Consent or No? Examining the applicability of the attorney general’s consent in Garnishee Proceedings involving the E-Naira

Introduction:

The Nigerian Government formally launched the “E-Naira” on 25^th October 2021, making it one of the few central Banks to date that had introduced a Central Bank Digital Currency (CBDC) in the world. The E-Naira was billed to make payments and remittances faster and cheaper while ensuring that collection of government revenue was easier amongst others.

CBDCs, along with Cryptocurrencies form part of the technologies revolutionizing the world of finance. This has led to the rise of ‘new’ forms of money and financial assets as well as the De-Fi, ‘an ecosystem of financial services which in its most utopian design would have no place for the traditional gatekeepers such as banks, courts, etc.

The increasing adoption of these new-fangled technologies by businesses and individuals alike raises important questions, particularly regarding the possible implications for contract enforcement. There are concerns about how the digital economy will interact with the real world and some have suggested CBDC as a medium for linking the two. In spite of the libertarian ideals underlying De-Fi design(s), the State, through its courts, is still required to ensure enforcement of the contract. To succeed, it must integrate with the conventional financial and legal systems. Beyond the De-Fi, CBDCs also have use cases in the real economy itself.

It is a clichéd statement that the successful litigant desires to reap the fruits of his litigation and with the increasing adoption of financial technologies; the court must consider the issue of enforcement vis-à-vis the creation of new repositories of values in order to satisfy successful litigants. This would ensure that certainty and predictability- which are vital for business growth- are preserved within the legal order.

 This work proceeds from this premise and proposes to examine the novel question of the possible implications of levying monetary judgment (via garnishee) on the E-Naira under Nigerian Law.

The work starts off by briefly considering the theoretical design choices for CBDCs, the regulatory guidelines issued by the CBN for the E-Naira and concludes by examining the possibility of levying monetary judgment on the E-Naira.

 CBDCs and Design Choices:

Defining a Central Bank Digital Currency has proven tricky as a general consensus on what constitutes CBDC is yet to emerge. It is generally agreed that it is a “new form of central bank money”. Examining the features would give a better view of what a CBDC entails.

As the name suggests, it is issued by the Central Bank. In effect, this means it is a liability on the Central Bank’s Books. As a currency, it is a means of payment within a State or jurisdiction, thus carrying the attribute of a Legal Tender. And the digital aspect simply implies that it is a digitalized form of fiat currency.

In designing a CBDC, the following categories are usually considered, and as would be shown anon, they usually have legal implications:

1. Wholesale or Retail CBDC:

A CBDC could be issued either in wholesale or in retail forms. Wholesale CBDC are issued to Financial Institutions and Public Institutions while Retail CBDC refers to those intended for the general public and ordinary consumers.

1. Account based or Token based:

The approaches for delivering a Retail CBDC could either be account-based or token-based.

An Account-based approach employs user identities in the approval of transactions by the originator and beneficiary of a transaction. All transactions in an account-based model are directly tied to users’ identities and as such the model requires a digital identity system for efficient functioning.

A Token-based approach, on the other hand, employs digital signatures and public/private keys in the approval of transactions. To this end, users’ identity is not as important as in an account-based model and the privacy of transactions as well as customers can be maintained.

It is important to state that while account-based models are well entrenched in public and private law, the status of token-based models are not immediately clear.

1. Direct/1-tier or Indirect/2-tier or Hybrid CBDC:

The three CDBC architecture models are the Direct/1-tier or Indirect/2-tier or Hybrid models. These models are essential for delivering the functionalities as desired by each CBDC design. The “legal structure of the claims alongside the operational roles of the central bank alongside private institutions in payments is the crucial defining element in the architecture of CBDCs”.

The Direct or 1-tier CBDC model situates the liability for claims as well as the distribution and communication responsibilities on the Central Bank alone, cutting out intermediaries. To successfully deploy this model, the Central Bank would be in charge of account management while other responsibilities such as KYC and due diligence may be handled by the Central Bank or other Private Sector Players.

The Indirect or 2-tier CBDC model is one where the liability is issued by a commercial bank (Intermediaries) “but is fully backed with central bank liabilities”. Thus this liability does not lie with the Central Bank in this case. Intermediaries such as commercial banks take on several responsibilities in this model.

The Hybrid model blends the features of the earlier two models and situates liability for claims directly on the central bank while Intermediaries take on the role of account management for consumers.

Having examined the various design and approaches to CBDCs generally, the E-Naira as launched by the Nigerian Central Bank would now be considered in light of the existing design and foundational theories on CBDCs.

An Overview of the E-Naira:

The Nigerian Central Bank (CBN) by its powers under its Establishment Act issued the E-Naira as a digital variant of the fiat Nigerian Naira.

The E-Naira is a direct liability on the Central Bank and is a legal tender that is expected to be both a medium of exchange and a store of value at par with the fiat Naira. The E-Naira has an “exclusive operational structure” and core features such as “a Unified Payment System; Contactless Payment; Bank Account Management; Peer-to-Peer payment; etc.”

The E-Naira is to be provided to Consumers by Financial Institutions (Intermediaries) who would maintain a treasury wallet with the CBN and would then supply Nigerians from the said treasury wallets although all users are expected to maintain their own individual wallets that would be linked to the Financial Institutions of their choice.

The transaction and balance limits for individual E-Naira wallets are tier-based from tier 0 – 3 and while another category is created for Merchants. The balance/ E-Naira Speed Wallet Limits range from N120, 000 to N5, 000, 000 from tier 0-3 respectively while there are no limits on the balances that can be held on a Merchant Wallet. This goes to show that the E-Naira Wallet is a veritable store of value capable of satisfying monetary obligations. It is pertinent to state here that the Guidelines also recognize MDAs (Government Ministries, Departments, and Agencies) as users or participants and provides that they may receive revenue in E-Naira and also make payments as well. Whether a separate category of Wallet (like Merchant) would be created for MDAs however is not clear but it is logical to conclude that to send and receive funds, a wallet would be required.

It is thus safe to conclude from the above that the E-Naira is a Retail CBDC that was designed using account-based and hybrid models. This is because the E-Naira is a direct liability on the books of the CBN while Intermediaries are responsible for the disbursement of the same. It is also operable by users employing their existing bank accounts.

The E-Naira and Garnishee Proceedings:

Having considered the design choices that undergird the E-Naira and having established that the E-Naira and its various consumer wallets are veritable stores of value capable of satisfying monetary obligations, this work proposes to examine the topical question of whether funds held in E-Naira Wallets can be garnished by a Judgment Creditor in satisfaction of his favorable court judgment involving a monetary award.

The issue may seem cut and dry at first, but in view of the condition precedent requiring the Attorney-General’s consent to be sought and obtained before sums in the custody of Public Officers can be attached, a consideration of the current position of the law vis-à-vis the E-Naira being a direct liability on the Central Bank’s books is necessary.

Garnishee Proceedings is one of the methods of executing monetary judgments under Nigerian Law. It is particularly suitable where funds owed by the Judgment Debtor are in the custody of a Third Party. I.e. a Bank. The said funds are then attached by the Judgment Creditor in satisfaction of the monetary Judgment.  

The Proceedings consist of two parts: Order Nisi and Order Absolute.  The first part involves an order requiring the third party to give reasons why the funds held in its custody and owed to the Judgment Debtor should not be garnished in satisfaction of the judgment while the second part involves the actual order of court attaching the funds in satisfaction of the judgment.

Section 84 (1) of the Sheriff and Civil Processes Act is the appropriate Legislation in this regard and it provides thus:

• Where money liable to be attached by garnishee proceedings is in the custody or
  under the control of a public officer in his official capacity or in custodia legis, the
  order nisi shall not be made under the provisions of the last preceding section
  unless consent to such attachment is first obtained from the appropriate officer in
  the case of money in the custody or control of a public officer or of the court in the
  case of money in custodia legis, as the case may be.

In interpreting this provision of the law in garnishee proceedings, the apex court of Nigeria has held that the Central Bank of Nigeria is a Public Officer, and thus, funds held in its custody require the A.G’s consent before it can be garnished. This raises the question of whether the funds are held in the Bank’s custody in its official capacity. And whether funds held in E-Naira Wallets would require the A.G’s consent before they can be garnished?

To answer this, a consideration of the intention of the lawmakers in putting the condition in place is necessary. In Onjewu v. Kogi State Ministry of Commerce & Industry, the court per Muntaka-Coomasie, JCA (as he then was), set this out as follows:

“in my humble view, the rationale for the previous consent of the AG before a court can validly issue a Garnishee order nisi against funds in the hands of a public officer is to ensure that amounts of money that have been voted by the House of Assembly of a State for a specific purpose in the Appropriation Bill presented to that House and approved in the budget for the year of appropriation does not end up being the subject of execution for other unapproved purposes under the Sheriff and Civil Process Act”.

The foregoing shows that the requirement of the Attorney-General’s consent was put in place on public policy grounds. I.e. to safeguard funds earmarked for public purposes.  It is submitted that funds held in E-Naira Wallets do not come within the consideration of the policy grounds which necessitated the requirement for the Attorney-General’s consent except where MDAs are involved.

On the question of whether the funds in an E-Naira Wallet are to be considered a liability to the Bank in its official capacity, there is no direct available authority in this regard. An inference may however be drawn from the position of the law on funds held by commercial banks with the Central Bank. The Courts have held that where a commercial bank holds deposits with the Central Bank, such funds would not be considered as being held in the Central Bank’s official capacity for the purpose of garnishee proceedings. It is submitted that the foregoing should be adopted with respect to funds held in E-Naira Wallets but a distinction should be drawn where funds are held by MDAs in an E-Naira Wallet, as the Central Bank would in that instance be holding such funds in its official capacity as the Government’s Banker.

It is our considered view that this should be the position of the law when the situation is eventually brought before our courts. This is because the funds in an E-Naira Wallet (other than MDAs) do not come within the intention of the lawmakers with respect to the requirement of the A.G’s consent and it would further accord with commercial purposes and ease access to finance if such a requirement is absent. One can only imagine the chaos that would ensue should a judgment creditor (in the form of a credit provider) find out that his monetary obligations can only be satisfied after obtaining the A.G’s consent which, with the bureaucratic nature it entails,  would take a lot of time and thus incur further economic losses on the creditor.

It is to be stated that what garnishing of funds in E-Naira Wallets would mean in practical terms is still uncertain. The Regulatory Guideline issued by the Central Bank is mute on this point. It is submitted that in order to properly integrate the E-Naira into the legal system, this is an area that requires proper clarification.

It is further submitted that the E-Naira design being of a hybrid 2 tier one design, the Financial Institutions which are responsible for managing Wallets of Individuals and Merchants and have the infrastructure and experience “to support oversight and reporting, to freeze and transfer assets when required by law, and to perform extensive customer service” should have the responsibility of executing the orders of Court with respect to garnishment process.

Conclusion:

This work has examined the various design choices for CBDC generally and the E-Naira in particular. It has been found that the E-Naira is a retail CBDC designed using the account-based and hybrid tier models. It also considered the likely legal issues that may ensue in attaching funds held in an E-Naira Wallet in a garnishee proceeding. It concludes by suggesting that the requirement for an A.G’s consent should not be generally applicable, as the conditions necessitating the same are not the same.

As a final summation, it is our view that while new technologies will continue to emerge in finance, the same old legal principles concerning the enforcement of money (fiat) judgment would continue to apply. In other words, it is a case of old wine in new bottles.