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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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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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NCC, Telecommunications & Tariffs Regulations  

Consumers of telecommunications services in Nigeria , especially voice service, ("the subscribers") welcomed the introduction of Global System for Mobile Communications ("GSM") in the year 2001. This was because of the dearth in the provision of this and other telecommunication services in Nigeria .

Unfortunately, there persists a conflict on the tariffs charged, between the subscribers and the GSM service providers (“GSM Operators”). The GSM operators have, as a defence, contended that the high cost of paying for their licenses, i.e. $250Million, the lack of minimum infrastructure facilities in Nigeria and the alternative option of constructing the basis infrastructure, etc have made present tariff rates of an average of N 50 per minute, during peak time, impossible to reduce. The official exchange rate in Nigeria at the time of this article was N …. to One (1) US Dollars.

To the subscribers, there is the contention that it is wrong for a new business to transfer all its start-up costs to its consumers. There is the further contention that the current tariff charged is not competitive relative to those charged in other countries, whether with developed GSM technologies/market or not. The refusal of NCC and the Nigerian government to intervene in the tariffs charged has not augured well for all the stakeholders especially as the functional operators are presently running an Oligopoly.

The Nigerian government and NCC have refused to intervene in the tariff administration on the principal ground that the Nigerian economy is a free market economy devoid of government intervention and regulation.

Communication is a basic need of life and communication companies have always been classified as institutions that provide socio-economic services. It is therefore essential that the services provided must at all times reflect the state of the well being of that community or its people. No government or political institution, have strictly left the determination of tariff charged solely on market forces and the operators. All countries have always established regulatory bodies to regulate, define and set tariffs, policies and or prices of telecommunications services and operation.

Abandoning the politics of what tariff should be charged, let us consider the enabling Law establishing NCC which is the Nigerian Communications Commission Act, 1992 as amended in 1998 ("the NCC Act") vis-à-vis the power of NCC to regulate the telecommunications industry, tariffs and NCC funding.

NCC Act:

Section 2(1) of the NCC Act provides that some of the objectives of NCC includes: “to ensure that licensees or authorised carriers and other providers of telecommunication services and infrastructure meet their commercial obligation and such other obligations specified under this Decree in a manner which promotes co-operation and fairness ”.

Section 2(d) of the NCC Act also provides, as part of the objectives, “to protect licensees and the public from unfair conduct of other providers of telecommunication services, with regard to the quality of service and the payment of tariffs ”.

Section 2(j) in addition provides that NCC shall ensure “the protection of licensees from misuse of market power by other carriers”.

Section 26 of the NCC Act provides that “the Commission may with the approval of the Minister make regulations generally for the purpose of giving effect to the provisions of this Decree and may in particular without prejudice to the generality of the foregoing provisions make regulations to the following matters, that is:

(d) tariff charged by operators ;”.

Note that all the underlinings above are mine.

Under the old “NCC guidelines for considering applications for a Licence”, it is provided that “ …. The need to protect a fair return on the investment of existing licensees should not be an obstacle in the granting of new licensees in any enterprise or location”.

The NCC “form of application for Licence” requires in paragraph 4.2(f) and (g) the furnishment of a business plan, which should detail the proposed amortisation period of the investment and the proposed tariffs.

Nigerian National Policy on Telecommunications

The Nigerian National Policy on telecommunications (“the Policy”) became operational in May 2000. The principal objective of the policy is to “… provide Nigeria the basic framework and primary building blocks for the much desired telecommunications revolution”.

On page 14 of the policy, NCC is required to “define standards for economic regulations of dominant operators including tariffs regulation as outlined in this policy”.

The policy also requires the Ministry of Communications to establish a National Frequency Management Council. The Council shall be responsible for planning, co-ordination and bulk allocation of the radio frequency spectrum in the country.

NCC is further enjoined by the Policy to, “… establishing and enforcing regulations that ensure fair and equitable competitive practices among all telecommunications operators”.

On interconnectivity charges, the Policy requires that “where adequate cost infrastructure is not readily available, the Commission may examine comparable interconnection pricing policies and price levels from international experience to establish fair benchmark for operator interconnection charges in Nigeria ”.

On tariff regulation, the policy recognises that in the short term, there will be dominant mobile operators in the market with the power to control pricing. The Policy therefore requires NCC to “ establish tariff regulation requirements for such dominant operators which will ensure that service prices are cost oriented, that the consumers and competitors interest are protected and that the industry develops in the most efficient manner possible”.

The Policy further provides that “in determining a tariff regulation regime, the Commission shall be guided by the following principles:

  • Telecommunications service tariffs shall in all cases be cost-oriented, reflecting the actual cost required by operators to provide the services in question;
  • Tariff setting rules must be transparent to both operators and their customers, with stable, predictable, and understandable standards for current prices and for changes to those prices over time;
  • Telecommunication service tariffs shall generate sufficient revenues for the operators to compensate for their investments, while also seeking to be as affordable as possible to the broad range of potential service customers;
  • In general, cross-subsidies between services or service categories shall be prohibited. In certain cases, limited cross-subsidies may be permitted, only in connection with an explicit public purpose such as the promotion of universal access, and where such subsidies can be effectively targeted to accomplish that purpose at minimum costs.”

On the former monopolies in the industry, i.e. Nigerian Telecommunications Limited (“Nitel”) and the Mobile Telecommunications Limited (“M-Tel”), the Policy provides that “NCC shall undertake a tariff review and re-balancing process, in co-ordination with the privatisation and restructuring of these companies”.

Experiences From Other Emerging Jurisdictions:

From the International Law Office website, , we came across the following regulatory experience of other jurisdictions. In Ecuador for example, there is presently no definition of who a dormant operator is. Consequently, the Regulator is reviewing the market environment in Ecuador so that it can respond quickly to situations and conflicts. In Brazil , the Regulator approved new requirements on the use of chip cards for public telephones. In Finland , the Ministry of Transport and Communication intervened in the pricing of mobile phone calls, which originate and terminate within a single network as it claims that the low price distorts competition in the market place.

On April 28 th , 2003 in the United Kingdom , the regulatory body, the Office of Telecommunications (“OFTEL”) “. published its review of the wholesale broadband access market as well as a statement of its views on what constitutes ‘narrowband' and, by process of elimination, its working definition of ‘broadband' services”. In Spain , the Telecommunication Market Commission decided to investigate Telefonica, Vodafone and Amena for alleged breaches of a Commission Resolution “… on number portability where a change occurs in the mobile network”.

Suggested Improvements:

It is conceded that the present functional and dominant GSM Operators and NCC have contributed immensely to the development of telecommunication services within a very short time. However, NCC MUST raise to the challenge of reasonably regulating the telecommunications industry as the alternative option would be the humiliating experience of other Nigerian regulatory agencies/bodies who have had to rely on the operators within their industry, that they are in Law required to regulate, for their basic tools of administration.

To effectively carry out the above, NCC should resort to Section 31 of the NCC Act, which provides for the establishment of a Fund for the Commission. Subsection 2 of this Section also provides that:

“ There shall be paid and credited to the Fund established pursuant to Subsection (1) of this Section: -

  1. Such moneys as may, from time to time, be lent or granted to the Commission by the government of the Federation or of a State;
  2. All moneys raised for the purpose of the Commission by way of gifts, loans, grant-in-aid;
  3. All subscriptions, fees and charges payable to the Commission; and
  4. All other assets that may, from time to time, accrue to the Commission.

There is further a provision in the licences granted to the Operators, which requires them to pay to NCC a percentage of their annual profits.

NCC must also be run as a professional private enterprise so as not to fall into the error of depending only on government subvention which is always inadequate and irregular in disbursement as to have such a dependence will be fatal to its statutory duties, responsibilities and obligations.

It is globally conceded that mobile tariffs are always more expensive than land call tariffs. It is therefore not yet time for NCC to feel that it's principal objective have been met, as the number of landlines in Nigeria are very nominal per density of the population. Finally, other areas that call for attention from the GSM Operators and the Regulator, NCC include per minute billings, calls that are not properly terminated or received but are billed against the Subscriber's account, etc. The excuse by the GSM Operators that the software for remedying these problems are very expensive is not on very strong footing as it was recently reported that their parent companies in South Africa have been restrained by a Court order from converting and charging per second calls as per minute calls.

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August, 2003

Economic & Financial Crimes

Nigeria is through legislation and some enforcement, trying to stem and follow the current global behaviour of combating economic and financial crimes, which are more sophisticated and difficult to detect, than other forms of crimes.

One of such legislation is the Economic and Financial Crimes Commission (Establishment) Act, 2002. This legislation created the Economic & Financial Crimes Commission (“the Economic Crimes Commission”).

One of the principal functions of the Economic Crimes Commission is “the investigation of all financial crimes including advance fee fraud, money laundering, counterfeiting, illegal charge transfer, futures market fraud, fraudulent encashment of negotiable instruments, computer credit fraud, contract scam, etc.” See Section 5 (1) (b).

Another function of the Economic Crimes Commission is the adoption of measures to identify, trace, freeze, confiscate or seize proceeds derived from terrorist activities. In consonance with present international behaviour, a conviction under this leg attracts life imprisonment and confiscation of the concerned properties to the Federal Government of Nigeria.

The legislation establishing the Economic Crimes Commission requires the latter to establish and maintain “… a system of monitoring international economic and financial crimes in order to identify suspicious transactions and persons involved”. This it does in cooperation with other similar agencies in other countries of the world.

Finally, for harmony and proper coordination, the Economic Crimes Commission is charged with the responsibility of enforcing the provisions of the following existing Laws in Nigeria :

  1. The Money Laundering Act, 1995;
  2. The Advance Fee Fraud and other fraud related offences Act, 1995;
  3. The Failed Banks (Recovery of Debts) and financial malpractices in Banks Act, 1994, as amended;
  4. The Banks & other Financial Institutions Act 1991, as amended;
  5. The Miscellaneous Offences Act, Cap 410, LFN, 1990;
  6. Any other Law or regulation relating to economic and financial crimes.

Various offences relating to financial crimes/malpractices attract their corresponding penalties on conviction and these are stated in Part IV of the Economic & Financial Crimes Act (“the Act”). They include:

  1. Failure of an Officer of a Bank or other financial Institution to secure compliance with the provisions of the Act attracts on conviction, imprisonment for a term not exceeding 5 years or to a fine of N50,000, or to both such imprisonment and fine. See Section 13.
  2. “Any person who commits or attempts to commits a terrorist act or participate in or facilitates a terrorist act, commits an offence, and is liable on conviction to life imprisonment. See Section 14.

As a further deterrent, any individual convicted of an offence under this Act forfeits all his/her assets relating to the offence, to the Federal Government of Nigeria. This also applies to illegally acquired assets in a foreign country subject to any treaty or arrangement between Nigeria and such other foreign country.

The Act gives the Economic Crimes Commission wide powers to apply to a Federal High Court for an order freezing the accounts, in any Bank or other financial institution, of any arrested person, without notice to such a person.

In conclusion, this Act has not attracted much enthusiastic commendation either locally or from the international community. This is because the deficiency in tackling economic and financial crimes in developing economies is more a matter of lack of political will and discipline in its enforcement than in the legislations.

As a result of the above, Nigeria is among 17 countries blacklisted for financial crimes by the United Nations and the International Monetary Fund (“IMF”) Financial Action Task Forces. These organisations with others have warned direct foreign investors to be cautious of transacting business in Nigeria .

In response to the above, the Nigerian government has, in addition to increased enforcement of the existing Laws on financial crimes, sent an Amended Bill on Financial Crimes to its National Assembly. Only time will tell whether this will bring the required all round “comfort” to the investing public.

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October, 2003

Commercial Disputes & Arbitration

The first week of October 2003, I was again at ExxonMobil (Eket & Bonny) as a Legal Facilitator on financial and estate planning. One of the important returns from this project is the need to be proactive, to take responsibility and ACTION in the management of our finances, to invest and stop procrastinating on the main ground that we do not earn enough money.

Also new in October was the opening of the Abuja Multi-Door Court House, which is another attempt to seek alternative methods to dispute resolution, as litigation remains very expensive, technical and cumbersome in procedure, and prolonged in conclusion. Like the one in Lagos , it is a “Court-connected ADR centre”. According to the Director of the Lagos Multi-Door Court House (“LMDC”), cases get to the latter through:

  1. Referrals from High Court Judges by virtue of the Court's practice directions in Lagos State .
  2. Direct contact by the disputing party or parties.
  3. By the terms of a contract that a dispute should be referred to LMDC.
  4. By direct invitation by LMDC.

Lagos State Ministry of Justice and the Lagos Branch of the Nigerian Bar Association (“Lagos NBA”) also held some workshops on the new High Court (Civil Procedure) Rules 2003, which would soon come into operation. A lot of optimism awaits the commencement of these new Rules as they are expected to speed-up the court processes.

Arbitration as An Alternative Dispute Resolution Method

That disputes are an integral part of human existence cannot be contested. The only contest is the mode of resolving disputes as most of the time, individuals find it difficult to separate a dispute, which may be minor, from a larger activity, which can continue pending the resolution of the dispute. In stead, the disputing parties engage in prolonged litigations that eventually destroy all cordiality and the main stratum of the larger activity.

Professor Gaius Ezejiofor SAN described Arbitration in his book, “The Law of Arbitration in Nigeria ” (“the Book”), as the reference of a dispute to an independent person for hearing and determination in a judicial manner in contrast to a determination by a Court of Law.

An Arbitrator(s) can hear only civil disputes; criminal cases are as a matter of public policy, handled by the government. Also, disputes arising from an illegal contract cannot be referred to Arbitration.

In order for you to further appreciate the difference between Arbitration and litigation, let us briefly review the advantages of Arbitration over litigation, some of which are highlighted in the above mentioned Book:

  1. Arbitration has less frustrating delays than litigation.
  2. Because of the above, Arbitration can be less expensive to the parties, in the long run.
  3. Arbitration is less formal as the parties can rely solely on documents and written briefs of arguments, thus also saving time and money.
  4. Litigation is held in public and trade secrets can be disclosed during this process to the peril of either party or both parties. But Arbitration proceedings are held in private; the parties' trade secrets can be heard in private and protected from public disclosure.
  5. Parties in Arbitration can represent themselves or chose their own Arbitrator(s) who may be persons familiar and versed with the party's industry, culture and country.
  6. Arbitration takes care of the conveniences of the parties and their witnesses in fixing dates, time and place for its hearings in marked contrast to litigation where the priority is the convenience of the Court and not necessarily that of the parties.
  7. Arbitration is conciliatory and not combative like litigation. It allows for neutralisation of the venue and the procedure in the proceedings to preserve trust in a conciliatory manner in the entire process.

Though Arbitration has many advantages, it also has some disadvantages:

  1. An Arbitration panel has no coercive powers of its own; the panel has to rely on the assistance of the regular Courts to achieve compliance.
  2. An Arbitration panel cannot adjudicate or consolidate multi party suits or disputes; this can lead to multiplicity of suits and wastage of resources.
  3. An Arbitration panel's decision can be set aside by a Court of Law.

An Arbitration decision, usually called an Award, is final as the substantive issues cannot be re-contested before a Court of Law. However, a party can, under Sections 29 and 30 of the Nigerian Arbitration and Conciliation Act (“the Act”), seek to, within a period of three (3) months of the award, set aside the award on either of the following grounds:

  1. That the award contains decisions on matters/issues, which were beyond the scope of the issues submitted to the arbitration, for resolution and decision.
  2. That the Arbitrator(s) misconducted himself/themselves or that the award was improperly procured.


In practice and as a delay mechanism, it is found that an unsuccessful party to an award usually commences an action in Court as soon as he loses, challenging the award either under Sections 29 or 30 or both, of the Act.

Also, the lack of having its own coercive powers under the Law, like a regular Court of Law, is a big disadvantage to the arbitration process as one or both of the parties may decide to be unreasonable or disobedient to the orders or directions.

In addition, in order to arm an Arbitration award, legal proceedings are required to be commenced under Section 31 of the Act. This process can become the subject of delays and cumbersome procedural manoeuvring that traditionally accompany litigation leading to long periods of time between the grant of the award and its enforcement.

While I will continue to recommend this method of dispute resolution, parties, Legal Counsel and all stakeholders in the administration of justice will do well to learn to obey agreements, orders and directions that are, on the average, just and equitable. This is because, a part of human nature, does not allow us to be satisfied all the time.

There is finally the need to also review the Arbitration and Conciliation Act to meet the challenges of the twenty first century by for example, requiring the decisions/awards of the Arbitration panel to be final in fact and a challenge to the decisions in a Court of Law to be under more rigorous terms and conditions, which secures the award no matter how long the Court challenge takes.

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