Category: Newsletter

Intestate Succession Under The Marriage Act

When a person who was married with children dies intestate (without a will) then difficult questions arise. Who are the beneficiaries entitled to the deceased’s property? Should the estate be distributed according to Customary Law or received English Law. These questions sometimes cause the members of the family to engage in a bitter dispute which may result in litigation.

One of such cases was Salubi v Nwariaku (2003). The deceased died intestate survived by his wife whom he married under the Marriage Act and left behind substantial property. There were two children born by said wife and two other children born out of wedlock. On the death of the deceased intestate letters of administration were granted to his wife and the first son but she declined to be an administrator. The eldest surviving child of the deceased, unhappy with the management of the estate by the first son, commenced legal proceedings to set aside the letters of administration. She also sought an order that the estate of the deceased be distributed to all the beneficiaries in accordance with the Administration of Estates Law which governs the estate of a deceased person who married under the Marriage Act. Section 49(5) of the Administration of Estate Law, states that, any property, which the deceased, who died intestate, might have disposed by a will shall be distributed in accordance with the provisions of that Law notwithstanding any customary law to the contrary.

The case of the first son was that the deceased being an Urhobo Chief and having died intestate, his property should be distributed in accordance with Urhobo customary law which entitled the eldest son to inherit the entire estate and distribute at his discretion. The trial court set aside the letters of administration and held that the estate should be administered in accordance with section 36(1) of the Marriage Act because the deceased had married under the Act and was no longer a person to whom customary law was applicable.

Therefore, the applicable law was English law and not Customary Law. The trial court therefore held that the widow was entitled to one-third of the estate and the children to the remaining two-thirds. Both parties were unhappy with the judgment and on appeal the Court of Appeal held that the applicable law to the succession of the deceased’s estate was English Law as stated in section 36(1) of the Marriage Act. The Court of Appeal also acknowledged the right of the widow to one-third of the total value of the estate. The first son further appealed to the Supreme Court which held that the applicable law to the succession and distribution of the estate was the Administration of Estates Law and not the Marriage Act. However, both laws have similar provisions and apply the English law on the subject.

Section 49(1) of the Administration of Estates Law states that, the estate of a person who died intestate shall be distributed in the following manner; the surviving husband or wife shall take the personal chattels absolutely and in addition the estate (excluding personal chattels) shall be charged with the payment of a net sum of money equivalent to the value of one third  of the estate, free of funeral expenses, to the surviving husband or wife plus interest from the date of death at the rate of 2½ % per annum until paid or appropriated and subject to providing for that sum the estate (excluding personal chattels) shall be held as follows; (a) one-third upon trust for the surviving husband or wife during his or her lifetime and subject to such life interest, on the statutory trusts for the children of the deceased; and (b) two thirds on the statutory trusts for the children of the deceased.

Section 36(1) of the Marriage Act states that, where any person who is subject to customary law contracts a marriage in accordance with the provisions of this Act and such person dies intestate leaving a widow or husband or any children of the marriage, the real and personal property of such person which might have disposed by will, shall be distributed in accordance with the provisions of the Laws of England relating to succession of estates, notwithstanding any contrary customary law.

The difference between the provisions of both laws is that, while section 36(1) of the Marriage Act incorporates by reference English law into our law of intestate succession, section 49(1) of the Administration of Estate Law directly and not by reference substantially incorporates the provisions of the English law on the subject into Nigerian law.

One other important issue decided in that case was the estate succession of children born out of wedlock. The Supreme Court held that such children were legal beneficiaries and therefore entitled to share in the estate of their father because the provisions of section 42(2) of the Constitution prohibits any form of discrimination by reason of the circumstances of birth.

Another of such cases is Obusez v Obusez (2007) which affirmed the earlier decision of the Supreme Court in Salubi v Nwariaku. In this case the deceased was married under the Marriage Act and died intestate leaving a wife and five children of the marriage. A conflict arose over the succession to his estate and the wife instituted legal proceedings against the deceased’s brothers who contended that the succession was subject to the Customary Law of Agbor in Edo State. She claimed a declaration that the widow and her five children were the only persons entitled to the estate of the deceased and therefore entitled to the grant of letters of administration.

The trial court held that under law of succession in Nigeria, where a person contracts a marriage under the Marriage Act, the lawful wife and her children were the only persons entitled to the estate of the deceased, and that as beneficiaries of the estate they were entitled to the grant of letters of administration. In effect, the applicable law was English law and not Customary Law. The brothers of the deceased then appealed to the Court of Appeal which affirmed the judgment of trial court. On further appeal the Supreme Court followed the decision in Salubi v Nwariaku and upheld the decision of the lower court. Onnoghen JSC said,

“It is not disputed that the deceased and the 1st respondent were married under the Marriage Act in 1972 but that prior to that marriage both parties were subject to customary law with the deceased being particularly subject to Agbor Customary Law.  It follows, therefore, that by virtue of the said marriage and upon the death of the deceased intestate the provisions of the Administration of Estate Law of Lagos State becomes applicable particularly as the deceased and 1st respondent together with the children of the marriage resided in Lagos State at the time of the death of the deceased intestate.”

Finally, we must sound a note of warning and give a word of advice. To avoid the type of family dispute and the kind of litigation examined in this piece, it is advisable to consult a lawyer and prepare a will so that one does not pass on intestate leave behind problems for the family.

Significance Of The Term “Subject To Contract” In Property Transactions

The phrase “subject to contract” is sometimes used by estate agents and lawyers in property transactions in Nigeria. The question is whether the use of the phrase “subject to contract” prevents the creation of a binding and enforceable contract until a formal agreement is prepared and signed by the parties.

In International Textile Industries Ltd v Aderemi (1999), the landlord issued an offer letter marked “subject to contract” stating the terms of the lease which were accepted by the tenant. A cheque for the rent was issued and the landlord by letter again marked “subject to contract” accepted the payment. Meanwhile, the landlords changed their mind, sold the property to another person and refused to conclude the lease. The tenant filed an action claiming there was a binding contract to create a lease of the property but the landlord countered that since the letters were marked “subject to contract” there was no binding contract between the parties.

The Supreme Court held that there was a binding and enforceable contract to enter into a lease despite the use of the phrase “subject to contract” by the landlord. The court examined the meaning and relevance of the phrase “subject to contract” and said that the phrase is suited to English conveyancing practice which is governed by the Law Society’s Conditions but is inappropriate in our local conveyancing practice. Their lordships made the following pronouncements on the issue. His lordship Uwaifo JSC said;

“But more fundamental in regard to the use of those words in the circumstances of our established conveyancing procedure is the fact that it is clearly unwarranted, as I hope I have earlier demonstrated, to rely on them to frustrate or indeed sabotage by laying ambush with a purely sinister ‘subject to contract’ cudgel, a contract already fully concluded in all material particulars, the terms and validity of which the court can, or ought readily to, ascertain from documents available. The term ‘subject to contract’ has no settled effect – or shall I say no magic effect – yet, in my view, in our existing arrangement and procedure for conveyancing, whenever that phrase is used, it is my opinion that the merit and worth of it should always be open to the court to decide. That is one way of ensuring the integrity of concluded arrangements.”

His lordship Iguh JSC also said,

“There can be no doubt that as a general rule, the courts in appropriate cases construe the words ‘subject to contract’ or such similar incantations so as to postpone the incidence of liability until a formal contract is drawn up and accepted by the parties. It must however be stressed that the court must refuse to postpone such incidence of liability where there exists cogent and compelling evidence of a contrary intention on the part of the parties, the use of the phrase “subject to contract” notwithstanding. It must in each case be a question of construction whether the parties intended to undertake immediate obligations or whether they were suspending all liability until certain events happen.”

What this means, is that when parties to any property transaction have exchanged letters and agreed on terms and there is consensus ad idem on the major terms of the transaction, the courts will not allow one party to withdraw from its obligation under the guise that the negotiations were subject to contract or that no formal agreement had been prepared. Rather, the courts will declare and enforce a binding contract between the parties.

Now you know the law on the matter. Remember prompt legal advice prevents costly disputes.

Importance Of Replying Business Correspondence

Numerous business letters are received by offices every day. Sometimes they are not replied either deliberately or through negligence. It is either that they are not brought to the notice of management or the appropriate authority refuses to commit certain facts to writing.

It is bad business practice not to reply business letters. The failure to respond to business letters and to deny any statements against interest, will be treated as an admission of the statements. Two decisions of the Court of Appeal will serve to highlight the danger of not responding to business letters which contain statements against the interest.  In the case of Trade Bank v Chami (2003) the bank wrote a letter asking for repayment of a loan but the defendant failed to reply. The Court of Appeal held that his failure to respond to the letter was tantamount to an admission of the contents of the letter. Salami JCA said,

“The defendant in this case did not answer the letter and the failure or neglect to answer such a letter in the circumstance is tantamount to an admission of the assertion in it. The letter was not a social but business letter. While social correspondence may be ignored business letters deserve to be answered. The failure or neglect of the defendant to reply or answer the letter is amounts to an admission because what is asserted in the letter and is not denied is deemed admitted.”

In the case of Zenon Petroleum v Idrisiyya (2006) the claimant alleged that the defendant hired several trailers from them but failed to pay for some of the trailers and even refused to return some the trailers to them.  The claimant’s solicitors wrote to the defendant alleging detention of their client’s trailers but the defendant failed to respond to the letter.  The Court of Appeal held that the failure to respond to the letters was an admission of the detention of the trailers. The court followed the decision of the Court of Appeal in the case of Gwani v Ebule (1990) where their lordships said,

“Silence in circumstances in which a reply is obviously expected raises an irrebuttable presumption of admission by conduct or representation. In the instant case, failure of the defendant to reply to letters written by the claimant both personally and through their solicitors demanding payment for the labour he supplied from the defendant constituted an admission of liability by the defendant and lent credence to the claimant’s side of the case.”

It is important to note that there must be proof of delivery of the letter which is sought to be relied upon to prove the admission. Where the response to a business letter is an outright denial of the facts then no problem arises. The way to respond to business letters that contain statements that require an explanation is to clearly mark such letters “without prejudice” as this means that such letters cannot be used in evidence against the maker. Section 196 of the Evidence Act states that,

“A statement in any document marked “without prejudice” made in the course of negotiation for a settlement of a dispute out of court, shall not be given in evidence in any civil proceedings in proof of the matters stated in it.”

Once a dispute has arisen and contentious letters are received from the other party, it is always advisable to seek prompt legal advice before taking any further step in the matter.

Probate Estate Duty: A Strange Tax

There is a practice in the Probate Registry of the High Court in the various States of the Federation of collecting a certain levy or tax (commonly referred to as estate duty) before granting of Probate or Letters of Administration. Untold hardship and grave inconvenience is suffered by many people, who apply for probate or letters to administer the estate of deceased persons as a result of their inability to pay this tax.

Curiously, there appears to be no law or statutory instrument authorizing the collection of this tax. The Capital Transfer Tax Act 1979 was a Federal legislation which created a tax on the devolution or transfer of asset on the death of the owner of the property. However, since the repeal of the CTTA and the abolition of that tax in 1993 there appears to be no statutory authority to collect a wealth tax of this nature.

All taxes in various States of the Federation are collected by the local Inland Revenue Service on behalf of the State or by Local Governments. There is no provision in the laws of any State or specifically in the High Court or Probate Rules that authorises the collection of a wealth tax or estate duty. The Taxes and Levies (Approved List for Collection) Act 1998 contains the list of taxes that are approved for collection by all three tiers of Government and nowhere in that legislation is an estate duty or wealth tax mentioned. Moreover, State Governments cannot enact any law to impose or charge such a wealth tax or estate duty. The Constitution FRN empowers only the Federal Government to enact laws for charging or imposing taxes on profit, income and capital gains. See item 59 of the Exclusive Legislative List in Part 1 of the 2nd Schedule to the Constitution FRN.

This tax is currently collected by the probate registry but the High Court is a not tax collection agency. Under the constitutional principle of separation of powers, it is the duty of the legislation to create and impose taxes; the executive to administer and collect the taxes; and the judiciary to interprete and enforce the tax laws. For this reason in particular, the estate duty is a strange tax. Therefore, it is my humble and considered opinion that the State Governments should immediately desist from the collection of the wealth tax commonly referred to as estate duty.

Dispute Resolution Options For Insurance Claims

One inevitable fact in insurance business is that insurers will sometimes and for various reasons be required to contest or defend certain claims made by their insured. The traditional dispute resolution mechanism employed by insurers was litigation. Another well known though less widely used mechanism was arbitration. However, new alternative dispute resolution (ADR) mechanisms like mediation are now part of the variety of dispute resolution options available to insurers. To determine the best option in any given situation two critical matters must be considered and they are; (i) cost; and (ii) time. Other considerations are; (iii) procedure; (iv) enforceability; and (v) publicity.

2.      Litigation

2.1    This is an affordable option because apart from the cost of filing processes (fees are usually small) in court the Government and not          the parties bear the cost of the judicial umpire. However, each party    must still bear the cost of their legal representation. The major    disadvantage is that parties have limited control over the time      required for the conduct of the proceedings and therefore huge delays are commonplace. One advantage of litigation (apart from low         cost) over all other dispute resolution options is the coercive power of the judicial umpire and the ability to enforce the judgment or orders of the court.

2.2    The venue and content of court proceedings are open to the public (a constitutional requirement) with attendant media publicity which may adversely affect the image of the insurer.  The conduct of litigation is formal and complex rules of procedure and evidence are applicable causing several legal objections which delay the proceedings.

3.      Arbitration

3.1    This option has several advantages over litigation. The venue and content of the proceedings are not open to the public and there is no risk of adverse publicity. The time frame for the conduct of proceedings is usually agreed between the parties and the arbitrator and therefore delays are largely eliminated. The procedure is less formal and complex rules of procedure and evidence are not applicable greatly reducing legal objections which delay the proceedings.

3.2    The disadvantage of arbitration is that parties bear the cost of the Arbitrator and this is usually high. There is a fixed scale of fees which is determined by the nature of the claim or the duration of the proceedings. In addition, each party must still bear the cost of legal representation at the arbitration. Furthermore, in the practice of arbitration the loser alone may bear the cost of the Arbitrator. The prohibitive cost of arbitration remains the major reason why despite all the advantages it is still not the most favoured option.

3.3    One disadvantage of arbitration as a dispute resolution option is the absence of coercive power by the arbitrator and their inability to make orders to enforce the arbitral award. Parties are forced to approach the court to enforce the award and conversely parties may also approach the courts to challenge and set aside the award.

4.      Mediation

4.1    Mediation is a form of structured and voluntary negotiation between the parties with a mediator who does not make a final decision on the rights of the parties but encourages them to reach a settlement. Mediation is the most recent of the three options and now even more widely used than litigation or arbitration and this is because mediation is the cheaper option. Parties to mediation do not bear the cost of the umpire as in arbitration and legal representation is not compulsory as in litigation or arbitration.

4.2    Mediation like arbitration also has several advantages over litigation. For example, the venue and content of the proceedings are not open to the public.  Again, the procedure for mediation is less formal and complex rules of procedure and evidence are not applicable.  Also, the time frame for the conduct of proceedings is usually agreed between the parties and the mediator and so delays are reduced.

4.3    One disadvantage of mediation like arbitration is the absence of      coercive powers by the mediator and their inability to make any final     or      binding decisions or orders on the parties. In mediation when the parties reach a settlement they have to approach the High Court to enter the terms of settlement as a consent judgment and then seek the      coercive power of the court to enforce the judgment.

5.      Insurance Claims Disputes

5.1    Whenever an insurance claims disputes arises the insurer is always at a disadvantage because public and sometimes judicial prejudice is that insurers want to avoid claims payment. For this reason it is important for insurers to secure judicial umpires and legal representation who understand the intricacies of insurance principles and practice. Also for this same reason despite the prohibitive cost of arbitration it is still the preferable to litigation or mediation as a dispute resolution option for insurance claims. In arbitration, the insurer can secure the services of a skilled and competent arbitrator (parties choose and agree upon the arbitrator) who has deep knowledge of insurance law and practice and may not carry prejudices of the uninformed.

5.2    Litigation is the defendant’s paradise and this means that where the intention of the insurer is to delay the proceedings and frustrate the insured then litigation is the best option as all manner of legal objections can be raised. So the disadvantage of time and delay of proceedings combined with the disadvantage of formality of proceedings with complex rules can sometimes become an advantage when the need arises.

5.3    Mediation may not always be the best option for the settlement of insurance claims disputes. The simplicity of the process abhors technical insurance principles upon which an insurer many times will rely upon to contest or avoid a claim. Also, when mediation of an insurance claim breaks down it only serves to reinforce public prejudice that the insurer simply wants to avoid the payment of claims. For example, many lawyers and judges and the insuring public do not understand the meaning or application of average to property insurance contracts, let alone the difference from average in marine insurance contracts. Again there are several claims for return of premiums on life insurance contracts without understanding the meaning of surrender values.

6.      Legal Defences

6.1    When faced with adverse or contentious claims in-house counsel have a variety or cocktail of options to counter and defend the claims. An important consideration is the cost benefit analysis of the management and resolution of the dispute with an eye on the bottom line. Therefore, the first option is of course extra-judicial negotiation and settlement of the dispute. However, where that fails and the adversary decides to take further legal action then in-house will be forced to brief external counsel with instructions to raise the following possible defences to the claims.

6.2    Usually the first step will be to bring a preliminary objection to the     claims or suit in order to dismiss the suit in limine. Since demurrer is    not    permitted the defences must be raised in the statement of defence   except where jurisdiction is challenged. The following are the possible      defences which may be raised.

  • That the court lacks jurisdiction to entertain the suit
  • That the claimant lacks locus standi to bring the action.
  • That the action or claims are statute barred.
  • That the suit is an abuse of process.
  • Stay of proceedings pending arbitration.
  • That no pre-action notice was given by the claimant.
  • That the matter is lis pendens or subject to litigation.
  • That the service of the originating process was invalid.
  • That the defendant was wrongly joined as a party to the suit.
  • That the claimant has waived his right to bring the action.
  • That the action or claims are tainted with illegality.
  • The defendant may plead non est factum.
  •  That the pleadings do not disclose a reasonable cause of      action.
  • The defendant may plead estoppel against the claimant.

6.3    In conclusion, the most desirable dispute resolution option for an   insurer will depend on the nature and complexity of the insurance   contract and the insurance claim and the ultimate intention of the   insurer.

v Former Deputy Director, Legal Services at Industrial & General Insurance Plc, currently Managing Partner Lawfields Solicitors & Advocates.   

Wrongful Dismissal of Fraudulent Employees

When an employee is discovered to be engaged in fraudulent activities such as stealing money or property of the employer, this will clearly amount to an act of gross misconduct which is a ground for dismissal. However, the employee may challenge the dismissal and bring an action against the employer to claim damages for wrongful dismissal.

The question which has stirred much controversy is whether or not an employee who was found to be engaged in gross misconduct of a criminal nature must first be prosecuted and convicted by a court before he can be dismissed from the services of the employer. If this proposition is correct then it means that the employee must first be placed on suspension pending the conclusion of the criminal trial and if he is acquitted then he cannot be dismissed but his appointment may be terminated with notice.

The case of Garba v University of Maiduguri (1986), is widely quoted as being the authority for the above proposition. Now did that case really lay down this widely but wrongly held proposition? In Garba’s case students were expelled for riot, arson and looting after a hearing by an investigating panel set up by the Vice Chancellor. The Supreme Court held that the allegations against the students were breaches of the criminal law which the university was not empowered to treat as an internal matter without subjecting the students to a criminal trial. It is important to note that this decision had no bearing on the contractual relationship of master and servant. In Arinze v First Bank (2004), Belgore JSC while referring to Garba’s case said,

“This latter case has had many irrelevant references as holding that         once a crime is detected the employer cannot dismiss an employee    unless he is tried and convicted first. This is unfortunately an erroneous interpretation of that judgment.”

The proposition that employees cannot dismissed for gross misconduct of a criminal nature without prosecution will work injustice against employers as the employee may either be acquitted for technical reasons or the trial may be inconclusive. In Garba’s case Coker JSC highlighted some of the possible scenarios which may arise if this proposition is regarded as the correct position of the law. The learned jurist said,

 “What of if the misconduct committed by the student is of a criminal nature and for which after due prosecution in a court of law the student is acquitted on some technical ground? What if the conduct of the student besides the apparent criminal nature constitutes insubordination or willful disobedience to some regulation of the University or some lawful order or instruction? Would the Vice-Chancellor be inhibited from taking disciplinary action against such a student? What if for instance, the prosecution failed because the prosecutor refused to summon necessary witnesses to testify at the trial or if a vital witness was deliberately not called or could not be found or refused to attend even though summoned? Yet the Vice-Chancellor has before him credible evidence, which seems to him to justify disciplinary action against the erring student? These are areas in which the present decisions of this court one day may call for reconsideration.”

In Yusuf v Union Bank (1996), the appellant was dismissed for fraudulently diverting money from the account a customer and he challenged the dismissal in court. Wali JSC said,

“On the issue of fair hearing which the appellant belatedly introduced, it   is my considered view that before an employer can dispense with the       services of his employee under the common law all he needs to do is to         afford the employee an opportunity of being heard before exercising his    power of summary dismissal, even where the allegation for which the          employee is being dismissed involves accusation of crime. ……. It is not          necessary, nor is it a requirement under section 33 of the 1979    Constitution that before an employer summarily dismisses his employee from his services under the common law,

the employee must be tried before a court of law where the accusation against the employee is for gross misconduct involving dishonesty bordering on criminality.”

In Arinze v First Bank (2004), the appellant was dismissed for insubordination, absenteeism, fraudulent overtime claims and forgery and he brought an action for wrongful dismissal against the bank. The appellant’s counsel argued that where an employee denies accusations of serious misconduct of a criminal nature he must first be prosecuted to establish his guilt before he can be dismissed. The Supreme Court rejected the arguments of counsel and held that an employer can dismiss for gross misconduct of a criminal nature even without first prosecuting the employee. The essential point is that there must be fair hearing by giving the employee reasonable and adequate opportunity of being heard on the allegations against him. Onu JSC said,

“The Court of Appeal in rejecting this proposition of law cited the Supreme Court in the master and servant case of Yusuf v Union Bank of Nigeria for the view that the prosecution of an employee before the law court is not a sine qua non to the exercise of the power of summary dismissal by an employer for gross misconduct.

Therefore, the law is settled by the highest judicial authority, that in cases of gross misconduct of a criminal nature, the obligation on an employer is to give the employee fair hearing before dismissal and it is not the law that the employee must be prosecuted and convicted before he can be dismissed.

The Insurance Act 2003 & Compulsory Insurance

This article provides a summary of some of the salient provisions of the Insurance Act of 2003 including the insurance policies made compulsory by the law.

  1. 1.            COMPULSORY INSURANCE

Compulsory Insurances are those insurance policies which every person must have or face penalties for default and it is therefore important for people know what insurance policies are compulsory. In Nigeria, there are six (6) insurance policies made compulsory by the law. It is important to emphasize that these six (6) classes of Insurance are made compulsory under their enabling laws and failure to comply with the law is regarded as a criminal offence and employees can also sue for compensation in a civil suit. The policies and their relevant legislation are as follows:

1.1 Motor Third Party Insurance as required by the Motor Vehicles (Third Party Insurance) Act of 1950. This is the minimum insurance that owners of motor vehicles plying Nigerian roads are required to have. The policy covers liability for death or bodily injury to a third party arising from the use of the vehicle. Section 68 of the Insurance Act 2003 extends the liability to cover damage to the property of a third party to the tune of One Million Naira. It also makes it a criminal offence not to have a motor vehicle third party insurance policy and the penalty for non-compliance is imprisonment for one year or a fine of N250,000 or  both.

1.2 Employee Group Life Insurance as required by the Pension Reform Act of 2004. Section 9(3) of that Act requires every employer of labour with five (5) or more employees to take out a life insurance policy for a minimum of three times the annual total emolument of the employee. This law is applicable to both private and public sector employees. Failure to comply with this provision is an offence punishable with imprisonment for up to one year or a fine of N250,000 or  both.

1.3 Health Care Professional Indemnity as required by the National Health Insurance Scheme Act of 1999. Section 45 of that Act requires all licensed health care providers to have a professional indemnity policy. The law defines a health care provider as any registered Government or private healthcare practitioner and hospital or maternity center.

1.4 Insurance of Public Buildings as required by the Insurance Act of 2003. Section 65 of that Act requires the owner or occupier of every public building to be insured against liability for loss or damage to property or death or bodily injury caused by collapse, fire, earthquake, storm or flood. The Act defines a public building as one to which members of the public have access for educational, recreational, medical and commercial purposes. The penalty for non-compliance is a maximum fine of N100,000 or one year imprisonment or both.

1.5 Insurance of Buildings under Construction as required by the Insurance Act of 2003. Section 64 of that Act requires every owner or contractor of any building under construction with more than two (2) floors must take out an insurance policy to cover liability against construction risks caused by his negligence or that of his servants, agents or consultants which may result in death, bodily injury or property damage to workers on site or members of the public. This insurance policy also covers liability for collapse of buildings under construction. Failure to comply with this provision is an offence punishable with a fine of N250,000   or three years imprisonment or  both.

1.6 Employers Liability Insurance as required by the Employee Compensation Act of 2010 (which repealed the Workmen Compensation Act of 1987). The Act requires every employer, within the first two years of the commencement of the 2010 Act, to make a minimum monthly contribution of 1% of the total monthly payroll of employees to the Employee Compensation Fund. The Fund shall be used to pay adequate compensation to employees or their dependants for any death, injury, disease or disability arising out of or in the course of their employment.

  1. 1.            THE INSURANCE ACT 2003

We shall examine in summary some of the salient provisions of the Insurance Act of 2003

2.1 Section 50 of the Insurance Act: No Premium No Cover.

Section 50(1) of the Act states that, “The receipt of an insurance premium shall be a condition precedent to a valid contract of insurance and there shall be no cover in respect of an insurance risk unless the premium is paid in advance.”

Section 50(2) of the Act states that, “An Insurance premium collected by an insurance broker in respect of an insurance business transacted through the insurance broker shall be deemed to be premium paid to the insurer involved in the transaction.” 

Comments: Payment of premium in full is a condition precedent to a valid contract of insurance and an insurance contract will not be enforceable where premium is not paid in full before the commencement of the risk. Part payment of the agreed premium does not constitute sufficient compliance with the condition precedent. See, Industrial and General Insurance v Adogu (2009) 3 CLRN 256.

The decision in Ajaokuta Steel Co. v Corporate Insurers (2004) 11 CLRN 78 held that, the absence of full premium in advance renders the insurance contract void and illegal.  However, there is sufficient judicial authority that any party can waive a constitutional or statutory right which is made for their benefit. See, Ariori v Elemo (1983) ANLR 1 and Mobil Producing v LSEPA (2003) 1 MJSC 112. Therefore it is arguable that an insurance company can be held to have waived the condition precedent in section 50(1) of the Insurance Act even when premium has not been paid but the insurer assumes the risk or holds the insured covered. In effect the failure of the insured to pay the full premium only makes the insurance contract voidable and void.

Where premium is paid through a broker, the money is treated as already in the hands of the insurance company and the insured shall not be held liable for the refusal or failure of the broker to remit the premium.

2.2 Section 55 of the Insurance Act: Non-Disclosure and Breach of Contract.

Section 55(1) of the Act states that, “In a contract of insurance, a breach of term whether called a warranty or a condition shall not give rise to any right by or afford a defence to the insured unless the term is material and relevant to the risk or loss insured against.”

Section 55(2) of the Act states that, “Notwithstanding any provision in any written law or enactment to the contrary, where there is a breach of term of a contract of insurance, the insurer shall not be entitled to repudiate the whole or any part of the contract or a claim brought on the grounds of the breach unless:

(a)   the breach amounts to a fraud; or

(b)   it is a breach of fundamental term of the contract.”

Section 55(3) of the Act states that, “Where there is a breach of a material term of a contract of insurance and the insured makes a claim against the insurer and the insurer is not entitled to repudiate the whole or any part of the contract, the insurer shall be liable to indemnify the insured only to the extent of the loss which would have been suffered if there was no breach of the term.”

Section 55(4) of the Act states that, “Nothing in this section shall prevent the insurer from repudiating a contract of insurance on the ground of a breach of a material term before the occurrence of the risk or loss insured against.”

Comment: It is not a breach of every term, warranty or condition of the insurance contract that can be valid ground for an insurance company to avoid liability. The insurance company shall only be entitled to repudiate the contract or claim where either, the breach amounts to fraud or the insured is in breach of a fundamental term of the contract. The term fraud is quite clear but fundamental term means any warranty or condition or other term which a prudent insurance company will regard as material to the contract when accepting to underwrite the risk. A fundamental term is one that goes to the root of the contract such as, the age or the health of the insured in a life insurance policy, or the description of the vehicle or house in material damage insurance, or the description of the goods or voyage in a marine insurance policy and so on.

2.3 Section 70 of the Insurance Act: Claims Settlement

Section 70(1) of the Act states that, “In every case where a claim is made in writing by the insured or any other party entitled thereto under insurance policy, the insurer shall;

(a)         where he accepts liability, settle the claim not later than 90 days after the                issuance of the discharge voucher;

(b)         where any claim remains unpaid as provided in (a) above, the insured may    request the Commission to effect the payment from the statutory deposit of the      insurer and the Commission shall have power to effect such payment;

(c)         where he does not accept liability deliver a statement in writing stating the    reasons for disclaiming such liability to the person making the claim or his   authorised representative not later than 90 days from the date on which the       person.“

Comment: It is important to note that the 90 day period begins to run from the date the insurance company issues it’s discharge voucher and not from the date the insured gives notice of the claim. Where the insurance company does not accept liability it must within 90 days deliver a statement in writing to the insured stating the reasons for disclaiming such liability. Failure of the insurance company to either settle the claim within 90 days or give reasons for disclaiming liability within 90 days is an offence punishable on conviction with a fine of N500,000. This is a powerful weapon in the hands of an insured who can bring a criminal complaint against the insurer in respect of this offence.  Where a discharge voucher is issued but payment is not made within 90 days, the insured may request NAICOM to effect payment of the claim from the statutory deposit of the insurer. This is another powerful but little known weapon in the hands of the aggrieved insured.

2.4 Section 71 of the Insurance Act: Motor Insurance Claims 

Section 71(1) of the Act states that, “Where any claim referred to in sections 69 or 70 of this Act arises out of an accident involving one or more vehicles, it shall not be necessary, if there is sufficient evidence of proof of loss or damage, for any claimant to report and deliver police report to the insurer; but where death of or serious bodily injury to a person is involved in any such accident, the provisions of this section shall not apply.”

Section 71(2) of the Act states that, “Without prejudice to any other mode of proof, it is sufficient evidence of proof of loss or damage for the purpose of this section –

(a)         Where only one person is involved in the accident, the person delivers a statement of the facts to the insurer concerned together with a statement of an eye witness to the accident, if any; or

(b)         Where more than one person involved in the accident, each person delivers a statement of the facts to the insurer or insures concerned and the alleged facts do not differ in any material particular.”

Section 71(3) of the Act states that, “Nothing in this section shall be construed as implying that a police report is not required in the case of claims arising from car theft.”

Comment: Where an accident involves material damage alone it shall not be necessary for the insured to report the accident to the police and obtain a police report provided there is sufficient evidence of proof of the damage. Sufficient proof of the accident can be satisfied by the statement of eye witnesses or by photographs of the accident. However, where the accident involves death or bodily injury to any person the accident must be reported to the police and the insured must obtain a police report. Also, where a vehicle is stolen the loss must be reported and the insured must obtain a police report. Failure to obtain a police report in such cases will adversely affect the claims of the insured. 

3.       CONCLUSION

Where an insurance company either fails to settle a claim without good reason or violates any of the provisions of the Insurance Act, the insured may report the matter to the National Insurance Commission or bring a criminal complaint against the insurance company for any of the offences created by the Insurance Act. However it is always advisable to seek legal advice before taking any further action.

Enforcement Of Creditor Rights (Debt Recovery)

This piece outlines the various legal options available to creditors seeking to enforce their rights but it is also helpful to debtors who seek to know the rights of creditors against them.

1.1     The Demand Letter

The first option available to the creditor is to brief a lawyer to issue a letter of demand with an ultimatum and threat of further legal action. Where the demands of the creditor are not met there are several options open to the lawyer. Now, every debtor must realize that a letter of demand from a creditor is the beginning of a potential legal dispute. Therefore, it is important that the written response of the debtor must always carry the words “Without Prejudice”. This will prevent the letter from being tendered in evidence in court and used as an admission of liability by the creditor.

1.2    Litigation                                                                                                      

This involves taking out summons at the Magistrate Court or the High Court along with an application for summary judgment. The summary judgment procedure avoids the need for a full blown trial and is resolved on affidavit and documentary evidence only. Summary judgment is usually granted where the defendant has admitted indebtedness and the court finds that there is no valid defence to the suit.

One advantage of litigation is the cost and it is the cheapest option because it is subsidized by the State. Apart from the cost of filing the summons and claims in court, the State and not the parties bears the cost of the judicial umpire. One other advantage

of litigation, over all other dispute resolution options, is the coercive power of the judicial umpire and the ability to enforce the judgment or orders of the court.

The biggest disadvantage in litigation is that the parties have limited control over the time required for the conduct of the proceedings and huge delays are common. The conduct of litigation is formal and complex rules of procedure and evidence are applicable causing several legal objections which delay the proceedings. The venue and conduct of litigation is open to the public (a constitutional requirement) with the possibility of negative media publicity.

1.3 Arbitration

This option is more suitable for disputes between corporate organizations. The option has three major advantages over litigation. First, the venue and content of the proceedings

are not open to the public. Second, the time frame for the conduct of proceedings is usually agreed between the parties and the arbitrator and therefore delays are largely eliminated. Third, the procedure is less formal and complex rules of procedure and evidence are not applicable.

The major disadvantage is that parties bear the cost of the arbitrator (this is usually high) and there is in fact a fixed scale of fees which are determined by either the nature of the claim or the duration of the proceedings. Furthermore, in the practice of arbitration the loser alone usually bears the cost of the arbitrator. In addition to that each party must still bear the cost of their legal representation at the arbitration.  The huge cost of arbitration remains the major reason why despite all the advantages arbitration is still not widely used.

One other disadvantage of arbitration is the absence of coercive power of arbitrators and their inability to make orders to enforce the arbitral award. The successful party is forced to approach the court to seek the orders required to enforce the award but the losing party can also approach the courts to challenge and set aside the award.

1.4  Alternative Dispute Resolution (ADR)

ADR is a means of settling disputes between parties without recourse to litigation. This will involve taking the case to the Lagos Multidoor Court House (LMDC) or the Citizen’s Mediation Center (CMC) for mediation of the dispute. Mediation is a form of structured and voluntary negotiation between the parties with a mediator who does not make a final

decision on the rights of the parties but encourages them to reach a settlement. Legal representation is not compulsory but is advisable.

Mediation is faster than litigation or arbitration and the terms of settlement reached by the parties can be filed in court as consent judgment. However, there is no guarantee that a settlement will be achieved and this means that parties may invest the time and money in trying to resolve the dispute by mediation but still end up in court if the mediation fails. Mediation like arbitration also has several advantages over litigation. For example; the venue and content of the proceedings are not open to the public; the procedure for mediation is informal and complex rules of procedure and evidence are not applicable.

One disadvantage of mediation like arbitration is the absence of coercive powers by the mediator and their inability to make any final or binding decisions or orders on the parties. In mediation when the parties reach a settlement they have to approach the High Court to enter the terms of settlement as a consent judgment and then seek the coercive power of the court to enforce the judgment.

1.5  Law Enforcement Agencies

This involves making a criminal complaint against the debtor. The problem with this option is that the investigative machinery of the criminal justice process is corrupt and the officers can easily be compromised by either party. The final cost of the investigative process can be quite expensive because in addition to any initial sums spent on mobilization, the officers usually retain up 20% of any amount recovered.

The usual criminal allegations made by creditors against debtors are; obtaining by false pretences or issuing a dishonoured cheque.

1.6  Bankruptcy & Winding Up

Where the debtor is a company the creditor may bring an application, under the Companies and Allied Matters Act, to wind up the company for unpaid debts. The efficacy of this remedy is in the threat and the court ordered advertisement of the petition to wind up the company which is usually published in national daily newspapers can cause incalculable damage to the reputation of the company.

Where the debtor is an individual the creditor may bring an application, under the Bankruptcy Act, to declare the debtor bankrupt for unpaid debts. This option is rarely used in Nigeria because of the absence of a robust credit system

1.7  Claim for Interest

A creditor who is not a licensed bank, financial institution or moneylender is not ordinarily permitted to charge interest on a credit facility. However, interest can be claimed and enforced where it has been previously agreed by the parties or where it is customary to charge such interest. In the case of Himma Merchants v. Aliyu (1994) the Supreme Court stated the law on the matter, “Indeed, there are legally two ways by which a claim for interest on a sum of money as a debt can arise.  Firstly, as of right and secondly, where there is a power conferred by statute to do so, in the exercise of the court’s discretion.  Also in, Ekwunife v. Wayne (West Africa) Limited. (1989) the Supreme Court said, “Interest may be claimed as a right where it is contemplated by agreement between the parties, or under a mercantile custom or under a principle of equity such as breach of a fiduciary relationship.”

1.8  Enforcement of Security

Where the credit facility is granted by a bank or financial institution it is usually secured by a Certificate of Occupancy. In most cases a deed of legal mortgage is executed to cover the security and the deed contains a power of sale on the authority of which the creditor can sell the property by public auction or private treaty when the debt is outstanding.

However, the legal mortgage must be perfected and the creditor must obtain Governor’s consent otherwise the security is unenforceable by auction or sale. Where the title deeds are deposited but a deed of legal mortgage is not executed an equitable mortgage is created and the creditor must obtain an order of foreclosure and sale from the court before the security can be realized.

The debtor may apply to court to seek and obtain an injunction to restrain the creditor from selling or disposing of the secured property pending the determination of any unresolved issues regarding the debt.

A creditor bank or financial institution may also create a fixed or floating debenture over the assets of the company excluding landed property. The debenture crystallizes and can be enforced on the default of the debtor. 

1.9  Conclusion

Once a dispute over the debt has arisen, it is always advisable for any party, whether creditor or debtor, to seek prompt legal advice before taking any further step in the matter.