director to include any person on whose instructions and direction the Board of Directors of a company is accustomed to act despite the fact that such a person is not officially appointed or listed as one of the Directors of the company.
Directors have also been described as "the directing mind and will of a company". The role of a Director of a company is therefore a very important one.
Appointment of Directors?
The methods of appointing the Directors of a company are usually dictated by the provisions of the Articles of Association of each company. The specific qualities that a Director must possess, though generally common, are dictated by the peculiarities of the industry in which such a company operates.
The first Directors of a company are appointed by the subscribers to the Memorandum and Articles of Association of the company at the time of its incorporation. Subsequent directorship appointments are undertaken by the Shareholders of the company at the company's annual general meeting(s). The shareholders also undertake the re-election and removal of a Director or Directors at their Annual General Meeting.
Not every person can be appointed as a Director of a company. Persons who are insolvent or bankrupt, persons who are fraudulent, persons under the age of 18 years old, persons of unsound mind, Directors that have been absent from Board of Directors meetings for a consecutive period of six months, and persons of like characteristic, cannot be appointed as a Director of a company. Also, any person that is 70 years old and above can only be appointed or re-appointed as a Director of a public company in Nigeria if he/she informs the shareholders of the company, at an Annual General Meeting of the company of the fact that he or she is now 70 years old or more than 70 years old.
Subject to conflict of interest rules or the internal regulations of each company, a Director of a company could also be an employee of the company. Despite a Director being an employee of a company, he can only be appointed and removed as a Director in accordance with the provisions of the Articles of Association of such a company and the Companies and Allied Matters Act.
A company could also have executive and non-executive directors. In practice, both the executive and non-executive Directors are appointed to bring their wealth of experience, expertise and network to the benefit of the company. The non-executive directors play the critical role of providing strong, balanced and independent counsel to the Board of Directors.
For large corporations, one third of the Directors are required by CAMA to retire and submit themselves for re-election at every company's Annual General Meeting.
Common Duties of a Director?
The primary duty of a Director of a company is to exercise due care, skill and diligence in the discharge of his or her duties as a reasonable and prudent Director would exercise such duties in comparable circumstances. The failure by a Director to exercise reasonable care could be a ground for an action in negligence and breach of fiduciary duty of care owed by such a Director to the company.
Directors of a company also owe the company a duty of utmost good faith, i.e. fiduciary duty of care. This fiduciary duty of care is owed to the company alone. As fiduciaries of the company, Directors must not place themselves in a position where there is a conflict of interest between their duties to the company and their personal interest. Thus, any secret profits made by a Director of a company from the company are accountable to the company. The fact that the company is unable or unwillingly to take the benefit of such profits for itself will not be a defence to such a Director in any legal action for breach of this duty in which the Director did not disclose to the company the secret dealing and profit.
The other statutory duties that a Director of a company owes to a company include attending the board of directors and shareholders' meetings of the company, disclosure of the director's direct or indirect equity interest in the company, giving of Directors particulars on all trade circulars, show cards, business letter headed papers, etc; and providing oversight assistance to the management team of the company.
Removal of Directors
The most common method of removing a Director of a company is either through voluntary resignation or by rotation. Where a company decides to remove one or some of its Directors, whether or not they are employees of the company, the company must serve a special notice of the removal on all the Directors of the company including the Director that is proposed to be removed.
The Director that is proposed to be removed is in turn entitled to make written representations concerning the circumstances of his proposed removal. Such written representation may however not be read at an Annual General Meeting of the company if the company is able to convince a Federal High Court Judge that the Director's written representation is intended to create unnecessary adverse publicity and or are defamatory in nature, and therefore an abuse of the statutory right to be heard conferred on such a Director by Section 262 of the Companies and Allied Matters Act. Where a notice of removal is not served on all the Directors including the Director or Directors proposed to be removed, such removal will be declared by a properly constituted court of law to be null and void.
Bernard Longe v. First Bank of Nigeria Plc
The recent decision by the Supreme Court of Nigeria in the matter of Bernard Longe v. First Bank of Nigeria Plc (2010) 2-3 SC (part III) 67 @ 86 and 94 has brought to the forefront the legal position that a Director, whether also an employee of a company, cannot be removed as a Director of a company at the whim or caprice of his or her company.
The central issue in this matter was whether a Managing Director/Chief Executive Officer could be removed without prior notice of such a removal being first served on the Managing Director/Chief Executive Officer in accordance with Section 262 of the Companies and Allied Matters Act?
The Supreme Court held in this matter that the failure of the Respondent Bank to serve notice of removal on the Appellant Managing Director/Chief Executive Officer invalidated all the resolutions, concerning his alleged removal as a Managing Director, reached by the Respondent company. The Appellant was therefore deemed to still be the Managing Director/Chief Executive Officer of the Respondent Bank with all his entitlements and privileges retrospectively restored eight (8) years after his purported removal.
It is the view of the Supreme Court in this matter that the essence of the notice of removal is to allow the Managing Director of the Respondent company to respond to the grounds under which he is being proposed to be removed. The suspension of the Appellant did not according to the Supreme Court diminish the necessity to serve this notice of removal because once Nigerian law vest a right on a person, a court of law will resolutely resist any attempt, by whatever method employed, to wrestle such a right from such a person.
The Supreme Court also in this matter reiterated that Nigerian law on employment contracts recognised three categorises of contracts of employment namely purely master and servant relationships, servant's contracts which are held at the pleasure of the master or employer and employment with statutory flavour. The first two categories of contracts may only be terminated in accordance with the procedure prescribed under the contract of employment while the third category must only be terminated in accordance with the relevant statutory provisions regulating the operation of the contract.
Conclusion
The roles or duties of the Directors of a company need to be taken more seriously. Some Directors should be encouraged to obtain more education on the significance of their roles as Directors, to both their companies and to national, global development.
Contract of engagement are sacrosanct, and their breach attracts punitive damages. Parties to these contracts should therefore abide by the terms and conditions of the contracts that they have freely and willingly entered into. The perception that employers or principals have the power to hire and fire at will without adherence to the applicable contract attracts punitive damages and costs.
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This Alert and others produced by us are provided without any charge to you. You can always subscribe to it, on behalf of other interested persons from whom you have their permission, by sending to us a one line e-mail with the words "Subscribe – Legal Alerts" followed by the desired email address.
You are equally free to terminate your subscription by sending to us a one line email with the words "Unsubscribe - Legal Alerts" and your electronic address would be removed from our list. In the future, you can return to our mailing list by visiting our web site www.oseroghoassociates.com to subscribe for the Legal Alerts.
DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment purposes ONLY. This Alert, by itself, does not create a Client/Attorney relationship between yourself and our Law Firm. Recipients are therefore advised to seek professional legal counselling to their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always welcomed with many thanks.
This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is always acknowledged and this Disclaimer Notice is attached.
Legal Alert for May 2010 – Trade Names and Trade Marks Protection in Nigeria
 
In this Issue:
1. Legal Alert for May, 2010 – Trade Names and Trade Mark Protection in Nigeria
2. Subscribe & Unsubscribe to Legal Alerts.
3. Disclaimer Notice.
LEGAL ALERT—Trade Names and Trade Marks Protection in Nigeria
The name by which a business is known, described or associated is a very important aspect of carrying on a business because a business' name indicates what such a business does and what it represents. Some business people however do not pay much attention to the legal rules and regulations governing the use of their Trade Names in Nigeria. This has lead to loss of brand value and in some cases litigation by the registered owner(s) who will not want his/their Trade Name to be associated with another business entity to which he/they have no relationship or control.
Equally significant is the age long fraudulent business practice where non-owners of a registered Trade Mark copy and use such a trade mark without the consent and authority of the owner of the Trade Mark or its registered proprietor or licensor of the registered trade mark.
This Legal Alert is therefore intended to assist you to appreciate in a summary format the rules and regulations that govern and protect Trade Names and Trade Marks in Nigeria.
What is a Trade Name and a Trade Mark?
A Trade Name is the name by which a business distinguishes itself and its trading objects from all other businesses. The Companies and Allied Matters Act ("CAMA") requires that every individual, firm or corporation having a place of business in Nigeria and or carrying on business in Nigeria, whether such a business is carried on in the individual's name or in a corporate name, must be registered at the Corporate Affairs Commission ("CAC") within a period of twenty-eight (28) days of the commencement of such a business.
A Trade Mark on the other hand is any mark, word, phrase, logo or other graphic symbol by which a product or service is specifically identified. Greater legal protection is accorded to persons who register their Trade Mark while a cause of action in tort only lies for persons with unregistered Trade Marks under the legal head of passing off, actionable at the State High Courts.
Trade Name Protection
The underlying purpose of requiring that all Trade Names and or business names must be registered, within twenty-eight (28) days of their commencement of business is to ensure that no trade name is used that might deceive or cause confusion or even possibly mislead members of the public as to the distinctiveness between two separate trading entities. The registration requirement of a trade name is mandatory and not discretionary or optional.
Once a trade name is registered, no other entity can use such a trade name or attempt to register a separate and independent business using the same or a similar trade name. The simple reason for this rule is, barring repetition, this prevents confusion or deceit on innocent members of the public.
There are however restrictions on the use of some kinds of names in the Trade Name of a business in Nigeria. No enterprise in Nigeria can register its business, or brand it with words like "national", "regional", "state", "municipal", "government", "cooperative" (unless so registered under the appropriate law), "chambers of commerce" (unless it is a company limited by guarantee), "building society", "bank", "insurance", "finance" or any such similar word or words which import or suggest that such a business has government ownership or enjoys government patronage or has obtained a special regulatory licence when such a business has not. In the matter of Niger Chemist v. Nigeria Chemist [1961] 1 All NLR 171 the Nigerian Supreme Court held that where the names of two separate companies so nearly resemble each other, such similarity could cause confusion or deceit on members of the public.
The Registrar-General at the Corporate Affairs Commission is equally authorised not to register any name which is undesirable, offensive or otherwise contrary to public interest or public policy. Any trade name, whether registered or not, which violates an existing trade name or trade mark, whether such existing trade name or trade mark is registered or not, will be declared null and void unless in the case of a Trade Mark, the prior express consent of the Trade Mark owner or licensor has been obtained.
It is also instructive to mention that every registered Trade Name must end its name with certain words. For public limited liability companies, their names must end with the abbreviation "Plc". For private limited liability companies, the last word is "Ltd". For companies limited by guarantee, the abbreviation is "Ltd/Gte". For unlimited companies, the last word in its name is "Unlimited" or "Ultd".
Immediately a Trade Name is registered, the corporation with such a Trade Name must affix and keep affixed to its business premises in addition to its corporate seal, all stationary and or correspondence, its registered trade name and number. It is an offence, which on conviction attracts fines, for a company not to publish its trade name as required by law and as already stated herein.
Trade Mark Protection
To receive legal protection, a Trade Mark must be distinctive and affixed to a product (or services). It must also be registered in respect of a particular class or classes of good(s) at the Trade Marks Registry. Trademarks in Nigeria are generally registerable for an initial period of seven (7) years from the date the application for registration is submitted. Afterwards, a Trade Mark is renewable for fourteen (14) years at any one time.
The registration of a Trade Mark confers on the Owner or on its registered user the exclusive right, to the exclusion of all others, to the use of the Trade Mark in relation to the class or classes of goods against which the Trade Mark has been registered. Registration of a Trade Mark does not however interfere with any person's bona fide use of his own name or the name of his place of business which must be registered, or the name or names of any of his predecessors in such a business.
Another implication of registration is that the registration of a Trade Mark is prima facie proof of the validity of the original registration of a Trade Mark and of all subsequent assignment and transmission of any interest in the Trade Mark.
The legal implication of the non-registration of a Trade Mark is that the owner or proprietor of an unregistered Trade Mark cannot institute any legal proceedings at any of the Federal High Courts in Nigeria, under the provisions of the Trade Marks Act, to recover damages for the infringement of the unregistered Trade Mark and for loss of profit, delivery of the infringing product(s) carrying the Trade Mark or to prevent any or further infringement of the Trade Mark. The latter restriction does not however prevent the owner of such an unregistered Trade Mark from bringing a legal action under the equitable doctrine of passing off, in the appropriate State High Court, which should be where the infringing defendant resides or carries on business.
A registered Trade Mark is assignable and transmissible either in connection with the goodwill of the business or not.
Service Marks
Unlike in other jurisdictions, the Trade Marks Act does not include Service Marks in its definition of what constitutes a Trade Mark for registration purposes. See Section 67(1) of the Trademarks Act and the Nigerian Supreme Court decision in Ferodo v. Ibeto [2004] 2 SC (Part 1) 1.
Hitherto, Service Marks were alleged to be protected and registerable under Class 16. The Minister of Commerce in Nigeria has now, in the exercise of the powers vested in him by Sections 42 and 45 of the Trade Marks Act, and by Regulation 5 of the Trade Marks Regulations, incorporated Service Marks into the classification of goods for purposes of registration of service marks in Nigeria. Consequently, Applicants can now apply for registration of service marks in Nigeria in Classes 35 to 41. This extension continues to be opposed in intellectual discussions on the ground that only the National Assembly in Nigeria, as opposed to the Minister of Commerce, have the legal authority to include service marks into the definition of Trade Mark in Nigeria to allow for their registration validly under Nigerian law.
Conclusion
The none automation and the none availability online of the Trade Marks Registry, and the Companies Registry at the Corporate Affairs Commission continues to hamper the speedy, efficient and cost effective way of doing business in Nigeria. Also, the none advancement of further legislation in the form of amendments to the principal legislations on Trade Names and Trade Marks, to meet the twenty-first century requirements remains a matter for concern. Stakeholders will therefore do well to collectively bring about the necessary improvements and amendments to existing legislations.
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This Alert and others produced by us are provided without any charge to you. You can always subscribe to it, on behalf of other interested persons from whom you have their permission, by sending to us a one line e-mail with the words "Subscribe – Legal Alerts" followed by the desired email address.
You are equally free to terminate your subscription by sending to us a one line email with the words "Unsubscribe - Legal Alerts" and your electronic address would be removed from our list. In the future, you can return to our mailing list by visiting our web site www.oseroghoassociates.com to subscribe for the Legal Alerts.
DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment purposes ONLY. This Alert, by itself, does not create a Client/Attorney relationship between yourself and our Law Firm. Recipients are therefore advised to seek professional legal counselling to their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always welcomed with many thanks.
This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is always acknowledged and this Disclaimer Notice is attached.
Legal Alert for April 2010 – Distinction between Termination and Dismissal of Employment Contracts in Nigeria
 
In this Issue:
1. Legal Alert for April 2010 – Distinction Between Termination and Dismissal of Employment contracts in Nigeria
2. Subscribe & Unsubscribe to Legal Alerts.
3. Disclaimer Notice.
LEGAL ALERT—Dismissal or Termination? Distinction under Nigerian Employment Law
The global recession is contributing to the escalation of employment related litigation in Nigeria. An insufficient appreciation of the difference between a termination of an employment contract with a dismissal of an employee from his employment is also contributing to this escalation as this is deducible from the nature of claims filed and their chances of success at the end of most litigation.
This Alert is our contribution on what a contract of employment entails under Nigerian Labour Law, its general operating parts and the distinction between the termination of a contract of employment and the dismissal of an employee from such a contract of employment.
The Contract of Employment
The principal and most direct legislation on employment matters in Nigeria is the Labour Act which was enacted in 1971. A worker or an employee is described under this Act as a person who enters into a contract of employment with an employer, whether such a contract is a contract of service or a contract to personally execute any work or labour. The Act is however inapplicable to persons exercising administrative, executive, technical or professional functions as public servants, or to any person employed on a vessel or on an aircraft to which the laws regulating merchant shipping or civil aviation already apply, among other classes of persons.
The Labour Act requires that within three (3) months of the engagement of an employee, an employer must give to the employee a written contract of employment which contract must specify among other things, a description of the parties to the contract of employment, the nature of the service or services to be rendered under the contract of employment, the tenure of the contract including its probation period, the remuneration which must be paid in the legal tender of the country where the contract is entered into, the hours of work, mandatory holiday with paid leave, rules with regard to periods of incapacity to work due to sickness or injury, maternity leave, the appropriate period of notice to be served before the contract can be terminated, possible grounds for dismissal of the employee without notice, etc.
The Labour Act also stipulates that no contract of employment shall provide for the payment of wages at intervals exceeding one calendar month unless the written consent of the Governor of the State where the contract is being executed is previously obtained. Also, every employee must be medically examined by a registered medical practitioner as to the suitability of the employee to discharge his or her duties under the employment contract. The cost of the medical practitioner for this examination is borne by the employer.
Employers are vicariously liable for all work undertaken by their employees, on the employer's behalf, should such work cause injury or loss to a third party. For this reason, and to cover negligent conduct outside of the scope of the employee's contract, employers traditionally demand from their employees an acceptable Guarantor's indemnity or Fidelity Guarantee from the employee's Guarantor which indemnity or fidelity bond must cover such vicarious and unauthorised conduct of the employee while remaining bound by the contract of employment.
Every employee, who has served his or her employer for a continuous period of twelve (12) months, is entitled to such period of days or few weeks or month as may be agreed, as annual leave or vacation in addition to his full basic salary for the same period of the leave or vacation. While this annual leave or vacation may be deferred for good reason(s), such deferment must not be exceeded during a period of twenty-four (24) calendar months, more than once. The present practice in Nigeria of employers paying their employees not to go on vacation is therefore unlawful.
The freedom of an employee or employees to join a trade union must not be inhibited by an employer either in the contract of employment or in practice, neither must the employee be prejudiced in any way by reason of his association with a trade union or by his trade union membership.
The Labour Act statutorily allows pregnant women to proceed on maternity leave, six weeks before birth provided that a medical certificate is produced. Pregnant women are also entitled to a minimum of fifty per cent (50%) of their wages during the period of their maternity leave. After birth, a nursing mother is also entitled to another six weeks leave. On resumption for work, a nursing mother is entitled to half an hour recess twice in a day to nurse her infant. An employer is however not liable for the medical expenses of an employee incurred during or on account of the employee's pregnancy or confinement during such pregnancy and birth of a child.
Termination of Contracts
Like under the common law, either an employer or its employee may terminate a contract of employment, subject to the terms of the written contract, where the tenure of such a contract expires without a new contract of employment being entered into, either by conduct or in writing. Another instance where a contract of employment could be terminated constructively is where either party to the contract dies.
The most common method of terminating a contract of employment is by the delivery of a written notice of termination of the contract on the opposite party. Where a notice of termination is served, the contract automatically terminates at the expiration of the period of the notice of termination. Either party could equally elect to pay compensation in lieu of the employee working for the employer during the period of the notice of termination.
In all cases of the termination of a contract of employment, neither party is obligated to provide any reason for terminating the contract. Also, the motive of the party that terminates the employment contract is equally irrelevant provided that the provisions of the employment contract in relation to its termination are complied with by the terminating party. Where for example, the provisions of the contract of employment requires that notice must be served or monetary compensation paid in lieu of such notice of termination, a breach of this term will lead to an otherwise avoidable, protracted and expensive litigation.
Nigerian courts do not grant specific performance of contracts of employment in the private sector because the courts will not impose an employee on an unwilling employer, neither will it impose an employer on an unwillingly employee. The principle of freedom of contract is strictly adhered to in Nigeria.
Dismissal
An employer is entitled to opt for the dismissal of its employee's contract, instead of the termination of a contract of employment, where the conduct of its employee "...... is of some grave and weighty character that it undermines the relationship of confidence which must exist between a master and a servant".
Examples of conduct which could be considered to be of a grave and weighty nature will include cases of stealing, fraud, bribery, corruption, falsification of records, gross insubordination, dereliction of duty, sleeping at work, verbal or physical violence, fighting, assault and battery, working under the influence of illegal drugs, conflict of interest, competition with the employer's business, conversion of company's property for private use without the employer's permission or consent, assault and battery, etc. This is a departure from the old standard which prevented the employer from automatically dismissing his employee without notice where such employee has committed an offence that have a criminal element(s) which criminal offence requires the proof in a court of law, of proof beyond all reasonable doubt.
While the criminal prosecution or otherwise of an employee in a court of law is no longer a sine qua non, i.e. a prerequisite, for summary dismissal, many employers these days, depending on the circumstance and the facts, elect to serve a notice of termination or pay salary in lieu of notice in order not to provide any explanation or reasons for terminating the contract of employment. If the misconduct or series of misconducts are however grave, prior legal advice is recommended to be obtained before the letter of dismissal is issued and delivered to the employee. In some instances also, where the employee's misconduct is grave and weighty, a dismissal will be preferred to a termination as such will serve as a deterrent to other employees.
Fair Hearing
What determines the wrongfulness or otherwise of the termination or dismissal of any employment contract in Nigeria is not whether there was fair hearing at the time the case of the termination or dismissal occurred but whether the terms and conditions of the written contract of employment was/were adhered to by the parties in effecting the termination or dismissal of the contract of employment. Where there is no written contract of employment, the court will, subject to the general practice of trade or industry relevant to the employment, apply such reasonable trade or industry terms and conditions. This is the reason why many employers prepare a standardised and encompassing contract of employment with an accompanying staff handbook for all their employees.
Breach of employment contracts – Compensation
The fundamental basis for assessing damages in breach of contract cases is the compensation which the injured party would have been deprived of if the contract was not unlawfully terminated. Thus, in the case of an unlawful termination, the Court will only award as damages the compensation of such period of salary that the terminating party would have been paid in lieu of the giving of the proper notice of termination. For wrongful dismissal without notice, the measure of damages will be the amount the injured party would have earned had he or it continued with the performance of the contract until the contract is lawfully terminated.
Nigerian law does not recognise claims for injured feelings, physiological trauma or such similar claims when considering the amount to award as damages for breach of any employment contract. This is particularly as the injured party is required to mitigate whatever loss he or she may have suffered by getting another employment or securing another employee's services.
Conclusion
The Nigerian Labour Act was passed into law in 1971. This law, in the twenty-first century, is restrictive and outdated. Equally correct must be the observation that this Law, like others of its era, have remained unable to promote the much required human capital development in Nigeria. The Nigerian legislature will therefore do well to amend the provisions of this Law to meet the fundamental development requirements of the Nigerian economy.
Also, some Nigerian employers need to reappraise their belief that they have the legal authority to hire and fire at will. This is because such a belief or strategy must inhibit the ability of a serious business owner to engage and retain the best people in a massively aggressive and competitive global business environment.
Lastly, the Nigerian employee needs to review his or her expectation on job retention and security. The best of the latter will only lie in employees continuously equipping themselves by bringing more value to their individual environment, employment and country, in contrast to remaining on a job; this is particular as the common law rule on the freedom of parties to easily enter into and exit from contracts remains one of the basis canons of capitalism.
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Legal Alert for March 2010 – Housing Laws in Nigeria Part 2
 

In this Issue:
1. Legal Alert for March 2010 – Housing Laws in Nigeria Part 2
2. Subscribe & Unsubscribe to Legal Alerts.
3. Disclaimer Notice.
LEGAL ALERT—HOUSING LAWS IN NIGERIA – PART 2 – NATIONAL HOUSING FUND ACT
The Federal Mortgage Bank of Nigeria's website, www.fmbnigeria.org, reiterates the legal position that the principal funding vehicle for the Federal Mortgage Bank of Nigeria wholesale mortgage lending activities in Nigeria is the National Housing Trust Fund which said Fund is established by the National Housing Fund Act, 1992.
The National Housing Fund ("NHF") was established to, among other things:-
(a) Facilitate the mobilisation of long-term housing funds for the provision of affordable houses to Nigerians.
(b) Facilitate the constant supply of long-term credit facilities to Nigerians for the purposes of building, purchasing and improving residential houses in Nigeria.
(c) Provide incentives to the capital market to invest in the property market in Nigeria.
(d) Encourage the development of programmes that will ensure the effective financing of housing development in Nigeria.
(e) Provide proper policy control for the housing sector.
(f) Provide long term loans to Mortgage Institutions for lending to contributors to the Fund. See Section 2 of the National Housing Fund Act ("NHF Act").
CAPITAL CONTRIBUTIONS TO NATIONAL HOUSING FUND
The resources of the fund are derived primarily from:-
(a) Contributions of Nigerians, in both the private and public sectors, to NHF.
(b) Investments in the Fund by Banks and Insurance companies licensed to carry on these kinds of businesses in Nigeria.
(c) Financial contributions by the Federal Government of Nigeria for long-term housing loans.
MANDATORY CONTRIBUTIONS TO NHF
The NHF Act requires that every Nigerian employee in the public and in the private sector, earning more than N3,000.00 per annum, must contribute 2.5 per cent of his basic monthly salary to the National Housing Fund ("NHF"). An interest rate of 4% is required by this Act to be paid on all contributions made to this Fund.
All commercial banks in Nigeria are required to invest 10% (ten per cent) of their loans and advances in the NHF at an interest rate of 1% per cent above the interest rate payable on current accounts by commercial banks to their customers.
The Central Bank of Nigeria ("CBN") is authorised to collect from Nigerian licensed Banks, at the end of every financial year and not later than a month thereafter, this statutory housing contribution to NHF. The CBN shall in turn ensure that within two months of making the collection from the Banks, such collections are remitted to the FBMN for investment in National Housing Fund. See Section 11 NHF Act.
Every Insurance company is required to invest 20 per cent of its non-life funds, and 40 per cent of its life funds in real property development of which not less than 50 per cent shall be paid into NHF through the FMBN at an interest rate not exceeding 4 per cent per annum. FMBN is authorised to issue on insurance companies such demand notices for such amounts that it deems as their contribution to the fund after examining their audited accounts. The failure of any insurance company to comply with these provisions is a ground for the cancellation of the business licence of such an insurance company. See Section 12(3) of the NHF Act.
The Federal Government of Nigeria ("FGN") is required to make adequate financial contributions to the NHF for the purpose of granting long term loans and advances for housing development in Nigeria.
ADMINISTRATION OF NHF
Contributions to the National Housing Fund are statutorily required to be managed and administered by the Federal Mortgage Bank of Nigeria.
REMITTANCE OF CONTRIBUTIONS
Employers are required by law to deduct the housing contribution from their employees' monthly wages and ensure that such deductions are remitted to the NHF via the FMBN within one month of making such deduction.
Self-employed individuals are also authorised to make 2.5 percent of their monthly salary as their housing contributions to the Fund provided that such contributions are remitted on a monthly basis.
BENEFICIARIES OF THE FUND
Section 14 of the NHF Act provides that licensed mortgage institutions are the secondary beneficiaries of the Fund as they qualify for loans from the Fund, on such terms and conditions as may be published in the Federal Government of Nigeria in its official Gazette from time to time. The primary beneficiaries of the Fund are the contributors to the Fund who take loans from the FMBN through the licensed mortgage institutions to build, purchase or renovate their houses in Nigeria. The repayment of these contributors' loans are also statutorily regulated by the Government's published Gazette specifying the mode and manner, with the terms and conditions for the repayment of any loan obtained under the NHF ACT.
SECURITY OF NHF CREDIT FACILITIES
All loans obtained from a mortgage institutions must be secured by a first mortgage while all loans granted by the FMBN to a mortgage institution must be secured by a charge on a block of existing mortgages of the mortgage institution, under the cover of a Sales and Administration Agreement executed between FMBN and the Mortgage Institution. The later Agreement must be registered at the Land Registry along with the Deed of Assignment of the block mortgages to which the said agreement relates.
INTEREST CHARGED ON NHF LOANS
The rate of interest to be charged by the FMBN on loans it grants to primary Mortgage Institutions shall be slightly lower than the prevailing commercial interest rates in Nigeria. Such an interest rate shall be fixed for the duration of the long-term loan with no room for adjustments to suit the variances in the money market.
Mortgage Institutions are statutorily allowed a minimum spread of four percentage points above the rate charged by the FMBN while FBMN is only statutorily allowed not more than one percentage point above its own borrowing rate on loans it grants to Mortgage Institutions in Nigeria.
REFUND OF CONTRIBUTIONS
On the attainment of the age of 60 years old or upon been retired from employment, any contributor to the NHF that becomes incapable of continuing to make contributions to the Fund, shall be eligible to a refund of his contributions within 3 months of his application to the Minister of Housing provided that such a contributor has not obtained a housing loan under the Fund which loan remains unliquidated.
RENDERING OF ACCOUNTS
FMBN is statutorily required to render periodic accounts on the Fund to the CBN. In the like manner, FMBN is also statutorily required to render annual returns to all contributors showing among other things, the total amount contributed, the accrued interests and the balance in the contributor's account as of the date of the making such return.
Mortgage Institutions who have obtained loans from the FMBN must also render statutory quarterly returns to the FMBN in such manner and form as the Minister of Housing may from time to time specify.
OFFENCES AND PENALTIES UNDER NHF
Any employer who fails to make a deduction from the basic salary of his employees as required by this Law, or who deducts any sum from the basic salaries of his employees for the purpose of the Fund and fail to remit the sums so deducted to the FMBN is guilty of an offence which on conviction for corporate bodies attracts a fine of N50,000 and for individuals the fine is N20,000 or imprisonment for a term of five years or to both the fine and the term of imprisonment.
A self-employed person who fails to make the necessary deduction is also guilty of an offence which on conviction carries a fine of N5000 or a term of imprisonment of one year or to both the fine and the term of imprisonment.
Any individual who prevents or obstructs the deduction or remittance of the housing contribution is also liable to the fine and or to the term of imprisonment as those attributable to a self-employed person. The institution of criminal proceedings or the imposition of the appropriate penalty does not relieve any employer or self-employed person from the subsisting liability to pay to the FMBN the sum deducted for the purpose of the FMBN.
False statements, misrepresentation, production of false documents or failure to produce requested documents during inspection attract fines and terms of imprisonment on conviction.
The Federal High Court has the exclusive jurisdiction to try all offences under the National Housing Fund Act.
EXEMPTION FROM INCOME TAX REGIME
Contributions under the NHF and refunds of any such contributions under the NHF Act are exempted from the payment of any form of income tax, on such contribution or refund.
TERMS AND CONDITIONS FOR OBTAINING LOANS FROM NHF BY MORTGAGE INSTITUTIONS AND INDIVIDUAL CONTRIBUTORS
A licensed Mortgage Institution must submit all its application(s) for a loan to the FMBN. Such application must enumerate the applications received for loans from individual contributors against which the loan(s) request shall be disbursed under the NHF scheme.
It is mandatory that no mortgage Institution shall in any given financial year be granted a loan in an amount that is more than 50 per cent of the Mortgage Institution's shareholders' Fund.
SECURITY FOR HOUSING LOAN
These terms and conditions repeats the provisions of substantive law to the effect that a housing loan granted by FMBN to a Mortgage Institution shall be secured by the existing registered Mortgages previously granted by such a Mortgage Institution whether the financing for such previous Mortgages were obtained from FMBN or not .
A Sales and Administration Agreement with a Deed of Assignment in such form as may be prescribed by the FMBN, from time to time, and duly stamped and registered in the Lands Registry is required. The cost of stamping and registering such an Agreement at the Lands Registry shall be borne by the mortgage institution save where waivers on these costs are granted by the approving authority at the Land Registry. FMBN is also authorised in some instances to require a Mortgage Institution to execute a floating charge over its assets.
DISBURSEMENT CONDITIONS
According to the NHF Regulations, to safeguard the resources of the Fund, and prevent the misallocation or diversion of the mortgage loans given under the Fund, the FMBN shall only make loan disbursements to a mortgage institution on the presentation of the acceptable securities as stated in the above sub-section where a misapplication or diversion is shown or envisaged.
FMBN is authorised to demand the immediate repayment of all loans with interest thereon, inclusive of a 200 per cent penalty on the interest differential between the market rate and the Fund rate from a mortgage institution which misallocates or diverts its loans. In addition to the penalties, FMBN is authorised to suspend any erring Mortgage Institution from further borrowing from the NHF for a period of six months and cause such Institution to remain suspended until it complies with the above provisions.
All disbursement from the Fund shall be by cheque or by any other acceptable instrument of settlement. The FMBN is not allowed statutorily to disburse loans in cash or to charge more than 0.25 per cent of the value of a loan as legal, survey and administrative charge fees. But this excludes stamping, registration and other statutory fees.
CONCLUSION
Developed economies encourage their citizens, from adolescence, to join the housing mortgage market. From these young first-time mortgage buyers, a large stock of long term investors is built. The requirement of the NHF and the FMBN for applicants to provide a first charge or collateral before a housing loan will be granted will inhibit the ability of Nigeria to build its mortgage market.
The requirement for the various NHF loan Agreements to be stamped and registered at the Lands Registry attracts very exorbitant statutory fees which will discourage the long term benefits of the NHF and the FMBN.
The rate of return on mandatory housing contributions from licensed Banks and Insurance companies will only encourage these financial institutions to refuse to make their statutory contributory obligations for the larger returns in the money market particularly when the penalties are negligible and the judicial system is expensive and time consuming.
The Nigerian employee is already burdened with many direct and indirect taxes, pension, national health and housing contributions that the latter will be gladly compromised when evidence do not abound of beneficiaries of housing loans actually residing in their own homes.
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DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment purposes ONLY. This Alert, by itself, does not create a Client/Attorney relationship between yourself and our Law Firm.
Recipients are therefore advised to seek professional legal counselling to their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always welcomed with many thanks.
This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is always acknowledged and this Disclaimer Notice is attached.