$1.8bn Damages Claim Against Nestoil And Neconde May Affect Banks

Legal and financial risks facing FirstBank and its lending partners have grown significantly since the collapse of their bid to transfer the ongoing Nestoil/Neconde matter and the emergence of a possible $1.8 billion damages claim against the banks.

The setback follows a Supreme Court ruling that was a major blow to the lenders’ litigation strategy. In its judgment in Neconde Energy Ltd. v. FBNQuest Merchant Bank Ltd & Ors, the apex court dismissed attempts to halt proceedings and queried the motives behind attempts to delay a case which the lenders themselves had commenced.

Acting on that judgment, the Honourable Chief Judge was reported to have dismissed the application for reassignment, finding no reason for the removal of the trial judge. The ruling effectively shut the door on what critics called an attempt to derail the proceedings.

That gambit has now been thwarted and the focus has shifted to the potentially enormous fallout for the banks.

Nestoil and Neconde have commenced legal proceedings to recover damages totalling about $1.8 billion from FBNQuest Merchant Bank, First Trustees, FirstBank, UBA, Access Bank, Zenith Bank, the Receiver-Manager and others over alleged disruption of oil production operations.

The companies are expected to argue that the lenders and their Receiver took action that seriously disrupted production activities, reducing production from around 60,000 bpd to below 40,000 bpd and disrupting critical drilling and field development programmes.

If successful, the claim could be one of the largest damages actions to arise out of a commercial banking dispute in Nigeria’s oil and gas sector, industry observers said.

Adding to the mounting legal pressure, Drawcok Estate Limited has already instituted a N100 billion damages suit against FBNQuest Merchant Bank, First Trustees, the Receiver-Manager and others over the alleged wrongful takeover and occupation of its Victoria Island properties.

The increase in litigation is a dramatic change of fortunes for the lenders. What began as an aggressive debt recovery exercise is increasingly exposing the banks themselves to substantial legal liability with claims now running into billions of dollars and tens of billions of naira.

The failed attempt at a re-assignment, with the Supreme Court’s criticism still reverberating through the proceedings, may eventually be seen as the point where the dispute shifted from an enforcement action against Nestoil to a potentially costly reckoning for the banks behind it.