CBN, UBA and quest for justice
By Kingsley Osadolor
WHEREAS the dominant issue in Nigeria's financial subsector is the quantum increase in the capital base requirement of banks to N25 billion, that matter alone is unlikely to be the sole critical factor in the future operations of banks. Concurrent with the expected struggle by banks to meet the N25 billion benchmark, through a variety of options including mergers, acquisitions and new issues, a legal battle involving one of the country's biggest commercial banks will also be apace. But the tone of the looming legal battle is all the more significant because of the initial role the Central Bank of Nigeria (CBN) might play.
Thus, while the smaller banks are wondering how they would stand on or quit their fragile capital base, the United Bank for Africa (UBA) should understandably be concerned with what to do about a whopping judgement debt of more than N6.5 billion. The matter began innocuously 10 years ago at a Lagos High Court, where BTL Industries Ltd sued UBA for a breach of contract subsuming alleged negligence in handling foreign exchange transactions in the 1980s. BTL had been a customer of UBA at the latter's Wharf Road Branch, Apapa, Lagos. Between 1981 and 1983, BTL, an importer and distributor of building materials and industrial chemicals, among others, deposited about N8.5 million with UBA, to establish 331 unconfirmed letters of credit and bills for collection to pay its foreign suppliers. In compliance with the foreign exchange rules at the time, UBA lodged the monies with the CBN for the latter to allocate equivalent forex for onward remittance to BTL's overseas suppliers. Meanwhile, BTL had taken delivery of the goods covered by the unconfirmed letters of credit and even sold them.
Perhaps, the best illustration of the foreign exchange squeeze at the time was the arrest, prosecution and imprisonment of Fela Anikulapo-Kuti during the Buhari regime. It was the culmination of Fela's ordeal that led him to say of the judge, Okoro-Idogu, who had convicted him: "E don beg me!" Yet, for businessmen and their financiers, the forex scarcity was a nightmare. Nigeria was in trade arrears. The solution was to seek relief from creditors via refinancing arranged through the CBN, which then appointed Chase Manhattan Bank (London) as the reconciliation bank for claims by exporters of goods to Nigeria and corresponding importers. While foreign creditors routed their claims directly through Chase, Nigerian debtors forwarded theirs through their local bank to the CBN. To weed out bogus claims, so-called "matching fields" were established. The claims that matched were refinanced, while those that failed the test were spiked.
A dispute arises where at least two persons are making conflicting claims. Whereas UBA contends that it submitted and indeed refinanced at least 321 of the bills for collection worth almost N8 million, and therefore has outstanding 10 bills valued at about N300,000, which were not refinanced. BTL, on the other hand, argues that UBA did not, in fact, submit any of its bills for refinancing. The implication of the latter assertion is that BTL's suppliers were allegedly not paid; BTL's image reportedly suffered; it was blacklisted, then fell on hard times. Then, in 1994, an official of BTL stumbled on a 1988 document issued by the CBN directing commercial banks to refund to their customers monies which had been paid in for purposes of forex transactions but which were unsuccessful under the refinancing scheme. The discovery of that letter was like a gong sounded at the ringside for combatants to begin a duel in the roped arena.
The first phase of the legal battle took eight years. Thus, in 2002, the Lagos High Court upheld the prayers of BTL as plaintiff. Within days, UBA headed for the Court of Appeal, Lagos Division. But on July 22, almost a year ago, the appellate court upheld the judgement of the Lagos High Court. UBA has now proceeded to the Supreme Court where the appeal is not likely to be heard until March 2005. Last week, the CBN said that by March next year, it would begin to unfold its package of incentives for those banks that are already N25 billion-compliant or have showed unmistakable signs of being compliant. By December 2005, the new policy on capital base will be fully implemented, provided there are no intervening factors.
The foregoing, of course, explains the larger significance of the lingering matter of UBA v. BTL Industries Ltd. The Lagos High Court awarded BTL about N6.5 billion, which is probably the biggest judgement debt in Nigeria's judicial history. Of course, if the judgement debt is well earned, so be it. But no sound legal system aids idle accumulation of such stupendous windfall. In the instant matter, the bases of the award of damages, which were strangely endorsed by the Appeal Court are, to say the least but with the greatest respect, ridiculous. The sudden windfall was computed in various foreign currencies, some of which have been eclipsed by the Euro. But the various sums were intended, by the judgement, to be "the value of the goods ordered from overseas suppliers and received by the plaintiff and for which payment was made in Naira to the defendant at the material time at the prevailing rate of exchange and which the defendant failed to remit to the overseas suppliers despite repeated demands".
As there are decided cases justifying the calculation of damages in foreign currency, where the case merits such treatment, one cannot quarrel with the use of that parameter. Yet, it goes to the heart of the merit, or lack of it, of the judgement exactly what logic informed such decision. BTL received the goods and sold them. But a court has awarded judgement against BTL's bankers for an amount involving the cost of the goods which the plaintiff had received, sold and even enjoyed the profits. This was also a matter in which the trial court granted N300 million to BTL, as anticipated profit from 1985 to 1994; and loss of profit at the rate of N5 million per annum from 1994 to 2002.
Even more curiously, the Court of Appeal held that BTL "ordered the goods with the objective of making profit." This was to justify the award of damages for anticipated profit from 1985 to 1994. Their Lordships seemed to have forgotten that the subject of dispute was such that the plaintiff company had actually received the goods from the suppliers, sold same and profit made. It is both common and judicial sense that the award of damages on this ground would have had integrity if BTL had been unable to procure the goods because UBA did not remit the money to BTL's suppliers abroad. Nothing in the judgement shows that the financial statements and other books of the plaintiff company were called in evidence, just, at least, to show how much it had always paid in corporate taxes.
Part of the omission of the trial court judge was also a failure to establish whether all the monies paid in by BTL for forex were among the rejected and unmatched bills that the CBN directed all commercial banks to refund to their customers. UBA admits that it had some 331 bills for collection from BTL. Of these, it had processed all but 10. Yet, the tone of the judgement was as if all 331 bills of collection had not been processed for refinancing by the bank. Strangely, the Court of Appeal upheld the decision. In both judgements, reference was made to the claim by BTL that it was blacklisted by its foreign suppliers. Again, it is in vain that anyone would find in either judgement a mere probing question asking for proof of such blacklisting. Interestingly, the suppliers to BTL have since gone into liquidation.
Nothing in the judgement shows that the liquidation of Meridian International Credit Ltd and Meridian Trade Corporation Ltd was traceable in part to non-receipt of remittances from their Nigerian trading partners. Indeed, the liquidator of the companies, one Stephen Katz, never mentioned that he had any claims against BTL or UBA, or even CBN. Besides, little probative value was assigned to the evidence of a former CBN director, who was familiar with the Debt Management procedure, that BTL's suppliers had been paid. Furthermore, whereas the Appeal Court relied on the principle of privity of contract, to rule that UBA could not hold on to the monies of BTL, their Lordships seemed not to have wondered why the overseas suppliers of BTL had not sued BTL, through their liquidator, since there was privity of contract between supplier and receiver. There is little question that an appeal on well-formulated grounds will see to the setting aside of these decisions that the financial community must find very disturbing.
With due respect, it is evident that the logical reasoning behind critical aspects of the judgement at the Appeal Court is baffling. For instance, their Lordships set out extensive paragraphs from earlier decisions on what the attitude of the appellate court should be to the issue of damages. Award of damages is a matter for a trial judge, they agreed. But they also set out the exceptions to that general principle of law, namely, that an appellate court will interfere where, for instance, "the amount awarded is either ridiculously high that it must have been a wholly erroneous estimate of the damage"; or where an award is "manifestly unwarranted, excessive, extravagant, unreasonable and unconscionable." Even though it has yet to hear the appeal on this decision, the Supreme Court, while granting a stay of execution of the judgement of the High Court and the Court of Appeal, held inter alia: "the amount involved (Six Billion Naira) is a big amount. Such amount cannot be taken out of any bank without affecting the banking transactions of that bank. It is therefore imperative that this application ought to be granted."
On the board of UBA (as with some other financial institutions) are foreigners from the United States, Germany and Italy. Today, the Federal Ministry of Information and National Orientation is sponsoring a special Presidential forum on Nigeria's Image and the National Economy. The forum aims "to revamp Nigeria's image and reposition the country for economic advantage and national progression". Just poring over the judgements of the trial court and Court of Appeal provokes more questions than answers. By simple word of mouth, one person tells another how things are, and then it sticks, notwithstanding any number of fora that are held to burnish our national image. How can the nation's economy make progress when businesses are hobbled or threatened by vexatious litigation, which are costly to defend, and even costlier still when a ridiculous judgement debt is awarded in circumstances that leave aghast those familiar with the operations of the judiciary
