Describe the nature and extent of securities litigation in your jurisdiction.
Securities litigation in Nigeria generally entails disputes between capital market operators, investors and clearing agencies, the Securities and Exchange Commission (SEC, a federal government agency), and investors, etc; disputes arising from the administration, management and operation of investment schemes relating to securities transaction(s).
Where a party files a complaint at SEC against an operator for any securities transaction, the complaint is referred to the Administrative Proceedings Committee for determination. The decision of the Committee is appealable to the Investment and Securities Tribunal (IST). The Investment and Securities Act 2007 prescribes that all actions must be concluded within 90 days at the IST.
Parties can also commence an action directly at the IST. The IST has exclusive jurisdiction to hear and determine:
- any question of law or dispute involving a decision or determination of SEC in the operation of the Investment and Securities Act;
- a dispute between capital market operators;
- a dispute between capital market operators and their clients;
- a dispute between an investor and a securities exchange or capital trade point or clearing and settlement agency;
- a dispute between capital market operator and SEC;
- a dispute between the SEC and self-regulatory organisation;
- a dispute between an investor and SEC; an issuer and SEC;
- a dispute arising from the administration, management and operation of collective investment schemes, etc.
The decisions of the IST are appealable to the Court of Appeal and subsequently to the Supreme Court.Available claims
What are the types of securities claim available to investors?
Securities claims available to investors in Nigeria can be categorised into statutory and common law claims. For instance, where an investor is of the view that losses arising out of his or her securities transaction were because of the negligence of the operator, the investor is entitled under the law to seek claims against the operator based on the alleged negligence. The investor, however, has the burden of proof to the Tribunal that the investor was negligent in handling the transaction.
The Tribunal also exercises jurisdiction in any other matter as may be prescribed by an Act of the National Assembly. Other types of claims also available to the investor include:
- misappropriation of clients’ funds by a stockbroker;
- non-remittance of issue proceeds by an issuing house to the issuer or company;
- non-remittance of dividends by a registrar or public company or stockbroker;
- late transfer and/or registration of shares or stocks by any stockbroker;
- disputes or claims arising from misrepresentations; or
- false statements in offer documents or in a securities transaction.
How do claims arising out of securities offerings differ from those based on secondary-market purchases of securities?
There is no specific statutory provision or case law that creates a difference in relation to claims arising out of securities offerings from those on security market purchases. However, claims arising out of securities offerings primarily relate to the misrepresentation in the offering document, while claims on secondary market purchases generally feature negligence false trading, market manipulations and minority protection actions against the company.Public versus private securities
Are there differences in the claims available for publicly traded securities and for privately issued securities?
Yes, there are differences in the claims available for both. For instance, in the publicly traded securities, the SEC and Nigeria stock exchange (NSE) can sanction the operators for negligent conducts while for the privately issued securities, the NSE and SEC generally have no jurisdiction over same. However, the standard of proof in obtaining damages against both on grounds of negligence is still based on balance of probabilities.Primary elements of claim
What are the elements of the main types of securities claim?
The claims are either statutory claims or common law claims. For statutory claims, liability exists for untrue statements in a prospectus. Section 85(1) of the Investments and Securities Act provides that where a prospectus invites persons to subscribe for shares in a company, all persons who subscribe for shares or debentures are entitled to compensation for the loss or damage they have suffered by reason of their reliance on any untrue statement or misstatement included in the prospectus.
The elements of a common law claim for negligent misrepresentation are as follows:
- there was a duty of care based on a ‘special relationship’ between the representor and the representee;
- the representation was false or misleading;
- the representee reasonably relied upon the misrepresentation;
- the representor acted negligently in making the misrepresentation; and
- the reliance was detrimental to the representee, in the sense that harm resulted.
What is the standard for determining whether the offering documents or other statements by defendants are actionable?
The standard for determining whether the statements are actionable in Nigeria is whether the statements in the offering documents relied upon by the investor are untrue, false and misleading. However, an expert is exempted from both civil and criminal liabilities for misstatements in the offering documents not attributed to him or her as an expert during preparation of such documents. For claims emanating from common law as mentioned above, the onus is on the applicant to prove that the representation was misleading and inaccurate. The standard of proof is on the preponderance of evidence and on the balance of probabilities. Where the misrepresentation has criminal liabilities, it may be referred to the Attorney General of the Federation for criminal action to be instituted against the defendants. The standard of proof for the criminal action would be beyond reasonable doubt.Scienter
What is the standard for determining whether a defendant has a culpable state of mind?
The requirement for determining whether the defendant has a culpable state of mind would generally depend on the nature of the claim. For instance, where the claim is to do with false trading and market rigging transactions, the applicant must show that the defendant was reckless or negligent in disseminating false information and likely to induce the sale or purchase of securities or likely to have the effect of raising, lowering, maintain or establishing the market price of securities. On the other hand, where the claim relates to misstatements in the prospectus, the applicant should be able to prove that the defendant’s principal officers, employees who participated in the production of the prospectus, issuing house, etc, omitted to state material facts in order to make the prospectus not misleading. In Union Bank of Nigeria Plc (Registrar’s Dept) v Securities & Exchange Commission Appeal No. IST/APP/03/2003 the court held that the registrar, as custodian of shares, owed shareholders and other market operators a duty of care and due diligence and was therefore liable to restore the shareholders to their original position in the event of wrongful transfers. Failure to reverify dematerialised certificates sent back from the Central Securities Clearing System was held to be a breach of statutory duty to investors and other capital market operators who rely on information from the registrar. Failure to perform their duty made the registrar culpable and liable to pay compensation for damages.
Worth noting is that there are also some defences available to the defendant depending on the claim. For instance, in the former claim, if it is established that at the time when the defendant recorded or stored the information, he or she had no reasonable grounds for expecting that the information would be available to any other person, he or she may escape liability. See sections 107-108 of the ISA.
In the latter claim, the defendant may also not be liable if it can show that the prospectus was issued without his knowledge or consent and on becoming aware of its issue, reasonable notice was given to the public or after the issue of the prospectus and before allotment, he or she, upon becoming aware of the misstatement, withdrew his or her consent in writing. See section 85 ISA.Reliance
Is proof of reliance required, and are there any presumptions of reliance available to assist plaintiffs?
By virtue of section 94 of the ISA, proof of reliance is not required for an applicant to bring an action for rescission of all allotments against the defendant if the prospectus contained a material statement, promise or forecast which was false or misleading. All the applicant is obligated to show by virtue of the provision is that the prospectus contained deceptive statement(s).
However, by virtue of section 85(1) of the ISA, while it does not also require the applicant to show that he or she relied on the untrue statement or misstatement to institute the action, defendants are liable to pay compensation to only persons who relied on the prospectus and incurred loss or damages by reason of the untrue statement. In Dr Sunday Folorunso Kuku & 2 Ors v Geoff Ohen Ltd & 2 Ors in Suit No FHC/L/CP/25/12 delivered on 7 May 2018 the court found that one of the applicants and the third defendant participated in the production of a false document and thus held that the applicant could not benefit from the transaction.Causation
Is proof of causation required? How is causation established?
Section 85(1) of the Investment and Securities Act requires that the negligence or breach of duty that led to the misstatements are the direct cause of the loss or damages suffered.Other elements of claim
What elements present special issues in the securities litigation context?
There is no specific statutory provision or case law that has been deemed a special issue in securities litigation.
One element that used to be noble was the issue of jurisdiction regarding securities litigation involving SEC. The issue has, however, been resolved in favour of IST as opposed to the Federal High Court.Limitation period
What is the relevant limitation period? When does it begin to run? Can it be extended or shortened?
The relevant limitation period in Nigeria is three years if the action is on the grounds of a misleading statement, an untrue statement or a misrepresentation on the prospectus. Where the action is based on breach of contract, it would be six years. Time begins to run from the date of discovery of the misrepresentation and cannot be extended after the relevant limitation period.