Arbitration Proceedings under Nigerian Law: Arbitrable Disputes and the Approach of Courts to Arbitration Clauses in Agreements
AUTHORS: SHITTU RILWAN & OLADAPO BUSAYO
Bar II Candidate, Nigerian Law School, Abuja
LL.B Student, Faculty of Law, University of Lagos
The meaning and nature of arbitration was laid out in Nigerian National Petroleum Corporation v. Lutin Investment Ltd & Another, 2 NWLR 2006 Pt. 965 thus;
“an arbitration is the reference of a dispute or difference between not less than two parties for determination, after hearing both sides in a judicial manner by a person or persons other than a court of competent jurisdiction. The arbitrator who is not an umpire has the jurisdiction to decide only what has been submitted to him by the parties for determination. If he decides something else, he will be acting outside his authority and consequently the whole proceeding will be null, void and of no effect. This will include any award he may subsequently make.”
Arbitration is the fair resolution of a dispute between two or more parties by a person or persons other than by a court of law. It is the reference of a dispute by parties thereto for settlement by a person or tribunal of their own choice, rather than a court. Arbitration is a term used to describe a process to settle disputes between two or more persons by referring to an impartial third person or persons known as arbitrators specially appointed for that purpose. The dispute is determined in private with final and binding effect by the impartial third person (or persons) acting in a judicial manner rather than by a court of competent jurisdiction See Encyclopedia of Forms and Precedents Vol. 3(1) paragraph 2(11). An arbitral award is at par with a judgment of the court as recognized by the Supreme Court in the case of Ras Pal Gazi Construction Company Ltd vs. FCDA (2001) 10 NWLR Part 722 page 559
THE LEGAL FRAMEWORK
In Nigeria, the statute which provides the legal framework for the efficient settlement of commercial disputes is the Arbitration and Conciliation Act, Chapter 19, LFN 2004. A clause in the contract which states that “any dispute arising out of the agreement between the parties will be referred to arbitration in accordance with the Act” will suffice to create a ground work for reference to arbitration. Thus, in the event of a dispute, such clause would ordinarily preclude parties from instituting proceedings in court without recourse to arbitration first.
Section 57 of the Arbitration and Conciliation Act states that:
“arbitration” means a commercial arbitration whether or not administered by a permanent arbitral institution; “commercial” means all relationships of a commercial nature including any trade transaction for the supply or exchange of goods or services, distribution agreement, commercial representation or agency, factoring, leasing, construction of works, constructing, engineering licensing, investment, financing, banking, insurance, exploitation, agreement or concession, joint venture and other forms of industrial or business co-operation, carriage of goods or passengers by air, sea, rail, or road;
In C.N. Onuselogu Ent. Ltd. v. Afribank (Nig.) Ltd (2005) 1 NWLR Part 940 577, the Court held that arbitral proceedings are a recognized means of resolving disputes and should not be taken lightly by both counsel and parties. This is a positive attitude on the part of the courts in Nigeria which has been sustained by the various decisions of Nigerian courts.
In any contract where there is an arbitration clause and such contract becomes the subject matter of Court proceedings, if a party to the Court proceedings promptly raises the issue of an arbitration clause, the Courts will order a stay of proceedings and refer the parties to arbitration in pursuance to Sections 4 and 5 of the Arbitration and Conciliation Act which are reproduced below.
S.4. (1) A court before which an action which is the subject of an arbitration agreement is brought shall, if any party so request not later than when submitting his first statement on the substance of the dispute, order or stay of proceedings and refer the parties to arbitration.
(2) Where an action referred to in subsection (1) of this section has been brought before a court, arbitral proceedings may nevertheless be commenced or continued, and an award may be made by the arbitral tribunal while the matter is pending before the court.
S.5. (1) If any party to an arbitration agreement commences any action in any court with respect to any matter which is the subject of an arbitration agreement any party to the arbitration agreement may, at any time after appearance and before delivering any pleadings or taking any other steps in the proceedings, apply to the court to stay the proceedings.
(2) A court to which an application is made under subsection (1) of this section may, if it is satisfied-
(a) that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the arbitration agreement; and
(b) that the applicant was at the time when the action was commenced and still remains ready and willing to do all things necessary to the proper conduct of the arbitration, make an order staying the proceedings.
The Courts in Nigeria are often inclined to uphold the provisions of sections 4 and 5 of the ACA provided the necessary conditions are met.
In Niger Progress Ltd. v. N.E.I. Corp (1989) 3 NWLR (Part 107) 68, the Supreme Court followed section 5 of the Arbitration and Conciliation Act which gives the Court the jurisdiction to stay proceedings where there is an arbitration agreement. In M.V. Lupex V. N.O.C (2003) 15 NWLR (Part 844) 469, the Supreme Court held that it was an abuse of the Court process for the respondent to institute a fresh suit in Nigeria against the appellant for the same dispute during the pendency of the arbitration proceedings in London.
THE APPROACH OF NIGERIAN COURTS TO ARBITRATION CLAUSES IN AGREEMENTS
The courts have played and have continued to play a supportive role in ensuring that arbitral process in Nigeria is strengthened and empowered to perform its role in dispute resolution. The Courts have continued to act as a pillar to the arbitral process and have used its coercive force to ensure that parties do not only submit themselves to the arbitral process as provided for in their agreement but ensure that decisions reached are enforced as if they were the judgments of the Courts.
The Nigerian Courts have a serious approach to the commencement of Court proceedings in an apparent breach of an arbitration agreement. Generally, where a party in Court proceedings raises the issue of an arbitration agreement promptly, the Court will uphold the arbitration agreement and stay proceedings pending arbitration. Section 5(2) (a) of the Arbitration and Conciliation Act provides that where the court is satisfied that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the arbitration agreement; and that the applicant was at the time when the action was commenced and still remains ready and willing to do all things necessary to the proper conduct of the arbitration, the court may make an order staying the proceedings. The Notice of Arbitration or any other evidence that arbitral proceedings have been set in motion will help to convince the Court that the party invoking the arbitration clause is serious and desirous of pursuing arbitration. But in the absence of that, the Courts are still inclined to stay proceedings in favour of arbitration upon being convinced that there exists a valid arbitration agreement. However, while some Courts treat an arbitration agreement as a compelling ground for a stay of Court proceedings, others treat it as discretionary Arbitration Proceedings in Nigeria By Punuka Attorneys. Published in International Comparative Legal Guides 2010. The Nigerian Supreme Court in Owners of M.V Lupex v. Nigerian Overseas Chartering and Shipping Ltd, (2003) 15 NWLR (Pt 844) 469 held that where parties have agreed to refer their dispute to arbitration, the Court has a duty to enforce the agreement of the parties by staying any proceedings commenced in Court contrary to the arbitration agreement.
SITUATIONS WHERE AN ARBITRATION CLAUSE WOULD BE WAIVED BY THE COURTS
- In Owners of M.V Lupex v. Nigerian Overseas Chartering and Shipping Ltd (2003) 15 NWLR (Part 844) 469 when the case was at the Court of Appeal level, as an aside, the Court pronounced that if an arbitration agreement seeks to oust the Court’s jurisdiction it would be unenforceable as contrary to public policy. In Fulham Football Club (1987) Ltd V. Richards & Anor (2011) EWCA Civ 855, an English case, the Court identified the key consideration as being whether reference to such matters to arbitration is prohibited as a matter of statute or public policy.
- Furthermore, in Kano State Urban Development Board V. Fanz Construction Coy Ltd (1986) 5 NWLR (Part 39) 74. the Court established that a party to a contract which has a clause to refer to any dispute thereunder to arbitration has a legal right to bring such action in respect of such dispute and a High Court has jurisdiction to try such disputes under Section 272 of the 1999 Constitution. But the High court also has the discretionary power under Section 5 of the Arbitration Law to stay such proceedings brought in breach of an arbitration agreement provided the other party after entry of appearance but before delivery of any pleadings or taken any other steps in the proceedings applies to the court to stay the proceedings. Thus, the power to stay proceedings is merely discretionary and not mandatory. This point was emphasized in Doleman v Ors v. Ossett Corporation (1912) 3 KB p. 257, pg 268-269, where Moulton L.J opined thus;
“the law will not enforce the specific performance of such agreements, but if duly appealed to, it has the power in its discretion to refuse to a party the alternative of having the dispute settled by a court of law, and thus to leave him the position of having no other remedy than to proceed by arbitration. If the court has refused to stay an action, or if the defendant has abstained from asking it to do so, the court has seisin of the dispute and it is by its decision, and by its decision alone that the rights of the parties are settled”.
Also, in Akpaji v. Udemba (2003) 6 NWLR (Part 815) 169 the Court held that where a defendant fails to raise the issue of an arbitration clause and rely on same at the early stage of the proceeding but takes positive steps in the action, he would be deemed to have waived his right under the arbitration clause.
- In United World Ltd Inc v. MTS (1998) 10 NWLR (Pt 568)106, in response to the question as to what the general approach used in determining whether or not a dispute is “arbitrable” is, the court held that the test is whether the dispute can be compromised lawfully by way of accord and satisfaction. The Court said “the governing consideration in every case as to whether or not a matter may be submitted to arbitration must be the precise nature of the language in which the arbitration clause is framed. Its terms may of course be such that may be either expressly or by implication reduce what would otherwise be the full ambit of the clause or again will extend it further.”
- The Courts will usually require the requesting party not to have taken some positive steps in furtherance of the proceedings apart from appearance in Court as doing such may prompt the court to assume that the party no longer intended to resort to arbitration for the resolution of the dispute.
- In the S.U.D.B. V. Fanz Ltd (1986) 5 NWLR (Part 39) 74, the Supreme Court also raised a number of issues which regards the amenability of matters to arbitration among other things. The court stated with regards to the nature of the dispute or difference which is amenable by arbitration that such dispute or difference which the parties to an arbitration agreement agree to refer must consist of a justiciable issue which can be tried civilly. A fair test of this is whether the difference can be compromised lawfully by way of accord and satisfaction. Thus, an indictment for an offence of a public nature cannot be the subject of an arbitration agreement, nor can disputes arising out of an illegal contract or disputes arising under agreements void as being by way of gaming or wagering. Equally, disputes leading to a change of status, such as a divorce petition, cannot be referred, nor, it seems, can any agreement purporting to give an arbitrator the right to give a judgment in rem.
- Although the Arbitration Act does not specifically set out subject matters that it considers arbitrable, section 57 of the ACA Act defines ‘arbitration’ as a ‘commercial arbitration’ and the word ‘commercial’ is also defined as ‘[…] all relationships […] including any trade transaction […]’. However matters that are not arbitrable are: criminal matters, matrimonial matters of general interest or a status matter, such as the winding-up of a company or bankruptcy. George Etomi & Partners in “Arbitration in 55 Jurisdictions Worldwide”. Available at http://geplaw.com/wp-content/uploads/2014/11/Nigeria-Arbitration-2011-chapter.pdf
In conclusion, this essay has successfully given a general background to arbitration as an alternative dispute resolution mechanism, placing particular focus on the approach of the Courts to arbitration clauses in agreements and the instances where the Courts have waived or can waive the arbitration clause in agreements in favour of the institution of Court proceedings without recourse to arbitration.
Shittu Rilwan is a Law Graduate of the Faculty of Law, University of Lagos and currently a Bar II candidate at the Nigerian Law School Headquarters, Abuja. His interests include Taxation Law, International Law and Human Rights,m, Teaching and Mentorship, Community Development, Information Technology among other things. Beyond that, he’s most passionate about touching lives and contributing to the inclusive growth of his immediate community.
Busayo Oladapo is a Final Year student of the faculty of law, University of Lagos with a keen interest in taxation, property law and human rights. She also has a great passion for community service and volunteer work.
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