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THE LEGAL FRAMEWORK FOR DISPUTE RESOLUTION IN THE NIGERIAN CAPITAL MARKET

 Format: MS-WORD   Chapters: 1-5

 Pages: 200+   Attributes: COMPREHENSIVE RESEARCH

 Amount: 3,000

 Sep 14, 2019 |  01:18 pm |  2450

ABSTRACT

The capital market is the long arm of the financial market through which resources in the form of savings are pooled and channeled to the production of goods and services. Disputes often arise in capital market transactions, which must be resolved speedily, fairly and efficiently in the interest of stability of the market. Notwithstanding the various processes for dispute resolution in the Nigerian capital market, the jurisdiction to adjudicate over capital market disputes has been a source of contention among stakeholders. In the event of disagreement, the forum to ventilate grouses is not now firmly and squarely settled. The Investments and Securities Tribunal, which was created by the ISA as a solution, to this near intractable dispute resolution crisis, has been mired in constitutional and jurisdictional controversies. The Appellate Courts have not been unanimous on its jurisdiction. Furthermore, the exclusive jurisdiction of the Federal High Court on matters arising from the Companies and Allied Matters Act, 2004 has also been called to question. As things stand presently, the following research questions seek urgent answers; is the legal framework for dispute resolution in the Nigerian Capital Market adequate to resolve the current controversies in the system; does the framework for dispute resolution in the Nigerian capital market in conformity with international best practices and standards;and finally, are there special needs or peculiarities in the operationsand emerging disputes in the Nigerian capital market, requiring aspecialised dispute resolution system. The aim of this research is the attainment of a robust dispute resolution system in the Nigerian Capital Market, that will meet the aspirations of stakeholders. To this end, the objectives of this research are; to critically evaluate the extant legal framework for dispute resolution in the Nigerian Capital Market and advance recommendations, that will resolve the current challenges in the system; to examine in detail the statutory and administrative procedures for the resolution of disputes in the Nigerian Capital Market, such as the SEC Administrative Proceedings Committee and other internal enforcement processes and the disciplinary/dispute resolution of the SROs. This is with a view to making suggestions for reform, that will make same accord with global standards and international best practices.Investors’ confidence can be buoyed by an assurance of a fair and efficient dispute resolution system that is not hamstrung with teething challenges of competence. The controversies surrounding the constitutional place and jurisdiction of the Investments and Securities Tribunal has led to conflicting decisions by superior courts in Nigeria. These do not portend encouraging signs for domestic and foreign investors.Stripping the Investments and Securities Tribunal the jurisdiction in criminal matters has weakened its role as a fast-track dispute resolution mechanism in Nigeria. The facts giving rise to disputes in the market are often intertwined such that separating the fact that give rise to civil disputes from those that give rise to criminal liabilities can be quite challenging. Therefore, since capital market disputes are time sensitive, the problems arising therefrom become even more worrisome. This uncertainty is certainly not a good sign for domestic and foreign investors in the Nigerian economy. The ISA permits the SEC to constitute committees and under this power the SEC has over the years constituted the Administrative Proceedings Committee, a quasi-judicial body, to resolve disputes in the capital market. With the complement of primary and secondary data (statute,case law and existing jurisprudence) on this subject, this study finds that the absence of a formal structure for the APC or retaining it as an ad hoc committee convened at the pleasure of SEC has introduce so much uncertainty into its existence To properly situate the Investments and Securities Tribunal and address the controversies surrounding its status and jurisdiction, it is recommended that section 6 (5) of the Constitution of the Federal Republic of Nigeria, 1999 be amended to include the 1ST as a superior court of record. This will streamline the approach of the Nigerian courts and assure investors that their grievances would receive fair, firm and timeous hearing. Section 284 and 294 of the Investments and Securities Act require amendment to confer civil and criminal jurisdiction on the Investments and Securities Tribunal. Section 310 of the ISA should also be amended to clearly establish the Administrative Proceedings Committee.


CHAPTER ONE

GENERAL INTRODUCTION

1.                  1 Background to the Study

The capital market is the major engine of growth and development for the economy. It is the financial market through which resources in the form of savings are marshal for the purpose of the production of goods and services. Without doubt, a virile and dependable market, reflects the degree of investing public confidence in the mechanism. Therefore, the importance of the capital market as a vital element of national economic development, cannot be over emphasised. It is the barometer for measuring a nation’s economic development. The Nigerian capital market has provided the financial environment for the marketing of government economic policies from nationalization, indigenisation, privatisation, the national economic and empowerment development strategy, the seven point agenda1, the transformation and change agenda have all leveraged on the facilities of the capital market for their realization.

Inevitably, in any market, institution, relationship or transaction, disputes arise between parties. In the Nigeria capital market, disputes also arise, which must be resolved in the interest of the sustainability and stability of such transactions and of the market.

Capital markets, all over the world, are regulated by laws, rules, regulations and practices peculiar to each jurisdiction. The provisions of these legislations are usually guided by international best practices and the principles of market regulation as enunciated by the International Organization of Securities Commissions (IOSCO) .Essentially, the thirtyprinciples [1] [2] [3]


of IOSCO are largely driven by the three objectives of securities regulation of the protection of investors, ensuring that market are fair efficient and transparent and the reduction of systemic risks.

In view of the vital role of the capital market and the disastrous consequences of an unregulated market, governments all over the world cannot risk allowing this market operate without some form of control. It is therefore necessary to regulate the market including provision of a framework for dispute resolution, to ensure that the relevant institutions in the industry are properly established and monitored and that the operators in the market are fit and proper persons to operate in the market. There is also the need to provide rules and regulations that would ensure fairness, efficiency, orderliness, transparency, stability and confidence in the capital market.4

The overall objective of the legal framework for the capital market or securities regulation is the protection of the general investing public and the national economy. The corporate collapses experienced in some countries (Enron in the USA, Parmalat in Italy, Oceanic Bank in Nigeria), show that the promoters, officers, directors of companies and market professionals, were not faithful in discharging their fiduciary responsibilities to investors. The need to protect stakeholders against this can never be overemphasized.

There has always been the need for a well-defined and properly articulated legal framework for dispute resolution in the Nigeria capital market. The recognition of the need for an appropriate formal structure or procedure for resolution of violations and malpractices in Nigeria’s capital market prompted the setting up of different strategies for dispute resolutionSecurities and Exchange Commission Decree , 1979, Securities and Exchange Commission Decree , 1988, Investments and Securities Decree , 1999 and the Investments and Securities Act[11] [12], 2007. These strategies are complemented by the regular courts in the justice administration system. The legal framework has thrown up fresh challenges requiring proactive response. This study is an answer to this challenge.

1.2.            Statement of the Research Problem

A dispute resolution system must be cost effective and timeous as justice delayed is justice denied. There are many problems associated with the Nigerian legal system. Delays caused by unnecessary adjournments and objections mostly based on technicalities, lack of sufficient judicial officers to man the courts, poor and inadequate infrastructure in our courts, un­conducive working conditions for judges, especially in the rural and semi-urban areas, government interference, corruption and similar vices11 are some of the challenges encountered by the justice administration system.

These problems greatly affect the justice dispensation and delivery in Nigeria generally and particularly, dispute resolution in the Nigerian capital market. Therefore, since capital market disputes are time sensitive, the problems arising there from become even more worrisome.

In the Nigerian capital market, the existing framework is faced with its own peculiar challenges. There is still no consensus on the fundamental issue of the proper forum for the ventilation of capital market disputes. The problem now is that The Investments and Securities Tribunal which was created by the ISA as a solution to this near intractable dispute resolution crisis has been mired in constitutional/jurisdictional controversies[13]. The appellate courts have not been unanimous on its jurisdiction. The exclusive jurisdiction of the Federal High Court on matters arising from the Companies and Allied Matters Act, 2004 has also been called to question . The disputes related to huge investible funds whose faiths were tied to these disputes. This uncertainty is certainly not a good sign for domestic and foreign investors in the Nigerian economy.

The sum total of these problems is that the dispute resolution system in the Nigerian capital market is in dire need of reforms to meet the expectation of stakeholders and global financial system. As things presently stand, the following research questions seek urgent answers;

i.                    Is the legal framework for dispute resolution in the Nigerian Capital Market adequate to resolve the current controversies in the system?

ii.                  Does the framework for dispute resolution in the Nigerian capital market conform to international best practices and standards?

iii.                Are the peculiarities of the disputes in the Nigerian capital market such that require specialised dispute resolution system?

iv.                Does the present legal framework have the wherewithal to resolve the inherent conflict presently constituted in the system and enable the capital market play its financial intermediation role effectively?

1.3.             Aim and Objectives of the Research

The aim of this research is the attainment of a robust dispute resolution system in the Nigerian Capital Market that will meet the aspiration of stakeholders and contribute immensely to the growth of the Nigerian economy. To this end the objectives of this research include;

1.     To critically evaluate the extant legal framework for dispute settlement in the Nigerian Capital Market and advance recommendations that will resolve the current challenges in the system.

2.     To examine in detail the statutory and administrative procedures for the resolution of disputes in the Nigerian Capital Market with the view to making suggestion that will make same accord with global standards and international best practices.

3.     To stimulate academic and intellectual research in this area of law, grow the jurisprudence, show the peculiarities of the Nigerian capital market which underlies the need for a specialized dispute resolution system and thus widen the horizon of law in the process.

1.4.             Scope and Limitation of the Research.

The emphasis of this study is the Nigerian capital market with emphasis on legal framework for dispute resolution. While the emphasis is Nigeria, references shall be made to other jurisdictions where necessary to share experience and learn from other countries in the process. This enables countries to leverage on international best practices in the process. The main law in focus is the Investments and Securities Act[14], 2007. Other laws bearing directly or indirectly are also considered. Companies and Allied Matters Act[15], 2004,, Chartered Institute of Stockbrokers Act[16], 2004, Banks and Other Financial Institutions Act[17], 2004, Central Bank of Nigeria Act[18], 2007, Foreign Exchange (Monitoring & Miscellaneous Provisions) Act[19], 2004, Nigerian Investments Promotion Commission Act[20] [21], 2004 are appropriately considered. This enables a robust discussion on the subject of regulation and dispute resolution.

Literatures on dispute resolution on Nigerian Capital Market are quite few. This is not unconnected with the fact that until the enactment of the Investments and Securities Decree in 1999, the subject was treated as an integral part of company law. It is usual to see a general discussion on the subject of company securities without an incisive consideration of the germane issueof grievance redress in the capital market. Furthermore, the challenges of a developing capital market, throw up nascent issues that existing literature have not addressed or adequately addressed. These are wary issues that a research in this field must grapple with.

1.5.            Research Methodology

The focus of this study is the law and institutions saddled with dispute resolution in the capital market.Consequently, the methodology of this research is mainly doctrinal. We applied the ordering analysis of the legal structure, legal framework and case law to establish our objective. This we did by extensive survey of legal literature, even when we did not undertake any form of field work. We however undertook descriptive analysis, interpretation and systemization of legal norms or doctrines. We gave commentaries on the philosophical questions underpinning the research, including the nature or characteristics of the laws themselves. The materials used are sourced from primary and secondary sources. The primary resource materials used in this research include relevant legislation on the subject matter, rules and regulations made pursuant to the relevant legislation. The Investments and Securities Act , 2007, is the main law in this respect. Judicial pronouncements of competent courts and tribunals on capital market disputes and related matters, are relied upon in the study.

It will be impossible to undertake a study of this nature, without the complement of previous research works in this field. The secondary source of data used in this research, includes relevant published text books on the subject. Articles, periodicals, magazines, journals, seminar/workshop papers and sundry national and international written materials are utilized in coming to some of the conclusions in this research. We engaged books or other written source materials on the research. Basically, we looked for available source materials in the subject area of research and examined, appraised, critiqued, evaluated, analysed, and used the information thereof as a basis for our recommendations for decision making, enactment of laws and rules and regulations. Other relevant materials, including those from the internet and electronic sources are deployed in the research.

1.6.            Justification for the Research

This research will be very useful to the securities industry and a wide spectrum of industry operators, lawyers and students. It will particularly avail Investors who are in dire need of more information on the process of protecting their investments or channeling their grievances in a simpler and more cost effective manner.Capital Market Operators, including Stockbrokers, investment Advisers, Issuing Houses, Registrars, Consultants and Reporting Accountant who are [22] involved in the day to day market activities, are usually involved in market disputes. This research will be of immense benefit to the operators of the market.

The Self-Regulatory Organizations (SROs), like the Nigerian Stock Exchange, Chartered Institute of Stockbrokers, Association of Issuing Houses and other groups in the capital market, will find this work, handy. The discussion in this dissertation makes clear some of the untidy areas of dispute resolution in the capital market. The Securities and Exchange Commission (SEC), is the apex regulator of the securities industry in Nigeria. The SEC, will find the exposition in this research, very useful for a proper coordination of their own processes of resolving disputes in the market and reforming same for greater effectiveness.

The National Assembly is an indispensable partner for the growth of the Nigerian Capital Market through their primary task of law making. The reforms suggested in this research, can only be successfully carried through if the necessary laws are in place. This study will enable the National Assembly understand the dynamics of the capital market and the current challenges in the dispute resolution mechanism in the Nigerian Capital market. This ultimately would put them in the position to make the relevant laws to enable the capital market perform maximally.

Legal Practitioners generally stand to derive benefits from this work, many of whom are not very versed in the operations and practices of the capital market. To equip them for a proper and more effective representation of their clients in transactions, arbitration, courts and tribunals over capital disputes. The research will also provide lawyers with adequate information on the various levels of dispute resolution in the market and provide them with innovative but infrequently used alternatives like the alternative dispute resolution options.

Law teachers and students would be further educated by the discussions in this research in the developing jurisprudence of the capital market. This is more so as the literature in this area is evolving.

1.7              Literature Review

A number of distinguished writers have written on one aspect or the other of corporate law generally. Relatively, few have written on regulation and disputes resolution in the capital market or the procedure for dispute resolution in the capital market. In any case, there has not been any incisive discourse on the challenges currently faced by the dispute resolution system of the Nigerian capital market. An examination of some of the invaluable contribution is undertaken to properly situate this thesis.

Abugu’sbook, is one of the rich text books on the subject of company securities. In the work, the author dealt,tersely, with the issue of dispute resolutions in the capital market. Although the learned author discussed themes such as: Administrative Proceedings Committee, Investments and Securities Tribunal, Judicial Enforcement and Interpretation of Securities Law,the invaluable text did not deal with the current challenge in the Nigerian capital matter on the subject of conflict in the jurisdiction of institutions charged with dispute resolution. This thesis covers this important area left out by this author.

Orojo, wrote comprehensively on company law and specifically dealt with areas of interest to this research topic. In chapter 32 of his book , the learned author discussed legal proceedings in respect of companies, but did not mention anything on capital market disputes, or the methods or legal framework for dispute resolution in the Nigerian Capital Market.

Osaze, in his book,[26] [27] wrote on dispute resolution mechanism in the capital market as a sub topic, giving a narration of dispute resolution mechanism in Nigerian capital market. He discussed Self-Regulatory Organizations, the Administrative Proceedings Committee and Investments and Securities Tribunal. The author, however, omitted the contributions of the Securities and Exchange Commission in the resolution of disputes through other internal processes, like written correspondences and the all parties meetings in resolving a good number of disagreements before they snowballed into large conflicts. Osaze, did not contemplate the importance of the role of regular courts to the resolution of disputes in the Nigerian Capital market, nor did he consider the imperativeness of Alternative Dispute Resolution (ADR), mechanism to dispute resolution in the Nigerian Capital Market. This work provides what was left out in Osaze’s book, as it has presented a comprehensive, coordinated and in some parts, diagrammatic framework for dispute resolution in the Nigerian capital market. It can therefore be said that it is these critical omissions, that this research work set out to add to the existing literature in the field.

Igwe’s work, discussed the topic; Investment and Securities Fraud, SEC and the Courts. The author makes a clear case for the need to meet the sophistication of capital markets frauds with greater awareness and empowerment of regulators and judicial officers in appreciating the dynamics of capital market fraud and facilitate recovery of stolen funds. He discussed the issue of false trading in securities and market manipulation, the contribution of APC, IST and Courts, especially the Supreme Court. While the authors’ efforts are commendable, his analyses were not incisive and fully critical of the dispute resolution mechanism in the Nigerian Capital Market. The literature did not examine in detail the legal framework for resolving disputes in the

Nigerian Capital Market. This is understandable because the author did not set out to write on that topic. The mention of the topic was therefore an intellectual bye-pass in the literature. This research mainstreams dispute resolution in the Nigerian Capital Market, and covers the issues that escaped the learned author’s analysis.

Ndanusa, writing as the then Director General of SEC, was interested in showing how the courts have used technicalities in their judgments to frustrate efforts of the SEC at dispute resolution, in the Nigerian Capital market. He examined the case of Owena Bank Nigeria Plc vs. SEC &Anor, to buttress his point. It was one of the most notable cases which lasted for up to three years and went as far as to the Supreme Court. Ndanusa gave an account of the grave implications of judicial interventions on the process and effectiveness of disputes resolution in the Nigerian capital Market, without investors protection concerns. However, the literature did not advance any alternative view nor did it cover other areas or processes of dealing with grievances in the market. The article was written under the now repealed Investment and Securities Act, 1999. This alternative view is espoused by this work conducted under the Invesment and Securities Act, 2007.

The arguments of Agom on the case of Owena Bank Nigeria Plc vs. SEC &Anor, are instructive. The learned author puts up a fierce defence of the Supreme Court’s decision contrary to the several criticisms against the case. This research goes beyond the issues canvassed by Agom and Ndanusa. This thesis presents a legal framework for the resolution of capital market disputes in Nigeria from diverse angles and presents a broader approach than the works of the two. Idigbe’s “Legal Issues in Capital Market Operations in Nigeria,” is a relatively recent work on Nigerian capital market worthy of mention. The work makes clear that; disputes are inevitable part of human interaction, hence the need for dispute resolution. The author noted that the right to dispute resolution is a constitutional right and justice delivery is a fundamental function of government. He also observed the gradual shift from tradition dispute resolution (court) to private justice system (ADR). While the learned SAN touched on several issues of interest to this research, one will be quick to add that he did not deal with the issue of resolution of disputes by the SEC, the SROs or the IST, nor did he suggest any order or legal framework for

the resolution of capital market dispute. It is this order, that this research seeks to provide. Udora, in his “The Role of the Nigerian Securities and Exchange Commission presents the regulator’s perspective on the resolution of capital market disputes. The paper exposed a lot of procedural inadequacies of SEC like: time lag in handling of grievances as well as the clumsy proceedings of the APC. The author views appear one sided only as a regulator. This has led in recent years, to the upturning of some decisions of the APC by the Investments and SecuritiesTribunal and regular courts.

This research offers suggestions that will tackle the inadequacies inherent in the management of capital market disputes by the apex regulator of the Nigerian Capital Market. These suggestions are not contained in the author’s work. Orji, dealt extensively with the reasons for the establishment of the investment and securities tribunal. Considering the indispensable role of this institution in the administration of justice in the capital market, Orji’s contribution is quite limited.This work was concentrates on the role of the Tribunal and did not extend to other stakeholders like the regular courts, SEC and the SROs This study provides for these gaps in Orji’s work.

Ogbuanya’s book, discussed in some details, issues such as jurisdiction of courts and tribunals on corporate matters in Nigeria, the concept of jurisdiction and the basis of the jurisdiction of ths Federal High Court on corporate matters. He briefly discussed the Investment and Securities Tribunal and the issue of jurisdictional conflict between the FHC and the IST . It is not only that the literature did not treat the issues with the deserved depth but no suggestions were advanced to resolve the challenge facing the institutions concern. This research provides for these gaps.

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Alubo and Agom, critically assessed the regime of dispute resolution in Nigeria by the Investments and Securities Tribunal. Some of the challenges relating to jurisdiction over capital market disputes, were raised in the contribution. As commendable as the contribution is, the role of other institutions in the capital market on the subject of dispute resolution was not covered by the contribution. This thesis considers the role of the apex regulator and self-regulatory organization in the dispute resolution in the Nigerian capital market.

Idigbe’s recent work, on the Nigerian capital market has not dealt with the issue of dispute resolution in sufficient details. The author gave a general overview of the dispute resolution mechanism in the securities industry without a serious analysis of the controversies. This thesis fills up that gap.


There is so much to learn from the advancement in securities regulation in the Asian countries of Singapore, Malaysia and the United States of America. In this respect,Tjio’s ‘Principles and Practice of Securities Regulation in Singapore’[40],Geoffrey’s Capital Market Laws in Malaysia[41] and Steinberg’s Securities Regulation[42] focusing on the subject in the United States of America are indeed very valuable. These literatures are very rich resources on the subject under consideration. Notwithstanding their immense worth, the contexts of these books are foreign. To the extent that they were not written with Nigeria in view, there is a need for contribution that will clearly have Nigeria in focus. This thesis is an effort in this regard.

1.8              Organizational Layout

This work is divided into seven chapters. The chapters are interrelated with each chapter providing the link to the next.

Chapter one gives a general introduction to the entire work. The statement of research problem, aim and objectives, scope of the research topic, methodology justification for the research review of the literature around the research topic are considered in this chapter and organizational layout.

Chapter two provides conceptual clarification of terms and processes, description of the dispute resolution process and the nature and type of disputes common to the market. The chapter also deals with the broad meaning of the capital market, types or components of the market, market institutions and participants in the capital market.

Chapter three provides a general introduction and background to the discussion on the legal framework for the Nigerian capital market. The chapter highlights the salient features of the Investments and Securities Act, 2007 and the Companies and Allied Matters Act, 2004 amongst


other very important enactments against the background of dispute resolution in the securities industry in Nigeria.

Chapter four is on the apex institutional regulator of the capital market in Nigeria, the Securities and Exchange Commission (SEC). The regulatory tools of the SEC especially in the context of dispute resolution are examined. The regulatory tools of registration, inspection, investigation, rule-making and enforcement are critically assessed. The chapter also deals with the Administrative Proceedings Committee of the Securities and Exchange Commission. The establishment, powers and jurisdiction of the Committee are dealt with in details. Some of the landmark decisions of the Administrative Proceedings Committee and implication for the capital market are examined

Chapter fiveis on self-regulatory organisations in the Nigerian capital market. In this chapter the Nigerian Stock Exchange, Central Securities Clearing System and the Chartered Institute of Stock brokers are in focus. These self-regulatory organisations play very important roles in the area of dispute resolution in the securities industry.

Chapter six is on Investments and Securities Tribunal (IST). The discussion examines the establishment, powers and jurisdiction of the IST. Some of the landmark cases resolved by the Tribunal and the vexing issue of the jurisdiction of the IST are discussed. The challenges faced by the Tribunal are also considered.

Chapter sevendraws the curtain on the entire discussion. The chapter gives a summary of the whole work, stating the findings and recommendations for reform.


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