Supreme Court: Debtor Must Pay All Debts under Loan Contract

The recent judgment of the Supreme Court, which ordered Honeywell Flour Mills Plc and two of its subsidiary companies to pay N5.5 billion unsettled debt to Ecobank Plc, has again re-echoed the need to protect Nigerian banks from the negative effects of non-performing loans, writes Wale Igbintade

Non-performing loans are largely responsible for the crisis in the banking sector. When a borrower fails to make payments within the period specified in the loan agreement, it creates problems for the bank and depositors. After eight years of legal battle, the Supreme Court finally resolved the dispute between Honeywell Flour Mills Plc and two of its subsidiaries with Ecobank Plc over a non-performing loan granted by the bank. In its lead judgment, Justice Emmanuel Akomaye Agim ordered Honeywell Group to pay Ecobank N5.5 billion debt. The court also awarded N3 million in costs in favour of Ecobank. The suit commenced in 2015 when Ecobank sought to recover N5.5 billion debt from Honeywell and its sister firms – Anchorage Leisures Limited and Siloam Global Limited. But the three companies initiated a suit before the Federal High Court in Lagos, claiming that having paid N3.5 billion in final settlement of their indebtedness, they owed no further debt obligation to the bank. They also urged the court to hold that Ecobank was obliged to issue letters of discharge to release collaterals by which the prior indebtedness was secured. The three firms prayed the court to compel Ecobank to “update” their status on the “Credit Risk Management System Portal of the Central Bank of Nigeria.” During the trial before Justice Mohammed Idris, who was later elevated to the Court of Appeal, Honeywell Group chairman Dr. Oba Otudeko testified. In his testimony, he informed the court that his companies owed Ecobank individually but that the debt had been repaid. He said the firms jointly negotiated with the bank on the repayment terms. Also, in her evidence, Honeywell Group’s Head of Treasury and Finance stated that by an agreement reached at a meeting on July 22, 2013, the bank agreed to merge the collective indebtedness of Honeywell’s three subsidiaries which amounted to N3.5 billion. She added that part of the agreement was that N500 million must be paid immediately, while the balance of a N3 billion would be paid before the exit of the Central Bank of Nigeria (CBN) examiners from the bank. She said Honeywell complied with the terms of the agreement and wrote to inform the bank of its compliance and the need for the bank to discharge the company of any further obligation formally. She said Honeywell was surprised when the bank proceeded to demand further payments regarding the debt, which had been fully liquidated for over a year.

Repayment agreement period

But Ecobank, through its lawyer, Mr. Kunle Ogunba SAN, insisted that the repayment agreement period was for six months, submitting that it rejected Honeywell and its sister companies’ request to “pay the balance over a one-and-half-year period in three equal half-yearly installments.

Ecobank insisted that in paying the N3.5 billion, the firms did not comply with the terms of the agreement. It further contended that the firms breached the agreement that the money would be paid before the end of August 2013, when CBN examiners in the bank to examine its books would leave.

On May 31, 2019, Justice Ayokunle Faji, who took over the case, held that Honeywell Group was not indebted to Ecobank.

Dissatisfied, Ecobank appealed through its lawyer, Kunle Ogunba SAN, and urged the court to set aside the judgment of the lower court.

However, pending the outcome of the appeal, Ecobank, in December 2015, secured an ex-parte application restraining Dr. Otukedo, the company’s directors, and others from withdrawing from any bank or financial institution.

Honeywell later initiated contempt proceedings against Ecobank. It accused the bank of disobeying an earlier directive by Justice Idris that all parties should maintain the status quo.

On February 15, 2016, Justice Idris struck out Honeywell’s contempt charge against Ecobank, holding that Form 48 and Form 49 (with which contempt proceedings are initiated) were not properly served on the alleged contemnors.

The judge held that a party seeking to jail another for disobeying a court order was duty-bound to ensure that processes in contempt proceedings were duly served.

In a related case before Justice Okon Abang of the same court, Ecobank, on October 16, 2015, filed a motion ex-parte for an order restraining Siloam Global Services Limited and Dr. Otudeko from operating or dealing with funds in any bank or financial institution pending the determination of the motion on notice for the appointment of a provisional liquidator or interim receiver.

The bank also sought an order directing and compelling all the banks and financial institutions in which Siloam Global Services and Otudeko have accounts to furnish Ecobank with their details.

Ragging Legal Battle

As the legal battle raged on, Ecobank, in an application, asked the then Chief Judge of the Federal High Court, Justice Ibrahim Auta, to withdraw the main case from Justice Idris and re-assign it to another judge. The bank asked the judge to recuse himself as it no longer had confidence in him. But the judge refused.

Ruling on the application to recuse himself, Justice Idris said: “These issues are either for the appellate court or appealable issues, and the defendant can exercise the right of appeal if it so desires. The application for the judge to recuse himself from this matter is most frivolous, and it is refused.”

Consequently, Ecobank filed a notice of appeal against the ruling and an application for a stay of proceedings pending the appeal’s determination.

However, this took a dramatic turn when on January 11, 2018, the Legal Practitioners’ Privileges Committee (LPPC) announced the withdrawal of the Senior Advocate of Nigeria (SAN) rank from Ogunba. The committee stated that the award of the rank of Senior Advocate of Nigeria was withdrawn based on a petition by Honeywell Group alleging professional misconduct against him.

The company accused Ogunba of filing multiple suits against its subsidiaries before different judges of the Federal High Court on the same subject “with the deliberate aim of abusing the process of the court.”

Nonetheless, the Nigerian Bar Association (NBA), in its August 5, 2016, response to Honeywell Group’s petition, cleared Ogunba of any wrongdoing. In the letter signed by its then General Secretary, Mazi Afam Osigwe, the NBA stated that after a careful reading of the petition, it was found not to disclose any alleged infraction of the Rules of Professional Conduct 2007 by Ogunba.

The association said it was satisfied that the suits Ogunba filed for Ecobank did not amount to an abuse of court process, adding that the companies were separate entities and that the cases were not in respect of the same facts, nor did they seek the same reliefs.

 “A careful examination of the court processes filed by parties at the various suits indicated differences in either parties or reliefs sought, which defeats your (Honeywell’s) allegation of abuse of court process,” NBA stated.

On September 20, 2018, the LPPC restored Ogunba’s rank of Senior Advocate of Nigeria.

“The committee hereby allows the restoration of the rank of Senior Advocate of Nigeria on your person and the privileges of a Senior Advocate of Nigeria,” the LPPC stated.

Supreme Court Verdict

In its final resolution of the dispute, a five-member panel of the Supreme Court on January 27, 2023, upheld the submissions of Ecobank’s lawyer, Ogunba, and affirmed the judgment of the Appeal Court, Lagos, which set aside the May 21, 2019, decision of the Federal High Court in Lagos.

Delivering the lead judgment, Justice Emmanuel Agim held that Honeywell and its sister companies were indebted to Ecobank and must pay, thereby vindicating Ogunba.

Justice Agim held: “It is clear from all the foregoing correspondences that the appellants (Honeywell and subsidiary companies) opted out of the mutual understanding of payment of the 3 billion naira in lump sum as a condition for the respondent’s waiver of some of their debts and rather triggered a new negotiation by a proposal to pay it three equal half yearly installments.

‘’It is glaring that the parties were unable to reach a consensus ad idem (meeting of minds) on this proposal. The appellants’ assumption in exhibit A4 that in their meeting of 12/ 12/ 2013, some understanding was reached on the payment of the unpaid balance of the N3 billion by further installments was deflated by the respondent’s insistence in exhibits A5 and A8 that the appellants’ debts remain undischarged even after they pay N3.5 billion and that the concession to waive some of the debts lapsed in August 2013 when they failed to pay the N3 billion naira in a lump sum. Therefore, their protracted negotiations did not yield any consensus.

“The negotiations did not create any legal relations between the appellants and the respondent different from the one existing under their respective loan contracts with the respondent. The respondent obviously did not accept the offer or proposal that the appellants pay the N3billion naira in installments and still enjoy the waiver of some of their debts. Therefore, no enforceable contract resulted from the negotiations, as a contract cannot exist without an offer and acceptance of the terms of the offer.

‘’In any case, being a negotiation of the respondent’s waiver of some of the debts owed by the appellants under their loan contracts with the respondent and the conditions for the waiver, the appellants were not in a position to furnish consideration for the waiver because they have the contractual obligation to pay their respective debts and the respondent has no contractual obligation to waive their obligation to pay their debts under their respective loan contracts. The contention that having paid N3.5 billion following the negotiations of 22/ 7/ 2013, the respondent must waive their accrued debts above the paid N3.5 billion has no contractual foundation,’’ Justice Agim held.

The apex court further held that “Negotiation is Negotiation and, in any form, it is governed by the principles in the law of contract. In other words, to be a valid contract, there must be an offer, acceptance, and consideration. So, in my respectful view, negotiation cannot and does not, on its own, constitute a contract.

“The respondent is the owner of the money due as debts from the appellants can decide to waive its right to recover all the debts from each appellant. But it cannot be compelled to waive its said contractual right. If it refuses to waive the right or go ahead with the negotiation to secure its waiver of some of the debts, the debtor must pay all the debts that have accrued under the loan contract. A waiver must be clear, unequivocal, and voluntary. Where negotiations have resulted in an agreement by a person to receive a sum of money lesser than what is due to him under a written contract, the agreement must be in writing’’. 

Conclusively the apex court stated: “In the light of the preceding issue no. Three is resolved in favour of the respondent. On the whole, this appeal succeeds in part in respect of issues numbers 1&2 and fails in part in respect of issue number 3.  Accordingly, I hold that the appellants had the locus standi to sue and that the trial court had the jurisdiction to determine the suit. I affirm the judgment of the Court of Appeal in Appeal No. CA//LAG/CV/975/2019, setting aside the trial court’s decision in suit No. FHC/L/CS/1219/2015 granting the reliefs claimed for by the appellants. I hold that the appellants’ claim at the trial court failed and is hereby dismissed.

“The appellants shall pay costs of N3 million to the respondent.”