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October, 2002

Legal Security for Credit and Investment in Small and Medium Scale Industries in Nigeria


There is an acknowledgement, worldwide, that the development of any economy is dependent on small and medium scale industries (“SMES”). The advantages of strong SMES include job creation from the grass roots to the urban areas, entrepreneurship with resulting increase in Gross National Product (“GNP”), even distribution of wealth among the populace with resulting economic and physical security in the country, increase in foreign exchange with the exportation of qualitative and competitive products and repatriation of the profits to Nigeria, etc.

In developing countries, the advancement of SMES have been greatly constrained by the non advancement of the economies in these countries and the inability of their Banking sector(s) to extend medium and long term credit facilities to the SMES. This inability and or reluctance by the Banks to extend credit to the SMES have been due largely to the unavailability of credit for long-term investments in these economies and more importantly, for our purpose, the lack of adequate credit collateral/security by the SMES.

The efforts of the Central Bank of Nigeria (“CBN”) and the banking institutions in Nigeria under their umbrella association called the Bankers Committee, to fulfil their statutory and social responsibilities and to also assist in the development of the SMES is commendable. The only concern(s) that have been expressed especially by the SMES through their umbrella association, the National Association of Small and Medium Enterprises (“NASME”) is whether the conditions under which the banking institutions will extend credit facilities to the SMES are favourable and practicable to all the stakeholders concerned?

There is also to this writer the legal question of whether the conditions presently put in place by the Banks and the Bankers Committee to assist the SMES with credit is sufficiently covered by the Law? An attempt will also be made to proffer some suggestions, both legal and practical, on the way forward.

Conditions for the Banks to Participate in the SMES

Some of the conditions under which a majority of the Banks in Nigeria will extend credit facilities to the SMES include:

  1. The SMES must be a registered limited liability company that have complied with all corporate and tax laws in Nigeria.
  2. The SME must have a minimum staff strength of 10 (ten) employees and a maximum of 300 (three hundred) employees.
  3. The SME must be an enterprise with a minimum and in some cases, a maximum asset base of, excluding land and working capital, =N=200Million (Two Hundred Million Naira) which is the equivalent of over $1.5Million (One Million Five Hundred Thousand Dollars).
  4. The ownership structure of the SME will be diluted to the extent of the Bank's investment in the SME with the Bank also having the power to appoint at least one person to an executive director position. There are reports of some Banks owning over fifty percent (50%) equity in some of the SMES.

The Bank is expected, from the guidelines, to exit from the SME investment after three (3) years.

Incentives for Investing in SMES

There is an agreement that all Banks in Nigeria should set aside Ten percent (10%) of their Profit Before Tax for equity investments in the SMES. In return and as incentives for this investment, the following tax reforms and incentives have been proposed:

  1. The corporate tax for the SMES under the Companies Income Tax (“CITA”) is reduced to 10% (Ten Percent).
  2. The Bank's contribution to the SME to enjoy 100% (One Hundred Percent) investment allowance.
  3. Exemption of divested funds under the SMES from the Capital Gains Tax.
  4. Five (5) years tax holiday to the SMES.

The Law Regulating a Bank's Investment in an SMES

The Banks and Other Financial Institutions Decrees (“BOFID”), now Acts under the 1999 Constitution, provides in Section 21 that a Bank may acquire shares in small and medium scale industries, agricultural enterprises and venture capital companies

provided that the shareholding by the Bank in any such enterprise or any other business shall not be more than Ten Percent (10%) of the Bank's shareholders fund unimpaired by losses and shall not exceed Forty Percent (40%) of the paid up share capital of the company whose shares are to be acquired.

Section 21(d) of BOFID goes further to provide that the aggregate value of the equity participation of the Bank in an SME should not exceed, in the case of a Commercial Bank, Twenty Percent (20%) of its shareholders fund unimpaired by losses or, in the case of a Merchant Bank, not more than Fifty Percent (50%) of its shareholders fund unimpaired by losses. Of equal interest is Section 21(3) of BOFID, which requires any Bank investing in an SME to notify the Central Bank of Nigeria (“CBN”) within twenty-one days of such an investment. The penalty for a default in not reporting the investment to the CBN is =N=100,000 (One Hundred Thousand Naira) for each day during which the default subsist. See Section 6 of the BOFID (Amendment) Act, 1999.

In protecting their investments in the SMES, the Banks' are requesting for a minimum minority equity participation in the SMES. Unfortunately, this is not a sufficient legal cover because in practice, the enforcement of the rights of a minority shareholder as contained in Part X of the Companies and Allied Matters Act, 1990 (“CAMA”) are slow in execution due to our judicial system of administration. Of interest also will be Section 300 of CAMA, which empowers any aggrieved shareholder to apply for an order from the Federal High Court in the form of an injunction restraining his company from:

  1. Entering into any transaction which is illegal or ultra vires the objects with which the company was incorporated.
  2. Restraining the taking of actions which requires a special resolution to be passed by the company.
  3. Committing fraud on either the company or its minority shareholders.
  4. Restraining the company or another shareholder or director where the director or shareholder is likely to be deprived of profit or benefit, or to have profited or benefited from their negligence or breach of duty.

CAMA has made some other effort aimed at protecting the investors in a company. Some of these protections include:

  1. Restrictions on the alteration of the Memorandum and Articles of Association of a company. See Section 44(1) of CAMA.
  2. Restrictions against insider trading. See Section 614(1) & (2) of CAMA.
  3. Prohibition of untrue statements in the prospectus of a company. See Section 548(1), 562(1) and 571 of CAMA.
  4. Statutory requirement for the publication of most information about a company.

The locus classiscus on the above is the decision in Pender v. Lushington [1877] 6 CH.D 70.

Successes of the SMES & Recommendations

From available reports, the SMES are adversed to the conditions for the investments by the Banks. As a result, they have not encouraged or allowed equity participation by the Banks in the SMES. The CBN in turn has discovered that the Banks, to take advantage of the incentives offered by the scheme and as a result of the refusal of the SMES to allow them to invest under the above conditions, have established their own SMES, which are nothing but indirect subsidiaries of the Banks. To protect all the stakeholders, it is suggested that the scheme be reviewed and the following alternatives be considered:

  1. The Banks should through the Bankers Committee, forward to the National Assembly, private Bill(s), in addition to the one already forwarded to the National Assembly by the President which is on the powers of the CBN, ensuring that the incentives offered to the Banks and the SMES especially under the BOIF, the Companies Income Tax Act, the Capital Gains Tax Act, etc are harmonised and properly protected as the Law, as it presently stands, does not authorise these incentives in their current form.
  2. The requirement or qualification that the SME must have a minimum (or maximum?) share capital and or asset base of =N=200Million excluding land and working capital needs an urgent review. This is because a serious enterprise with this kind of asset base in present day Nigeria or in most developed economies should not qualify for categorisation as an SME.
  3. To increase participation by the SMES in the scheme, the Banks are counselled to encourage the SMES to form and register communal-like co-operative societies under Part C of CAMA. The Trustees to these co-operative societies must be people of credible financial reputation and banking record who in addition to entering into contracts with a Bank for the disbursement of the credit facilities must also give their personal guarantees securing the facilities.
  4. Another form of practical collateral is the provision by the SME of a fixed and floating charge over all the assets of the SME, to the granting Bank. However, the Banks should exercise more due diligence when executing this and other charges, as there have been reported cases of multiple charges on the same property by some SMES with the suspected connivance of the officials of some Banks.

    It is thus suggested that to discourage this terrible practice of multiple charges over the same assets of a company, the Banks should through the Bankers Committee, establish a sort of data bank where these kinds of charges can also be registered in addition to the ones, which should be registered with the Corporate Affairs Commission, Abuja as provided for by Law. (Interestingly, some financial institutions only obtain from the Lender a deposit of title deed without executing and registering a deed). Banks, who are members of the Bankers Committee, can on the Internet, using their security codes and in the spirit of healthy competition, assess this data bank and share confidential information concerning it.
  5. The current practice of equity participation by the Banks should be more closely reviewed, as the first rule in any enterprise is that an investor should not invest in a venture that he is not proficient in. There is also the problem of well trained man power specialised in investment Banking to supervise the investment of the Banks in the SMES as experience has shown that a business in Nigeria transcends the keeping or monitoring of accounts. After all, the joke is that businessmen worldwide always have multiple accounts for multiple purposes.
  6. The exit period of three (3) years by the Banks after which they should disinvest from the venture may not be practicable and should be reviewed as it takes a longer period of time, in a volatile environment such as ours, for a venture to make a commercial return on investment. This exit period is a further disincentive by the Banks to provide long-term credit facilities.

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January, 2003

Insurance: Current Issues In Nigerian Law And Practice


It is a New Year. We again wish you a Happy and Prosperous New Year.

We have established Associateship relationship with two Law Firms in Benin City , Edo State and Jos, Plateau State to attend to the legal needs of our clients in these two jurisdictions.

For January 2003, our newsletter is on the vexed issue of Nigerian Insurance companies (“Insurance Companies”), practices, Law and the phobia that Insurance companies never settle claims.

However, with the advent of younger and more innovative insurance companies and an insuring Clientele, and particularly the Insurance Act of 1997 , the perception of the Insurance companies have improved. Unfortunately, the average per capital income of the populace have being on the decline and this has affected the advancement, in real financial terms, of every business sector including the Insurance industry.

This newsletter would, summarily, deal with some of the already known principles of Insurance in the hope that when you elect to take an insurance policy and subsequently need to make a claim, the transaction would be more bearing for you, as you would engage in it from a position of KNOWLEDGE.

Premium Payment

By the Insurance Act of 1997 (“the Insurance Act”), for there to be a valid contract of Insurance, the Client (“Insured”) must show that he/it has fully paid his premium. This is at variance with the old practice, which is the reverse to the provisions of the Insurance Act. The rule is the same when there is a need to renew the Insurance Policy.

A commendable innovation under the Insurance Act is the fact that the liability of the Insurance Company attaches immediately a premium is paid whether or not an Insurance Policy is issued or delivered to the insured Client.

There is also the requirement under this Law that an advance unstamped copy of the Policy must be delivered to the Insured within thirty (30) days of the payment of the first premium. A stamped copy of the Policy must be delivered within ninety (90) days after the payment of the first premium.

Riders, Warranties, Etc

Unlike in the past when Insurance Companies were alleged to have refuted liability on the ground of a breach of a rider or warranty clause, which were usually printed in very small letters at the back of the Insurance Policy, the Insurance Act forbids such riders, warranties, or other variation which usually sought to attach fresh conditions, alter or amend the Insurance Policy without the knowledge and consent of the Insured. Failure to adhere to this requirement makes such a rider or condition illegal, null and void and also exposes the Insurance Company to a fine of =N=25,000 on contravention.

Disclosures & Good Faith

The underlying fundamental principle that governs most contracts especially a contract of insurance is the principle of utmost good faith on the part of both the Insured and the Insurer. This requires that all material facts and information relevant to the proposed insurance policy must be disclosed.

In the past, there were a lot of conflicts between Insurance Companies and the Insured parties as to what constituted “material facts relevant” to an Insurance Policy. The Insurance Act has graciously delimited these to mean such information that the Insurer itself requested for, from the Insured, which the Insurance Company considered to be reasonably prudent in accepting the risk and fixing the premium for taking the risk. The words of the Insurance Act are “ … any information not specifically requested for shall be deemed not to be material”. Section 58 (1) of the Insurance Act.

Naturally arising from the above paragraph is the fact that only a breach of a material and relevant term would invalidate a contract of insurance. Usually also, such a breach must amount to a fraud for it to be held to be material.

Insurable Interest & Indemnity

Another area of dispute is that of insurable interest . For a claimant to make a claim under a policy of insurance, he must have an insurable interest in the subject matter of the insurance policy. An insurable interest is a special relationship by the Insured to the subject matter of an Insurance policy, which entitles the Insured/claimant to either, make a claim under the policy or to sue where the insurance company refuses to settle a claim.

Related to insurable interest is the fundamental principle of indemnity which is simply that in the event of a loss or injury, the Insurer is required to place the Insured back to the same position, as much as possible, as the Insured had occupied before the occurrence of the insured peril.

Of necessity and as a matter of public policy, the Law does not allow an insured person to recover more than what he may have lost as a result of the occurrence of an insured peril; no matter what he may have paid as a premium. This is because Insurance consists of various pools of resources from whence any loss can be made good.

The Insured and Third Party Claims

In the past, a person who is not a party to an insurance policy (“an outside third party”) could not bring an action against an Insurance Company because there was no legal contract between them. This led to a lot of injustice.

Now, under the Insurance Act, an outside third party can commence a legal action against both the Insured and the Insurance Company. This procedure is however slightly technical as the outside third party is required to serve on the Insurance Company a prior notice of its intention to commence the legal action; also, the action must be in the form of a third party notice for indemnity. This means that the liability of the insurance company is subject to the Court first determining that the Insured was liable to the outside third party; it is upon a determination of the Insured primary liability that the Insurer's secondary liability then arises to take the place of the Insured.


For there to be advancement in the Insurance industry, which would be of further benefit to the business community, there is a need for an improvement in the following areas.

  1. Continuing education of the insuring public on the importance and relevance of insurance especially in a developing economy. This is more so when the illiteracy rate in Nigeria remains high.
  2. Payment of correct premiums by the insuring Clients. Stories abound of big corporate organisations not paying full or correct premiums because they want to save or cut costs.
  3. Greater regulations of Insurance Brokers who continue to contravene the provisions of Section 41 (1) of the Insurance Act which requires that all Insurance Brokers must not later than thirty (30) days of the receipt of an insurance premium, remit such premium to the Insurance Company. Related to this is an urgent need by the Insurance Companies to collectively become alive to their corporate responsibility by reporting erring brokers to the Nigerian Insurance Commission without fear or favour of the Brokers.
  4. There are also concerns about rate cutting amongst the Insurance Companies. Whilst to the insuring public, this practice of charging the “minimum rate” may appear to be bargains, they undermine the financial base of the Insurance Companies who as a result may not have the ability to settle a claim when an insured peril occurs, even where they have the intention to. Insurance companies must engage in healthy competition applying good corporate governance behaviour which abhors corruption and other related unethical practices.

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February, 2003

Corporate Governance In Nigeria? Are There Laws & Principles?


Our February 2003 Newsletter is on the vexed and often “secretly” avoided issue of what Corporate Governance principles should a company apply to its Business. We attempt in brief, a contemporary analysis that should enhance our understanding of the past and present principles. As usual, we expect it to be of immense benefit to you.


One of the greatest marvels in the twenty-first century has been the victory of capitalism over communism, the diminishment of BIG GOVERNMENT in business enterprise and the emergence of big private corporations. Some fallacy with these developments however remain that human greed, which is a predominate propellant, has also been a counter productive force leading to massive corporate fraud and failures.

To meet the colossal negative challenge of human greed, corporate business continues to evolve various moral and ethical principles, which collectively are now referred to as “Corporate Governance” principles. As one Author said in his article, “Societies that impose high moral standards progress more geometrically and outlive others that do not”. This is more applicable to corporate and government business.

Unfortunately however, most enlightened directors and government perceive any insistence on good Corporate Governance principles as an excuse for conflicts from those who want to “disturb the way things are usually done”.

What Is The Meaning Of Corporate Governance

Mr. Farrar in his Book Company Law (3 rd Edition, 1998) said, “Corporate Governance is about the process of the direction of a company, the relationship between the Board of Directors and management. It is also ultimately about regimes of accountability”.

Corporate Governance In Nigeria

Contrary to the assertion of many personalities in the business community, a few Corporate Governance principles have always been a part of our Companies' Laws in Nigeria . The problem remains that no Director, Shareholder or other stakeholder has made any significant attempt to enforce or redress a breach of any of the rules because of the possible ignorance of those in control of the corporations who see any challenge as hostility from the “enemy”.

Registered Corporations are a creation of statute and these statutes require accountability . Accountability in the context of Corporate Governance also raises the issue of FULL DISCLOSURE and controls. Examples of some of these legal provisions in the Companies and Allied Matters Act, 1990 (“CAMA”) include mandatory filings with the Corporate Affairs Commission (“CAC”) of any new business, full particulars with notice of any changes in any of the corporation's objects/business, directors, shareholders, authorised share capital, registered office, company secretary, external auditors, etc. There is also the mandatory requirement that all registered Corporations, whether private or public, must file/register their Annual Audited Accounts with the CAC. These filings are available for inspection to members of the public on application and payment of a nominal search fee.

Of further mention are the Corporation's internal records, which include its register of members, minute books, register of shares, financial statements and audited accounts, etc.

Also, Corporate Governance principles have gone beyond the Directors of a Corporation owing a duty of care only to its shareholders as they now also owe a duty of care to their employees and other stakeholders. See Section 279 (4) of CAMA.

CAMA further makes provisions in Sections 280 and 281 prohibiting Directors of a Corporation from having conflicts of duties and interest and multi conflicting Directorship in other Corporations. Sections 282 requires the Directors of a Corporation to exercise the highest duty of care whilst Section 283 makes them Trustees of all the Corporation's moneys, properties and powers. Sections 94 to 98 of CAMA makes regulations for disclosures in a public Corporation's majority shareholding whilst Section 544 states that a Director may be guilty of an offence if a false material statement is made in the Corporation's prospectus inviting members of the public to invest in the Corporation.

Modern Corporate Governance Principles

Many business personalities and organisations including the Business Roundtable, which is made up of the topmost Chief Executive Officers in the United States of America , have advocated and supported the following Corporate Governance guiding principles:

  1. The appointment of the members of the Board of a Corporation should be based on people with the requisite business and industry experience relevant to the Corporation's enterprise.
  2. Smaller Boards with the majority of the members being non-executive members are more cohesive and efficient. Also, the paramount duty of the Board, apart from directing the Corporation, is to appoint a well-qualified and ethical Chief Executive Officer (“CEO”) and oversee the CEO and the other senior management officers in a competent and ethically operational manner.
  3. The positions of the Chairman and the CEO should be separated. The Chairman should run the Board, its agenda, ensure cohesiveness and harmony amongst Board members, etc. The CEO should run the company. Also, there should be a separation of the Corporation's ownership from the roles of External Auditors and Company Secretary.
  4. Management, under the oversight of the Board and its Audit Committee, should produce the Financial Statements of the Corporation. The CEO and the Chief Financial Officer of the Corporation should under Oath affirm the correctness of the statements.
  5. Only independent Directors or a vast majority of them should sit on the Board Committees that oversees three (3) key functions; Audit, Compensation and Corporate Governance Committees. In America , most Corporations have established the latter two (2) committees and Nigerian businesses are encouraged to do the same. Note that the Compensation Committee oversees the overall compensation structure of the Corporation.
  6. The Chairman and a vast majority of the members of the Audit Committee should be non-executive Directors of the Corporation. It is also fundamental that Corporation should plan for succession and changes in a fair and equitable manner before they occur.
  7. It is the responsibility of the independent External Accounting Firm to ensure that it is in fact independent without any conflict of interest. The appointment process been delegated to an Independent Audit Committee can enhance this position. The Compensation Committee instead of the management should fix the remuneration of the Auditor and Company Secretary.
  8. From the ERON experience, the selection of the External Auditor should involve an annual due diligence process in which the Audit Committee reviews the Corporation's audit needs viz the qualifications, work product/performance or tract record and reputation of the acting or proposed External Auditor. As a collateral point, Auditor staff and partners in charge of the Corporation's audit work MUST, as a matter of strategy, be rotated once every two (2) years in the hope of maintaining detachment and independence. Finally, there should be a “cooling off” period between such appointment and the possible engagement of the same partners and or staff of the Audit Firm, as staff of the Corporation.
  9. In addition to other designated roles, the Corporate Governance Committee should consider whether it is appropriate to draw consulting advice from its external Auditors in the light of possible conflict of interest issues.
  10. Directors should, before accepting new directorship in other corporations, and as a part of avoiding conflict of interest issues, inform the Corporation or Corporations where they are already Directors, of such a new appointment.
  11. It is in the Corporation's best interest to treat its employees fairly, equitably and reasonably. Most Corporations now have Employee Co-operatives whose Trustees hold a nominal percentage of the Corporation's shares and whose members sit on the Audit and Compensation Committees. This way, there is adequate communication between the Corporation and its employees. This process also facilitates the employees alerting non-executive Directors of alleged misconduct without fear of retribution.


It is fundamental that for collective growth, government at all levels should also imbibe the above virtues in its business of governance. Also, the penalties for non-disclosure or late disclosure under CAMA are too nominal to discourage disobedience. There is the need for a general review.

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March, 2003

Inheritance, Succession, Wills & Private Trust

It is with pleasure that l share with you some general legal information on the above. I will be happy to receive from you any question(s) or queries that you might have on the information contained herein. My mailing particulars are as stated on the last page of this paper.


Inheritance in Nigeria is normally determined by the customary rules of where the deceased person originates from and not by where he resides or lives, or, where the property is situated. This of course presupposes that he or she did not make a Will, or, made a Will before getting married.

Nigerian systems on inheritance and succession are predominately patrilineal (i.e. inheritance through the father) than matrilineal (i.e. inheritance through the mother). Let us look at some of the rules of inheritance, relating to some ethnic groups, in Nigeria . After that, we will consider some of the principles governing the making of a Will and finally, some comments on private trust as it relates to inheritance and succession.

In Yoruba land , distribution of an estate of a deceased person, who dies without a valid Will, is per stripe; i.e. by the number of Wives that the deceased had and not by the number of children. Where there is a serious dispute, the family head is permitted, in some parts of Yoruba land, to have a final discretion by recommending the distribution of the estate, per capital; i.e. by the number of children and not by the number of wives.

In Benin Kingdom , the doctrine of primogeniture applies; i.e. the right to succession of the entire estate belongs exclusively to the eldest son of a deceased person who acts as a sort of Trustee for the other children. Note that under Benin custom, where there is a Will, the maker of the Will cannot devise the House where he lived and died to any person other than his eldest son.

The same rules of succession that apply to the Binis also apply to most parts of Igbo land including Onitsha , which by history, originated from the Benin Kingdom . There is also the interesting custom, which requires that the property of a deceased woman, which she acquired before her marriage, go back to her family on her demise.

In the general Calabar area , the eldest surviving male member of the deceased person succeeds as the head of the family and inherits the deceased estate.

In Hausa land , the Moslem rules of succession, under the Maliki code, have been largely absorbed into their indigenous system of property inheritance. Among the Fulani for example, the eldest son inherits his deceased father's cattle, the main asset in those days, out of which he makes presents of some of them to his younger brothers according to their needs.

The advent of the English into Nigeria changed and displaced, to a large extent, our local rules on inheritance. Of course, our Nigerian Courts have always made an effort to preserve and ensure that where possible, our fundamental local rules, which are equitable and not repugnate to natural justice and good conscience, are not totally displaced by the English rules of making a Will or establishing a private trust.

An example of the protection of some of our customs is the principle that a deceased person can only devise by his/her Will, his/her real property, which he/her has absolute title to and or, can freely dispose of under native law and custom. The Benin customary rule on where the deceased lived and died, being inherited by the eldest son of the deceased, is an example of this. Another example is the Iteskiri or Urhobo custom on a Wife's property. Another is the one that a Maker of a Will cannot devise family property to his beneficiaries. See also Section 1 of the Wills Law; Oke v. Oke [1974] 3 SC 1; Ogumefun v. Ogumefun [1931] 10 NLR 182.

Customary law on inheritance can also be displaced by necessary implication by the kind of marriage that the deceased contracted. One of the incidents of monogamous marriage under Common Law is the ouster of the rules of customary law on inheritance. See Section 49 (5) of the Administration of Estate Law, Cap 3, Laws of Lagos State ; Cole v. Cole [1898] 1 NLR 15.


The necessity, and not the desirability, of making a Will cannot be over emphasised especially, in the light of our very precarious environment and local customs.

Why Make a Will: -

Some of the advantages of making a Will include:

  1. A Will excludes both our traditional and English Common Law rules of inheritance;
  2. The Maker of the Will can by his/her Will distribute his/her assets in the manner desirable to him/her;
  3. The Maker of the Will can appoint the persons who would manage his/her estate on his/her demise;
  4. It excludes the additional cost of applying for Letters of Administration and paying inheritance tax(es), which are usually high and would constitute an inconvenience to one's beneficiaries, where no Will is made;
  5. It comes into effect immediately the Maker becomes deceased and before its approval by a Court of Law.

Note that a Will only takes effect after the demise of its maker.

Who Can & When to Make a Will

Under the Law, any adult above the age of 18 years old can make a Will. The only exemptions are persons in military service or seamen. Also, persons of unsound mind cannot make a Will.

It is advisable that a person should make a Will as soon as he becomes an adult and has a regular income. This need becomes more important when an adult gets married. This is because once a person gets married, the customary rules under which he gets married may become applicable to his estate should he become deceased without making a new Will. Alternatively, should the English rules on inheritance be applied, the manner of distribution of the estate may not suit the desires of the deceased person.


Key information that the Maker of a Will should state in the Will include:

  1. His/her full names including his alias if any, address, occupation, telephone numbers, etc;
  2. His/her proposed executors/trustees; these are usually very close associates;
  3. Instructions as to burial and associated expenses;
  4. Instructions as to the distribution of all his/her properties; full details of these properties must be given;
  5. Instructions as to what happens to properties acquired after the making of the Will;
  6. Any other instructions.

Note that a Will need not be in any special form or language. In addition, a Will would be declared invalid where it is not signed at the end, in the presence of at least two or more witnesses who MUST both be present at the same time and sign the Will simultaneously after the Maker has signed in their presence. The Witnesses need not read the contents of the Will.

An Invalid Will

A Will may become invalid where the Maker:

  1. Gets married and does not make a new Will;
  2. Makes a subsequent Will or Codicil; a Codicil is an addition or supplement to a Will;
  3. Expressly revokes his Will;
  4. Destroys or makes any kind of alteration;
  5. Expressly revives a previous Will.

Please note that Section 8 of the Wills Law discourages an attesting witness or the Wife of the Maker of the Will or any person claiming under him, from benefiting under the Will attested to by one of them. However, a beneficiary under secret trust, who witnesses the execution of a Will, will not forfeit his interest as his interest dehors, i.e. outside the Will and not from the Will.

Conclusion on Wills

Due to the rigours associated with proving a Will under our legal system and possible protracted litigations that might arise, I advice that in addition to making a Will, a person can during his/her life time state in a deed who he/she wants to inherit a particular property or properties of his/her. This can be done by a gift inter vivos; which means that the gift only comes into effect on the demise of the Maker of the Will.

It is also wise to deposit copies of the Will in reliable places like the office of a long time Solicitor, the regular Bank of the Maker of the Will, the High Court Registry of the place where the Maker of the Will regularly resides and have a majority of his assets; some security companies also accept custody of a Will for a nominal fee.

Another modern trend is for the owner of a property to purchase the property in the joint names of himself and his intended beneficiaries. This way, some of the title always remains with the beneficiary.


A Trust can be said to mean, “ a right of property, real or personal, held by one party (‘the Trustee'), for the benefit of another party (‘the beneficiary')”.

In general, the Law (i.e. equity) is more concerned with the substance rather than the form of a trust. Once the three “certainties” are present, a valid Trust would be deemed to have been created.

Under the Common Law of Trust, which Nigeria also applies, it is essential that the following three “certainties” are in place for a trust to be held applicable. They are (1) certainty of words; (2) certainty of subject matter; (3) certainty of objects or purpose.

Advantages of a Trust

Private Trust in Nigeria is still a novelty. From our experience and investigations, the principal reasons why people establish a private trust for their personal estate are to protect their assets from bankruptcy (debtors) proceedings and to seek whatever tax advantages/shelter that they can get from such a Trust.

General Duties of Trustess: -

The task of the office of a Trustee is one lased with a lot of responsibilities. A Trustee is not liable for any loss occasioned by his or their act or omission provided that he or they acted in good faith.

Some of the duties of a Trustee include:

  1. A duty to ensure that the Trust, including its funds, is properly managed and the latter are not depleted.
  2. Duty not to delegate his authority and responsibilities under the Trust. Whilst he can engage the services of professionals like Lawyers or Accountants to undertake some professional responsibility, the ultimate responsibility lies with him as the principal to exercise proper supervision.
  3. Duty to be impartial to all the beneficiaries under the Trust.
  4. Duty not to deviate from the instructions/terms of the Trust.
  5. Duty to prepare regular accounts as he acts in a fiduciary capacity.

Note that a breach of any of the duties by a Trustee requires the Trustee to make good whatever loss may have accrued to the Trust as a result of that breach.

Statutory Requirements for a Private Trust

Section 7 of the Statute of Frauds 1677, which is a statute applicable in Nigeria , requires that all creations of a trust or other confidences in real property must be in writing and signed by the Maker; otherwise, the Trust will be held void. This requirement is essentially to prevent fraud.

There is also the requirement that the Trust Deed should be stamped otherwise, it may not be admissible in evidence.

Workings of a PrivateTrust

The Maker of a Will and or a Trust Deed can devise his interest to a Trustee, relying upon the Trustee's promise to hold the property, in trust, for the Maker's beneficiaries. This is usually referred to as a fully secret Trust.

It is crucial however that there should be some evidence that the Maker communicated his intentions to the Trustee at any time before his/her death and the Trustee either expressly or impliedly, acquiesced to carrying out the Maker's instructions/intentions.

The property to be held in trust must be ascertainable and definite. Any increase in the assets under the Trust must be communicated to the Trustee otherwise, the Trustee will hold the increase under a resulting trust for the estate of the Maker. In addition, where the Trust fails for any reason, the Trustee also holds the property on a resulting trust for the Maker's estate. A resulting trust is a trust arising by implication of law when it appears from the nature of the transaction that it was the intention of the parties to create a trust or where the trust created fails.

The instructions of the Maker to the Trustee can be contained in a sealed envelope with instructions not to open the envelope until after the death of the Maker of the Trust.

Taxation of Private Trust

In developed countries, save for countries that are referred to as tax haven(s), the problem of resolving the question of the taxation of a private trust is still far from final resolution.

A solution in some of these countries have been to tax the beneficiaries of the Trust on their income from the trust either directly, under the personal income tax, or indirectly for the actual income received from the trust. The Trustees on the other hand are taxed only on the remaining income of the trust so that there is no double taxation. When these extra incomes are distributed to the beneficiaries, the latter should be able to earn the income tax free.

A practical solution, subject to obtaining professional advice from a tax consultant, is to have the Trust Deed drafted in such a way that the Trustees bear the tax element of the income coming to the Trust.

Other General Comments

Let me further share with you some other important principles of the Law of Trust as they apply to inheritance and or succession.

A policy of assurance for example, effected by any man or woman, on his/her life and expressed to be for the benefit of another person or his/her children, creates a trust in favour of the beneficiaries and the moneys payable shall not, so long as the object of the Trust remains unperformed, form a part of the estate of the Insured/deceased or be a subject of his debts. See Section 11 of the Married Women's Property Act, 1882.

Another example of a Trust in our statute books is Section 7 (a) of the Lands Use Act, which permits the grant of a statutory right of occupancy to a Guardian or Trustee of an infant who will hold such grant on trust for the benefit of the infant.

Note that a Trustee can be held personally liable for any loss to the estate caused by his breach of duty as a Trustee.

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April, 2003

“Subject To Contract”

We have received some interesting Insurance questions from our friend and Colleague,
Mr. Uzo Aghaegbuna, Legal Adviser of Citizens International Bank. We also received some inquiry from a Client on what the legal effect of the term “Subject to Contract”, meant under Nigerian Law.

In summary, we would answer the Insurance questions first and then treat the one on “subject to contract”.

Insurance: Questions arising from Newsletter on Insurance

Question 1:
Does liability arise where only part premium payment was paid, whether or not the instalmental payment was agreed to between the Insurer and the Insured or between the Broker and the Insured?

This is dependent on the terms of the contract policy. In practice, Insurance companies insist on the payment of the premium in advance. However, with the slow run in the Nigerian economy, and to sustain their clientele, Insurance companies accommodate instalmental or part payment of premiums. In the event of a loss, the practice is to make a pro-rata basis payment in order to meet the justice of the situation and maintain client loyalty.

A Broker does not have a contractual right to commit his principal, the Insurance Company, to terms of a policy different from that that the Insurance Company has imposed. Also, the practice of Insurance Brokers collecting Insurance premiums and not remitting to the Insurance companies could lead to numerous litigation and loss for the Insured because of the age long rule of ‘no premium, no cover'.

Question 2:
Can an Insured, whose car is comprehensively insured, insist, in the case of a loss, on a new car rather than repairs been effected on the old car, which the Insurer and the Loss Adjuster may insist on?

Most Insurance policies usually give the Insurer the sole right of exercising the options of whether to repair the car or to pay cash to the Insured, or to assist in the purchase of another car.

In practice, we believe that these are matters that can always be negotiated especially where the Insured is a valued client of the Insurer.

Last word on Insurance

Rate cutting remains an unethical and wrong corporate behaviour. We hope that the current controversy on rate cutting, between some big Insurance companies and the Nigerian Insurance Association on this subject will be resolved soon in the best interest of the Insurance industry.

Agreements “Subject to Contract”

The use of the proviso, ‘Subject to Contract', in preliminary contract papers, continues to be on the increase. Sometimes, this term has been used in correspondence after the parties have agreed on the terms of the contract and payment/consideration is made.

In the case of International Textiles Industries v. Dr. Aderemi & 4 Ors [1999] 6 SC (Part 1) Page 1, the Appellant received a letter of offer from the 1 st to 4 th Respondents marked “Subject to Contract”. By various correspondence, (the Respondent's own correspondence, all marked “subject to contract”), the parties agreed on the terms of the contract and payment was made to the 1 st to the 4 th Respondents in furtherance of these terms and agreement.

The 1 st to the 4 th Respondents breached the contract by selling the property to the 5 th Respondent on the grounds that their negotiation papers were marked “subject to contract” and that the consent of the Governor of Lagos State was not obtained to the Lease in breach of the provisions of the Lands Use Act.

The Supreme Court held that the phrase, ‘subject to contract' seemed irrelevant and perhaps meaningless in Nigeria, unlike in the United Kingdom, unless it can be shown that the vendor or purchaser or both evinced as their intention a special formal contract to embody terms and conditions which go beyond the mere offer and acceptance implication.

We are of the opinion that it would have been an act of fraud if the Supreme Court had held otherwise because exhibit F in this case, confirmed the terms of the contract, exhibit G was the receipt of payment for 5 (five) years rent and the Appellant was already in possession of the property after expending a lot of money on carrying out improvements on the property.

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