Law digest issue 5 spring 2014 by Seyi Clement

LA LAW Issue 5

Digest Africa’s Premier Law Journal

Spring 2014

David Ofosu-Dorte Avant-garde, Trailblazer

Race for the African legal services market

The emergence of social infrastructure PPPs in Nigeria. Obtaining evidence/preserving assets in the UK in aid of arbitral proceedings in Africa. The Legal, Regulatory and Fiscal Framework for the Nigerian Marginal Fields Programme: Opportunities, Risks and Challenges.

Legislative self-interest in Kenya.

UK: £3.50 US: $5.50 Nigeria: ₦1,000 www.nglawdigest.com

Law Digest Spring 2014

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Contents

ISSN 2053-3209

PUBLISHER

XL Nominees Limited 1st Floor, 3 Market Place Broadway Kent, UK. DA6 7DU TEL: +44 20 3223 0805 FAX: +44 20 3538 9309

EDITOR

LEGAL ADVISORS

Augustine Clement 1st Floor, 3 Market Place, DA6 7DU, UK Bisi Iyaniwura & Co 3rd Floor, Arinkandi House 1 Raimi Adedokun Drive Lagos

Seyi Clement editor@nglawdigest.com

DESIGN AND LAYOUT

DEPUTY EDITOR

Re-Root Designs Ltd www.rerootdesigns.com

Lulu Sianga lsianga@augustineclement.com

CORRESPONDENTS NORTH AMERICA Ifeoma Uche rauze@yahoo.com MIDDLE EAST John Adetiba johnadetiba@yahoo.com NIGERIA Yinka Olojede-James linksj1@hotmail.com Ranti Thomas lawthomas81@yahoo.co.uk Adijat Ayobami kdjbukky@yahoo.com

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LEGAL LIABILITIES

All rights reserved. The contents of this publication may not be reproduced by any means, in whole or in part, without the prior written consent of the publisher. Any submissions or contribution from readers shall be subject to and governed by XL Nominees Limited’s Terms and Conditions, which are available upon request. The publishers regret that they cannot accept liability for errors or omissions contained in this publication, however caused. The opinions and views contained in this publication are not necessarily those of the publishers. Readers are advised to seek specialist advice before acting on information contained in this publication which is provided for general use and may not be appropriate for the reader’s particular circumstances.

10 RACE FOR THE AFRICAN LEGAL SERVICES MARKET.

We look at the growing importance of the African legal services market and the scramble for a piece of the market by international firms, led primarily by English and American firms and the increasing pressure on African states to liberalise the legal services market. We examine the pros and cons of this issue, from the perspective of the major players in this scramble, including some of the major local firms. We also look at how a comparable jurisdiction like India is dealing with this issue of liberalisation. 4. From the Editor 5. News 7. Case Review and development

legal

COVER STORY 42. An exclusive Interview: David Ofosu-Dorte of AB & David, Ghana. ADMINISTRATIVE LAW 20 Parliamentary approval of international business transactions in Ghana – A.G. –v- Balken Energy Ghana Limited in perspective. INSOLVENCY 25 Insolvency recovery.

and

asset

ARBITRATION 30. Obtaining evidence/ preserving assets in the UK in aid of arbitral proceedings in Africa. MARITIME LAW 33. Enforcement of forum selection clause in maritime contracts

CONSTITUTIONAL LAW 37 Legislative self-interest Kenya.

OIL & GAS LAW. 39. The Legal, Regulatory and Fiscal Framework for the Nigerian Marginal Fields Programme: Opportunities, Risks and Challenges. PROJECT FINANCE 50. The emergence of social infrastructure PPPs in Nigeria. COMMERCIAL LAW 54 Enforceability of liquidated damages and minimum contract periods in telecom agreements. 58 Just how worthless is that “Letter of Comfort”? An appraisal of the current legal implications of “Letter of Comfort” in commercial transactions. BUSINESS DEVELOPMENT 64. B u s i n e s s d eve l o p m e n t through client training. 3

FROM THE EDITOR

Law Digest Spring 2014

Dear Colleagues,

Welcome to our 5th issue. In this issue, we examine the scramble for the African legal service market by international firms, led primarily by English and American firms. We look at the pros and cons of this issue. What we found particularly concerning is that many African law firms are either oblivious to the scramble for their market, or ill-equipped to take advantage of the growth of the African legal services market themselves. We have identified three major causes of this state of affairs, lack of capacity, capital and regulatory myopia by some Bar Associations in Africa. In many African jurisdictions, the regulatory frameworks are not only archaic, but militate against growth of local firms, leaving the way open for the international firms which are not similarly encumbered to seize the initiative. We are therefore using this platform to call for reforms which recognises that the practice of law is not only a profession, but a business. The Lawyer in the News returns in this issue and we are proud to present David Ofosu-Dorte, Senior Partner at AB & David as our Lawyer in the News. David’s contribution to the development of PPP in West Africa is unrivalled. However it is his philanthropic works which has earned him the recognition by his peer as a lawyer who espouses the high values of our profession. On another note, we are hosting the 2nd annual International Litigation and Asset Recovery Forum,

Law Digest - Expanding Minds 4

on 4th November 2014, in Lagos, Nigeria. The theme of this year’s conference is “Economic and Financial Crime Litigation”. This is a must-attend event for lawyers specialising in fraud litigation, debt recovery and insolvency litigation. Why not come and network with forensic accountants, insolvency practitioners, inhouse lawyers, risk analysts and heads of financial crime departments from banks and other financial institutions and other recovery specialists. To find out more visit our event website at www.nglawdigestevents.com. To contribute articles or commentaries to the Law Digest, please write to me at editor@nglawdigest. com. We particularly welcome contributions from our eastern and southern African colleagues. We hope that you will enjoy this issue. We welcome your contributions, comments, criticism and support.

Yours Seyi Clement Publisher/Editor

News

Law Digest Spring 2014

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Black and ethnic minority solicitors’ Group rejects Gus Report By Seyi Clement

In the summer 2013 issue of the Law Digest, we reported that the SRA had commissioned a report by Professor Gus John into the allegations for racial discrimination against the SRA by black and ethnic minority (“BME”) solicitors. The 237-page report by Prof. John Gus has been received with mixed reviews. The Equality Implementation Group (EIG), comprising six groups representing BME solicitors, dismissed the report as ‘fundamentally ﬂawed’. They argued that the report, lacked any ‘evidential basis or data’ for its ﬁndings. They submitted that

the failure to draw any inference of institutional racism was a ‘shocking indictment of a costly report that promised much but has delivered very little of value’. The author of the report Professor Gus John has been unapologetic in his defence of the report. He accused the EIG of ‘illiterate ranting’. He suggested that the group had not bothered to read the report before issuing the response. The report conﬁrmed the result of the investigation carried out by the Law Digest and reported in the summer issue that BME solicitors are disproportionately represented among those investigated by

the SRA and receive harsher sanctions when convicted – but the Report concluded that there was no evidence that the SRA is institutionally racist. Professor John said despite his findings, ‘it is important that these results are not immediately interpreted as evidence of discrimination or racism on an institutional level.’ The report suggested that the disparity highlights wider challenges faced by small firms or sole practitioners, where BME solicitors are overrepresented. The report submitted that such practices lack financial cushions against temporary cashflow

Prof. John Gus – author of the report

problems and are less able to manage risk and ensure best practice is adhered to. It concluded that if BME solicitors are disproportionately represented in the composition of these more vulnerable ﬁrms, then BME solicitors will

be disproportionately investigated for ﬁnancial irregularity. Among it’s 50 recommendations, the report calls for discussion between the Law Society, the SRA and BME stakeholders.

Chief Justice of Ghana opens the West Africa HQ of AB & David By Tayo Akinwumi

The CJ of Ghana was on hand to open the new ultra modern West Africa HQ of AB & David. The new West Africa head office is meant to consolidate the firm’s West Africa practice and to better serve clients. In an address, the Chief Justice of the Republic of Ghana, Mrs Justice Georgina Theodora Woode, urged law firms in Ghana to respond to the needs of their clients, both local and international, as

Chief Justice of Ghana declaring the ofﬁce open

economies continued to grow, making the legal market a global one and as

technology had whittled down geographical and jurisdictional boundaries. The firm, which has a registered branch in London, has three (3) offices in Ghana (Accra, Kumasi and Takoradi), with about thirty (30) lawyers and seventeen (17) support staff and affiliate firms in several African countries, namely Uganda, D.R. Congo, Nigeria, Liberia, Sierra Leone, Senegal, La Cote d’Ivoire and Zambia. The firm is rated as one of the leading law firms in Ghana with recognised

expertise in project and infrastructure finance, procurement, PPPs and PFIs. It has been involved in some of the most high profile infrastructure deals in Ghana including, the establishment of the Urology Center of Excellence and the Diagnostic Center at the Korle-Bu Teaching Hospital under a PPP arrangement. The firm advised on construction of a US $100m sea defence wall in Ghana and represented the international lead

construction company on a major gas pipeline across four countries: Nigeria, Benin, Togo and Ghana. AB & David is the first African law firm to secure the Law Society of England and Wales’ international law management quality mark, ‘Lexcel’ a recognised international accreditation scheme for law firms and in-house legal departments. Also in attendance at the event was the Attorney General of Ghana, Marrieta Brew Appiah Opong.

Nigerian academic honoured by Utrecht University By Georgie Hicks

Dr. Jumoke Oduwole a researcher and lecturer in the Department of Commercial & Industrial Law, University of Lagos in Nigeria has been appointed to the Prince Claus Chair; a position for outstanding young academics from Africa, Asia, Latin America, the Caribbean. The appointment to the Prince

Claus Chair implies a visiting Professorship in Development and Equity, which was established by Utrecht University and the International Institute of Social Studies of Erasmus University, Rotterdam, in early 2003 in honour of the late Prince Claus of the Netherlands. Dr. Oduwole is the fourth African to assume the Chair. As Chairholder,

she is expected to conduct extensive research in an area aligned with Prince Claus’ work for a period of two years. A quarter of her tenure will be spent in residence each year teaching and also speaking at several other institutions across the Netherlands or elsewhere in the world. Dr. Oduwole will deliver her inaugural lecture title, “International

Dr. Jumoke Oduwole

Law and the Right to Development: A Pragmatic Approach for Africa” on Tuesday 20th May 2014 at The Hague, in the presence of HRH Queen Maxima of the Netherlands and other members of the royal family, leading academics from across the Netherlands and top government ofﬁcials and the diplomatic corps.

Law Digest Spring 2014

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Alternative Dispute Resolution gaining acceptance in Africa By Lulu Sianga

The World Justice Project (“WJP”), an independent, multidisciplinary organisation working to advance the rule of law around the world; founded by William H. Neukom in 2006 as a presidential initiative of the American Bar Association (ABA), acknowledges growth of ADR in Africa. In its published Rule of Law Index® 2014, which

covers 99 countries including Botswana, Ghana, South Africa, Egypt, Tunisia, Senegal, Morocco, Sierra Leone, Tanzania, Liberia, Zambia, Malawi, Nigeria, Kenya, Uganda, Burkina Faso, Côte d’Ivoire, Ethiopia, Cameroon and Zimbabwe, one aspect (termed as a subfactor in the Report) of civil justice reviewed is “alternative dispute resolution mechanisms” (ADR). The performance of ADR in African (both

Sub-Saharan and North African) countries surveyed, along with Middle East countries, is ranked well above that of their counter-parts in East European, South and Central Asian, Latin American and Caribbean countries. Each sub-factor score is scaled between 0 and 1, where 1 is the highest score and 0 is the lowest score. With respect to Impartial and effective ADRs as a sub-factor, the overall rankings for

African countries were: Botswana 0.64 Burkina Faso 0.7 Cameroon 0.48 Côte d’Ivoire 0.62 Egypt 0.39 Ethiopia 0.58 Ghana 0.7 Kenya 0.54 Liberia 0.42 Madagascar 0.65 Malawi 0.73 Morocco 0.52 Nigeria 0.59 Senegal 0.62 Sierra Leone 0.49 South Africa 0.65 Tanzania 0.57

Year (Large Team) AFGRI Legal Department of the Year (Small Team) Norton Rose Fulbright - Corporate Team of the Year Bowman Gilﬁllan Banking, Finance and Restructuring Team of the Year; and Property & Construction Team of the Year Skadden Arps Slate Meagher & Flom Litigation & Dispute

Resolution Team of the Year Webber Wentzel Transportation & Infrastructure Team of

Tunisia Uganda Zambia Zimbabwe

0.56 0.63 0.5 0.34

Considering that score for the US is 0.71; UK 0.77; Spain 0.71; Singapore 0.67; Norway 0.85; The Netherlands 0.8; Japan 0.79; Italy 0.66; India 0.4; Germany 0.8; France 0.69; Denmark 0.79; Canada 0.8; Brazil 0.52; Belgium 0.75 and Australia 0.83, Africa seems to have embraced ADR with gusto

African Legal Awards By Lulu Sianga

With the new year well under way, African lawyers and legal practices, both private and in-house look set to continue to prove their worth and ensure they continue to gain recognisance in such spheres as CHAMBERS, Legal 500 EMEA, WHO’S WHO LEGAL, IFLR1000. At the end of last year, South Africa hosted

the Africa Legal Awards 2013. Winners included: Anjarwalla & Khanna (Kenya law ﬁrm) - African Law Firm of the Year Clifford Chance LLP (UK) - International Law Firm of the Year Willie Du Plessis, ESKOM General Counsel of the Year Johann Koenn, Absa Financial Services Legal Counsel of the Year Aspen Pharmacare Legal Department of the

Clifford Chance – winner of the International law ﬁrm award.

the Year; and Energy & Natural Resources Team of the Year ENSafrica – TMT Team of the Year

G.Elias & Co joins Africa Legal Network Nigeria Still Very Much Under the Limelight!!! (ALN) for ALN says that with

in Botswana, Burundi,

this important step, ALN

Ethiopia,

The Africa Legal Network

stretches from its East

Malawi,

(ALN),

and Southern Africa base

Nigeria, Rwanda, Sudan,

By Lulu Sianga

independent

alliance

Kenya, Mauritius,

African

to reach across to West

Tanzania, Uganda and

ﬁrms, has added Nigerian

Africa and reinforces its

Zambia. ALN also works

based law ﬁrm, G. Elias

unique position as top

closely with its associate

& Co as a member. The

African law ﬁrms led by

ﬁrm

ﬁrm, founded in 1994, is

Africans

and its regional ofﬁce in

headed by Mr. Gbolahan

the-ground

Elias, SAN. A spokesman

ALN now has members

working in

on-

Africa.

South

Dubai, UAE.

Africa

By Lulu Sianga

Legal Week continues to follow the trail as it reports that Baker & McKenzie has met with six leading ﬁrms in Nigeria in recent weeks as part of efforts to cement referral relationships in the country. A team of three lawyers headed by EMEA

chair Koen Vanhaerents, visited Lagos last month to meet the ﬁrms. Bakers & McKenzie is targeting work in Nigeria as a major plank of its Africa strategy. Five of the ﬁrms in the group - understood to include Aelex and Aluko & Oyebode - also attended Bakers’ EMEA meeting last week.

LITIGATION AND ASSET RECOVERY FORUM 2014

Presents

Economic and Financial Crime Litigation Hosted by:

Venue: LAGOS, NIGERIA - Date: 4th NOVEMBER 2014

& 6

Visit www.nglawdigestevents.com for more details 7

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Case Review and Legal Development From the Research Desk

UNITED KINGDOM

Proceeds of Crime Jurisdiction Interpretation Breach of trust Williams (Respondent) v Central Bank of Nigeria (Appellant) [2014] UKSC 10 JUSTICES: Lord Neuberger (President), Lord Mance, Lord Clarke, Lord Sumption, Lord Hughes BACKGROUND TO THE APPEAL Dr Williams claims to be the victim of a fraud instigated by the Nigerian State Security Services which occurred in 1986. His case is that he was induced to serve as guarantor of a bogus transaction for the importation of foodstuffs into Nigeria. In connection with that transaction, he paid $6,520,190 (USD) to an English solicitor, Mr Reuben Gale, to be held on trust for him on terms that it should not be released until certain funds had been made available to him in Nigeria. Dr Williams says that in fraudulent breach of that trust, Mr Gale, knowing that those funds were not available to him in Nigeria, paid out $6,020,190 of the money to an account held by the Central Bank of Nigeria with Midland Bank in London, and that he pocketed the remaining $500,000. The Central Bank is said to have been party to Mr Gale’s fraud. Dr. Williams claimed against the Central Bank on the basis that the Bank was a constructive trustee. The Bank was alleged to have dishonestly assisted Mr. Gale to pay away the $6,520,190, and to have received the $6,020,190 knowing that it represented trust funds paid to it in breach of trust. There was also a claim to trace the latter sum into the Bank’s assets. The

question on this appeal is whether the order permitting Dr Williams to serve the claim form and particulars of claim on the Central Bank in Nigeria should be set aside and a declaration made that the English court lacks, or at any rate should not exercise, jurisdiction in respect of it. That in turn depends on whether there is a serious issue to be tried [1]. This depends on whether Dr. Williams’ claims are time-barred under the Limitation Act 1980. It is common ground that, in so far as any such trust claim is subject to statutory limitation, the limitation period has expired. The issue turns on whether these claims were exempt from statutory limitation by virtue of section 21 of the Limitation Act 1980 [2]. Section 21 provides that no period of limitation shall apply to (a) an action by a beneﬁciary under a trust, in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy or (b) recovery from the trustee of trust property or the proceeds of trust property [3]. Two questions arose. First, whether a stranger to a trust, who dishonestly assists in a breach of trust or knowingly receives trust property paid out in breach of trust, is a trustee for the purposes of the Act. If the answer to that question is no, then the second question is, whether an action “in respect of” any fraudulent breach of trust to which the trustee was a party is limited to an action against the trustee or includes an action against the stranger [4]. JUDGMENT By a majority the Supreme Court allow the appeal and declares that the English court has no jurisdiction in respect of this action. The order for service out of jurisdiction and the service itself must be set aside [38]. REASONS FOR THE JUDGMENT Lord Sumption (with whom Lord Neuberger and Lord Hughes agree),

writing the lead judgment, holds that the 1986 trust claims are time barred essentially because section 21 of the Limitation Act is concerned only with actions against true trustees and the Central Bank is not a true trustee. This is because a constructive trust of the kind alleged against the Bank is not a true trust but merely a basis for granting equitable relief [6]. Lord Sumption distinguishes between two categories of constructive trusts, namely one that comprises ‘de facto trustees’ and cases of ‘ancillary liability’ [8]. The distinction is relevant because the rationale behind the original rule that trustees are accountable to their beneficiaries without limitation of time will not necessarily apply to every kind of constructive trust. Trust assets are assets lawfully vested in a trustee. If the trustee misapplies the assets, equity ignores the misapplication and simply holds him to account for the assets as if he had acted in accordance with his trust. There is nothing to make time start running against the beneficiary. Persons who are under a purely ancillary liability are in a different position to this. Their acts and their receipt of the assets are at all times adverse to both the true trustees and the beneficiaries. They are liable to account in equity, but as wrongdoers, and not as true trustees [13 - 31]. Once the first question is answered in the negative, the second question then arises whether the Central Bank is nevertheless a party sued “in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy” for the purposes of the Limitation Act. The majority hold that it is not. Section 21(3) is concerned only with actions against trustees on account of their own fraud or fraudulent breach of trust [32 - 36]. Lord Neuberger (with whom Lord Hughes also agrees) agrees with Lord Sumption that the appeal should be allowed [42]. On the first question Lord Neuberger would hold that the narrower meaning of section 21(1)(a)

Law Digest Spring 2014

www.nglawdigest.com is to be preferred, namely that it only applies to claims brought against the trustee who was “a party or privy” to the “fraud or fraudulent breach of trust” [92 & 113]. In a dissenting judgment, Lord Mance considers that the appeal by the Central Bank should be dismissed [163]. Lord Mance takes the view that Dr Williams’ claim against the Central Bank as an alleged dishonest assister falls within section 21(1)(a) and is not time barred because Parliament intended to treat dishonest assisters as in the same position as regards limitation as the dishonest trustees they assist [157]. As to Dr Williams’ claim for knowing receipt by the Central Bank, Lord Mance does not agree with Lord Neuberger that the phrases “trust” and “trustee” are limited in meaning so as to exclude a knowing receipt [161] and therefore considers that Dr Williams should also succeed on this point. In an additional dissenting judgment, Lord Clarke agrees with the majority that the central Bank is not a trustee within the meaning of section 21(1) (a) [165]. Further, he agrees with Lord Neuberger that a knowing assister is not a constructive trustee [166]. However, with regard to the second question in this appeal, Lord Clarke would hold that the action falls within the ordinary meaning of the language of the statute [171] and would thus dismiss the Central Bank’s appeal on this point [182]. *References in square brackets are to paragraphs in the judgment

Case Watch

UGANDA

Taxation Jurisdiction Interpretation Capital Gains tax

Commissioner General Uganda Revenue Authority –v- Zain International BV On appeal from No.96 of 2011.

declaration that the Commissioner lacks jurisdiction to tax it and the tax assessment and the objection decision was void and an injunction to prevent the Commissioner from enforcing the tax assessment. Justice Mwangusya of the High Court on 1st December 2011, granting the declaration and injunction as prayed by ZIB said it was not clear whether the tax assessment was well founded. The Honourable Judge said the local law was unclear as to what head of tax ZIB which is a foreign company is supported to pay.

FACTUAL BACKGROUND. COMMENTS Zain International BV (“ZIB”) owned Zain Africa BV (“ZAB”), which had equity in 26 companies all registered in the Netherlands, but effectively owning the telephone operator business in as many African countries. One of them, Celtel Uganda Holding BV (“CUH”), owned 99.99 per cent of the Kampalaregistered Celtel Uganda Limited (“CUL”). On 30th March 2010, ZIB disposed of its shares in ZAB (including the shares in CUH) to Bharti Airtel International BV (“BHI”). ZIB, ZAB and BHI are all incorporated and resident in the Netherlands. On 10th March 2011, the Commissioner issued a tax assessment against ZIB claiming $85 million as capital gains tax from the transaction on the grounds of the shares held in CUL had been indirectly disposed of by ZIB. ZIB objected to the tax assessment arguing that the transaction did not give rise to any capital gains liability in Uganda as no moveable or immovable property of CUL was disposed of. Upon receipt of ZIB’s objection, the Commissioner on 11th July 2011 issued an objection decision. In its objection decision, the Commissioner accepted that the grounds for the tax assessment (disposal of shares) was an error, it maintained that the transaction was still liable to capital gains tax on the grounds of the disposal of an interest in immovable property located in Uganda, i.e. the immovable assets of CUL. On this basis, the Commissioner refused to withdraw the tax assessment. ZIB applied to the High Court for a

A decision by the Court of Appeal court could set a legal precedent in Africa, as it could affect how multinationals structure their transactions in foreign tax havens to avoid local taxes, compel them to pay local taxes, or require African States to amend local tax laws to close tax-avoidance loopholes. Of particular note was the Judge’s comment on the case of Vodafone International Holdings VB –v- Union of India and others, Writ Petition No. 1325 of 2010 which was cited by the Commission in support of the liability to tax. The court distinguished this case from the one under consideration because in the Vodafone case, India’s tax law had provisions for taxing transactions such as the sale by ZIB, whilst Ugandan law was unclear on the issue. This case has attracted the attention of tax authorities across the 26 countries within which ZIB operated, none of whom have been able to collect capital gains tax on the transaction. A ruling in favour of the Commission by the Court of Appeal could potentially set a legal precedent across the continent. This case joins a long list of tax claims by the Commission against multinationals, one of which is against Heritage Oil, which sold its assets to Tullow Oil. The Commissioner demanded $434m in capital gains tax, which Heritage declined to pay. Heritage claimed that the deal was not taxable, and in any case it was registered in Mauritius.

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Law Digest Spring 2014

HUMOUR

In the future please say “I object” rather than “that’s total bullshit”

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SPECIAL FEATURE

Race for the African legal services market I

Lulu Sianga – Deputy Editor

nvestor attention is once again focused on Africa. Over the past few years and more especially over recent months, we have continually heard the same phrase said with increasing enthusiasm, “It is indeed a very exciting time for Africa!” The economic growth across much of the African continent continues to be robust with several African states ranking among the fastest growing economies in the world. For the ﬁrst time, the economic growth looks set to be sustainable given that investments are expanding into evermore diverse activities, supporting the long-term growth and development agendas of an increasing number of African economies. Further, over the past decade, the legal framework for doing business as well as overall

governance, political stability and living standards have improved significantly. The renewed and heightened interest in Africa is not only a result of existing and new discoveries of natural resources such as minerals, oil and gas, but also a result of the rapidly expanding middle class which has created a rapidly increasing consumer base for modern technology, luxury goods and a diversity of services. The manufacturing, construction and services industries are now the key drivers of the continent’s economic growth, as governments and businesses prioritise the development of infrastructure (such as road and rail networks, commercial buildings etc.), the knowledge and skills base, telecommunications, financial and other services. The World Bank raised its economic outlook for subSaharan Africa for 2014 saying that “strong domestic demand” coupled with higher production of commodities will lift the region’s growth above 5 per cent in 2014 (see Javier Blas, Africa Editor, ‘World Bank raises forecast for Africa growth’ in Financial Times 7 October 2013). The excitement over Africa’s investment and business opportunities is being reiterated by lawyers and law firms in Europe and the US who make it their priority to know about their clients’ business interests and investment opportunities across the globe and for the moment, in Africa. These law firms have been seeking and continue to seek ways to service their clients in foreign jurisdictions and take advantage of the business opportunities that stem from increased investor activity. Unfortunately, among the legal profession on the African continent itself, our research found a little less dramatic enthusiasm and real appreciation of both the advantages and disadvantages of increased investor activity and interest – but of course this varies from country to country. Growth in investment and other economic activities creates a greater demand for legal services. However, given the international dimension

Law Digest Spring 2014

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and increasing complexity of the underlying transactions facilitating investment and other economic activities and owing to the involvement of international businesses and organisations, there is a demand for legal services by lawyers with the experience, knowledge, human and technical resources to facilitate these complex international transactions involving different laws ranging from different countries, including

The excitement over Africa’s investment and business opportunities is being reiterated by lawyers and law firms in Europe and the US. international law. While, without a doubt, there are more than sufficient lawyers on the African continent able to provide high-quality local legal expertise, it has been argued that not many have the legal expertise and more importantly, the resources to facilitate some of the more voluminous international complex transactions. Many foreign international law firms (FILFs) have viewed this as an opportunity and have over the recent years revamped their strategies and efforts towards operating in the African legal market. This has led to increasing pressure on Africa to liberalise its legal services market. Legal services are included under the General Agreement to Trade in Services (“GATS”), and the liberalisation of the legal services sector is increasingly the subject of international debate and negotiations as the export of legal services form a crucial aspects of investment policies and plans for the growth and expansion of international law firms. The impetus behind the discussions and the proposed liberalisation of the legal services sector comes primarily from the US and UK which are the principal exporters of legal services with increasing support from other countries such as Australia.1 Legal services generated £23.1 billion or 1.8% of the UK’s gross domestic

product in 2009 and constituted £3.2 billion in exports – nearly three times more than a decade earlier. International dispute resolution continues to grow – the total number of disputes resolved through arbitration and mediation in the UK reached 34,541 in 2009, up from 19,384 in 2007. 40% of governing law in all global corporate arbitrations is English Law and London is viewed as the leading preferred centre of arbitration.2 When one considers these figures, it is easy to understand why the liberalisation of the legal sector continues to top the agendas of Bar Associations around the world. However, it is also easy to appreciate the scepticism with which some Bar Associations and lawyers in Africa view requests for liberalising their legal sector. Consider India’s position; Indian law and jurisprudence has developed over decades and attained global recognition in the sense that Indian case law and opinions of well established Indian jurists are often cited and are of persuasive influence in many Commonwealth countries. Further, Indian legal academic and professional qualifications are recognised in various leading economies such as the US, UK, Canada and Australia. Other African countries whose laws, legal practices and/or case law are recognised include South Africa, Botswana Ghana and Nigeria to mention but a few. Liberalising the legal services sector exposes nationals to foreign laws and practices, which not only could influence the development of local law, but also reduce reliance on local laws and institutions. An example of the latter is the use of English Law as the governing law for commercial contracts and arbitrations and London as the preferred seat for arbitration. Some countries do not want to subject their legal markets to these international pressures and want to provide the best possible environment in which their own institutions in the legal sector, including arbitration centres and commercial courts, can gain ground and become well-established and internationally competitive. Legal services, after all, are an exportable business.

Liberalisation of the African legal services market As foreign lawyers and firms seek to access the international markets, the ability to set up a permanent commercial presence, and/or to be able to visit/enter a country and provide legal services on a temporary basis, is becoming a controversial issue for many African jurisdictions. The provision of services through a commercial presence is referred to as Mode 3 under the GATS and the temporary presence of natural persons for professional purposes, Mode 4. Current restrictions to market entry Restrictions foreign lawyers/ firms may face in establishing a commercial presence include: • Restrictions on legal form (branch, incorporated entities, partnerships (limited or not), etc) including branding and prohibitions or restrictions on the practice of law through corporate entities. Restrictions may require the local part/arm of the global law firm responsible for providing legal services with regard to domestic law to be locally incorporated or registered thereby enabling the application of the various local rules and regulations pertaining to financial management, including in relation to client assets. • Restrictions on partnership with locally-licensed professionals or on the hiring of local professionals. Preventing foreign law firms from expanding into the fields of court representation or requiring them to operate in association with or employing locally qualified lawyers. The Growing Presence of International Law Firms The presence of FILFs on the continent is not something new. Law firms like Berwin Leighton Paisner LLP, Clifford Chance LLP, Eversheds LLP, Hogan Lovells LLP, Latham & Watkins LLP and numerous others have been providing legal services on the continent for several decades now, many without actual physical presence on the ground until recently.

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As part of their Africa strategy, many FILFs are now operating or looking to operate through offices set up in key African countries like South Africa (for deals in southern and central Africa), Nigeria or Ghana in the west, Kenya in the east and Morocco and/ or Tunisia in the north. The strategy employed by FILFs in expanding business operations on the continent will be dependent on various factors such as: • Depth/complexity of the local market; • Level of investment activity; • Client demand; • Sustainable deal flow (mostly high level legal work); • Size and quality of local talent pool; • Supporting infrastructure; and • Supporting legal framework. By all accounts, even from the prospective of any legal system, for the sake of meeting the demands of international and local investors and enabling governments to retain the best legal representation and advice to help facilitate the development of economies, including their legal frameworks and services, access to the services offered by FILFs may be part of the paraphernalia, a necessary evil (to some), required to survive and develop in today’s globalised world. Here are a few examples of transactions on the continent involving FILFs: • BLP advised on the sale of offshore oil & gas assets in Mauritania; is advising International Mining and Infrastructure Corporation (IMIC), on its proposed US$190m acquisition of Afferro Mining, which owns several iron ore projects in Cameroon; and advised Gazprom Neft in connection with production sharing contracts, joint operating agreements and exploration services agreements for two offshore exploration blocks in Equatorial Guinea. • Clifford Chance acted for Dangote Industries Limited, as borrower, on a US$3.3 billion financing to be used for the planning, development and construction of a greenfield fertiliser manufacturing plant

and a greenﬁeld crude oil reﬁnery plant. It also advised South African rail, port and pipeline operator Transnet SOC Ltd on its debut international capital markets offering of US$1 billion 4% senior notes due 2020; and, advised Barclays and Deutsche Bank as Joint Lead Managers on the Republic of Zambia’s issuance of US$750 million 5.375% notes

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advising on several telecoms infrastructure projects in Central Africa and on a major 350MW gas to power plant in Mauritania. Hogan Lovells advised the Governments of Sierra Leone, Ethiopia and Mozambique on debt buy-back programmes supported by funds from the World Bank/ International

The Indian Perspective Vikrant Pachnanda - Founder & Managing Editor India Law Journal - www.indialawjournal.com

“If we allow the entry of foreign lawyers in the country, then we need to allow the entry of the whole administration of the judiciary. Are we really prepared for that?” - Lalit Bhasin, President, International Bar Association (7 May 2008)

s India booms in this era of globalization and liberalisation and goes on an M&A spur, foreign law firms are waiting impatiently to enter the Indian market. India has the second largest number of lawyers in the world with strength of more than 600,000. There has now been tremendous pressure from members of the WTO for the opening of legal services in India for foreign law firms. Legal services refer to legal advisory and representation services, legal or judicial procedures and the drawing up of legal instruments. International law firms are now eagerly waiting to catch a glimpse of the potential deals in the booming Indian financial market, especially in capital markets, mergers and acquisitions, corporate restructuring and banking. The Advocates Act, 1961 and the

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due 2022 (the first international Eurobond issue out of Zambia). Eversheds is advising the Ugandan Government on the procurement of a lead investor and operator for the development and operation of the country’s first oil refinery and are also

Bar Council of India Rules, 1975, govern legal services in India. The Bar Council, which was constituted under the Advocates Act 1961, acts as the final regulating body. Cross border trade and temporary movement of natural persons are the two most important modes of supply of legal services under the General Agreement on Trade in Services (“GAT”). India did not make any commitment on the legal services sector during the Uruguay round of negotiations. It also does not have any commitments on legal services either in its initial or its revised offer submitted at the WTO during the course of ongoing services negotiations under GATS. Foreign Direct Investment is not permitted in this sector. As per the Advocates Act, foreign law firms are not allowed to establish their offices in India and

Development Agency and, advised private equity ﬁrm Actis, on its investment in Gulf of Guinea Energy Limited and on the US$120 million merger of Gulf of Guinea Energy Limited with Exoro Energy International Limited.

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Latham & Watkins is currently representing: • Anadarko Petroleum Corporation in connection with the financing of the development of a 2-train liquefied natural gas project in Mozambique; • ESKOM Holdings SOC Limited in connection with the development and financing of a 100 MW concentrating solar power project

are also prohibited from giving any legal advice that would constitute practicing of Indian law in India. I believe that the legal profession is an integral part of the justice delivery system in India. There is a strong apprehension among members of the legal profession that permitting foreign law firms in India, even in a limited way, might lead to the shrinking of opportunities which are available to domestic lawyers. Anticipating competition, some Indian law firms are already trying to modernise by improving their internal systems, hiring foreign consultants, forging ties with international firms and trying to extend their reach in and out of India. For example, Clyde & Co. has an association with Classis Law. In my view, the Bar council has rightly taken a firm stand in opposing foreign law firms to enter India. The Bar Association of India has also supported this. It is accepted that the Indian economy is quickly integrating into the global economy, with foreign companies investing in India and Indian companies also acquiring foreign companies on a regular basis, like Tata Steel’s acquisition of Corus. However I believe that the Indian legal services market still requires a moratorium, to enable local firms to build capacity in areas like

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near Upington, South Africa; and Mittal Steel Holdings Limited in connection with the ﬁnancing of a $1.3 billion iron ore mining development of the LAMCO project in Liberia and the associated rail, warehousing and port infrastructure.

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Recently completed transactions include the representation of: (i) the initial note purchasers of senior notes issued by MILLICOM International Cellular S.A., and (ii) The Carlyle Group in connection with its acquisition of a majority interest in Discover Exploration Limited, a deepwater hydrocarbon resources exploration and development

international trade law, corporate restructuring and real estate law first, without undue foreign competition. Moreover, by allowing foreign firms to enter India, the majority of law students including the elite national law schools graduates will be recruited by these foreign firms because of their comparative advantage in terms of resources and opportunities, giving Indian firms less chance to hire the best brains in the profession to work under them in order to successfully compete in the legal services sector and give foreign firms a run for their money. It is imperative that Indian law firms be allowed to develop at the same quantum and pace as foreign law firms which will gradually happen in tandem with growing industrialisation in the backdrop of our buoyant economy. Even the British Indian Lawyers Association which represents the interests of Indian lawyers practicing in the UK has objected to the opening up of legal services in India to foreign firms without ensuring reciprocal entry clearances for Indian lawyers in the UK. According to the association, it should be a two-way street and Indian lawyers should have the right to practice in England and Wales without undertaking the Qualified Lawyers Transfer test, unless they want to practice in English courts.

company with activities in several African jurisdictions. FILFs Procurement Strategy The combination of GATS, the FILFs’ individual circumstances and the local regulatory climate has inﬂuenced the FILFs procurement strategy in Africa. In our research, we

have identified 3 main procurement strategies. (a) Ad Hoc Working Relationship. Here FILFs work with whichever local firm that is able to meet the needs of the brief on a project by project basis without any formal tieup. This has been the traditional procurement strategy for most FILFs and some believe that this is the most mutually advantageous strategy Anthony Giustini, co-head of Clifford Chance’s Africa Practice, says that “firstly, it is important to note that as the African economies and legal markets have developed and become more sophisticated; deals are actually originating in these markets and as such it is the local law firms themselves that are approaching or inviting Clifford Chance to pitch for a

The presence of FILFs on the continent is not something new. Law firms like Berwin Leighton Paisner LLP, Clifford Chance LLP, Eversheds LLP, Hogan Lovells LLP, Latham & Watkins LLP and numerous others have been providing legal services on the continent for several decades now. deal involving their clients. Secondly, clients are also very knowledgeable of the local legal market and quite often will suggest or point out which local firm or legal counsel they would like Clifford Chance to partner with on a deal. Sometimes the local firm is determined by the outcome of a pitching process and in other cases, a deal may involve more than one local law firm. In those cases where Clifford Chance is asked to source a local law firm to partner-up with on a deal, expertise, capacity and availability are key factors that will be taken into account. It is for these reasons that Clifford Chance’s strategy is to know and build-up relationships with the legal community in general in the key

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African markets.” Latham & Watkins shares a similar approach in its strategy in Africa. Clement Fondufe, global chair of the Africa Practice Group, states “We are generally invited to pitch for transactions by the clients themselves...we have been privileged to work with some of the top local firms and renowned legal counsel. We do not have any bestfriend arrangements or other alliance (formal or informal) with any firm in Africa. In some cases, we recommend a list of firms but leave it up to the client to choose their local counsel. We may approach one or two local counsel dependent on their expertise, availability and capacity on a case by case basis.” Many African law firms also see the inherent advantage of this strategy and have worked with diverse FILFs.

is one which my firm is pioneering in the country. We do not want exclusive ties and not ready for such.” (b) Formal Alliances The legal framework in many African countries makes mergers and acquisitions in the legal market involving foreign firms very challenging, if not impossible; creating alliance with local independent law firm, with or without exclusivity is an option which is actively pursued by many FILFs. This seems to be the dominant procurement strategy by FILFs currently. This structure is commonly referred to as the Swiss Verein.3 Under the Swiss Verein model each affiliate organisation or firm is recognised as separate and distinct entities and does not share commercial, professional or other liabilities and conversely do

Clement Fondufe of Latham & Watkins, “we don’t have alliances with any ﬁrm in Africa”.

On this point, Gbenga Oyebode MFR, Chairman of the Management Board of Nigeria’s biggest commercial law firm, Aluko & Oyebode, who favours this model in an interview with Law Digest states that, “Our view is that as the biggest commercial law firm in Nigeria, we will continue to talk to all international law firms that do business here on a non-exclusive basis.” The deal portfolio of Aluko & Oyebode attests to the success of its strategy. Similarly, Ghana’s Mr Kojo Bensti-Enchill of BentsiEnchill Letsa & Ankomah states that, “Ghana’s law firms are getting bigger and more sophisticated - this corporate model of larger partnerships

not share in the others’ revenues either. Such structures avoid the legal and regulatory restrictions, which has made cross-border merger of law firms in Africa near impossible. The benefits for local African firms include referral business, access to information and training resources, exposure to and adoption of international practices and procedures and increased marketability by employing the brand of or being associated with a highly reputable international law firm. Critics however argue that Swiss Vereins are simply marketing platforms without the common culture, shared knowledge

and standardised practices that partnerships enjoy. DLA Piper and Dentons are examples of FILFs that have numerous associate or alliance ﬁrms, some of them operating with a greater degree of independence than others.

The excitement over Africa’s investment and business opportunities is being reiterated by lawyers and law firms in Europe and the US. This is also the strategy of the likes of Berwin Leighton Paisner (BLP) which has also chosen not to set up offices in Africa or merge with local firms. BLP’s strategy instead is one of creating formal alliances with identified and selected preferred local firms in various African jurisdictions with whom they can work. BLP’s Segun Osuntokun, Partner and head of its Africa Group, states that in choosing the firm’s “preferred firms”, a rigorous selection criteria is applied to ensure that the local law firms have the expertise required for every transaction. BLP’s strategy of a “preferred firms network” ensures that local firms are able to provide local legal advice on international transactions but remain independent. Alliances can be exclusive or non-exclusive. Whether or not it is prudent for African law firms to operate on an exclusive or nonexclusive basis is really a business decision, which is highly dependent on the size and depth of the market and the sophistication of the law firm in question. Formal and exclusive alliances have been made between South Africa’s Cliffe Dekkere Hofmeyr and DLA Piper and between Webber Wentzel and Linklaters. Andrew Gamble, a consultant in Hogan Lovells’ Africa practice (and who led the team negotiating Eversheds merger with Routledge Modise), notes that “contrary to the way transactions were done in the 1980’s, today there is a big local component and international firms have to work and develop good relations with local law firms and

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lawyers. As such there are several really good firms that benefit a lot from referrals from an array of international law firms and for them to merge with or exclusively tie themselves to one of them, would mean them losing out on a lot of the referral work; where there are fewer law firms – it’s who will break ranks first. Local firms in Franco-phone Africa are now considering the possible benefits from linking – up formally to international law firms.” (c) Physical Presence via own office/merger or acquisition There are several countries on the continent that have been identified as key points of interest by FILFs. These include, South Africa, Morocco, Nigeria, Kenya, Tunisia, Ghana, Mauritius, Mauritania, Uganda, Tanzania, Angola, Mozambique, Cameroon and Zambia. It is not however feasible or indeed necessary for them to establish or operate from all these countries. The traditional set-up for most FILFs for their African operations has been, and still is for many, the creation of a group of experienced lawyers (commonly referred to as the firm’s Africa Group) with experience, ties (by virtue of nationality/origins, client base/interests, contacts, etc) and/or specialised interests in the continent, dedicated to the Africanoriented transactions; and operating from strategic centres such as London (favoured for its central time zone, global location and English Law), Paris (favoured for its civil law system, French language and central location), and/or New York. However, the resurgence of investment activity has called for closer working ties and operations on the continent itself. Common countries selected for continent-based operations by FILFs include Morocco (Casablanca); Egypt (Cairo); South Africa (Johannesburg, Cape Town, Durban). Clifford Chance only recently opened its Casablanca office in 2012, targeting the large deal flow originating principally from Morocco and other North African states. However, establishing independent (own) offices on the ground is the strategy least employed. It would seem that even in key points on the continent, the strategy that more readily provides access to the market

is mergers (with rebranding) between FILFs and reputable top local law ﬁrms. South Africa continues to

the African legal service markets still remains very challenging in many countries for FILFs, however, there

Okey Wali, SAN – President NBA, “It is a matter of reciprocity”.

maintain its position as the key destination to set up roots on the African continent. Many of its local top law firms have been operating across the continent for many years either through associate offices or an established network of African law firms such as the African Legal Network and Lex Africa. South Africa’s legal market is perhaps the most sophisticated on the continent with the top firms operating with standards akin to those of leading FILFs. These factors together with the fact that the country serves as the primary base of operations for most international businesses on the continent, instinctively makes South Africa a key strategic base for FILFs. Worthwhile mergers in the market include Hogan Lovells strategic merger with South African giant, Routledge Modise, which took effect on 1st December 2013; Eversheds merger with Mahons Attorneys (which gives the firm bases in Johannesburg, Cape Town and Port Louis in Mauritius) and Norton Rose Fulbright merger with Deneys Reitz. In line with client demand, deal flow and areas of growing investor interest, Eversheds has also merged with CWA Morocco in March 2014, thereby acquiring two established offices in Casablanca and Tangier; and in December 2013 with El Heni, a well established and growing law firm in Tunisia with 30 fee earners in North Africa now. As earlier mentioned, entry into

are the more liberalised markets such as South Africa, Morocco and Kenya that allow FILFs to establish independent (own) ofﬁces including allowing the transfer of foreign professional staff to work as legal practitioners. However, some

Undoubtedly, liberalisation will expose domestic markets to international pressures, and yes, perhaps the sustainability of smaller law firms will be put at risk. jurisdictions place restrictions such as the requirement for FILFs to partner with local firms and lawyers. Criticism of FILFs involvement in Africa The activities of FILFs in Africa and the pressure on African States to liberalise their markets (including legal services market) have not been universally welcomed by all. Critics of liberalisation and the activities of FILFs have raised issues such as lack of reciprocity, lack of parity, talent migration, profiteering and lack of long-term commitment, some which are addressed in this article. Lack of Reciprocity In an interview granted to Law Digest reported in our inaugural

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issue, the President of the largest Bar Association in Africa, Okey Wali SAN of the Nigeria Bar Association, expressed his concerns regarding liberalisation, when he described the issue as one of reciprocity. He said, “If I cannot walk into London to practise law as a Nigerian-trained lawyer and called to the Nigerian Bar, why do you want to walk in here and practise? It is as simple as that. The day I can go into a New York court and practise law as a Nigerian practitioner, then, I would have no reason to have reservations for you to come and practise in Nigeria”. It is true that almost all countries still have restrictions of some kind on foreign lawyers and firms entering into their local market. Some countries such as India and Brazil still maintain tight controls over their legal services market, by limiting entry to nationals and those with local qualifications, whilst others require local qualifications and long residency. It seems inevitable that some controls will remain to maintain standards, but it is obvious that some controls are artificially imposed simply as a way of market protection. Lack of parity It has been argued that alliances between local firms and FILFs are not alliances of equals. Critics of these alliances point to the vast human and capital resources at the FILFs disposal compared to their African counterparts to surmise that the alliances will be skewed in favour of the FILFs. This supposition was dismissed by Lavery Modise, speaking on Hogan Lovells merger with Routledge Modise, confidently putting to bed any suspicions of desperation or unparalleled abilities, in answer to the question as to why the firm merged with Hogan Lovells, stated, “We believe that both firms have proven track records – our merger is a merger of both expertise and knowledge to ensure that we continue to provide quality services to our clients. Routledge Modise was able to bring to the table its exceptional professional skill base, international standard in the quality of our services, a strong portfolio of

Gbenga Oyebode of Aluko & Oyebode, “International law firms did not pose a threat to Nigerian firms in terms of talent migration”.

significant clients, a solid reputation in Southern Africa, good quality partners, focussed partnership ethos, ambition as well as having already achieved some form of international presence/recognition through our relationship/alliance with Eversheds. It is my belief that international law firms like Hogan Lovells would accept no less. Through this merger therefore, Hogan Lovells has a strong foothold with which to establish its footprint on the continent.” Established firms like Routledge Modise, Werksmans, El Heni and CWA Morocco are also glowing examples of the appreciative value and high quality of legal expertise on the continent. On this issue, Clifford Chance’s Anthony Giustini emphasises that in working with local firms and lawyers, “...it’s a completely collaborative process, and it’s completely symbiotic. It’s a partnership with international law experience, English, New York, French law and local law lawyers. We genuinely don’t see ourselves as competing...we partner with them all the time and they are really important to us. It’s a partnership, it’s absolutely a partnership.” Clement Fondufe, who is also a Cameroon qualified lawyer, in acknowledging the progression of African law firms states, “The quality of lawyers in Africa has evolved dramatically over the recent years

(although South African lawyers are considered to have attained very high standards and are ahead of the rest of the continent); increasingly, we are seeing many lawyers that have been educated in the leading universities and law schools and have trained in international law firms, some have gained exposure to the major international financial centres, law firms and organisations through secondments and other types of work experience, while others have further qualified to practice in New York, the UK, Paris and/or other major jurisdictions. This has contributed to local African law firms really upping their game by establishing bigger law firms and thus building up on their capacity and resources.” Indeed, others like Andrew Gamble (Hogan Lovells), Ghana’s Mr Kojo Bensti-Enchill, and Gbenga Oyebode MFR of Nigeria’s Aluko & Oyebode, believe that the return of the African Diaspora has played some part in the improvement of the quality and standards in the legal sector. It is however acknowledged by some of the critics that while some of the major law firms on the continent have established some credibility in the global market, the quality of local expertise does vary significantly across the continent. Segun Osuntokun, Berwin of Leighton Paisner, notes that local

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law ﬁrms in some jurisdictions have more experience working on complex transactions due to the level of investment in those countries and the exposure their lawyers have had to multi-jurisdictional legal issues. Invariably, smaller jurisdictions and countries with lesser, more concentrated economic activities and domestic investment do not provide enough opportunities for skill-building, specialisation and ﬁrm growth in the legal sector. Their small sizes and numbers limit their deal capacity. This issue may therefore not necessarily be one of parity, but ensuring that the alliances result in

their offices in Paris, London or New York and offer a greater range of transactional experience which will be attractive to local lawyers, thereby making FILFs more attractive to the best local talent. In response to this question, Lavery Modise states, “With the connection with international law firms, local firms will be able to increasingly win good quality work which will increase the revenue for the local firms which will in turn go towards improving the salaries of local lawyers.” Mr Oyebode of Aluko & Oyebode feels very strongly that international law firms did not pose such a threat to the Nigerian law firms. “As a matter of fact,” he

Boris Martor of Eversheds, “It is truly rewarding to be part of Africa’s development”.

capacity building and skills transfer to the beneﬁt of the African partners. Talent Migration Critics have also pointed out that FILFs with their enormous resources and international opportunities will lure away the best local talents, which could have a detrimental effect on local ﬁrms and jeopardise capacity building in Africa. They suggest that FILFs are able to pay higher wages because they are able to command higher fees, offer secondment to

states, “many Nigerian practicing lawyers despite their training in the west, foreign bar qualifications and even opportunities to practice abroad are returning home; they want and are happy to return.” Andrew Gamble pointed out the fact that in December 2013, Hogan Lovells’ Johannesburg office achieved Level Two Black Economic Empowerment (BEE) accreditation – the only major South African law firm to achieve such a high rating, may attest to the fact that talents are retained locally.

Supporters of liberalisation points to the case of Italy, which although fully liberalised, has many of its local lawyers employed by foreign firms operating locally and still very strong, very successful purely Italian law firms such as Chiomenti Studio Legale and Bonelli Erede Pappalardo which are considered as leading firms in M&A and are successful and profitable. Similar policies such as the BEE that promote and protect local professionals exist in varying forms across the content. In Ghana and Nigeria, they are termed “Local Content” legislation. In these two countries for instance, any transactions or companies operating in the gas and oil sectors require local legal counsel. Further, in the case of Nigeria, the government will only involve an international law firm in a matter that is particularly international in its approach or is governed by foreign law or, requires a certain skill-set, but regardless, a local firm has to be retained to work with the international law firm. Profiteering and lack of long-term commitment Critics say that FILFs interest in Africa is driven not by any longterm commitment to the continent, but due to stagnation in their local market, be it the UK or US. It is undeniable that the frenzy for the African legal services market has coincided with the lull in the matured markets of Europe and US and the growth in African economies, but this will be doing a great disservice to the activities of firms like BLP, Eversheds, Clifford Chance and Latham & Watkins or lawyers such as Segun Osuntokun of BLP, Boris Martor of Eversheds, Clement Foundutfe of Latham & Watkins, who have been working on the continent before it became fashionable. The interest of FILFs in Africa cannot also be divorced from the interest of their clients in the continent. In a globalised economy, both local and foreign businesses are looking to expand across national boundaries and access foreign goods and services. Further, by reason of exposure and the ease of access

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to information in real time, clients require cross-border legal advice and services to be provided in a efficient and manner and corresponding to international standards. Moreover, the expectations and responsibilities of the legal sector have correspondingly evolved so that lawyers have become essential tools in guiding and facilitating business expansion, protecting client interests and aiding fast-paced development in various sectors of the economy. Investors will always seek to get the best legal representation possible and it is not surprising that they would want to instruct their usual legal advisors, i.e., the FILFs. Investors can ill-afford to compromise on the quality of legal services, nor can they wait for the local market to develop a sufficient pool of highly specialised, trained legal professionals to meet their needs. The argument also underplays the contributions FILFs have already made to capacity building in Africa and improving the standard of legal service on the continent. It is quite evident already that Africa is gaining from the presence of FILFs. Various pro bono services and activities aid in the development and training of the legal communities, including the judiciaries and government legal departments, and in the development and adoption of international standards in country or regional legislation and regulation. An example of the latter is Eversheds contributions through legal advice on reform and regulatory development and sponsorship towards professional qualifications in OHADA Law (Organisation on the Harmonisation of African Business Law). The Clifford Chance Africa Academy was launched in October 2013, hosting the ‘Introduction to Banking and Capital Markets’, for junior associates, in Lagos, Nigeria and further training sessions have been held in Ivory Coast, South Africa and Kenya. The Academy aims to provide the same high-quality, structured training programme to African lawyers as provided by the firm to its own lawyers. The Eversheds Africa Law Institue (EALI) was launched in October

Segun Osuntokun of BLP and many like him have been working on the continent before it became fashionable.

2013. The EALI aims to provide the same high-quality, structured training programme to African lawyers as provided by the firm to its own lawyers. The EALI, is based on knowledge sharing and aimed at allowing member law firms across Africa to access training and knowledge-sharing programmes while fostering commercial opportunities on a regional and international basis. To date, there are now 33 African law firms that have signed up as members of EALI which is now the largest Pan African legal network. In addition to such ventures, many FILFs offer experience and training opportunities through secondments and initiatives such as International Lawyers for Africa (ILFA), launched in 2006 by leading International law firms to contribute to the development of legal skills and expertise of African lawyers. Clement Fondufe, as a lawyer who experienced training on both fronts, attests to the fact that “the quality, training and exposure that one gets from an international law firm is invaluable and incomparable.” Gbenga Oyebode passionately expresses the need to allow opportunities for African firms to learn from FILFs, including through transactional work. He notes, “International law firms have developed a service delivery model

that is important for those of us on the continent to pay attention to because it is about delivering better services to our clients. These clients are in some cases multinationals who operate all over the world and are used to a certain way (whether it is in the training of lawyers or in the technology used in the delivery of services or, even in the general ambience of the office) in which they want to engage with their lawyers. So it is important that we learn and are able to domesticate in our local environment, some of those skill-sets that we see and the methodologies by which international law firms have been able to gain the trust of their clients.” As aptly put by Akira Kawamura, a partner at Anderson Mori & Tomotsune and President of the International Bar Association (20112012), “The international law firms are functioning as the skills transfer vehicles through transactions and local partnership.” In our discussion with Boris Martor, Partner and head of Eversheds Africa Group, one could not help but notice his passion for the continent. He emphasises that there is and has always been a reciprocal benefit in working with the locally qualified lawyers. “By working on large deals that have brought about the development of social infrastructure, advising on

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legal reforms and being involved in community projects that improve access to justice and development of the legal profession, it is truly rewarding and satisfying to work on the continent and contribute in some small way to its development.” Conclusion In writing this article, we have sought to keep an open mind on the issues. We are hoping this article will spur on the debate; encourage and engage more lawyers and law firms to join the debate and air their views. At the end of the day, the opinions that mattered most to us are those of the major stakeholders, the African law firms, many of whom accept that local firms despite the progress that have been made over the years, still have some way to go in developing the capacity to handle some of the complex transactions. In her keynote address at the ILFA’s annual gala dinner on 28th November 2013, Cecilia Akintomide, Vice-President Secretary-General of the African Development Bank emphasised the importance of capacity-building in Africa’s legal communities with the support of the international legal community for the purposes of ensuring fairness in the exploitation of the continent’s resources and safeguarding the values that would ensure sustainable economic growth. Both the public and private sectors on the African continent have need of the expertise and have been engaging the services of international law firms for many years. Regional economic arrangements such as COMESA (The Common Market for Eastern and Southern Africa) and SADC (The Southern African Development

Community) are also spurring the need for access to foreign legal services and expertise. Clement Foundufe expressed this view when he said that “at the moment, very few local law firms can appreciate or handle the array of issues and complexities that arise in large transactions in Africa that have international participants, be they equity investors or debt providers. Yet, because of their local knowledge, the support of a local law firm is indispensable in these transactions. As a matter of fact, many clients tend to hire a team comprised of international legal counsel and local counsel on many significant transactions. Their roles are complementary. Local law firms do not have the expertise, capacity, skill-set and resources that international law firms can bring to these transactions. For example, many significant international law firms have a global network that can easily staff 15 – 20 talented and experienced lawyers on multiple cross-border transactions simultaneously; something a local law firm would struggle to do”. Many Africa firms and Bar Associations recognise the inevitability of the liberalisation of the legal services market and have moved on to managing the effect thereof. Mr Kojo Bensti-Enchill states, “liberalisation has already occurred in practice.” Gbenga Oyebode has consistently maintained his point of view in the media that “liberalisation is inevitable” and further adds, “It is not whether the Nigerian legal profession is ready for liberalisation of its market; the issue is that liberalisation is already a global phenomenon and increasingly, we are living in a world where there is access to information in real time

enhanced by technology – clients are constantly moving around the world trying to obtain information about what is happening around the world and trying to access the best possible service at competitive rates. A lot of information today is on the internet and easily accessible by the client. Therefore, a situation where we seek to ring-fence countries or ring-fence jurisprudence cannot subsist in the long- term.” Undoubtedly, liberalisation will expose domestic markets to international pressures, and yes, perhaps the sustainability of smaller law ﬁrms will be put at risk. However, there are ﬁrms, whose quality of legal services; competencies and business acumen make them comparable to their foreign international counterparts and able to match the competition. Edmund Boyo, co-head of Clifford Chance’s Africa Practice, put it succinctly when he said, “Liberalisation of these markets is inevitable, is happening and the question is whether to resist it or determine how best to embrace it and try and do it on your own terms.”

1 Jonathan Goldsmith ‘Liberalisation of Legal Professions and Services: A View from the CCBE Jonathan Goldsmith’ in Koen Byttebier and Kim Van der Borght, WTO Obligations and Opportunities: Challenges of Implementation (Cameron May Publishers; Feb 2007) p 173. 2 TheCityUK Professional Services Series Legal Services January 2014; James Tsolakis, RBS A perspective on the legal market, March 2012 3 See ‘Enter the Swiss Verein: 21st century global platform or just latest fad?’ by Nick Jarrett-Kerr and Ed Wesemann, Edge International Review Fall 2012 available at www.edge.ai

ADMINISTRATIVE LAW Ferdinand Adadzi & Ikemefuna Stephen Nwoye

Parliamentary approval of International Business Transaction in Ghana: Attorney General v. Balken Energy Ghana Limited In Perspective Introduction

Ferdinand Adadzi - Partner AB & David (Ghana)

Second Defendant to invest in the venture. On the above basis, the Second Defendant entered into a Memorandum of Understanding (the ‘MOU’) with the GoG on May 16, 2007. Due to certain regulatory and statutory licensing requirements2 in Ghana for power generation, the investor in the business transaction decided to incorporate the First Defendant in Ghana and made it the party to the PPA which was executed on July 27, 2007, 11 days after the incorporation of the First Defendant. Subsequently, dispute arose as a result of the failure of the First Defendant to make the power barge operational within 90 working days. This resulted in claims by the GoG that the Second and Third Defendants misrepresented their ability to deliver on the project, thus it had the right to avoid the PPA. The dispute eventually led to the First Defendant initiating arbitration proceedings against the GoG under the auspices of the Permanent Court of Arbitration at the Hague, Netherlands. At the proceedings, the GoG raised preliminary objections to the validity of the PPA including the arbitration clause on the basis

The Supreme Court of Ghana had on 16 May, 2012 in the case of Attorney General v. (1) Balken Energy Ghana Ltd (2) Balken Energy LLC and (3) Mr Philip David Elder, lent its voice to the vexed issue of when a business transaction in Ghana requires parliamentary approval pursuant to Article 181 of the Ghanaian 1992 Constitution1 (the “Constitution”). The case as referred to the Supreme Court was primarily centred on two issues, which were: 1. Whether the Power Purchase Agreement (the “PPA”) between the Government of Ghana (the “GoG”) and Balken Energy Ghana Limited constituted In this article, we shall proceed an international business to examine the ruling of the transaction within the meaning of Article 181(5) Supreme Court particularly as of the Constitution. 2. Whether the arbitration it relates to when a business provision contained in transaction in Ghana would be clause 22.2 of the PPA separately constitutes an characterised as “International” international business transaction within the for the purposes of parliamentary meaning of Article 181(5) approval under Article 181(5) of of the Constitution. Factual background

Ikemefuna Stephen Nwoye LLB, LLM

Law Digest Spring 2014

The Third Defendant, Mr. Phillip David Elders, a businessman resident in Texas, USA, identiﬁed a business opportunity in Ghana which involved the immediate generation of electricity from a power barge located in the country’s Western Region. The barge needed rehabilitation and the GoG wanted to negotiate with a private investor to achieve this and bring its generation capacity urgently on stream. The Third Defendant was able to persuade the owner of the

the Constitution of Ghana. that parliamentary approval was not sought and obtained as required by Article 181(5) of the Constitution. The Government further argued that as a result of this, the Arbitral Tribunal lacked jurisdiction over the matter. The Tribunal was of the view that it had jurisdiction, however, it expressed the willingness to take account of the domestic court’s interpretation of the constitutional provision in question. The Attorney-General of Ghana

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therefore referred the matter to the Supreme Court of Ghana for interpretation of Article 181(5) of the Constitution. The Attorney General argued that that the nature of the transaction or economic activity and/or the nature of the parties and their nationality or habitual place of residence or, in the case of a corporate entity the seat of its central control and management were the criteria the Court should rely

This case highlights the problems associated with conceptualising the “internationality” of a business transaction or a contract. on. Further, the Attorney-General contended that certain identiﬁed factors clearly made the business transaction “international”. The factors identiﬁed by the Attorney-General are that: the fees payable to First Defendant under the PPA were required to be paid in a foreign currency (US Dollars); the PPA contains certain representation and warranties in relation to tax

of the PPA was undertaken by a foreign entity (Balken Energy LLC), which also signed the MOU; that the First Defendant was only a nominee of the foreign entity for the purpose of a valid execution of the PPA; that the First Defendant is wholly owned by an English company that is ultimately owned by a national of the USA; that the Managing Director of the First Defendant (the Third Defendant) is a national of the USA; and that the place of control and ownership of the First Defendant is outside Ghana. On the other hand, the Defendants’ position was that the First Defendant was a Ghanaian company and therefore no question of an “international” business transaction arises. Arguing that, the Ghanaian Constitution does not deﬁne the meaning of the word “international”, they proceed to examine several international and commercial conventions3 reached a conclusion that, a business transaction would only be considered “international” if it is between two or more countries; involves parties who are nationals of or resident in two countries and/or involves crossing national borders. They further

submitted to it, the Supreme Court held that the PPA was an international business transaction within the meaning of Article 185 (5) of Constitution. As regards issue (2), the Supreme Court was of the opinion that an international commercial arbitration clause is not an international business transaction within the meaning of Article 181(5) of the Constitution, as it does not by itself constitute an autonomous commercial transaction in the nature, which pertains to impact on the wealth and resources of the country. It further held that an international commercial arbitration clause draws its life from the transaction whose dispute–resolution it deals with. Case Analysis In this article, we shall proceed to examine the ruling of the Supreme Court particularly as it relates to when a business transaction in Ghana would be characterised as “International” for the purposes of parliamentary approval under Article 181(5) of the Constitution of Ghana. Further, we shall provide some perspective to guide potential investors and professionals engaged to provide advisory services on investment in Ghana on issues to be mindful of in relation to Article 181 of the Constitution. (a) Parties as Internationality

The Supreme Court decision in Balken case has signiﬁcant ramiﬁcation for transaction in which the GoG is a party

and foreign exchange control which are usually associated with foreign investment transactions; the Bilateral Investment Treaty between the UK and Ghana potentially applies; that the PPA contains an international arbitration agreement and a waiver of jurisdiction of the courts of Ghana; that the negotiation

submitted that the transaction between the GoG and the First Defendant did not meet any of the criteria and it was therefore not an international business transaction. Court’s Decision In determining the above issues

the

basis

This case highlights the problems associated with conceptualising the “internationality” of a business transaction or a contract. Some scholarly materials and even Conventions4 tend to approach or deal with the issue of ‘internationality’ of a contract or business transaction from a narrow perspective and this is usually centred on the “parties”, their nationality, habitual residence or place of business. For instance Kenneth C. Randall and John E. Norris5 deﬁned an international business transaction ‘as any type of deal between parties from at least two different countries’. The above position has traditionally been accepted by the courts including the Supreme Court of Ghana. The Supreme Court has previously accepted that one critical factor that

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must be considered in determining whether or not a transaction is international is whether any of the parties are a foreign entity, that is being a foreign national (in the case of natural persons) or foreign registered or incorporated entity (in respect of artificial persons). It is in that respect that the Supreme Court in an earlier case of Attorney-General v Faroe Atlantic Co. Ltd6 held that an international business transaction is a transaction between the GoG and a company registered or incorporated outside Ghana. In the current case, Balkan Energy Ghana Ltd is a company incorporated in Ghana, and therefore cannot be said to be a foreign registered entity. This will be the case, notwithstanding that the shares of the company are held by another foreign entity or the responsibility for the management of the company is in the hands of nonGhanaians. This is because of cardinal rule under corporate law that once a company is incorporated and issued with a certificate of incorporation, the company assumes a separate and distinct legal personality different from the shareholders and officers of the company. Therefore short of lifting the veil of incorporation, the Court cannot on the basis of the parties to the PPA, hold that the PPA is an international transaction. The Court indicated in its ruling that it was not “technically” resorting to the piercing the corporate veil doctrine. That notwithstanding, we are of the view that the Court actually did pierce the corporate veil in going beyond the identity of the Balkan Energy Ghana Limited and looking at the terms of transaction including the nationality of the shareholder, place of control and management to determine whether it fell within the ambit of Article 181(5) of the Constitution. In adopting the approach of looking beyond the parties to an agreement, to looking at the substance of the agreement or transaction, the Court has given the indication that irrespective of the jurisdiction of incorporation or registration of an entity (by extension citizenship of a person), such a fact can be overlooked in determining whether a transaction between the person/entity with the GoG constituted an international transaction and therefore should be

subject to parliamentary approval. (b) Substance Over Form

Balkan case departed from its earlier approach of looking to the parties to ascertain whether the transaction is “international”, and has now like its French counterpart, followed the analytic or evaluative approach of looking at the nature of the transaction holistically in determining whether it is “international” or “domestic”. In going beyond the parties to look at the nature of the business transaction to determine whether it is “international” and therefore falls within the ambit of Article 181(5), the Court indicated that one must look at the substance over the form. The Court therefore held that a business transaction is “international” in Ghana for the purposes of parliamentary approval, where the nature of the transaction is international in the sense of having a signiﬁcant foreign element or the parties to the transaction (other than the Government) have

It is pertinent to note that, the common consensus among most learned authors is that international business transactions normally involve trade, leases, licenses and foreign direct investments between individuals, multinational corporations and in some cases countries.7 In light of this position, the question one could ask is whether the mere fact that a multinational corporation (MNC) incorporates a company in a host country for the purposes of complying with a legal requirement of the host country and facilitating its investment in that country has a magic-wand effect of transforming a hitherto international business transaction to a purely domestic one? An answer to the above question can be found in the analytic approach which favours the It is clear that the Supreme evaluation of the substance of the transaction, as against Court in reaching the decision in the form in order to ascertain the Balkan case departed from whether the contract or business transaction is “international”. its earlier approach of looking to Gallic R. Delaume, pointed out that French judicial the parties to ascertain whether precedents give support to the view that the nationality the transaction is “international”. of the parties, while relevant, is not necessarily the determining a foreign nationality or reside in factor in the characterisation of different countries or, in the case of a transaction as “international”8. companies, the place of their central According to him, in all cases, the management and control is outside nationality of the parties as a factor Ghana. of determination recedes behind the Based on the above, in entering into subject-matter of the transaction any business transaction (invariably and once the international character agreements) with the GoG, one of the transaction is ascertained, the therefore has to answer the following courts no longer seriously consider questions: the nationality of the parties.9 (i) Does the transaction have a Also in support of this approach is significant foreign element? Franco Ferrari, who opined that the (ii) Is the company registered or habitual residence of the parties incorporated outside Ghana? or their nationality alone is not (iii) If the answer to (ii) above is sufficient to determine whether the negative, a further question to ask business transaction is domestic or is whether the central management international and that the presence and control of the company exercise of at least one foreign element (e.g. at a place outside Ghana? currency, place of performance, The first question was considered language etc) is sufficient to trigger by the Supreme Court in its decision. an enquiry or analysis of whether the As pointed out earlier, on the facts, business transaction is international the Court held that although the or domestic.10 agreement was between the GoG and It is clear that the Supreme Court Balkan Energy Ghana Limited, it in reaching the decision in the constituted an international business

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transaction as the overall transaction involved a foreign investment by a US investor. The Court in coming to the conclusion that the business transaction has signiﬁcant foreign element stated the following as the foreign elements in the transaction:

“The Supreme Court observed that “it would be impractical for Parliament to scrutinise and approve every single business transaction with international ramifications entered into by the Executive.” (i) The PPA resulted from negotiation between the GoG and a foreign investor; (ii) Balkan Energy (Ghana) Ltd is wholly-owned by a foreign entity, incorporated in the United Kingdom; (iii) The Managing Director of Balkan Energy (Ghana) Ltd is a foreigner and the control of the management of Balkan Energy (Ghana) Ltd is in foreign hands; (iv) The PPA contains clauses providing for international commercial arbitration; and (v) There were clauses in the PPA which are usually associated with foreign investment transactions such as a waiver of sovereign immunity, there was no foreign exchange control clause and “no taxes” clause. From the above, a business transaction between a Ghanaian registered or incorporated company and the GoG can qualify as an “international business transaction” under Article 181(5) if there is significant foreign element. What qualifies as significant foreign element will however depend on the facts of particular situation and the provisions/clauses in the agreement. Some of the elements that one should be mindful of will include: (i) Source of funding for the Project; (ii) Jurisdiction of the originator of the Project; (iii) Jurisdiction of the project sponsors; (iv) Nationality of individuals negotiating with the GoG;

(v) Place of management of the project company (or Special Purpose Companies established for the Project); (vi) Shareholders of the project company or SPC; (vii) Entities engaged to perform works or provide goods and services; (viii) Drafting of provisions of the agreement; or (ix)International arbitration clause It is therefore important, that in light of the decision of the Supreme Court, all business transactions should be critically reviewed to determine whether any foreign involvement in the business transaction qualifies as “significant foreign element” in order to determine whether it requires parliamentary approval under Article 181(5) of the Constitution. (c) Parliamentary Approval of International Business Transactions (Agreements) Once it is determined that a business transaction or agreement with the GoG has significant foreign element(s) and therefore an international business transaction, the next question is whether parliamentary approval is required. This interpretation will undoubtedly overburden Parliament and could stifle the executive function with the need to subject all such agreements to parliamentary approval. To overcome this, the Supreme Court provided two (2) solutions: (i) Major versus Minor International Business Transaction (ii) Necessary Modification by Parliament Major versus Minor International Business Transaction The Supreme Court observed that “it would be impractical for Parliament to scrutinise and approve every single business transaction with international ramifications entered into by the Executive. In order to overcome the “impractical” effect, the Court implied into Article 181(5) the word “major” which means only major international business or economic transactions are subject to parliamentary approval under the Article. In that respect, for an agreement or a business transaction between

a private entity and the GoG that qualifies as an international business or economic activity to be subjected to parliamentary approval, that agreement must be for a major business transaction. The criteria as to what qualifies as a major business transaction was not provided by the Supreme Court. The Court mindful of the need for criteria for such determination indicated that whilst it is imperative for Parliament to provide clarity on the Article 181(5) of the Constitution, a certification by the Attorney-General that the transaction in question is “major” before a dispute arises would weigh heavily on the minds of the Supreme Court. However, the court was also quick to add that such a certification would not be conclusive. In effect, in any business transaction which is prima facie an international business or economic transaction, the private party may adopt one of two options: (i) Require that the agreement be subject to parliamentary approval, or (ii) Request from the Attorney General a legal opinion to the effect that the agreement is for a minor international business transaction and does not require parliamentary approval. If the second option is adopted, the private party still bears the risks of rejection of the legal opinion of the Attorney General by the Court, since such an opinion is not conclusive in the event of dispute. However, we are of the view that that the courts mindful of the principles of equity, will favour such private party where the GoG seeks to void an agreement that was so certified by the Attorney General as minor on the ground that parliamentary approval should have been sought. Whilst we sympathise with the courts position, we are however sceptical of a measure that stops short of a clear delineation or determination of the scope of Article 181(5) of the Constitution. This is due to the fact that existing foreign investors and prospective ones cannot be certain of the status of their agreements with the GoG and where the GoG deems it fit, it could set up non-parliamentary approval as a basis to invalidate an agreement to avoid its contractual obligations or prevent an investor from taking

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beneﬁt of any potential investment. It our view that the criteria for determining whether an international business transaction is a major or minor international business transaction should depend on the value of the transaction, effect of the transaction (in terms of the impact on the economy or citizenry) and scope of the transaction. We therefore suggest that any criteria formulated by Parliament in clarifying the scope of Article 181(5) application should be based on these criteria. Necessary Parliament

Modiﬁcation

The Court has determined that though Parliament has not done the “necessary modiﬁcation” the clause is still applicable. Given the criteria adopted by the Court, there is still uncertainty over what constitute major or minor international business or economic transactions. In order for certainty in this area, Parliament should provide this “necessary modiﬁcation” to give certainty to investors and advisors in determining whether or not an international commercial agreement to which the GoG is a party requires parliamentary approval. Conclusion

Article 181(1) to (4) requires parliamentary approval of loans either granted or taken by Government through a resolution passed by Parliament. Article 181(5) provides that “This article, shall with the necessary modiﬁcations by Parliament apply to an international business or economic transaction to which the Government is a party as it applies to a loan”. The clause therefore permits Parliament to make necessary modiﬁcation to the application of the whole of Article 181 to international business or economic transactions. In that respect, Parliament is permitted to determine: (i) The types of international business or economic transaction must be subject to parliamentary approval. (ii) The procedure to be adopted in the approval of international business or economic transactions.

Given Ghana’s need for foreign investment this judgment would be of great concern to investors who have entered into or are considering entering into business transactions with the GoG. 1 Article 181 of the 1992 Constitution of Ghana provides that “(1) Parliament may, by a resolution supported by the votes of a majority of all members of Parliament, authorise the Government to enter into an agreement for the granting of a loan out of any public account... (5) This Article shall, with the necessary modiﬁcation by Parliament apply to an international business or economic transaction to which the Government is party as it applies to a loan”. 2 Section 12 of the Energy Commission Act, 1997 (Act 541) require that corporate entities be incorporated in Ghana to qualify for license to produce and wholesale supply of power. 3 The Conventions considered by the defendants in their analogy are the 1980 United Nations Convention on Contract for International Sale of Goods, 1956 Convention on the Contract

for the International Carriage of Goods by Road, the 1944 Convention on International Civil Aviation and the 1929 Convention for the Uniﬁcation of Certain Rules Relating to International carriage by Air. 4 Ibid.; Contrast with the Convention on the Contract for the International Carriage of Goods by Road (CMR). Article 1 deal with the “internationality” question in relation to the scope of the Convention. It provides that, the convention shall apply to every contract for the carriage of goods by road in vehicles for reward, when the place of taking over of the goods and the place designated for delivery, as speciﬁed in the contract, are situated in two different countries, of which at least one is a contracting country, irrespective of the place of residence and the nationality of the parties. 5 See Kenneth C. Randalll and John E. Norris, A New Paradigm for International Business Transaction 71 Wash U. L.Q 599 at p. 1 6 [2005¬2006] SCGLR271 7 Ibid; see also Gallic R. Delaume, What is an International Contract? An American and A Gallic Dilemma 28 Int’l & Comp.L.Q 258 1979; also Ralph H. Folsom et al, Principles of International Business Transactions, Trade & Economic Relations (Concise Hornbooks 2005) 8 See Gallic R. Delaume, supra note 7 at p.264 where references were made to several decisions of French Court that focus on the subject matter of the transaction as against the parties of the forms. Examples of these cases are Cass April 18, 1931, Delafontaine et Deleau v. Perret and Cass July 8, 1931, Dupille et Guiguan v. Maroger et Devigne[ 1931] Sirey 1.387 9 See Gallic R. Delaume, Id at 265- 266, where it was pointed out that in its decision in Cass. Feb.191930, Mardele v. Muller et Cie[1933] Sirey 1.41 the Court of Cassation had considered the foreign elements of a transaction between a French subsidiary of a foreign company and Frenchman as the determinant of the ‘internationality’ of the transaction. 10 Professor Franco Ferrari, Director Center for Transitional Litigation, Arbitration and Commercial Law NYU School of Law “International Business Transaction or Contract” lecture delivered on September 18, 2013 at New York University.

LITIGATION AND ASSET RECOVERY FORUM 2014

Presents

Economic and Financial Crime Litigation Hosted by:

Venue: LAGOS, NIGERIA - Date: 4th NOVEMBER 2014

& 24

Visit www.nglawdigestevents.com for more details

INSOLVENCY LAW Anthony Idigbe, SAN

Insolvency and asset recovery

Law Digest Spring 2014

business recovery rather than distribution to the creditors, and discusses issues relating to insolvency and asset recovery across borders. Asset Recovery Proceedings

insolvency

Receivers

Anthony Idigbe, SAN – Punuka Chambers, Nigeria

“This article considers the process of asset recovery in Nigeria under general and special insolvency regimes.”

Introduction In the wake of insolvency, asset recovery becomes the most important function to be discharged by the company’s fiduciaries including those appointed by the company, creditors or the Court. Asset recovery envisages the realisation, preservation and effective utilisation of the assets of the financially troubled company either to offset its debts and liabilities to the different categories of stakeholders,1 or where business recovery is a viable alternative to liquidation, to constitute the resources from which a new lease of life may be given to the financially troubled company, using business restructuring techniques.2 This gives the company enough breathing space for generating the necessary cash flow to offset its various obligations.3 By reason of the alternative business rescue approach, more thought is being given to the need to use or create a framework giving room for ADR to achieve maximal asset recovery in an insolvency context. Thus modern insolvency regimes -though statutorily regulated, provide more room for consensual workouts or less formal procedures. In Nigeria, the Companies and Allied Matters Act 2004 (the “CAMA”) provides the general legal framework for asset recovery or realisation through procedures such as receivership, winding up and arrangement & compromises. These insolvency proceedings particularly the latter two are supervised by an “Insolvency Practitioner” (the “IP”).4 The IP is by law vested with control and authority to deal with the assets of the company. This article considers the process of asset recovery in Nigeria under general and special insolvency regimes. It amongst other things, analyses the options available to a Liquidator using the assets of an insolvent company to achieve

Under Section 393(4) of the CAMA,5 privately appointed receiver6 or Court appointed receivers are under obligation to realise the assets of the Company to satisfy outstanding debts of a single category of creditor(s), usually secured creditors. An IP appointed as receiver by the court is deemed an agent or officer of the Court, operating under court directions and supervision and to an extent is therefore quite independent and insulated from the pressure of creditors, directors and contributories of the company alike. An IP privately appointed as a receiver by a secured creditor or debenture holder7 would usually have the power to sell amongst other powers specified in the deed of appointment or (by default) in sections 209 and 393(3) and Schedule 11 CAMA as the case may be.8 When the IP is appointed as a receiver, he is considered only as an agent of the debenture holder who appointed him with a mandate strictly limited to asset realisation and recovery, but when appointed as a manager, he is deemed a fiduciary of the company in receivership, bound to observe utmost good faith in transactions relating to it, act in its best interests and those of other creditors as a whole, such that he cannot sell to himself, and would take reasonable care when selling to obtain “the true market value” at the date of sale or a “proper price” for the realisation of the security.9 To assist the IP in its asset recovery duties in receivership context, the law requires the directors of the company to prepare and give to the receiver an inventory and statement of account of the assets and the liabilities of the company.10 In practice, this obligation of the directors is observed more in breach. There is no adequate administrative sanction or deterrent, and the criminal sanctions available are scarcely used, these impacts on effective asset identification and

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recovery. Great skill and experience is required from the IP to also achieve buy in of existing shareholders, directors and other creditors into the receivership process. Law reform is certainly needed to assist IPs in this regard. Winding Up/Liquidation According to John Verrill the primary purpose of all insolvency law is to replace the “free- for- all” situation which could arise in the pursuit of individual claims by individual creditors with a statutory regime, where creditors’ rights are suspended (in whole or in part). This is certainly the case in a winding up process.11 Under the statutory regime, an orderly scheme for collection and realisation of the assets and distribution of the net proceeds of those assets amongst creditors are enforced in accordance with a statutory scheme of distribution. For this reason under a winding up, a liquidator is the IP appointed by the company, the creditors or the court to wind up the affairs of a company and realise the assets.12 By virtue of Sections 422(9) of CAMA, upon the appointment of the IP, all powers of the directors cease. Subject to the duty to account and sometimes the supervision of the Court, the IP is vested with extensive asset recovery powers, such as wide powers to “do all such other things as may be necessary for winding up the affairs of the company and distributing its assets”.13 Powers to make claims One of the most potent powers of the liquidator for asset recovery is the power to make a claim through court action against directors, shareholders and other stakeholders for the recovery of misappropriated assets. In Re: Alan Dick West Africa Limited14 presents an interesting effort to revive claims as a major asset recovery method in Nigeria. In this case, upon their appointment by the Nigerian Court, liquidators to the company discovered that huge chunk of monies of the Nigerian company were transferred to the UK to the beneﬁt of directors of the Nigerian company who are UK nationals. Notwithstanding the limitations of the Nigerian framework for asset

recovery with cross border elements, the liquidators using the above powers to claim against directors have been pursuing the directors in the UK through petition to the Serious Fraud Ofﬁce. Unfortunately, this remedy which is perhaps the only asset recovery remedy available in a case of complete strapping of a company is not often utilised.

disclaim onerous property and unproﬁtable contracts under section 499 CAMA and as such can reduce the exposure and liabilities of the company, swell the pool of assets available for distribution, thereby achieving maximal asset recovery for the body of unsecured creditors.

Business rescue powers

A Liquidator may also effectively use fundamental rules of an efﬁcient and fair insolvency regime such as stay of execution which inhibit private enforcement rights and debt resolutions mechanisms to achieve collective asset realisation. As an interested party, it is open to him to apply to a Court where proceedings are pending against the company to stay such, or stay of execution or attachment on the basis of any judgment pending in other courts, even before the making of a winding up order (Sections 412 to 417 CAMA). These provisions make room for the co-ordination of the liquidation process to avoid a “race to collect” situation where the commencement of winding up proceedings drive individual creditors to panic and ﬁle suits in different courts, with intent to beat the other creditors and collect their monies from the debtor

An efficient use by the court of its power to appoint a provisional liquidator coupled with the Liquidator’s power to sell assets of the company as a going concern with the aim of rescuing the business is possible where the court adopts a liberal approach to such issues vis a vis the inadequacies in the existing general insolvency framework. Whilst no such requirement is provided for under the CAMA itself, the Companies Winding Up Rules require that a winding up petition be advertised first before a provisional liquidator can be appointed by the Court. This imposes a burden greater than the substantive law and thereby thinning out an efficient use of the court and IP’s power for restructuring purpose.15 Fraudulent preference claims and disclaimer of onerous transactions It is not uncommon that before the commencement of winding up proceedings, directors of the company with inside information of the pending doom may decide to beat the collective system of liquidation to favour preferred creditors, usually themselves or related parties by disposing of assets of the company in its twilight zone. To deal with this loophole, section 495 of CAMA provides Liquidators with powers to avoid such fraudulent conveyance perpetrated usually by the directors of the company. However, this recovery power appears to be very limited and time bound in that it is only available to a liquidator against transactions done 3 months predating commencement of winding up, unlike in other jurisdictions where such avoidance power is available to the IP for transactions that predate commencement of insolvency for up to two years.16 Liquidators are also entitled to

Other asset recovery related powers

There is no adequate administrative sanction or deterrent, and the criminal sanctions available are scarcely used, these impacts on effective asset identification and recovery. company even before a winding up order is made and the available assets distributed in an equitable manner in accordance with applicable laws of priority. However, their effectiveness is threatened and undermined by the judicial interpretation given to these provisions. In the case of FMBN v NDIC (1999) 2NWLR Pt 591, 333 at pg.341, ratio 4, the Supreme Court held that the court concerned with the bar on judicial proceedings is the Federal High Court only and not the State High Court. The implication of this is that, other creditors may

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One of the most potent powers of the liquidator for asset recovery is the power to make a claim through court action against directors, shareholders and other stakeholders for the recovery of misappropriated assets. decide to sue on contracts with the debtor company in the State High Court and by such action enforce individual interests at the expense of the collective interest of the creditors as a whole. Limitations On Asset Recovery Assets Belonging To Third Parties It is common in trade and business for possession of property to be given to another while title over the property is retained by the seller until satisfaction of the debt obligation. It is for instance the practice in secured loan transactions for the legal title to be passed to the creditor (through for instance a legal mortgage or a debenture instrument), whilst the debtor retains possession and use of the security. Usually the debtor would have a right of reversion of title upon full discharge of the debt. It is also the practice in other commercial arrangements for legal title to property to be vested on a person, the Trustee on the agreement that it be managed for the benefit of another, the Beneficiary or to be transferred to the Beneficiary on the happening of a specific event.17 These various incidences explain certain limitations placed on the rights of an IP to realise and distribute assets which though in the possession or use of the insolvent company, cannot be legally seen as available to an IP. Section 393 (1) CAMA accordingly subjects the right of a receiver over any “property” of the company to the rights of prior encumbrancers. The Common law principles of “Qui prior es tempore portier es jure”,18 -“he who is earlier in time is stronger in law” and “nemo dat quod non habet”, “you cannot give what you do not have”, also apply in favour of 3rd party competing interest claims to limit an IP’s power of control and or disposal

over assets ostensibly belonging to the company. Arbitration and ADR in asset recovery and business rescue

as being too important to fail like in many other jurisdictions. Its primary mandate is the purchase of toxic assets or Non Performing Loans (NPLs) via the issuance of bonds, thereby absorbing the liabilities of affected banks and ensuring liquidity to prevent insolvency. AMCON in this regard is vested with extensive super creditor/receiver powers.20 The huge and draconian asset recovery powers created by its enabling Act have come under heavy ﬁre for several reasons including risk of abuse of powers and arbitrariness, excessively unbalanced scale between AMCON and other creditors, and weak shareholder protection under the bridge banks arrangement.

Arbitration and other ADR mechanisms conceptually negate the collective and orderly process of realisation and distribution usually featuring in insolvency proceedings to the extent that a private arrangement is being envisaged between parties for the settlement of dispute with the parties looking up to a third party to either mediate or give a binding decision. However, the above remains correct if the insolvency process is liquidating rather than rehabilitating in approach: once it is accepted that Asset recovery in insolvency more benefits lie in identifying the context and forfeiture viability of the business, the need to rescue the same in order to give There has been the propensity greater value to the stakeholders and in Nigeria to use certain options to preserve business relationships, available in criminal proceedings as etc, then ADR and its flexibility in a basis for asset recovery against approach become crucial to achieving directors of intervened banks at the wake of the financial crisis in a quick and efficient turnaround. Modern insolvency systems 2009. It is remarkable that those increasingly recognise the importance criminal proceedings are being in of the consensual approach of ADR, themselves considered as an asset by leaving the parties some space to resolve the problem in It is not uncommon that before order to ensure business rescue before the formal insolvency the commencement of winding procedure kicks in through informal workouts, pre-packs up proceedings, directors of the or even after commencement of certain collective administrative company with inside information procedures through of the pending doom may decide mechanisms such as cram down. However, success of to beat the collective system of these workouts or procedures liquidation to favour preferred is induced by the existence and the discipline of the creditors, usually themselves. formal insolvency procedure, forcing parties to consider less protracted and ultimately recovery mechanism. The criminal unprofitable procedures where process is only for proof of criminal it would improve the chances of guilt and meting out appropriate rescuing the business and ultimately punishment. It is the ancillary process under the Economic and get better value. Financial Crime Commission Asset Recovery in the Financial/ Act 2004 for confiscation that can ground asset recovery and it is not Banking sector in automatic. The Ibori case21 To avoid the economic implications the UK demonstrates that mere of the collapse of banking/ financial conviction in the criminal case is institutions, the Nigerian government not on its own, sufficient ground for established the Asset Management confiscation and asset recovery. Corporation of Nigeria (AMCON)19 The state must still prove that the to provide a resolutely rehabilitative assets sought to be confiscated are culture for the banking sector seen the result of the particular criminal

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conduct. This is also in line with Nigerian constitutional protection against expropriation. It is however conceded that in cases

assets in Nigeria. Seeking to recover, assets abroad or a foreign IP seeking to recover assets in Nigeria can pose special legal challenges. The UNCITRAL Model Laws is the instrument dealing There has been the propensity international with cross-border insolvency in Nigeria to use certain issues and by implication asset recovery. The legislation is based options available in criminal on four principles which are:

proceedings as a basis for asset recovery against directors of intervened banks at the wake of the ﬁnancial crisis in 2009. of perceived corporate fraud and corporate insolvency, there is always an option of seeking insolvency reliefs as discussed in this paper and/or pursuing state forfeiture.22 However, according to Hugh Dickson and Mark McDonald23 state forfeiture orders or the criminal recovery process can result in vastly different outcomes that can complicate the situation. For instance, the insolvency requirement for pari-passu distribution does not exist in state forfeiture and as such discretion exists in distribution which can lead to arbitrariness and long drawn litigation. Further “conviction and appeal are irrelevant to an IP’s compensation process”24 but critical to any state forfeiture or recovery process notwithstanding the effort towards in rem actions by the state. Indeed a freezing order may deprive the IP of resources to pursue claims against defaulting persons thereby reducing the realisable assets for distribution. They concluded as follows: “Freezing orders can be of great assistance if the assets are “at risk”: but where the assets are not at risk, either prior to or after a freezing order has been granted, forfeiture only serves to complicate matters further, delays the ultimate transfer of assets to the victims, reduces the transparency and accountability of the claim adjudication and distribution process, and harms the recovery prospects for the creditors of the estate”.25 Assisting foreign IP and seeking cross border asset recovery Sometimes the assets of an insolvent company are located abroad. Foreign insolvent companies may also have

(a) The “access” principle which establishes the circumstances in which a “foreign representative” has a right of access to the court (the receiving court) in the enacting State from which recognition and relief is sought; (b) The “recognition” principle which enables the receiving court to make an order recognising the foreign proceeding, either as a foreign “main” or “non-main” proceeding; (c) The “relief” principle which applies to three distinct situations. In cases where an application for recognition is pending, interim relief may be granted to protect assets within the jurisdiction of the receiving court. If a proceeding is recognised as a “main” proceeding, automatic relief follows. Additional discretionary relief is available in respect of “main” proceedings, and relief of the same character may be given in respect of a proceeding that is recognised as “non-main”; (d) The “cooperation” and “coordination” principle which places obligations on both courts and insolvency representatives in different States to communicate and cooperate to the maximum extent possible, to ensure that the single debtor’s insolvency estate is administered fairly and efficiently, with a view to maximising benefits to creditors; and Nigeria has no insolvency or cross border insolvency legislation in force neither is it a party nor has it ratified any international instrument of the above in any way. In the absence of the above, the only window available to IPs in Nigeria in terms of cross border insolvency practice, particularly liquidators, for the purpose of tracing and having access to assets taken out of the Nigerian jurisdiction is to rely on; (a) The reciprocal treatment given

to final and conclusive judgments of superior courts of Nigeria, the UK and generally former Common Law countries based on the Foreign Judgments (Reciprocal Enforcements) (Act FJRE) Cap. F35, LFN 2004. When the judgment is from an “acceptable” foreign jurisdiction, it can be enforced in Nigeria anytime within 6 years after the date of judgment through an application for registration (Originating Summons) upon notice being given to the judgment debtor accompanied with a certified true copy of the foreign judgment. Upon registration, it has the same force and effect for the purpose of execution as a local judgment. In certain jurisdictions like the UK, powers are given to English courts to assist victims of fraud through the grant of asset freezing injunctions and search orders. The above mentioned options, do not afford the IP the opportunity to fully maximise the powers given to them because they do not envisage real time coordination and cooperation of a single insolvency proceeding (universality) across borders. They are belated and costly. Persuasive influence of Common

Nigeria has no insolvency or cross border insolvency legislation in force neither is it a party nor has it ratiﬁed any international instrument of the above in any way. Law on judicial comity of cross border insolvency and asset recovery The Common Law position on cross border insolvency was captured in the decision of the Privy Council in the case of Cambridge Gas Transportation Corporation v. Ofﬁcial Committee of Unsecured Creditors of Navigator Holdings Plc (2007) 1 AC. 508 P.C. (Cambridge Case) wherein it was stated that: “The English Common Law has traditionally taken the view that fairness between creditors requires

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that, ideally, bankruptcy proceedings should have universal application. There should be a single bankruptcy in which all creditors are entitled and required to prove. No one should have an advantage because he happens to live in a jurisdiction where more of the assets or fewer of the creditors are situated…” In that case the Privy Council went ahead to recognise and enforce bankruptcy orders made by a US court under the Chapter 11 proceedings in the UK. The approach taken in the Cambridge Case has been followed in subsequent cases. The Court in the Cambridge Case recognised the existence of “orders which form part of insolvency proceedings” as an additional classification to foreign judgments, aside from judgments in rem and in personam. However, the decision of the UK Supreme Court in the case of Rubin & Anor v. Euro finance SA & Ors [2012] UKSC 46. (Rubin case) appears to reverse the universality principle espoused in the Cambridge case. In the Rubin Case the SC refused to recognise the special category of “orders which form part of insolvency proceedings”. It refused to enforce a foreign judgement in the US against a defendant resident in the UK who did not participate or submit to the jurisdiction of the US bankruptcy Court. The court held that the enforcement of insolvency proceedings will be treated in the same manner as any other foreign judgment and that if the Defendant was not subject to the in personam jurisdiction of the foreign court, and did not participate in the foreign insolvency proceedings, the foreign judgment may not be enforced against him in England. This appears to create a setback on the uniformity of rules for cross border insolvency cases and effectiveness of IPs in achieving maximal asset recovery and distribution. However according to Justice Ian Kawaley of the Bermuda Supreme Court there is no real conflict between Cambridge case and Rubin case, as the Rubin case only advises caution in offering

judicial assistance and did not deny existence of the common law power to assist. Conclusion Insolvency and asset recovery are two sides of a coin. Beyond asset recovery is the issue of asset re-creation and restructuring where the business is viable. Asset recovery must no longer be dealt with in the context of a vulture culture of stripping the company to pay creditors as much as possible, but now in the context of business rescue to enhance the contribution of the assets not only to satisfaction of creditors alone but other stakeholders as well such as employees, the government, host communities and shareholders. In this regard there remains cross border challenges in accumulating all available assets universally for the purpose of resolving the insolvency of a particular company or person. The struggle between universalism and territorialism in asset recovery in insolvency even with the UNCITRAL Model Law on Cross border Insolvency has not reached armistice.

1 E.g. Sundry creditors, shareholders, employees etc. In accordance with applicable rules of priority 2 Such as re-ﬁnancing, mergers & acquisition schemes, judicial and non-judicial workouts, arrangements and compromises, 3 In the context of modern insolvency, business recovery is the underlying preferred approach towards an effective and maximal asset recovery. 4 For example; receiver/manager, liquidator, special manager, provisional liquidator, ofﬁcial receiver etc. 5 CAP. C20, LFN 2004 6 Or out of court appointed receiver (i.e. Appointed by a debenture holder) 7 For recovery of security under a mortgage deed/charge due to the failure of the company to pay interest or the principal sum on the mortgage transaction within one month after it becomes due. See section 208 CAMA 8 Power to inter alia take possession of the charged assets, collect debts owed to the company, collect debts owed to/enforce claims vested in the company, compromise, settle and enter into arrangements in respect of or with a view to selling it on the most favourable terms, grant, or accept leases of land and licences in respect of patents, designs, copyright or trademarks, and recover any instalment

unpaid on the company’s issued shares. 9 Mchugh v. Union Bank Of Canada (1971) Ch. 949 at pg. 978, CA 10 section 396 CAMA 11 section 418 CAMA in this regard states “an order for winding up a company shall operate in favour of all the creditors and of all the contributories of the company as if made on the joint petition of a creditor and of a contributory.” 12 see section 424 CAMA 13 section 425(2) CAMA. E.g. In addition to powers to sell, power to litigate on behalf of the company, carry on the business of the company towards beneficial winding up, etc 14 unreported Federal High Court decision in which a winding up order was made despite contest of the petition by the company and the liquidators appointed upon winding up are now pursuing the former directors in a foreign claim for examination and production of documents, relating to the assets of the company as a prelude to a full claim for recovery of lost assets. 15 other jurisdiction such as bermuda which has similar company law provisions as CAMA has used the appointment of provisional liquidator to approve pre packed arrangement without the need for all creditors to be notified. The idea was to achieve a cram down on minority creditors so a scheme of arrangement can be pushed through by a provisional liquidator with secured creditors. 16 section 495(3) CAMA 17 this is also possible in intermediated securities transactions under the provisions of sections 39 to 43 Investment and Securities Act 2007 involving investors and intermediaries with respect to shares in publicly listed companies. The intermediary is under obligation to open a trust account for investors. Section 42 of the isa creates the priority rule that, subject to lawful claim and right of lien, money in a trust account is unavailable for the payment of the intermediary’s debt. 18 in cases of competing interests claims. See Kari v. Ganaram (1997) 2 scnj 38 at 59, (1997) 2 nwlr (pt 488) 380 19 Asset Management Corporation of Nigeria Act 2010 20 It has powers to appoint receiver, sell, dispose of assets, securities without any contractual or even statutory restrictions being capable to attach and limit such exercise of enforcement right (sections 36, 39). It has super creditor status overriding any prior encumbrance and the validity of its disposition is not fettered by statutory requirements of perfection of ownership over assets (sections 36, 40 and 45). It also has interim powers of custody and possession of debtor’s property and freezing of debtor’s account. 21 Unreported 22 for further reading, please see kemi pinheiro san “using the interplay between civil and criminal remedies to maximise recovery opportunities in nigeria” international and asset recovery forum, 5th november, 2013, muson centre, onikan, lagos. 23 hugh dickson and mark mcdonald insolvency v forfeiture insol world (the quarterly journal of insol international) first quarter 2013 p.10 to11 24 ibid 25 ibid

ARBITRATION Dr Stuart Dutson, Eversheds LLP

Obtaining evidence/ preserving assets in the UK in Aid of arbitral proceedings in Africa

Dr Stuart Dutson Partner, Eversheds LLP

“English courts are also entitled to give orders under Section 44 of the Act in relation to a number of matters other than the taking of the evidence of witnesses which include: preservation of evidence”

ue to the limitations of arbitration in dealing with complex litigation, the arbitral process is rarely the sole forum for a complex claim, and the importance of the concurrent supportive power of the courts cannot be overestimated. Domestic courts can ﬁll the gaps in procedural and enforcement powers, given the inevitable involvement of non-parties. In England and Wales, the Evidence (Proceedings in Other Jurisdictions) Act 1975 (giving effect to the provisions of the 1970 Hague Convention) gives the English courts power to make orders for the examination of witnesses within the jurisdiction, for the purposes of proceedings abroad, in response to an application made “in pursuance of a request issued by or on behalf of a court or tribunal exercising jurisdiction… in a country or territory outside the United Kingdom.” This is the process known as “letters of request”. However, it is generally thought that, despite the term “tribunal” in the 1975 Act, an arbitral tribunal does not qualify as a “requesting court”.1 Similarly, in terms of ordering interim measures in aid of foreign proceedings, the English court has held that on the proper construction of Section 25(3) of the Civil Jurisdiction and Judgments Act 1982 (Interim Relief) Order 1997, arbitral proceedings were not “proceedings” within the meaning of those provisions.2 In England and Wales, the relevant

Law Digest Spring 2014

provisions for the court to assist in obtaining evidence/preserving assets in support of arbitral proceedings are found in Sections 43 and 44 of the Arbitration Act 1996.3 Section 2(3) of the Act provides that the powers conferred by Sections 43 and 44 apply even if the seat of the arbitration is outside England and Wales, although the court may refuse to exercise any power if it considers that the fact that the seat of the arbitration is outside England and Wales makes it “inappropriate” to do so. For instance, in Commerce & Industry Insurance Co (Canada) v Lloyd’s Underwriters4 Section 44 was used as an alternative to the application under the 1975 Act. In that case, two former employees of a London insurance broker, applied to set aside a without notice order obtained by a party to an arbitration seated in New York, requiring them to attend an examination in order to provide depositions relating to reinsurance contracts which were the subject of the arbitration. They contended that the court had no jurisdiction under the Evidence (Proceedings in Other Jurisdictions) Act 1975 to accede to a letter of request from a foreign private tribunal. The applicant then applied under Section 44(2)(a) of the Arbitration Act 1996 for an order on the same terms submitting that the court had jurisdiction thereunder. The judge took the view that each case had to be considered on its merits. In the circumstances, the judge refused to order the examination of the witnesses. It was held that under US law, witnesses who had given written deposition evidence could also be called to give oral evidence, whereas an order under Section 44 of the 1996 Act would only provide for documentary and not oral evidence to be given. Therefore the applicant was seeking to subject the witnesses to a US-style deposition which was inconsistent with the procedure under English law. This meant it was inappropriate to make the order sought. Further, the powers provided in Section 44 can only be exercised to the extent that the arbitral tribunal has no power or is unable for the time being to act effectively (Section

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44(5)). A typical example is where the tribunal is not yet constituted, but this will equally apply if the order is to be made against third parties over whom the arbitral tribunal has no jurisdiction. The English court’s powers in granting orders against third parties to arbitration as provided in Sections 43 and 44 will be explained below. English Court’s Orders against Third Parties in Support of Arbitration Power to compell third party witness to attend arbitral proceedings Under Section 43, a party to arbitral proceedings may use the same court procedures (e.g. a witness summons) as are available in relation to legal proceedings to secure the attendance before the tribunal of a witness in order to give oral testimony or to produce documents or other material evidence. This may only be done with the permission of the tribunal or the agreement of the other parties. The court procedures may only be used if the witness is in the UK and the arbitral proceedings are being conducted in England and Wales. It is important to note that Section 43 does not give the court power to order a third party to disclose documents. The order is only for the witness to attend before the tribunal to give oral evidence or to produce certain speciﬁc documents. A recent illustration on the application of Section 43 can be found in Tajik Aluminium Plant v Hydro Aluminium AS5 where an application was made by Tajik to the court for permission to issue witness summonses requiring the witnesses concerned to attend the hearing of an arbitration to which Tajik was a party, and to produce the documents described in the summonses. The court conﬁrmed that witnesses may be ordered under Section 43 to attend before an arbitral tribunal, but on the facts of the case, it set aside the witness summonses on a number of grounds including, in particular, that the summonses had failed to properly identify the documents that the witnesses were required to produce. In Council of the Borough of

South Tyneside v Wickes Building Supplies Ltd,6 the court once again set aside the witness summonses issued by Tyneside under Section 43. The summonses were issued in connection with an arbitration hearing relating to a rent review between Tyneside and its tenant Wickes. Two third parties to the arbitration, B&Q and Allied Dunbar Assurance Plc (“ADA”), had a lease at Acton for which B&Q and Wickes were rival bidders, and Tyneside issued the witness summonses addressed to B&Q and ADA seeking the disclosure of the lease in order to access information relating to “Open Market Rent”. The court set aside the summons on the grounds that it was a fishing expedition, and the production of the documents would not be necessary for a fair disposal of arbitration. The court found that other comparables and material were available to the arbitrator. Information as to the offers made by Wickes for the Acton lease could have been obtained directly from Wickes. Accordingly, the local authority had failed to make a sufficient justification for the witness summonses. In Stuart Peters, Mitchell Thomas v Skylet Andrew,7 the court granted a witness summons issued under Section 43. The application arose out of an arbitral hearing between the defendant and Jermain Defoe, a well known footballer. Mr Andrew requested the attendance of the claimants at the hearing in order to have access to their itemised mobile phone records which were believed to be pertinent to the matter in hand – it was alleged that the claimants conspired to procure the breach by Defoe of his agency agreement with the defendant. The court refused to set aside the summons because the arbitral tribunal had found that it needed to see the documents to reach its decision and there was no other obvious way of obtaining the information. Orders for the taking of witness evidence from third parties Section 44 of the Arbitration Act 1996 provides that the court has for the purposes of and in relation to arbitral proceedings the same power of making orders as it has for legal

proceedings. This section is a nonmandatory provision and the parties may agree to exclude it.8 Section 44 goes on to provide the court with power to make orders in relation to arbitral proceedings in respect to a number of speciﬁc matters including the taking of evidence of witnesses. Section 44 appears to envisage a process similar to the “letters of request” procedure, with the witness being examined in

It is generally thought that, despite the term “tribunal” in the 1975 Act, an arbitral tribunal does not qualify as a “requesting court”. England and Wales and the evidence then being relied on in the arbitration. Orders for preservation of evidence or assets in possession of third parties English courts are also entitled to give orders under Section 44 of the Act in relation to a number of matters other than the taking of the evidence of witnesses which include: preservation of evidence; making orders relating to property which is the subject of the proceedings; and sale of any goods the subject of the proceedings (Section 44(2)). Section 44(3) provides that if the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets. However, if the case is not of urgency, Section 44(4) provides that such an application can only be made by a party to the arbitral proceedings with the permission of the tribunal or the agreement in writing of the other parties. Therefore, the court may only make an order pursuant to Section 44(3) if it considers such an order “necessary” in the circumstances of the case at hand. “That question will generally be determined by reference to the usual principles that guide the court in the grant of interim

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Further, the powers provided in Section 44 can only be exercised to the extent that the arbitral tribunal has no power or is unable for the time being to act effectively (Section 44(5) relief, namely, that the applicant must demonstrate: (a) that there is a serious issue to be tried; (b) that there is a risk of irremediable prejudice to the applicant if the injunction was not granted, that is, harm which cannot be compensated for in damages; and (c) that this risk of prejudice outweighs the prejudice that would be caused to the respondent if the injunction were granted.”9 In Assimina Maritime Ltd v Pakistan National Shipping Corp10 The claimant ship-owner (M) applied under the Sections 43 and 44 for the attendance of witnesses and for non party disclosure in accordance with the Civil Procedure Rules 1998 Part 31 r.31.17 . The ﬁrst defendants (P) were voyage charterers of a tanker owned by M for a voyage to Pakistan. The vessel carried a cargo of crude oil to the port of Karachi which was directed and managed by the second defendants (K). The vessel grounded and M alleged that the grounding of the vessel was caused by the fact that the port was unsafe and that P was liable for breach of the safe berth warranty given in the charterparty. Arbitration proceedings were commenced and M ascertained that K had commissioned a feasibility study from a marine survey organisation (W) for deepening the harbour and approach channel. The court granted an order sought by M against W under Section 44 (2)(b) and

(c) to allow disclosure of the report and under Section 43 to require the attendance of W’s director to produce the report. Orders for granting an interim injunction against third parties The court has power under section 44 (2)(e) to grant interim injunctions in respect of arbitration proceedings. A broad range of interim injunctions are available under this section and the orders can be made against third parties. The power certainly extends to the granting of a freezing injunction with a view to preserving assets in appropriate cases. The English court has accepted that injunctions may be granted against third parties under Section 44 (2)(e) in other circumstances, for instance, in Gus Consulting GmbH v Leboeuf Lamb Greene & Macrae12 the court considered an application made under Section 44(2)(e) for an order restraining a law firm from acting against a previous client in a pending arbitration in London. Gus Consulting contended that the firm had previously advised or acted for them in respect of some of their business in the Russian Federation which had been put in issue to some extent in the arbitration. Therefore, the law firm had acquired Gus Consulting’s confidential information which was relevant to the arbitration, and there was a real risk that by appearing in the arbitration it might unwittingly breach its confidentiality obligations owed to Gus Consulting. The judge held that, having regard to all the circumstances of the case, including detailed undertakings offered to the court by the firm, there was no “real risk” of disclosure or misuse of the confidential information and that there was no need to grant an injunction.

1 Commerce & Industry Insurance Co (Canada) v Lloyd’s Underwriters [2002] 1 W.L.R. 1323 QBD (Comm) 2 ETI Euro Telecom International NV v Bolivia [2008] EWCA Civ 880 3 In the US, a federal statute (28 U.S.C. § 1782) allows parties to use US discovery procedures to obtain evidence for foreign and international legal proceedings. The statute provides as follows: “(a) The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation. The order may be made pursuant to a letter rogatory issued, or request made, by a foreign or international tribunal or upon the application of any interested person and may direct that the testimony or statement be given, or the document or other thing be produced, before a person appointed by the court. By virtue of his appointment, the person appointed has power to administer any necessary oath and take the testimony or statement. The order may prescribe the practice and procedure, which may be in whole or part the practice and procedure of the foreign country or the international tribunal, for taking the testimony or statement or producing the document or other thing. To the extent that the order does not prescribe otherwise, the testimony or statement shall be taken, and the document or other thing produced, in accordance with the Federal Rules of Civil Procedure…” The United States Supreme Court in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 124 S. Ct. 2466, 1592 L. Ed.2d 355, made it clear that documents and testimony can be secured from US sources for use not only in matters pending before courts and tribunals but also matters pending before bodies of a quasi-judicial or administrative nature, which would include an arbitral tribunal. 4 [2002] 1 W.L.R. 1323 QBD (Comm) 5 [2005] EWCA Civ 1218 6 [2004] EWHC 2428 7 [2009] EWHC 1511 8 Section 4(2) and Schedule 1. 9 Telenor East Holdings II AS v Altimo Holdings & Investments Ltd [2011] EWHC 735 (Comm) 10 2004] EWHC 3005 (Comm) 11 See Issue 4 Asset Tracing and Preservation above for a more detailed explanation as to freezing injunctions. 12 [2006] All E.R. (D.) 339

MARITIME LAW Kolawole Mayomi - Partner LegalEDGE Practice

Law Digest Spring 2014

Enforcement of Forum Selection Clauses in maritime contracts

which apply to the enforcement of forum selection clauses by the Nigerian courts depend on the type of clause. This is because the principles which determine when an exclusive jurisdiction agreement will be enforced have their origin in the common law, while the principles which determine when an arbitration clause will be enforced derive from statute.

Introduction International commercial activity involves the assessment and management of risk.1 Risk determines transaction costs, and the willingness of the parties to contract.2 Some risks can be ﬁnancial or legal. A species of international legal risk is litigation risk. This is the risk that a court seized of a dispute will decide that dispute by reference to a law other than that which the parties expect, or that the contract’s governing law may be ousted in favour of considerations of public policy or mandatory norms of the forum.

Kolawole Mayomi - Partner LegalEDGE Practice, Nigeria

“Forum selection clauses are contractual safeguards especially designed to mitigate the incidence of international litigation risk.”

Forum Selection Clauses Forum selection clauses are contractual safeguards especially designed to mitigate the incidence of international litigation risk.3 It enables parties to choose, in advance, a stable governing law, and a forum with a choice of law regime which respects party autonomy and only exceptionally gives effect to overriding mandatory rules and ambiguous considerations of public policy. This arrangement reduces the scope for forum shopping; time spent on jurisdictional wrangling, and promotes orderliness and predictability that is essential for international commerce.4 A forum selection clause can be in the form of either a jurisdiction clause (i.e. an agreement that disputes should be resolved in the courts of a particular country), or an arbitration clause. The two categories are quite similar in law because both contain an “implied negative stipulation”5 that neither party will bring a dispute before some forum other than the one agreed and in the manner agreed. The Nigerian Approach: As would be seen, the principles

1. Jurisdiction Agreement: The seminal case of Sonner (Nig.) Ltd. v. Nordwind,6 illustrates the Nigerian Court’s disposition towards jurisdiction agreements. In this case, the parties to a contract of carriage of goods by sea agreed that any dispute arising under the parties’ contract shall be decided in Germany, where the carrier has his principal place of business. A dispute soon arose over alleged non-delivery of the plaintiffs goods on board the 1st defendant’s vessel, the M.V. Norwind. The plaintiff claimed for damages at the Federal High Court, Lagos. The defendant reacted by applying for a stay of proceedings on the ground that the Nigerian court lacked jurisdiction as the action ought to be ﬁled in a German court, pursuant to the agreement between the parties. By afﬁdavit evidence, it was revealed that the suit had become time-barred under the terms of the bill of lading. Furthermore, under German law, an owner cannot be considered as carrier. However, under Nigerian law, ‘carrier’ includes owner or charterer who enters into a contract of carriage with a shipper. The trial court agreed with the 1st defendant’s submissions and upheld the jurisdiction clause. The plaintiff’s appeal to the Court of Appeal was dismissed. The plaintiff then appealed to the Supreme Court of Nigeria. In its judgment, the Supreme Court reviewed the position of the law regarding the enforcement or otherwise of a foreign jurisdiction clause and, relying on the ‘Brandon test’ prescribed in ‘The Eleftheria’ Owners of Cargo Lately ladon on board the Elefthena -v- Owners of the Elefthena [1970] p.94 laid down the following guiding principles: (1) Where a Plaintiff sues in Nigeria in breach of an agreement to refer a dispute to a foreign Court, and the Defendant applies for a stay, the Nigerian Court, assuming the

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claim to be otherwise within its jurisdiction, is not bound to grant a stay but has discretion whether to do so or not. (2) The discretion should be exercised by granting a stay, unless strong cause for not doing so is shown. (3) The burden of proving strong cause for not granting a stay lies on a Plaintiff. (4) In the exercise of its discretion, the Court should take into account all the circumstances of the case. (5) In particular, but without prejudice to (4), the following matters, where they arise, may be considered: (a) in what country the evidence on the issues of fact is situated or more readily available, and the effect of that on the relative convenience and expense of trial, as between the Nigerian and the foreign Court; (b) whether the law of the foreign Court applies and, if so, whether it differs from Nigerian law in any material respect; (c) with what country either party is connected, and how closely; (d) whether a Defendant genuinely desires trial in the foreign country, or is only seeking a procedural advantage; (e) whether the Plaintiff would be prejudiced by having to sue in the foreign Court because it would: (i) be deprived of security for that claim; (ii) be unable to enforce any judgment obtained; (iii) be faced with a time-bar not applicable in Nigeria; or (iv) for political, racial, religious or other reasons be unlikely to get a fair trial. (6) Where the granting of a stay would occasion injustice to the Plaintiff as where the action is already time-barred in the foreign Court and the grant of stay would amount to permanently denying the Plaintiffs any redress. Applying the above principles, the Supreme Court stated that ordinarily, the parties should be held to their contractual bargain and that public policy does not bar a Nigerian court from upholding a foreign jurisdiction clause. However, considering the peculiar facts of the Norwind case, notably that the Plaintiff would be permanently deprived of his remedy if fresh proceedings are to be taken out at the German courts (the matter was now time-barred), the Defendant’s application for stay of

Law Digest Spring 2014

proceedings was refused. the circumstances of the matter show Commendable as the Brandon that the witnesses and the evidence test may be, treating “convenience” on the issue of facts are all situated as a relevant factor in the exercise in Nigeria, within the jurisdiction of of jurisdiction by a Court in the the Court. Accordingly, the Court exercise of its discretion to enforce held that the balance of convenience a jurisdiction clause may be tricky. is heavily weighted in favour of the This is due to the fact that, typically, when Commendable as the Brandon test parties enter into may be, treating “convenience” as jurisdiction agreements in international a relevant factor in the exercise contracts, they are often of jurisdiction by a Court in the motivated by factors such as neutrality and exercise of its discretion to enforce advantages offered a jurisdiction clause may be tricky by the courts of the chosen forum, rather Obviously, Nigerian court and refused to enforce than convenience.8 although the second principle laid the jurisdiction clause. down by the Supreme Court requires Dissatisfied, the defendant further a party who wishes to recoil from an appealed to the Supreme Court exclusive jurisdiction clause to show of Nigeria. In its judgment,10 the “strong cause” why the agreement Supreme Court emphasised that should not be enforced, convenience the starting point for considering an when considered as a factor, provides application to enforce a jurisdiction wide latitude that may be exploited clause is that, in the absence of a by a party who wishes to escape the strong reason to the contrary, the obligations imposed by a jurisdiction court’s discretion will be exercised agreement. Unsurprisingly, this in favour of holding the parties to was the major card that was played their bargain. The Supreme Court by the plaintiff in the recent case distinguished the Nordwind case of Nika Fishing Co. Ltd. v Lavina on its peculiar facts, and went on to dismiss the “balance of convenience” Corporation.9 In the Nika Fishing case, the arguments as follows: plaintiff/carrier contracted to freight “It is the law that parties to an frozen fish from Argentina to Nigeria. agreement retain the commercial The contract was duly carried freedom to determine their own out albeit with some delay during terms. No other person, not even the discharge in Nigeria, which resulted court, can determine the terms of the in a claim for demurrage. The bill of contract between the parties… it is lading prescribed Argentine law as not the function of a court of law either the governing law and also contained to make agreements for the parties or a jurisdiction clause which provided to change their agreement as made… for the exclusive jurisdiction of Jurisdiction is a very hard matter of the Argentine Courts. The carrier law and so cannot be subjected to brought an action for demurrage particular feelings and sentiments of at the Federal High Court, Lagos. the court. Where a contract specifically In response, the defendant filed an provides for the venue of litigation, application to dismiss the suit for courts are bound to give teeth to the want of jurisdiction or to stay further contract by so construing it, without proceedings in the suit. The trial ado. In this case, the issue of difficulty court dismissed this application. of assemblage of witnesses, cost of On appeal, the Court of Appeal litigation arising from the parties going accepted the plaintiff’s arguments to Argentina, does not arise because that the application should be they are mere expression of sentiment approached from the prism of and all that.” principle (5) of the Brandon test, and From the above judgment, it may held that the proceedings should be be safely concluded that although the left to proceed in the Nigerian court, Nigerian court retains its discretion to even though the stipulated forum enforce a jurisdiction clause which, in in the contract was totally different. the absence of a strong reason to the The Court of Appeal upheld the trial contrary, will be exercised in favor of court’s reasoning that apart from the holding the parties to their bargain, breach having occurred in Nigeria, “convenience” is not a significant

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is easily dealt with if one considers the legislative history of both sections: section 4 of the ACA is a recent provision in our Accordingly, the conclusion may law, originating from an be drawn that Section 4 deals international instrument (the UNCITRAL Model Law with international arbitration 1985), and implements a clauses, while Section 5 relates treaty commitment (Article II (3) of the New York to domestic arbitration clauses. Convention) to enforce international commercial 2. Arbitration clauses agreements on a mandatory basis.14 Section 4 of the Arbitration and Section 5, on the other hand, clearly Conciliation Act (“ACA”)11 empowers derives from section 5 of the old a Nigerian Court to enforce an Arbitration Ordinance of 1914 agreement to arbitrate by staying any (made before the Convention came proceeding brought in disregard of into existence), and thus allows the that agreement. Section 4 provides: exercise of discretion in relation “A court before which an action to domestic arbitrations alone.15 is brought which is subject of an Accordingly, the conclusion may arbitration agreement shall, if any be drawn that Section 4 deals with party so request not later than when international arbitration clauses, submitting his first statement on the while Section 5 relates to domestic substance of the dispute, order a stay arbitration clauses. Thus, in the leading case of of proceedings and refer the parties to M.V. Lupex v Nigerian Overseas arbitration”. and Shipping Plainly, the above provision obliges a Chartering court to enforce an arbitral clause, as Limited,16 a case that exemplifies the long as the applicant acts timeously. pro-arbitration stand of the Nigerian factor that would influence such exercise of discretion.

particular regard to admiralty matters in Nigeria stems from section 20 of the Nigerian Admiralty Jurisdiction Act 1991 (“AJA”).17 This section speciﬁcally voids any agreement in maritime contracts that purport to oust the jurisdiction of courts. Clearly, this provision is a congressional policy to prevent all disputes that would otherwise have been adjudicated upon in Nigeria (the country of discharge of cargo) from being heard in the carrier’s place of business or some country that may not necessarily have a nexus with the factual matrix of the case. Accordingly, Nigerian courts have had to contend with the apparently conﬂicting legislative policies of two statutes in this area: the policy of the AJA which prohibits agreements which purport to transfer the adjudication of maritime disputes to a foreign forum, on the one hand; and the policy behind section 4 of the ACA which leans in favour of enforcing international arbitration clauses, on the other. The case of M.V. Panormos Bay –v- Olam Nigeria Plc.18 highlights

Delays at the Lagos Port Complex has been a major cause of disputes in the Nigerian Courts

The provision reproduces Article 8 of the UNCITRAL Model Law 1985,12 which itself is a mirror of Article II (3) of the New York Convention 1958,13 an international treaty which Nigeria has subscribed to, and fully set out in the Second Schedule to the ACA. However, section 5 of the ACA proceeds, in a somewhat unclear manner, to confer discretion on the court in deciding whether or not to stay proceedings commenced in violation of an arbitration clause. In our view, the seeming contradiction

courts, the Supreme Court of Nigeria (albeit applying discretionary principles) enforced an international arbitration agreement to resolve a maritime dispute by arbitration in England and emphatically dismissed arguments by the plaintiff that such arbitration will be costly and inconvenient. 3. Section 20 of the Admiralty Jurisdiction Act A major obstacle to the enforcement of forum selection clauses with

the problems inherent in section 20 AJA. The respondent commenced an action against the appellants claiming the sum of US$100,000 or its Naira equivalent being damages for loss of some bags of rice covered by three bills of lading. The appellants applied for a stay pending reference to arbitration having regard to clause 7 of the bill of lading which, inter alia, provided that any dispute arising under the bill of lading shall be referred to arbitration in London. In opposing the application, the

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respondent relied on section 20 of the AJA. In its ruling, the trial court refused to stay its proceedings. On appeal, the Court of Appeal held that the true purport of clause 7 of the bills of lading is to deny the Nigerian courts of jurisdiction, especially considering that the word ‘shall’ used in the clause has mandatory effect. The Court then went on to hold that the intention of the lawmakers as regards section 20 of the AJA is to derogate from Section 4 of the ACA, with the effect that only arbitration agreements that have Nigeria as the forum would not be affected by section 20. Whilst the ultimate result in Panormos Bay is considered in some quarters as a much-needed catalyst for developing maritime law and practice in Nigeria,19 the reasoning of the Court of Appeal ought to be deconstructed. Firstly, jurisdiction agreement or arbitration clauses are, strictly speaking, not agreements to oust the jurisdiction of the court.20 Clearly, the source of the jurisdictional powers of the courts in Nigeria is the Constitution which cannot be abrogated or abridged by private agreement.21 Thus, if an action is instituted in a forum other than the contractual forum, the agreement is legally effective only if and to the extent that the present forum enforces it by declining to exercise its jurisdiction.22 Interestingly, in the recent case of Onward Enterprises Limited v. MV “Matrix” & 2 Ors,23 a different panel of the same Court of Appeal held that the Panormos Bay case was decided per incuriam, and declined to follow it. Rather, the Court chose to apply the Supreme Court decision in the M.V. Lupex case (supra) which enforced a foreign arbitration clause in a charterparty, and held that “it is clear that stay of proceedings could be granted pending reference to arbitration in a foreign country in deserving cases”. In our respectful view, this decision is

equally problematic as the Supreme Court had not given consideration to section 20 of the AJA in the Lupex case. From the foregoing, it appears that the law is still unsettled with regard to the enforcement of forum selection agreements with regard to maritime contracts in Nigeria.

1 Richard Fentiman, International Commercial Litigation (Oxford University Press: 2010) 3. 2 Empirical evidence suggests that leading market actors may be dissuaded from entering transactions because of venue risk. In an ICC ‘Survey on Jurisdictional Certainty’ (April 2003); 40 out of 100 leading companies whose views were canvassed cited occasions when their decision making has been influenced by litigation venue risk. 3 In The Chaparral [1972] 2 Lloyd’s Rep. 315, 320 the English Court held that “there is strong evidence that the forum clause was a vital part of the agreement and it would be unrealistic to think that the parties did not conduct their negotiations, including fixing the monetary terms, with the consequences of the forum clause figuring prominently in their calculations”. 4 Scherk v. Alberto-Culver, 417 U.S. 506, 516 (1974) 5 Akai Pty. Ltd v. People’s Insurance Co. [1996] 188 C.L.R. 418, 444 [decision of the High Court of Australia] 6 (1987) 4 NWLR (Pt. 66) 520 7 (1969) 1 Lloyds L.R 237 8 Babatunde Fagbohunlu, SAN: “A Case for a Different Analytical Approach to the Enforcement of International Agreements: The M.V. Lupex in Perspective”. (2009) 1 Appellate Review 81, 86 9 (2002) 8 W.R.N. 95 10 (2008) 16 NWLR (Pt.1114) 805 11 Chapter A18, Laws of the Federation of Nigeria 2004. 12 Article 8 however added a qualification with regard to arbitration agreements that are “null and void, inoperative or incapable of being performed”. 13 Article II (3) of the New York Convention on the Recognition and Enforcement of Arbitral Awards 1958, reads: “The Court of a contracting State, when seised of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to

arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed”. 14 Nigeria is a signatory to the New York Convention, which itself is domesticated in Nigeria as the Second Schedule to the ACA. In Nigeria, it is settled law that a Schedule is part of the legislation incorporating it, and is as potent as any part of the text of the legislation. See NNPC v Famfa Oil Ltd [2012] 5 CLRN 1, 29. 15 See Fagbohunlu (supra, fn 8) 98-102 for a thorough discussion of this issue. 16 [2003] 15 NWLR (Pt. 844) 469 17 Section 20 of AJA provides that “Any agreement by any person or party to any cause, matter or action which seeks to oust the jurisdiction of the Court shall be null and void, if it relates to any admiralty matter falling under this Act and if (a) the place of performance, execution, delivery, act or default is or takes place in Nigeria; or (b) any of the parties resides or has resided in Nigeria; or (c) the payment under the agreement (implied or express) is made or is to be made in Nigeria; or (d) in any admiralty action or in the case of a maritime lien, the plaintiff submits to the jurisdiction of the Court and makes a declaration to the effect or the rem is within Nigerian jurisdiction; or (e) it is a case in which the Federal Military Government or the Government of a State of the Federation is involved and the Government or State submits to the jurisdiction of the Court; or (f) there is a financial consideration accruing in, derived from, brought into or received in Nigeria in respect of any matter under the admiralty jurisdiction of the Court; or (g) under any convention, for the time being in force to which Nigeria is a party, the national court of a contracting State is either mandated or has a discretion to assume jurisdiction; or (h) in the opinion of the Court, the cause, matter or action should be adjudicated upon in Nigeria.” 18 [2004] 5 NWLR (Pt. 865 ) 1. 19 See A. A. Olawoyin “International Trade Disputes – A Look at Bill of Lading Clauses on Forum Selection”. A paper presented at an International Colloquium on Law and Development (Kuramo Conference 2010) at the Eko Hotel & Suites International Conference Centre, Victoria Island, Lagos on 3 November 2010. 20 Confidence Insurance Ltd v. Trustees of Ondo State College of Education [1999] 2 NWLR (Pt. 591) 373 21 See Section 6 of the Constitution of the Federal Republic of Nigeria 1999 22 See A. A. Olawoyin, “Forum Selection Clauses under Bills of Lading in Nigeria: a Historical and Contemporary Perspective” 29 Tulane Mar. L.J. (2005) 255, 280. 23 (2010) 2 NWLR (Pt.1179) 530, 556.

CONSTITUTIONAL LAW Demas Kiprono Tuikong - (KNCHR)

Legislative selfinterest in Kenya

Demas Kiprono Tuikong, Kenya National Commission on Human Rights (KNCHR)

“If MPs, MCAs, Judges and Magistrates are removed from the list of state ofﬁcers, they are in effect removed from the ambit of the duties imposed by the operation of Chapter 6 of the Constitution”

n 24th July, 2013, the Kenya National Assembly published the Constitution of Kenya (Amendment) Bill, 2013’ which seeks to remove Members of Parliament (the MPs), Members of the County Assemblies (the “MCAs”), Judges and Magistrates from the list of designated “State Officers” as defined by the Kenyan Constitution 2010 (the “Constitution”). This scheme is to be achieved by simply deleting paragraphs (d) and (e) of Article 260 from the list of “State Officers”. The proposers of the Bill have cited independence of the various arms of government, as the raison d’être for the amendment. They argue that by including the Judiciary, Executive and the Legislature under the single definition of “State Officers”, there is a fundamental compromise to independence of the arms of government. Moreover, they assert that the Bill merely seeks to strengthen the governance of the arms of government by ensuring efficient systems of checks and balances. Effect of the proposed amendment The removal of the MPs, MCAs, Judges and Magistrates from the list of State Officers will in turn render the aforementioned officers outside ambit of Chapter 6 - Leadership and Integrity requirements of the Constitution; and the Salaries and Remuneration Commission (the “SRC”) for purposes of salary determination. It is noteworthy that, calls by MPs for their removal from the list of “State Officers” first emerged when the honorable members felt displeased by the salaries proposed by the SRC after the 4th March 2013 General Elections. Before the enactment of the Constitution in 2010, Kenyans had witnessed parliament’s systematic and unjustifiable salary increments that have seen the Kenyan lawmakers being ranked among the top 3 most well paid legislators in the world, the Country’s low GDP notwithstanding.

Law Digest Spring 2014

On Leadership and Integrity Chapter 6 of the constitution deals with issues of leadership and integrity of State Officers. Article 73 (a) of the Constitution provides that authority assigned to a State Officer is a public trust to be exercised in a manner that:a. is consistent with the purposes and objects of this Constitution; b. demonstrates respect for the people; c. brings honour to the nation and dignity to the office; and d. promotes public confidence in the integrity of the office. If MPs, MCAs, Judges and Magistrates are removed from the list of state officers, they are in effect removed from the ambit of the duties imposed by the operation of Chapter 6 of the Constitution. In the absence of any proposal to make these excluded officers still subject to Chapter 6 post the amendment, we fear that all constitutional gains made over the years in the area of integrity and accountability will be lost. For instance, Article 75 (1) requires all State Officers to behave, whether in public and official life, in private life or in association with other persons, in a manner that avoids, any conflict between personal interest and public official duties; compromising any public or official interests in favour of personal interest; or demeaning the office the officer holds. Amendment without a referendum In fact, one can argue that passage of the Bill itself will be unconstitutional without a referendum. Article 255 provides for certain constitutional amendments to be subjected to a referendum. As per the provision, any constitutional amendment warrants a referendum if it relates to the following matters:1. The supremacy of the Constitution; 2. The territory of Kenya; 3. The sovereignty of the people; 4. The national values and principles of governance referred to in Article 10 (2) (a) to (d); 5. The Bill of Rights; 6. The term of office of the President; 7. The independence of the Judiciary and the commissions and independent offices to which Chapter Fifteen applies; 8. The functions of Parliament;

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In the absence of any proposal the drafters, the amendment properly falls within to make these excluded officers Bill the sphere of sub-article (g) still subject to Chapter 6 post the and therefore subject to a amendment, we fear that all the referendum. In addition, whilst it constitutional gains made over remains to be seen what the years in the area of integrity creature of the constitution will be created by the move and accountability will be lost to remove the MPs, MCAs, 9. The objects, principles and structure of devolved government; or 10. The provisions of this Chapter. The Memorandum and Objects section of the Bill states that it seeks to further protect the principle of separation of power by removing the Legislature and the Judiciary from the list of State Officers. It goes further to state that ‘by including all the offices of these three arms of government under one definition of State officer, it compromises their independence.’ It is therefore arguable that from the wording of

Judges and Magistrates from the list of state ofﬁcers, it is arguable that Parliament is seeking to create a whole other category of ofﬁcers through the amendment, which are not subject to the Chapter 6 of the Constitution, thus offending the supremacy of the constitution as per Article 255 (a) of the Constitution and hence automatically warranting a referendum. Additional grounds for a referendum if the Bill is passed include the following: • The fact that the act itself seems to be giving parliament functions outside those in the Kenyan constitution as per sub-article (h)

•

of Article 255; The Bill relates to national values and principles and governance mentioned in Article 10 (2) (a) – (d) such as participation of the people, equity, social justice, inclusiveness, equality, good governance, integrity, transparency and accountability as per sub-article (d) of Article 255.

Way forward Going by discussions that have been going on regarding the Bill, the general consensus by Parliamentarians and the media has been that it is a regular constitutional amendment that will be voted on by the Parliament and then accented to by the President thereby turning it into law, without more. As Parliament is currently collecting views on the amendment, the Kenyan Civil Society and Constitutional Commissions should make it clear to MPs that the move warrants a referendum at the very least.

OIL AND GAS LAW Sola Adepetun, Partner - ACAS, Nigeria

The Legal, Regulatory and Fiscal Framework for the Nigerian Marginal Fields Programme: Opportunities, Risks and Challenges

Sola Adepetun Partner - ACAS, Nigeria

“This brief write-up takes a cursory look at the MFP framework and highlights certain inherent challenges and opportunities it portends.”

Introduction The Marginal Fields Programme (“MFP” or the “Programme”) was initiated by the Federal Government of Nigeria (“FGN”) almost two decades ago, essentially to encourage indigenous Nigerian participation in upstream petroleum operations and to enhance overall petroleum production in the country. To implement the Programme, the Petroleum Act, 1969 (the “Act”)1 was amended in 1996 to provide the legal basis for the farm-out of marginal fields. The Act stipulates that the holder of an oil-mining lease (“OML”) may, with the consent of and on terms and conditions approved by the President of Nigeria; farm out any marginal field which lies within his/her leased area.2 Marginal fields are thus smaller operations in comparison to larger OML petroleum operations. Marginal fields are generally regarded as oil fields which have been left unattended for at least 10 years from the date of first oil discovery by the OML holder mainly because producing oil from such a field is considered to be “uneconomic”,3 and thus ‘marginal’. In 1999, the Department of Petroleum Resources (“DPR”) identified about 116 marginal oil fields. Following the first bid round conducted in 2001 (“1st Bid Round”), 24 marginal fields were awarded in 2003 to 31 indigenous oil companies (“Operators” or “Farmees”) and since then, 5 marginal fields have also been awarded by the FGN on a discretionary basis. Over 100,000,000 barrels4 have been produced under the MFP, with an estimated average gross production of 27,200 BOPD5 and 35,000,000

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SCFD.6 The current state of the legal, regulatory and fiscal framework for the MFP arguably has significantly contributed to the operational and commercial challenges, risks and opportunities for the different Operators and prospective investors. This brief write-up takes a cursory look at the MFP framework and highlights certain inherent challenges and opportunities it portends, especially in the light of the announcement in late 2013 by the DPR of a prospective Marginal Fields Bid Round (“2nd Bid Round”).7 The Legal, Regulatory and Fiscal Framework The Act establishes the power to farm-out marginal fields. The President (through the Minister of Petroleum Resources and the DPR) is empowered to identify marginal fields and specify or define the same. In addition, the consent of the President to the farmout of a marginal field is only permitted if such farmout is in the public interest and the parties to the farmout are ‘in all respects acceptable’ to the FGN. The Act does not specify any criteria or conditions for ‘who’ and ‘what’ will be ‘in all respects acceptable’ to the FGN, therefore leaving room for a lot of administrative arbitrariness and discretion in the MFP. To regulate the activities of the bid rounds, the Guidelines for the Farmout and Operation of Marginal Fields 2001 (the “2001 Guidelines”)8 was issued in respect of the 1st Bid Round, while the Guidelines for Farmout and Operation of Marginal Fields 2013 (“2013 Guidelines”) was issued for the 2nd Bid Round. Although the 2001 Guidelines and 2013 Guidelines do not constitute statute or regulations, they are recognised executive guidelines which supplement the provisions of the Act and form an integral part of the administration of the Programme. They prescribe among other things, the structure and content of Farmout Agreements, and the criteria for the bid and award of marginal fields and the subsequent participation in marginal field operations. The 2001 Guidelines Under the 2001 Guidelines, only companies incorporated in Nigeria, which are ‘substantially Nigerian’ and registered solely for exploration and

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production business can participate in the MFP. It fails to define what a ‘substantially Nigerian company’ is, although this has now been generally accepted to mean a company in which a minimum 51% of its equity is owned by Nigerians.9 One key implication of the uncertainties generated by this criteria is the challenge faced by a company incorporated in Nigeria seeking to raise foreign equity finance, or change its shareholding structure e.g. by being listed in foreign stock markets. Furthermore, although the 2001 Guidelines do not specify a definite level of foreign technical participation required for marginal field operations, the DPR has customarily maintained the application of a maximum 49% foreign (technical partner) to 51% indigenous equity participation interest. Additionally, the applicants were not permitted to bid for more than one field and marginal fields may only be operated on a ‘sole risk’ basis, i.e. the holder of the marginal field is committed to a minimum exploration programme under which it will solely bear all exploration, development and production costs, whilst the FGN’s interest in the marginal field is limited to rents, taxes and royalties and a reservation to participate in the marginal field at any time. The Farmout Agreement was stated to be for an initial period of 5 years, which was renewable for the remaining lifespan of the marginal field. One of the key evaluation criteria for applicants also includes a demonstration of the ability to fully meet the technical and managerial objective of undertaking expeditious and efficient development of a smallsized field. Furthermore, a signature bonus of $150,000 is also to be paid to the FGN upon finalisation and approval of the farm-out. Uncertainties in Fiscal Framework The Farmees are expected to be ‘indigenous’ oil companies; in reality, they have little investment capital and assets in comparison to what is required in standard upstream petroleum operations carried out under OMLs or Oil Prospecting Licenses (“OPLs”). Consequently, there are significant challenges in virtually all the developmental stages of the marginal fields especially in relation to financing, technology acquisition and the cost

of development. It is thus essential to add to the uncertainties relating to that a more favorable fiscal regime the applicable tax regime.11 Interestingly, the Petroleum be accorded to the Farmees rather than the regime applicable to larger Industry Bill 2012 (“PIB 2012”) does upstream operations carried out not provide any preferential tax rate under OMLs and OPLs under the for marginal field operators. If the PIB 2012 is enacted in its current Petroleum Profits Tax Act (“PPTA”).10 In this regard, progress has been form, all marginal field operators will slow and even though the “Technical be required to pay: and Commercial Field Specific Bid • Nigerian Hydrocarbon Tax (NHT) Tender Submission Requirement” at the rate of (a) 50% of chargeable issued by the FGN in June 2002 profits for onshore and shallow suggested that Operators would enjoy reduced “The Act does not specify royalty rates and additional tax incentives under a any criteria or conditions for modified Memorandum ‘who’ and ‘what’ will be ‘in all of Understanding as well as Investment Tax respects acceptable’ to the FGN, Credit rates to enable Operators to enjoy lower therefore leaving room for a lot taxes in the year of asset of administrative arbitrariness acquisition, the Marginal Fields Operations (Fiscal and discretion in the MFP” Regime) Regulations issued in 2005 only waters areas; and (b) 25% of tax provides for the royalty rates (rather of chargeable profit for frontier than a preferential assessable tax acreages and deep water areas; rate on chargeable profits) applicable and to marginal field operations. These • A Companies Income Tax (CIT) at regulations provide as follows: 30%. Production Level (BOPD) Below 5000 Between 5000 - 10,000

Royalty Rate (%) 2 7.5

Between 10,000 – 15,000

12.5

Between 15,000 – 25,000

18.5

Following this development, and in a move which attracted a lot of controversy, the DPR by a letter of 12th July, 2006 to the Marginal Field Operators’ Group (“DPR Letter”) sought to address the uncertainties by stipulating an FGN approved “revised fiscal terms for Marginal fields” as follows: • Petroleum Profit Tax (PPT) rate at 55% • Investment Tax Allowance of 20% • Royalty rates in tranches of 2.5%, 7.5%, 12.5%, 18.5% for production rates below 5,000 BOPD, 5,000 – 10,000 BOPD 10,000 – 15,000 BOPD and 15,000 to 25,000 BOPD. Whilst the DPR Letter may be a definite executive instrument confirming the stated fiscal provisions for marginal field operations, it cannot be said to have amended the Act or the PPTA or any other relevant law of the National Assembly and therefore only serves

The PIB 2012 however proposes that marginal field operators shall be entitled to apply for petroleum mining leases for the fields being operated as marginal fields.12 It also provides that marginal field operators shall be entitled to claim certain production allowances upon incremental production.13 2013 Guidelines Some of the broad objectives of the proposed 2nd Bid Round is to: (i) grow Nigeria’s production capacity by expanding the scope of participation in Nigeria’s petroleum industry; (ii) increase oil and gas reserves through aggressive exploration and development efforts (especially offshore); (iii) create more opportunity for portfolio rationalisation; and (iv) promote indigenous participation in the sector thereby fostering technological transfer. As permitted under the Act and similar to the 2001 Guidelines, the characterisation of ‘marginal fields’ is specified under the 2013 Guidelines,14 as well as the evaluation criteria for prospective operators. In addition, the 2013 Guidelines provide that participation in the MFP is open

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to an ‘indigenous company’ duly registered to carry out the business of petroleum exploration and production operations in Nigeria. By nature, the indigenous company shall be ‘substantially Nigerian’. Notably, the Pre-qualification, Technical and Commercial Field-Specific Bid Submission Requirements (“Prequalification Requirements”) issued by the DPR following the 2013 Guidelines also provides that to be eligible for participation in the 2nd Bid Round, a company must• have exploration and production of oil and gas as one of the areas of operation in its Memorandum and Articles of Association; • not have any promoter owning more than 25% of the shares of the company; and • have a promoter with professional experience in the upstream oil and gas industry. The 2013 Guidelines did not resolve the issue of what constitutes a ‘substantially Nigerian’ company; however, going by current practice interpretations relating to the minimum 51% Nigerian threshold,15 it can be said that the 2013 Guidelines do not preclude foreign participation in the equity ownership of operators and participants in the MFP. Successful applicants or awardees will promptly enter into negotiations with the OML holder(s) through respective Joint Venture operators regarding the terms and conditions of the Farmout Agreement. The Parties will endeavor to reach an agreement within 90 days. Upon the grant of a marginal field, a signature bonus of US$300,000 shall be paid within the period of 90 days from the date of award. Where two or more companies are awarded one field, a Joint Operating Agreement (JOA) will be negotiated and executed prior to signing the Farmout Agreement with the OML holder(s). The marginal field farm-out may only come into effect after the payment of all bonuses and fees and upon approval by the President. In addition, the marginal field awardee will operate on a sole risk basis but with the understanding that Government reserves the right to a participating interest at any

time. The marginal field farmee will be responsible for community development activities as well as managing relationships in the ring fenced area within the OML. Concerning the applicable fiscal regime for awards made under the 2nd Bid Round, the Prequalification Requirements provide that field development economics shall be based on the Marginal Fields Operations (Fiscal Regime) Regulations 2005 and the PPTA, in respect of which the controversies which followed the 1st Bid Round are likely to arise. Hopefully, the expected enactment of the PIB 2012 will help to resolve uncertainties which may arise. Conclusion The announcement of the 2nd Bid Round is a welcome development at least to the extent that there have indeed been a few success stories of indigenous participation in Nigeria’s upstream operations with the result that requisite indigenous technical and managerial experience has been gained with the support of foreign technical/financial partnerships. However, these successful Operators only represent 9 out of over 35 Farmees to date, and the blame for the limited success rate of the MFP has been credited to a large extent to the unwholesome regulatory uncertainties and fiscal challenges which continue to remain as an impediment to any meaningful progress. 1 Compiled as CAP P10, Laws of the Federation of Nigeria, 2004. 2 Paragraph 17, First Schedule, Petroleum Act. 3 Under the Act, a “farm-out” means an agreement between the holder of an OML and a third party which permits the third party to explore, prospect, win, work and carry away any petroleum encountered in a specified area during the validity of the lease; while a “marginal field” means such field as the President may, from time to time, identify as a marginal field. 4 Only 8 of the first set of Farmees have taken their fields into production i.e. Midwestern/ Suntrust (13,000 BOPD); Brittania-U (5,000 BOPD); Walter Smith (3,800 BOPD); Energia (3,500 BOPD); Pillar Oil (2,700 BOPD); Platform (2,000 BOPD); Shebah (2,000 BOPD) and Niger Delta Petroleum (1,900 BOPD). Only one of the Operators awarded

by discretion has gone into production. 5 Barrels of oil per day. 6 Standard cubic feet per day of gas. 7 31 marginal fields are being offered, consisting of 16 onshore and 15 offshore marginal fields and by the original time table, the announcement of winning bids was scheduled for 11th April, 2014. 8 Issued by the Office of the Presidential Adviser to the President on Petroleum and Energy. 9 Neither the extant Petroleum Act nor the Nigerian Oil and Gas Industry Content Development Act, 2010 (the “Nigerian Content Act”) provides a statutory definition of what constitutes an ‘indigenous company’. A “Nigerian Company” is defined by the Nigerian Content Act as a “company formed and registered in Nigeria in accordance with the provisions of the Companies and Allied Matters Act, 2004 with not less than 51% equity share [held] by Nigerians”. The Petroleum Industry Bill 2012 seems to reflect current industry thinking on this issue by defining an ‘indigenous petroleum company’ as including a company engaged in the exploration for and production of petroleum of which 51% or more of its shares are beneficially owned directly or indirectly by Nigerian citizens or associations of Nigerian citizens. 10 Compiled as CAP P13, Laws of the Federation of Nigeria, 2004. Under the PPTA, the assessable tax rate for onshore production is 65.75% of chargeable profits for the first 5 years of production, and thereafter the applicable tax rate is 85% of chargeable profits. A flat rate of 50% however applies for offshore and deep water production. 11 Oluseye Arowolo, ‘Marginal Field Operations in Nigeria and the Challenge of Uncertain Tax Regime: What Are the Available Options?’ OGEL Advance Publications, 27th February, 2014 available at <www.ogel.org/journal-advancepublication-article.asp?key=423>. 12 Section 193 (6), PIB 2012. 13 Fifth Schedule, PIB 2012. 14 Under the 2013 Guidelines, ‘Marginal Fields’ are fields: (a) not considered by license holders for development because of assumed volatile economics under prevailing fiscal and market conditions; (b) with at least one exploration well drilled and reported as oil and or gas discovery for more than 10 years with no follow up appraisal or development effort; (c) with crude oil characteristics different from current streams (such as crude with very high viscosity and low API gravity), which cannot be profitably produced through conventional methods or current technology; (d) with high gas and low oil reserves; (e) hitherto producing that have been abandoned by the leaseholders for upwards of three years for economic or operational reasons; (f) the present leaseholders may consider for farm-out as part of portfolio rationalisation programmes. 15 Ibid.

Lawyer in the News David Ofosu-Dorte

AVANT-GARDE, TRAILBLAZER

rom a humble beginning in the small mining town of Konongo in the Ashanti region of Ghana, David has grown to straddle the Ghana procurement and construction law like a colossus. He is currently the Executive Chairman of AB & David, a Ghana based West African law firm that in January 2014 became the first law firm in Africa to secure the high practice standard Lexcel accreditation from the Law Society of England. He has worked in both the public and private sectors for over 25 years and has unparalleled public procurement and PPP experience. He has worked on major transactions and led several assignments. He is recognised and consulted internationally on procurement issues. David led the team which developed the regulatory and institutional framework for the firstever public private partnerships law for Ghana; procurement and concessions reform for the government of Liberia; procurement and PPP advisory work in a US$700 million project in the water sector; the development of a PPP option for the development of a diagnostic centre in Ghana; the establishment of a concession framework for the development and operation of railways; the negotiation and legal work surrounding Ghana’s US$547 million Millennium Challenge Compact; acted as counsel to the government of Ghana on international ICC construction arbitration; and provided transaction advice to the Ministry of Health for the development of a PPP option for the development of a diagnostic centre and a Urology centre at the Korle-Bu Teaching Hospital. His publications and presentations include: ‘Fast-Tracking The Procurement Of Infrastructure Projects In Africa’ - The Case for Ghana’s Railway’; ‘Award of Contracts - Procedure, Pitfalls & Abuse’; ‘International Construction Disputes in Ghana’ in Construction & Infrastructure Disputes (Global Business Publishing, 2013); and ‘Using PPPs to Bridge Africa’s Infrastructure Deficit - Emerging Legal and Institutional Issues’ (Africa Regional Forum of the International Bar Association (IBA), March 2010). His insight into the issues facing Africa and African legal practice is outstanding and all the while being disarmingly humble. A family man with a remarkable philanthropic heart, this is why David Ofosu-Dorte is our Lawyer in the News.

R V

with

David Ofosu-Dorte

By Seyi Clement

Have you always wanted to be a lawyer and what made you go into law? In the 1960s, growing up in the then small mining town of Konongo in the Ashanti region and later in Lawra in the Upper West region of Ghana, we did not come across lawyers, let alone aspire to be one. On occasions when we visited the clinic, mainly for malaria treatment, we encountered a few doctors; so becoming a doctor crossed my mind a few times, but if you are from a less well-off family, becoming a doctor seemed far- fetched. My father was then a junior rank police ofﬁcer. My mother had died before I was a week old. Apparently she never recovered from the caesarian surgery. As a police ofﬁcer, my father frequently got posted to different parts of the country and couldn’t always take us with him. I often lived with

stepmothers and at times strangers. Later when I started secondary school in Takoradi, in the Western region of Ghana, I joined the debating club where I used to role-play as a lawyer. That was my earliest encounter with being a lawyer, but back then, I never really aimed to be a lawyer. In any event, immediately after secondary school, I had to work in order to fend for myself. I got a job in a public sector organisation under the Ministry of Transport and I also schooled part time. I was subsequently sponsored to study transport planning and I stuck to that profession for almost a decade before making the decision to go back to school to study law. I subsequently also studied Public Administration. Currently apart from being a lawyer, I am also a Fellow of The Chartered Institute of Logistics and hold a Masters in Public Administration. What attracted me to law initially

was some of the rather peculiar legal problems the engineers I worked with encountered when they dealt with the engineering and construction aspects of transportation. Even though I worked more on the soft and operations side of the transport industry, I was very much involved in finding solutions to some of these problems and that sort of became the initial attraction. As a person, I love to see problems solved. I think finding solutions to problems is what law is about. You said what attracted you to law initially were problems experienced by the engineers, what do you mean by that? It appeared to me from the meetings I attended engineers had difficulties wrap their heads around

some of that the trying to the legal

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intricacies of some of the day-to-day issues, just as some of the lawyers had challenges regarding some of the engineering issues. Even at that time, I used to ponder about why the two professionals couldn’t speak the same language, as it were. This experience has helped shape the philosophy of our ﬁrm, especially when it comes to the training of young lawyers. We place more emphasis on the need to understand industry and on subject matter specialisation. We have moved away from the general practitioner approach that has dominated the practice of law on the African continent for many years.

that the end result will be the best. In terms of who influenced me, I should say there were several. Growing up, I read mostly inspirational books and biographies. The Autobiography of Dr. Kwame Nkrumah influenced me significantly. It helped create a nonconformist attitude to many of the established things I was to encounter in life. For a man who rose from extremely humble beginnings to lead not only his country to independence, but influence that of other countries, reading about Dr Nkrumah’s life was a big inspiration to me. I admired his thoughts and philosophies. He came across to me as a pragmatist,

(L-R). Dr. Boakye and Lt. Gen (retrd) Smith, former Minister of Defence and David Ofosu-Dorte.

Who or what has had the most profound inﬂuence on your life and your career? I should say the most profound inﬂuence has been the understanding the meaning of the word “faith”. It has a much deeper meaning than it appears on the surface and for me, faith is not about religion, it is about simply trusting God completely, that no matter how humble the beginning is or no matter how challenging the present circumstances, all I need to do is to put in my best effort and I know

which of course is summed up in his own words when he envisioned the direction Africa must take during the Cold War when nations chose to support either the east or the west; Nkrumah’s philosophy was simply that “we face neither East nor West, but that we face forward”. That kind of thinking led me to question everything including how business is conducted. For example, I do not comprehend how businesses claim to exist to create value for shareholders whilst at the same time they tout the maxim of making clients happy. Out

of questioning this philosophy, we debated at the firm level and came to the conclusion that we would declare AB & David a “for happiness enterprise”. Simply put, we believe our core goal is to make clients happy and that in order to do that, we must make the staff happy; and that it is only when clients are happy that we will profit and sustain our business. So instead of the traditional “for profit corporation”, we are a “for happiness enterprise”. The other early influences in my early life came from the writings of Henry David Thoreau and Norman Vincent Peale, American philosopher and preacher respectively, whose books I read before I was 15 and which have influenced me to this day. Peale’s “A Guide to Confident Living” gave me a more positive outlook to life. It helped me to overcome the challenges faced by children who grew up in the less privileged side of the community and endured being looked down upon by children from affluent families. Other influence can be categorised into two. The first is my family as a whole, who are more like friends. The decision to set up a firm had an input from them, particularly my wife. In those days, I had to resign from the public service in order to start a firm and the support I received from her and the entire family is what kept me going. Even though my work takes me around a lot, I am constantly in touch with my family. Generally I tend to plan my life around keeping in touch with them either in person or from a distance. The other category of influence is from my work colleagues and friend. We constantly share ideas at work and debate issues and the collegial atmosphere in the office gives me an opportunity to learn from even first year associates. I believe in the saying that a leader is as good as the persons who work with him or her. This philosophy has helped shape our staff retention policy and this has helped a great deal in retaining talent, which, of course, has great value to the practice. I also learn great lessons through simple things like chatting with my son or daughter. It gives me an insight into the thinking processes of young people. To me, businesses

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must take the views of everyone into account in order to ensure business continuity. Such simple lessons like that influence me on a daily basis. Your name is virtually synonymous with PPP both locally and on the international stage, how did you get involved with PPP? It all started essentially with the fact that one of my specialist areas is construction/infrastructure law and most PPPs relate to the development of public infrastructure by the private sector. The impetus also flowed from the attempt by Ghana to put in place a formal framework for PPPs. AB & David was selected alongside others to undertake the initial diagnostic assessment of the country’s readiness for PPPs. In life everything gets connected, because earlier, I had been involved in the revision of PPP-type concession agreements in the Republic of Liberia under the auspices of the World Bank. Prior to the diagnostic survey, I had led the preparations of Ghana’s PPP Guidelines in 2004. Then I served on the national committee set up to prepare the new PPP Policy Framework and now I am leading the effort to draft an entirely new PPP law for Ghana. Of course over the last 12 years, I have led several PPP transactions cutting across the water, power, road, IT, rail and maritime sectors. When it comes to projects and infrastructure generally, we tend to do more of that type of work than most firms in the sub-region. How did you get involved in the revision of PPP type concession agreements in Liberia and what was your role in the revision? We got involved in Liberia in 2004, soon after the war ended with the signing of the Accra Peace Accord by the warring factions. Among other things, the Peace Accord required the creation of the Contracts and Monopolies Commission (which later metamorphosed into the Public Procurement and Concessions Commission of Liberia). This Commission required a lot of

assistance in a country that was emerging from 14 years of war. AB & David happened to have qualified from the World Bank selection process to recruit expertise in Africa to assist in various sector reforms in Liberia. I led the team which worked on numerous assignments, stretching from procurement, concession agreements, forestry block allocations to infrastructure agreements and the energy sector. The review led to the creation of the framework for public procurement and concessions which has led to a lot more transparency than existed in the pre-war years. Our work in the sub-region stretched to other DFI-sponsored agreements including capacity-building work for NGOs in Nigeria. You have worked on numerous PPP projects, which of these projects has given you most satisfaction both as a lawyer and a Ghanaian and which have been the most challenging? I should say leading the effort to put a PPP law in place has been one of the most challenging assignments. Among other things, it involved leading a large team of consultants. The other interesting ones involved playing the lead role in projects which involved top European firms including a Paris based Africa practice. Notwithstanding the challenges, that type of work gives a fair amount of satisfaction. I think you will appreciate that a lawyer who does PPP and infrastructure type of work generally has to go beyond the core practice of law and have a thorough grasp of finance as well as the language of engineering in addition to the traditional areas of law. That kind of challenge spurs me on and perhaps it is the complexity of these assignments which gives me the excitement. A lot has been said and written about infrastructure development in Africa, what would you say are the challenges Africa faces in terms of infrastructure development? In

short

interview

with

CNN

a couple of years back, I made references to the need for Africa and West Africa in particular to overcome the infrastructure challenge. It has been suggested that we have to spend billions of dollars every year over the next couple of decades if we are to close the infrastructure gap. It is obvious that African governments do not have this kind of money and so financing becomes the one big issue which then means thinking outside the box becomes the major component of solving the problem. Thinking outside the box requires boldness and adequate planning, because it is only with such innovation that projects like the Eko Atlantic City and the Lekki express highway in Nigeria are achieved or similarly, the Port expansion projects in Tema and Takoradi in Ghana or the West Africa Gas Pipeline to mention a few. What do African law firms need to do to meet the challenges of some of these complex transactions? African firms have to raise the bar. In particular, they have to modernise their practices and take on a much more commercial approach to the business of law. Clients these days are very demanding and the global economic and financial terrain has become even more challenging and the only way to attract high-end work is to have a client-focused approach to the practice of law. The traditional approach of law having an intrinsic value belongs to the past and without changing the approach to the modern way law is practiced, African firms may at best continue to rely on referrals and may not attract a significant piece of the pie. For example, the size of law firm matters and the one-man practice approach or the statutory provisions where partnerships are limited to 20 persons or worse still the practice that until recently prevented lawyers in Ethiopia from practicing under partnerships, all need to be changed if African firms are to handle the bigger transactions. Also, in the long run, it is about trust and if we could get the client to trust us, we could increase our share in the game.

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David welcomes Her Ladyship the Chief Justice of Ghana, the Attorney-General of Ghana, Mrs. Marietta Appiah-Oppong to AB & David’s new West Africa HQ.

What role could the international law firms play in the development of local legal expertise? Quite a lot. International law firms however, should go beyond the closed-end referrals and open up. Actually, they would be better off if they do. If they do not, Africa firms will nevertheless grow on their own, even though it may take longer. The examples of ENS Africa, Bowman Gilfillan and ALN as well as the growing practice of AB & David in West Africa are examples of what I am talking about. Therefore helping African firms play a better role in the big deals and also assisting African firms improve the back end of the practice are also examples of what could be done. For example, our clients know us as a very responsive firm and it has not been easy getting that recognition. May be it would have been less strenuous if we had had help along the way. What do you mean when you say international law firms should open up? When I say international law firms should open up, I mean that they should go beyond just managing the bottom line when it comes to work in Africa. The continent will continue to

grow because there is no alternative and taking it from where the continent is at the moment, growth is expected to continue for the next 3 decades at least. In my view, it is actually in the interest of international law firms to help improve the overall quality of Africa’s legal practice. Failure to do this will lead to a situation where clients seeking to invest will seek alternatives to the high cost of legal spend on African transactions which among other things is the result of the reliance of Europe and US firms on African work. Without opening up to create a global practice in its real sense, either the African firms or investors in Africa will find their own solutions. Where do you see Legal Practice in Africa 10 years from now? There will be a significant change in the practice of law worldwide. Jurisdictions will collapse and many more firms will call themselves international law firms. In Africa, new scenarios are already beginning to emerge. There is clearly a movement from South Africa led by ENS and Bowman Gilfillan in their bid to expand to the rest of Africa; there are also the Magic Circle firms located in Morocco, which are beginning to

penetrate sub-saharan Africa from the MENA region. You will notice that until the almost sudden location of these firms in Morocco, most of the firms co-ordinated their Africa practice from Paris. Increasingly, the Paris Africa practice appears to be looking for real work on the ground and even the traditional Paris-based Gide Loyrette is beginning to explore opportunities on the continent directly. Norton Rose’s entry into Tanzania and South Africa is yet another example. There is also what you would call the homegrown solution, ALN network which until recently appeared to have been restricted to East Africa, has since January 2014 been reported to have signed on G Elias & Co of Nigeria, making its entry into West Africa. Other movements will emerge and contrary to the well-held notion, African law firms will begin to see the need to merge, expand or form cross-border alliances. Knowledge management may become much more accessible to African law firms mainly as a result of technology and the influence spearheaded by India-based legal outsourcing services. Essentially, African law firms may begin to rise with the rising economies of Africa. Technology may aid this and hopefully, African law firms may go through a shorter learning curve in their growth than their counterparts elsewhere and hopefully they will rise to the challenge. That is the good news. The bad news is that, as a result of technology, a lot of legal services will become commoditised and what many African lawyers are doing today may in future be done by paralegals or on a do-it-yourself basis by in-house counsels. In my view, two things are key to sustaining the modern African law firm to enable it survive these challenges. Firstly, there is the need to understand industry, i.e., the clients we serve. The line between law and industry will gradually disappear and unless the lawyer totally understands industry, he or she may not be able to apply the law. In other words, because law is likely to become commoditised, knowledge of the law alone will no longer be enough. But being an industry expert in addition to law is what will be the distinguishing feature for the

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sought-after lawyer. Secondly, it is important to focus on niche areas; no matter how commoditised any market becomes, new markets always emerge and the ability to spot such markets ahead of the competition will make a big difference in the life of both individuals and law ﬁrms.

launch of our purpose built West Africa Head Office in Accra, Ghana. Being able to keep the firm together in a region where it is difficult to retain professionals in one firm is also a great achievement and above all, I should say, having an excellent team to work with.

You started as a transportation planner and ended as a lawyer focusing on business projects; are you settled in the private practice of law or do you plan to return to the public sector?

What were the challenges you have faced in the development of your career and how did you overcome them?

That is an interesting question. It is all about the joy and personal satisfaction derived from work and for me. The joy comes from seeing that problems are resolved and that the challenges businesses, investors and the public sector face in African economies are resolved. I am yet to ﬁnd any profession beyond private law practice that gives me the opportunity to help solve problems and make others happy on a daily basis. So far as the continent continues its quest to catch up with the rest of the world in terms of the provision of infrastructure, ﬁnance, social needs and general economic growth, there will continue to be business problems. The challenges of projects and transactions in Africa which come with that are the type for which my skills and experience are most relevant. So perhaps until something else gives me more frequent challenges than the practice of Africa business and transactions law and as far as God gives me health, I should think I am here to stay.

The biggest challenge in my view was getting a change of mindset. I think generally people in the sub-region completely excel once the mindset change is achieved and once you overcame this, the results have been amazing. Addressing this challenge is important because I believe that an

life. For example, in my view, the attention governments pay to economic indicators such as inflation and GDP may need to shift to focusing on aligning the mindset of the people with their personal development. I say this because economies exist because people work, not the other way round; therefore, if people develop a more positive mindset and attitude to work in Africa, then productivity will increase and that will definitely impact positively on the economy. At AB & David, our focus on mindset change has essentially revolved around putting the clients’ happiness at the centre of our approach to work. This among other things led us to improve our responsiveness to clients, and we have grown from the initial 2-man practice to nearly 50 staff, spread over three offices in

What would you say are your greatest achievements in your professional career so far? I think there have been a multiple of what you may call greatest achievements. The most recent of course, is assisting my law firm to become the first African firm to be given the Lexcel accreditation by the Law Society of England and Wales. Other achievements will include our successful West African cross border practice, especially as it relates to projects and infrastructure transactions and of course, the recent

David Ofosu-Dorte speaking to our reporter.

enterprise cannot be greater than the thinking minds of the people behind it. Do you care to expand on this? Mindset change is more important than we appear to see in everyday

Ghana and the growing West Africa practice. In my view, it all started with a mindset change. Mindset change for us was the most challenging thing to take on because the growth and success of the business depended on it. For example, getting the staff to adopt a high sense of client care

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and top practice standards, getting professionals to understand the beneﬁts of specialisation as against general practice, the use of practice management software, building an organisational culture that thrives on teamwork by persons who are each individually highly qualiﬁed; these took more time and energy, but once that change occurred, the results were enormous and expansion was automatic. So the mindset change has been the driver of growth in our case. What are your career highs and lows so far? Every single experience has led to the attainment of a higher goal. Even in my very young days when I used to work in the public service and had to be on interdiction during the days of the military regime; even that taught me several useful lessons that have actually shaped my life. In my view, there are no lows; they are all highs. What do you mean by “interdiction during the days of the military regime”? During the military regime of the 1980s, a public servant could be placed on interdiction, i.e. suspended from work ostensibly to enable investigations into allegations against them. Remuneration was not provided during the period of interdiction. In my case, it took a year and a half before I was exonerated and resumed work. These were very hard times, but I thank God that I was cleared of all allegations. I learned very useful lessons from this experience: that

it does not matter the actions one takes, what is important is that one can account for those actions. Even in advising clients, such experiences have helped in my analysis of the risks that are faced by investors in Africa, especially where it relates to dealing with the public sector.

such people need to be helped; and it is for this reason that I set up the fund and many have benefited and continue to benefit. A few of the early beneficiaries of the scheme are now gainfully employed. How would you Ofosu-Dorte?

You are involved in various philanthropic activities, which of those philanthropic activities are you most passionate about? Two activities are of real interest to me. One is a scholarship scheme that I run for brilliant students in ﬁnancial need in rural areas. This has been close to my heart for the past 20 or so years. The ﬁrm also runs similar scheme for law students and of course we assist other NGOs on a pro bono basis including AfriKids and United Way Ghana. What inspired you to give back to your community in this particular way? Until secondary school, I lived mostly in the rural areas of Ghana and because I had to fend for myself at an early age, perhaps the idea of the scholarship scheme for rural but poor children came to me naturally. Looking back, I realise I was able to fend for myself, work and continue my education because my father had educated me up to ‘A’ level. However, I know many brilliant children in rural areas whose parents did not have the means to provide them with basic education so that they could pick up it from there as I did. There are still many of those children today and I sincerely believe that

describe

David

David is a guy who just does not sleep until a problem is solved and when the problem is solved he likes to unwind for a few hours and go to the next problem. He is very easy to approach and just likes to be with the people even though in some ways he is a very shy person. What do you do to relax and unwind? Being by the seaside, a pool or just listening to cool music and chatting with my children and friends. What’s next for David Ofosu-Dorte? Actually it is more of what is next for the ﬁrm than what is next for me. It is more about growing our West Africa practice and about launching the London branch which has already been registered. It is designed to focus on West Africa practice out of London and it is part of a bigger dream that is entirely entrusted to God. On a personal level, it is more about leading the strategy that enables us to meet the challenge of the times, and above all to be able to see and exploit opportunities before it becomes an opportunity for others.

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PROJECT FINANACE Stephanie McDonald, Cinyelu Oranefo & Afoma Ofodile

The Emergence of Social Infrastructure PPPs in Nigeria

Law Digest Spring 2014

Armed Forces Specialist Hospital and the Ekiti Diagnostic Centre PPP are also expected. It is too early to say whether these transactions signal the growth of a pipeline of social infrastructure projects in Nigeria. However, with increasing interest in this area, it is worthwhile considering some of the legal and commercial issues which are likely to play a key role in any decision by the private sector to invest in this area. Scope of the Project

Introduction

Stephanie McDonald, Head of Africa Group and Partner at Nabarro.

Chinyelu Oranefo Senior Associate, Nabarro

Afoma Ofodile Solicitor at Detail Commercial Solicitors in Lagos, Nigeria.

Public Private Partnerships (PPPs) in Nigeria are still in their relative infancy. Despite recent progress in the development of PPP projects both at a state and federal level, Nigeria, like most African countries, still faces considerable challenges in reversing its huge infrastructure deficit. The country has had some success introducing PPPs in the transport sector. The 30-year Lekki-Epe Expressway Toll Road PPP, which reached financial close in 2008, involves the delivery of essential road infrastructure and services along the Lekki Peninsula of Lagos. The deal boasts long term local and international debt as well as forex derivatives, which before then, had not been achieved in Nigeria. The hope is that this and other major projects currently in procurement will provide a springboard for the enhancement of infrastructure development across a number of sectors. In support of this, the Infrastructure Concession Regulatory Commission (the “ICRC”) was set up to play a key role at federal level in building local capacity in both the public and private sectors and facilitating the implementation of PPPs in Nigeria. While the focus to date has been on large infrastructure and energy projects, there are now signs of a growing appetite for investment in social infrastructure PPPs and hospitals specifically. Nigeria’s Cross River State has requested bids from parties for the Design, Build, Finance, Operate and Manage contract (the “DBFOM”) of a US$30 million hospital in its most populated city, Calabar. The hospital will comprise a 100 bed unit with a private VIP section, pharmacy and gateway clinic. An

Nigeria’s healthcare infrastructure needs are signiﬁcant. Investment is required to improve the standard and accessibility of facilities as well as the quality and range of care available (both public and private). The National Health Bill aims to provide minimum standards for health services across the country and to enhance the ﬁnancing of healthcare at all levels of government. What is not yet clear is whether the initial hospital PPPs mentioned above can be regarded as an indicator of the size and value of the projects most likely to be tendered in the short to medium term. From what we have seen in other jurisdictions, hospital PPPs can come in a wide range of shapes and sizes; they can be large scale acute hospitals servicing several hundred

From what we have seen in other jurisdictions, hospital PPPs can come in a wide range of shapes and sizes. patients, small diagnostic centres, bundled primary and community care facilities or specialist treatment centres for complex procedures like cancer care. The scope, scale and complexity of the facilities will determine the type of investors who are likely to be involved, the funding requirements, the risk proﬁle and the level of complexity of the contractual arrangements; a community based diagnostic centre will not be structured, funded and documented in the same way as a large scale full service regional hospital. In an international context, hospital PPPs have not typically included the

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delivery of clinical services, which tend to remain the responsibility of the public sector. As a result, the private sector’s role is limited to developing and modernising the capital infrastructure and services needed to support the delivery of patient care. Unlike other sectors where the whole of the asset and the associated services are within the private sector’s remit, hospitals PPPs will generally be based on the DBFOM of the building and the delivery of support services. This division of responsibilities is often favoured by funders and investors who prefer to leave

The inclusion of medical equipment within a hospital PPP is another key risk area from a private sector perspective. patient demand risk ﬁrmly with the Authority. That is not to say that projects have not and cannot be done on that basis but the market for “whole hospital” provision, in a public sector setting, is more limited and

prepared to offer a security package to match funders’ expectations. Even where clinical services sit outside the PPP, there is still an element of clinical related risk in mainstream hospital PPPs, particularly the potential for clinical staff and patients to interfere with the performance of the support services or cause damage to the building and assets. These types of interface risks need to be carefully considered when negotiating the indemnities in the project agreement and scoping out the insurance required for the project. Medical Equipment The inclusion of medical equipment within a hospital PPP is another key risk area from a private sector perspective. Often the Authority will not expect to commence payment for the facilities and services until the construction and commissioning of the building has been independently certified, including the plant, equipment and systems within it. This can have a significant impact on the risk profile of the construction phase of the project, particularly if the equipment suppliers are not able to offer the scope and level of security

The failures of the Queen Elizabeth Hospital, Woolwich are attributed by some to the PPP model.

the ﬁnancing terms are generally less competitive. Of course, if government were to provide a partial subsidy or guarantee in respect of patient throughput or revenue, this might bring funders to the table but for the project to be viable, there would also need to be a strong clinical operator

required to protect the funders and investors against delays. There are also important risk factors associated with the inclusion of medical equipment services within the operational phase of a project. The Authority may expect to receive up to date, efﬁcient and

cost effective medical equipment throughout the life of the project but without affording the private sector the flexibility it needs to deliver those obligations economically. This is often driven by clinician expectations over product selection which can cause tensions from a contractual perspective, particularly where the private sector is carrying the price and performance risk in relation to the life cycling of medical equipment. Operational Phase The operational phase of a PPP project is often 25 to 30 years in duration. The associated facilities management (FM) services are typically procured for the same term, although often the “soft” services (e.g. cleaning, catering, laundry, portering, etc) are subject to periodic benchmarking of prices or full scale market testing. By allowing the private sector, at agreed intervals over the contract term, to make adjustments in price or, where appropriate, award new soft FM subcontract packages, it can better manage fluctuations in labour supply rates, particularly wage price inflation, and limit its exposure to long term general change in law risk. This usually translates into better value for money for the Authority. However, funders and investors will be keen to ensure that any benchmarking and/ or market testing procedures in the project agreement are appropriately structured, adequately define the local markets to be used for comparison purposes and give the operator sufficient control over the tendering process. Lessons learnt from more mature PPP markets, particularly the UK, suggest that the transfer of soft FM services to the private sector may not be the optimum position for the Authority, largely due to the lack of flexibility it can bring from an operational and cost perspective (even where such services are market tested). This concern over lack of flexibility has also extended to other aspects of hospital PPPs; unless the variation procedure in the project agreement is sophisticated enough to accommodate a wide variety of changes, it can be a complex and expensive process for an Authority to make changes to the facilities or services. It is inevitable that the health needs of a population will

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change over time, particularly in fast developing nations like Nigeria. In that context, it is important to ensure that the terms of a hospital PPP are flexible enough to respond to such changes and that the private sector partner has the skills and experience to offer innovative solutions which are tailored to local needs. That said, flexibility comes at a price. Authorities need to find the right balance. Where there are acute health needs in a particular region, addressing those in the short to medium term is likely to be the priority. Equally, funders and investors looking to protect their investment, will resist variation mechanisms which do not provide them with sufficient control over changes in the scope of the project. They will expect to have rights of objection where there are material changes in the risk profile of the project or where fundamental terms, such as the length of the contract term, are capable of being altered. The variation mechanism should attempt to balance these competing interests and provide a fast track procedure for resolving disputes between the parties in relation to proposed variations. Local Issues It will be important for funders and investors to understand the potential for local issues to impact on the delivery of the project. This might include the risk of protestor action, trade union intervention or resistance from third party landowners. In Nigeria, there is some recent history of strike action in the health sector; the government hospital doctors’ strike in Lagos State in 2012 and a nurses’ strike in Oyo in 2011. Both of these strikes related to public sector salary rates, an issue which may be capable of spilling over into other areas of the sector. Indeed, there are a number of active trade unions in the Nigerian health sector, such as the Medical Guild and the Medical and Health Workers’ Union of Nigeria (MHWUN). These organisations can be viewed as key stakeholders and should be consulted in relation to any potential impact on their members as a result of a proposed project. Nigeria does not have any legislation which provides for the transfer of public sector staff to the private sector as part of a PPP. Such transfers take place pursuant to

contractual agreements and there is a requirement under the Labour Act 1990 to consult and seek the consent of individual employees to a proposed transfer (and for the transfer to be endorsed by an authorised labour officer). This may give rise to some uncertainty, at the bid stage, as to the make-up of the workforce in the implementation phase of the project. Equally important when considering the make-up of the proposed workforce is the requirement to ensure that Local Content laws in Nigeria are respected. Although these rules were initially enacted in relation to the oil and gas industry, there is a wide spread call for the expansion into other sectors of the same concepts of knowledge and technology transfer, local employment and a preference for local supply of products. Funding issues Funders and investors will expect to rigorously review the risk profile of any proposed hospital PPP. As with most long-term privately financed projects, the covenant strength of the Authority will be critical. There will also be close scrutiny of the power of the Authority to enter into the transaction as well as the extent of state or federal government support for the project (whether by way of guarantees, subsidies or policy) – vires, political risks and transparency will always be high on the private sector’s agenda. It is too early to say which type of entity is most likely to procure hospital PPPs in Nigeria. There could be a range of entities, reflecting that the provision of healthcare is split between federal, state and local government, with each of them holding the power in its own right to enter into PPP agreements. It is possible that federal and/or state government guarantees will be made available to enhance the risk rating of the project (although any limitations on the giving of guarantees, as specified in relevant PPP laws, at both federal and state level, would need to be overcome). The performance and payment mechanisms in hospital PPPs can often be complex and demanding. There are plenty of examples of availability based payment mechanisms which tie the private sector’s entitlement to payment to the availability of rooms or areas within the hospital, with strict

contractual definitions governing when a room/area is available for use by the Authority or not. For example, where a treatment room relies on a particular item of medical equipment, it is likely that an Authority will expect to link the availability test to whether or not the equipment is fully functioning and capable of treating patients in the manner and at the rate anticipated. Where this test is failed, payment may be reduced by the proportionate value of the room as a whole and not just the value of the equipment. Due diligence on this type of payment mechanism will be extensive; funders/investors will be keen to ensure that the risk of disruption to the cash flow of the project is not triggered by unduly onerous performance standards. As with any long term financing, it will be critical for funders to assess their ability to take effective security over the project company, its assets and the various contractual rights inherent in the project. The ownership of the hospital itself or the land on which it sits will of course play a key role here. In hospital PPPs, the working assumption is that the Authority will always be entitled to access and use the facility, even on its own default, due to public policy concerns relating to the potential

Lessons learnt from more mature PPP markets, particularly the UK, suggest that the transfer of soft FM services to the private sector may not be the optimum position for the Authority seizure by funders of an asset which is required for the delivery of essential public services. Where that is the case, the compensation on termination provisions in the project agreement will be of keen interest to funders as will the extent of step-in rights. Lessons learnt from UK Experience Many of the issues discussed above are typically encountered in any major hospital PPP project. The UK has had the best part of 15 years to reﬁne its own PPP model and to take stock of how projects now well into their operational phase have

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performed against the government’s original expectations. It is fair to say that project outcomes have been mixed, some good, some bad and

There are a number of factors which have led to the financial difficulties trusts are now facing in the UK; PPP commitments are just one of them, albeit in some cases, a substantial factor. some limping along just on or above the required performance levels. What has been prominent in recent times is the number of hospital trusts (i.e. the organisations in the UK who procure PPP hospitals) facing serious financial difficulties (including, in a small number of cases, insolvency). Many of those trusts have substantial commitments under PPP hospital agreements and as a result, people are quick to say that the reason they are financially challenged is because of the burden of those PPPs. But is that justified and is there anything that Nigeria’s health sector (both public and private sector) can learn from this? There are a number of factors which have led to the financial difficulties trusts are now facing in the UK; PPP commitments are just one of them, albeit in some cases, a substantial factor. What it is useful to analyse is why some PPPs themselves have not gone well. In that context, the following issues are worth highlighting: The inflexibility which long term fixed payments bring - this makes it very difficult for authorities to adapt to wider financial pressures which may arise over the course of a 25/30 year agreement. The lack of flexibility in the variation

mechanisms in Project Agreements - the concept of “no better, no worse” has been taken to the extreme, preventing authorities from introducing any material changes in the agreement without having to go to DRP each time (particularly where there are proposed changes to risk allocation or the balance of commercial power between the parties). This is very much funder driven. They are concerned to ensure that any changes in the risk profile of the project cannot be introduced without their consent. It is difficult to see that position changing. Convoluted payment mechanisms which authority side operational teams often do not sufficiently graspoperational performance levels are often not as expected but the deduction mechanisms intended to provide an incentive to ensure that contractors maintain standards over the life of the project are often poorly constructed and do not “bite” on the contractor until under performance is severe and prolonged. Linked to the above, the concept of “self monitoring of performance” by the contractor has not proved effective in many contracts - contractors have not always been forthcoming with performance data and authorities, under resourced and often unaware of their rights and remedies, simply pay monthly/quarterly invoices without scrutiny. Life cycle reserve funds are proving to be very generous - this exposes an aspect of the PPP model which has generated substantial returns for the private sector well beyond what was originally expected and modelled for. Insurance premium risk sharing – the projections about insurance premium increases have not materialised and as a result, authorities are paying for the private sector to take risks which some now feel the public sector would be better off retaining . A similar situation has arisen in relation to change in law risk. On a wider note, authorities

facing financial difficulties are often suffering from the impact of having too many rival hospitals in the region competing for patient throughput as well as a general shift in focus away from large scale acute hospitals to smaller scale community hospitals in order to deliver care closer to the home. While they may have thought 10 years ago they needed a hospital of a particular size, the realities of the health economy today are such that patient demands have changed and being able to access treatment in a community setting has become one of the key objectives. This means that authorities are stuck with full service hospital buildings they do not need (or would like to adapt) but they cannot change the status quo without a great deal of difficulty and expense due to the constrains of the long term PPPs they have committed to. In a Nigerian context, community based health services will be key and this may influence the public sector’s appetite for a large number of full service hospitals. Prospects Nigeria will need to address the above considerations in developing hospital projects which are structured and documented to appeal to funders and investors, both domestically and internationally. Indeed, whether or not PPP is the right procurement model for hospitals in Nigeria remains to be seen. There are, for example, private hospital projects underway which may prove to be financially viable, fuelled by the high demand for decent and accessible healthcare and a lack of competition in the market. While it is expected that the transport and power sectors will be the immediate priority, there is no doubt Nigeria needs investment in social infrastructure and, with the right balance of public and private sector interests, PPPs could provide a major contribution towards filling that gap.

COMMERCIAL LITIGATION Muyiwa Ogungbenro LLM

Liquidation Damages and Minimum Contract Periods in Telecom Agreements

Muyiwa Ogungbenro LLM (Man); Senior Associate at Olajide Oyewole LLP

“The question this writer seeks to address is whether the liquidated damages clauses in telecoms agreements are enforceable”

Introduction Telecommunication agreements between providers and customers in Africa have usually followed the prepaid route. However many providers of telecom services, be it mobile phones, internet service etc are venturing into the ﬁxed contract format with a minimum contract period, during which the customer commits to receiving telecommunications services from the service provider in return for monthly service charge. The right of the customer to terminate the contract is usually limited to insolvency grounds while termination for any other ground is deemed termination without cause. A termination without cause, however, is subject to payment of the service charge for the remainder of the minimum contract period. This can be termed a “liquidated damages” clause. The question this writer seeks to address is whether the liquidated damages clauses in these telecoms agreement are enforceable, where the customer is in repudiatory breach of the contract. This could arise due to failure of the customer to pay the monthly charge. We cannot ﬁnd any precedent where the courts have been asked to consider this issue. The writer however, notes some similarities between these types of business arrangement and hire agreements, where the courts have refused to enforce liquidated damages clauses where the owner has accepted a repudiatory breach by the hirer and subsequently terminated the hire contract. The owners were held not entitled to the instalments that have not yet fallen due at the time of termination. The principles established in these cases have been reviewed

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to determine their application to the minimum commitment period in telecommunication contracts which are now common place in the telecommunication sector. Liquidated Damages In the law of contract, the aim of damages is to ‘so far as money can do it’ to put the claimant ‘in the same position … as if the contract had been performed’.1 In Hadley and another v. Baxendale2 the Court of Exchequer held that damages in breach of contract ‘should be such as may fairly and reasonably be considered as either arising naturally…or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it’. This profound statement created an obligation on the claimant to establish that its claims should be fairly and reasonably considered as arising naturally or reasonably within contemplation of both parties. In other words, the claimant must establish causation, actual damages arising from the breach and that the damages are not too far from the contemplation of the parties. Liquidated damages clauses are a means by parties to avoid the obligation to prove causation, damages and remoteness of damages.3 Liquidated damages clauses do not; however, usually exclude the application of the general rule that damages for breach of contract is only intended to compensate for the loss sustained by the claimant. Where a court ﬁnds that the liquidated damages is in terrorem (i.e. to punish the party in breach), the court will hold such a clause a penalty clause and unenforceable by the court.4 A liquidated damages clause must be ‘a genuine covenanted pre-estimate of damage’. This was laid down by Lord Dunedin in Dunlop Tyre Co. Ltd v. New Garage and Motor Co. Ltd.5 Lord Dunedin emphasised the principles around liquidated damages as follows: “A liquidated damages clause will be held to be a penalty if ‘the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss which could conceivably be proved to have followed from the breach’; A liquidated damages clause will be held to be a penalty if ‘the breach

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consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid’. There is a presumption (but no more) that it is penalty when ‘a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage’; It is no obstacle to the sum stipulated being a genuine pre-estimate of damage that the consequences of the breach are such as to make precise pre-estimation almost an impossibility”. Application of a Penalty Clause in Hire Cases In the case of Bridge v. Campbell6, a hirer signed an agreement with the respondents in respect of a secondhand motor car. Clause 6 of the agreement granted the hirer right to terminate the agreement by a notice to the respondent and upon which clause 9 of the agreement will apply. Clause 9 provided that upon termination of the agreement, the hirer shall immediately deliver up the vehicle to the owner and ‘pay to the owners all arrears of hire rent due and unpaid at the date of termination of the hiring together with…and by way of agreed compensation for depreciation of the vehicle such further sum as may be necessary to make the rentals paid and payable…equal to two-thirds of the hire purchase price…’ The hirer having paid the initial payment and first instalment informed the respondents that he would not be able to pay anymore instalment. Subsequently, the respondents terminated the agreement and commenced an action against the hirer claiming two-thirds of the hire purchase price less any initial payment and first instalment paid by the hirer. The House of Lords held that clause 9 was a penalty which could not be enforced by the respondents. The House of Lord’s decision was based on the ground that the hire purchase agreement was terminated by the respondent and was held not entitled to the future profits from the hire purchase. In a similar case of Cooden Engineering Co. Ltd v. Stanford7 Salter J. held: ‘…where the hire is determined by the

owner, because the hirer is in arrears with his payments. It is proved that this is a breach of this contract, and it is proved that that breach, apart from any termination of the hirer, would give the owner a right to damages against the hirer. But what would those damages be? They would be interest on the amount unpaid and nothing more. The fact that the hirer is in arrears with his payments will not entitle the owner to any damages for depreciation of these things. The reason that they have suffered is that they have second hand goods put on their hands before they have received very much money in respect of them. That is not the result of the hirer’s breach of contract, in being late in payments, it is the result of their own election to determine’. In the case of United Dominions Trust (Commercial) v. Ennis,8 the Court of Appeal, Lord Denning MR stated as follows: ‘The ﬁnance company exercised their right to terminate the hiring: and the hirer was content that they should do so. On such a termination the ﬁnance company cannot rely on the minimum payment clause: for the simple reason that they are terminating for a breach; and in that case the minimum payment clause is a penalty and unenforceable under the decision of the House of Lords in Bridge v. Campbell Discount Co. Ltd. They can recover for such breaches only as had taken place prior to the termination. The only breach which they can establish is the non-payment of one instalment’ The decisions in the cases of Cooden Engineering Co. Ltd v. Stanford,9 and United Dominions (Commercial) v. Ennis10 suggest that where an innocent party terminates a contract on the ground that the party in breach has refused to pay instalments that have fallen due, the innocent party will not be allowed to claim more than the instalments that have fallen due with interest. Non-payment of instalments in itself does not connote an intention to walk away from the sanctity of the contract. The party in breach, without any other act showing that he considers himself no longer bound by the contract, cannot be held to have terminated the contract by his repudiatory breach. Non-payment only entitles the innocent party to: (1) accept the repudiatory breach as a ground for terminating the

contract by the innocent party or (2) insist on performance of the contract by the party in breach while the innocent party continues to tender performance on his part. Discharge by Breach: Rescission and Repudiation of Contract The learned author of Chitty on Contract11 states the position of an innocent party to a contract that has been breached by another party thus: ‘An innocent party, faced by a repudiatory breach, is therefore given a choice: he can either treat the contract as continuing (‘afﬁrmation’ of the contract) or he can bring it to an end (‘acceptance of the repudiation’). He must ‘elect’ or choose between these options’’

A liquidated damages clause must be ‘a genuine covenanted pre-estimate of damage. Therefore, where an innocent party elects to afﬁrm the contract, he effectively chooses to continue to uphold the sanctity of the contract between him and the party in breach. He holds himself out as ready and willing to discharge its obligations under the contract without necessarily forfeiting his right to claim damages for the breach. On the other hand, if the innocent party elects to terminate the contract, it means that he relieves himself of his future obligations to perform under the contract. This means that he cannot insist on performance of duties of the party in breach that has not fallen due at the time he made the election. Depending on the choice that has been made by the innocent party, the options have different consequences. In the case of White & Carter Ltd v. McGregor12 the House of Lords held that an innocent party who refused to accept repudiation of a contract was entitled to the full amount of the contract price even though the claimant was informed of the decision to repudiate the contract on the day the contract was entered into and before the claimant took any step. The House of Lords held that the

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innocent party cannot be deprived of the full contract sum, especially where the claimant does not need the cooperation of the defendant to fully perform his responsibilities under the contract. The House of Lords, however, qualified the decision thus: ‘It may well be that, if it can be shown that a person has no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages, he ought not to be allowed to saddle the other party with additional burden with no benefit to himself. If a party has no interest to enforce a stipulation he cannot in general enforce it: so it might be said that if a party has no interest to insist on a particular remedy he ought not to be allowed to insist on it. And, just as a party is not allowed to enforce a penalty, so he ought not to be allowed to penalise the other party by taking one course when another is equally advantageous to him’. White & Carter Ltd v. McGregor,13 thus establish that where performance on the part of the innocent party is possible without the cooperation of the party in breach, the innocent party could perform his part of the contract and be entitled to the full contract sum. For liquidated damages to be enforced, the innocent party needs to show that performance of his part has been prevented by the repudiatory breach of the party in breach otherwise the liquidated damages should be deemed a penalty. It seems that there is no precedent of where an innocent party has been held entitled to profits payable after it had accepted the repudiation of the contract.14

Non-payment of instalments in itself does not connote an intention to walk away from the sanctity of the contract. Comments of Law of Contract Writers On whether an innocent party in a repudiatory breach is entitled to claim loss of proﬁt where it elected to terminate the agreement, the learned

Competition amongst providers has given raise to the need to tie customers to minimum contract.

authors of The Law of Damages15 said: ‘The principle adumbrated in Baldock is, with respect, hard to defend, since it is not easy to see why it should make any difference to the claimant’s right to damages whether he terminates a contract for repudiatory breach or under some express power. In any case, the Court of Appeal in Lombard North Central Plc v. Butterworth effectively emasculated it. …The court accepted the correctness of Baldock, but then held that on a proper interpretation of the contract the parties had agreed that late payment of any instalment was to be regarded not only as a ground for cancellation, but also a repudiation. It followed that there was no bar to the owners’ claim for full damages. The result seems to be that, for most practical purposes, Baldock is a dead letter and a party’s right to claim damages for breach of contract is the same whether or not he has rescinded it.’ The statement and conclusion reached by the learned authors, with due respect, is debateable on two grounds. First, the decision of the Court of Appeal was reached on the ground that there was a clause in the contract that made punctual payment the essence of the contract. The decision was not reached on the merit or otherwise of the decision in Baldock’s case.16 Second, the Court of Appeal afﬁrmed the position in Baldock’s case and found in favour of the plaintiff on the basis of breach of a condition to the contract that went to the root of the contract. The conclusion that Baldock’s case ‘is a dead letter’ and that ‘a party’s

right to claim damages for breach of contract is the same whether or not he has rescinded it’ is not supported by the cases. The inference from Lombard North Central Plc v. Butterworth17 is that, even if the innocent party accepted a repudiatory breach which in effect means that he should not be held entitled to future proﬁt from the contract, he should be able to establish a claim for breach of a condition of the contract where punctual payment of the instalments has been made essence of the contract and the breach of which has gone to the root of the contract. The principle in Baldock’s case remains good law as long as punctual payment has not been made essence of the contract. The learned author of Treitel Law of Contract18 contrasted Baldock’s case with Lombard North Central Plc v. Butterworth and he concluded: (1) the facts of both cases are not substantially different to justify a different decision; and (2) the distinction between owner’s right to terminate for failure to pay instalments when due and the time of payment being made the essence of the contract is ‘simply two ways of saying the same thing and the policy consideration of alleviating the harsh operation of express provisions for determination is no weaker where the contract contains two such provisions than where it contains only one’. He further submitted that Baldock’s case should be preferred and that damages for premature determination should not be available merely because the injured party has terminated under express provisions giving him the right to do so.

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In line with the above stated submission of the learned author, it is submitted that the right to terminate and breach of a condition as to time being the essence of the contract should not be used to grant an innocent party a right to claim ‘an unmerited claim for damages’.19 To be entitled to the claim, the innocent party must have continued to offer his performance of the contract and of course subject to the qualiﬁcation stated in White & Carter Ltd v. McGregor.20 Minimum Commitment Period in Telecom Contracts There seems not to be any common law precedent on the interpretation of minimum commitment period in telecom contracts. Based on the decisions in Lordsvale Finance Plc v. Bank of Zambia,21 Alfred McAlpine Capital Projects Limited v. Tilebox Limited22 and Azimut-Benetti SpA v. Healey,23 it seems that the court will be reluctant to strike down minimum commitment contract clauses where it can be presumed that the terms of the contract are freely negotiated between the parties and there is equal bargaining power. This is strengthened by the decision in M&J Polymers v. Imerys Minerals24 where the court held that a ‘take or pay’ clause was not a penalty and enforceable by the court. The decision may, however, be different where the contract is considered a consumer contract covered by consumer protection laws, such as a signiﬁcant proportion of telecom contracts. In the case of M&J Polymers v. Imerys Minerals, the argument of whether the claimant who accepted repudiation of the supply contract should have a right to claim the contract price of the goods that were not delivered after the termination of the supply contract was not canvassed. On this ground, the decisions in Baldock line of cases are still good law. Where a service provider has accepted non-payment of service fees as repudiation of the contract and subsequently terminates the contract, he might be held not entitled to the liquidated damages i.e. future service fees not yet fallen due at the time of termination of the contract. Also, the service provider should only be held entitled to the full

The court will ordinarily enforce a liquidated damages provided it not seen as terrorem of the party in breach. contract sum if it is able to prove that performance of its obligations under the contract had been prevented by the repudiatory breach of the defendant. The service provider should not be allowed to take the middle ground of accepting the repudiatory breach on one hand and treating the contract as continuing by claiming the full contract sum as damages on the other hand. Conclusion The positions of the English law on liquidated damages and penalty have not really changed over the years. The court will ordinarily enforce a liquidated damages provided it not seen as terrorem of the party in breach. The long line of cases on liquidated damages in hire agreements have opened up the principle that an innocent party will not be allowed to claim future service fees or an undue contract sum unless the innocent party continues to offer performance. The decision in White & Carter Ltd v. McGregor has further shown that the innocent party will only be able to claim that he continued to tender performance on his part where it cannot be established that he has no ‘legitimate interest, ﬁnancial or otherwise, in performing the contract rather than claiming damages’. The Court of Appeal in Lombard North Central Plc v. Butterworth has stated that the principle in Baldock line of cases will be different if there is an independent clause in the contract that makes punctual payment the essence of the contract. As commented by the learned author of Treitel Law of Contract, this is ‘simply two ways of saying the same thing’. Damages for premature determination of contract should not be available merely because the injured party has terminated under express provisions giving him right to do so. Despite the decision in ‘take or pay’ case of M&J Polymers v. Imerys

Minerals, acceptance of repudiatory breach by a telecommunication service provider should be treated like acceptance of a repudiatory breach as in hire cases. A service provider should not be allowed after it has accepted repudiation of a minimum commitment period contract and consequently terminated the contract to claim future service fees. This will amount to a penalty and the right to ‘an unmerited claim for damages. RERENCES Beale H.G. et al ‘Chitty on Contracts’ (2008) 30th Edition, Sweet and Maxwell. Beale H.G., Bishop W.D. and Furmston M.P. ‘Contract Cases and Materials’ (2008) 5th Edition Oxford University Press. Beatson J., Burrows A. and Cartwright J. ‘Anson’s Law of Contract’ (2010) 29th Edition, Oxford University Press. Grubb A., Tettenborn A. and Wilby D. ‘The Law of Damages’ (2010) Butterworths Common Law Series 2nd Edition, Sweet and Maxwell. Koffman L. and Macdonald E. ‘The Law of Contract’ (2010) 7th Edition, Oxford University Press McGregor H. ‘McGregor on Damages’ (2009) 18th Edition, Sweet and Maxwell. Peel E. ‘Treitel The Law of Contract’ (2007) 12th Edition, Sweet and Maxwell. 1 Robinson v. Harman (1848) 1 Exch 850, 855 (Park B.); Wertheim v. Chicoutimi Pulp Co. Ltd [1911] AC 301; Ruxley Electronics & Construction Ltd v. Forsyth [1996] AC 344;[1195] 3 All ER 268, HL. 3 See Chitty on Contract Vol. para 26-125 13th Edition Sweet & Maxwell. 4 See Chitty on Contract Vol. para 26-125 13th Edition Sweet & Maxwell. 5 [1915] AC 79. 6 [1962] 1 All E.R. 385 7 [1952] 2 All E.R. 915 8 [1968] 1 Q.B. 54 9 Ibid 10 Ibid 11 Chapter 24 para. 24-002 Chitty on Contract Volume 1 13th Edition 12 [1961] 3 All ER 1178. 13 Ibid 14 In Dalkia Utilities v Celtech International Ltd [2006] 2 P.&C.R. 9, although the principles of repudiatory breach were considered, the claim for repudiatory breach was rejected by the court 15 Page 474-475-Butterworth Common Law Series LexisNexis Second Edition 2010 16 Financing Limited –v- Baldock (1963) 2Q.B 104 17 [1987] Q.B. 527 18 Page 905 para. 18-069 12th Edition Sweet and Maxwell. 19 Ibid 20 [1961] 3 All ER 1178 21 [1996] 3W.L.R. 688; [1996] Q.B. 752 22 [2005] Building Law Reports 271 at 279280 23 [2011] Lloyd’s Vol.1 473 at 478-479 24 [2008] EWHC 344(Comm), [2008] 1 Lloyd’s Rep 541.

COMMERCIAL LAW Ohajinwa Izuchukwu

Just How Worthless is that Letter of Comfort? An appraisal of the current legal implications of Letter of Comfort in commercial transactions Ohajinwa Izuchukwu Esq

n most commercial transactions in Nigeria (and most African Countries) there is a decline and imminent extinction of the use of Letters of Comfort especially in advanced transactions involving business allies of seemingly even strength and legal prowess. Apparently, this decline can be easily traced to the general presumption that such instruments are utterly worthless in commanding enforceability of a commercial transaction on which it is based. Ironically there is this recent incredible upsurge in the use of the same instrument in transactions

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between parties of unequal bargaining strength or in transactions where one of the parties to the transaction (usually the lender), is desperate to close the deal based on assurances (contained in the said Letter of Comfort) from a desired potential customer, or for some other overly compelling reasons. In recent times, the Nigerian Banking and financial industry has witnessed the frequent ignominious practice of bankers “encouraging” a loan arrangement amongst some of their customers on the strength of a Letter of Comfort in order to entice the lender to provide a certain sum required as equity contribution for securing a loan from the bank. However when such loans between the parties turn awry, the bankers readily renege on their promise in the Letter of Comfort on the proposition that the contents of the Letter of Comfort are meant at best to be a gentleman’s agreement not intended to be binding on the bank. Admittedly, the mere title “Letter of Comfort” (Letter of Support, Letter of Intent, or whatever nomenclature so attributed) presupposes that such instrument is not intended to be legally enforceable against the issuer of the instrument. However such presumptions are rebuttable, given the circumstances surrounding the issuance and acceptance of the Letter of Comfort. Interestingly, this general presumption has cowed many individual small/ medium entrepreneurial lenders and Microfinance institutions deficient in the knowledge of the legal implications of a Letter of Comfort into precarious positions in which they have lost funds lent to business organisations on the strength of a Letter of Comfort issued by a third party in the belief that the issuing third party would be ready to indemnify the lender in event of failure of the borrowing entity to refund the principal sum. Apparently, some letters are just not worth more than its caption, at least not legally or even morally as it is supposed to be. Little wonder many entrepreneurial lenders to small and medium scale businesses have been run aground because of their reliance on such instrument as a Letter of Comfort without adequate legal counsel. This then begs the questions; “What then is a Letter of Comfort; What is the legal implications of the issuance/ acceptance of Letters of Comfort?” A Letter of Comfort, in commercial parlance is an instrument issued to

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a lender in favour of a borrower by a third party (in most cases, by the holding company or conglomerate) of which the borrowing entity is a subsidy, or in some cases by a bank) acknowledging the intended indebtedness of the borrowing entity and reassuring the lender of the willingness and capacity of the borrowing entity to repay the loan upon maturity, without any intentions of being bound to repay the debts in the event of the borrower’s failure to repay the loan. Originally, the idea behind Letters of Comfort dates back to the inception of commerce itself. These were times when transactions were concluded on mere words of honour and parties to commercial transactions are not prone to agonising speculations of whether their counterparts would possibly renege on their promises. However with the development and spread of commerce across numerous borders, coupled with the advent of the era of letter writing, it has become crucial, to document contractual agreements between parties for purposes of clarity and ease of reference. Although the promises contained in such instruments were never intended to be legally binding parties were expected to be morally bound to fulﬁll their obligations as stipulated such instruments. Generally, a Letter of Comfort is not legally binding on the issuer as parties to such commercial agreements fully understand the issuer’s intention not to be bound by the contents of the letter. Nevertheless, this is not always the case especially where the said Letter of Comfort does not contain any Disclaimer of legal liability by the issuer. Letter of Comfort differ in many ways from a Contract of Guarantee in that whilst the latter is designed to ensure that the Guarantor (issuer of the guarantee) is absolutely liable to repay the loan in the event that the guaranteed (borrowing entity) defaults in repaying the loan upon maturity, the former creates no legally binding obligation on the issuer. Also unlike Contracts of Guarantee, a Letter of Comfort is not made under seal and as such requires consideration (i.e. some sort of quid pro quo), and an express intention to create legal obligation, in order to be legally binding. Conventionally, Letters of Comfort are supposed to be worth nothing other than some sort of a moral assurance, morale-booster or

Law Digest Spring 2014

simply put; “mere expression of in deciding whether or not a Letter interest/support”, thus, prudence of Comfort conveys an intention to and competence dictates that when create legal relations is pertinent to advancing loans to a subsidiary of this discourse. a conglomerate or on the support of a credible third party, the lender a. Intention to create legal should always insist on a Contract relasions: of Guarantee, in order to ensure that the financial strength of the As earlier stated, the mere fact conglomerate or that of the third that an instrument is titled “Letter party would be available to secure of Comfort” is a pointer to the the loan in event of a default by the fact that such instrument is of no borrowing entity. However what is legal value and cannot command prudent for the lender is not always enforceability. However the position acceptable to the conglomerate (or of the law is that once there is no credible third party) and as such, legally valid Disclaimer on the face parties to commercial agreements are of the instrument abnegating any usually willing to make compromises legal liability accruing from any in a bid to ensure the success of the actions ensuing from reliance on the deal. A Letter of Comfort is usually instrument by its recipient, a letter of the compromise reached in such comfort, like every other commercial circumstances. Letters of Comfort are instrument is generally presumed not always used to evade liability on to be legally binding on the parties the part of the issuer. A lot of factors to the commercial agreement. In could be responsible for the parties’ the agelong case of Edwards v decision to adopt the use of a Letter Skyways,2 the court held: “…a promise made for consideration of Comfort which could include; avoidance of the tax implication in a commercial transaction will be of a Contract of Guarantee on the taken to have been intended to have issuer, avoidance of disclosure of contractual effect in law unless the inherent indebtedness of the issuer contrary is clearly shown”. Thus it is always desirable that the on its balance sheet, the reputation and strong business relationship issuer of a Letter of Comfort should between the parties etc. The facts expressly disclaim liability in order and circumstances surrounding to ensure that it is not binding on the issuance and acceptance of a Letter of Comfort are Bankers readily renege on usually the determinants of the enforceability or otherwise their promise in the Letter of of the instrument by the Comfort on the proposition courts. In other words, the courts usually transcend the that the contents of the title of the document, when determining whether a Letter Letter of Comfort is meant of Comfort should be legally at best to be a gentleman’s binding on the parties. Therefore, it is absolutely agreement not intended to incorrect to conclude that once a commercial instrument is be binding on the bank. captioned “Letter of Comfort”, it is not binding on the parties to the the issuer.3 In the absence of any agreement. The underlying factors Disclaimer in the Letter of Comfort, which the courts readily search for the courts in deciding whether to is, whether the parties intended that enforce the Letter of Comfort usually the instrument to create binding considers the following factors: legal obligation and whether there i. The actual language of the Letter of is any valid consideration flowing Comfort: from the recipient of the promises Ordinarily, a Letter of Comfort contained in the Letter of Comfort to intended to be a mere expression the issuer of the said letter. As simple of interest does not contain firm as this may sound, lawyers are promises of self- imposed obligations usually deadlocked in deciphering on the issuer for the benefit of the real intention of the parties in the recipient. A secular Letter of adopting the Letter of Comfort. A Comfort contains a principal clause good understanding of the factors that merely acknowledges the the courts would readily consider issuer’s awareness of the intended

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transaction between the parties. In some instances, the Letter of Comfort could vouch for the ﬁnancial capacity and entrepreneurial/managerial prowess of the borrower. Where the borrower is the subsidiary of the issuer, such Letter of Comfort could state the issuer’s stake in the

the issuer and some other party, which forbids it from issuing any Contract of Guarantee. Once any of the above or similar circumstances exist, necessitating the acceptance of a Letter of Comfort instead of an express guarantee, the courts will usually interpret the instrument as intended to create legal obligation. Presently legal practice in the ii. Other determinants of the intention of the United States of America readily parties in adopting a Letter defeats the defence of absence of Comfort include: a. The bargaining of consideration where there is a capacity of the parties visà-vis their understanding probability of occasioning grave of the legal implications injustice with sticking with the of Letters of Comfort in transactions. regular common law requirement of commercial A typical illustration would Consideration for enforceability of a be in the scenario above where the lender is just an contract of this nature. ordinary customer of a bank who most probably, would borrowing entity and also issue some not be sufﬁciently learned in the sort of guarantee in maintaining legal implications of the acceptance the stake until the debt is fully of a Letter of Comfort. In such cases repaid. The Letter of Comfort could the courts are willing to implore further disclose the issuer’s policy of the usual Contra Proferentem rule managerial oversight in ensuring that of construction, which stipulates the borrower is capable of repaying its that in construing the terms of any debts, without making any express instrument, the courts will usually promises entailing personal liability construe any ambiguous terms on the part of the issuer4. In such against the party who drafted the circumstances the Letter of Comfort document, in this case the issuer.6 is not legally binding. Some jurists It then follows that where the parties classify this instrument as a weak/ are of unequal bargaining power as at the time of negotiations, the court, soft Letter of Comfort.5 Once a Letter of Comfort exceeds adopting this principle of equity these limits discussed above, such is likely to impute the terms of the instrument is most likely to be Letter of Comfort against the issuer. interpreted as a strong Letter of b. Evidence of oral Comfort intended to create legally representations of the parties and enforceable obligations. A strong the surrounding facts leading up to Letter of Comfort would categorically the issuance/acceptance of Letters contain self imposed obligations by of Comfort. The court would readily way of promises to be ﬁnancially rely on any oral commitments proven liable to repay the principal sum to have been made by both parties and the accruing interest thereto in during the negotiations, which tend the event that the borrower defaults to prove that the issuer intended to in repaying the debt. Such promises be personally liable for the repayment are usually absolute and made with of the loan in event of a default by the every intention to secure the loan borrower. Thus where the issuer gave from the lender in favour of the strong assurances of willingness and borrower. This category of a Letter ability to repay the loan in the event of Comfort is usually employed of a default by the borrower, the where the issuer, although willing court held such Letter of Comfort as to guarantee the repayment of the binding on the parties.7 c. Evidence of prior similar loan but probably intends to avoid some legal obligations that come contracts between the parties or the with a contract of guarantee, e.g. prevalent practices in the particular tax implications. The issuer could profession could go a long way in also opt for this category of a Letter proving the intention of the parties. of Comfort due to an inherent term Where there is evidence that tends in a previous contract between to prove that Letters of Comfort are

Law Digest Spring 2014

usually intended to convey legally binding obligations in that particular line of trade, the courts will readily infer an intention to be legally bound. Once an intention to enter into binding legal relations has been established between the issuer and recipient of the Letter of Comfort, the courts will usually uphold the promises in the instrument as binding. b. Consideration: There is a popular contention in defence of most issuers of a Letter of Comfort that whatever promises contained in such instruments are non-binding because they lack consideration from the recipients of the instrument. Consequently, the burden is always on the recipient to establish that some sort of benefit accrues to the issuer of the instrument. An explicit example can be seen in common practice in Nigeria where some bank officials initiate loan arrangements between two of their customers in order to secure a certain sum for one of the customers as equity contribution for the proposed grant of a loan, on the strength of a Letter of Comfort, issued to the lender by stipulating that the loaned sum and the accruing interest from the borrower, would be refunded to the lender upon the grant of the loan. In an action for recovery of the debt from the bank, it would be sufficient consideration if the lender can establish that the bank by issuing the instrument and afterwards has gained some benefits (no matter how little) from the advancement of the loan to the borrower. There may be the instances where the lender, in a suit to recover the debt from the issuer of the Letter of Comfort, may fail to sufficiently prove any benefits accruing to the issuer from the loan arrangement with the borrower and as such, like in every other contract the absence of a valid consideration invalidates the contract and the courts would refrain from enforcing the contract. Presently there seems to be a twist to the usual strict adherence to the policy of unenforceability of contracts due to the absence of consideration. The courts, now more than ever before are willing to take another look at the whole scenario especially where a grave and untold detriment and injustice would be occasioned against the lender by strict adherence to the rule. In other words, where

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the a party relying on such strong promises contained in a letter of comfort, apparently calculated to induce the party into the agreement, has acted to his great detriment. The courts will most likely restrain the issuer of the instrument from reneging on his promise. Although

of necessity be nurtured to growth in a new and complex Society like ours where people can easily at the whiff of breath of resort to law to ward off debt or other enrichments they have had at the expense of the other. This is a specie of constructive trust which is an instrument which the court of equity may employ to prevent enrichment. I believe The uncertainty generated undue that when a person is holding by many ensuing decisions tight that which is subject of equity he should not be allowed of various courts in different to hold it firmly. Therefore where a party unjustly enriches jurisdictions has further himself at the expense of the he must be made to compounded the prospect of Plaintiff disgorge it. Our legal system assuming a strict and certain should at this instance lean more to U.S. law on principle position of the law. than in England where the principle is yet to assume a this position has not been universally wider dimension. Thus Lord Porter in adopted, some jurisdictions have Reading v A.G. (1951) A.C 507-513showed willingness to enforce Letters 4 said “My Lords, the exact status of of Comfort which can best be classified the law of Unjust Enrichment is not yet as “Strong” Letters of Comfort owing assured. It holds a predominant place to the nature of the contents of the in the law of Scotland and I think instrument. For instance, the courts in the United States”. The premise in Scotland and the United States of behind the doctrine of restituting an America have readily implored this unjust enrichment is that justice be measure by relying on the equitable done. That being the case, it seems doctrine of “Unconscionability” and to me that we ought to lean overly to “Unjust Enrichment”. The implication the U.S legal practice to effectuate of these principles (in relation to this justice. Therefore in consonance discourse) is that the courts will with the principles enshrined in be weary of dismissing any action the restitution a remedy shall be for recovery of debt because of the available whenever the defendant absence of consideration especially is unjustly enriched at the expense where the issuer of the instrument of the Plaintiff. In this case, the stands to enjoy some benefit or gain defendants must be made to vomit from the loan arrangement which it what they have taken (unjustly)”.8 Presently legal practice in the United procured, fully aware of the fact that the recipient would be relying ( and States of America readily defeats the indeed did rely) on the promises in defence of absence of consideration the instrument in advancing the where there is a probability of loan. By the equitable doctrines occasioning grave injustice with of “Unconscionablity” and “Unjust sticking with the regular common Enrichment” the courts would law requirement of Consideration go ahead to enforce an otherwise for enforceability of a contract of unenforceable contract in order to this nature. The United States Legal do justice to the matter before the System has taken this a step further court. Although these doctrines by enacting legislations which of equity have not received a lot prohibits a Promisor from reneging of approval in some common law on a promise where he is fully aware countries and the United Kingdom that a Promisee intends to and in in particular, Nigerian courts have fact did rely on his representations shown willingness to lean towards and has put himself (the promisee) the precedents in the United States of at great detriment.9 The courts in America when the justice of a matter the United States will readily enforce so demands. The Nigerian Court of such strong promises contained in a Letter of Comfort. Much is yet to be Appeal has held thus: “I think the principle of unjust seen as this aspect in common law enrichment which unfortunately is countries like the United Kingdom. not well developed in English law as However the Australian Supreme both in the U.S and Scotland should, Court has enforced a Letter of

Law Digest Spring 2014

Comfort as binding on the issuer. The court, after a long deliberation had this to say in its ruling: “There should be no room in the proper ﬂow of commerce for some purgatory where statements made by businessmen, after hard bargaining and made to induce another business person to enter into a business transaction would…reside in a twilight zone of merely honourable engagement. The whole thrust of the law today is to attempt to give proper effect to commercial transactions … If the statements are appropriately promissory in character, courts should enforce them when they are uttered in the course of business and there is no clear indication that they are not intended to be legally enforceable.”10 In support of the position taken by the Australian Supreme Court above, Prof. Alan Tyree opined thus: “…It is absurd to think that teams of lawyers and business people spend time and money drafting documents that express only moral obligations. It is even more absurd to suppose that they then act on these documents by entering into transactions worth millions of dollars.”11 Mark Sneddon, a prominent professor of commercial law, has argued that enforceability of a Letter of Comfort breeds uncertainty. In his words: “Plainly, it is desirable from the viewpoint of certainty that courts should follow one presumption about the enforceability of letters of comfort; either that they are legally enforceable or that they are binding in honour only…It is suggested that a presumption against legal enforceability will best promote certainty. That is the traditional view and therefore will more readily permeate the consciousness of the business world. It will warn lenders who want a personal obligation that they should hold out for a guarantee or risk getting no binding commitment. The opposite presumption will tend to create more uncertainty because, even if the letter of comfort is held to be legally enforceable, the nature of the obligation undertaken will vary from case to case and the questions of whether the obligation was breached, whether the breach caused the loss alleged and the appropriate quantum of damages will be disputed in each case. The result will be more uncertainty and more litigation than would occur if the presumption was against legal enforceability and

Law Digest Spring 2014

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lenders were forced towards a choice between guarantees and no binding obligation”12 It is pertinent to point out that the support for enforceability of Letters of Comfort especially when unenforceability would most likely occasion a miscarriage of justice is gradually gaining grounds in the courts of most jurisdictions. It is strongly suggested that Nigerian courts should not be left behind especially in the light of the quest for legal development in the lines of justice and the call for growth in small and medium term enterprises. Nevertheless, there are no straightly cut-out principles for determination of whether a Letter of Comfort or similar instruments are enforceable. Each case must be dealt with in consonance with its attendant facts and circumstances. As such no legal precedent can adequately constitute a binding authority to any court, as facts of each case vary from the other. All that a court can do is to follow the guidelines in any given precedents and as such should readily be willing to divert when following such guideline would occasion a miscarriage of justice given the facts at hand in the current case. There are other possible remedies that can be available to a recipient of a Letter of Comfort against the issuer in event of a default in keeping with the promises contained in the Letter of Comfort. In circumstances where the facts represented by the issuer in the Letter of Comfort turns out to be false, the recipient of such a letter, who having relied on such representations has acted to his detriment, can actually sue on grounds of Negligent Misrepresentation of facts by the issuer13. However this is not entirely within the spectrum of this discourse Prof. Lang Thai succinctly and conclusively posits thus: “Comfort letters have been around since 1960’s and will continue to be a part of the business culture worldwide and in Australia. Therefore, the issue of enforceability will continue to be the subject of an ongoing debate. One compromise may be to presume that the letter is enforceable if it is expressed with clarity and with sincere interest to honour the

obligation, whether that obligation is moral or legal. The burden should be placed on the issuer to disprove the presumption. If the letter is held to be enforceable, the issues of breach and of damages can be contested in the ordinary way under contract law”.14

commercial instruments of like manner; Letters of Intent, Letters of Support etc. which under the common law are generally unenforceable.

Edwards V Skyways (1964) 1 All E.R 494 Rose and Frank Co. V Crompton Bros Ltd (1925) AC 445 4 JH Milner V Percy Bilton (1966) 1 WLR 1582 5 Wittohn G.A.; Kleinthworth Benson Ltd V Malaysian Mining Corporation Berhad- A Comprehensive Note on Letter of Comfort Letters. 6 Banque Brussels Lambert SA V Australian National Industries (ANI) Ltd (1990) 21 NSWLR 502. 7 Per Pats-Acholonu J.C.A (as he then was) in Eboni Finance and Securities Ltd V Wole-Ojo Technical Services & 2 Ors. (1996) 7 nwlr (Pt. 461) 464 at 477-478. See also Nwankwo V Nzeribe (2004) 13 NWLR (Pt.890) 422 at 434435. 8 The American Restatement (Second)of Contracts (RSC) 1979; S.90 stipulates: “A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires”. Moreso in American jurisprudence, once detrimental reliance on a promise has been proven; there is no need to establish consideration. 9 Rogers CJ in Banque Brussels Lambert SA V Australian National Industries (ANI) Ltd (supra) 10 Prof Alan Tyree; reported in “Comfort Letters – A Fresh Look?” by Lang Thai. 11 Sneddon M “Banking Law and Practice” Annual Survey of Australian Law (Adelaide Law Review Association 1990) Pp.99-100. 12 Hedley Bryne & Co Ltd -v- Heller & Partners Ltd [1964] A.C. 465 13 Thai L.; “Comfort Letters – A Fresh Look?” Lecturer, School of Law, Deakin University; BSc, LLB (Mon), Grad Dip Ed (Melb), LLM (Mon); Barrister and Solicitor of the Supreme Court of Victoria and High Court of Australia. 14 Klienwort Benson Limited –v- Malaysia Mining Corp Bhd (1989) 1W.L.R. 379 2

CONCLUSION: Since the English Court of Appeal decision in Kleinwort Benson -vMalaysian Mining Corp Bhd15., in which the court upturned the lower court’s decision enforcing a Letter of Comfort, the argument “FOR” and “AGAINST” enforcement of a Letter of Comfort has been on an increase. The uncertainty generated by many ensuing decisions of various courts in different jurisdictions has further compounded the prospect of assuming a strict and certain position of the law. This article however, recommends the adoption of a more flexible than rigid approach to the interpretation of such commercial instruments as Letters of Comfort, Letters of Intent, Letters of Support etc, in line with the growing disposition of Scottish and American courts, one of which the Nigerian court of appeal on its own has advocated. Given the above exposé on the concept of a Letter of Comfort and the shifting trend towards enforceability as against the age long common law position of upholding a Letter of Comfort as a mere gentleman’s agreement, the author advocates for an utter reappraisal of the legal implication of the use of a letter of comfort especially in commercial transactions. The author advocates for the deprecation of the inglorious practice in the financial sector whereby independent lenders are cowed into resignation to their fate, when faced with apparent loss of their money which was secured on the strength of a Letter of Comfort from a third party. This article is intended to further dissuade the growing apprehension amongst lenders who believe all hope is lost upon failure of an issuer of a Letter of Comfort to make do on his promises. Moreso, on the strength of the above Nigerian Court of Appeal decision, we advocate for a more flexible approach tending towards enforcing

FURTHER READING: Addleshaw Goddard; Could your Letter of Comfort be a Guarantee? March 2009. Association of Corporate Treasurers Brieﬁng Note. A Practical Guide. London April 2007. Georg A Wittuhn; Klentwort Benson Ltd V Malaysian Mining Corp Berhad-Comparative Essay on Letter of Comfort. McGill Law Journal 1990. Lang Thai; Comﬁrt Letters; A Fresh Look? (2006) 17 JBFLP 15. Lang Thai; Comfort Letters; A Comparative Evaluation on Australian, United States, and English Jurisdictions. . http://ssrn.com/ abstract=2027750 Gill J.N; Turning A Sober Eye to Southern Comfort. University of Auckland Business Review Vol.3, Number 2, 2001. CS Nidhi Ladha; When Does A Letter of Comfort Become A Guarantee? Vinod Kothari & Company. January 11, 2013.

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“Client seminars and legal training sessions also offer an extremely effective and relatively low risk way to develop the skills, expertise and professional proﬁle of junior lawyers.”

n many African jurisdictions where professional conduct rules prohibit advertising or direct promotion of a firm’s legal services, client training sessions, seminars and professional conferences can provide extremely powerful opportunities for business development. However, to make best use of those opportunities law firms must have very clear objectives for each session and for the programme as a whole, and should resist the temptation merely lecturing clients on the law. The overriding objective ought to be to demonstrate understanding of the relevant industry or business sector and of the law’s role as a factor in clients’ commercial decisions. Client seminars and legal training sessions also offer an extremely effective and relatively low risk way to develop the skills, expertise and professional profile of junior lawyers. Involving as many members of the team as possible in the selection of topics and in the preparation and presentation of legal training events promotes a highly effective knowhow and learning culture within the firm. In addition, seminars provide exceptionally useful opportunities to hear from clients and commercial contacts. To provide effective legal advice in a commercial sector it is necessary to be immersed in that sector and to understand the commercial pressures that clients face. There are few better ways to learn about those issues than to ask the experts – your clients and contacts. What makes a good client seminar? It is also crucial to recognise that well-planned and interactive sessions tend to produce not only better events, but more productive and durable relationships. For a client, time spent at a seminar or conference is time that cannot be used to make progress with work. The inevitable result is a backlog

Law Digest Spring 2014

of calls and emails to catch up on once back at the office. To make that opportunity cost worthwhile, the seminar or conference must be directly useful, well-pitched and immediately relevant. Consequently, topic selection is crucially important. If a seminar is to cover new or forthcoming legislation, it ought to focus on steps that the client must take to prepare for its impact, and if at all possible must take place far enough in advance to allow the client (hopefully with your help) to develop and implement any relevant procedures or compliance measures. While that may not be possible for fiscal changes, such as tax rates revised with immediate effect in a budget, it is generally achievable where legislation is introduced in phases or is subject to transitional provisions. Ensuring that clients are prepared well in advance sends a far more powerful message than telling them about changes only when they have already taken effect. Significant developments in case law, such as the detail and reasoning of an appeal court ruling, obviously cannot be predicted. However, law firms that keep a careful eye on court listings and hearing dates can monitor the progress of significant cases through the appeal process, and it is often possible to determine when a ruling is likely to be handed down. Thinking in advance about the likely outcomes of an appeal ruling, can lead to extremely valuable discussions with clients and contacts. If business is being conducted or deals struck on the basis of a first instance decision, how might those deals be affected if that decision is overturned on appeal? While clients are rarely as interested in the details of court rulings as lawyers (and why should they be?), they do have a live and practical interest in the commercial risks and implications. There is also significant merit in presenting clients with a list of possible topics, and asking for their preferences. That approach both maximises the likelihood of a full house, and demonstrates a breadth of expertise and commercial awareness. Use of case studies Case studies are an excellent way to liven up a training session. We all

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encapsulates the key issues and essential to ensure that any Academy action points. It will remind your programme is carefully designed and client of an interesting and highly avoids the trap of being no more than relevant session, and should of a series of ad hoc law lectures. course serve as a quick and easy way A well-structured academy for the client to find your telephone programme may focus on the issues number and email likely to arise in a particular type of transaction, such as a merger, It is also crucial to recognise address. Finally, ensure that acquisition or joint venture. Using that well-planned and interactive there is some useful realistic examples and case studies follow-up. Seminars it is possible to improve both the sessions tend to produce not only often close with a client’s and the law firm’s own question and answer understanding of the pressure points better events, but more productive session. Time is short, and areas of difficulty likely to be and so the immediate encountered in a live deal. and durable relationships. answers might not cover For some clients, particularly those all of the issues raised. with parent companies in other Do not be afraid to include Sending a more considered answer jurisdictions, the parent company’s characters – there is no need to by email or letter, or picking up the standard requirements or “must describe a party as “the claimant” or phone to continue the discussion, have” clauses may be inappropriate “the defendant”. Give them names, can build a stronger relationship for deals in Africa. A General Counsel job titles and a realistic voice. It and can even lead to new makes the case study more engaging instructions. For law firms that are not and it makes the facts seem far more realistic. You will know when you From single seminars to permitted to advertise, have succeeded because a client will structured programmes say: “that is just like the matter I was For some larger firms, training finding a way to be at the dealing with this morning”. Once and professional development that happens, your client will know has emerged as a fee-earning for sure that you understand his activity in its own right, top of a client or contact’s “go particularly where clients business. to” list is a major success. Law school case studies tend to have significant regulatory or In be too neat and tidy, with each compliance obligations. paragraph carefully designed to those areas, law firms are often in Africa seeking to have a deal point to a particular case or statutory extremely well-placed to combine signed off by the parent company section. For client seminars and work on live transactions or disputes may face a difficult task explaining training sessions leave some gaps with a more general advisory role why locally negotiated provisions differ from corporate standards applicable in other jurisdictions. Carefully structured training exercises provide law firms with an opportunity to prepare the ground for those difficult discussions, providing General Counsel with a reasoned and reliable explanation to keep on file until needed in the heat of a deal. Few things create trust and cement a commercial relationship more effectively than identifying, understanding and catering for tasks that would otherwise add to the stress of a client’s day. Dispute resolution also offers fertile ground for an academy Charles Russell and Eversheds are two on the international law firms using client training to develop presence in Africa. programme. Increased use of in the information that you provide. that includes paid or subscription- alternative dispute resolution such as mediation or arbitration requires Working out what questions need to based training. Even where it is provided as General Counsel to keep abreast of be asked to make full sense of the case study can lead to an excellent a value-added service for no a rapidly developing and complex extra fees, though, developing a set of procedures, each offering and extremely lively discussion. Crucially, link the case study with “General Counsels’ Academy” can different options for settlement and a “takeaway” that will be immediately pay significant dividends in terms each likely to require close and agile business development and cooperation between law firm and useful to your clients – perhaps of a checklist or a briefing note that relationship building. However, it is client. Realistic simulation through learn through stories, and that is essentially how a case study works. Complex legal issues can be explored and explained through case studies that set out the facts of a hypothetical transaction.

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carefully planned training sessions can build confidence in the law firm’s expertise, commerciality and procedures. When a live dispute arises, the client’s first call is likely to be to trusted and well-known advisors. Effective training techniques are the key to any academy programme. Lectures tend to leave only a general impression on those who remain awake, with perhaps one or two points sticking for a day or so. Practical and interactive case studies, by contrast, prompt active discussions that benefit both lawyer and client. Often, the outcome is an agreed approach, a useful checklist, a preferred clause or a commercial position that can be taken by both directly into practice. For law firms that are not permitted to advertise, finding a way to be at

the top of a client or contact’s “go to” list is a major success. Learning from clients, developing your practice Client seminars should not be one-way traffic. Clients’ industry expertise and commercial awareness can materially improve the quality of legal advice and legal service provision. Understanding the points at which clients reach for the phone to obtain legal advice can transform difficult and possibly arid areas of law into live and vibrant points for discussion and further research. The process may also persuade the client that efficiency could be improved by picking up the phone at an earlier stage – for example to discuss heads of terms while they are being negotiated rather than presenting

them to lawyers as a “done deal” at a point when it is too late to challenge assumptions and, possibly, help to secure a better result. Discussions can also be pitched at a high, and high-octane, level. Rather than seeking to fill a seminar room with 30 or 40 delegates, it is sometimes worth considering bringing together a small and carefully selected group of senior contacts to discuss commercially significant issues such as the implications of new or forthcoming legislation, tax breaks or regulatory measures. Taking the initiative and setting up round-table discussions is the mark of a law firm that is fully engaged with its clients’ business, while a willingness to learn is the mark of an active, confident and valuable practitioner.

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PRESENTS

“Economic and Financial Crime Litigation” Discussants

Alun Jones, QC

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Kemi Pinheiro, SAN

Mangeat Gregoire

Segun Osuntokun

Dr. Stuart Dutson

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A unique opportunity to hear leading local and international lawyers, forensic accountants, fraud and regulatory experts from the US, UK, Nigeria as well as key offshore jurisdictions to discuss trends and development in economic and ﬁnancial crime litigation and asset recovery. Expert led sessions will include: Role of forensic accounting in fraud trial and asset tracing. Overlap between EFCC investigation and civil litigation – Role of the defence team. Strategies for challenging preliminary freezing, production and forfeiture orders. Forgery and identify theft – liabilities of ﬁnancial institutions. Challenging the appointment of Receivers/Administrators. Case Study – Asset Tracing and Recovery - Switzerland, UK and US The Forum also offers unparalleled opportunity to network with lawyers, litigation, fraud specialists, forensic accountants and recovery experts from around the world.

Registration Fee: ₦35.000 per delegate Venue: LAGOS, NIGERIA Date: 4th NOVEMBER 2014 HOSTED BY:

ADVERTISING AND SPONSORSHIP To ﬁnd out about advertising, sponsorship or exhibiting opportunities, contact us at sales@nglawdigest.com or call us on: Seyi Seyi Femi Femi Tonia

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FEES We offer value packages for group bookings, early bird discount and complimentary tickets. To ﬁnd out more, visit us at www.nglawdigestevents.com For more information on the Forum visit www.nglawdigestevents.com