Counter-Indemnity — Nigeria

A Counter-Indemnity in Nigeria documents the counter-indemnity in a form the parties and authorities can rely on.

Counter-indemnities in Nigeria are governed by the general law of contract applicable in Nigeria, the Prudential Guidelines and circulars issued by the Central Bank of Nigeria (CBN) (which supervise bank guarantee practices), and the Uniform Rules for Demand Guarantees (URDG 758) published by the International Chamber of Commerce (ICC) where international demand guarantees are involved.

The counter-indemnity differs from a corporate guarantee in a fundamental respect: a guarantee is a secondary obligation that activates only if the principal defaults on its obligations to the beneficiary; a counter-indemnity is a primary obligation — the bank is entitled to demand immediate reimbursement from the principal as soon as the bank makes any payment under the instrument, regardless of whether the principal disputes its underlying liability to the beneficiary. Nigerian courts consistently uphold this 'pay now, argue later' principle for bank guarantee and counter-indemnity arrangements, consistent with the Supreme Court's decision in Afro-Continental Nigeria Limited v Ayanru (1995) 6 NWLR (Pt 399) 291.

Performance bonds and advance payment guarantees are widely used in Nigeria in public procurement (under the Public Procurement Act 2007), in construction contracts (where the employer requires a performance bond from the contractor's bank), and in export/import transactions (where a letter of credit or payment guarantee is issued by a Nigerian bank at the request of a Nigerian buyer or seller).

The legal framework governing the Counter-Indemnity — Nigeria in Nigeria draws on several key statutes and regulatory bodies. Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Parties executing a Counter-Indemnity — Nigeria in Nigeria should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Contract Law (received English common law) sets the foundational requirements.

A Nigeria Counter-Indemnity is needed whenever a company requests a Nigerian bank or financial institution to issue any form of guarantee, bond, or contingent liability instrument on its behalf.

The counter-indemnity is required when a contractor awarded a government construction or supply contract under the Public Procurement Act 2007 is required by the government entity (MDA) to provide a performance bond (typically 10% of the contract value) before the contract is signed. The contractor's bank issues the performance bond to the government, and the contractor signs a counter-indemnity in favour of the bank.

The counter-indemnity is needed when a Nigerian company receives a prepayment or advance from a client and the client requires an advance payment guarantee from the company's bank to secure repayment if the company fails to deliver the goods or services paid for in advance.

The counter-indemnity is required when a Nigerian exporter's buyer in a foreign country requires a payment guarantee or standby letter of credit from a Nigerian bank to secure the buyer's payment obligation. The Nigerian bank issues the instrument at the request of the Nigerian buyer/principal, and the principal signs a counter-indemnity.

The counter-indemnity is needed when a Nigerian company submits a tender for a major procurement contract and the tender documents require a bid bond (typically 2–5% of the bid value) issued by a Nigerian commercial bank, confirming that the company will enter into the contract if its bid is accepted.

The counter-indemnity is also required when a Nigerian company obtains a customs guarantee or bonds with the Nigeria Customs Service (NCS) in connection with duty-deferred imports, and the issuing bank requires a counter-indemnity for its exposure under the customs bond.

The counter-indemnity is needed when a Nigerian oil and gas company applies for a performance bond from its bank to support contracts awarded by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) or the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) under the Petroleum Industry Act 2021. The Petroleum Industry Act 2021 mandates performance security for licensed operators, making counter-indemnities a routine feature of upstream and midstream contracting in Nigeria. In construction projects, the Lagos State Public Procurement Agency (PPA) and the Bureau of Public Procurement (BPP) at the federal level each require performance bonds for contracts above specified thresholds under the Public Procurement Act 2007. The Companies and Allied Matters Act 2020 (CAMA 2020) requires corporate principals to obtain board approval and file relevant charges with the Corporate Affairs Commission (CAC) when granting security for counter-indemnity obligations.

Parties in Nigeria should prepare a Counter-Indemnity — Nigeria proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A Nigeria Counter-Indemnity must contain the following key elements.

Party identification: Full legal names, CAC registration numbers, and registered addresses of the principal (account party) and the issuing bank or financial institution. The bank's regulatory reference (CBN licence number) may also be included.

Description of the underlying instrument: Full details of the guarantee, performance bond, or other instrument being issued by the bank on behalf of the principal — including the instrument type, the amount (in NGN or foreign currency), the beneficiary, the purpose, and the expiry date.

Primary indemnity obligation: The principal's unconditional and irrevocable obligation to reimburse the bank on first demand for all payments made under the instrument, together with all costs, charges, and expenses (including legal fees) incurred by the bank in connection with the instrument, without the right to raise defences based on any dispute between the principal and the beneficiary.

Board resolution: Confirmation that the principal's board of directors has authorised the execution of the counter-indemnity under Section 84 of CAMA 2020.

Security: Where the bank requires collateral security for the counter-indemnity exposure — such as a cash deposit, a fixed charge over the principal's assets, or a debenture — the security terms should be documented in the counter-indemnity or in a separate security document.

Fees and charges: The bank's fees for issuing the instrument (typically expressed as a percentage per annum on the face value of the instrument), the payment schedule, and the consequences of non-payment.

Extension and renewal: Whether the principal may request extension or renewal of the underlying instrument, and the bank's discretion to agree.

Governing law: Laws of Nigeria, with jurisdiction of the Federal High Court (Commercial Division) or Lagos State High Court, which has exclusive jurisdiction over banking and finance matters under Section 251(1)(d) of the Constitution of the Federal Republic of Nigeria 1999 (as amended) and the Banks and Other Financial Institutions Act (BOFIA) 2020.

Stamp duty and registration: The Stamp Duties Act (Cap S8 LFN 2004), as amended by the Finance Act 2020, imposes duty on counter-indemnity instruments. The Federal Inland Revenue Service (FIRS) administers stamp duty where a corporate party registered under the Companies and Allied Matters Act 2020 (CAMA 2020) is involved. An unstamped counter-indemnity is inadmissible in evidence before Nigerian courts under Section 22 of the Stamp Duties Act, which undermines the bank's enforcement position. The Corporate Affairs Commission (CAC) charge registration requirements under Sections 212–221 of CAMA 2020 apply where the counter-indemnity is secured by a fixed or floating charge over the principal's assets. The Securities and Exchange Commission (SEC Nigeria) under the Investments and Securities Act 2007 requires listed companies to disclose material contingent liabilities, including outstanding counter-indemnity obligations, in annual financial statements filed with the Nigerian Exchange Group (NGX).

Additional compliance elements for a Counter-Indemnity — Nigeria used in Nigeria include: Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Forms-legal.com provides this template as a starting point for Nigeria-compliant documentation.