IN THE COURT OF APPEAL OF NIGERIA
On Friday, The 28th day of February, 2014
CA/L/894/2012
BETWEEN
1. BELOXXI & COMPANY LIMITED ................. Appellants
2. OBI EZEUDE
V.
1. SOUTH TRUST BANK
2. EXPORT-IMPORT BANK OF UNITED STATES .............. Respondents
3. PRIVATE EXPORT FUNDING CORPORATION
APPEARANCES
F.R. Onoja Esq. for Appellants
Olumide Aju Esq. with B.C. Akunya Esq. for Respondents
MAIN JUDGMENT
CHINWE EUGENIA IYIZOBA, J.C.A. (Delivering the Leading Judgment):
This appeal is against the judgment of Archibong J. of the Federal High Court, Lagos Division in Suit No. FHC/L/CS/113/2005 delivered on the 15th day of November, 2012. The facts leading to the suit and the appeal may be summarized thus: Sometime in 2003, the 1st Appellant sought and obtained a loan from the 1st Respondent for the purchase of biscuits manufacturing equipment in the sum of $2,207,600.00 (Two Million Two Hundred and Seven Thousand Six Hundred U.S, Dollars). Two types of guarantees with different consequence were provided to secure the loan. The first type of guarantee was the personal guarantee of the 2nd Appellant who is a Managing Director/Chief Executive Officer of the 1st Appellant. The loan documentation included a Promissory Note and a Letter Agreement both dated 2nd March 2004 (Pages 16 - 25 of the Record of appeal). The second type of guarantee was a form of insurance provided to the 1st Appellant by Export-Import Bank of the United States (the 2nd Respondent). The 2nd Respondent is an organ of the government of the United States of America with the object of financing exports of goods and services from the United States to foreign countries. By this second guarantee, the 2nd Respondent undertook to repay the 1st Respondent if the Appellants defaulted in paying the 1st Respondent; the 2nd Respondent will then be subrogated into the shoes of the 1st Respondents to recover the loans from the Appellants. At some point, in the process of restructuring of the 1st Respondent, the loan was assigned to the 3rd Respondent.
The Appellants defaulted on the loan and the 2nd Respondent repaid the 1st Respondent through the 3rd Respondent. The 2nd Respondent then obtained an assignment of the loans and all the documents from the 1st Respondent. The Appellants were aware of this arrangement at all material times of the transaction. Rather than pay back the 2nd Respondent, the Appellants as Plaintiffs sued the Respondents at the Federal High Court, Lagos division seeking a declaration that they are not entitled to repay the loan because of the assignment of the loan to the 3rd Respondent. The 2nd Respondent then filed a statement of defence in which they counterclaimed for the loan.
The case proceeded to trial on the 24th day of September 2008 when the Appellants' first witness (the 2nd Appellant) began his testimony. In the course of the testimony, the lower court suo motu, raised the issue as to whether the Appellants have a cause of action against the Respondents and requested Counsel to address the court solely on the issue whether the Appellants' Statement of claim disclosed a cause of action having regard to the facts pleaded and the reliefs sought. Counsel addressed the court and in a considered ruling the court held that the Plaintiffs have no cause of action against the Defendants and consequently dismissed the Plaintiffs' claim and set down the Counterclaim for hearing. (Pages 184 - 196, 220-222 and 234 - 244 of the record of appeal). The Appellants filed two appeals against two interlocutory decisions of the trial court in this matter which were dismissed by the Court of Appeal.
At the conclusion of hearing, the trial court found the Plaintiffs/Appellants liable for the reliefs in the Counterclaim save for the Attorney's fees and court costs. Dissatisfied with the judgment, the Appellants filed this appeal vide two Notices of Appeal dated 19th November 2012 and 29th November 2012. The Appellants are relying on the Notice of Appeal dated 29th November 2012 but filed on 30th December 2012 whilst the Notice of Appeal dated 19th November 2012 is deemed abandoned having not been argued. Out of the 10 grounds of appeal in the notice of appeal dated 29/11/12, the Appellants distilled five issues for determination.
They are:
1. Whether having regards to the facts and circumstances of the case, the lower Court had jurisdiction to have entertained the counter-claim
2. Whether the learned trial Judge was right to have entered judgment for the Respondents for the principal sum and interests on the ground only that the Promissory Note being a 'separate obligation' is not discharged by repayment of the principal and interest of the loan?
3. Whether the learned trial Judge had jurisdiction to have awarded 'reasonable Attorney's fees' to the Respondents?
4. Whether the learned trial Judge was right to have entered judgment against the Appellants jointly?
5. Whether the Appellants have not suffered a miscarriage of justice by the delivery of the judgment of the lower court after more than six months from the date of final addresses of the parties?
The Respondents in their brief adopted the above issues formulated by the Appellants.
ISSUE 1
"Whether having regards to the facts and circumstances of the case, the lower court had jurisdiction to have entertained the Counterclaim?
The Appellants argument on this issue is that the Counterclaim being an action to recover a debt by a guarantor on behalf of a principal debtor, it did not qualify as a banking transaction as to vest jurisdiction on the Federal High Court. Counsel argued that the fact that the transaction originated as a banking transaction did not confer jurisdiction on the lower court. He argued that the loan and interest had been repaid in full; and that the counter claim was simply an action by the 2nd Respondent to claim the value of the guaranteed repaid loan. Learned Counsel for the Respondents of course disagreed and insisted that the lower Court was right in holding that it had jurisdiction to entertain the suit.
The relevant part of the decision of the lower court at pages 446-447 of the record of Appeal is as follows:
Besides the transaction was concluded in this jurisdiction, the benefit of it, essentially a trade promotion facilitated by a banking loan, was within this jurisdiction, the beneficiary being a Nigerian registered company domiciled here. I see nothing to oust the jurisdiction of this Court; I so hold."
The above reasoning of the lower court cannot be faulted. The Respondent is absolutely right that the transaction giving rise to the appeal having arisen from a banking transaction, the lower court had jurisdiction to entertain the counterclaim. A loan facility was advanced to the 1st Appellant by the 1st Respondent (who is an American Bank). The loan was guaranteed by the 2nd Appellant. One of the condition precedents to qualify for the loan which the Appellants validly agreed to, was that the 2nd Respondent will guarantee the loan. Further and as rightly submitted by the Respondent, and upheld by the trial Judge the loan was as a result of a trade promotion between Nigeria and USA involving exportation of goods from the United States of America to Nigeria. It is an Export Import Bank loan by which the United States of America seeks to fund, promote and encourage industrial activities in Nigeria. The jurisdiction clause in the Loan Agreement is at page 5 of Exhibit BB at pages 205-209 of the record and provides as follows:
"The Company irrevocably:
Submits to the non-exclusive jurisdiction of any Federal District Court of the United State of America in New York or the District of Colombia, United States of America in connection with any suit action or proceeding arising out of relating to this letter Agreement or the Note and further submit to the competent court of its corporate domicile or proceedings against it,
Waives to the fullest extent permitted by law the defence of inconvenient forum".
The corporate domicile of the 1st Appellant is at No. 31 Ekololu Street, Surulere, Lagos Nigeria. By the above clause, both the relevant courts in the United States of America as well as the Court of the corporate domicile of the 1st Appellant has jurisdiction in respect of any suits arising out of the loan It is clear from the above that the Appellants unconditionally agreed to submit to the jurisdiction of the Nigerian court in respect of any action such as the Counter-claim instituted against them for the recovery of the loan granted to them.
Learned Counsel for the Appellants had further submitted that that the counterclaimant and the other Respondents are not Banks within the meaning, definition and intendment of Nigerian Law. I again agree with the learned counsel for the Respondent that the argument is misconceived. This view is further supported by the provisions of the law and it is better to set out the provisions explicitly: Section 251 of the 1999 Constitution of the Federal Republic of Nigeria provides:
1.Notwithstanding anything to the contrary contained in this Constitution and in addition to such other jurisdiction as may be conferred upon it by an Act of the National assembly, the Federal High Court shall have and exercise jurisdiction to the exclusion of any other court in civil cases and matters -
a. .........
b. ........
c. ........
d. Connected with or pertaining to banking, banks, other financial institutions, including any action between one bank and another, any action by or against the Central Bank of Nigeria arising from banking, foreign exchange, coinage, legal tender, bills of exchange, letters of credit, promissory notes and other fiscal measures:
Provided that this paragraph shall not apply to any dispute between an individual customer and his bank in respect of transactions between the individual customer and the bank;
e...,.......
f...,,.......
g..........,
h. diplomatic, consular and trade representation;
Section 66 of the Banks and Other Financial Institutions Act, Cap B3 Laws of the Federation of Nigeria, 2004, defines "other financial institution" to mean:
"Any individual, body, association or group of persons, whether corporate or unincorporated, other than the banks licensed under this Act which carries on the business of discount house, finance company and money brokerage and whose principal object include factoring, project financing, equipment leasing, debt administration, fund management, private ledger services, investment management, Local Purchases Order financing, export finance, project consultancy, financial consultancy, pension fund management and such other business as the bank may, from time to time designate."
It is clear then from the above provisions that jurisdiction is conferred on the Federal High Court, not only in respect of Banks but also financial institutions as defined above. The transaction giving rise to this action is both project financing and export finance undertaken by the United States Government through Export-Import bank and a local U.S. bank to support manufacturing activities in Nigeria. The question as posed by learned counsel for the Respondent is, if the Appellants genuinely believed that this is not an action that should be instituted at the Federal High Court, why did they commence the action against these Banks at the Federal High Court? The fact is that Section 251(1)(d) of the 1999 Constitution gives jurisdiction to Federal High Court in respect of any matter connected to banks, banking and other financial institutions. The Supreme Court while considering the import of the proviso in S.251(1)(d) in the case of NDIC v Okem Enterprises Ltd (2004) 10 NWLR (Pt 880) 107 held that by the proviso both the Federal High Court and the State High Court has jurisdiction in disputes between an individual customer and his bank. It is now firmly established by the Supreme Court, that in a Banker/Customer relationship of this nature, the Federal High Court has jurisdiction to entertain the matter. It is also not in doubt that the 2nd Respondent qualifies as a financial institution under the combined provisions of the Banks and Other Financial Institutions Act, 2004 (Section 66) and Section 251(1)(h) of the 1999 Constitution The decision in Adetayo v. Ademola (2010) 15 NWLR (pt.1215) 169 at 189 cited by the Appellants dealt with the jurisdiction of the Federal High Court to hear land matters in which the Federal Government or any of its agency is a party. I agree with Respondent's counsel that it has no relevance whatever to this appeal.
In the Appellants' Reply Brief, Mr. Onoja submitted that the Supreme Court decision in Merill Guarantee Savings and Loans Ltd & Anor V. Worldgate Building Society Ltd. (2013) 1 NWLR (Pt.1336) 581 supports their contention that once the bank loan initially advanced to the 1st Appellant has been paid off by the 2nd Respondent, in his capacity as guarantor, the banking transaction came to an abrupt end. The counter-claim was therefore a mere action by a guarantor to recoup the exact amount paid to liquidate the loan. He contended that it becomes an entirely new cause of action and no longer a banking matter in which the Federal High Court has jurisdiction. I have read the authority above. I see nothing therein that supports the contention of the Appellant or that derogates from the decision of the lower court that the Federal High Court has jurisdiction. In the case, the Respondent a limited liability Company placed an investment of N500,000.00 with the 1st Appellant, a finance company. The investment was at an interest rate of 8.5% per month for 90 days to fall due on 24/8/93, The 2nd Appellant, the Managing Director of the 1st Appellant executed a personal guarantee in favour of the Respondent on the investment. The Appellants failed to redeem the Respondent's investment despite several demands. The Respondent instituted an action in the High Court of Lagos State. The appellants filed a preliminary objection challenging the jurisdiction of the High Court on the grounds that the two parties were financial institutions and that the Federal High Court had exclusive jurisdiction to hear the matter. The High Court agreed with the appellants and struck out the Respondent's action. The Respondent appealed to the Court of Appeal and the Court upheld the appeal on the grounds that there was nothing on the Respondent's claim to suggest that the parties were financial institutions. Secondly that the transaction did not come within the exclusive jurisdiction of the Federal High Court and that even if the parties were financial institutions and Section 230(1)(d) applied, they were in the same class as banks and therefore the proviso to Section 230(1)(d) applied to the dispute. That means that both the High Court and the Federal High Court had jurisdiction. The Supreme Court confirmed the judgment of the Court of Appeal. The case clearly did not support the Appellant in any way. On the contrary it supported the case of the Respondent. The Supreme Court in its judgment and the language used clearly showed displeasure at a debtor who is seeking a technical way out of his obligation by wrongly contending that the court where he was sued had no jurisdiction. The situation here is even more reprehensible. The Appellants were the ones that rushed to the Federal High Court and instituted the action that gave rise to the counter claim. After their action was dismissed and the counter-claim granted, they turned round to contend that the Federal High court had no jurisdiction. It is obvious from the authorities that both the High Court by virtue of the proviso to Section 251(1)(d) of the Constitution of the Federal Republic of Nigeria and the Federal High Court have jurisdiction in these matters. Section 259(1)(d) and (h) of the Constitution reinforce the argument that the Federal High Court had jurisdiction to entertain the counter-claim. Issue 1 is resolved against the Appellant and in favour of the Respondents.
ISSUE 2
Whether the learned trial Judge was right to have entered judgment for the Respondents for the principal sum and interests on the ground only that the Promissory Note being a 'separate obligation' is not discharged by repayment of the principal and interest of the loan?
Learned Counsel for the appellant on this second issue submitted that the lower court having found that the loan had been repaid and liquidated by the 2nd Respondent ought to have dismissed the Counterclaim in its entirety, as the 2nd Respondent has no cause of action against the Appellants to claim for a discharged debt since the law does not recognize the assignment of a debt that has been discharged. Mr. Onoja further submitted that the 2nd Respondent did not make a case for the enforcement of the Promissory Note at the trial and that the learned trial Judge erred in holding that the Promissory Note issued as security for repayment of the loan is a separate obligation which entitled the 2nd Respondent to recover against the Appellants.
Mr Olumide Aju for the Respondents in his brief in reply to this second issue submitted that the argument is misconceived for the following reasons:
1. That the Appellants do not dispute the loan nor their indebtedness therefrom; that the subsequent assignment of the loan to the 2nd Respondent, who insured the loan and repaid the loan, is also governed by contractual obligations, which the Appellants freely entered into with the 1st and 2nd Respondents; that the Promissory Note executed by the Appellants for the loan, Exhibits AA, duly recognized the 2nd Respondent as their guarantor. (Pages 21 - 25 of the records of appeal).
The promissory Notes provide as follows:
"Notwithstanding the fourth paragraph hereof, beginning on the date (the "Ex-Im Bank claim payment Date") on which the Export-Import Bank of the United States ('Ex-Im bank" makes a claim payment to the lender under the Master Guarantee Agreement (Medium Term Credits - Electronic Compliance Program), dated as of March 15, 2001 between the lender and Ex-Im Bank (the "MGA"), in the event of any amount of principal of, or accrued interest on, this Note owing to Ex-Im Bank is not paid in full when due (whether at stated maturity, by acceleration or otherwise), the Maker shall pay to Ex-Im Bank on demand interest on such unpaid amount (to the extent permitted by applicable law) for the period from the date such amount was due until such amount shall have been paid in full, at an interest rate per annum equal to one percent (1%) per annum above the interest rate otherwise then applicable under the first paragraph hereof.
Upon default in the prompt and full payment of any installment of principal hereof or interest on this Note, the entire outstanding principal amount hereof and interest on the note to the date of payment shall become due and payable shall become due and payable at the option and upon demand of Ex-Im Bank".
(2). A Promissory Note is defined in the Dictionary of law, 4th edition as follows:
'An unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at a fixed determinable future time, a sum certain in money to or to the order of a specified person, or to bearer : section 83 of the Bills of Exchange Act, 1882. See Claydon v. Bradley (I987) 1 WLR 521; Kwok v. Commissioner of Estate Duty (1988) 1 WLR 1035.'
Mr. Aju submitted that the assignment of the interest of the 1st Respondent on the loan to the 2nd Respondent through the 3rd Respondent (PEFCO) appears on the back of page 1 of Exhibit AA. By this assignment, the 2nd Respondent became subrogated (substituted) to the position of the 1st and 3rd Respondents and could lawfully enforce the remedy which the 1st and 3rd Respondents could have enforced against the Appellants. (Paragraph 23 of the 2nd Defendant's Amended Statement of Defence and Counter-claim Page 350 -354 of the record of appeal).
Counsel submitted that the word 'subrogation' is defined in Blacks Law Dictionary 6th edition as 'the substitution of one person in the place of another with reference to a lawful claim, demand or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim and its rights, remedies, or securities.' It refers, for example, to an insurer's right to enforce a remedy, which the assured could have enforced against a third party. See Phoenix Assurance Co v. Spooner (1905) 2 KB 753; Orakpo v. Mason Investments (1978) AC 95.
(3) Mr. Aju stated that the Appellants had argued that the trial judge gave judgment and enforced the promissory note suo motu and thereby breached the rule of fair hearing. He submitted that the argument is misconceived because the Promissory Note was not introduced by the Judge. It was one of the documents evidencing the loan transaction which was tendered at the trial and which the Appellants have all opportunity to impeach but did not. The effect of the Promissory Note which is that it is a bill of exchange, subject to endorsement and it is a separate obligation to unconditionally pay to the order of South-Trust Bank the principal sum due together with interest to LIBOR. As evidence the Appellants' obligation to repay the loan, the Appellant (Company) undertook to execute and deliver to SouthTrust Bank one promissory Note ("the Note") in the principal sum of US$2,207,600 or so much as shall be disbursed. The Appellants authorized SouthTrust Bank to complete the Note and agreed to it by filling in the appropriate dates. In the event of a conflict between the terms of this Note and the terms of this Letter Agreement, the terms contained in the Note shall govern."
Counsel further submitted that the Promissory Note is not only a bill of exchange but a distinct commitment provided as security for the loan agreement. It is not discharged by the loan itself being discharged by any party other than the borrower. The commitment to pay the principal sum of the loan agreement and the rate of interest accruable therein is an unconditional one assignable by an endorser as if it was the original issuer of the Note; the original maker, in this case, the Appellants. 1st Respondent is the acceptor and the endorsee in this case, the 2nd Respondent is the payee. See Black's Law Dictionary, 6th edition page 1214.
Counsel submitted that the cases of Victino Fixed Odds Ltd. v. Ojo (2010) 8 NWLR (Pt.1197) 486; Jerric Nig. Ltd. v. UBN Plc. (2000) 15 NWLR (Pt.691) 447 and Liman v. Mohammed (1999) 9 NWLR (Pt.617) 116 relied on by the Appellants were cited out of context and should be disregarded.
(4) Counsel submitted that where parties have lawfully entered into a contract to bind their relationship, the court must give full terms and effect to the provision of that contract. Ifeta v. SPDC Nig. Ltd (2006) 8 NWLR (938) 585. Counsel further submitted that it is a usual banking custom and practice that an assignee of a loan acquires all the rights, title and interest of the original lender bank. See Bateman v. Liggett 279 N.W. 2d 137, 203 Neb. 472 (Neb,, 1979), where the US court held as follows:
'Where, in the process of liquidating and terminating the business of an instalment loan licensee, a legal and valid instalment loan obligation is assigned to a creditor of the licensee in satisfaction of an indebtedness of the licensee, the assignee acquires all the right, title and interest of the licensee and may sue for, collect, and receive any lawful rate of interest provided for in the instalment loan agreement although the assignee does not have a license to engage in the instalment loan business.'
Counsel submitted that similarly, a guarantor, like the 2nd Respondent has a valid cause of action for the repayments of all sums of money paid on behalf of a borrower upon redemption by him of the loan taken by the borrower. In Adeosun v. Jibesin (2001) 11 NWLR Part 724 page 290 Greene L.J. held as follows:
"I will state my reasons for agreeing with the decision of the learned registrar.
It is, in my opinion, settled beyond possibility of dispute that where "A." at the request of "B." guarantees payment of "B.'s" debt to "C," the law implies an undertaking by "B." to indemnify "A." in respect of any sums which he properly pays to "C." under the guarantee. This is merely a branch of a wider rule which is laid down in numerous authorities. I may quote as examples Britain v. Lloyd (1845)14 M. & W. 762 where at p.773, Pollock, C.B., says:
"It is clear, that if one requests another to pay money for him to a stranger, with an express or implied undertaking to repay it, the amount, when paid, is a debt due to the party paying from him at whose request it is paid, and may be recovered on a count for money paid...the request to pay, and the payment according to it, constitute the debt; and whether the request be direct, as where the party is expressly desired by the defendant to pay, and does pay, makes no difference."
Counsel submitted that the above legal principle was confirmed and adopted in the Nigerian case of Onwukeme v. Onwuegbu (1970) N.C.L.R. page 399 at page 401 per Bate, S.P.J as follows:
"Where a principal debtor asks another person to guarantee the payment of the principal debt, it is well established that, if the guarantor has to pay, he may recover from the principal debtor: 18 Halsbury's Laws of England, 3rd ed., at 479 ff., and Snell's Equity, 25th ed, at 43 ff. Therefore in the present case the plaintiff is entitled to recover from the defendant the amount which the plaintiff paid to the bank to liquidate the defendant's overdraft"
Counsel submitted that even without an assignment of the loans in favour of the guarantor, the obligation of the borrower to repay the loans to the guarantor is sacrosanct. Consequently, he urged the Court to hold the Appellants jointly and severally liable to the 2nd Respondent for the loan. Mr. Aju submitted that the most ridiculous part of the Appellants argument on this issue is that a borrower who borrowed millions of dollars from a bank, agreed with a guarantor/insurer to step in the gap for him if he is not able to meet some of the instalment payments, and having undertaken to pay back the guarantor, now turns round upon redemption of the loan by the guarantor to claim that he is not liable to the guarantor on the loan. To accede to the Appellants on this issue will be laying a very bad precedent, which will potentially destroy the whole concept of banking business.
(5) Counsel submitted that the Appellants had argued on this issue that the Note shall be governed and construed in accordance with the law of the State of New York, USA and that the question whether the payment by the 2nd Respondent will discharge the Promissory Note or not should be decided based on American Law. The Appellants further argued that no evidence of American law was presented at the lower court and relied on the cases of JFS Investment Ltd v. Brawal Line Ltd (2010) 18 NWLR (Pt.1225) 495; Sona Breweries Plc v. Peters (2005) 1 NWLR (908) 478; Owoniboys Technical Services Ltd w UBN Ltd (2003) 15 NWLR (844) 545 and Standard Eng. Co. Ltd v. B.B.C.I (2006) 7 NWLR (978) 198 in support of this argument.
Counsel again submitted that this argument is misconceived and the cases cited by the Appellants not helpful to the Appellants. He submitted that in addition to the fact that the jurisdiction clause covers both the Courts of U.S.A. and Nigerian Courts; the Appellants have not shown that the position of American law on guarantees is different from Nigerian law.
On the contention of the Appellants that there was no basis for the award of interest by the trial court to the 2nd Respondent as there was no pleading and proof of same, counsel submitted that the nature of interest awarded by the trial court is one, which arose as of right based on the contractual agreement of the parties. The said rate of interest was pleaded and evidence was given at the trial in proof of this rate. In Paragraph 30 of the 2nd Respondent's Amended Statement of Defence and Counterclaim which is on pages 350 to 354 of the records of appeal, the 2nd Defendant counter-claimed against the Plaintiffs jointly and severally as follows:
'(1) The sum of $2,207,600 (Two Million Two Hundred and Seven Thousand, Six Hundred U.S. Dol