The Court of Appeal has overruled the decision of the Federal High Court (“FHC”) in Stanbic IBTC Holdings Plc (“Stanbic”) vs Financial Reporting Council of Nigeria (FRCN) & Anor (2015), which declared that failure to get approval from NOTAP for the registration of a contract made the contract illegitimate and invalid. Hence, Stanbic could not pay the periodic fees attributable to an unregistered contract.
Stanbic acquired a banking software from outside Nigeria, enhanced it and then sold the software to its parent company in South Africa. Thereafter, Stanbic entered into a license agreement to use this software at a yearly fee. Stanbic also made yearly provisions and payments to its parent company without obtaining approval from NOTAP. National Office for Technology Acquisition and Promotion (NOTAP) is the official body responsible for registering all contracts or agreements for the transfer of foreign technology to Nigerian parties. Every contract or agreement shall be registrable if its purpose is fully or partially for or related to any of the following.
- the use of trademarks
- the right to use patented inventions
- the supply of technical expertise in the form of the preparation of plans, diagrams, operating manuals or any other form of technical assistance of any description whatsoever
- the supply of basic or detailed engineering
- the supply of machinery and plant
- the provision of operation staff or managerial assistance and the training of personnel
As a Federal Government agency, FRCN was established by the Financial Reporting Council of Nigeria Act, No. 6, 2011. One of the objectives of FRCN is to ensure the accuracy and reliability of financial reports and corporate disclosures, in line with the local laws and regulations.
In 2015, FRCN carried out an investigation on the technology agreement for software which was reported in Stanbic’s audited accounts for 2013 and 2014. FRCN observed that Stanbic was yet to register a Technology Transfer Agreement with NOTAP and such contract was unenforceable and void for making provisions. This implies that no provision should be made in a financial statement for any obligation under a Technology Transfer Agreement which has not been registered by NOTAP. FHC ruled in favor of FRCN. Thus, Stanbic filed an appeal on FHC’s judgment.
The Court of Appeal formed its decision on obtaining NOTAP approval based on two key points;
- Whether NOTAP covers agreements for the transfer of technology from Nigeria to an offshore country
- The effect of not registering a registrable agreement
Whether NOTAP applies to agreements for technology transfer from Nigeria to a foreign country
The Court of Appeal held that the functions of NOTAP excluded contracts for technology transfer to a foreign country. In this case, Stanbic Nigeria transferred technology to its parent company in South Africa.
The effect of not registering a registrable contract
According to Section 7 of the NOTAP Act, the effect of not registering a Technology Transfer Agreement is that no payment shall be made by or on the authority of the Federal Ministry of Finance, the Central Bank of Nigeria or any licensed bank in Nigeria for any payments outstanding under the agreement. It would, therefore, be difficult to source for foreign currency from the authorized foreign exchange market in Nigeria to finance payments for a Technology Transfer Agreement unregistered by NOTAP.
The Court of Appeal (COA) held that Section 7 does not cover or provide for the validity or legality of unregistered or nonregistration of a contract under Section 4(d). NOTAP Act does not also render such contracts as invalid, illegal, null and void.
COA further held that nonregistration of a contract only prevents payment through, or on the authority of the Central Bank of Nigeria or a licensed bank in Nigeria. The inclusion of a penalty for failure to register an agreement does not imply that an agreement is unenforceable.
The scope of NOTAP excludes technology transfer from Nigeria to an offshore company. Hence, a local entity can transfer technology to beneficiaries outside Nigeria.
After the Federal High Court’s decision in 2015, FRCN issued Rule 4 on “Transactions requiring registration from statutory bodies such as NOTAP”. Rule 4 states that transactions or events will have financial reporting implication only when NOTAP registers such contract. External auditors and tax authorities relied on NOTAP approval on registrable contract otherwise the expenses were treated as controversial and disallowed respectively.
COA was silent on the accounting or financial reporting effect of its ruling. However, based on the recent decision of the Court of Appeal, FRCN may need to review its Rules for possible amendment as it may be difficult to enforce compliance henceforth.