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January, 2003

Insurance: Current Issues In Nigerian Law And Practice

Introduction

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.

Conclusion

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.

Introduction

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.

Conclusion

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.

Introduction

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.

Wills

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.

Checklist

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.

TRUST

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?

Answer:
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?

Answer:
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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May, 2003

Minutes of Statutory Company Meetings

A dispute can arise between the directors and shareholders or both of a company over the records and the authenticity of the Minutes of meetings of the company.

Recording of Minutes in a bound book or in loose sheets comes with its legal implications.

The Companies Law

According to the learned Author, Deji Sasegbon, in his book, Nigerian Companies & Allied Matters Law & Practice, the statutory Minutes of meeting(s) of a company are an authoritative record of the proceedings at such meetings.

Though the Minutes of the meeting of a company are an authoritative record of proceedings at such meeting, they constitute only prima facie (i.e. credible) evidence of what transpired at the meeting as other evidence can be provided to contradict or in some cases, throw more light on proceedings at such a meeting.

Section 241(1) of the Companies & Allied Matters Act, 1990 (“CAMA”) provides that it is mandatory for a company to record, in a book, kept for that purpose, all the proceedings at its general meetings (whether annual or extra-ordinary), the meetings of its directors and general managers.

Section 241(2) of CAMA goes further to provide that any minute purportedly signed by the Chairman of the meeting at which the deliberations were held or by the Chairman of the succeeding meeting, shall be credible evidence of the deliberations and the decisions reached at such a meeting.

The failure to keep proper Minute book(s) as required under the Law is an offence, which attracts a fine of N500 on conviction for each non-compliance.

Minutes in Bound Book or Loose Sheets

Prior to the enactment of CAMA and with recent judicial authorities, the judicial view was that Minute entries made in loose sheets of paper, whether kept in a file or fastened together in a bound book subsequently, were not admissible/permitted evidence of the Minutes of the deliberations and

decisions taken at such a meeting. See Onwuka v. Taymani & Ors [1965] NCLR page 203; Heart of Oaks Ass. v. James Lower & Sons Ltd[1936] Ch.D page 26.

Section 633(1) & (2) of CAMA and the Supreme Court decisions of Int. Agric. Ind. Ltd. v. Chika Brothers Ltd [1990] 1 SC page 1 @ 6 changed the above legal position. Section 633(1) of CAMA permits the keeping of Minutes in either bound books or loose sheets.

However, where the Minutes are not kept in a bound book but by some other means like loose sheets, adequate precaution must be taken to guard the Minutes from falsification and for facilitation of its discovery by interested persons in the company.

In the case of Nsirim v. Onuma Construction [2001] 3 SC page 168 @ 173 the Nigerian Supreme Court interestingly held that the decisions of a company need not necessarily appear in a Minute book; the trial Court should uphold, when called upon to determine the question, a resolution of a company if the Court is satisfied that a meeting was convened and such a resolution was passed.

The Practice

The modern behaviour of keeping the Minutes of a company is to, in addition to having them in a bound book, circulate the Minutes widely amongst the members of the company where the company is a private company. Where the company is a public company, the Legal Counsel makes it a duty to publish as many of the resolutions of the company, as possible.

The above behaviour reduces disputes and challenges, as the members of the company would have received constructive notice of the Minutes and would be estopped from possibly challenging their authenticity at a latter date where that is not done at a prior opportunity.

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