Smart: IST Has Restored Confidence in Economy

In this exclusive interview with James Emejo, a former member of the Investments and Securities Tribunal, Mr. Osemwengie Smart, said the court has restored confidence to both domestic and foreign investors in the Nigerian economy. Among other things, he discussed the motive behind the establishment of the tribunal, its achievements, challenges and way forward.

Why was the Investment and Securities Tribunal (IST) established when we have courts of competent jurisdiction in the country?

The capital market is a time-sensitive business, and it’s not the kind of industry where you want any activity regulated by a system that causes delays. For example, if there are disputes, and you take them to regular courts, there will be delays. By the time the case is resolved, time would have erased the importance of the issue.

The government saw the need for a specialized court to handle capital market cases expeditiously. That was why the government set up a committee to reform the finance industry, known as the Defeat Committee. The committee made far-reaching recommendations, particularly regarding capital markets.

One of those recommendations was to set up a specialized court to resolve capital market disputes. The unique aspect of this court is that any dispute brought before it must be resolved within three months. This is distinct from regular courts, where cases can drag on for 12 years or more. The IST must resolve the substantive case within three months, after addressing all preliminaries.

That’s how the IST came about. It is a specialized court dealing with investment and securities disputes arising from the investment and securities sector of the economy.

During your tenure, were there instances where the timeline had to be extended due to the complexity of the case?

Never. Speaking specifically for myself, all the cases I presided over, we always adhered to the three-month timeline. To the best of my knowledge, none of my colleagues have ever exceeded three months either.

What happens if a matter cannot be resolved amicably within the timeframe?

If you’re talking about amicable resolution, that’s a different matter. When a case comes before us, we encourage settlement, so we don’t necessarily need to go through the entire litigation process. In fact, the tribunal’s procedure rules encourage amicable settlement.

If both parties express interest in settling, we give them time. We might give them a month or two to resolve the issue outside of court. If they settle, we adopt it as the court’s judgment. But if they’re unable to settle within the period we grant, we immediately proceed with the case. 

So, there’s no issue of adjournment. We start the definite hearing. We encourage settlements. For example, an investor may sue a stockbroker or a capital market operator, perhaps for default. Maybe the investor gave money to buy stock, but the stockbroker didn’t buy it, and perhaps the sum involved is around one million. The stockbroker might realize that it’s not worth wasting time, so we encourage them to go and settle. If they settle, they come to the court with their terms of settlement, and that’s the end of the matter. But if they’re not able to settle, then we begin to take evidence. If the stockbroker claims he has already paid or issued a check, we’ll then call for evidence to resolve the matter.

What percentage of such disputes gets settled out of court, and which ones go through the whole litigation process?

The number of cases that get settled out of court is fewer than those that go through litigation. Sometimes it’s because of the nature of legal practice—some lawyers don’t want settlements, as they prefer to take the case to court because their fees may depend on it. They may feel that if they settle, their clients might think they haven’t done much. So, they often opt to go to trial.

However, we also have our Alternative Dispute Resolution (ADR) center, which is another option provided by law. It’s part of the amicable settlement process. For cases with smaller monetary sums or cases that aren’t too contentious, we refer them to ADR. ADR looks into the matter and often settles it amicably, especially if the case isn’t complex or the sum involved is not large.

From your perspective, how would you assess the effectiveness of the IST in resolving investment disputes?

The IST has been very effective. Let me digress a bit—the jurisdiction of the IST is both appellate and original. If an investor has a dispute with their stockbroker, they must first complain to the regulator, which in this case is the Securities and Exchange Commission (SEC).

By law, you are required to complain to the regulator first. If the SEC settles the matter and you’re not satisfied, then you can approach the tribunal. Or, if the other party is dissatisfied with the SEC’s decision, they can also come to the tribunal by way of an appeal. However, if you’re satisfied with the SEC’s resolution, then the matter ends there.

If the SEC delays in resolving the issue, for example, if one or two months pass without any action, you don’t have to wait indefinitely. In that case, you can approach the tribunal, and we’ll take your case even if the SEC has not made a determination.

The tribunal has held in many cases that inaction is also a form of action. If you refer the matter to the SEC and they delay, that inaction is treated as an action. You can then bring the case to the tribunal. Before doing so, however, you must give the SEC a pre-action notice, informing them that you intend to take the matter to the tribunal.

You give them 14 days’ notice. And this is my own opinion. Whether or not you’re joining the SEC, you need to give the SEC a pre-action notice. The reason is, who knows? If you give the SEC pre-action notice that you’re going to court within 14 days, they might resolve your matter. They might not want you to go to court and could resolve it within those 14 days. At the end of the day, you might not even need to go to the tribunal.

To what extent has this helped in terms of confidence building among investors?

The settlements we are doing here have brought back confidence in the minds of investors. You know, foreign investors now see that the regulator of the SEC has registered some cryptocurrency business exchanges where you can trade cryptocurrency. This has an international dimension. People want to be sure that if they have a dispute, there’s an effective mechanism to resolve it. That’s the mechanism that the IST represents. It has brought confidence to investors. And because of IST, Nigeria has become a signatory to what we call IOSCO—International Organization of Securities Commissions. Nigeria is now a signatory to that association. One of the reasons for this is that we have an effective mechanism for settling disputes. This creates confidence and helps maintain investor confidence.

So, how popular is the IST among investors and what’s the level of engagement?

People are using it. The IST has offices not only in Abuja and Lagos—the commercial capital of the country—but also in Kano, Enugu, and Port Harcourt. Of course, the IST isn’t dealing with people selling tomatoes in the market. It’s dealing with a specialised target: investors in the capital markets. These investors have associations—capital market associations. So, to that extent, IST is popular with those who require its services. These associations know where to go when they have problems, and they know they don’t need to go to a regular court anymore. They come to IST.

By the way, the issue of where to settle capital market disputes has now been laid to rest by the Supreme Court. A case went from the Federal High Court to the Court of Appeal and then to the Supreme Court, which ruled that the only court that can deal with capital market disputes is the IST. I can give you the details of that case. It involved African Petroleum (AP). The government was divesting some of its shares in AP, and they were supposed to disclose everything about the company—debts, portfolios, etc. When they came to market, an investor raised an alarm, saying the company was concealing information, particularly that its debt portfolio was higher than what they declared in their prospectus for the offer.

The SEC, being the regulator, carried out an investigation and discovered that the finance manager was culpable. They sanctioned him. But the finance manager then took the case to the Federal High Court, arguing that what the SEC did was wrong and asking to be exonerated. The SEC raised an objection, stating that the Federal High Court does not have jurisdiction over capital market disputes, which should be handled by the IST.

The judge, in his wisdom, agreed and transferred the case to the IST. The finance manager was not satisfied and took the case to the Court of Appeal, which ruled that both the Federal High Court and the IST had jurisdiction. Still not satisfied, he took the case to the Supreme Court. The Supreme Court settled the matter, ruling that when it comes to capital market disputes, the only court with jurisdiction is the IST.

This is the landmark case. It’s now well-settled that the IST is the exclusive court for capital market disputes. If you take your matter to the Federal High Court, you’re wasting your time. The other party will raise the issue of jurisdiction, and the case will be thrown out.

Now that the IST is the only competent court for investment matters, are there challenges the court faces? Is it overwhelmed?

The court is not overwhelmed. Before you come to the IST, there are processes in place. Let me explain something important. Initially, when the law was passed in 1999, you didn’t need to go to the SEC before bringing a case to the IST. This meant that if you had a minor complaint against your broker, whether for N10, N20, or N1 million, you could come directly to the IST. Many cases started coming to the IST, even minor ones.

The regulator didn’t find that amusing. They felt that small cases, which could be resolved without going to court, were being brought to the IST. This led to the review of the law in 1999. The current law, the Investment and Securities Act of 2007, now requires that all cases involving capital markets and claims between operators must first go to the SEC. Only cases involving the SEC itself can come directly to the IST.

By the grace of God, I was part of the National Committee that did that amendment in 2007. So, now, if a case involves a capital market operator, it must first go through the SEC for resolution. However, if the SEC is a party to the dispute, you don’t need to go through them—you can bring the case directly to the IST.

Yes, there is a vacuum somewhere because, in the enforcement of our decisions, for instance, if there’s no compliance and you need to enforce it, we don’t have instruments for enforcing judgments. The law says that if you need to enforce a judgment, you take a copy of that judgment, register it with the Federal High Court, and it will be enforced as if it is a judgment of the Federal High Court.

But in very few cases do they take it that far. Most times, there is compliance. If they don’t comply, they go to the Court of Appeal, and the Court of Appeal will decide. Whatever the Court of Appeal decides, at that level, they comply. Even in cases that went to the Supreme Court, when there’s a final decision, of course, they have no choice but to comply. So, this is not really a problem. I don’t see it as a problem.

Although it’s there, the government can improve the process by allocating funds. They should give it the official funding to establish an enforcement unit—yes, an enforcement unit.