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Nigerian Central Bank and International Money Remittance

Some recent decisions and pronouncements of the Central Bank of Nigeria (‘CBN’) affecting international money remittances to Nigeria and the operators of related businesses have raised eyebrows within and beyond Nigeria. In particular, they have been a source of concern for foreign (non-Nigerian) providers of international remittance services to Nigeria, causing some of them to suspend their remittance operations to Nigeria. .

In a recent press release (of 2nd August 2016) which has been widely reported in the press the CBN stated that all “financial service providers” are required to be duly licensed in order to protect customers and the financial system; that international money transfer operators are required to remit foreign currency to their agent banks in Nigeria for disbursement in Naira to beneficiaries; and, that foreign currency proceeds are to be sold to bureau de change operators.

Following the expressions of concern which followed naturally, the CBN has since clarified in another press release that “it has not foreclosed the licensing of interested players in the IMTO space in Nigeria.” The CBN says that interested applicants should forward their request for licensing under the CBN Guidelines on International Money Transfer Services in Nigeria (2014)(“Approved” version).

At the least the recent CBN statements have caused confusion and disruption, having led to the suspension of operations to Nigeria by some foreign international money remittance service providers. In a very well written piece published on Quartz Africa, Feyi Fawehinmi discusses and provides a critique of the recent moves of the CBN and their effect on international money remittances to Nigeria and the operators of such business.

As Fawehinmi’s piece demonstrates, the approach adopted by the CBN is of questionable soundness from a number of perspectives. The following are some of the potential consequences:

it is counterproductive in that it is very unlikely to reduce the serious shortage of foreign currency affecting the Nigerian economy and is in fact more likely to exacerbate it;
it is a “forceful narrowing” of choice for Nigerians in diaspora who remit money back to Nigeria;
it has the potential to increase the costs of such money remittances for Nigerians in diaspora
it has the potential to make the process of money remittances difficult for Nigerians in diaspora as well as for Nigerian resident beneficiary of remittances

It is not surprising that some international money transfer operators have already bemoaned the approach of the CBN. It is of course easy to dismiss such protests as turkeys protesting against Christmas or rams protesting against Sallah. In truth, considering the present Nigerian economic climate with chronic shortage of foreign currency and demand far outstripping supply, it is surprising that the CBN approach does not evince greater imagination, creativity and clarity.

From a technical perspective, while the recent CBN statements have added to confusion, the root of the problem lies in the provisions of the CBN Guidelines on International Money Transfer Services in Nigeria (2014). The 2014 Guidelines is certainly well intended with its aim inter alia to “provide minimum standards and requirements for International money transfer services operations in Nigeria.” On the other hand some aspects of the Guidelines could have been drafted with greater clarity, provided further detail and technical precision.

Licensing

Article 2 of the 2014 Guidelines requires an ‘international money transfer services’ provider to be duly licensed by the CBN and sets out the necessary requirements, including capital requirements. It also implies that the entity must be incorporated in Nigeria. Curiously, the entity seeking licensing is required to show ‘Presence in at least seven (7) different countries’. It should be self-evident that this would be discriminatory and discouraging especially to Nigerian start-ups seeking to enter into the money transfer services sector. It also seems to assume, questionably, that foreign money transfer services operators already operating in a number of countries and who are already licensed in another jurisdiction would find it desirable to seek licensing in Nigeria necessarily.

As reflected in denied accusations directed against the CBN in light of recent developments, the CBN’s approach seems to be aimed at attracting some particular global players. If so, this is shortsighted as It is not reflective of the practices of diaspora Nigerians remitting money to family and associates or that of Nigerian beneficiaries of remittances. It also does not reflect an adequate grasp of the operation methodologies of some of the foreign money transfer services operators, especially at the lower value scale level, where they may not themselves have a direct presence in Nigeria and simply remit credit in local currency for disbursement to beneficiaries through a Nigerian based correspondent or ‘partner’. Some of them operate from a particular country (e.g. the UK) and specialise in remittances either to Nigeria alone or to a small number of African countries with historic connections to their base of operation; these are likely to find it difficult to meet the requirement of presence in at least seven countries.

Money Transfer Operations

The 2014 Guidelines permits a duly licensed operator to carry out both inbound and outbound money transfer transactions. The CBN press release of 2nd August 2016 appears to suggest that inward bound remittances are to be made to Nigeria by money transfer operators in foreign currency when it says that they ” .. are required to remit foreign currency to their agent banks in Nigeria ….” It may be that the statement in the press released needed to be worded better but on the face of it, there seems to be apparent disparity and contradiction with the provisions of the Guidelines. The Guidelines does not contain a clear provision that inward remittances are to reach the Nigerian end in foreign currency. It is of course true that in the case of a remittance from overseas, the operator would invariably be paid in foreign currency but this does not necessarily mean that in practice actual foreign currency, rather than credit in Naira, would be remitted to a Nigerian ‘partner’.

When it comes to payment to the Nigerian beneficiary/recipient, the 2014 Guidelines is clear that payment is to be made to customers only in Nigerian currency. While this may be informed in part by the shortage of foreign currency in Nigeria, it is doubtful that this is sufficient justification for the restriction of choice for a remitter and/or a beneficiary who prefers the completion of the transaction in a foreign currency. In any event, foreign currency in the hands of individuals is more likely to lead to a reduction in the demand for foreign currency on regular licensed foreign currency dealers and bureaux de change. This is one of the areas where the Central Bank might have been expected to show some greater imagination and better market awareness.

A different approach could, for example, distinguish between transactions where the operator must remit actual foreign currency to its Nigerian ‘partner’ or its own Nigerian end and those very common, especially lower value transactions, where no actual foreign currency is remitted but credit is made availabble to the beneficiary in Naira. The recent CBN press release seems to only assume the former and if that is the area of particular regulatory concern it may be that some form of allowances or relaxations are possible for the latter.

The Role of Agents

The 2014 Guidelines contains provisions recognising the role of agents and it defines an agent as ‘a suitable entity engaged by a money transfer service operator to provide money transfer service on its behalf, using the agent’s premises, staff and technology.’

Somewhat indirectly the recognition of the role of agents highlights the shortcomings of the provisions relating to licensing of money transfer operators. It is an indirect recognition of the possibility that a foreign registered and licensed money transfer operator can provide services to beneficiaries in Nigeria without itself actually maintaining a physical presence in Nigeria. Until the suspension of operations following the recent CBN moves, many foreign money transfer operators remiiting money to Nigeria operated via arrangements with local entities through whom remittances were channelled to recipients. The problem is that the 2014 Guidelines contemplates that “agents” will be acting for money transfer operators who are themselves licensed in Nigeria. On the other hand, a Nigerian entity which acts as an “agent” is not required to be licensed as a money transfer service operator though it is required to “be a financial institution under the regulatory purview of the CBN.” This means that Nigerian licensed and regulated banks for example are able to act as agents for duly licensed money service transfer operators.

The fact that many foreign money transfer operators who operate via arrangements with local entities are not themselves licensed in Nigeria is what has led to the suspension of operations by many of them. This is exacerbated by the fact that such foreign operators may have difficulty satisfying the licensing conditions even if they wish to be licensed in Nigeria.

The benefits of restricting the operation of agents to acting only for money transfer services operators licensed in Nigeria are questionable. In the first place, these foreign operators (at least the bigger players) are typically already licensed in a jurisdiction with an acceptably sound regulatory regime. Interestingly, a comparable example is that the same banks who are able to act as agents also often act as correspondent banks for letters of credit transactions to Nigeria —- without a requirement that the issuing/originating bank be licensed in Nigeria. Second, adequate supervision and effective regulation of the local agent should be sufficient to protect Nigerian customers and to ensure that remittances reach the due recipient.

In a slightly different respect, the 2014 Guidelines only requires approval of the Central Bank where a money transfer operator wishes to engage a foreign technical partner to provide a global or regional payment or money transfer platform. A way forward might be for the Central Bank to similarly consider an approval regime for foreign money transfer operators who do not seek to be licensed in Nigeria but wish to ‘partner’ with, or engage as agents, local entities in Nigeria. As with technical partners, they will also be required to be licensed in their home jurisdictions.

Further Scope for Reform

In a number of respects, the 2014 Guidelines still presents room for reform and clarity likely to faciltate remittances to Nigeria.

Receiving only operators: it is worth exploring a unique regime for Nigerian based money transfer operators who wish to only operate receiving and disbursement services i.e. those who do not themselves engage in remittances abroad; this may be based on a revision of the provisions currently applicable to ‘agents’.
Small Scale and Micro Level Operators: there is scope for consideration of a less stringent regime for operators who handle mainly low value remittances and whose total monthly worth of transactions are relatively low (a level to be set by the CBN); it is noteworthy that the 2014 Guidelines says money transfer services shall target individual customers mainly”.
Capital requirements: the level of paid up share capital required for receiving only operators and small scale and micro level operators could be set at a lower amount than that for bigger operators. Somewhat perplexingly, the 2014 Guidelines currently sets the paid up capital requirements for Nigerian based operators at two billion Naira while that for foreign operators is set at fifty million Naira or equivalent. It may be that this is to afftract foreign operators but this would be at the cost of discouraging Nigerian start-ups and operators. Interestingly, a foreign technical partner is required to have ‘a minimum Net Worth of US$1 million.’* These disparities certainly require a reexamination.
Disbursement of inbound transfers: the 2014 Guidelines stipulates that disbursements to beneficiaries shall be through bank accounts or mobile wallets. A very limited scope is provided for cash payment, requiring the provision of reference from a bank account holder. Even granted the CBN’s cashless society initiative, this restriction is questionable in a country yet with a high level of illiteracy, rural communities and still relatively low level of financial inclusion.**
Send and receive operators within Nigeria only: the 2014 Guidelines is concerned with international money transfer services; it is worth considering developing, encouraging and facilitating domestic money remittance services within Nigeria alone irrespective of general improvement in banking services.

In a situation where Nigeria desperately requires foreign currency inflow and an easing of pressure on such foreign currency available, Central Bank policies and directives should be carefully thought out and made in a manner that is not counter-productive. The current attitude evinced by the Central bank which has led to the suspension of Nigerian activities by some notable money transfer operators is not helpful. At the risk of being perceived as an institution that makes and reverses policies too frequently, particularly in light of another recent example, a careful reappraisal by the Central Bank is desirable in this particular instance.

Postscript

* In the version of the 2014 Guidelines circulated by the CBN on September 26 2014, foreign international money transfer operators are required to have a ‘minimum share capital of US$1.0 million in their own country’ while a foreign technical partner is required to have a minimum net worth of US$10.0 million.

** The version of the 2014 Guidelines circulated by the CBN on September 26 2014 contains improved provisions (a) that the allowable cash withdrawal for inbound transfers shall not be more than US$500, and (b) payment may be made to a beneficiary without a bank account or mobile wallet upon provision of acceptable means of identification as enumerated.

Sale of Goods and the Nigerian Constitution

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Sale of Goods and the Nigerian Constitution

‘It is hard to imagine a less well-defined boundary than that separating contracts which do from those which do not “affect” interstate commerce.’ (Robert Braucher, 1951)

In the last entry we started examining the extent of applicability of the sale of goods legislation of some of the states of Nigeria in light of the trade and commerce provision of the Nigerian Constitution. The trade and commerce clause confers exclusive legislative powers on the Nigerian federal legislature in respect of trade and commerce between Nigeria and other countries and between the states. It was noted that in Attorney General of Ogun State v Aberuagba (1985) the Nigerian Supreme Court did not confine the operation/application of the provisions to relationships between government entities. Instead the court considered the provisions as applicable in the particular case to the movement of products across the states or between Nigeria and another country. It was also noted that, taking account of the terms of the decision, the sale of goods would also fall within the meaning of trade and commerce.

Considering that, as the Supreme Court decided, international and interstate trade and commerce are within the competence of the federal legislature exclusively, the question then arises whether a state’s sale of goods law can be applied in respect of a sale transaction with connections to another state or country. This would be for example where a seller operating in Lagos State sells goods to a buyer based in another state and/or the goods have to be delivered from one state to another. Another example would be where a buyer resident in Lagos State purchases goods from an overseas seller and subsequently seeks redress from the Lagos courts in the event of a dispute.

The potential constitutional dimension of the applicability of sale of goods legislation is obscured by the fact that the sale of goods legislation of the states that have enacted one virtually all derive from the English Sale of Goods Act 1893. In addition to this, the English 1893 Act is also directly applicable in Nigeria – at least in the states that have not enacted their own legislation. Thus the statutory provisions that courts in different states will apply under Nigerian law to sale of goods contract disputes are virtually identical.

As a matter of doctrine and principle, it does matter that the constitutional dimension to the law of sale of goods is clarified. Secondly, the Nigerian Law Reform Commission is proposing reform of the Sale of Goods Act and its replacement with new legislation. The clarification of the constitutional dimension will help to forestall future constitutional controversy and help prevent or reduce potential waste of time and resources on expensive litigation for clarification. Thirdly, whatever the proposals of the Law Reform Commission, it is possible that one state’s legislature will revise its sale of goods law or introduce one which departs from the standard pattern and contains variant provisions. The current debacle over arbitration legislation demonstrates this possibility starkly.

On a practical level, as long as individual states have or are seen as being entitled to have their own sale of goods legislation, the courts are going to be confronted at some point inevitably with the question of whether a state legislation can be applied to a transaction that is not wholly an “intrastate” sale transaction. The first question that will arise is arguably whether a state has legislative competence to enact any form of sale of goods legislation at all. On one level, this is very easily answered i.e. as intrastate trade and commerce matters are not included in the Constitution’s trade and commerce clause, states are empowered to legislate on them since they will be ‘residual’ matters. Accordingly, a state would be entitled to enact a sale of goods legislation at least as far as intrastate sales are concerned.

An arrangement where state legislation applies to intrastate transactions and federal (or federally applicable) legislation applies to interstate transactions has its own advantages in terms of basic clarity and certainty. The federally applicable Sale of Goods Act 1893 of England would apply to interstate and international sale of goods whereas state sale of goods laws will apply to intrastate sale transactions. At present, it would not matter considerably since both sets of legislation are virtually identical. However, if and when the efforts of the law reform commission germinate the potential for constitutional controversy and even conflict of laws issues may become more apparent.

It appears that the Law Reform Commission is proposing a uniform sale of goods law for the entire country. Of course this is possible especially in respect of interstate and international sale of goods. On the other hand, it is not clear if the proposals intend that the various state sale of goods laws should become redundant. That would raise the question whether the federal legislature has the competence to extend the application of a future sale of goods legislation to intrastate sale transactions.

Another issue would be whether, if state sale of goods legislation are to continue in existence and operation, parties to an intrastate transaction can exercise freedom of choice and choose to subject their sale transaction to the federal legislation instead. Indeed the question also arises in reverse i.e. whether parties to an international or interstate sale transaction can exercise freedom of choice and choose to apply a state sale of goods legislation. As soon as there is significant disparity between federal sale of goods legislation and the legislation of at least one state, the questions being raised presently will no longer be purely academic as experience with arbitration legislation has now clearly shown.

It is interesting that Commonwealth and other countries with federal constitutions, comparable to Nigeria’s Constitution to an extent, tend to leave the question of sale of goods legislation specifically to their constituent states or provinces; compare for example the structure of sale of goods legislation in the United States, Australia and Canada. This is despite the presence similarly in the respective constitutions of a clause granting legislative power on commerce or trade and commerce to the federal legislature.

One other matter that does not seem to have exercised adequate consideration if any at all is whether Nigeria should adopt a separate regime for international sale of goods different from the regime(s) that may be made applicable to either interstate or intrastate sale of goods. Directly related to this is the question of whether Nigeria should consider ratifying and implementing the United Nations Convention on the International Sale of Goods 1980 (‘CISG’). Whether it be the ratification of the CISG or enactment of a fresh federal legislation specifically focused on international sale, this is one respect in which the government could deliberately and specifically make the legislation applicable mandatorily in respect of the transactions that it applies to – even by invoking the sometimes controversial doctrine of covering the field. In other words, if enacting federal legislation in respect of some international sale of goods transactions, the federal government could deliberately and expressly foreclose the possibility of state legislation on the same matters.

It is nevertheless to be noted that if the federal legislature goes with the option of implementing the CISG, there are some international sale transactions that will fall outside its regime. For example, consumer sale transactions are generally excluded from the purview of the CISG whereas consumer transactions with cross-border elements are a significant feature of the modern electronic and information technology age. Thus, if Nigerian law were to be the applicable law of such a transaction the question will yet arise whether federal or a state legislation would be the appropriate legislation to apply.

Trade and Commerce and the Nigerian Constitution

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Trade and Commerce and the Nigerian Constitution

In a previous entry we argued that despite the fact that “trade and commerce” is listed as an item on the Exclusive Legislative List of the Nigerian 1999 Constitution, state legislatures also have legislative competence to enact arbitration legislation even in respect of interstate and international commercial transactions.

In this entry, we examine the “trade and commerce” provision in the Exclusive Legislative List from another dimension. In particular, we are going to briefly raise a question concerning the validity of some of the extant state legislation on sale of goods in light of the trade and commerce provision in the Exclusive Legislative List.

Historically, during the colonial era Nigeria adopted the English Sale of Goods Act of 1893 (under the concept of ‘statute of general application’) as the law generally governing sale of goods transactions. Around the time of independence, the then Western Region enacted the provisions of the same statute which it reproduced in the form of its own Sale of Goods Law 1959. When states were later created out of the old regions, some of the states which emerged from the old Western Region also continued the reproduction of the Sale of Goods Act by again enacting it locally as the Sale of Goods Law of the state concerned. Presently, a number of Nigerian states now have a Sale of Goods Law while in the states or parts of Nigeria (e.g. the Federal Capital Territory) which do not have a local sale of goods law, the English Sale of Goods Act will continue to apply under the statute of general application concept.

The issue that arises for the purpose of this entry is that of the scope of the Sale of Goods Law of a state that has enacted one in light of the trade and commerce provision in the Exclusive Legislative List of the 1999 Constitution. The most directly relevant provisions of the 1999 Constitution are items 62 and 62(a) as follows:

62 “Trade and commerce, and in particular —

(a) trade and commerce between Nigeria and other countries including import of commodities into and export of commodities from Nigeria, and trade and commerce between the states”

From these provisions it would appear at first sight that as legislative power in respect of matters of “interstate” and “international” trade and commerce is exclusive to the federal legislature, a state legislation concerning trade and commerce must be confined in its application to trade and commerce with connections solely and entirely with the particular state. Thus it would at first appear that a state’s Sale of Goods Law can only apply in respect of sale transactions with connections solely to that state.

Are the conclusions or suppositions above truly correct or even practical, however?

Let us examine a few possible scenarios arising from the trading activities of an imaginary company – Johnson Cars Ltd which we take to be a company with its registered office and place of business in Lagos.

The company sells a car to Mr Simpson who is an indigene and resident of Ogun State. Mr Simpson is unhappy with the condition of the car and commences legal action in Lagos.
The company sells 10 lorries to Kaluka Ltd which is a company with registered office and place of business in Eboyin State. Kaluka Ltd is unhappy with the condition of the lorries and wishes to sue in Lagos.
The company sells a car to Mrs Donald who is an indigene and resident of the Federal Capital Territory, Abuja. Mrs Donald is unhappy with the car and she wishes to sue in Abuja.
The company buys some car parts from a UK based and registered company (Northern Parts) and the contract provides that disputes will be referred to the Nigerian courts and that Nigerian law will apply. Johnson Cars Ltd is unhappy with the parts delivered and wishes to sue Northern Parts in Lagos.

The ultimate question to be addressed is whether the Sale of Goods Law of Lagos State can be applied by the court dealing with the dispute in any of these given scenarios.

Each of the scenarios is a sale of goods transaction and each will almost certainly be held to be a matter of “trade and commerce”; (see Attorney General of Ogun State v Aberuagba (1985) 1 NWLR (part 3) 395). On the other hand none of the transactions is connected solely to one state – in particular, Lagos State. However, are scenarios (1)-(3) trade and commerce between the states and is scenario (4) trade and commerce between Nigeria and another country?

In Aberuagba, the Supreme Court did not treat provisions of the 1979 Constitution identical to item 62 of the 1999 Constitution’s Exclusive List as relating only to transactions between government entities. The lead judgment of Bello JSC, with which the majority of the court concurred, considered the movement of products across states as “interstate trade and commerce” and from another country into Nigeria as “international trade and commerce” and it considered that both of these fell within the constitution’s provisions under consideration. Indeed the court held that “international trade and commerce” and “interstate trade and commerce” are reserved for the federal legislature while trade and commerce within a state is left as a residuary matter to the states.

The Supreme Court’s understandable approach as summarised in the immediately preceding paragraph however helps to see in stark relief the conundrum that arises in relation to ascertaining the true scope, purpose and intention behind the “trade and commerce” provisions in the Constitution’s Exclusive Legislative List.

If the court’s decision as so far summarised were taken extremely literally without further careful consideration, the conclusion would have to be reached that the Sales Law of Lagos State cannot be applied to any of the four hypothetical scenarios presented in this essay. More alarmingly, it would mean that the Sale of Goods Law of Lagos State or any other Nigerian State for that matter would have to be declared null and void to the extent that it concerns “interstate trade and commerce” and/or “international trade and commerce”.

The matter of whether the Sale of Goods Law of a state in Nigeria cannot be applied in respect of a sale transaction with connections to another state or indeed another country in light of the allocation of legislative competence in the 1999 Constitution deserves further careful consideration. It is a matter that will be addressed further in a future entry on this blog.

Doctrine of Covering the field and Arbitration in Nigeria

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Doctrine of Covering the Field and Arbitration in Nigeria

The doctrine of covering the field continues to attract some attention in relation to arbitration law and practice in Nigeria. As has been discussed recently, its relevance is being raised in the particular context of whether a state arbitration legislation can be or remain valid in light of the existence of the federal Arbitration and Conciliation Act. The particular legislation that has been raising the dust is the Lagos State Arbitration Law of 2009 and suggestions continue to be made that the law either needs to be amended (or cannot even stand) in light of the federal legislation, owing to the doctrine of covering the field.

The constitutional aspect of legislative competence over arbitration in Nigeria, especially as between the federal and state legislatures, has already been discussed extensively. This present entry merely seeks to reiterate the point that the doctrine of covering the field is simply inappropriate for addressing the question of legislative competence over arbitration in Nigeria.

In the first place, it has just not been demonstrated how the federal legislature has shown an intention to legislate exhaustively and exclusively on arbitration – which is a prerequisite for the invocation of the doctrine of covering the field on that legislative subject matter. It is not enough to point out that the Arbitration and Conciliation Act is applicable throughout Nigeria when the Act clearly and, arguably, deliberately did not repeal the numerous state legislation on arbitration which already existed at the time of its own promulgation or give any indication that states cannot legislate on arbitration. A better way to approach the federal legislation is that it makes its own regime available optionally but not mandatorily throughout the federation.

The oft stated and repeated objective of making Lagos in particular and Nigeria generally an attractive venue for the conduct of arbitration proceedings also dictate a requirement of careful consideration when thinking of invoking the doctrine of covering the field. In order to achieve the aim of making Nigeria an arbitration venue all relevant parties (policy makers, legislature, judiciary, arbitrators, counsel, academics, among others) need to demonstrate understanding of important doctrines and principles underlying arbitration.

A key doctrine underlying and running through arbitration is the doctrine of party autonomy. One aspect of this is that the parties are free to choose the law(s) governing the various aspects of the arbitration including especially the lex arbitri. In order to make Lagos and Nigeria an attractive arbitration venue, it is necessary to demonstrate that if parties to arbitration wish to invoke the Lagos State Arbitration Law as the lex arbitri, the Nigerian legal system will respect that choice.

On the other hand, it is a sobering thought that the result of the invocation or application of the doctrine of covering the field would be to deny the arbitral parties of such a choice. And of course that would be the path to jeopardising the desired objective of making Lagos in particular and Nigeria as a whole an attractive arbitration venue.

Arbitration and the Nigerian Constitution

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Arbitration and the Nigerian Constitution

Since 1988 the legislation typically invoked in Nigeria as the framework legislation concerning commercial arbitration has been the federal Arbitration and Conciliation Act 1988 – although many states continue to have legacy arbitration legislation from Nigeria’s colonial era on their statute books. The introduction and enactment of the Lagos State Arbitration Law of 2009, as an alternative to the federal legislation, and that state’s argument that it has the necessary competence under the Nigerian Constitution of 1999 has ignited a serious constitutional debate about legislative competence over arbitration – especially arbitration concerning transactions or disputes with connections to more than one state or beyond Nigeria.

The purpose of this brief essay is to summarise a generally overlooked line of argument, based on a conceptual appreciation of arbitration and extant Nigerian judicial authority, that the 1999 Constitution is consistent with the conclusion that both the federal and states’ legislatures have competence to enact arbitration legislation in respect of transactions or disputes with connections to more than one state or beyond Nigeria.

The matter of constitutional legislative competence over arbitration has been the subject of an ongoing fierce and quite impressively stimulating academic debate. On the other hand, when presented with a recent opportunity to address or, in light of a previous decision, to revisit the issue the Nigerian Court of Appeal chose in the particular circumstances to exercise judicial economy saying that it would “refuse to be dragged down into a snake pit”; Stabilini Visinoni Limited v Mallinson & Partners Limited [2014] 12 NWLR (part 1420) 134, 175.

The constitutional debate centres around whether the current Nigerian Constitution of 1999 clearly determines which legislature, as between the federal legislature and states’ legislatures, has the legislative competence to enact a framework arbitration legislation – especially as it relates to interstate and international commercial activities and disputes arising out of them.

The two legislative lists, the Exclusive and Concurrent Lists, through which the Constitution primarily sets out the respective legislative competences of the federal and states’ legislatures do not expressly mention arbitration. This has led to the question of whether legislative competence over arbitration is addressed in the constitution at all or whether it can be said to have been addressed as part of or incidental to another heading that is expressly mentioned. In the extant debate, the provisions of the 1999 Constitution which are usually invoked as capable of being treated as providing for legislative competence over arbitration are contained in items 62, 62(a) and 68 of the 1999 Constitution as set out below for ease of reference:

“Trade and commerce, and in particular –

(a) trade and commerce between Nigeria and other countries … and trade and commerce between the states”

“Any matter incidental or supplementary to any matter mentioned elsewhere in this list.”

Naturally, viewpoints and opinions as to whether these provisions cover the question of legislative competence over arbitration are polarised. The prevalent and most common interpretation and invocation of the provisions in relation to legislative competence over arbitration holds that in light of item 68, arbitration is incidental or supplementary to trade and commerce mentioned in item 62. Accordingly, the argument goes on, the federal legislature has exclusive competence in respect of arbitration concerning international and interstate commerce (the latter being sometimes confusingly referred to as “inter-state arbitration”). Further, according to this line of argument, states’ legislatures would have legislative competence to enact arbitration legislation in respect of purely “intra-state arbitration” (i.e. an arbitration with connections solely to the concerned state) – as this would be a residual matter which, not being addressed in the constitution, falls within the legislative competence of the states.

On the other hand, it has been argued quite forcefully to the contrary that the provisions of items 62 and 68 of the Exclusive List of the 1999 Constitution cannot be invoked to determine legislative competence over arbitration in that they do not expressly or clearly address the matter. It is thus contended under this line of argument that the federal legislature does not even have legislative competence over arbitration at all; that as arbitration is not mentioned in the 1999 Constitution, it is entirely a residual matter left for the legislative competence of states’ legislatures to the exclusion of the federal legislature.

At this point it is important to make the clarification that, under each of the lines of argument summarised so far, it is accepted that legislative competence to implement Nigeria’s international obligations concerning arbitration lies with the federal legislature. This is for example and in particular in relation to Nigeria’s commitments in respect of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. It is also not in issue that the federal legislature has competence to enact arbitration legislation for the Federal Capital Territory or that states’ legislatures have competence to enact arbitration legislation concerning transactions and disputes with connections solely to the concerned state.

As things stand at present, the position of the courts in relation to the ongoing constitutional debate about legislative competence over arbitration is not entirely clear. In Stabilini, the Court of Appeal seemed to implicitly favour a middle course. Whilst the court decided the matter before it on the basis that the parties’ actions and the circumstances of the particular case dictated that the extant federal Arbitration and Conciliation Act 1988 should be applied, the court seemed to recognise that it could be open to parties to arbitration (in Lagos) to choose to invoke the Lagos State Law instead. The decision in Stabilini sits very uneasily with an older decision of the same Court of Appeal (albeit a different judicial division) in Compagnie Generale de Geophysique v Dr Jackson D Etuk [2004] 1 NWLR (part 853) 20. In the older case, the Court of Appeal held that by the Arbitration and Conciliation Act of 1988 the federal legislature has “covered the whole field of arbitration” and that ‘inconsistent’ provisions of state legislation on arbitration are null and void.

The doctrine of “covering the field” invoked by the court in the Etuk case also has some support in the academic literature. However, if the decision in Etuk and the “covering the field approach” were correct, the Court of Appeal in Stabilini could simply have held that the Lagos State Law of 2009 is null and void to the extent of inconsistency with the 1988 federal legislation. The Stabilini court did no such thing! Rather the court in fact commended the Lagos State legislation for making it possible for parties to arbitration within Lagos to choose either that law itself or another law – including of course the 1988 federal legislation. The court said this approach “makes sense because arbitration is a subject area that can be said to be ‘without borders’”.

In a recent contribution to the ongoing debate ((2016) 19(1) International Arbitration Law Review), it has been demonstrated that the “covering the field” approach is entirely inappropriate in the context of legislative competence over arbitration in Nigeria. More, specifically it was also demonstrated that the invocation of the doctrine by the Court of Appeal in Etuk did not even comply with the parameters for the invocation of the doctrine as laid down by the Supreme Court in cases such as, among others, Attorney-General of Ogun State v Attorney-General of the Federation (1982) 1–2 SC 13. More significantly the contribution demonstrated, in terms summarised below, that extant Supreme Court authority on the interpretation of the phrase “trade and commerce” in the equivalent exclusive legislative list of Nigeria’s previous 1979 Constitution and other related provisions as well as general doctrine support the conclusion that both the federal and state legislatures have competence to enact arbitration legislation concerning inter-state and international transactions.

In the first place, on a purely conceptual level, arbitration is actually part of and encompassed within the phrase “trade and commerce” and it is surprising that the debate has mostly focused on whether arbitration is “incidental” to trade and commerce. Arbitration itself is big business and is widely so regarded; it is not merely a dispute resolution mechanism but indeed a veritable business sector that many countries and cities wish to encourage and develop for revenue generation purposes. Recently, it was announced that the Bahamas planned to become an arbitration centre in “a bid to tap into a possible lucrative business sector for the country.” In similar vein, a commentator recently noted that “London, for example, handles in any given year international arbitrations with a combined value of £40-£50 billion ….” Once arbitration is seen as the big business that it is, apart from being merely a dispute resolution mechanism, it is not altogether difficult to see arbitration as within “trade and commerce” and thus within the legislative competence of the federal legislature to the extent constitutionally provided for.

The approach of regarding arbitration as within the phrase “trade and commerce” in the Nigerian Constitution is consistent with the decision of the Nigerian Supreme Court directly on that phrase in Attorney-General of Ogun State v Aberuagba & Ors, (1985) 1 NWLR (part 3) 395. In Aberuagba, the Supreme Court noted that the mere fact that an item is not specifically included in the Exclusive Legislative List does not automatically mean that the federal government has no legislative power on the matter. It was clear that all the members of the court considered that the phrase “trade and commerce”, as such, has a wide and embracing meaning. Eso JSC, borrowing from the American Supreme Court, observed that to restrict the word “commerce” merely to buying and selling would be to “restrict a general term, applicable to many objects, to one of its significations.”

In light of the conceptual consideration of arbitration as a business sector in its own right as well as the embracing approach to the interpretation of “trade and commerce” by the Supreme Court, it is entirely appropriate to conclude that arbitration is encompassed within the phrase “trade and commerce” in item 62 of the exclusive legislative list of the 1999 Constitution. It follows at the least that the federal legislature has legislative competence over arbitration at least as it concerns interstate or international trade and commerce.

As far as states’ legislatures are concerned, once again both the Aberuagba case and general doctrine provide insights consistent with the conclusion that states’ legislatures also have legislative competence over arbitration concerning interstate or international transaction disputes. Even whilst holding that the federal legislature has exclusive competence in respect of international and interstate trade and commerce, the Aberuagba case acknowledged that the federal legislature did not have completely exclusive power over trade and commerce and that state and even local governments “have their respective shares to control trade and commerce.” Further, the court also held, in light of item H paras 18 and 19 of the Concurrent List of the 1979 Constitution, that a state legislature has competence to enact laws concerning trade and commerce within its borders; and that a state legislature has competence to enact laws for the industrial and commercial development of the state.

In light of the immediately foregoing, it would follow that to the extent that a state’s law on arbitration concerns trade and commerce within its borders, and/or has as one of its objectives the industrial and commercial development of the state, such a law would ordinarily be within the constitutional legislative competence of the state. On the other hand if such a state law were to also concern matters of interstate or international trade and commerce the question would still arise if this is not straying into an area of exclusive competence of the federal legislature. To address this particular difficulty, some supporters of the Lagos Law have invoked the common law doctrine of “pith and substance” (particularly associated with Canada).

Incidentally, a criticism of the Lagos invocation of the doctrine of pith and substance is that the approach did not clearly establish the state’s constitutional legislative competence over arbitration in the first place. As it happens, that criticism has been met in this essay and in the more detailed journal article in tracing a state’s power to enact arbitration legislation to its powers in respect of trade and commerce and for the industrial and commercial development of the state. Nevertheless, there is even so a need to address the matter of potential straying into an area of federal legislative competence. In this respect an extension of the pith and substance argument, by considering and invoking a further principle called “the concurrency principle” (also particularly associated with Canada), together with constitutional interpretation principles laid down by the Nigerian Supreme Court, as well as the private nature of and party autonomy principles underlying arbitration, provide a sound doctrinal basis for accepting that both the Nigerian federal and states’ legislatures can have coexisting legislative competences over arbitration – even in relation to interstate and international disputes.

The concurrency principle is to the effect that where constitutional powers of the federal and state authorities overlap, the features of a law passed by one of them relating to its area of competence may be as important as those which touch upon the other’s areas of competence. In such case, it would not be possible to allocate legislative competence exclusively to either government. In other words, each of the legislatures concerned would be within its constitutional authority to enact such legislation. In respect of arbitration legislation in particular, this should not really pose a problem in a federal structure since separate federal and state legislation both extending to interstate commerce arbitration and international arbitration can coexist without conflict – even if they contain provisions differing in particular respects. As the Supreme Court has acknowledged, the mere existence of differing provisions does not alone ipso facto create inconsistency; see Attorney-General of Ogun State v Attorney-General of the Federation, especially per Fatayi-Williams CJN and Idigbe JSC.

In relation to constitution interpretation principles, the Supreme Court reiterated in Aberuagba that the fundamental principle is that such interpretation as would serve the interest of the Constitution and would best carry out its objectives and purpose should be preferred and that relevant provisions must be read together, not disjointly. On the private nature of arbitration and the principle of party autonomy, it is widely accepted that the parties should have the freedom to determine the law applicable to their arbitration not only in terms of substantive law but also in respect of the overarching lex arbitri. In that respect an approach which widens and enhances such choice is to be preferred to an approach which restricts choice. In the Nigerian context, the approach which enhances choice is that which allows a federal arbitration regime to exist side by side with state regimes, leaving informed parties with the ability to select the most suitable for their purposes. This much seemed to be acknowledged by the Court of Appeal in Stabilini and was commended as “making sense”. It is also the approach followed by the court of first instance in Etuk and, it is submitted, a far superior approach to the “covering the field” approach later invoked by the Court of Appeal in the same case.

As proposals for new arbitration legislation are still going through parliamentary processes, it is considered that a future federal arbitration legislation should not repeal or jeopardise state arbitration legislation. Rather, it should follow the approach of the Lagos State legislation which was commended by the Court of Appeal in providing that parties to arbitration arising out of an interstate or international transaction have the choice to select as between the federal legislation and an appropriate state arbitration legislation. It is submitted that this is the approach most suitable for advancing the causes of attracting trade and investment to Nigeria generally, of attracting arbitration business to Nigeria and specific Nigerian states, and for advancing the long pursued goal of presenting Nigeria as an arbitration friendly jurisdiction and viable arbitration centre.

Third Party Challenge of Arbitration Agreement in Nigeria

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A recent decision of the Nigerian Court of Appeal on whether a third party can challenge an arbitration agreement in Nigeria, i.e. whether a person who is not a party to an arbitration agreement can bring an action in the courts to challenge the arbitration proceedings based on the agreement, has stirred up some controversy. The judgment of the Court of Appeal in Statoil Nigeria Ltd & Anor v Federal Inland Revenue Service & Anor which was delivered in June 2014 has been reported recently in (2014) LPELR-23144.

In essence, the Court of Appeal held that the Federal High Court was justified to refuse an application to stay its proceedings in which the arbitration agreement and proceedings were challenged by a third party on the basis that the third party had locus standi to bring the challenge before the courts. The key facts of the case are as summarised below.

The Nigerian National Petroleum Corporation (NNPC) entered into a production sharing contract with Statoil (and others); the production sharing contract contained a clause that disputes should be referred to arbitration; following a dispute, the parties commenced arbitration under the Nigerian Arbitration and Conciliation Act.

The Federal Inland Revenue Service (FIRS) which was not a party to either the production sharing contract or arbitral agreement or, for that matter, the arbitral proceedings took the view that the issues/disputes between the parties before the arbitral tribunal were “in essence, issues, and controversies arising from the differing interpretations of the Petroleum Profit Tax Act and other tax Legislations and that these issues/disputes and controversies are within the jurisdiction of the Federal High Court.” Accordingly, the FIRS commenced an action by Originating Summons in the Federal High Court seeking declaratory reliefs including whether the arbitral tribunal had jurisdiction to entertain a matter dealing with taxation – especially as an award might impinge on the right of the FIRS “to assess and collect tax and generate revenue for the Federal Government of Nigeria.”

According to the Report of the case, the challenge by Statoil (and Texaco) to the jurisdiction of the Federal High Court to hear and determine the originating summons was based on the grounds that FIRS was not a party to the arbitration agreement and lacked legal standing to institute the summons; that the Originating Summons constituted an abuse of the court process; that the Originating Summons was filed in violation of the Arbitration and Conciliation Act. It was also contended that the Originating Summons was vexatious, oppressive and an abuse of judicial process based on an allegation of collusion between the NNPC and the FIRS in the filing of the Originating Summons.

The Federal High Court dismissed the objections to its jurisdiction and the request to stay its proceedings and it was this dismissal that went on appeal to the Court of Appeal. In reaching its decision that the Federal High Court was justified to dismiss the objections to its jurisdiction, the Court of Appeal seemed to focus mainly on the question whether the FIRS had locus standi to commence the Originating Summons before the Federal High Court in the extant circumstances. The Court said that considering that a party to an arbitration agreement can challenge the jurisdiction of the tribunal or claim that the arbitration agreement was void, then a person or authority (e.g. FIRS) who was not a party to the arbitration agreement should not be debarred from seeking declaratory remedies from the court, if he complains that the arbitral proceedings or an award made under the arbitral agreement would “constitute an infringement of some provisions of the Constitution or the laws of the land or impede her constitutional and statutory functions, or powers.”

The Court of Appeal also held that the appellant oil companies had made a tacit admission that FIRS had locus standi to commence the Originating Summons by accepting in their affidavit that an arbitral award favourable to them would direct that tax returns prepared by them (rather than NNPC) should be filed with the respondent (FIRS) and had conceded that the FIRS had a statutory duty (inter alia) to assess and collect tax.

The Court of Appeal also noted that in Nigerian Ports Authority vs Panalpina World Transport (Nig) Ltd (1973) 1 All NLR (Pt.1) 486, the Supreme Court held that an arbitral award made by a body called the Arbitration Board was given in excess or lack of jurisdiction and was thus illegal and null; that having so held, the Supreme Court also granted consequent declaratory reliefs in respect of assets including immovable property situated outside the jurisdiction of the trial court. The Court of Appeal thus took the view that the importance of the Supreme Court decision was “to show that an arbitral agreement could be challenged and declared a nullity by a competent Court in a substantive action or originating summons on grounds of excess or lack of jurisdiction on the Arbitral Tribunal, or that the agreement was ab initio, null and void, having no effect in law or in fact.”

The Court of Appeal also relied on Order 3 rules 6 and 7 of the Federal High Court (Civil Procedure) Rules, 2009, to the effect that any person who claims “to be interested under a deed, will enactment or other written instrument” or who claims “any legal or equitable right in a case where the determination of the question whether such a person is entitled to the right depends upon a question of construction of an enactment” is entitled to seek declaratory reliefs by Originating Summons.

Finally, the Court of Appeal dismissed the allegation of collusion between the NNPC and the FIRS; it held that a person, body or authority that instituted an action in a Court of Justice to protect or secure statutory or constitutional rights, privileges, or immunity, etc, could not be said to be acting in collusion.

On the face of it, there is logical internal consistency to the decision of the Court of Appeal. On the other hand, the problems with the decision seem to stem more from what it overlooks than what it actually decided. It is true, for example, that Order 3 Rule 6 of the Federal High Court Rules allows a person to commence action by Originating Summons if he claims “to be interested under a deed, will enactment or other written instrument”. It would have been more helpful, however, if the court had undertaken a more detailed examination to conclude that “other written instrument” in that language encompasses an arbitration agreement or to decide whether it is to be interpreted more restrictively.

The predication on Order 3 Rule 7 of the same provision, that a person is entitled to commence action by Originating Summons if the interpretation of an enactment is in issue, appears stronger. Nevertheless, a consideration of other factors which the court seemed not to take into account would suggest that even that is not really as strong as it appears in the circumstances of a third party challenge to an arbitration agreement.

Arguably, the most critical factor that was overlooked or at least insufficiently considered is in terms of the provisions of the Nigerian Arbitration and Conciliation Act. In the first place, section 34 of that Act provides that a court shall not intervene in any matter governed by the Act except where so provided in the Act itself. The Preamble to the Act says that its purpose is “to provide a unified legal frame work for the fair and efficient settlement of commercial disputes by arbitration and conciliation” and also to make the New York Convention on the Recognition and Enforcement of Arbitral Awards applicable in Nigeria. Following on from the Preamble and considering its specific provisions, it is fairly clear that matters governed by the Act include arbitration agreements, arbitral proceedings as well as the recognition and enforcement of arbitral awards.

Section 4 of the Arbitration and Conciliation Act provides that if an action which is the subject of an arbitration agreement is brought before a court the court shall stay its proceedings if so requested by a party who makes the request not later than when filing his statement on the substance of the dispute. An interesting observation about the language of section 4 is that its focus seems to be on the parties before the court and not necessarily the parties to the relevant arbitration agreement; compare for example section 5 of the same Act which clearly focuses on circumstances when the parties before the court are also the parties to the arbitration agreement. Nevertheless, the terms of section 4 give us an indication of how the Court of Appeal might have approached the instant case differently.

As alluded to earlier, the focus of the Court of Appeal was principally on whether the FIRS had locus standi to bring the Originating Summons before the court. In fairness, it also seems that this was the first line of argument pursued on behalf of the oil companies. However, the fact that a party before a court might have locus standi and might be properly before the court is not of itself sufficient to deprive the court of its ability to exercise its jurisdiction to stay the proceedings. The terms of section 4 of the Arbitration and Conciliation Act contemplate that the parties in the action before the court might be properly before the court; hence it says that the party seeking a stay of proceedings must do so no later than when it submits its first statement on the substance of the dispute. It is also important to bear in mind the use of the imperative “shall” in section 4 i.e. the court “shall” stay its proceedings which suggests, at least prima facie, that the court must stay its proceedings following a prompt request.

Beyond section 4, the Arbitration and Conciliation Act also provides in section 12 that an arbitral tribunal shall be competent to rule on matters pertaining to its own jurisdiction. Ordinarily, this suggests that it is for the tribunal to decide on its own jurisdiction; however, it may be argued that this is not a total preclusion in all circumstances of the ability of courts to rule on the jurisdiction of an arbitral tribunal. The Court of Appeal pointed to the example of the Panalpina case where the Supreme Court held that the Arbitration Board lacked or exceeded jurisdiction. Another argument that may be raised along this line might depend on section 35 of the Act (also mentioned by the Court of Appeal) which provides that the Act’s provisions do not affect any other law by which certain disputes are not arbitrable or are only arbitrable on stated conditions. On the other hand, there is one important distinction from the Panalpina case which the Court of Appeal did not seem to address directly. The Panalpina case concerned a situation where an award had already been made whereas the present case is to prevent the holding of arbitral proceedings at all.

In light of the foregoing, while the Court of Appeal’s decision that the FIRS had locus standi in respect of the Originating Summons before the Federal High Court has a consistent logic to it, the decision’s main shortcoming is in terms of inadequate consideration of directly relevant provisions of the Arbitration and Conciliation Act. Specifically, the court should have paid attention to the provisions that require the lower court to stay its own proceedings, irrespective of whether the parties have locus standi and are properly before the court, at the request of a party who acts promptly when the matter before the court is the subject of arbitral proceedings.

The Court of Appeal’s decision might also have better reflected awareness of sensitivities about supporting and promoting international commercial arbitration and Nigeria’s perception as an arbitration friendly centre. It is in this respect that some of the critical commentaries on the Court of Appeal’s decision have been focused. Some of the already extant commentary suggest that the decision reverses the positive impressions that had been generated by recent decisions including especially Nigerian Agip Exploration Limited (NAE) v Nigerian National Petroleum Corporation (NNPC) & Anor CA/A/628/2011 of February 2014; and, Statoil Nigeria Ltd & Anor v NNPC & 2 Ors 2014 NWLR (Pt 1373) 1; (2013) 7 CLRN 72.

It may be that the Court of Appeal’s decision in Statoil v NNPC under consideration here is not as damaging as it might first appear. The decision should not be read as an open cheque for third party challenge of arbitration agreements in Nigeria. Rather the decision should be read as simply to the effect that in some circumstances a third party to an arbitration agreement has locus standi to file an action before the courts challenging the arbitration agreement. The decision is not per se to the effect that the court cannot stay its jurisdiction in such an action. It is thought that commentary highlighting this distinction and stressing the importance and need to exercise the courts’ jurisdiction to stay proceedings is more likely to be beneficial to the courts in appreciating the fine distinctions that often need to be made and the important sensitivities about arbitration friendliness. In any event, an authoritative decision on the matter by the Nigerian Supreme Court would be most welcome.

Still on the Enforcement of Foreign Judgments in Nigeria

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With rather coincidental timeliness following our recent blog entry (also published elsewhere) on the enforcement of foreign judgments in Nigeria, our friend and Colleague Adewale Olawoyin of the Nigerian law firm Olawoyin & Olawoyin has just published a very instructive article on the same topic in the Journal of Private International Law.

The article agrees with our conclusion in both the recent blog entry and ’Gbenga Bamodu’s earlier similarly analytical article in the Oxford University Commonwealth Law Journal that, contrary to the decisions of the Nigerian Supreme Court, the Foreign Judgment (Reciprocal Enforcement) Act 1960 really should be and continue to be inoperative until relevant orders are made by the Minister of Justice.

’Wale’s article also goes on to make important observations and recommendations. Arguably, the most important of these is that the Nigerian legislature and policy makers should really be looking at enacting a new legislative regime for the enforcement of foreign judgments in Nigeria. The suggested new regime does not necessarily have to be based on reciprocity, it can take account of Nigeria’s commercial and strategic interests especially bearing in mind which countries are Nigeria’s most important trading partners, and it might even take account of non-money judgments . Finally, the new regime would obviate all the potential difficulties of interpretation that may attend both the Reciprocal Enforcement of Judgments Act 1922 and the Foreign Judgments (Reciprocal Enforcements) Act 1960. We heartily recommend this article.

Enforcing Foreign Judgments in Nigeria: ‘Ex Abundanti Cautela’

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In a series of judgments going back to at least 2003 Nigeria’s highest courts, especially the Supreme Court, have provided greater clarity concerning the statutory regimes for enforcing foreign money judgments in Nigeria. Nevertheless, an examination of the decisions of the courts and the practical implications of some of the most recent decisions indicate that an enormous amount of caution is still required when seeking to enforce a foreign judgment in Nigeria.

In one of the most recent cases, Access Bank v Akingbola (2014), the Lagos State High Court advised that the judgment creditor should have acted ex abundanti cautela (‘out of the abundance of caution’) when selecting which Nigerian court to approach for the enforcement of a judgment of the English High Court. It is contended that the necessity for caution, while indeed advisable and recommended, is in part due to uncertainty and confusion arising from very questionable interpretations and decisions of the courts themselves.

There are two statutory regimes under which it may be possible to enforce a foreign judgment in Nigeria. The first is the Reciprocal Enforcement of Judgments Act 1922 (‘the 1922 Act’ which is sometimes confusingly referred to as the 1958 Act) and the Foreign Judgments (Reciprocal Enforcement) Act 1960 (‘the 1960 Act’ which is sometimes referred to, also confusingly, as the 1990 Act). While it had been assumed to some degree that the advent of the 1960 Act had led to the repeal of the 1922 Act, the Supreme Court has decided, rightly, that the 1922 Act was never repealed and remains in force; (see inter alia Macaulay v RZB of Austria [2003] 18 NWLR 282). The 1922 Act continues to be available for the enforcement by registration of judgments of the courts of the United Kingdom and some Commonwealth countries to which its application is extended by proclamation. This is what was always intended and the countries to which the 1922 Act applies include specifically the countries listed in an extant proclamation order (Laws of the Federation of Nigeria and Lagos (1958) vol IX, cl 175, s. 5).

The 1960 Act, by its terms, is intended to apply in respect of judgments from foreign countries on the basis of reciprocity, i.e., on the basis that Nigerian judgments are given reciprocal treatment in the courts of the country concerned. By its terms, the potential application of the 1960 Act is not confined to judgments from only Commonwealth countries. Rather, the Act can apply in respect of the judgment of any country at all – as long as the requirement of reciprocity is satisfied. Ordinarily, the reciprocity requirement is met when the Minister of Justice makes an Order that the 1960 Act shall apply in respect of the judgments of the designated superior courts of a particular country. The courts have now confirmed that no such order has been made under the Act and, ordinarily, the reciprocity requirement under the 1960 Act is not currently satisfied in respect of any country – except in the unlikely event that the courts allow proof of reciprocity by a means other than Ministerial order. Ordinarily also, according to sound principles of statutory interpretation, this should mean that no judgment from any country whatsoever can be enforced under the 1960 Act.

Rather surprisingly, the Nigerian Supreme Court has held that a particular part of the 1960 Act can be invoked to enforce a foreign judgment, even in the absence of a ministerial order. The Nigerian Supreme Court has held that section 10(a) of the 1960 Act can be invoked as an exception to the requirement of a ministerial order. In reaching this conclusion, the court took the view that section 10(a) is an “interim” provision intended to apply before the Minister of Justice makes an order under the Act. It has been argued extensively elsewhere that this approach is not only of dubious accuracy but that it is also self-contradictory; otherwise, it is at best an exercise in judicial pragmatism. (See the article: ‘The Enforcement of Foreign Money Judgments in Nigeria: A Case of Unnecessary Judicial Pragmatism?’ in (2012) 12(1) Oxford University Commonwealth Law Journal 1)

The reality is that the provisions of section 10(a) of the 1960 Act are not supposed to apply at all before the making of an Order of the Minister; rather they are supposed to apply before the commencement of an order of the Minister. This presupposes that only when an order has been made but before its commencement can the provision of section 10(a) of the 1960 Act be invoked. The drastic reality is that the provisions of the1960 Act are not truly supposed to be invoked at all presently – unless and until (a) relevant ministerial order(s) is/are made!

That the conclusion of the Supreme Court applying section 10(a) of the 1960 Act in the absence of any ministerial order is contradictory is apparent on a careful examination of some of the statements of the court itself. For example Mohammed JSC, who delivered some of the most lucid reasoning on this topic, observed as follows:

‘the entire provisions of Part I of the [1960 Act] containing section 4 of the Act require a positive action on the part of the Minister of Justice of the Federation to bring that part of the Act into force. Part I…. comprises sections 3, 4, 5, 6, 7, 8, 9, and 10. From the provisions of section 3 of the Act . . . it is quite clear that the provisions of Part I of the Act remains (sic) dormant or inactive until life is breathed into them by an order promulgated by the Minister . . .’ (Marine & General Assurance Co Plc v Overseas Union Insurance Ltd & Ors [2006] 4 NWLR 622,643)

Similar sentiments as above are repeated by Mohammed JSC and his brother justices on the Supreme Court bench in other cases including: Grosvenor Casinos Ltd v Ghassan Halaoui [2009] 10 NWLR 309. According to the statement of Mohammed JSC above, the entire provisions of Part 1 of the 1960 Act require an order promulgated by the Minister of Justice before they can come into force and otherwise they remain dormant. But then section 10(a) which the Supreme Court applies is also within the said Part I whose entire provisions are still dormant until the promulgation of a ministerial order! In a sense, the Supreme Court side-stepped this evident contradiction by claiming that section 10(a) is applicable exceptionally as an interim measure before a ministerial order is made. The critical point, however, is that section 10(a) does not contain any such exception. By its terms, even section 10(a) is not supposed to be applicable or to be applied before a ministerial order is made at all; it is only applicable before the commencement of a ministerial order that has been made.

It is not difficult to identify reasons why it is easy to fall into the temptation to find a way to make the provisions of the 1960 Act invocable for the enforcement of foreign judgments. In the absence of the approach taken by the Supreme Court judgments from several countries, including judgments from important trading partner countries, cannot be enforced by registration though they can still be enforced by action on the judgment debt. The only statutory registration regime that can be invoked, the 1922 Act, is only applicable in respect of the United Kingdom and the Commonwealth countries to which its provisions have been extended. For example, a case like Teleglobe America Inc v 21st Century Technologies Ltd (2008) 17 NWLR (Pt 1115) 108 would have had to be decided differently since there is no ministerial order extending the 1960 Act to the USA. Consequently, it would mean that American judgments cannot be enforced by registration but rather by action, although it may be possible to expedite the action to some extent by use of the undefended list procedure.

There are additional benefits to the invocability of the 1960 Act, although those are not key presently, including the fact that when it is truly operative a judgment creditor can have up to six years to apply for the registration of the judgment as opposed to just one year under the 1922 Act. From the Supreme Court’s perspective, this was a telling and decisive matter in the recent case of VAB Petroleum v Mike Momah (SC, 2013), for example.

In fact, the issue of the length of availability of time to apply for registration of a foreign judgment contributed to the conclusion of the Supreme Court that has been argued to be erroneous. Under the provisions of section 10(a) of the 1960 Act, a judgment given before the commencement of a ministerial order extending the 1960 Act to its country of origin may be registered within one year from the date of the judgment. It has been argued extensively and in detail that the true purpose of this provision “is to reiterate the operation of the 1922 Act in respect of judgments from the UK and Commonwealth countries to which that Act had been extended until the operation of the 1960 Act is triggered in respect of the UK and any such Commonwealth country by a ministerial order under the latter Act” (OUCLJ Enforcement article referred to earlier). In any event, the terms of section 10(a) are fairly straightforward that the one year period for enforcement allowed under the provision is in respect of a judgment given before the commencement of a ministerial order — and not before the issuance of such an order.

A surprising recent development arose from the judgment of the High Court of Lagos State from which the suggestion to adopt an ex abundanti cautela approach is taken. In Access Bank plc v Akingbola, the Lagos High Court ruled that the court in which the enforcement of the judgment of the English court in the particular case should have been sought was the Federal High Court. The reason for this was, in effect, that if the original action had been tried in Nigeria the court with rightful jurisdiction would have been the Federal High Court because the original (foreign) judgment concerned the statutory duties of the judgment debtor under the Companies and Allied Matters Act 1990 as a director. The court concluded that, in light of that fact, the judgment creditor should have sought enforcement of the foreign judgment in the Federal High Court ex abundanti cautela i.e. out of an abundance of caution. The judgment debtor’s arguments that he did not carry on business in the jurisdiction of the foreign court or that he did not voluntarily appear before that court are not key issues in this particular respect. Compare e.g. Union Petroleum Services Ltd v Petredec Ltd (CA, 2014)

With all due respect, the decision of the Lagos High Court evinces a very questionable understanding of the principles underlying statutory regimes for the enforcement of foreign judgments by registration. The real issue is not to address or determine which court in the enforcing country would have been properly seised of a matter; rather, the issue is to be satisfied that the foreign court indeed had jurisdiction and properly assumed jurisdiction over the cause for which its judgment is sought to be enforced. Assuming for example that the judgment debtor’s action which led to the foreign action had been perpetrated in Ghana, it would have been absurd for the Nigerian courts to delve into the issue of which Ghanaian court would have had jurisdiction rather than examining whether the foreign trial court itself had jurisdiction and properly assumed jurisdiction. The fact that the judgment debtor is Nigerian and perpetrated the relevant actions largely in Nigeria is not of itself determinative of the jurisdiction of the foreign court. The fact that such a matter would have been tried in the Federal High Court if it had been pursued in Nigeria does not of itself undermine the jurisdiction that a foreign court may have in respect of the same or a related matter.

Most crucially, the fact that a similar original action if commenced in Nigeria should have been properly commenced in the Federal High Court does not mean that the enforcement of a foreign judgment must necessarily be sought in the Federal High Court. From a practical perspective, a primary concern is to locate the jurisdictions in which a judgment debtor has assets and then to approach the courts of such a jurisdiction to enforce the relevant foreign judgment. As the judgment debtor in this particular case is alleged to have assets in Lagos State, it is a sound legal manoeuvre to approach the courts with territorial jurisdiction in Lagos State for the enforcement of the relevant judgment. Importantly, the ordinarily ‘unlimited’ subject-matter jurisdiction of the Lagos High Court is not excluded simply because the foreign judgment concerned a matter that under Nigerian law would have been heard, as an original matter, in the Federal High Court.

It would be very surprising if the decision of the Lagos High Court in Access Bank Plc v Akingbola in particular is not challenged further in the Nigerian appellate courts. Nevertheless, the case does confirm that the matter of approaching the Nigerian courts for enforcing foreign judgments in Nigeria is a matter that requires ‘an abundance of caution’; it is truly a case of proceeding ex abundanti cautela.

Parallel Imports and the Exhaustion Doctrine: Lessons for Nigeria

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In the US Supreme Court decision in the Kirtsaeng case, discussed previously, the dissenting opinion written by Ginsburg J contained some interesting observations about the approach of the United States government to the issue of exhaustion of intellectual property rights and parallel imports. In particular, Ginsburg J observed that while the majority decision of the court ‘places the United States solidly in the international exhaustion camp’, it is the position of the dissent which favours a national exhaustion doctrine that is consistent with ‘the stance the United States has taken in international negotiations’. The dissent judgment points out further that the US government ‘reached the conclusion that widespread adoption of the international exhaustion framework would be inconsistent with the long term economic interests of the United States’.

The comments of Ginsburg J reflect the important fact that policy considerations affect the type of exhaustion doctrine adopted by a particular country or even, in contemporary times, a politico-economic region. It is thus no news that there is a polarity or diversity of exhaustion regimes within the global community. While some countries favour a national exhaustion regime, there are those who favour an international exhaustion regime while a third group favour or are obliged to adopt a ‘regional’ exhaustion doctrine. The lack of international consensus regarding the form of exhaustion doctrine to adopt is reflected in the most significant instrument of recent times obliging countries to provide for protection and enforcement of intellectual property rights. That is, the WTO’s Agreement on Trade Related Aspects of Intellectual Property (TRIPS) which states that nothing in the Agreement shall be used to address the issue of exhaustion (Article 6).

To recap briefly, the exhaustion doctrine is broadly the principle that once an intellectual property right holder sells or authorises/approves the sale of a product subject to the intellectual property right, the purchaser of the product is at liberty to do with the product as s/he pleases including reselling the item. This is also known in some contexts and some countries as the ‘first sale’ doctrine. A major source of controversy, however, is that rights holders sometimes choose to sell the same product at different prices in different markets (especially different countries). Sometimes this enables a right holder to maintain a high price for the product it markets in a particular country which of course in turn opens up an opportunity for enterprise minded third parties to import the cheaper version from another market/country i.e. ‘parallel imports’. If the country in question applies a national exhaustion doctrine, the right holder will be more likely to secure prohibition of the parallel imports. On the other hand, if the country applies an international exhaustion doctrine the third party importers are more likely to be able to continue to market the parallel imports.

For poorer economy countries, it is easier to see how particular policy and economic considerations may suggest the adoption of an international exhaustion doctrine which would ordinarily allow the sourcing of products from the cheapest markets. Further, specific needs for certain products in an important sector may dictate a legislative framework that will support the sourcing of those products at comparatively low costs. This has been especially true in the understandably emotive respect of medicines generally and HIV/AIDS drugs particularly. A good example of this is the South African Medicines and Related Substances Control Act (especially No 90 of 1997) and the enormous controversy that it generated.

In the case of Nigeria, the view is often expressed that Nigeria applies a national exhaustion doctrine – at least in relation to patents. This view is usually based on the provisions of section 6(3)(b) of the Patents and Designs Act which provides in effect that rights under a patent ‘shall not extend to acts done in respect of a product covered by the patent after the product has been lawfully sold in Nigeria ….’ Some amount of caution is called for however. In the first place, the provision has not been fully tested for judicial confirmation of whether it does indeed obligate a national exhaustion doctrine in respect of patents. Second, the provision obviously only concerns patents specifically and does not extend to other forms of intellectual property such as trademarks or copyright; bear in mind that Kirtsaeng concerned copyright specifically. Third, proposed new legislation is expected to see the replacement of the provision with one that is thought to clearly provide for international exhaustion in that rights under a patent will not extend to acts done in respect of a product covered by the patent ‘after the product has been lawfully sold in any country’.

More generally, Nigeria is a common law country which inherited and adopted principles and doctrines from the common law of England and still regards decisions of the English courts on common law principles (generally excluding any modifying effect of European Union law) as of helpful and often persuasive effect, though not binding. Accordingly, the view is also held that the common law as it is applied in Nigeria probably incorporates the principle of the implied licence long recognised in common law since Betts v Wilmott (1871). The summary of this principle is that if a patentee sells or allows the product covered by a patent to be sold and does not impose any restriction on resale, the purchaser is considered at liberty to use or resell the product wherever s/he wishes.

Considering that in the absence of restriction, the principle of the implied consent can make parallel importation lawful, it can be seen as very close to the international exhaustion doctrine. Nevertheless, significant differences exist: for example, as the implied consent principle is essentially based on ‘agreement’, albeit implied, notification of restrictions to a licensed foreign seller will possibly be enough to prevent such licensee from being able to engage in parallel importation lawfully. Depending on the circumstances, it may also be that notification to third party foreign purchasers would also be enough to prevent them too from being able to engage in parallel importation lawfully. Compare this with the case of Kirtsaeng where it was noted, inter alia, that ‘Wiley Asia’s books state that they are not to be taken (without permission) into the United States.’

In light of the provision of section 6(3)(b) of the Patents and Designs Act, it is perhaps unlikely that the Nigerian courts will apply the implied consent principle in relation to patents. In other respects, there are cases in Nigerian jurisprudence where courts have been willing to grant protection in the form of injunctive relief to a local (‘sole’) distributor, and by extension its foreign licensor, against another party engaging in parallel importation e.g. Bright Motors v Honda, and The Honda Place v Globe Motors (based on parties’ ‘Terms of Settlement’, suit No. LD/1643/96). In the absence of specific provision in relation to trademarks and copyright nevertheless, it is at least arguable that the Nigerian courts may potentially be persuaded to consider and apply the implied consent principle or a form of it.

It is noteworthy that even in the United Kingdom where the adoption of a regional exhaustion doctrine (EU and EEA wide) is now obligatory and in spite of important rulings of the ‘European Court of Justice’ (e.g. the Silhouette, Davidoff & Levi Strauss cases) narrowing the possibilities for finding consent, the jurisprudence still accommodates the possibility of consent. In current English jurisprudence the consent of a right holder may still justify the importation into the UK (or even into the EU/EEA) of a product lawfully marketed outside the EU/EEA where it can be demonstrably established to the satisfaction of the courts that the right holder ‘has renounced his right to oppose placing of the goods on the market within the European Economic Area’; (‘unequivocal implied consent’). See for example Mastercigars Direct Ltd v Hunters & Frankau Ltd; Corporacion Habanos SA v Mastercigars Direct Ltd & another.

Accordingly, it will not be particularly surprising if the Nigerian courts are persuaded to apply an international exhaustion doctrine whether explicitly or in the form of an implied consent approach, particularly if anticipated legislation confirms the adoption of international exhaustion in relation to patents specifically. Although, in Kirtsaeng the US Supreme Court’s decision was based on particular American statutory provisions, it may be that the Kirtsaeng decision will embolden supporters of an international exhaustion regime in claiming that the adoption of such a regime is not per se an indication of hostility towards or lack of support for intellectual property rights and their protection.

There may be concern about other potential effects of the adoption of an international exhaustion regime. In the particular circumstances of Nigeria one such concern would be whether adoption of an international exhaustion regime would encourage the flooding of the Nigerian market with counterfeit products with particular concerns about fake medicines. Ordinarily, the adoption of an international exhaustion regime should not per se lead to an increase in the marketing of counterfeit products since the doctrine itself would allow the parallel import of genuine products marketed by or with the consent of the right owner. Nevertheless, in light of the particular danger posed by counterfeit drugs, it is incumbent on relevant authorities in any event to ensure the effective operation and enforcement of extant Nigerian statutory provisions aimed at combating that particular problem which exists even in the absence of an international exhaustion regime.

Parallel Imports and the Exhaustion Doctrine: A Thai Take Away in the USA

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The recent judgment of the Supreme Court of the United States in the case of Kirtsaeng v John Wiley Inc is already attracting a lot of attention. This is understandable because of its effect in rightly being seen as confirming that, at least in relation to copyright specifically, the US law presently recognises the concept of ‘international exhaustion’. In the decision in Kirtsaeng the US Supreme Court confirmed (in a majority decision) that the ‘first sale doctrine’ (another expression for ‘exhaustion doctrine’) applies in respect of copyrighted works manufactured abroad with the permission of the copyright owner.

In summary, the exhaustion doctrine deals with the extent to which the owner/holder of certain intellectual property rights (‘IPR owner’) in respect of a particular product can control an individual item or copy of that product after the item or copy is sold by or with the authorisation of the IPR owner. Generally, a ‘national’ form/version of the exhaustion doctrine, which some countries operate, recognises that once an individual item or copy manufactured within the country is sold, by or with the consent of an IPR owner in respect of the item or copy, the purchaser can do whatever he likes with the individual item or copy as, in other words, the rights of the IPR holder are ‘exhausted’ by that authorised sale. The more controversial aspect of the exhaustion doctrine is whether an ‘international exhaustion doctrine’ applies or is to be recognised. Under an international exhaustion doctrine the rights of an IPR owner will also be ‘exhausted’ in respect of items or copies sold by the IPR owner or with its consent in any other country. An international exhaustion doctrine could obviously have a hampering effect on the strategy of an IPR holder to market a product at different prices in different countries or regions. At the same time an international exhaustion doctrine may provide arbitrage opportunities, through ‘parallel imports’, for some people with a particular ‘enterprising’ orientation —- like the defendant in Kirtsaeng v Wiley.

The defendant was a Thai national who had gone to the USA as a student. On realising that copies of certain books in his native Thailand were cheaper than the copies on sale in America, he arranged with acquaintances to have Thai copies bought and sent to him which he then resold at a profit in the USA. John Wiley Inc was the copyright holder in respect of the books who had granted permission for the manufacture and sale of the copies in Thailand on condition that those copies were not for sale in the USA. Accordingly, John Wiley sued in the US courts for the alleged infringement of its rights. Ultimately, the decision turned on technical issues of interpretations of specific provisions of the American Copyright Act 1976 (USC Title 17) primarily with the court finding in favour of the defendant in a majority decision.

The court held that while section 106 of the Copyright Act confers some rights on the copyright owner, including distribution rights, those rights are qualified by the provisions of sections 107-122 of the same Act. In particular section 109(a) sets forth the ‘first sale doctrine’ and provides that the owner of a copy ‘lawfully made under this title’ can sell or otherwise dispose of the possession of that copy without the authority of the copyright owner. The court (majority opinion delivered by Breyer J.) held that ‘lawfully made under this title’ means made ‘in accordance with’ or ‘in compliance with’ the Copyright Act and that this extends to copies manufactured outside the USA with the permission of the copyright owner. In other words, the ‘first sale doctrine’ operates to protect the owner of a copy of a work even though the work was manufactured outside the USA, and that owner may dispose of that copy without the permission of an owner of copyright in respect of the work concerned.

Another significant provision considered by the court was section 602(a)(1) of the Copyright Act which provides that importation into the US of copies of copyright work without the authority of the copyright owner is an infringement of the copyright owner’s exclusive distribution right under section 106. Ordinarily, this provision might have been expected to entitle the claimant Wiley to succeed in the action against Kirtsaeng. There was, however, the small technical matter that the US Supreme Court had ruled in a previous case that the reference in section 602 to a copyright owner’s exclusive distribution rights under s.106 also incorporates the limitations to those distribution rights contained in sections 107-122 and especially the first sale doctrine under section 109: Quality King Distributors, Inc. v. L’anza Research Int’l, Inc. 523 U. S. 135, 145 (1998).

The consequence, evidently, is that while importation of copies of works without the authority of the copyright owner may prima facie be an infringement of the copyright owner’s exclusive distribution right, the defence of the first sale doctrine applies to such importation as much as it applies to sale of domestically manufactured copies. This is because in each case the exclusive distribution right derives from section 106 which in itself is subject to the limitation on that right by, inter alia, the first sale doctrine as expressed in section 109(a). It was recognised, in the written opinions of the judges, that this decision would have a serious curtailing effect on the scope of application of section 602 with Kiagan J (joined by Alito J), while supporting the majority decision, suggesting that perhaps it was intended that section 602 should have an effective import prohibition but one that does not interfere with the first sale doctrine or that removes first sale protection from every copy manufactured abroad.

A number of matters are worth bearing in mind about this unquestionably important decision of the court in Kirtsaeng. In the first place, the judgment was made in the specific context of copyright and it will be premature to read the judgment as adopting ‘international exhaustion’ in the US in respect of different types of intellectual property (and the court even suggests that a lessee of a copy is not protected, unlike a purchaser/owner). Nevertheless, the majority opinion in particular has a clear colour and ringing tone of consumer protection. Breyer J observed that the first sale doctrine is ‘a common law doctrine with an impeccable historic pedigree’ and, after quoting approvingly from a 17^th century dictum of Lord Coke, said: ‘A law that permits a copyright holder to control the resale or other disposition of a chattel once sold is similarly “against Trade and Traffi[c], and bargaining and contracting.”’ He also said: ‘American law too has generally thought that competition, including freedom to resell, can work to the advantage of the consumer.’ Very significant too is the dismissal of the argument that the interpretation of section 109(a) adopted by the court will make it difficult or impossible for publishers (or copyrights owners) to divide foreign and domestic markets with the retort that there is no basic copyright law principle that publishers are especially entitled to such rights. Finally, it is similarly significant that the court pointed to a range of instances (referred to dismissively in the dissent as a ‘parade of horribles’) when important institutions and organisations may be negatively and undesirably affected if the court were to adopt an interpretation denying first sale protection to copies manufactured abroad.

In a subsequent post, we plan to compare this decision with the attitude towards exhaustion of IP rights in the United Kingdom as another common law (yet ‘European’) example and also in Nigeria as an example from a developing country.

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