Govt agencies should not impose fines outside of the judicial process – Aluko

When key stakeholders in intellectual property management are listed, Folarin Aluko’s name will no doubt feature prominently. An intellectual property lawyer, Aluko is the Managing Partner of Trumann Rockwood LP, an Abuja-based law firm. He is also the Director of Intellectual Property Institute of Nigeria (IPIN), a foremost institution in Nigeria that is fully licensed to set standards, train, certify and promote the cause of intellectual property in the country. He is also the Director of the Intellectual Property Lawyers Association of Nigeria (IPLAN). In this interview, he examines the regulatory climate for businesses in Nigeria and contends that to fast-track economic growth and development, there is an imperative for reforms, including conformity by regulators themselves with the rule of law. Excerpts:

On the Ease of Doing Business Index created by the World Bank to measure how conducive a country’s business environment is, Nigeria regularly ranks poorly (Of 189 countries Nigeria ranked 170 in 2015). One reason for this has been the country’s confusing regulatory environment. It is common to have three or more supervising agencies overseeing an industry, with basically conflicting or overlapping roles. A case in point is the CBN and the Financial Reporting Council of Nigeria (FRCN), which both oversee financial statements. Why, in your opinion, is this the case?

Nigeria’s current ranking for 2016 is at 169. The results in the Doing Business reports are not arrived at arbitrarily. The World Bank Group aggregates each position upon a consideration of several factors, including government bureaucracy, legal and regulatory systems, taxation and basic infrastructure. Nigeria’s business regulatory environment today is a very complex and complicated maze of regulators, pseudo-regulators and opportunists. Many administrative agencies do not understand their roles and functions. Under our constitution, the National Assembly is responsible for making, reviewing and harmonizing Nigeria’s laws. Unfortunately, in the absence of well-defined roles, many administrative agencies deliberately and illegally act outside the scope of their jurisdiction.

It is clear that FRCN’s jurisdiction applies to all companies, including companies regulated by the CBN. By law, the CBN is the principal regulator in the financial services industry. The FRCN sets out and monitors compliance with accounting, actuarial, valuation and auditing standards of all companies. Therefore, in real terms, the CBN regulates Banks and other Financial Institutions, the FRCN develops and monitors compliance with Nigeria’s financial reporting standards by companies.

There is a generally held view that the Nigerian judicial system is slow due to deficiencies in infrastructure, manpower, incompetence, corruption and a lack of full commitment to the cause by judicial officers. Surprisingly, a few high profile cases have of recent seemed to enjoy a speedy process at the High Court. Will you agree with that assertion?

It is no news that the judiciary, like all other institutions in Nigeria, has been affected by our checkered history of democratic and military rule. The paucity of judges and courts at the federal and state levels in contrast with the number of litigants means that the courts deal with an enormous workload on a daily basis. We shouldn’t forget too that lawyers also delay cases by filing frivolous motions and applications. I believe, however, that Nigeria’s judiciary has risen to the challenge.

Some federal and state laws and rules of court have procedures for expedited hearing. In criminal matters, the Administration of Criminal Justice Act (ACJA) has dramatically reduced the lifespan of criminal trial. In civil disputes, more judges recommend and encourage litigants to explore arbitration and mediation as alternatives to litigation.

Due to the sometimes conflicting legislations on regulation, businesses sometimes inadvertently fall foul of a regulation or the other. In such cases where there is a conflict, what is the best approach for a business to adopt?

A company seeking to set up shop in Nigeria must carry out thorough due diligence on its proposed operating environment. Administrative agencies are established by laws which often provide administrative or quasi-judicial channels through which such disputes as to scope of jurisdiction can be resolved.

The best approach for a company faced with conflicting or regulatory oversight is to proactively seek administrative clarification or refer to the judiciary for an interpretation of the laws and conflicting functions.

There is no doubt that a comprehensive reform of criminal and civil procedures as well as the judicial system is needed for effective justice system and administration. But knowing how tedious and time consuming this could be, particularly at the National Assembly, what effort is the Nigerian Bar Association making in terms of public enlightenment and legislative advocacy to ensure laws are harmonized and the reforms carried out without delays?

The National Assembly should be held responsible for the current state of our laws. Today, the NBA’s Sections on Business Law, Law Reform and Legal Practice organize events to highlight critical areas where reforms are needed. Several prominent members of the NBA championed the recent review and enactment of certain laws, including the Evidence Act and the Administration of Criminal Justice Act.

In a situation where a regulator has been found by a competent court of law to have erred in its action(s) against an entity it regulates, what recourse is open to such business to seek compensation for damages. That aspect of the law is not fully appreciated by the public. Can you throw some light on that?

The foundation of our legal system is the constitution. The Nigerian constitution sets boundaries for the exercise of power by each arm of government. Sections 4 and 6 of the 1999 Constitution (as amended) vest the Judiciary and the Legislature with powers to check the excesses of the Executive. No administrative agency enjoys sovereign power The actions and decisions of administrative agencies are subject to judicial review administratively and by the courts.

According to Justice Edgar Ignatius Unsworth in Merchant’s Bank Limited v. Federal Ministry of Finance, “A court of law has jurisdiction to interfere and review the exercise of administrative power where there is allegation of bad faith or the slightest evidence of irregularity”. The court has the power to review the decision or action of this administrative body and in appropriate cases grant compensation for sustained damage.

Following from the question above is the fact that one can argue for the need for appropriate legislations and sanctions to check the excesses of regulatory bodies. It would appear that regulators consider themselves invincible, above the law. Shouldn’t the regulator be called out on its actions?

There are limits to the powers and functions of every regulator contained in their enabling laws. These enabling laws contain procedures and channels through which complaints against administrative decisions may be escalated. The actions of administrative agencies must be built on a foundation of fair hearing and natural justice otherwise the administrative actions will be overturned when challenged in court.

Of recent, the imposition of fines and sanctions on companies has become a fad of sorts for regulatory agencies. From MTN to Guinness and Stanbic IBTC, the news is all about infractions and sanctions. However, some of the businesses have gone to court to challenge such actions. What sort of impression comes to mind when you see a company squaring up against its regulator in court? Does that suggest the failure of other crisis-resolution mechanisms?

The honest truth, in my opinion, is that engaging in legal disputes are a distraction to businesses, although sometimes an action in court may just be a necessary distraction to preserve the rights of the business and its stakeholders. The opportunity cost in terms of man-hours, money and other resources lost during litigating can be quite significant. We often encourage aggrieved businesses to engage regulators constructively. When constructive engagement fails, the company may have to go to court. Administrative mechanisms provided for by law are often available as an alternative to litigation. Government must however act in good faith to lend credibility to resolution mechanisms.

Flowing from the above question is the issue of whether regulatory actions are properly weighed. Also, there is the potential of misguided pronouncements and resultant litigations eroding investor confidence and investments. Will you say this evolving trend is good for business and the economy?

On the issue of the imposition of fines and sanctions by administrative agencies, we need to clarify the position of the law. A fine is money paid as punishment for the commission of an offence. By law, only a court of competent jurisdiction can adjudicate on the commission of an offence. It is trite that a sentence can only be pronounced after a conviction for an offence has been made. It is also trite that an administrative agency cannot make a conviction for an offence- that falls within the exclusive jurisdiction of the judiciary.

In the recent case of Tope Alabi v. FRSC & 2 Others, suit no FHC/L/CS/1234/13, the Federal High Court sitting in Lagos held inter-alia, that the Federal Road Safety Commission (FRSC) lacks the power to impose fines as such would amount to an unlawful exercise of judicial functions. According to the court, “It is necessary to add that even in respect of strict liability offences, a court of law should appropriately declare the guilt of an alleged offender and then impose fine. FRSC’s function should not go beyond issuance of mere notices of offence.”

What the courts are saying is that a conviction must precede sentencing in line with the presumption of innocence guaranteed by Section 36(5) of the 1999 Constitution (as amended). It therefore amounts to a grave injustice to impose the sentence of a fine on a person who, according to the constitution, is innocent until a court or tribunal finds otherwise. When a law creates an offence that imposes either a penalty or a fine on individuals or companies, the administrative agency responsible must either prosecute or file a complaint with the appropriate authorities with the power to prosecute. By imposing a fine without recourse to the judicial process, an administrative agency will have resorted to self-help.

In the rare exceptions where a law empowers an administrative body to impose a fine, that law must also create a quasi-judicial organ to ensure that the principles of fair hearing and natural justice are observed, and that the agency does not act with impunity. These decisions are subject to judicial review by the courts. In the final analysis, Nigeria’s regulatory agencies should not be seen as revenue generating institutions.

There is an issue that we believe has not received sufficient clarification in the public space and it appears to be a thread running through the dispute between Stanbic IBTC, on one hand, and FRC and NOTAP, on the other. It is about branding and marketing rights. We present this issue in a simple question: Should local brands pay franchise fees to their parent companies? What does the Nigerian law say about franchise fees?

There are two regulatory issues here: there is the issue of intellectual property assignment and the payment of royalties; then alleged irregularity with the reporting of the financial data relating to the IP assignment.

With the first issue, as a general rule, individuals and corporate entities are free to transfer intellectual property without restriction. By Section 4 (d) of the NOTAP Act, NOTAP is required to register agreements (Technology Transfer Agreements) that govern the transfer of foreign technology between foreign entities and Nigerian individuals or businesses. The agreements must be registered not later than 60 days from execution. Foreign technology in this context includes the use of trademarks and the right to use patented inventions, among others, may refuse to register any contract or agreement where it believes that the terms of the agreement are unfavourable to the Nigerian party.

Although non-registration invalidates neither the agreement nor the legal transfer of rights, Section 7 of the NOTAP Act restricts payment due under an unregistered agreement in Nigeria to any person outside Nigeria by or on the authority of the CBN, the Ministry of Finance or any licensed bank in Nigeria. This means in essence that in order for a company to remit franchise fees to a foreign entity, the Agreement that forms the substratum of the franchise fees must have been submitted to and approved by NOTAP.

NOTAP has the power to advise the parties to vary or alter different provisions of the Agreement. NOTAP’s decision is clearly not absolute, where NOTAP refuses to register an application, appeals lie first to the Council of NOTAP and then to the Federal High Court and all the way to the Supreme Court.

With regards to the issue of the presentation of data in Stanbic IBTC’s financial statement, the Financial Reporting Act (FRA) requires the FRCN to notify Stanbic IBTC of any irregularities or noncompliance with Nigerian standards. Stanbic IBTC will then have the opportunity to respond by either defending or correcting the alleged irregularity.

When the Financial Reporting Council of Nigeria announced some sanctions against Stanbic IBTC and KPMG over alleged infractions, the Central Bank of Nigeria subsequently intervened to dismiss the findings, methods and sanctions by FRC. The CBN governor was emphatic that FRCN failed to follow due process. In the eyes of the law, who of the two agencies has regulatory control over Stanbic IBTC?

The scope of an agency’s regulatory control is defined by and derived from law. In order to answer this question, we will need to examine the laws that create both agencies. The principal statutes that set out the CBN’s powers and functions are the Central Bank of Nigeria (Establishment) (CBN) Act and the Banks and Other Financial Institutions Act (BOFIA). This includes a regulatory function over Banks and Financial Institutions as contained in Section 2 of BOFIA, naturally, this includes Stanbic IBTC as an entity. FRCN’s regulatory oversight pertains to general compliance of financial statements with national standards as contained in the FRA.

All companies are required to file financial statements at one point or the other when filing returns with the Corporate Affairs Commission or the Federal Inland Revenue Service or the Securities and Exchange Commission, among others. To this end, FRCN is expected to liaise with respective agencies in carrying out its mandate. In fact, the Board of the FRCN has representatives of the Central Bank of Nigeria, CAC, FIRS, ICAN, ANAN and other agencies and bodies. From the construction of the provisions of the FRA, it would seem that the legislature did not intend the FRCN to operate as a lone ranger. Section 67 of the FRA provides that “without prejudice to the powers of the Council under this Act, where an investigation carried out by, or on behalf of the Council, reveals that an offence may have been committed, the matter under investigation may be referred to the appropriate authorities.”

Without prejudice to the CBN’s powers in the banking industry, the FRCN has the power to invite any company over irregularities in financial reports or noncompliance with the provisions of FRA. The FRCN is however obligated to follow the procedure laid down by the FRA when investigating instances of noncompliance. Section 64 of the FRA lays down the procedure. The FRCN cannot decide to ignore the procedure laid down by law as a precedent for the exercise of its statutory powers. In the case of Onuzulike v. CSD Anambra State, Suit No CA/E/211/90; 1992 3 NWLR (Pt 232) at page 79, the court of Appeal held that: “When a statute requires that certain formalities in writing in a particular form are expected to be complied with, non-compliance vitiates other steps or actions taken thereafter…”. The FRCN must comply with all conditions precedent before its statutory powers can be said to be ripe for execution. Where the FRCN’s investigations reveal proof of noncompliance, the FRCN can neither convict nor impose the fines created by the FRA, but must refer the case to the appropriate authority for prosecution in a court of law.