Nigeria: The Right Of Foreign Companies To Sue In Nigerian Courts And The Enforcement Of Contract By Foreign Companies:

Last Updated: 9 November 2018

The decision OF THE SUPREME COURT in Citec int'l estates ltd v edicomsa int'l inc & associates.

The relevant sections applicable to enforcement of contracts by foreign company and the right of foreign companies to sue in Nigerian courts are sections 54, 55 and 60(b) of the Companies and Allied Matters Act, Cap C20 Laws of the Federation (CAMA). Section 54(1) of CAMA prohibits a foreign company from engaging in business in Nigeria without incorporating as a legal entity under CAMA. Section 54(2) of CAMA provides that any act done in violation of Section 54(1) shall be void. Section 55 of CAMA stipulates the punishment for a company that violates the provision of section 54. Sections 54 and 55 of CAMA make it a criminal offence for a foreign company to conduct business without first incorporating in Nigeria.

Section 60 of CAMA, on the other hand, protects the rights of access of foreign companies to Nigerian courts under Nigerian law for the enforcement of their rights. The question is can it be said that the legislature has, by the section 60(b), extended the right of access to the courts to include enforcement of an illegality.

Before the Supreme Court decision in Citec Int'l Estates Ltd v. Edicomsa Int'l Inc & Associates, there had been no specific judicial pronouncement on whether the protection under section 60 of CAMA extends to rights created under a contract in contravention of section 54 of CAMA. As a result of the lacuna in the interpretation of section 54 of CAMA, varying interpretations were given to the combined effect of sections 54, 55 and 60 of CAMA.

Brief Facts of Citec Int'l Estates Ltd v Edicomsa Int'l Inc & Associates: The facts of the case are as follows. The respondent, as plaintiff at the trial court sought to enforce agreements it had entered into with the appellants which were for consultancy services and the construction of two factories at its Nbora Abuja project site. Although the respondent was paid for the supply of 2 new factories at the Nbora site, the appellant terminated the contract on the ground that the respondent had installed second hand and fairly used equipment in the factories while the factories supplied and constructed by the respondent were unserviceable, and unfit for purpose. Upon termination of the contracts the respondent instituted an action against the appellant seeking mandatory order of injunction and special and general damages. The appellant by way of preliminary objection challenged the jurisdiction of the court to hear the suit on several grounds including the fact that the contract was a nullity having been entered into by the respondent/plaintiff without it being incorporated in Nigeria under CAMA.

The Decision at the Court of Appeal: The Court of Appeal in Citec Int'l Estates Ltd v Edicomsa Int'l Inc & Associates in determining the subject matter had interpreted section 54 properly when it held that to carry on business means to conduct, prosecute or continue a particular vocation or business as a continuous operation or permanent occupation. The repetition of acts may be sufficient. To conduct business also means to hold oneself out to others as engaged in the selling of goods or services.

The Court of Appeal also correctly interpreted the general intent of section 60 which seeks to confer juristic personality on foreign companies that have been registered in other jurisdiction on the basis of reciprocity in international relations.

The challenge was interpreting sections 54, 55 and 60 of CAMA in relation to one another. The Court of Appeal, although admitted that it was wrong for the plaintiff to have conducted business without incorporation, appeared to have held that based on an interpretation of Section 60 of CAMA and the fact that the penalty for noncompliance with section 54 of CAMA is very inconsequential that a company that fails to comply with section 54 may sue by virtue of section 60 of CAMA.

The Court of Appeal per Rhodes-Vivour, JCA (as he then was), held that the plaintiff/appellant was clearly wrong to carry on business in Nigeria without complying with the provisions of section 54(1) of CAMA. Failure to comply with the provisions of section 54(1) of CAMA attracts a very inconsequential penalty. . . . The Court of Appeal held that the learned trial Judge was in grave error to hold that since the plaintiff/appellant failed to comply with the provisions of section 54(1) of CAMA, it cannot sue. And that the correct position of the law is that a foreign company having the intention of doing business in Nigeria must take necessary steps to obtain incorporation in Nigeria. That is to say it must comply with the provisions of section 54(1) of CAMA before it commences business. If the foreign company carries on business without being incorporated in Nigeria, all its acts are void and it shall be liable to pay fines as provided by section 55 of CAMA. A foreign company that fails to comply with the provisions of section 54(1) of CAMA and proceeds to carry on business in Nigeria can sue to protect its rights and be sued where liable. Noncompliance with Section 54(1) is not a bar to suits by a foreign company or against it. (emphasis mine)

Although the Court of Appeal did not make a specific pronouncement on whether a foreign company could sue on section 60 of CAMA, for the enforcement of that particular contract, entered into in violation of section 54 of CAMA, the court of Appeal by upholding the appeal and returning the case for trial before a different judge seemed to conclude that a foreign company can enforce a contract entered into in violation of section 54 of CAMA. A part of the decision at the court of appeal also gives the impression that section 55 of CAMA, the penalty section for section 54 of CAMA, is inconsequential. The legislature is never known to use meaningless words. Every word used in a statute has its meaning.

The Decision at the Supreme Court: The Supreme Court analyzed the subject of whether a foreign company could sue for the enforcement of a contract entered into in violation of section 54 of CAMA remarkably. The Supreme Court declared contracts entered into in violation of sections 54 and 55 of CAMA as illegal contracts. The Supreme Court per held that a community reading of sections 54 and 55 of CAMA reveals that except where the foreign company is granted exemption from compliance or by virtue of a treaty, it cannot without obtaining incorporation as a separate entity, carry on business in Nigeria and any business it so transacts, without obtaining incorporation as a separate entity, is void and incapable of being enforced in any court. Non-compliance with the requirement of section 54, by virtue of section 55 of the Act, constitutes an offence, liable to a fine on conviction. A business transaction by a foreign company that has not obtained incorporation, notwithstanding section 60 of CAMA, is not only void but illegal.

Although the Supreme Court agreed with the Court of Appeal's views as to the status of a contract entered in violation of sections 54 and 55 of CAMA. The Supreme Court however qualified the right of foreign companies to sue for the enforcement of contracts in Nigeria. The apex court distinguished between a contract entered in violation of sections 54 and 55 of CAMA and a contract as envisaged by section 60. The Supreme Court limited the extent of section 60 to rights accruing from a lawful business. Examples of this kind of lawful business transactions abound in the realm of international commerce. For this kinds of business to be lawful, the requirement is that they must have been conducted outside Nigeria. The Supreme Court held that while sections 54 and 55 of CAMA are about the conduct of business by a foreign company, that it is illegal in Nigeria, section 60 of CAMA on the other hand, permits the enforcement by a foreign company a legal right accruing to it from a lawful business or transaction. Section 60 of CAMA does not vest in a foreign company a legal right to enforce an illegal contract. The situation the legislature has in mind, in enacting Section 60 of CAMA, is where, for instance, a foreign company has had a transaction with a Nigerian or a Nigerian entity which transaction could be enforced in Nigeria but which of course may not have been as a result of any business the foreign company is carrying on in Nigeria.

Where a foreign company, not registered, in Nigeria, purports to carry on business in Nigeria in defiance of Section 54(1) of CAMA, such transaction is not only void, it is illegal and a crime to do so. . . . the court of justice will not lend its aid to a man who grounds his cause on illegality.

defiance of section 54(1) of CAMA, such a business is not only void, it is illegal and a crime to do so. The legislature enacted sections 54 and 55 purposely not to allow a foreign company carry on business in Nigeria in accordance with the provisions of CAMA. That is why the conduct is expressly criminalized by section 55 of the Act. Thus any conduct of a foreign company in defiance of section 54(1) of the Act renders whatever business it carries on not only void, but criminal. The law as put in Latin is ex dolomalo non oritur, that is, that the court of justice will not lend its aid to a man who grounds his cause on illegality

The Supreme Court defined what an illegal contract is and the effect of such illegality. A contract is illegal if the consideration or promise involves doing something illegal or contrary to public policy or if the intention of the parties in making the contract is to promote something which is illegal or contrary to public policy. An illegal contract is a void contract and it cannot be the foundation of any legal right. In other words, when the object of either the promise or the consideration is to promote the committal of an illegal act, the contract itself is illegal and cannot be enforced. Where a statute, declares a contract void and imposes a penalty for making it, the contract is illegal.

The court held that an illegal act, that is a void act, does not confer any legal right or title whatsoever. The respondent had no right in law to enforce such an illegality. The combined effect of section 54(1) and (2) and 55 of CAMA which made it illegal for a foreign company to carry on business in Nigeria without first being registered to do so was that the transaction or contract the respondent, foreign company, had with the appellant was an unenforceable transaction or contract.

The effect of illegality of contract goes beyond the right of a plaintiff to sue. Illegality of contract affects the jurisdiction of the court. The court will not exercise its jurisdiction to enable a plaintiff break the law. The court held that the illegality of a contract or transaction, whenever raised as a defense to a claim founded on the said transaction, impacts on the jurisdiction of the court. When the contract on which the plaintiff sues is ex facie illegal, the courts will decline to enforce it for the courts exercise their jurisdiction only to administer the law of the land. They do not exercise their jurisdiction to help the Plaintiff break the law.

The Supreme Court corrected the impression, created at the lower court, that the fact that the penalty is inconsequential does not make it less serious. The court held that while it may be said that the fines are paltry, the fact that defaulters will be criminally culpable and liable to conviction underscores the seriousness with which the legislature views non-compliance with the provisions.

Conclusion: In upholding the judgment of the trial court, the Supreme Court held that the finding of the trial court, on the effect of a foreign company carrying on business in contravention of sections 54 and 55 of CAMA is a correct statement of the law. The respondent was carrying on business in Nigeria without being incorporated under CAMA and was in breach of Section 54(1) of CAMA. The consequence of the non-compliance is that the agreements are null and void. Though as a legal personality such a foreign company may sue and be sued as provided for under section 60(b) of CAMA, having not obtained incorporation as a separate entity in Nigeria such contract being void and tainted by illegality by the company's breach of section 54(1) and (2) of the same Act, is rendered unenforceable

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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