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Nigerian Capital Market and dispute resolution

Capital markets all over the world are regulated by a set of laws, rules and regulations 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).

Operators in the market including corporate entities, individuals and the instruments transacted upon are equally governed by these clearly articulated regimes of legislations.

The purpose of this is to ensure transparency, equity, fairness and orderliness in securities transactions for the overall objective of sustaining investor confidence in the market. Protection of investors remain the foremost objective of the regulation of the Capital market while market development follows as the next major focus of regulation inspired by investor confidence.

In Nigeria, the apex regulator of the capital market is the Securities and Exchange Commission (SEC) established by Section 1 of the Investments and Securities Act (ISA) CAP I24, Laws of the Federation of Nigeria 2004. Section 8 of the ISA gives SEC the authority to carry out the functions and exercise all the powers prescribed in the Act which includes regulating business and investments in the Capital Market. Further, Section 224 of the ISA creates the Investment and Securities Tribunal (IST) and the IST is conferred with the exclusive jurisdiction and function of resolving Capital Market disputes as enshrined in S. 237 of the ISA. Specifically, S. 237 (3) provides that

“Any proceeding before the Tribunal shall be deemed to be a judicial proceeding and the Tribunal shall be deemed to be a civil court for all purposes.” Sections 241(3) and 243 (1) further provide as follows: 241 (3) “An award or Judgment of the Tribunal shall be enforced as if it were a judgment of the Federal High Court upon registration of a copy of such Award or Judgment with the Chief Registrar of the Federal High Court by the Party seeking to enforce the award or Judgment”.

243 (1) “Any person dissatisfied with the decision of the Tribunal constituted under this Act may appeal against such decision on points of law to the Court of Appeal upon giving Notice in writing to the Secretary to the Tribunal within thirty days after the date on which such decision was given.”

The machinery of SEC and the Investments and Securities Tribunal (1ST) are further reinforced by the Administrative Proceedings Committee (APC) of the Securities and Exchange Commission (SEC), in resolving disputes in the Nigerian capital market; where the APC is an internal administrative mechanism of SEC for Dispute Resolution and its decisions are sent on appeal to the IST.

Hence the IST is an appellate body on the decisions of the APC. Therefore, the APC proceedings are purely administrative and its procedures are prescribed by the Commission and contained in the Rules and Regulations. Thus decisions of the APC after ratification by the Board of the Commission are subject to appeal to the Investments and Securities Tribunal as provided for in Section 259 of the ISA.

It is imperative to note that the above powers given to SEC are predicated on the objectives of protecting the integrity of the capital market and sustaining investors’ confidence. However, the Constitution of the Federal Republic of Nigeria, 1999 (CFRN) in Section 251 vests jurisdiction with respect to financial institutions in the Federal High Court. Specifically, Section 251 (1) (d) CFRN states as follows: 251 (1) “… the Federal High Court shall have and exercise jurisdiction to the exclusion of any other court in civil causes and matters – …

(d) connected with or pertaining to banking, banks, other financial institutions, …”. The above scenarios of seeming conflict of provisions in the IST and the CFRN 199 has thus presented a situation of seeming jurisdictional competition and recurrent conflicts as to issues of jurisdiction between the IST and the Federal High Court (FHC) as to the resolution of Capital Market Disputes. Resultantly, the FHC refers certain matters to the IST, whereas on certain situations it assumes jurisdiction.

Thus, capital market operators and investors often times are at a loss as to what court to approach in the event of a capital market dispute. Hence the need to evolve a defined system of dispute resolution where capital market opera tors and investors are equipped with complete knowledge of the applicable dispute resolution methods, levels and mechanisms available in the Nigerian Capital Market.

The above issues formed the focus of the Seminar on Resolution of Capital Market Disputes organized by the Capital Market Solicitors Association (CMSA), which held in Lagos on September 15, 2010. The panelists and participants at the seminar considered the roles of the Regular Courts, the Securities and Exchange Commission, the Investment & Securities Tribunal (IST), Arbitration and other Alternative forms of Dispute Resolution mechanism with respect to dispute resolution in the Nigerian Capital Market.

Dr. Nnenna A. Orji, Honourable Chairman of the Investment and Securities Tribunal (IST) in her paper on “The Role of Investments & Securities Tribunal (IST) in the Dispute Resolution of Capital Market Disputes in Nigeria”, noted that the plethora and enormous volume of unresolved cases facing the Judges of the regular courts which as at 2009 was about 34,000 if not more, the unnecessary and recurrent delays necessitated by adjournments in the courts brought about the creation of the IST.

She buttressed further that the IST was set up for the speedy resolution of capital market disputes, boosting investors’ confidence in the capital market, enhancing the Nigerian Capital Market Dispute Resolution Mechanism and developing the jurisprudence of the Capital Market. Thus the IST is an incidence of the need to ensure a speedy resolution mechanism sensitive to the dynamics of the market as well as the multiplier effect  it has on the economy.

Chief Anthony Idigbe, SAN, Managing Partner of PUNUKA Attorneys & Solicitors in his paper, “An overview of the Capital Market Dispute Resolution Options in Nigeria and the Role of Lawyers in the process”, highlighted the Challenges facing the present capital market dispute resolution mechanism to include the following: 1.      The SEC domestic forum of the APC is such that an absolute concentration of power in SEC  may likely result in arbitrariness and abuse of power;

2.     The concept of super regulator is unconstitutional given the doctrine of separation of powers enshrined in the CFRN; 3.  Lack of skilled legal practitioners. 4.     The issue of jurisdictional competition between the IST and the FHC vis-à-vis the CFRN 1999 which lists superior courts, and does not include the IST in same; and the question of whether the IST can therefore be referred to as a superior court of record (regardless of the provision of the ISA in this regard). Therefore the need to amend the CFRN 1999 to resolve the jurisdictional conflict/issue of superiority between the FHC and the IST. Mrs. Funke Adekoya, SAN in her paper canvassed support for the enhanced utilisation of Arbitration and other forms of Alternative Dispute Resolution (ADR) in the face of on-going conflict in the capital market dispute resolution methods.

The imperative for the existence of an effective dispute resolution mechanism within any regulatory institution cannot be over-emphasized. This is even more germane in the Nigerian capital market where SEC is inundated with numerous complaints on a daily basis. The existence of a reasonably adequate legal framework and internal mechanism for dispute resolution by SEC has helped in this regard. The Commission has also demonstrated sufficient commitment by the application of the legal framework in resolving disputes.

Dispute resolution in the capital market requires speedy and sometimes informal handling of matters. In my view such approach is fundamental to effective justice delivery, enhancement of investor confidence and the development of the market. However it is pertinent to state that the increasing interest of investors and other participants in the market as well as the downturn in the global financial markets has generated more disputes than imagined.

It is therefore necessary to consider the establishment of a more robust, specific and definitive dispute resolution mechanism – a set and well structured practical dispute resolution mechanism within the market; known to all a sundry – both operators and investors alike – for more effectiveness and investors confidence in the market.

The need for legal practitioners skilled in capital market laws, rules and regulations is a sine qua non to further strengthen the laws and ensure compliance. Hence the training of lawyers and judges in this regard cannot be over-emphasized. It is suggested that the CMSA develops a curriculum for the training of lawyers in this regard before admission into membership by SEC.

The issue of jurisdictional competition should be looked into to eliminate forum shopping and allow the system to focus on development of serious capital market jurisprudence that would bring legal certainty of outcome in capital market disputes. It is further suggested that the CMSA, SEC, the IST, FHC and other relevant operators harmonise and cooperate to ensure the effectiveness of the Capital Market Dispute Resolution process.