The Capital Market Solicitors’ Association is an independent self-regulatory association of solicitors and commercial law firms engaged in capital market practice. The aim of the Association is to address the marginalization of Solicitors in capital market operations vis-à-vis other professionals, such as Accountants, Brokers and Stockbrokers. It is set up primarily as a platform to articulate and promote the interest of legal practitioners specializing or dealing in capital market transactions.
The establishment of the Association became imperative due to the requirement to register with the Nigerian Securities and Exchange Commission (“SEC”) as Capital Market expert or professional, pursuant to Sections 29 and 30 of the Investments and Securities Act 1990 (the ISA) now Section 38 of ISA 2007 and Rule 38 of the SEC Rules and Regulations. The necessity of registering with SEC is to make it easy to identify solicitors engaged in capital market practice and regulate their operations.
The Association is concerned with developing the legal framework within which the capital market operates and pursues its objectives by organizing training sessions, workshops and seminars for its members on topical issues arising in the capital market. As part of its vision to ensure a knowledgeable, dynamic and strong professional body, the Association has conceived a Continuing Legal Education (“CLE”) Programme for capital market solicitors. The CLE Programme is geared towards developing adequate legal capacity in the Nigerian capital market to meet the demands of an evolving capital market.
ROLES OF SOLICITORS IN THE NIGERIAN CAPITAL MARKET
The roles of Solicitors in the Nigerian Capital Market is multi-faceted. The most basic which is complex in its nature is preparation of transaction documents such as Offer documents, Prospectus, placement memorandum, rights circular, vending agreements, underwriting agreements, opinion on claims and litigation, consent letters etc. Solicitors are indispensable parties to Capital Market transactions. They conduct the much needed due diligence on the material contract, claims, and litigation of an issuer. Solicitors review corporate approvals and constitutional documents of the issuer to confirm compliance and adequacy. They review term sheets and advice on transaction structure. The roles of a Solicitor are numerous and we can easily spend a whole day highlighting them.
ISSUES ARISING FROM THE RESOLUTION OF DISPUTES IN THE NIGERIAN CAPITAL MARKET
The Dennis Odafe Panel
In 1995, the Government of Nigeria set up the Chief Dennis Odafe panel. The goal of the panel was to undertake a comprehensive review of the operations of the Nigerian capital market, in line with international best practices and standards; hence, the panel came up with the drafting of the Investment and Securities Act (ISA) 1999.
One of the many recommendations of the panel which was embodied in the Act was the conception and establishment of the Investment and Securities Tribunal (IST). The Act empowered the tribunal to resolve disputes and controversies that may arise by operation of the Act and rules made there under. Section 284 of the Investment and Securities Act gives the Investment and Securities Tribunal exclusive jurisdiction over securities matters. The Act empowered the Securities and Exchange Commission to retain its power to administratively adjudicate on complaints arising from transactions in the capital market as well as breaches of the provisions of the Act and the rules made there under. Decisions of the Administrative Proceeding Committee (APC) in accordance with the Act are now subject to appeal to the IST. Appeals on the IST’s judgment/rulings lie to the Court of Appeal and from there to the Supreme Court. The ISA was amended in 2007; but still keeps the same framework for the IST in a manner similar to the 1999 Act.
The Investments and Securities Tribunal
The Investments & Securities Tribunal (IST) was established under section 274 of the Investment and Securities ACT (ISA) 2007. IST was constituted and formally inaugurated on 19th December, 2002 as part of the Federal Government key reform of the financial sector. It is a dedicated, specialised and fast-track civil court for the resolution of disputes arising from investments and securities transactions. These disputes are resolved in an accessible, flexible and cost-effective as well as efficient and transparent manner. The ISA 2007 stipulates that all matters before the Tribunal are to be concluded within 90 days from date of hearing.
Jurisdiction of the Investment And Securities Tribunal and its Attendant Issues
Section 284 (1) of the ISA 2007 confers on the tribunal to the exclusion of any other Court of Law or body in Nigeria, the jurisdiction to hear and determine any question of law or dispute involving:
a. A decision or determination of the Commission in the operation and application of the ISA, and in particular, relating to any dispute:
(i) Between capital market operators
(ii) Between capital market operators and their clients
(iii) Between an investor and a securities exchange or capital trade point or clearing and settlement agency
(iv) Between capital market operators and self-regulatory organization
b. The Commission and self-regulatory organization
c. A capital market operator and the commission
d. An investor and the commission
e. An issuer of securities and the commission
f. Dispute arising from the administration, management and operation of collective investment schemes.
Over the years, there has been controversies over the Jurisdiction of the IST whether it encroaches on the exclusive jurisdiction of the Federal High Court. The impacts of this conflict have been so devastating to the entire Nigerian capital market and the economy in general. This conflict of jurisdiction has led to judicial forum shopping by securities litigants, conflicting decisions from the Apex Court, decline in investors’ confidence and poor assessment of ease of enforcement of Securities contract in Nigeria.
Many Law scholars have argued for and against the jurisdiction of the IST matters, and there has been different decisions of the Courts for and against as well. However, because of the constraint of time, we would not have the luxury of sifting through the cases and opinions.
The legislature has a huge role to play in ensuring a safe environment for investors in the Nigerian Security market. One of the ways to secure their investment is to provide as seamless way of settling investment disputes while having a sense of certainty of the particular forum or method to use.
RECOMMENDATIONS ON THE STATUS OF THE IST
It is hereby recommended that that the status of the IST should be upgraded to a full specialized court of record with the status of a High Court by an alteration of the Constitution just like we have the National Industrial Court. It will divest the Federal High Court from its current overloaded jurisdiction causing unnecessary delay in adjudication of financial/securities services matters and stagnancy of development in securities jurisprudence in Nigeria.
This won’t be new as over the World, there are Courts specialized with dealing with security issues. In China, there exists a specialised Commercial Court that deals with this nature of dispute and this particular Court was equipped to hold online hearings and sessions long before the Covid-19 Pandemic.
The Nigerian securities services adjudicatory architecture needs a radical copy of the UK system to develop a viable jurisprudence for such an important pillar of the nation’s economy. I would suggest a single, one-stop, cross sectoral value chain adjudicatory architecture statutorily independent from the Executive interference. That is, the current situation whereby the Tribunal is under the control of the Securities and Exchange Commission is against the principles of Natural Justice, Equity and Fairness; especially in the areas of disputes between SEC and any other person or Capital Market Operator.
ADR: A Pathway to Settling Securities Disputes
Another angle we must look at is to legislate the settlement of securities and investment dispute through Alternative Dispute Resolution Mechanisms like Arbitration, Mediation, Negotiation and Conciliation. This will not only boost investor confidence, but it will increase the assurances of confidentiality and ensure speedy resolution of disputes. The position of law today in Nigeria, is against resolution of Capital Market disputes through ADR mechanisms.
In the United States of America, Dispute resolution methods, in the securities industry are very common. Formal litigation in court is rarely available to investors. In the US case of Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332 (1987), the Court authorized the use of arbitration for the settlement of disputes relating to the securities industry. Additionally, SEC Rule 12 provides for arbitration of “any dispute, claim or controversy between parties … arising in connection with the securities business of such parties.” Since then, most new account agreements include an arbitration clause that refers the matter to arbitration. As of this moment there’s not tacit and express approval either by legislation or Judicial precedent authorizing the use of ADR to solve Security Disputes in Nigeria. This is definitely a common trend we can adopt.
In the US, settlement of Security disputes through Mediation and Arbitration is governed by the Financial Industry Regulatory Authority (“FINRA”). Historically, securities arbitration was managed by institutions such as the American Arbitration Association (AAA) or by a stock exchange such as the New York Stock Exchange (NYSE). The securities industry arbitration practice, however, has consolidated within FINRA. Almost no securities arbitration takes place outside of FINRA. Specific exchanges now even refer cases to FINRA arbitration and mediation procedures. The US Securities and Exchange Commission has since August 5 1998 embraced the settlements of disputes through ADR.
In Indonesia, the Indonesian Capital Market Arbitration Board (BAPMI) was established as a forum to settle any civil disputes in capital market through out-of-court settlement mechanisms. Currently, BAPMI provide four methods of alternative dispute resolution, which are Binding Opinion, Mediation, Adjudication, and Arbitration.
Having highlighted the roles of solicitors in the Capital market, the challenges facing capital market dispute resolution and probable solutions to addressing these challenges, it is evident that there is a huge legislative review needed to reposition the speedy and efficient resolution of Capital Market Dispute so as to boost the Market security and attractiveness. The Capital Market Solicitors Association is committed and willing to work with the Legislature in mapping out an efficient legal framework for the resolution of Capital Market Disputes in Nigeria.