The Recent Order of the Federal High Court Winding Up P&ID: The Legal Implications

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Mike Ozekhome SAN

INTRODUCTION

The Federal High Court in Abuja on 19th September, 2019, convicted and subsequently ordered the winding up of Process and Industrial Developments Ltd and its Nigeria affiliate, P & ID Nigeria Ltd.
The order was made by Justice Inyang Ekwo when some alleged representatives of P& ID pleaded guilty to an 11-count charge of fraud, money laundering, tax evasion and other sundry offences in connection with the 2010 controversial judgement by a British court. The court had empowered the P&ID to seize about $9.6 billion worth of Nigerian assets.

The judgement also ordered that the “assets and properties” of the two companies be forfeited to the Federal Government of Nigeria. Through this process, Nigeria hopes to lay a solid foundation that the entire $9.6 judgement debt is rooted in fraud and corruption, and so cannot stand the test of judicial enforceability. This, Nigeria hopes, will enable her apply to set aside the judgement liability. 

The foreign P & ID incorporated in the British Virgin Island was said to have been represented in court by its commercial Director, Mohammed Kuchazi, while P & ID Nigeria Ltd was represented by one Adam Usman, a lawyer and Director of the company. They were both said to have pleaded guilty to the 11-count charge on behalf of the company bordering on advance fee fraud (419).

However, P & ID, through its counsel, Andrew Staffort, Q.C, of Kobre & Kim, based in London, has already denounced and repudiated the Federal High Court judgement. He described the trial and judgement as “sham and entirely illegitimate”. He accused the Buhari administration of targeting innocent individuals associated with the companies with detentions, using the EFCC, and vowed to “continue to identify and seize Nigerian assets”.

The Nigerian government order obtained from the Federal High Court, Abuja, is no doubt a good response from the domestic angle, but it appears to me that the best way out for us as a Nation, for now is to first attack the main judgement and the award, and immediately file an appeal and stay of execution of the judgement. The reason is that the Federal High Court in Abuja does not have extra-territorial jurisdiction over the UK court that okayed the award, and the arbitral tribunal in the UK that initially made the $9.6 billion award. The Federal High Court in Nigeria can only prevent execution of the award from being effected against government properties and monies domiciled in Nigeria, but not against such properties and monies domiciled within the 28 EU countries and 60 countries that make up the New York Convention, to which the arbitral award is subject to execution against Nigeria. I had earlier on posited my legal opinion, pro bono, to the Federal Government, as a Nigerian patriot.

More significantly, the conviction and winding up of the P&ID were carried out after the arbitral award had been made and entered by a British  Court. Rights, duties and obligations had already accrued and enured and same cannot be abated or cancelled retroactively, by a futuristic order as just done by the Federal High Court, Abuja. We should also note that the company, though limited, has human beings running it as Directors and alter egos, since the P&ID as a corporation, is an inanimate subject that acts through the instrumentality of living human beings. This is a trite principle of law established in the case of Salomon v Salomon.

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THE RULE IN SALOMON VS SALOMON & CO. LTD (1897) AC 22.

The principle of Corporate Separate Personality has since been firmly established in the common law, since the decision in Salomon vs Salomon & Co. LTD. It is to the effect that a corporation has a separate legal personality, rights and obligations totally distinct from those of his shareholders. Legislation and courts never-the-less sometimes pierce the corporate veil so as to hold the shareholders personally liable for the liabilities of the corporation. Courts may also lift the corporate veil in the conflict of laws in order to determine who actually controls the corporation and thus to ascertain the corporations through contracts and closest and most real connections. When a company receives a certificate of incorporation, it has a separate legal personality. In law, the company becomes a legal person in its own right.

The global consensus therefore is that courts of law in certain circumstances can pierce the veil if there is an abuse by the Shareholders or Directors, or where there is an apparent impropriety. In addition, pundits and legal scholars have also advocated the possibility of holding shareholders liable for the company’s debt as well. For the veil to be lifted, four conditions must, however, be met, to wit:

1. A loss must have occurred.

2. A limited liability company must have been used in an artificial and reprehensible way as a means to avoid a payment liability for its shareholders.

3. There must be a casual link between the loss and the cause and

4. It must be possible to identify the shareholders in the limited liability company.

The above prerequisites must co-exist simultaneously for the corporate veil to be pierced. This alter ego theory was applied by the Nigerian court in Fairline Pharmasetical Indutries Limited vs Trustadjusters Nigeria Limited (2012) LPELR 20860 (CA).

The Nigerian Apex Court gave credence to this façade theory in ALade vs Alic (Nig. LTD) ( 2010) 19 NWLR (PT 1226) Pg 111 @ 127 (paras E-F), where it held thus:   “it must be stated that this court as the last court of the land will not allow a party to use his company as a cover to dupe, cheat and or defraud an innocent citizen who entered into a lawful contract with the company, only to be confronted with the companies legal entity as distinct from his directors’’.

THE RULE IN TURQUAND’S CASE

However, going by The Rule in Turquand’s case, it may be difficult for Nigeria to rely on alleged non-approval of the contract with P & ID on the grounds that it did not follow due process in Nigeria, or that it was not approved by the Federal Executive Council (FEC) or that it breached sections 2 & 3 of the Infrastructural Regulatory Commission Act. The reason is traceable to The Rule in Turquand’s Case.

THE PRINCIPLE AS LAID DOWN IN ROYAL BRITISH BANK VS TURQUAND (1856) 6 E & B 327

This is a very famous company law principle which held that people transacting with companies are entitled to assume that internal company rules are complied with, even if they are not. This (Indoor Management Rule) or The Rule in TURQUAND’S Case is applicable in most of the Common Law World, including Nigeria. It originally mitigated the harshness of the constructive notice doctrine and in the UK, it is now supplemented by the Companies Act, 2006 Section 36-41.

The indoor management rule has been applied in the Nigeria case of Metalimpes vs A.G Leventis & Co. Nigeria Limited (1976) 2 SC 91, (1976) 1 ALL NLR (PT 1) 94.

The Court held in that case that a person dealing with a company is entitled to assume, in the absence of facts putting him on enquiry, that there has been due compliance with all matters of internal management and procedures required by the Articles and is not required to enquire into the internal workings of the Company.

Similarly, in the case of Trenco Nigeria Limited vs African Real Estate and Investment Company (1978) 3 SC 9, (1978) 1 LRN 146, the Supreme Court also held, applying this rule, that the Defendants were entitled to assume that the Chairman of the Plaintiff’s company had the authority to enter into a binding contract with a Defendant’s company on behalf of the Plaintiff’s company.

WAY OUT FOR NIGERIA

The best way for Nigeria to move forward therefore is for the Federal Government to further arraign, prosecute and convict the brains behind the company, who are currently abroad. The Administration of Criminal Justice Act (ACJA) allows this sort of trial in absentia if it is shown to the satisfaction of the court that the suspects were duly served with the criminal charges and the date of arraignment communicated to them, but that they refused to make themselves available for trial. A bench warrant will have to first be issued. See sections 352 (4) of Administration of Criminal Justice Act (ACJA) 2015. See also sections 113, 131, 134, 177, 382 and 399 0f ACJA.

See the Cases of Apugo v. FRN (2017) lpelr-41643 (CA); Cadbury Nig Plc v. FRN (2004) LPELR- 5422 (CA); Chukwu v. IGP (2018) LPELR-45249 (CA); Glencore Energy UK Ltd v. FRN (2018) LPELR 43860 (CA).

Chief Mike Ozekhome, SAN, OFR, FCIArb., Ph.D, LL.D.

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