By: Benjamin Obidegwu LL.M, FCTI, ACArb
Introduction
The capital market is an avenue for mobilising capital and diverting them into productive investment. It is the most important sector when it comes to the formal corporate industry as it controls foreign direct Investments, indigenous investments, foreign portfolio investments etc. Like in other business endeavours, disputes are bound to occur; however, investors despise disputes dragging on for long without being resolved.
This article analyses the ingress and dynamics of Arbitration as a viable tool for the resolution of capital market disputes in Nigeria. By emphasising the gains of this popular alternative dispute resolution mode, it is noted, inter alia, that Arbitration, unlike other forms of dispute resolution mechanism, injects the much-needed speed that is required in resolving disputes so as to prevent collateral and reputational damages to the parties involved.
Definition
A capital Market is a facility for the public trading in securities. It is “a network of specialised financial institutions, series of mechanisms, processes and infrastructure that, in various ways facilitate the bringing together of suppliers and users of medium- and long-term capital for investment in economic development projects. In this market, we have the equity market and the debt market. In the Equity market, shares, collective investment schemes like unit trusts are traded, while treasury bills and bonds are traded in the debt market. These markets provide an opportunity for corporate entities to borrow funds needed for long term investment purposes, an avenue for the marketing of shares and other securities, the facilitation of the in-flow of foreign capital, aiding the government in privatisation, reduces the over-reliance of the corporate sector on short term financing for long term projects and so on.
Capital Market players in Nigeria
The players in the Nigerian Capital Market are divided into three. They are:
1. The Authorities
2. The Operators
3. The Consultants
1. The Authorities
This Consists of the regulatory authorities that oversee the smooth running of the capital market. The principal authority is the Securities and Exchange Commission (SEC), Central Bank of Nigeria (CBN) and the Federal Competition and Consumer Protection Commission (FCCPC). Others include Corporate Affairs Commission (CAC), Central Securities Clearing System (CSCS), Nigerian Stock Exchange (NSE), Nigerian Investment Promotion Commission (NIPC) and the Federal High Court (FHC). This group consists of the policymakers that provide the roadmap, platform, bylaws and regulations that bind transactions in the Nigerian Capital Market. They also facilitate incentives for qualified entities and also give approvals or disapprovals as appropriate to intended transactions.
2. The Operators
This group includes those who facilitate the transactions that go on in the capital market, providing a bridge for capital investment. They consist of Fund Managers, Portfolio Managers, Underwriters, Custodians, Registrars, Securities Dealer, Issuing Houses, Stockbrokers, and Trustees, Seed/Angel investors, etc.
3. The Consultants
Players in this group facilitate the process in the capital market to ensure that regulatory pitfalls are avoided and no problem is encountered. They render professional services and advice, and their opinions affect the behaviour of investors in the market, which in turn affects the market. They are Solicitors, Accountants, Rating Agencies, Investment Advisers, Engineers, Auditors, and Property Managers etc.
Arbitrability of Capital Market Disputes
The basis for Arbitration, especially in commercial disputes, is that the privacy of parties and the dispute involved is supreme, coupled with the freedom of parties to agree on applicable laws and rules. Also, not forgetting the speed in dispensing matters as opposed to the time it would take the Federal High court or the Investments and Securities Tribunal (IST), even though the IST is mandated by Section 289(5) of the ISA to dispose of matters before it finally within three (3) months from the date of commencement of hearing of the substantive action. Arbitration without any gainsaying can dispense of the matter quicker than that.
Also, in Esso Petroleum and Production Nigeria Limited & SNEPCO v. NNPC, Idigbe observed that: “Arbitration has a tremendous advantage over litigation, such as speed, privacy, informality, cost and convenience. A case in point is the Arbitration worth about N35 billion between Intercontinental Bank & 5 Ors v. Union Capital Markets Limited & 2 Ors on underwriting contract in the African Petroleum PLC public offering of shares in 2009. The Arbitration was conducted at great speed and was decided within 15 working days of the close of pleading. The speedy resolution of this dispute via Arbitration had far-reaching effects in restoring the integrity of the public offer in the face of the negative publicity for underwriters, which could have been unduly prolonged by litigation.
The Nigerian Investment Promotion Commission Act, Chapter N 117, LFN 2004, in section 26 provides for the resolution of investment disputes through Arbitration as follows:
“1. Where a dispute arises between an investor and any Government of the Federation in respect of an enterprise, all efforts shall be made through mutual discussion to reach an amicable settlement.
2. Any dispute between an investor and any Government of the Federation in respect of an enterprise to which this Act applies which is not amicably settled through mutual discussions, may be submitted at the option of the aggrieved party to Arbitration as follows: –
a) in the case of a Nigerian investor, in accordance with the rules of procedure for Arbitration as specified in the Arbitration and Conciliation Act; or
b) in the case of a foreign investor, within the framework of any bilateral or multilateral agreement on investment protection to which the Federal Government and the country of which the investor is a national are parties; or
c) in accordance with any other national or international machinery for the settlement of investment disputes agreed on by the parties.
3. Where in respect of any dispute, there is a disagreement between the investor and the Federal Government as to the method of dispute settlement to be adopted, the International Centre for Settlement of Investment Disputes Rules shall apply. ”
Flowing from this, we can validly say that SEC as an agency of the Federal Government of Nigeria is bound by the above section of the NIPC Act, and as such, Arbitration of capital market disputes involving the Federal Government, any State Government of the Federation and SEC as an agency of the Federal Government would not be out of place.
Conclusion
Flowing from this, arbitrability of Capital Market disputes will only enhance ease of doing business. Quick and silent resolution of disputes will only endear Investors to the capital market, and this should be encouraged.
References:
- M. Al-Faki M., “The Nigerian Capital market and Socioeconomic Development:” (4th distinguished Faculty of Social Science, Public Lectures, University of Benin, Benin, 2006).
- Anthony Idigbe SAN, “Dispute Resolution in the Capital Market: A Review of Administrative and Judicial Mechanisms.” (The Securities and Exchange Commission’s Judges Workshop, Abuja, February 2016).
- https://www.cbn.gov.ng/fss/tue/BSP/Financial%20Markets_Money,%20%20Forex%20&%20Capital%20Markets/FSS%202020%20%20Capital%20Market%20Presentation.pdf Accessed on 4th January 2021.
- Unreported (Appeal No. CA/A/507/2012) Judgment delivered on 22nd July 2016
- Arbitration and Conciliation Act Chapter 19 Laws of the Federation of Nigeria 1990
