Every year, banks and their customers engage in legal battle that can potentially cost trillions of naira in claims. ROBERT EGBE examines why the parties are fighting and what can be done to stem the threat this poses to the economy.
For Justice Chuka Obiozor of the Lagos Federal High Court, it was a busy week. Between Monday and Tuesday, he heard the case between Shoreline Power Company (SPC) and Ecobank. In a ruling on Monday, he restrained SPC from interfering with the work of the Ecobank-appointed receiver-manager, Taiwo Ogbara, for the firm.
Other defendants in the case are Orikolade Karim, Tunde Karim, Yinka Karim, Marc Hasenclever and Graeme Stout. The court restrained them from obstructing Ogbara in the discharge of his duties, pending the determination of the motion on notice.
The judge also granted an order of interim injunction restraining the defendants or their agents from tampering with the firm’s assets covered by a Deed of All Assets Debenture of March 18, 2013 between Ecobank and Shoreline registered at the Corporate Affairs Commission (CAC).
Justice Obiozor directed the Inspector-General of Police (IGP) and his men to assist Ogbara in carrying out his duties. He also restrained all banks from honouring any mandate presented by the defendants for the withdrawal of any money in Shoreline’s account. The banks were also asked to file within 48 hours the company’s statement of account with them and to transfer such funds to any account requested by the receiver-manager.
In a supporting affidavit to the ex-parte motion, an Ecobank employee, Donatus Onoja, said Shoreline was owing the bank N4.6 billion.
Ecobank claimed that it wrote the firm to demand payment, adding that despite receiving the letter, the firm “neither responded nor complied or displayed any genuine willingness to fulfil its repayment obligations to the first applicant within the time prescribed.”
Shoreline’s case is one of the hundreds between banks and their customers over debts, over-charging and sundry matters. There are also some bordering on forgery. One of such began last September. Mr Emmanuel Eferere got home on September 19 to meet a letter from the First City Monument Bank (FCMB)’s Loans Workout and Recovery Unit waiting for him.
Marked “September 19, 2018”, the letter demanded that he pays the bank N41,714,432,32 owed by a firm, Abeycom Treasures Ventures Ltd.
Eferere became one of the firm’s sureties for the money when he executed a “Deeds of Tripartite Legal Mortgage” in favour of FCMB, which was registered at the Land Registry, Alausa, Ikeja, Lagos, the letter claimed.
The letter gave him 14 days to persuade Abeycom to settle the debt, otherwise, legal action would be taken.
Eferere wrote back that the letter was addressed to the wrong person. He did not stand as surety for anyone or any company, including Abeycom – an entity unknown to him – neither had he ever mortgaged any of his landed assets.
But the second letter in October informed him that the bank had the original of his Certificate of Occupancy (C of O) for his property at Ikorodu, which he allegedly pledged as security for the loan.
The bank also blocked him from disposing of the property.
Thus began a legal battle between him and FCMB. A fraud and forgery charge and a N100million civil suit are pending at an at an Ogba Magistrates’ Court and a Lagos High Court.
A fractious relationship
According to experts, the strength of the relationship between banks and their customers goes a long way to determine the industry’s success.
But excerpts from the disclosures in Nigerian banks’ annual reports suggest that they and many of their customers are in a fractious relationship. Many banks are facing hundreds of lawsuits yearly which could cost trillions of naira in potential claims.
For instance, a 2019 report by a financial resource company, Naira metrics, suggests that just four major banks – First Bank, United Bank for Africa (UBA), Guaranty Trust Bank (GTB) and Zenith Bank – face potential claims of N973.05 billion from customers.
In response, the banks set aside hundreds of millions as contingency funds to challenge the claims and initiate claims of their own. So as not to be caught flat-footed, they also make yearly contingency provisions for liabilities that may arise from lawsuits claims. These are often published in their annual reports.
UBA
UBA, in the ordinary course of business, is currently involved in 714 legal cases (2017: 705).
The total amount claimed in the cases against the Group is estimated at N745.45 billion (2017: N659.17 billion).
UBA seems to have the highest potential claims against it, out of all Nigerian banks.
The directors having sought the advice of professional legal counsel, are of the opinion that no significant liability will crystalise from these cases beyond the provision made in the financial statements.
GTBank
According to its 2018 annual report, GTBank, in its ordinary course of business, “is presently involved in 484 cases as a defendant (31 December 2017: 470) and 426 cases as a plaintiff (31 December 2017: 427).
“The total amount claimed in the 484 cases against the Bank is estimated at N476.03 Billion and $39.68 Million (31 December 2017: N530.59 Billion and $132.80 Million) while the total amount claimed in the 426 cases instituted by the Bank is N111.0 Billion (31 December 2017: N110.86 Billion).”
No mention was also made of its well-publicised multi-billion naira dispute with vehicles manufacturer, Innoson Nigeria Ltd.
Nevertheless, the bank’s solicitors are of the view that the probable liability which may arise from the cases pending against it is not likely to exceed N91.72 Million (31 December 2017: N178.71 Million).
“This probable liability has been fully provided for by the bank,” the report added.
Zenith Bank
The Group is presently involved in 133 suits in the ordinary course of business. The total amount claimed in the cases against the Group is estimated at N18.32 billion (31 December 2015: N11.68 billion).
The actions are being contested and the Directors are of the opinion that none of the aforementioned cases is likely to have a material adverse effect on the Group and are not aware of any other pending or threatened claims and litigation.
First Bank
According to Nairametrics, FBN Holdings Plc, which includes First Bank, is a party to a number of legal actions arising out of its normal business operations “and it made provisions of N2.91 billion for contingent liabilities that may arise therefrom.”
However, FBN Holdings’ 2018 annual report states: “The Group is a party to a number of legal actions arising out of its normal business operations.
“The Directors having sought the advice of the professional legal counsel are of the opinion that no significant liability will crystalise from these cases beyond the provision made in the financial statements.”
Access Bank
The Group is a party to numerous legal actions arising out of its normal business operations.
A provision of N614million was made for the year ended 31 December 2016.
But, for current lawsuits, the Directors believe that based on currently available information and advice of counsel, none of the outcomes that result from such proceedings will have a material adverse effect on the financial position of the Group, either individually or in the aggregate.
Why banks, customers are fighting
There are several reasons why the bank-customer relationship may head south.
Banks, for instance, are often sued by their customers, suppliers, among others, for excess bank charges, wrongful seizure of collateral, contract breaches, fraud etc.
Sometimes, the fraud is perpetrated by a third party, but the bank or customer end up suing the other party.
Last August, a businessman, Umegelo Emmanuel, dragged Zenith Bank before the Lagos State High Court in Igbosere after being allegedly swindled out of his N177, 500, 000 by a Chinese, whose name, was given only as Ms Muna.
Emmanuel urged the court to compel Zenith to pay him the N177.5m.
Emmanuel, in his statement of claim, explained that he entered into a business agreement with Muna, who has a business interest in Nigeria, for the Chinese to help him purchase some goods from her country, China.
Emmanuel said because of his long-standing banking relationship with Zenith Bank, he insisted that Muna should provide a Zenith Bank account.
The businessman said, as a result, the Chinese provided him with a Zenith Bank Account No: 1005689704, with an account name, Xian Fang Li.
Emmanuel said he confirmed that the account existed before transferring the N177.5m into it.
“But shortly after the money was paid into the account, Ms Muna refused to deliver the goods and subsequently stopped picking my calls and blocked all my access to her contact.
“I have visited China twice in search of Ms Muna and had even reported the matter to the Chinese police and the Chinese Embassy but all my efforts to locate the said Ms Muna has proved abortive,” the businessman said.
He averred that investigation by the police in Nigeria showed that “the utility bills presented in opening the Xiang Fang Li account were fictitious and the signature of one of the purported referees to the Xiang Fang Li account, Mr Kazeem Lawal, was conclusively found to be forged.”
The businessman contended that the bank did not do its due diligence “to verify the true identity of the account holder, the true identity of the referees supplied during the account opening as well as the validity of the account opening documents.”
But the bank urged the court to dismiss the businessman’s suit.
While absolving itself of complicity in Emmanuel’s loss, Zenith Bank contended that Emmanuel did not contact it for advice on the alleged business transaction he had with Muna before paying the sum of N177.5 into the supplied account.
“The claimant failed to request a bank guarantee of the alleged sum from or requested that the defendant issue a confirmation or a letter of comfort before dealing with both Ms Muna and Xian Fang Li.”
The trial in the matter comes up in October.
Customers rise against arbitrary charges
Perhaps the most common source of disputes between banks and their customers in recent years is ‘arbitrary’ charges.
On March 1, 2016, the President of the Consumer Advocacy Foundation of Nigeria (CAFON), Mrs Sola Salako, said 400,000 bank users lodged complaints against arbitrary charges by Nigerian banks between June 2015 and December 2015.
Salako, in an interview with the News Agency of Nigeria (NAN), said the rate at which bank users were complaining about excessive charges, was alarming.
Salako said: “The protest has become expedient due to constant complain by banks’ customers over excessive charges.
“Nigerians are known to be very tolerant. They will not complain about anything until it gets to an unbearable level.
“When it gets to a crescendo and you go online, you see people posting their complaints over excessive bank charges,’’ she said.
E-fraud disputes
Evidence also suggests that as more customers embrace e-payment channels, including Point of Sale (PoS), Automated Teller Machines (ATM) cards and mobile banking Apps, cases of e-fraud, insider abuses and poor quality of service will increase, pushing some frustrated customers to seek legal redress.
For instance, when Idongesit Harrison Umoh, Director of Idong Harrie Ltd, received a debit alert for a N100,000 transfer from one of her company’s two Diamond Bank accounts at about 3:32 pm on June 8, 2017, she was puzzled. She had not made any transfer to anyone. She opened her phone and read the message in full. The recipient was one Uzorka Onyeka, someone she did not know.
Umoh told a Tinubu Magistrates’ Court in Lagos that she immediately ran to the Diamond Bank branch at Ogunlana Drive, Surulere, Lagos to stop the unauthorised withdrawals.
According to her Statement of Claim, “when she got to the Defendant’s Ogunlana branch, the unauthorised withdrawals were still ongoing.
“…While she was in the Defendant’s Ogunlana branch when she instructed the Defendant’s official to immediately block her account, the unauthorised withdrawals were still ongoing but the Defendant could not stop them.
“…By the close of business on the 8th day of June 2017, the total sum of N2,036,000 had been fraudulently and unlawfully withdrawn from her two accounts domiciled with the Defendant.
“The Claimant avers that the unauthorised fraudulent transactions were done with the complicity of the Defendant’s officials…”
Diamond Bank contested Umoh’s claims.
It averred that the claimant might have unwittingly divulged her log on information to the suspects, thinking she was communicating with the defendant, which would have made them have access to her funds.
In its defence, “The Defendant states that the Claimant clearly informed the Defendant that before its arrival at the Defendant’s Ogunlana branch, the fraudsters had succeeded in withdrawing the said N2,036,000.00, however, Claimant was still receiving “registration code text” on its phone even whilst in the bank, which prompted the defendant to block claimant’s account and disable its web pay.
“The defendant states that the unauthorised withdrawals were not ongoing whilst claimant was in the defendant’s branch. The claimant categorically stated that the entire sums were ‘withdrawn from its account before its arrival at the defendant’s branch.
“The Defendant that indeed there was an unauthorised fraudulent transaction in the accounts of the Claimant, but none was done with the complicity of the Defendant’s officials. The officials of the Defendant were never involved in the fraudulent transfer of Claimant’s funds.”
But in her judgment on July 19, 2019, Magistrate F.M. Dalley resolved the dispute in Idong Harrie’s favour and ordered the bank to pay the defendant over N1million as refund of the stolen amount and an additional N600,000 as costs of the action.
Lessons from Innoson, GTB, Customs rift
The Innoson Motors, GTBank and Nigerian Customs Service debacle is the messiest high profile bank-customer dispute in recent Nigerian banking history.
According to analysts, it is an example of what a bank-customer relationship should not be.
The outcome of the about five cases between Innoson and GTBank might result in the bank losing billions and the vehicle manufacturer’s chairman, Innocent Chukwuma, convicted for a criminal offence.
On May 22, 2019, a Federal High Court in Awka, Anambra State refused to suspend the execution of its order obtained by Innoson against GTBank.
The court also refused to set aside the orders it made on March 27 granting Innoson Nigeria Ltd leave to enforce the judgment, issue processes for enforcing the judgment and levying execution of the Writ of Fifa against the bank.
The court had on March 27 granted leave to Innoson Nigeria Ltd to enforce and execute the judgment and Garnishee Order absolute made at the Ibadan Judicial Division on May 18, 2010, and July 29, 2011, respectively.
The order was concurrently affirmed by the Court of Appeal in the judgment of February 6, 2014, and by the Supreme Court in its judgment of February 27, 2019.
In response to the execution of the order of the court, GTB approached the court seeking orders to suspend the execution and also set aside the exparte orders made by the Court granting Innoson leave to enforce the judgment.
In its decision, the court held that the order it made on March 27, 2019, in favor of Innoson Nigeria Ltd granting it leave to enforce the judgment and issue processes of execution of the judgment are valid and that all the steps taken to levy executions in pursuance of that order are still valid and is not vacated.
However, the court stayed further proceedings in the matter to enable the Supreme Court to hear GTB’s newly filed motion.
Subsequently, the matter was adjourned to October 17 for the hearing of other pending applications.
The judgment sum against the bank, plus interest, is between N8billion and N14billion, according to Innoson.
What banks, customers must do
The Managing Consultant of SMD Consulting, Fola Oseni, narrowed the problem, particularly of arbitrary charges, to two issues: banks’ disregard for Central Bank of Nigeria (CBN) regulations and customers’ ignorance.
Oseni, a forensic accountant, said: “The first thing to understand before giving advice to banks and their customers on how to stem disputes between them is to know what is/are the cause(s) is of the dispute(s).”
Oseni added: “Banks should ensure that they operate customer accounts in line with CBN Regulations, in line with the terms and conditions of the executed contract between them and the customers as well as in line with the tenets of the banker-customer relationship.”
“On their part, customers should seek professional advice from a Forensic Accountant, most importantly when they want to go into borrowing from the banks.
“They must monitor transactions in their accounts regularly, request from the bank their statement of account on a monthly basis and report immediately any exception in their statement of account to the bank.
“They should also seek explanation on the exceptions from the banks and ensure that it is corrected.”