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A CASE STUDY OF THE SUCCESSES & FAILURES OF THE NIGERIAN PRIVATIZATION PROGRAMME.

That success fee debacle & what might have been

(SPOTLIGHT ON THE BOTCHED 2001 NITEL CORE INVESTOR SALE )

Chief Nkereuwem Udofia Akpan Esq. Contents:

A.	Introduction: B.	That success fee debate in the 2001 botched Nitel Core Investor Sale C.	An overview of the Consultancy Agreement between BPE & PWC: D. In-depth analysis of the legal implications of the contract (i) Intention of the contractual parties (ii) At what point was the success fee due and payable? (iii) Was success fee due and payable upon signing of the SPA by the core investor without more? (iv) Did PWC’s obligation to BPE terminate at the signing of SPA with IILL? (v) Was PWC negligent in its advisory obligations to the Bureau? (vi) Can PWC succeed in an action for specific performance? (vii) Has there been any material breach of contract by PWC? E.	Conclusion:

A. Introduction: The philosophy behind the provision of the success fee clause in standard BPE contracts for Privatization Advisory services is succinctly captured by the following statement on the BPE official website thus: “As a general policy, NCP may pay a success fee to the privatization adviser. Such fee payable should implicitly reflect the advisers’ intellectual output (the transaction structure), project management, and the ability to attract a field of investors to bid for the privatized entity and thus generate competition. The success fee shall only be payable to the privatisation advisers upon final receipt of proceeds from the successful bidder”

Clearly, the entire concept was designed to serve as additional incentive (beside the fixed fees) for consultants to ensure the success of a given transaction. Be that as it may, the above averments tantamount to a mere statement of policy which is not (must not be assumed as) binding on third parties in so far as such statements are not reduced to covenants and clearly defined, in a given transaction. Put differently, the relevant provisions in any given agreement must be couched in such a manner, as to bring these “objectives” to the fore from the onset. Failure to do so may open a leeway for case contractors, mischief seekers and adventurous solicitors to grasp at straws –so to speak- in any judicial and or arbitral proceedings thereafter. For the avoidance of doubt, the objective of the success fee provision, according to the BPE website has always been: “…to serve as incentive to the adviser to ‘go the extra mile’ in ensuring that the transaction is successful. In addition, in the negotiation of advisory fees, due regard is taken of the need to ensure that advisers also take a share of the risk in the event that a transaction does not succeed”

B. That success fee debate in the 2001 botched Nitel Core Investor Sale By a Consultancy Agreement dated June 6, 2001 (Hereinafter the “Agreement”) PriceWaterHouseCoopers Consortium comprising:  Messrs Societe General France, Investment Banking Trust Corporation (IBTC), Thelen Reid & Priest and the Law Union (Hereinafter ‘PWC”) acted as advisers to BPE in the botched NITEL strategic/core investor sale.

The Agreement provided for the payment of two classes of fees by the Bureau to the Consultants. Whereas Clause 6.1.1 provides for “fixed fees”, clause 6.1.2 provides for “success fee’’ in the following words: “Success fee as a percentage of the Net Purchase Consideration (upon execution of the Share Sale/Purchase Agreement with the Core Investor)”

Regrettably though, both clauses are silent on the actual amount payable to the consultant. Consequently, recourse must then be had to the provisions of Clause 6.2 which provides: “’The contract price shall comprise a fixed fee of USD6,650 Million and a Success Fee of 0.75% of Net Purchase Consideration”

Based on this, the Consultants had requested that they be paid the said success fee by the Bureau. This piece seeks to address the propriety or otherwise of that demand.

C. An overview of the Consultancy Agreement between BPE & PWC: It may be crucial for our purposes to undertake an appraisal of the relevant clause(s) in the Agreement. Clause 6.1.2 in the agreement stipulates for “Success Fee” to be paid to PWC at a rate of 0.75% of “net purchase consideration” (upon execution of share sale/purchase agreement with the core investor). Clause 6.2 Provides: “Provided that where the core - investor pays part in cash and part by way of equity injection in the company, the success fee shall be based also on the amount of the equity injected into the company. Provided also that BPE may consider an alternative success fee arrangement based partly on purchase consideration and partly on new connections...”

On the scope of work, Clause 3.1.1 provided thus: “Consultants accept that they have a duty to exercise reasonable professional skill and care in performing their services in accordance with the terms of the contract”.

Again, Clause 3.6 dealing with Consultants’ Right to limit liability provides: ““The consultants shall use reasonable skill and care in the provision of the services…” While Clause 3.6.1 deals with Liability without limit for inter alia: “ (ii) Any fraudulent pre-contractual misrepresentation made by them on which the BPE can be shown to have relied: and (iii) Any other liability which by law they cannot exclude…”

Happily, there is a working definition of the term “success fee” in the Agreement itself as well as key indicators as to what and what can transpire, before parties can reasonably assume, that the transaction has been successful, so as to entitle Consultants to claim thereunder? Be that as it may, the classical definition of the word “success” as: “the accomplishment of what is desired or aimed at” (Webster New Lexicon, 1991 Ed.) tends to accord with implied intention of the contractual parties from the onset. It can therefore, be safely concluded, that both parties had contemplated that the desired end has to be the conclusion of the entire transaction (to the point of handing-over of the management of NITEL to the core investor).

The Consultancy Agreement is clear and unambiguous on the point at which the transaction shall be deemed to have closed. Under Appendix ‘A’ for instance, Clause 12 therein provides: “The transaction will be concluded when all contractual agreements have been signed and have taken effect and the proceeds from the sale have been paid” Clearly, the above provisions indicates that both parties recognized the fact that all three condition precedents must be jointly satisfied, before Consultant can bring a claim by invoking the provisions of Clause 6.1.2 relating to success fee. (See the dictum of James L. J. in the much-cited English case of Re Lees Exparte Collins). Again Clause 10 of Appendix ‘B’ reiterates: “... The Advisers are expected to be available until the transaction is closed. The transaction should only be deemed closed when proceeds from the transaction have been received by the FGN, and the transaction documentation has been concluded”

D. In-depth analysis of the legal implications of the contract

(i) Intention of the contractual parties: Another question that needs to be considered shall be: what was the intention of the parties in inserting Clause 6.1.2? This question becomes crucial because an equitable maxim states “equity looks to the intention and not the form”. Clearly, the Clause was inserted firstly as a buffer to provide some comfort against any sudden reversal of policy by FGN after Consultants might have sunk in considerable resources into the project (an unfortunate fallout from our rather unstable political climate). Secondly, it was intended to provide a kind of additional incentive to Consultants to source for Core Investors in line with international best practices.

(ii) At what point was the success fee due and payable? The insertion of “at the execution of the Share Purchase Agreement (SPA)” was intended merely to indicate that the success fee would become due. It is our view that even though the success fee was due at the signing of the SPA, it would have become payable only when the proceeds of sale shall have been received. The fact that Clause 6.2 provides for the payment of success fee where a Core Investor pays partly in cash and partly in equity supports our proposition that the success fee is payable on receipt of payment from the Core Investor. Thus the second line of Clause 6.2 expressly provides “the success fee shall be based on the amount injected into the company” Clearly, under the alternate arrangement, the parties had contemplated that Clause 6.1.2 should come into effect if and only if the purchase price of the transaction has been injected into the company.

Jurisprudentially speaking, this is the only reasonable construction of the Clause that would best describe the intention of the contracting parties. The alternative construction will be to construe the agreement as stipulating that success fee should be sourced from elsewhere and paid to Consultants - say from the privatization proceeds account or from the Federation Account- an unreasonable and most absurd interpretation. The latinic maxim “interpretatio chetaram benigne facienda est ut res magis valeat quam pereat” applies (See Nafiu Rabiu vs. the State (1980) 8-11 SC 130. Where Sir Egbert Udoma JSC (As he then was) cautioned against giving onerous and warped interpretations to instruments so as to defeat the obvious purpose for which it was intended. Especially where another approach, consistent with the good intention of the instrument, is equally available. Our law reports are inundated with a plethora of judicial authorities in support of that proposition. (See also the Golden Rule of interpretation as formulated by Lord Baron Park L.J. in Beck vs. Smith (1936) 2 M& W p. 1995 and the Nigerian Supreme Court case of Mobil Unlimited v FBIR. (1977) 3 SC 53 at 75

Put differently, had an officious bystander or a third party watching the transaction from a distance intervened at the point the parties were entering into the agreement and put the question to them, both parties would have nodded in the affirmative. See for this purpose The officious bystander’s test as formulated in the English case of Shiloh vs. Southern Foundries and The Business efficacy test as propounded by Lord Bowen L.J. in the Moorecoock case. Even on equitable grounds, the demand of PWC was grossly inequitable. Here was a firm which covenanted to provide quality advisory services to the Bureau leading up to the sale of NITEL for a fee grossing some USD 3,650,000.00 — all of which has since been paid — and here they were asking to be paid “success fee” for an unsuccessful (or shall we say) inconclusive transaction- unsuccessful, due to the sloppy and desultory advisory services rendered by them to the Bureau. Elsewhere in the western world PWC would have been made to refund a decent percentage of the fixed fees set out in Clause 6.2 for negligently misrepresenting to the Bureau that IILL was game. Undeniably, by giving IILL a clean bill of health, the Bureau was misled into signing the SPA with them.

In every common law jurisdiction such as ours jurisprudence, three distinct equitable maxims are instructive to further expound and buttress the point hereinbefore canvassed. To these we must turn to examine briefly.

(a) He who comes to equity must come with clear hands: The maxim means that a plaintiff who seeks an equitable relief must show that in his own conduct he has been honest, fair and above board. Much judicial ink has flowed in support of the above as the Courts have held in a plethora of authorities, that the relief of specific performance, will not avail a plaintiff, who has been in breach of the covenant or guilty of fraud or misrepresentation. This was the position adopted by the British House of Lords in Coatsworth v Johnson (1886) 54 L.T. p. 520 and in the case of Overton v Bannister (1884) 3 Hare p. 503. Furthermore, his lordship Brandeis J. had famously remarked in the American case of Laucihran v Laughran 292 US, 216 at 229 “Equity does not demand that its suitors shall have led blameless lives” but it shall insist that in the instant transaction or covenant, all conduct of the plaintiff that may have “ an immediate and necessary relation to the equity sued for” be fair, just and equitable. See for this purpose the English case of Derring v Winchelsea (1787) 1 Cox Eq. 318 at 319-320

(b)	He who seeks equity must do equity: Briefly, the underlying philosophy behind this maxim is simply that if Mr “X’ seeks to obtain an equitable relief against Mr. “B”, he must be prepared to act fairly towards Mr. ‘B’

(c)	Equity looks to the intention and not the form: Equity considers it unfair for one party to insist on the observance of form, so as to defeat the substance of a given transaction and the true intention of the parties- which intention is to be gleaned from the covenant duly executed between them. In the instant case, the true intention of the parties as well as their contractual obligations thereto cannot be captured in any single paragraph, covenant or Clause in the agreement but by looking at the entire document.

(iii) Was success fee due and payable upon signing of the SPA by the core investor without more?

On the argument by PWC that Success fee was due and payable upon the execution of the SPA, we think that such an interpretation is unknown, inequitable and novel in our jurisprudence and must be jettisoned. This strange line of argument, to the effect that success fee was due at the time the SPA with IILL was executed, not merely defies logic but also clearly conflicts with commonsense. What is more? In the face of overwhelming evidence to the contrary, that argument is at best, the very height of mischief. From their perspective though, that averment seemed impregnable. However, a closer look at the entire agreement reveals that that proposition cannot be sustained. Like noted above, the first rule applicable in every known cannon of interpretation is that the entire instrument must be construed together and that no particular clause be taken in isolation.

Indeed our law Reports are inundated with an avalanche of the Supreme Court’s decision on this point. Clause 6.1.2 must be read together with not only clause 6.2 but the entire Agreement if the intention of both parties is to be effectively captured. (See the House of Lords decision in Attorney- General v Hanover (1957) AC p.436 at p. 461 In that case, Viscount Simmonds held as follows: ”Words cannot be read in isolation. Their colour and content are derived from context. So it is, that / conceive it to be my right and duty to examine every word of a statute in its context and / use context in its widest sense...” See also the Nigerian authority of Naflu Rabiu v The State (1980) 8-11 SC, Pg 130 and Emerah and Sons Nigeria Ltd. v Attorney-General of Plateau State (1990)4 NWLR Part 147, 788 per Adio JCA. Where it was held as follows: “One of the principles of statutory interpretation is that an instrument should be construed as a whole to ascertain the true meaning of its several clauses. The wordings of such clauses must be so interpreted as to bring them in harmony with the other provisions of the instrument”

(iv) Did PWC’s obligation to BPE terminate at the signing of SPA with IILL? Another argument that has been bandied about by PWC relates to the fact that upon signing the SPA, their obligation to the BPE terminated therewith. This averment prima facie appears formidable but its legal foundation is not only weak and counterfeit but it it stands on mere quicksand and thus cannot survive the searchlight of any preliminary enquiry or the fire of any empirical analysis.

Again, the contention falls flat in the face of the express provisions of Clause 10 of Appendix B and Clause 12 of Appendix A which jointly, makes nonsense of any such pretences by PWC: Clause 10 of Appendix ‘B1 provides: “... the Advisers are expected to be available until the transaction is closed. The transaction should only be deemed closed when proceeds from the transaction have been received by the FGN, and the transaction documentation has been concluded”. As if that was not enough, Clause 12 of Appendix A unambiguously states: “The transaction will be concluded when all contractual agreements have been signed and have taken effect and the proceeds from the sale have been paid”. The sum of all these provisions being that PWC’s obligations to the Bureau did not terminate at the point the SPA was executed with IILL.

(v) Was PWC negligent in its advisory obligations to the Bureau? Surprisingly, PWC did aver, that failure of IILL to pay the 90% balance was not due to any negligent conduct on the part of PWC: That averment was the very height of mischief and bad faith- rendering nugatory all the representation made by PWC in paragraph “f” of the recitals in the agreement. That provision runs thus: “The Consultants having represented to the BPE that they have the required professional skills, personnel, technical competence, have agreed to provide or procure the provision of the services on the terms and conditions set forth in this contract”.

The Nigerian public will want to know why consultants were hired in the first place. FGN never wished to embark on any voyages of discovery or trial by error by relying on upstarts in the local industry, that is why it insisted on “experts” and coughed out a whooping USD 3.650 million to procure a firm who held out and represented to FGN that they were experts. Specifically, Consultants covenanted with the Bureau to: (a)“Assess investors interest so as to ensure that they possess managerial capability and ability to mobilize financial resources.” (Clause 4 of Appendix “A’) (b)	P re-qualify bidders and define short list of pre-qualifying bidders and facilitate the conclusion of the transaction”( Clause 11 of Appendix ‘A”) (c)	“Make recommendations on dealing with all significant factors imparting on the successful achievement of the FGN’s objectives and completion of the transaction”(Clause 8)

Consultants cannot approbate and reprobate - this is trite principle of law. If they do, BPE must as a matter of urgency review any running contract with Consultants with a view to terminating same and suing for damages and rescission for fraudulent misrepresentation in respect of that Agreement.

(vi) Can PWC succeed in an action for specific performance? At law, BPE has a complete defence in the event of such a suit i.e. to the effect that Consultants are guilty of misrepresentation. It is immaterial whether the misrepresentation was fraudulent, negligent or innocent. See Clause 3.6.1. All that the law requires is for the Bureau to show that misrepresentation induced it to enter into the Agreement. Note that there is no burden of proof on BPE in respect thereof and that even though it cannot be proved that the misrepresentation actually induced its entering into the Agreement, it will be sufficient if an inference can be drawn that but for the misrepresentation, it could not have entered into the SPA with IILL ( Holliday v Lockwood (1917)2Ch. 47atp. 56-7)

Secondly, the courts have consistently held that a plaintiff who seeks specific performance of a contract must show that he has carried out all of his own undertakings and obligations thereunder. Such that if it is shown that such a plaintiff has been in breach of any of the provisions or contravened any conditions, warranties and or representations made pursuant thereto his claims fails. He must also be ready and willing to comply with and perform all outstanding obligations satisfactorily. (vii) Has there been any material breach of contract by PWC? Clearly, there has been some material breach of contract on the part of PWC upon which the Bureau can rely upon to withhold the coming into effect of Clause 6.1.2. A closer perusal of the agreement reveals that there has been some fundamental breach (or breach of fundamental term) on the part of the PWC. Several Clauses abound in the agreement, which seeks to compliment the provision of Clause 6.1.2. As in every such agreement, Clause 6.1.2 cannot be taken in isolation but must be read together with the other provisions relevant thereto (see Attorney- General v Hanover). We shall consider a few such provisions. Under Appendix “A” are listed the “Scope of work of Financial Adviser”, which is further broken down as:

(a) Assessment of Investors: By Clause 4 therein, the Advisor undertook to “assess investors’ interest” so as to (among other things) ensure that they (Investors) “possess managerial capability and ability to mobilize financial resources”. Now can it be reasonably posited that PWC were not negligent in that respect? Could it not be said that due to that negligence on their part, the Bureau was misled into plunging into the deal with a firm that turned out to be a mere paper tiger; not better then a certified bankrupt? If these conclusions are anywhere tenable, would PWC even be entitled to the so called “fixed fees” set out in Clause 6.1.1 in full in the first place?

(b)Assisting the Bidding Process: By Clause 11 therein, Advisors covenanted to (among other things) pre-qualify bidders and define short list of pre-qualifying bidders and “facilitate the conclusion of the transaction”. A fundamental issue arises here, i.e., had the bidders been diligently and properly pre-qualified, the issue of being saddled with an insolvent preferred bidder would have been nibbed in the bud.

(c) Undertaking to “Review and Develop Sales Strategy” By Clause 8 thereunder, wide sweeping guarantees were obtained by the Advisor to ensure the success of the transaction in its entirety. Advisors undertook to “make recommendations on dealing with all significant factors imparting on the successful achievement of the FGN’s objectives and completion of the transaction”. PWC also contracted to advice on “the best approach for attracting the best strategic investors”. What inference can be drawn concerning the quality of advice given by PWC to BPE in this direction? Can the inference not be safely drawn that PWC lacked the technical ability to proffer the kind of advice for which they represented to BPE that they have in the first place? Could the BPE not sue for fraudulent misrepresentation or even negligent misrepresentation in the circumstance- A fundamental breach of contract to be gleaned from the representations made in paragraph ‘F’ of the recitals therein. Clearly, PWC has been in implicit breach of all of these undertakings. E. Conclusion: Legal effect of breach of fundamental term (fundamental breach) At common law, the breach of a fundamental term has been consistently recognized as one entitling the injured party not merely to sue for damages but for rescission- where specific performance is impracticable or impossible. The philosophy behind that position of things is that such an occurrence has the effect of denying the injured party of substantially the whole benefit due him under the contract on the one hand and knocking the bottom off the contract on the other. See for this purpose the judicial authority of Karsales v WaIIis. Consultants were engaged based on representations made by them to the BPE severally in paragraph ‘F’ of the recitals; Appendix A; and elsewhere in the agreement as set-out above in this Opinion. BPE would have engaged the services of local Consultants in the transaction but opted for PWC- as a first class international Adviser to guide the divestiture of its equity in NITEL. Had Consultants not negligently misled BPE into entering into the SPA with a firm lacking the requisite financial muscle to bankroll the transaction (In breach of several express provisions in the Agreement e.g. Clause 4 of Appendix “A”), would the IILL imbroglio not have been averted from the onset?

On the issue of good faith and fair-play: this writer is of the view that the consortium of which PWC led, ought to have had a percentage (at least 10%) of their fees withheld pending the final conclusion of the transaction but FGN in its magnanimity went ahead to pay all their entitlements, notwithstanding that some issues were still outstanding. This in itself is an indication of good faith on the part of FGN. On grounds of public policy and morality, it would be devastating for the entire privatisation programme if the Nigerian public wakes up to be told by the numerous opponents of the privatization programme (in the media, National Assembly and elsewhere) that a foreign firm was paid “success fee” for a deal that the press has variously reported as “fraudulent”, ‘dubious” and ‘lacking in transparency. (One must resist the urge to dabble into the recent Pentascope debacle )

Undeniably, the failure of the entire transaction is intrinsically tied to the quality of advice PWC consultants may have offered to the BPE. Consultants cannot therefore, in the circumstance elect to take the benefits in the contract and then in the same breadth find it convenient to ignore the fact that the transaction itself fell through. From the foregoing, the demand for success fee by PWC at that point in time was neither recognized by the express provisions of the agreement nor supported by any principle of law, equity or common sense.

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