In recent years, the Nigerian franchising market has grown impressively, thriving on the combined effect of the country’s large population, its burgeoning middle class and an evolving retail industry. With a population of over 170 million, Nigeria is clearly the largest human population in Africa, accounting for a sixth of the continent’s entire population. From a product and service consumption perspective, this statistic translates to a ready market for consumer-facing products and services, and a huge economic potential for retailers. The prospect of such a huge population combined with the fact of a rapidly growing middle class, characterised by their increasing purchasing power and a corresponding appetite for well-known brands, makes the country an attractive destination for reputable international and local brands.
According to data sourced from the African Development Bank, the Nigerian middle class accounts for up to 23 per cent of the Nigerian population,2 an upsurge from previous figures. The demand by this class of the population for high-quality products and services is matched by the requisite purchasing power and is influencing a shift from the traditional unstructured retail system to modern retailing systems. In a country where manufacturing is at its lowest ebb, the increased demand for high-quality goods and services creates a conducive environment for the franchise market.
Product franchises were the first franchising format introduced in Nigeria in the 1960s and were common to sectors such as beverages (Coca-Cola, etc.), petroleum (Texaco, Mobil, etc.) and automobiles (Peugeot, Toyota, Ford, etc.). Recent years have, however, witnessed the significant growth and emergence of business format franchising in several areas, including the fast-food, fashion, health and beauty, hospitality and retail sectors. The presence of international franchisors became apparent in the fast-food and fashion sectors around 2001 with the emergence of fast-food brands such as Chicken Licken, Steers, Debonairs Pizza, Barcelos, etc. Today, the Nigerian franchise landscape features several international brands including KFC, Sheraton Hotels, Raddison Blu, Avis, Hertz, Western Union, Nike, Shoprite, Ermenegildo Zegna, etc.
Local franchisors are not left out in the jostle for a place in the Nigerian franchise market. From about 2003, indigenous franchise systems were developed by a few operators in the fast-food sector. Mr Bigg’s, a major brand owned by a Nigerian conglomerate, UAC of Nigeria Plc, is one of the earliest Nigerian companies to adopt the franchising mode of expansion. As at 2013, the company had over 170 outlets across Nigeria, of which 110 are franchise units. Tantalizers and Chicken Republic in the fast-food sector and SLOT in the electronics and telecommunications sector are also examples of successful local franchises.
The potential of the Nigerian market for franchisors is perhaps best illustrated with the TM Lewin retail franchise. The first TM Lewin franchise unit opened for business in Nigeria in August 2013. Presently, out of the 48 franchise outlets in Africa, Nigerian franchises are among the top-performing franchises, recording 150 per cent growth year on year in 2005. In 2013, the TM Lewin Ikeja (Lagos) franchise outlet ranked number two worldwide, surpassed only by the brand’s flagship store on London’s Jermyn Street.3
The Nigerian International Franchise Association (NIFA) is a trade association with a commitment to develop and promote franchising in Nigeria. Its membership consists mainly of companies and stakeholders in the Nigerian franchise industry.
II MARKET ENTRY
A foreign franchisor is at liberty to invest and participate in the operation of any Nigerian enterprise excluding sectors contained in the ‘negative list’, which is a list of sectors in which Nigerian and non-Nigerian investors are prohibited from participating. Also, the Immigration Act (Chapter I1 2004) prevents a foreign franchisor from practising any profession or establishing or taking over any trade or business whatsoever, solely or in partnership with another person, without the consent in writing of the Minister of Internal Affairs. The consent takes the form of a business permit, which is obtainable upon application to the Ministry of Internal Affairs.
There are also no restrictions that prevent a foreign franchisor from entering into a franchise agreement with a local franchisee. However, the enterprise with which a foreign licensor enters into a franchise agreement must be registered or incorporated with the Corporate Affairs Commission before it may commence business in Nigeria.
The foreign franchisor is free to grant a franchise in Nigeria in relation to any business or product except for those contained in the negative list. Also, franchise agreements between a foreign franchisor and a local franchisee are caught by the provisions of the National Office for Technology Acquisition and Promotion (NOTAP) Act, which regulates transfer of technology to Nigeria. By the provisions of this Act, all franchise agreements are to be registered with NOTAP within 60 days of the execution of the agreements.
A foreign entity may not grant a master franchise or development rights to a local entity in respect of the any of the matters contained in the negative list. The negative list includes the following:
- a the production of arms and ammunition;
- b the production of and dealing in narcotic drugs and psychotropic substances;
- c the production of military and paramilitary clothing and accoutrements including those of the police and the customs, immigration and prison services; and
- d other items as the Federal Executive Council may from determine time to time.
A foreign franchisor may invest in the operation of any enterprise in Nigeria (except, as indicated above, in relation to matters contained in the negative list) and may buy shares of any Nigerian enterprise in any convertible foreign currency. While a foreign investor may buy the shares of any Nigerian enterprise in any convertible foreign currency,4 certain industries, especially in the energy sector, have local content regulations that regulate foreign participation. Specifically, under the Nigerian Oil and Gas Industry Content Development Act, 2010, foreign franchisors cannot own more than 49 per cent equity in the oil and gas industry.
Additional requirements for local Nigerian franchisees with foreign participation include obtaining a business permit from the Ministry of Interior and registration of the foreign shareholding at the Nigerian Investment Promotion Corporation.
With regards to owning real property, in many states in Nigeria, foreigners (and Nigerians alike) cannot generally acquire any interest or right in or over land unless the governor of the state approves in writing the transaction that seeks to alienate the interest in the real property. The governor’s consent is customarily granted upon the payment of prescribed fees and satisfaction of certain other conditions.
ii Foreign exchange and tax
Section 15 of the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act requires a licensed bank through which foreign exchange is imported into Nigeria to issue a Certificate of Capital Importation (CCI) within 24 hours of the inflow of the funds into Nigeria and to make returns to the Central Bank of Nigeria within 48 hours thereafter. The CCI serves as evidence of the inflow of foreign currency and is required to be tendered to obtain foreign exchange for remittance of the proceeds of the importation of foreign currency.
It is important to note that the currency control regime in Nigeria has over the past year been subject to a high level of volatility. It would be advisable before entering into a Franchising agreement to evaluate the currently prevalent currency regime.
III INTELLECTUAL PROPERTY
i Brand search
Databases of registered trademarks, patents and designs are maintained at the Nigerian Trademarks, Patents and Designs Registry, an arm of the Commercial Law Department of the Ministry of Trade and Investment. Conflict searches may be conducted at the Trademark, Designs and Patents Registry with respect to any of these intellectual property rights. Searches of the records at the Registry may be conducted manually or electronically.
ii Brand protection
Trademark registration procedure
Upon receipt of a trademark application by the Registry and payment of the prescribed fee, an acknowledgment notice is issued. The acknowledgement notice informs the applicant that the application is now on the Registry’s records and also stipulates the application date and number allocated to the mark. Thereafter, the application undergoes examination to determine whether the mark meets the registration requirements of the Trademarks Act, following which the mark is either accepted or refused as the case may be. An acceptance notice or a notice of refusal is issued as appropriate.
In the event that the application is accepted, the mark is advertised in the Trademarks Journal to provide interested third parties with the opportunity to oppose the application, if necessary. The marks are open for opposition for a two-month period. Upon expiration of the two-month opposition period, and in the event that the mark is unopposed, final registration fees become payable. Upon payment of the registration fees, the trademark certificate is issued.
Patent registration procedure
An application is made in the prescribed form and accompanied by the requisite documents to the Registrar, who issues a filing receipt to the applicant, acknowledging that the application has been filed and received at the Registry. The date reflected on the filing receipt is considered to be the official filing date of the patent. This acknowledgement notice details the title of the patent, the name of the applicant and the agents on record, if any.
Thereafter, the patent is examined to ensure its conformity with the documentary requirements under the Patents and Designs Act. It is important to note that substantive examinations of patent applications are not carried out in Nigeria.
Where the application satisfies the prescribed requirements, an acceptance notice is issued to the applicant. Where, however, the application fails in any respect to conform to the prescribed requirements, the Registrar will not issue the acceptance form until these requirements are met.
The Registry issues the letters patent shortly after the issuance of the acceptance notice.
Design registration process
The registration process for a design is materially similar to the process for registration of a patent. An application is made in the prescribed form and accompanied by the requisite documents to the Registrar, who issues a filing receipt to the applicant, acknowledging that the application has been filed and received at the Registry. The date indicated on the notice of acknowledgment is the official filing date of the design. This acknowledgement notice details the title of the design, the name of the applicant and the agents on record, if any.
The design is examined to ensure its conformity with the provisions of the Patents and Designs Act. Where the examination shows that the application satisfies the prescribed requirements, an acceptance notice is issued to the applicant. Where, however, the application fails in any respect to conform to the prescribed requirements, the Registrar will not issue the acceptance form until these requirements are met.
The Registry issues the design certificate shortly after the issuance of the acceptance notice.
Trademarks, patents and designs
Trademark, patent and design registrations may be enforced by the following means.
An action for trademark, patent or design infringement must be predicated on the existence of a trademark, patent or design registration certificate, respectively, issued in favour of the claimant.
This action may be used to enforce trademarks and design rights. It is based on the common law tort of passing off, which prevents a person from misrepresenting its business as those of another. To succeed with this action, the claimant must show that it has acquired goodwill and reputation in the country through the use of its trademark or design.
The Merchandise Marks Act (Chapter M10, LFN 2004) makes it a criminal offence for anyone to deal with goods that bear a false trade description. On the basis of this provision, criminal proceedings may be instituted against trademark infringers by an appropriate enforcement agency.
Using the machinery of appropriate enforcement agencies, an intellectual property (IP) rights holder may succeed in enforcing its IP rights against offenders.
Copyrights in Nigeria may be enforced by the following means:
An infringement action may be initiated before the Federal High Court of Nigeria for the enforcement of the copyright.
The Copyright Act (Chapter C28, LFN 2004) imposes criminal liability on copyright infringers. Thus, criminal proceedings may be instituted against infringers by an appropriate enforcement agency.
The Copyright Act empowers the Nigerian Copyright Commission to appoint copyright inspectors, who have the power to carry out seizures of copyright infringing materials and to arrest infringers.
There is no legislation governing the enforcement of trade secrets in Nigeria. The courts protect trade secrets and know-how by enforcing contractual agreements that restrict the disclosure of trade secrets and know-how (e.g., non-disclosure agreements, confidentiality agreements and other similar agreements).
iv Data protection, cybercrime, social media and e-commerce
The Cybercrimes (Prohibition, Prevention, Etc.) Act 2015 criminalises offences such as cybersquatting and hacking. It defines cybersquatting as the act of intentionally taking or making use of a name, business name, trademark, domain name, etc. that is owned or in use by any individual, body corporate on the internet or any other computer network, without authority or right, and for the purpose of interfering with their use by the owner, registrant or legitimate prior user.
Also, the National Information Technology Development Agency Act of 2007 established the National Information Technology Development Agency (NITDA), a regulatory body responsible for the development of framework rules for the governance and monitoring of the exchange of data and conduct of transactions online. In line with this obligation, NITDA has, since its creation in 2007, issued a number of guidelines for the purpose of regulating the e-commerce industry. Among these guidelines are the Guidelines on Data Protection 2013,5 which cover the processing, safety and protection of personal data and privacy of natural persons with respect to the processing of personal data. The Guideline provide that personal data must be processed fairly and lawfully and in accordance with the purpose for which it was collected.
IV FRANCHISE LAW
Nigeria does not have any legislation specifically governing franchising. Franchise relationships in the country are therefore governed by general contract law, as well as a host of other legislation that addresses issues relevant to the franchise relationship, including the following:
- a the Trademarks Act 1965 (Chapter T13, LFN 2004);
- b the Patents and Designs Act 1970 (Chapter P2, LFN 2004);
- c the Copyright Act 1988 (Chapter C28, LFN 2004);
- d the National Office of Technology Acquisition and Promotion Act (Chapter N62, LFN 2004);
- e the Nigerian Investment Promotion Commission Act (Chapter N117, LFN 2004);
- f the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act (Chapter F34, LFN 2004); and
- g the Companies Incom Tax Act (Chapter 60, LFN 1990; Chapter C21, LFN 2004).
ii Pre-contractual disclosure
Owing to the absence of a franchise law in Nigeria, there is no specific mandatory legal regulation of pre-contract disclosures. The concept of misrepresentation as provided under the general common law principles of contract would apply to franchise relationships.
Under common law, while a misrepresentation or false statement by the franchisor will render the franchise agreement voidable, a failure to disclose does not constitute misrepresentation and would not generally render the agreement voidable. However, as an exception to the aforesaid rule, non-disclosure would be actionable in the following circumstances:
- a partial non-disclosure: a partial non-disclosure will render the contract voidable if what the franchisor holds back or fails to disclose has the effect of distorting the information disclosed;
- b misrepresentation by conduct: where the manner of the franchisor’s conduct suggests that a particular state of affairs exists, the franchisor would be guilty of misrepresentation if the state affairs in fact did not exist;
- c contracts uberrimae fidei: these are contracts where one party of necessity possesses full knowledge of the material facts, in which case the party with the full knowledge is under a legal duty to show uberrima fides (good faith) by making necessary disclosures; and
- d fiduciary relationships: in fiduciary relationships, the law imposes on the party in the superior position a duty to disclose material facts to the other party. Certain relationships in the business world have been qualified as fiduciary relationships including those between principal and agent, partners, a company and its promoters, etc. Although there is a dearth of judicial pronouncements on the nature of franchise agreements, there seems to be a basis for the court to consider a franchise agreement as creating a fiduciary relationship between the franchisor (the party with the superior position) and the franchisee. Note that the fiduciary duty in these latter cases (pertaining to the business world) is not so stringent and does not extend beyond the duty to disclose.
The NOTAP Act provides that every agreement that provides for the use of a trademark, patent invention, supply of technical expertise, etc., and that is entered into by any person in Nigeria with another person outside Nigeria, shall be registered with NOTAP not later than 60 days from the execution of the agreement. Franchise agreements by their nature fall within the purview of agreements for which registration is required under the NOTAP Act.
Section 6(2) (a)–(r) of the NOTAP Act makes provision for registration relating to franchises. It provides that the Director of NOTAP shall not register any contract or agreement that the Director is satisfied falls within any of the specifications listed in the NOTAP Act, such as:
- a where the purpose of the agreement is the transfer of technology that is freely available in Nigeria;
- b where the price or other valuable consideration is, therefore, not commensurate with the technology acquired or to be acquired;
- c where there is an onerous or gratuitous obligation on the transferee of the technology to assign to the transferor patents, trademarks or technical information obtained by the transferee with no assistance from the transferor; and
- d where there is an obligation therein to acquire equipment, tools, parts or raw materials exclusively from the transferor or any other person or given source.
It is imperative to note that the aforementioned provisions may be waived should the Director of NOTAP believe it to be in the national interest to do so.
The Trademarks Act makes provision for the registration of a franchisee as a registered user of a trademark in respect of the goods for which the trademark was registered. To proceed in this regard, a copy of the franchise agreement is required to be deposited at the Registry.
iv Mandatory clauses
The NOTAP Guidelines provide that the content of a technology transfer agreement must be clearly spelt out and should include any or a combination of the following;
- a utilisation of local content or inputs;
- b plans by the company to substitute imported inputs;
- c plans for skill-building and development for absorption, diffusion and domestication of the technology to be acquired; and
- d export potential of products or services involved in the agreement.
Also, the scope of the agreement must specify the following;
- a the object of the agreement;
- b obligations and services to be rendered by the technical partner;
- c training and capacity-building; and
- d detailed information of technical experts.
The agreement is also expected to include the technology fees to be paid to the technical partner and a breakdown of the fees and associated milestones; and the names and signatures of signatories to the agreement, etc.
v Guarantees and protection
There is no specific legislation relating to guarantees and protection under franchise agreements in Nigeria. Such guarantees are defined and regulated by the terms of the contract. Under contract law, guarantees from individuals and companies to the franchisor are binding and enforceable.
i Franchisor tax liabilities
The Companies Income Tax Act imposes withholding tax on royalty payments to non-resident (foreign) franchisors at the rate of 10 per cent, and this shall be the final tax paid by the non-resident franchisor. The withholding tax is required to be withheld by the franchisee from income for services rendered and then remitted periodically to the relevant tax authority.
ii Franchisee tax liabilities
Where the franchisee is a corporate entity it would be subject to 30 per cent income tax and 2 per cent tertiary education tax on its profit. Royalties paid under a franchise arrangement are usually deducted in computing the profit of the franchisee that would be subject to tax.
Value added tax (VAT) is charged at a flat rate of 5 per cent for the supply of goods and services. Under the VAT Act, both resident and non-resident companies engaged in ‘VATable’ activity in Nigeria are required to register for the tax, and to include VAT on invoices to customers.
With respect to franchisors and franchisees that are related parties, it is also important to ensure that the royalties paid on the franchise agreement are priced at arm’s length, to ensure compliance with Nigeria’s transfer pricing regulations.6 There is, however, a possibility that an arm’s-length pricing in accordance with the transfer pricing regulations may be in excess of the benchmark royalty permissible under the NOTAP Guidelines. Consequently, fixing of royalties between related parties should take cognisance of the transfer pricing regulations and the NOTAP Guidelines.
iii Tax-efficient structures
Section 80 of the Companies Income Tax Act provides that where any dividend or other such distribution becomes due from or payable by a Nigerian company to any other company, or to any person to whom the provisions of the Personal Income Tax Act apply, the company paying the dividend or making the distribution shall, on the date when the amount is paid or credited (whichever occurs first), deduct tax at the rate prescribed and pay the deducted amount to the relevant tax authority forthwith. This reduces the burden on the franchisor in remitting tax directly.
A foreign franchisor will be able to take advantage of the benefits of a double-taxation agreement if the licensor is resident in a country that has such an agreement with Nigeria. These countries include the United Kingdom, Northern Ireland, Canada, France, Belgium, the Netherlands, Pakistan and Romania.
VI IMPACT OF GENERAL LAW
i Good faith and guarantees
Contracts in Nigeria are largely guided by the common law principles on the subject. Under the common law system, good faith is, generally speaking, not considered as a condition for the validity of contracts. Therefore, generally, no duty of good faith is implied into contracts between parties.
However, good faith is relevant in certain contracts, described as contracts uberrimae fidei (of utmost good faith). Contracts within this category are those in which one party of necessity possesses full knowledge of the material facts. Under such contracts, the law requires that the party with full knowledge of material facts show utmost good faith by making full disclosure so that the other party is not put in a position of acute disadvantage. Certain contracts are considered to fall within this category: insurance contracts, family arrangements in matters in matters of inheritance and succession, etc.
ii Agency distributor model
Nigerian courts have held that agency relationship exists whenever one person, called the ‘agent’, has authority to act on behalf of another, called the ‘principal’, and consents to act in that capacity. Whether an agency relationship exists in any situation depends on the exact circumstances of the relationship between the parties and not on the terminology employed by the parties to describe their relationship.
Parties to a franchise agreement are at liberty to determine the terms of the franchise agreement, and to agree on whether the franchisee is to act as an agent of the franchisor. However, in practice, most franchise agreements are considered to be arm’s-length agreements between independent entities that are not bound to each other by an agency relationship.7
iii Employment law
Under Nigerian laws, an employee is defined as a person employed by an employer under oral or written contract of employment whether on a continuous, part-time, temporary, apprenticeship or casual basis. A franchise relationship is considered to be an arm’s-length commercial relationship between business entities. It is not founded on a contract of employment and therefore a franchisee is not treated as an employee by the courts.
iv Consumer protection
A consumer is defined under the Consumer Protection Act8 as an individual who purchases, uses, maintains or disposes of products or services. While this definition suggests that a franchisee who purchases products from a franchisor would qualify as a consumer, franchisees are typically business entities rather than individuals.
However, Section 38 of the Companies and Allied Matters Act, which gives registered companies the powers of natural persons of full capacity, may be interpreted to mean that a franchisee company is a consumer under the Consumer Protection Act.
v Competition law
Nigeria has no comprehensive competition or antitrust legislation. Issues relating to competition, exclusivity, pricing, restraint of trade, etc. are regulated by reference to common law principles and various pieces of legislation that touch on the subject.
A few of these principles and pieces of legislation include:
- a Common law principles: English common law rules with respect to covenants in restraint of trade form part of the Nigerian Law of Contract and have been recognised by the Nigerian courts. Covenants in restraint of trade are generally considered to be prima facie void unless they are reasonable with respect to the parties concerned and the public as a whole.
- b The NOTAP Act: the NOTAP Act, which prevents the transfer of obsolete technology to Nigeria, prohibits exclusive dealing, resale price maintenance, excessive pricing, tying clauses, grant-back clauses and sourcing restrictions. It is imperative to note that the aforementioned provisions may be waived should the Director of NOTAP believe it to be in the national interest to do so;
- c The Price Control Act: the Price Control Act (Chapter P28, LFN 2004) vests in the Minister of Trade and Commerce the power to approve resale price maintenance with respect to certain commodities;
- d The Patents and Designs Act: the Patents and Designs Act (Chapter P2, LFN 2004) renders null and void any clause in a patent licence contract that imposes on the licensee in the industrial or commercial field restrictions that do not derive from the rights conferred by the relevant patent or design or are necessary for the safeguarding of those rights;
- e The Nigerian Communication Commission Act and the Competition Practices Regulation 2007, made pursuant thereto: these prohibit tying agreements, price-fixing and market-sharing. The Regulation also deems conduct such as failure to supply interconnection or other essential facilities, bundling of communication services, discriminatory terms and conditions with respect to licensees, resale price maintenance and exclusive dealing as conduct that substantially lessens competition; and
- f The Air Transport Economic Regulations 2012 made pursuant to the Civil Aviation Act 2006: these regulations prohibit and void contracts or arrangements that restrain competition in the civil aviation sector, such as discriminatory terms and conditions, tying arrangements, direct or indirect price-fixing, market division, limiting development investment in the aviation sector, etc.
- g The Terrorism (Prevention) (Amendment) Act 2013: the Act, which was created in response to the waves of terrorist attacks witnessed in the country, criminalises the direct or indirect aiding, abetting, counselling, inducing or financing of terrorists or terrorism-related activities. A franchisor will be found culpable if caught engaging in any of the above listed acts, and should take reasonable steps to ensure that the franchisee company at all times is neither a terrorist front nor in affiliation with any terrorist organisation. Franchisors are also obliged by law to inform the security agencies of any information they know of that will aid the prevention or apprehension of terrorist or a terrorist attack.
vi Restrictive covenants
As a general common law rule, non-compete covenants and covenants in restraint of trade are enforceable only to the extent that such covenants are justifiable having regard to the interest of the parties concerned and the public. The courts have, however, differentiated between contracts that are in restraint of trade and those that merely regulate the normal commercial relations between the parties during the existence of the contract. Ordinary commercial contracts for the regulation and promotion of trade during the existence of the contract are prima facie enforceable provided that the restriction is directed towards the absorption of the parties’ services and not their sterilisation.
Non-compete and restrictive covenants that apply only during the term of the agreement are generally considered to be valid and may be enforced against a franchisee, provided that the restrictive terms are in furtherance of the franchise agreement.
The termination of franchise agreements is governed by English law and by contract between the parties. With regards to post-term restrictive covenants, the law is that covenants for restraints of trade are generally unenforceable but would be enforced if proven to be reasonable with reference to the interest of the parties concerned and of the public. Reasonableness in this regard is a question of fact to be decided on the basis of each case. The onus of proving that a restrictive covenant is reasonable is on the party seeking its enforcement (i.e., the franchisor).
Unless expressly provided for by contract, there is no basis in legislation or legal framework for a franchisor to take over a franchisee’s business.
There are certain restrictions on the shareholdings of Nigerian independent operators and indigenous service companies in the oil and gas sector. The Nigerian Oil and Gas Industry Content Development Act 2010 requires that to take advantage of certain concessions certain companies must show at least a 51 per cent equity share by Nigerians. Therefore, franchises that are to take advantage of concessions in the oil and gas industry must show the foregoing minimum shareholding.
viii Anti-corruption and anti-terrorism regulation
The legal regime against fraud, anti-corruption and money laundering consists of several pieces of legislation that touch on franchise relationships, including the following:
- a The Advance Fee Fraud and other Fraud related offences Act 2006: this Act makes it an offence for any person, with intent to defraud, to obtain any benefit through the medium of a contract induced by false pretences. Thus, a franchisor or franchisee who, by making fraudulent misrepresentations induces a franchisee or franchisor (as the case may be) to enter into a franchise agreement and thereby obtains any benefit, commits an offence.
- b The Economic and Financial Crimes Commission Act (Chapter E1, LFN 2004): this Act makes it an offence for any person to acquire or use property knowing at the time of its acquisition, possession or use that the property was derived from any financial fraud. A franchisee would be guilty under this provision if its franchised unit is located on a property that, to its knowledge, is derived from financial fraud.
- c The Miscellaneous Offence Act (Chapter M17, LFN 2004): under this Act, any person who imports, sells, exposes or offers for sale, buys, stores (or induces any other person to carry out any of these acts in relation to) goods prohibited by any law in force in Nigeria shall be guilty of an offence. Parties to a franchise agreement are by these provisions prevented from making any prohibited product the subject of the franchise.
- d The Money Laundering (Prohibition) Act 2011: this Act prohibits money laundering in Nigeria and makes it an offence for any person or corporate body to make or accept cash payment of a sum exceeding 5 million naira or its equivalent in the case of an individual, or 10 million naira or its equivalent in the case of a body corporate, except through a financial institution. The Act also makes it an offence for any person or corporate in or outside Nigeria to acquire, use, retain or take possession or control of any fund or property knowing the fund or property forms part of the proceeds of an unlawful act.
ix Dispute resolution
Parties to a franchise agreement may agree by contract on the forum of dealing with disputes arising from the franchise agreement. It is becoming regular for parties to international franchise agreements to opt for international arbitration rather than litigation.
Mediation is a recognised form of alternative dispute resolution (ADR) in Nigeria. While mediation as well as other forms of alternative dispute resolution is not mandatory in Nigeria, it is greatly encouraged. Where parties to a franchise agreement have prescribed mediation as the forum for resolving disputes under the agreement, the court would, generally, uphold that agreement. In the event that a party approaches the court in breach of the agreement, the court is entitled to stay proceedings upon an appropriate application by the other party.
Also, under the Lagos State Civil Procedure Rules, disputes that, in the opinion of the court, are suitable for any of the alternative dispute resolution mechanisms are referred to the court-connected ADR centre – the Lagos Multi-Door Courthouse – or other appropriate ADR institutions for resolution.
Local courts do recognise and uphold contractual provisions on foreign jurisdiction clauses or choice of law. Thus, where a contract specifically provides for the venue of litigation, the courts are bound to give force to the contract by so construing it. Where a party in breach of the agreement on foreign jurisdiction approaches the local court to determine a dispute, the court has a discretion to grant a stay of proceedings. However, this discretion is to be exercised by granting a stay unless a strong cause for not doing so is shown by the plaintiff.
There is no specific procedure for franchising disputes. They are treated like other disputes encountered in the course of business, and redress may be sought at the appropriate court or ADR forum, depending on the subject matter of the dispute.
However, NIFA, the franchise association in Nigeria, does not offer mediation or arbitration rules or services.
Court proceedings for resolving franchise disputes are generally instituted by filing a writ of summons. However, where the issue to be resolved hinges solely on the interpretation of the construction of the franchise agreement or other document, the action may be instituted by way of an originating summons.
An action instituted by writ of summons typically lasts between 18 and 36 months or more, depending on the complexity of the issues to be determined by the court. The writ of summons to be filed must be accompanied by the claimant’s statement of claim, list of witnesses to be called at trial, written statements on oath of the witnesses (except witnesses on subpoena), and copies of documents to be relied upon.
The court procedure subsequent to the filing of the writ of summons is determined by reference to the civil procedure rules of the specific court. For instance, under the Lagos State Civil Procedure Rules 2012, upon commencement of the action, the matter may be referred to mediation or negotiation if the court registrar is of the opinion that the matter is one that can be settled amicably. Where, however, that is not the case, the matter proceeds to pretrial conference, wherein it may also be amicably resolved. Where settlement falls through once again, it proceeds to trial.
Actions commenced by originating summons are typically determined within 12 to 18 months, barring any unforeseen delays. The originating summons is used in cases where the facts are not in dispute and these are usually determined by affidavit evidence rather than pleadings or oral testimony. An originating summons is required to be accompanied by an affidavit setting out the facts and exhibits to be relied upon and a written address in support of the application.
Depending on the surrounding facts, agreement between the parties and fulfilment of the prerequisites for granting the application, it is possible to obtain an interim, interlocutory or perpetual injunction preventing a former franchisee from continuing to breach a non-compete provision or from using the franchisor’s trademarks or other IP rights. Note that a former franchisee would be prevented from breaching a non-compete provision only upon proof by the franchisor that the non-compete provision is reasonable with regard to the interest of the parties and the public.
Damages for breach of contract are determined by reference to the principle enunciated in the English case of Hadley v. Baxendale9 (i.e., damages for breach of contract should be such that may arise naturally; that is, according to the usual course of things from such a breach of contract itself) or may reasonably be supposed to have been in the contemplation of both parties at the time they entered into the contract, as a probable result of the breach.
In calculating damages for breach of contract the court would merely seek to compensate the injured party and restore it to the position it would have been in had the breach not occurred. The court will not award general damages where breach is alleged and proved.
Litigation costs (including solicitors’ fees) are considered to be special damages and have to specifically pleaded and proven before they can be awarded by the court.
Costs are not capped; however, there is a tendency for Nigerian courts to grant awards that are inadequate to indemnify the successful party as the costs granted are usually far less than the substantial amounts involved in the litigation.
The statutory framework for the enforcement of foreign judgments consists of the following laws:
- a The Reciprocal Enforcement of Judgments Ordinance (Chapter 175, LFN 1958): this Ordinance, which has its roots in English law, applies only in relation to money judgments and arbitral awards that have been elevated to the status of a judgment for the purpose of its enforcement. To be enforceable, such judgments or arbitral award must originate from the United Kingdom or other Commonwealth country. For an arbitral award to be enforceable as a judgment, the award debtor must apply to the court in the originating country for leave to enforce the award as a judgment. Applications for the enforcement of judgments or arbitral awards under this Ordinance are required to be filed at a High Court in Nigerian within 12 months of the date of the judgment, subject to any extension of time that the Court may grant.
- b The Foreign Judgment (Reciprocal Enforcement) Act (Chapter F35, LFN 2004): this Act provides that a judgment creditor of a foreign judgment may, within six years of the date of the judgment, apply to a superior court in Nigeria for the registration of the judgment. However, for the above provision to apply in respect of judgments from a foreign country, the Minister of Justice must have exercised the powers under Section 3 of the Act to extend the application of the Act to judgments given in superior courts of an originating country on the basis of a reciprocal treatment for judgments of superior courts in Nigeria. To date, there is no evidence that the Minister of Justice has exercised this power in favour of any country.
Notwithstanding the foregoing, the Supreme Court has held that judgments from any foreign country may be registered pursuant to Section 10(a) of the Act within 12 months of the date of the judgment or such a longer period as a superior court may allow.
Nigeria is a signatory to the New York Convention and the provisions of the Convention apply by virtue of Section 54 of the Arbitration and Conciliation Act (Chapter A18, LFN 2004). Nigerian courts therefore readily recognise foreign arbitral awards from other Convention countries.
VII CURRENT DEVELOPMENTS
There is currently a wave of franchise awareness spreading through small and medium-sized enterprises in Nigeria. Recent years have seen an increase in the number of local Nigerian brands adopting microfranchising as a means of business expansion. For example, Vitafoam, a home-furnishing collection store, joined the league of local franchisors using what is called the ‘Igbo Boy Franchise Model’. Through this model, it recruits graduates that market and manage outlets as CEOs. These employees are paid a percentage of the profits. Also, Nairabet, a sport betting outlet, is one of the new utilisers of franchising for expansion and now boasts over 800 outlets across Nigeria.
The Africa Franchise Centre (AFC) was set up in Lagos, Nigeria on 21 November 2017 to ‘rescue African small and medium enterprises and create prosperity on the continent’, by acting as a recruiting centre and promoting franchising as an alternative means of growth that eliminates major risks and uncertainty associated with starting up new brands.10
1 Ngozi Aderibigbe and Chinweizu Ogban are senior associates at Jackson, Etti & Edu.
2 The African Development Bank Group, ‘Market Brief – The Middle of the Pyramid: Dynamics of the Middle Class in Africa’ (20 April 2011).
3 UK Trade & Investment, ‘Webinar – Opportunities in Franchising in Nigeria’ (29 October 2015).
4 Section 21 Nigerian Investment Promotion Commission Act 1995.
6 The Income Tax (Transfer Pricing) Regulations No. 1, 2012.
7 Nigeria Progress Ltd. v. NEI Corp. (1989) 3 NWLR Pt. 102 68 @ 92.
8 Chapter C25, LFN 2004.
9 (1845) Exch 341.