Saturday, August 04, 2018 08:56AM / News
A Federal High Court sitting in Ikoyi, Lagos, has ordered First Bank of Nigeria limited to pay messrs Olisa Agbakoba (SAN), a customer of the bank, the sum of N266, 368,454.85 as general damages against the bank for mismanaging the lawyer's Share Portfolio Investment (margin loan) Account.
This is a landmark judgment in a case that offered a different dimension to the understanding of liability, responsibility and the pursuit of restitutions in margin loan transactions.
Indeed, Olisa Agbakoba (SAN) vs First Bank of Nigeria was in so many ways, a litmus test for the banking industry and as far back as 2013, we had opined that the case presented the much needed opportunity to test the laws in relation to investor protection and banking risks – obligations and professional liability.
Thus in 2013 the law firm of Olisa Agbakoba &Associates caused to be lodged at the Federal High Court, Lagos the following lawsuits - FHC/L/CS/700/2013 and FHC/L/CS/699/ 2013, and so began the five year journey till this judgment.
The claim of the customer is that the Bank failed to use its professional expertise and skills to manage, operate and control the loans as clearly stated in its product offer and terms of contract. The customer further claimed that it was the responsibility of the bank to manage the risks of the loans and that its subsequent failure led to colossal losses.
Although, aggrieved customers of banks and investment houses in Nigeria have found it difficult to successfully prosecute their claims in relation to injuries occasioned by margin loan agreements because of the nature and structure of the contracts entered into, this case was always different on the evidence and exchanges Proshare sighted between parties.
Indeed, the customer specifically alleged that in their case, FBN took the contractual responsibility to manage the risks associated with the margin loans and it was its failure to manage the loans in accordance to the contract that really led to their losses.
Case Background - Plaintiff
A statement of claim filed before the court by Babatunde Ogungbamila, a partner in the law firm of Agbakoba and Associates on behalf of the human rights lawyer, alleged that as a result of banker-customer relationship between him and the bank, the bank introduced its margin trading facility to him sometime in 2008, and he accepted the offer.
First Bank represented to him that the bank's customers were to purchase shares with the advanced margin trading facility, and pledge the shares to the bank. The bank in turn, for a management fee, was to professionally manage the advanced facility by selecting the broker and securities the facility would be invested into.
The bank equally represented that it would also prepare all the paper work needed, provide information about the funds’ holdings and performances, and reserved the power to exit should the fund diminish to a threshold that could impair the economic underpinnings of the investment and leave the bank’s exposure uncovered.
The bank claimed to possess the requisite knowledge, skills and expertise to seamlessly manage the investment in a win-win situation under terms and conditions that limited the exposure of the customers who were to rely on the expertise of the bank to manage the investment.
Consequently, the bank requested and encouraged him as a customer, to take the margin loan contract.
On the strength of this assurance, the plaintiffs applied for a margin trading facility of N200million.
The plaintiff and the bank opened a joint special reserve lien account with the central securities clearing system, whereby First Bank Limited was the sole signatory to the lien account.
The plaintiff also provided shares worth N60million as his own contribution, in line with the margin trading facility agreement.
It was fundamental to the margin loan agreement that “if the plaintiff was unable to regularize the account within five days following the margin call, the bank had the duty to sell the shares and apply the value of the shares appreciate to cover the required margin”.
The plaintiff averred that the bank did not take reasonable care to ensure the performance of the contract and observe compliance with all terms and conditions of their agreement in relation to the transaction, as the bank failed to monitor the stock market and advise the plaintiff accordingly as it was obliged by the margin loan agreement; while the value of the shares continued a steady decline, the plaintiff was utterly left in the dark regarding the value of the share portfolio in spite of repeated demands by the plaintiff for information from the bank.
In a “Particulars of the Fraudulent Inducement”, First Bank held itself out as possessing the requisite knowledge, skills and expertise to seamlessly manage the investment in a win-win situation while offering the plaintiff the product.
Consequently, the breach of the margin trading facility agreement, fraudulent misrepresentations and mismanagement of the plaintiffs account by the bank occasioned huge loses to the plaintiff.
The principal sum of N200million was completely lost, the plaintiff paid a total sum of N250,434,639.13 in liquidation of the margin loan account, excluding interest and other charges.
The plaintiff's 30% equity contribution valued at N60million was completely lost; N40million out of this would have been saved if the shares were sold at the second trigger point, N768,454,85 cost of cancellation of transfer of the debt to AMCON.
During hearing of the case, Agbakoba testified for himself and tendered 22 exhibits.
Case Background - The Defence
In an amended statement of defence filed before the court by Professor G.Elias (SAN), representing First Bank denied almost all the claims of Agbakoba, contending that it is not in any way liable to the plaintiff either in contract or tort, as the plaintiff was aware of the volatility of the operations of the Nigerian stock exchange and the speculative nature of the price of the stocks traded thereon and voluntarily assumed the business risks involved therein by applying for the loan from the bank and applying for the loan proceeds to buy shares, thereon the bank has never been the plaintiffs investment manager.
He averred that the bank’s obligations were limited to the administrative aspects of the facility itself, not the shares.
The said administration involved the bank taking steps to ensure payments of the principal sum and the interest and monitoring movements on the bank’s lien account, not share account, by debiting and crediting relevant accounts towards repayment of the facility.
The bank was never a "joint venture" participant in the shares investment business undertaken by the plaintiff with the facility proceeds; the bank’s role in the facility transaction was that of a lender and not that of a co-investor or asset manager.
Consequently, the bank denied that it acted in breach of contract or breach of any legal duty, therefore the plaintiff is not entitled to any sum as the plaintiffs claims against the bank are vexations and without merit and should be dismissed with substantial costs.
In his judgment, Justice Muslim Hassan said:
"I am in agreement with the submission of learned counsel for the plaintiff that the bank failed to honour its contractual obligation as contained in the margin loan agreement and as a result the plaintiff suffered damages.
The position of the defendant is akin to a situation where a party to a contract in the absence of any agreement to the contrary takes a benefit of a contract and refuses to accept liability as a result of his inaction or negligence, no court in Nigeria would allow that.”
"From the foregoing, I hold that the plaintiff has proven his case against the defendant. I hereby make the following orders:
· An order is made against the bank for the payment of N20million as general damages against the bank for mismanagement of the plaintiffs share portfolio investment.
· An order is made against First bank for the payment of the sum of N200milion principal sum lost by the plaintiff as a result of the bank’s breach.
· An order is made against the bank for the payment of the sum of N40million to the plaintiff which would have been saved out of the plaintiff equity contributions were the shares sold at the second trigger point.
· An order is made against the bank for the payment of the sum N768,454,85 to the plaintiff being the cost of cancellation of transfer of the debt to AMCON.
· An order is made against the defendant for the payment of the sum of N5.6million for loss of dividend that accrued from plaintiffs Diamond bank shares in April 2008.
· Payment of the sum of N5million as a cost of this action is refused as the plaintiff failed to prove how he arrived at that figure, more so the plaintiff cannot transfer his legal fees to the bank.
· An order for the payment of interest on the judgment sums awarded against the bank in favour of the plaintiffs from the date of judgement at the rate of 17% per annum until judgment sums are paid."
Margin Loans Related
3. The N300bn Class Action Law Suit against a Nigerian Bank Apr 24, 2013
4. Share/Margin Loans and the Investor: The Legal Dimensions of the – Ope Banwo...Aug 15, 2009 [PDF]