Barbedos Ventures Ltd v. FBN Plc [2018] 4 NWLR (Pt. 1609) 241 at 297, paras. C-F, per Peter-Odili, JSC:

“It is to be said that it is not every debt that can be attached by way of garnishee proceedings and so it has to be discerned if any sum is due and payable by the garnishee to the judgment debtor. Also, that the debt has to be certain in amount and the judgment debtor must have a vested immediate legal right to it. It is therefore in that light that any funds coming into the customer’s account does not belong to the customer where the said customer is debited to the bank since that fund is used to settle the indebtedness.” 

Notes:

The brief facts of the case are that the Appellant was contracted by the Zamfara State Government (ZSG) to supply 12,500 metric tons of Urea fertilizer worth over a Billion Naira for distribution/sale to farmers in the State. The Appellant executed the contract but the contract sum was not paid. This led to an arbitration proceeding whereupon the Arbitral Tribunal found for the Appellant and made an Award in favour of the Appellant.

The Appellant thereafter applied for the recognition and enforcement of the Award as Judgment of the High Court of Zamfara State. The application was granted. Subsequently, the Appellant applied for a garnishee order to attach the funds belonging to the ZSG’s Federation Accounts Allocation Committee (FAAC) account with the Respondent in order to satisfy the Judgment Debt. The High Court granted the application and made a Garnishee Order nisi against the Respondent. Upon being served with the said Order, the Respondent filed an Affidavit to show cause why the Order nisi should not be made absolute, stating that the ZSG was indebted to the Respondent as per the term loan facility and other credit facilities granted the ZSG. The Respondent further stated that, as security for the credit facilities, the ZSG, by an Irrevocable Standing Payment Order (ISPO), irrevocably domiciled the payments of its monthly allocation into the said FAAC account with the Respondent and agreed to repay the credit facilities (of over 7 Billion Naira) monthly through funds in the said account.  More so, the ZSG agreed to set off or transfer any sums in the account towards the satisfaction of its liabilities. The credit facilities at the time was still subsisting.

The Appellant filed a Counter-affidavit to the Respondent’s Affidavit and after considering the processes, the High Court made the Garnishee Order absolute. The Respondent’s appeal to the Court of Appeal was allowed. The Appellant appealed to the Supreme Court contending that at the material time, there was sufficient money attached to discharge the liability owed both the Appellant and the Respondent by the ZSG given that the only portion of the debt due and payable to the Respondent from the ZSG was monthly deduction of about N638 Million.

Peter-Odili, JSC addressed this argument and in agreement with the Respondent held thus:

“It has to be said that the principle on attachment of the money of a debtor by way of a garnishee order is not available to the Appellant in the case at hand, the reason being that the credit balance in the FAAC account as at the date of service of the Garnishee Order nisi is not debt owing or accruing to the Judgment Debtor because the Judgment Debtor did not have the immediate legal rights to it in view of the Respondent’s right of lien and set-off. Therefore, the credit balance was not for attachment in the light of the agreement which gave the Respondent the entitlement to set off the credit balances in the account for the liabilities in any respect whether such liabilities be actual or contingent, primary or collateral, several or joint.”

Augie, JSC who delivered the Leading Judgment further showed his Lordship’s good grasp of principles of Secured Credit Transaction when he explained at page 275 of the report that the security created in respect of the ZSG account with the Respondent can aptly be described as a floating charge and it is such that it flows over all the money that comes into the account of the ZSG, both present and future; and that until the said floating charge crystallises, the ZSG is free to withdraw from its account and use the money in its ordinary course of business. In effect, his Lordship observed that the Respondent has a right of hypothecation over the ZSG account balance.

The Learned Jurist went further to hold that the interest of the Appellant is derived from the Garnishee Order nisi which his Lordship rightly described as an equitable charge (relying on Fidelity Bank v. Okwuowulu (2012) 4 BFLR 109; (2013) 6 NWLR (Pt. 1349) 197). Now, in properly explaining the legal effect of the Garnishee Order nisi in relation to the Respondent’s existing right of set off, his Lordship stated:

“By the general provisions of the law and the specific provisions of the term loan agreement, the Respondent’s right of set-off cannot be defeated by the Garnishee Order: rather, the said Garnishee Order nisi triggered an event of default by which the indebtedness of the Zamfara State Government became due and payable and by which Respondent became entitled to the balance in the account for satisfaction of the debt. The said term loan agreement does not make any provision for a formal demand to be made before the Respondent can exercise its right of set-off. The right accrued automatically when the Garnishee Order nisi was made by which Respondent’s interests crystallised as a fixed charge over the balance in the Zamfara State Government’s account; therefore, the competition of interests is between a legal and an equitable charge.”

For the avoidance of doubt and just in case the Respondent’s interest may not have been properly described as a legal interest, his Lordship safely clarified:

“In this case, the competition is between a legal and equitable charge, and even if the Respondent’s interests did not crystallise into a legal charge, its equitable charge created by the ISPO and other loan documentation is earlier in time to that of the Appellant and therefore takes priority.”

It is submitted that the interest of the Respondent was properly described as a legal interest in that the Garnishee Order nisi indeed suffices as an event capable of crystallising the otherwise floating charge thereby converting it into a fixed charge.