A bank chief has lamented that chronic debtors now view courts as havens: they dare creditors to go to court knowing an end will not be in sight anytime soon. Legal experts have warned that the much-needed investments to spur economic transformation will remain illusory if the court system is not revamped. They pointed the way forward, writes Deputy News Editor JOSEPH JIBUEZE.
Go to court! This is the language of those who know that the inefficient court system will work in their favour.
They know they can get away with impunity because cases, especially commercial ones, can drag on for ages.
Legal experts have, therefore, advised that the Federal Government’s efforts to attract foreign investment must be backed by urgent legal reforms.
According to them, the perception of Nigerian courts as a haven for contract violators must change, and fast.
A report last month by Marketforces Africa painted a picture of the problem.
It says: “Nigeria’s judicial system lacks speed, though many are still not sure about the accuracy of decisions either.
“What is clear is that when justice is served, it is served hot for one, and cold for another. Financial market cases and commercial cases take an eternity to resolve.”
The report adds: “A dirty financial market is one where investors don’t get justice due to a strapped legal system.
“In Nigeria, many of these cases take decades to resolve if they will ever be resolved.”
Such perception is certainly not good for a country that needs investments to transform its economy.
And the situation has been many years in the making.
Writing for britishcouncil.org in 2015, Dr Bob Arnot says: “Nigeria’s legal and judicial system is sluggish. In 2012, it took an average of 583 days to conclude a commercial case in a court in Lagos, the commercial capital.
“When a case goes on appeal, it takes even longer. Nigeria’s Supreme Court is still dealing with appeals filed in 2005. Such delays tie down capital and discourage businesses from investing.”
The situation has become so bad that according to Managing Director/Chief Executive Officer of Polaris Bank, Adekunle Sonola, chronic debtors now find the courts as a haven.
The inefficient system, he noted, also boosts impunity rather than the courts serving as a deterrent to criminality.
“The weaknesses of the legal/judicial system encourage illicit economic activities. There is a strong correlation between illicit economic activities and the effectiveness of the legal system across countries,” Sonola said.
He noted that even when a protracted case is eventually decided, the value of the recovered debt would have depreciated massively.
The consequence, according to him, is that the economy suffers, with many investors afraid of entering into contracts because their rights are not adequately protected and contracts are not effectively enforced.
“There is a general disregard for contract terms which makes the economy less investible.
“Many Nigerians reject direct investments when they will not be actively involved in operations and management, as contracts cannot be timely enforced.
“This makes capital inaccessible, and the economy suffers for it,” Sonola said.
The Polaris Bank chief spoke when he delivered the dinner lecture of the Nigerian Bar Association (NBA) Lagos Branch.
“An effective legal system must be designed to prevent opportunistic loan defaulters from exploiting vulnerabilities within the system,” he said.
How commercial cases are delayed
Joan Monye, Patience Obiagbaoso and Richard Obidegwu, in an article on Punuka.com, noted that the court rules and procedure contain loopholes that are easily abused to make adjudications long-drawn.
According to them, the judicial process is set up to work efficiently, but in reality, litigants and lawyers exploit loopholes to frustrate other parties and drag the matter for as long as possible by adopting different delay tactics.
The most common delay tactic is the preliminary objections challenging the jurisdiction of the court or on mere irregularity or based on some perceived defects (sometimes imaginary and illusory).
For preliminary objections, the trial court is obligated to deliver its ruling on the objection one way or the other.
Where the preliminary objection fails, another tactic which is sometimes executed to further delay proceedings is to appeal the ruling.
When interlocutory appeals are executed tactfully, it could end up stalling any real progress in the matter for many years, particularly where a stay of proceedings at the trial court is granted.
“It is, therefore, advocated that to avoid mischievous use of the court process to frustrate proceedings, the court considers each application before it on its merits and exercise its discretion judicially and judiciously by striking out/dismissing applications which do not aid substantial justice,” Monye, Obiagbaoso and Obidegwu recommended.
How to speed up commercial cases
Festus Ukwueze and Emmanuel Wingate of the University of Nigeria (UNN), noted in a study that the enthusiasm that greeted the adoption of a fast-track procedure to expedite certain classes of commercial and foreign investment disputes at the Lagos High Court and some other states over a decade ago, appears to have been dampened by poor results, as such cases continue to clutter up the courts’ dockets.
After analysing the rules for the fast-track procedure, the researchers concluded that to achieve the desired aim, there is a need for further reform to relieve fast-track courts of cases not suitable for the procedure and to allow judges of the court more flexibility in applying the rules.
Immediate-past Minister of State for Budget and National Planning, Prince Clem Agba, stressed the need to prioritise commercial cases as is done to election petitions.
According to him, development will be hampered without quick and efficient commercial dispute resolution mechanisms.
Speaking at an event in honour of the late Supreme Court Justice, Chukwunweike Idigbe, Agba said: “It is the extent to which we factor economics and commerce in our legal jurisprudence that determines our development.
“The bane of our development is the relegation of economics in our political ideas and commercial jurisprudence in our legal process.”
Agba faulted what he described as “the inordinate attention to politics in the nation’s legal jurisprudence instead of commerce or economics”.
He added: “No matter the investments that we make in infrastructure or other developmental facilities, sustainability is a function of our commercial jurisprudence.
“A legal system that facilitates prompt and timeous resolution of electoral disputes, while neglecting commercial disputants is prone to under-development or socio-economic stagnation.
“Whether local or foreign, investors are more keen on the state of the judicial organ and prevalent jurisprudence, in taking or making critical investment decisions.”
Sonola, at the NBA dinner lecture, stressed the need to restore faith in the legal system.
“The public confidence in the legal system must be rebuilt. This will positively impact businesses and investment.
“Timely and efficient delivery of justice is imperative for fostering a conducive business environment and instilling confidence in legal processes,” Sonola said.
He called for specialised courts or commercial tribunals with powers to determine commercial disputes faster.
Alternative Dispute Resolution (ADR) mechanisms, he said, must be a critical part of the system, while court processes should be digitalised.
The legal system, Sonola believes, must be end-to-end automated as much as practicable and be accessible to all. At the same time, reforms must keep up with the dynamic economic and social environment.
To him, the importance and criticality of an efficient legal system to businesses, investment and overall economic well-being have not enjoyed proportional public discourse attention, which must change.
He advised: “Ensure the adequate number of judges with equally adequate remuneration. Continuously review court rules to strengthen process efficiency.
“Lawyers are critical agents of reformation. They must prioritise justice delivery above playing the legal system
“Reformation will require support from the Ministry of Justice and the National Judicial Council
“Government, at all levels, must show commitment and provide the necessary funding.”
Arbitration to the rescue?
Arbitration clauses are inserted into many contracts, but sometimes awards are also challenged and some still end up in regular courts.
Uzoma Azikiwe and Olukayode Dada of Udo Udoma & Belo-Osagie still believe arbitration is a key way to deal with lengthy litigation procedures
They called for ADR to be strengthened as a key part of commercial litigation processes.
In a joint analysis published on the law firm’s website, they also called for stricter application of the rules of civil procedure of the high courts that enjoin parties to have recourse to ADR or the multi-door courthouse as an alternative for resolution of their disputes and then give the resultant terms of settlement a stamp of judicial authority.
They also want the Fast Track Procedure (FTP) under the Civil Procedure Rules to be revamped to offer investors and entrepreneurs another opportunity for a speedy resolution of commercial disputes.
Sanction lawyers who file frivolous cases
In the view of NBA Lagos Branch Chairman, Olabisi Makanjuola, lawyers who file frivolous cases or who manifestly frustrate commercial cases should lose their continuing professional development (CPD) points.
He called for a filtering system to reduce the number of cases filed in court or that end up on appeal.
This, he said, is a way to decongest the courts, reduce delays, and lessen the workload of judges and Justices.
Makanjuola, a partner at Olaniwun Ajayi LP, said: “There needs to be a filter on the types of cases that get into our court system. In Nigeria today, there is an automatic right of access to court.
“I can go to court to file a suit against you asking for a declaration that you’re a woman even though I know you’re a man, or that you’re a man when I know you’re a woman, and the court will accept such processes.
“So, until there is a filter, where litigants no longer have an automatic right to access the court; and until lawyers begin to lose CPD points for filing bad cases, the problem will persist.
“When these are done, only cases that have merit will end up in court, and only cases whose appeals have merit will be filed at the appellate courts. Those are ways we can bring sanity to the system.
“There has been a lot of debate on amending the constitution to limit what goes to court or on appeal, but until we put our mouth where our money is, these issues will not stop.”
Legal experts and practitioners shared their views on how to address commercial litigation challenges.
Ajibade: Courts must develop workable systems
Managing Partner of S. P. A. Ajibade & Co, a leading corporate and commercial law firm, Dr Babatunde Ajibade (SAN), said the problem identified by the CEO of Polaris Bank is symptomatic of the gross inefficiency of the system of administration of justice in Nigeria at present, which manifests in many ways.
He said: “The first is the inability/unwillingness of our courts to develop workable systems of dealing with matters that are time-bound and of significant economic impact and treating them with acceleration and dispatch, relative to other matters that do not have such characteristics.
“Matters such as bank debt recoveries, arbitration, shipping, etc, fall within this category and should not be queued along with disputes concerning title to land, chieftaincy, etc.
“Second, is the unwillingness of our heads of courts to recruit a sufficient number of seasoned commercial practitioners to the bench and create specialist divisions manned by such judges, who by virtue of their practice, possess the practical knowledge and experience to deal with commercial matters, with dispatch.
“We know what the challenges are, and we know what the solutions are. What we don’t yet know is whether there is the necessary political will to solve these problems.
“Until we do, our yearning for an improved economic climate and for an increase in foreign direct investment is unlikely to be satisfied.”
Tackle frivolous applications, adjournments, says Oguntade
Principal Counsel at GMO Legal, George M. Oguntade (SAN), noted the trending catchphrase expressing the perception of the weakness of the system is “Go to Court”!
He said: “It is a very terrible indictment of our current judicial system where cases of all nature take inordinate lengths of time running into several years to hear and determine.
“The way things presently work, a bank debtor who has lost a recovery case brought by the bank after about five years or so in court, will simply file a frivolous appeal along with a motion for stay of execution at the Court of Appeal which will take at least another five years or more to be determined.
“Another defeat there, and the defendant simply heads to the Supreme Court where the case may spend another eight years or more to be determined.
“In the intervening period, rampant inflation would have significantly reduced the value of the judgment sum such that any victory the bank ultimately obtains at the Supreme Court is essentially pyrrhic in nature and tantamount to a loss in real terms.”
Oguntade identified the factors responsible for this.
He said: “The first and most important is the fact the recalcitrant defendants file all manner of frivolous applications specifically designed to waste judicial time without any serious sanction for such conduct. This should not be so.
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“In more advanced jurisdictions, where an interlocutory application fails or is adjudged as frivolous, substantial costs are awarded against such defendants.
“This is the ultimate deterrent to any defendant and ensures that only serious interlocutory applications are filed.
“For some reason, there still appears to be a general reluctance on the part of our courts to utilise this judicial weapon in their armoury.
“Costs awarded by our courts are minimal and grossly inadequate. What this does is encourage a defendant who knows his case is weak and that the cost of delaying a case against him is next to nothing.
“There is also the issue of adjournment of cases for one reason or the other. Most times, it is a result of constant power outages which results in the courts being unable to sit.
“This perennial infrastructural problem affects not only the courts but the entire economy of the country.”
Oguntade also believes not every case should go on appeal.
The SAN added: “Another fundamental issue is that of the automatic right of appeal contained in the Constitution. This results in the appellate courts’ dockets being congested and overloaded with appeals that have no right to be there. This is a huge problem and will require a constitutional amendment to be remedied.
“Again in other advanced jurisdictions, the right of appeal is not automatic. Where the grounds of appeal are not substantial enough, leave to appeal will be denied and that is the end of the matter.
“Challenging that decision on weak grounds will only lead to more financial prejudice for a defendant and such a step will not be embarked upon lightly.
“I believe the starting point should be with the Magistrate Courts and High Courts where processes are regularly abused with impunity.
“Our judges can begin to change things by seriously applying the extant cost regime which will reduce frivolous applications and which in turn will ultimately reduce the time it takes to hear and conclude a matter.”
Enebeli: prohibit stay of proceedings, interlocutory appeals in commercial disputes
A Partner at Pinheiro LP, Chukwudi Enebeli, said there must be a judicial policy to prohibit the stay of proceedings and interlocutory appeals in commercial disputes which have an impact on the economy.
To him, the comfort debtors get from the courts today is borne out of the fact that our judicial process is slow, and despite the complaints about this problem, nothing has been done to date.
Enebeli said: “If we are serious about wooing or attracting foreign investments, we must do something about cases arising from commercial disputes.
“No serious investor will come into a country where there is uncertainty in the time frame to resolve a simple dispute.
“It is these commercial activities that drive the economy and unfortunately cases arising from these activities are not given priority in our courts.
“A typical insolvency case takes nothing less than 10 to 15 years to go through the hierarchy of courts.
“In some situations, several interlocutory appeals may be filed, all in a bid to frustrate the substantive suit.
“While we give election petitions priority, the time has come for us to make the necessary amendments in our law to create special courts where commercial cases especially insolvency cases will be given priority.
“If election petitions have a lifetime of approximately ten months to go through the judicial process, I see no reason why insolvency cases should take more than two years in the very complex ones.
“With the priority and attention we have given to election petitions, we have tacitly made it the driver of the economy while the commercial cases remain in the back seat in the court’s docket for such a long time. This should not be so.”
According to the lawyer, it is also common to find debtors sue the banks while they deliberately prolong the case in a manner that will prevent the financial institution from initiating recovery steps.
Enebeli said: “To address this, the courts should penalise both counsel and the parties by awarding such punitive costs which must be paid as a condition to appeal if the party intends to appeal.
“A few years ago, AMCON (Asset Management Corporation of Nigeria, an agency created to resolve the non-performing loan assets) released a report of a N5.4 trillion debt portfolio.
“With such a debt portfolio made up of bad, doubtful and lost facilities most of which are in various courts, I do not think foreign investors will take us seriously.
“I would have suggested banks adopt alternative dispute resolution through arbitration but again we are a litigious society and more often than not, upon the arbitral award which one party seeks to enforce, the other party seeks to have the award set aside and again parties are bugged down in court.
“While I recognise that the Court of Appeal has a Fast Track Rules for debt recovery actions, these Rules have not achieved much.
“In summary, there must be a judicial policy to prohibit stay of proceedings and interlocutory appeals in commercial disputes which have an impact on the economy.
“In addition, there should also be a policy to freeze the accounts or assets of debtors or companies linked to them once a recovery action is filed.
“The burden should then be shifted to these entities to show why such order(s) should be discharged. It becomes their duty to dissociate themselves from the debtor or debtor company.”
A Partner at Allen & Brooks, Mobolaji Oriola, said it was sad and quite embarrassing when people who have breached contracts, violated laws and laid down procedures, are the ones who often dare those whose rights have been violated to go to court.
According to him, the reason is simple, they believe that the matter may be in court for donkey years, during which the debtor is roaming around freely, while the creditor suffers.
Oriole noted that every successive government in Nigeria has promised to put in measures to attract foreign capital into the country.
He said: “I think we must all understand one very important issue, which is, when going into a contractual relationship, a foreign investor wants to be assured that the terms of the contract will be honoured.
“He also wants to be assured that if there is a breach of contract, there is an effective justice system that ensures the breach is remedied in a way and manner that is timely and efficient.
“I find it a bit worrisome when people lay the blame squarely at the feet of the judges. We must understand that while we ask for the best from our judicial officers, we must equally ensure that the conditions under which they operate are not only befitting but are good enough to attract the best of minds in our profession.
“Today, if you ask a Lawyer to choose between being a judge and a legislator, such person will rather be a Legislator, as that most assures of a better economic return.
“Judicial remuneration and welfare are critical. This is because the responsibilities of the judges are such that they must be well remunerated.
“Proper remuneration encourages people especially the very brilliant and diligent minds, to join the judiciary.
“It also motivates the current judges to be efficient, and reduces the probability of judges engaging in unconventional methods.”
Oriola said there must also be a way to incentivise excellence, reward performance and penalise unprofessional conduct.
This, he believes, will help stimulate efficiency in the system, adding that delay tactics must be abhorred and legislated against.
He added: “Another critical issue is the catastrophic delays in our judicial system. This issue isn’t also squarely at the feet of the judiciary, as lawyers often employ delay tactics as a strategy in litigation.
“Processes have been put in place to ensure that counsels who engage in such practice are penalised. This is a welcome development and we still have a long way to go.
“Our rules of court are much better, but still have a long way to go. The judges have a part to play also, as there is a need to implement continuous training which will enhance efficiency and effectiveness.
“Technological advancement has made the work of judges smoother in other climes. Some strides have been achieved in Nigeria, but there is still a lot more to do.
“There needs to be complete independence of the judiciary such that issues around fiscal policy, which has been a stumbling block in judicial independence, can be removed, as that will enhance efficiency in the judiciary.”
A partner at Punuka Attorneys & Solicitors, Adeyinka Abdulsalam, stressed that the challenge of bad debt in the Nigerian banking system and the slow recovery process cannot solely be placed at the foot of the court.
According to him, while it is conceded that the court is a major stakeholder in the loan recovery value chain and the slow judicial process indeed serves as a refuge for recalcitrant debtors, the banks also contribute greatly to the challenge.
He noted that most of the bad debts are without proper documentation and inadequate security.
Abdulsalam said: “A debtor that has something at stake in security advanced to secure a loan will also not be comfortable to have a matter stayed in Court for a long period.
For the court system, however, I think we need to change the perception and attitude of the judiciary to commercial matters.
“In Nigeria today, the order of priority given to hearing cases puts commercial disputes at the bottom of the ladder.
“Election petitions, criminal matters, revenue-related matters and AMCON matters amongst others are given priority and granted expeditious hearings over commercial matters that stimulate the economy.
“The challenge faced by banks in recovering bad loans through the Court system due to the slow pace of the judicial system is obvious.
“That is why the Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act, AMCON Act and the AMCON Practice Direction and other special legislations were introduced to ensure prompt recovery of bad debt.
“These legislations contain provisions that seek to remedy the mischief of debtors using the court as a refuge to avoid their repayment obligations. We need to extend most of these provisions if not all to the banks.
“We do not have to wait till the banks go under and their assets are acquired by AMCON before the debtors are made to pay their debts.
“While I do not subscribe to the idea of having a separate tribunal to deal with banks and debt-related matters, I am of the view that the High Courts can have special courts that will deal with debt recovery matters only.
”Attempts should also be made to have a unified practice direction that will regulate debt recovery proceedings and ensure expeditious determination of cases before the High Court.
“The Central Bank of Nigeria as the apex bank regulator should engage the National Judicial Council and the Attorney General of the Federation to see how this can be achieved.”
Abdulsalam suggested that the CBN, in partnership with banks, should make concerted investments that will ensure the special courts are adequately equipped to deliver on the tasks.
“There should be targeted investments in the courts’ infrastructure and training of judges on commercial disputes and debt recovery matters.
“At the appellate court, although the Court of Appeal practice direction applies to debt appeals, this is not given effect in practice.
“The Fast Track Practice Direction 2014 which ensures expeditious conclusion of appeals at the Court of Appeal mainly applied to Criminal Appeals and AMCON-related appeals.
“There is, therefore, the need to give effect to the Court of Appeal Fast Track Practice Direction in prosecuting debt-related appeals.
“As advocated by most people, there is a need to unclog the Supreme Court by limiting the number of cases that may travel to the Supreme Court.
“Debt recovery matters should also terminate at the Court of Appeal.”
Experts’ recommendations
· Specialised courts or tribunals to determine only commercial cases
· Set timelines for the determination of commercial cases
· The legal system must be end-to-end automated
· Ensure an adequate number of well-remunerated judges
· Continuously review court rules to strengthen process efficiency
· Lawyers must prioritise justice delivery above playing the legal system
· Political will needed through funding, amendment of laws, removal of bottlenecks
· Prioritise commercial cases as done in election petitions
· Introduce a filtering system to limit what goes on appeal
· Courts must award substantial punitive costs to deter frivolous applications, appeals
· The right of appeal should not be automatic, amend the constitution
· Introduce a policy to freeze debtors’ accounts until recovery cases are decided
· Give effect to the Court of Appeal Fast Track Practice Direction in prosecuting debt-related appeals.
· Heavily sanction lawyers who file frivolous motions designed to delay cases
