Whether a Financial Institution Can Fix an Arbitrary Interest Rate?

CASE TITLE:  BEST GRADE ENTRE-POT LIMITED v. ECOBANK NIGERIA PLC (2022) LPELR-58282(CA)

JUDGMENT DATE: 2ND AUGUST, 2022

JUSTICES:  OBANDE FESTUS OGBUINYA, JCA

ONYEKACHI AJA OTISI, JCA

PETER OYINKENIMIEMI AFFEN, JCA

PRACTICE AREA:  BANKING LAW – INTEREST RATE  

FACTS:

The appellant, a limited liability company, was a long-standing customer of the defunct Hallmark Bank Plc which was acquired by the respondent. Sometime in 2000, the appellant needed funds to clear its imported electrical goods. It approached the respondent and was granted a credit facility of 4 million nairas. The conditions for the collaterals and the draw down on the facility were the appellant’s letter of hypothecation of the goods, deposition of the goods (477 racor cartons of filters) in the respondent’s warehouse, and taking out life assurance policy on its former Managing Director/Chief Executive Officer, Justine Olumba.

The appellant alleged that it did not draw down/utilize the loan facility as the funds were not released, did not reap the dividends of the assurance policy and that racor filters (39 cartons) was damaged in the respondent’s warehouse. It further alleged that the respondent committed irregularities on its account by charging wrong and excessive interests thereon.

The appellant further alleged that when Hallmark Bank Plc was distressed, its liquidator, the Nigeria Deposit Insurance Corporation (NDIC), absolved the appellant of any indebtedness to the respondent and directed the latter to credit its account in the sum of N6.8M. The respondent complied but the appellant considered it insufficient. Sequel to these, the appellant instituted an action against the respondent claiming inter alia; a declaration that the appellant is not indebted to the respondent; an order compelling the Defendant to credit the Claimant’s account with the sum of N279,634.30 being excessive charges on a fixed loan.

In its defence, the respondent denied the Appellant’s claims and alleged that it granted an overdraft of 4 million nairas to the appellant which it failed to discharge alongside the accrued penal interests despite repeated demands. Consequently, the respondent counter-claimed against the appellant as follows: the sum of N14,321,476.16 (Fourteen Million, Three Hundred and Twenty-One Thousand, Four Hundred and Seventy-Six Naira, Sixteen Kobo Only) being sum outstanding and unpaid as of December 30th, 2005 by the Defendant and interest on the aforesaid amount.

In a considered judgment, the lower Court granted the main claim and the counter-claim in part.

The Appellant dissatisfied with the decision of the court appealed to the Court of Appeal.

ISSUES FOR DETERMINATION:

The Court determined the appeal based on the following issues for determination:

1. Should not the trial Judge have accepted and given effect to the uncontradicted material allegations of the Appellant and the evidence in support thereof?
2. Whether in all the circumstances of this case the Respondent proved its counter-claim or any part thereof at the lower Court as to entitle it to the reliefs sought against the Appellant in this suit.
3. Was the conclusion of the trial judge dismissing most of the prayers of the Appellant and holding that the counter-claim succeeds in part not occasioned by the lower court’s faulty appreciation, gross misconception and improper review of the issues of fact and law thrown up by this suit?

COUNSEL SUBMISSIONS:

Appellant’s Counsel stated that exhibit C12 showed excess interest charged while exhibit C14 disputed the amount the respondent admitted as excess charges on the overdraft and loan facilities.

He further mentioned that the lower court wrongly refused to award the admitted excess interest charged on the loan facility. He noted that the respondent admitted the issue of wrong transfer. He stated that the respondent admitted the appellant’s entitlement to excess charges in line with the rules of the Central Bank of Nigeria (CBN) and admitted.

On the other hand, Counsel for the Respondent contended that the Appellant is reposed with the duty to prove since the respondent did not admit the fixed loan nor were facts about it pleaded by the appellant and in any case, evidence on it would go to no issue. Counsel for the Respondent argued that the lower Court was right not to act on the CBN Guidelines because a copy of it was not tendered and marked as an exhibit.

On points of law, counsel to the Appellant submitted that the respondent admitted the fixed loan facility. He added that the appellant’s grouse is against the arbitrary interest charged after the wrong transfer.

DECISION/HELD:

The Court of Appeal dismissed the appeal.

RATIO:

1. BANKING LAW – INTEREST RATE: Whether banks are bound to comply with the Central Bank guidelines in charging interest rates on loans/credit facilities

“However, the interest rate, which usually fluctuates like a pendulum according to whims and caprices of a lending financial institutions, must fall within the umbrella of the interest rate ordained by the CBN through its Monetary Policy Guidelines. By virtue of the monetary provision of Section 60 (2) (a) of the Banks and other Financial Institution Act, Cap B3, Laws of the Federation of Nigeria, 2004, all financial institutions must comply with those Monetary Policy Guidelines which Courts are restrained from taking judicial notice of. See UBN Ltd. v. Ozigi (1994) 3 NWLR (Pt. 333) 385; UBN Ltd. v. Sax (Nig) Ltd. (1994) 8 NWLR (Pt. 361) 150; UBN PLC v. Ajabule (2011) 18 NWLR (Pt. 1278) 152; Daniel Holdings Ltd. v. UBA PLC (2005) 13 NWLR (Pt. 943) 533; Amede v. UBA PLC (2018) 6 NWLR (Pt. 1614) 29. The rationale behind the regulation of interest rates by the Central Bank of Nigeria is not a moot point. In the commercial hemisphere, the CBN, the banker of banks, is the financial supervisor of all financial institutions, see CBN v. Aribo (2018) 4 NWLR (Pt. 1608) 130.” Per OGBUINYA, JCA.

• COMMERCIAL LAW – INTEREST: Meaning of interest

“Interest connotes compensation permitted by law or agreed/fixed by the parties for the use or forbearance of borrowed money. It is the money/payment a borrower pays a lender for the use of the money sought and obtained by the borrower from a lender. It is the cost of utilisation of credit or funds of another, see Veepee Ind. Ltd. v. Cocoa Ind. Ltd. (2008) 13 NWLR (Pt. 1105) 486.” Per OGBUINYA, J.C.A

• WORDS AND PHRASES – “INTEREST RATE”: Meaning of “interest rate”

“Interest rate refers to the percentage of an amount of money which is paid for its use for a specified time, see Veepee Ind. Ltd. v. Cocoa Ind. Ltd. (2018) 13 NWLR (Pt. 1105) 486.”Per OGBUINYA, J.C.A.