Court awards N2.5bn Judgement against Stanbic IBTC
Category: Frauds & Scandals
December 07, 2010 / The Nation with additional info culled from Ocnus.net / Newswatch
The Federal High Court in Lagos ordered Stanbic IBTC Bank to pay a customer N2.5 billion for breach of contract.
Justice Charles Achibong ruled that the bank acted "unwise and unprofessionally" when it sold the customer’s shares below the mandated N15 per share.
The court disregarded the defendant’s claim that it acted on an electronic mail (e-mail) from the customer, holding that having not been signed by parties, such document could not be relied on.
The court held that ‘Longterm’ and its Chief Executive Officer (CEO) Patrick Akinkuotu established their claim that their accounts were manipulated.
Justice Achibong declared that the bank was cavalier in the handling of the plaintiffs’ business, and ordered it to return to them all stocks and share certificates held as security for a loan it once granted them.
The court also discharged the plaintiffs from any indebtedness to the bank. It held that the loss suffered by the plaintiffs as a result of the defendant’s unprofessional conduct has obliterated whatever the plaintiffs owed the defendant.
It dismissed the defendant’s counter-claim for lacking in merit and awarded N150, 000 as cost against the bank.
The plaintiffs in the suit accused the bank of manipulating their accounts with the aim of retaining its hold on the shares they pledged as collateral.
The shares included 10,828,216 units of Guinness Nigeria Plc, 4,000, 000 of Union Bank Plc and 6,300,000 of the West African Portland Cement Company Plc, with which they had secured the loan of about N1. 25 billion, from the bank in 2007.
They also accused the bank of not reflecting most of the repayment they made.
The plaintiffs averred that in furtherance of the repayment effort, they instructed the bank to sell their shares in GT Bank Plc, totaling 28, 745,400 units, (which were not part of the deposited shares) at a price not below N15 per unitx, because they aimed to realise N431,181,000.
They added that contrary to their instruction, the bank “negligently and unprofessionally sold” the GT Bank shares at prices ranging between N8 plus and N9 plus on May 7 last year, a day after the price of the shares was reduced by the Nigerian Stock Exchange (NSE) due to the bonus and dividends declared by GT Bank.
The plaintiffs accused the defendant of wrongly selling their shares at N260, 876,903.21 as against their expected income of N431, 181,000 resulting in a loss of N170, 304,096.76.
They also accused the bank of breaching the terms of their agreement by allegedly charging interest in excess of the agreed 16 per cent per annum, failing to inform them when it (the defendant) allegedly altered the interest rate beyond 16 per cent and alleged failure to remit deposited funds.
The plaintiffs cited cases where the defendant allegedly failed to credit Longterm account with a deposit of N212, 720 and where their accounts were debited with N37, 625,642.59 which resulted from excess interest charges.
They averred that the defendant, on being confronted with evidence of excess interest charges, refunded N1.9million, about N35.7m was still outstanding.
They argued that despite having fully repaid the loan, the bank has refused to yield possession of the shares with which they secured the facility. They added that not only did the bank continue to charge them interest; its refusal to release the shares has hampered their businesses.
The plaintiffs, who claimed N7billion against the defendant as general and aggravated damages, urged the court to among others, direct the bank to release the shares, restrain it from exercising any right of ownership over the shares and to further restrain it and its agents from selling the shares.
A Deal Gone Sour
It began as a good business transaction between Stanbic IBTC Bank Plc and Longterm Global Capital Ltd, one of its customers, in 2007. But three years after, both parties went to the Federal High Court in Lagos, on how hefty loans totalling N1.25 billion given to the company and Patrick Akinkuotu, its owner, should be repaid.
The suit number FHC/L/CS/1491/2009 showed that on April 11, 2007, the bank’s branch on 76, Adetokunbo Ademola Street, Victoria Island, Lagos, provided Longterm with N600 million loan to augment working capital in its stocks and real estate businesses. Barely a month after, the company applied for additional facility of N650 million. But due to the bank’s credit limit policies, it could not grant it. However, it offered two overdraft facilities of N400 million and N250 million on May 11 and July 17, 2007, to Akinkuotu, chairman and managing director of Longterm, thus bringing the total loans to the company and its owner to N1.25 billion.
Longterm and Akinkuotu, first and second plaintiffs in the case, said that the interest rate on the facilities was 16 percent per annum while the tenure was 365 days. This could be rolled over for another 365 days.
All the facilities were secured with a lien on 10,828,216 units of Guinness Nigeria PLC shares, four million units of Union Bank PLC shares and 6.3 million shares of West African Portland Cement Company PLC belonging to Longterm. The shares were valued at N1,924,887,000. However, additional cash cover or other acceptable securities must be provided by the borrowers should the value of the shares fall below 150 percent only of the facility.
The facilities were fully drawn down through account numbers 1111314381 and 7200050415 belonging to Longterm and Akinkuotu, respectively. At maturity, the facilities were rolled over and the two accounts merged to eliminate the problem of dealing with different maturity dates. A repayment date was thereafter fixed for July 22, 2009 with caveats - If, however, a substantial part of the facility was paid on or before this date, the balance would be rolled over for another 365 days to give the company adequate time to convert some of its stocks to cash at reasonable prices which may not be achieved within a short time frame.
To achieve this, the debtors said they agreed to sell 18,752,700 and 9,992,700 shares of Guaranty Trust Bank belonging to the first and second plaintiffs, respectively, which were in the bank’s custody even though they were not part of the collaterals for the loans, on condition that same would not be sold below N15 per share. The target was to raise N431.181 million to repay a substantial part of the loans.
But the 28,745,400 shares were sold on May 7, 2009, at prices ranging between N8 and N9. This fetched N260,876,903.21, that is N170,304,096.79 below the targeted sum of N431.181 million. The plaintiffs claimed further that the bank debited their accounts to the sum of N37,625,642.59 in excess of the 16 percent interest per annum. It later refunded N662,674.32 and N1,237,787.40 to the accounts as part of the excess interest charged above, leaving a balance of N35,725,180.87. On October 27, 2009, the debtors claimed to have paid another sum of N501,607,445.53.
Consequently, the plaintiffs claimed they were no longer indebted to the bank in view of the repayment of N501,607,445.53, the excess bank charges of N35,725,180.89, the sum of N170,304,096.79 due to the plaintiffs from the sale of Guaranty Trust Bank shares but unjustifiably lost by the defendant and the cash deposit of N212,720.00 which the defendant refused to credit into the first plaintiff’s account and the accrued interest of over N30,000.00 at the rate of 16 percent per annum, all of which totalled N707,882,493.19.
They prayed the court to order the bank to release the shares they initially pledged for the loans, N5 billion as general damages against the defendant for breach of contract and another N2 billion as aggravated damages for loss of goodwill and business reputation of the plaintiffs. Alternatively, they asked the court to direct the parties to carry out proper and independent reconciliation of the plaintiffs accounts prior to and after the merger of the accounts to determine the actual indebtedness of the plaintiffs if any and order the bank to release all their shares less the number of units equivalent to the sum that may be adjudged due to the defendant.
But the bank said the debtors refused, failed and neglected to fund their respective overdraft facilities thereby leaving the first plaintiff’s accounts in the debit sum of N490,249,138.77 by April 30, 2008, and the second plaintiff’s account in the debit sum of N665,760,143.61 as at July 31, 2008. The bank subsequently granted the debtors discretionary extensions when the facilities expired in July 2008, till February 17, 2009, in the first instance, March 2009, in the second instance and finally May 6, 2009.
However, by January 2009, the minimum coverage ratio of 150 percent prescribed in the offer letters had dropped to 98 percent. The bank, therefore, requested Akinkuotu to either pay in some money into the account to reduce the debit balance or provide additional shares to maintain the minimum coverage ratio. Thus, on February 12, 2009, in his personal capacity, Akinkuotu proposed to pay a minimum of N300 million between March and May 2009 from proceeds of sale of GTB shares, which was not part of the securities held by the defendant. On March 5, 2009, he gave a mandate to sell 28,745,400 shares at a fixed price of N15 per unit but the bank replied that it was speculative as the official market price ranged between N9 and N10 per unit.
But to assist the debtors, the bank said it applied discretionary extension of the facilities of May 6, 2009, to allow GTBank release its 2008 financials so that the plaintiffs could take the full benefit of its shares in terms of bonus and dividends that would accrue thereon. On May 4, the plaintiffs authorised the bank to sell the shares immediately after the closure date at the prevailing open market price(s) of the stock and promptly credit all proceeds to first plaintiff’s current account. The bank got further instruction on May 6, that the entire shares must be sold by May 7, 2009, to meet the extended expiry date. The bank compiled and the proceed of N267,775,709.21 was paid into Akinkuotu’s account.
The bank, however, said that the plaintiffs’ court action arose because the price of GT Bank’s shares began to appreciate from May 8, a situation neither party anticipated. However, after the bank set off all excess charges and deposits or accrued interests that were not credited into the plaintiffs’ accounts, it claimed that the debtors still owed it N188, 495,839.28. Consequently, the bank has made a counter claim to this sum as well as interest on it at the prime lending rate of 18 percent per annum.
Stanbic IBTC prayed the court to grant it additional concessionary penal rate at seven percent per annum over the prime lending rate from time to time for as long the debtor-plaintiffs refused to pay the sum since the expiry of the facilities on December 31, 2009, and interest at the rate of 11 percent from the date of judgement till the total judgement sum is liquidated. Also, the bank has asked the court to award it N10 million against the plaintiffs as cost of prosecuting the counter claim.