DR. AKINTOLA, BENSON OKE, FCArb.
Introduction
The arbitration clause is described as “all-important” because without it, an arbitral tribunal cannot validly assume jurisdiction over any dispute.[1] Arbitration is a private dispute resolution mechanism and both international law and Nigerian law require that parties must agree to submit their dispute for arbitration in order for any ensuing arbitration to be valid.[2]
The agreement to submit disputes for arbitration, when contained in the body of the main contract between the parties, is rightly referred to as the arbitration clause. When the agreement is contained in a separate contract, it is called the arbitration agreement. When the agreement to submit to arbitration is made after a dispute has arisen, it is usually referred to as a submission agreement.
The objective of this writ- up is to examine four of often-litigated issues arising from the nature, effect, consequences, and enforcement of arbitration clauses in Nigeria.
The Doctrine of Autonomy and the Separability of the Arbitration Clause.
The relevant facts of the Supreme Court case of NNPC Vs. CLIFCO NIGERIA LIMITED illustrate how the question of the autonomy and separability of arbitration clauses may arise: On the 7th day of October 1994, NNPC and CLIFCO Nigeria Limited executed a contract in which it was agreed that CLIFCO Nigeria Limited would sell twenty-four cargoes of Vacuum Gas oil (VGO) to NNPC at the rate of one cargo per month. The contract was expressed to be for a certain term of two years, commencing on the 7th day of October 1994. Facts established at trial showed that as at 1999, CLIFCO Nigeria Limited had only made five cargoes of VGO available to NNPC. However, NNPC chose to novate the contract rather than suing for breach of contract. The parties had a meeting on the 27th of October 1999 at which meeting a novated contract emerged. The new terms substituted for the old one in the novated contract were essentially to the effect that, commencing from November 1999 and in place of the number of cargoes of VGO earlier agreed, CLIFCO Nigeria Limited would supply nineteen cargoes of Low Pour Fuel Oil (LPFO) to NNPC at the same rate as the rate agreed for the supply of the VGO.
CLIFCO Nigeria Limited failed to supply the nineteen cargoes of LFPO as agreed under the novated contract and the parties went to arbitration. The arbitral award was published on the 12th day of December 2000. The award was subsequently challenged before the Federal High Court sitting in Lagos. The decision of the Federal High Court sitting in Lagos was further challenged before the Lagos division of the Court of Appeal whose judgement was appealed to the Supreme Court.
At the supreme court, the relevant issue to this discourse was whether the arbitration clause in the original contract survived the novation of that original contract so as to confer jurisdiction on the arbitral tribunal. In other words, if the arbitration clause had been extinguished along with the novation of the original contract, the arbitral tribunal would have lacked jurisdiction to entertain the arbitration on basis of the trite rule that the jurisdictional foundation of arbitration is submission as expressed in the arbitration clause.
The Supreme Court held that the arbitration clause is generally regarded as separate and distinct from the main contract between parties. In other words, it is separate and autonomous and, all other things being equal, would survive the termination, novation, and expiration of the main contract.
Jurisdiction to Determine the Validity, Scope and Applicability of the Arbitration Clause
Thus, the important and foundational question often arises of whether the arbitral tribunal has the jurisdiction to determine the existence or validity of an arbitration clause. In other words, the question is whether the arbitral tribunal has power to determine its own jurisdiction to arbitrate the dispute submitted to it. This question often comes up notwithstanding the express provision of on Section 12(2) of Arbitration and Conciliation Act.
For example, in Magnum International Limited Vs. Enercon Nigeria Limited, the Court of Appeal was requested to determine the validity of the appointment of an arbitrator on the Application of the respondent by the Federal High Court, an application which the Appellant opposed. One of the grounds of opposition was that the contracts in which the arbitration clause was contained are invalid and therefore that the arbitration clause was invalid. The appellant therefore contended that the Federal High Court should have first determined the question of the validity of the arbitration clause before proceeding to appoint an arbitrator on the application of the respondent.
The Court of Appeal, Lagos Division, per Mohammed Lawal Garba, JCA, observed as follows:
The basis of the appeal, once more, is on the validity of both the contracts; Exhibits MIL1 and MIL2, between the parties and the arbitration clause, which admittedly were both agreed to by the parties and on the basis of which the Lower Court made the appointment of an arbitrator pursuant to the provisions of Section 7(2) (a)(i) of Arbitration and Conciliation Act. Undoubtedly, the parties in both Exhibits MIL1 and MIL2, freely and voluntarily entered into contracts in or by which they chose to include an arbitration clause therein and that being the position, the law is that even though incorporated into the main agreements/contracts; i.e. Exhibits MIL1 and MIL2, the arbitration clause or agreement, is separate and distinct from them such that it survives and remains valid even when the main agreements/contracts come to an end.
In arriving at the above-stated position, His Lordship relied on Section 12(2) of Arbitration and Conciliation Act.
Whether Disputes Must be Within the Contemplation of the Arbitration Clause
In NB Plc. V. Akperashi,[3] the Appellant and the 1st Respondent entered into a Brand Exclusivity Agreement wherein the 1st Respondent was required to exclusively promote and sell alcoholic and non-alcoholic brands of the Appellant. Consequently, the Appellant supplied a 100KVA generator and other items to the 1st Respondent for use at the Respondent’s outlet. Under the said Brand Exclusivity agreement, the Appellant reserved the right to terminate the contract in the event of 1st Respondent’s breach of the terms of the agreement. Upon such termination for breach, the agreement provides that the 1st Respondent shall relinquish the items (including the generator) ‘availed him by the Appellant. The Appellant was also empowered to enter into the 1st Respondent’s outlet for the purpose of retrieving the said items.
In the course of time, the Appellant alleged that the 1st Respondent acted in breach of the agreement. The Appellant thereupon terminated the agreement and notified the 1st Respondent by letters dated 26/3/2014 and 31/7/2015. The Appellant also requested the 1st Respondent’s release of the Appellant’s trade items in 1st Respondent’s outlet. By letters dated 24/4/2014 and 4/8/2014 the 1st Respondent denied the allegation that he had breached terms of the Agreement and suggested a meeting between the Appellant and himself to resolve the matter. The Appellant then wrote to the 2nd Respondent on 3/2/2015 requesting the 2nd Respondent’s assistance for the possible recovery of the 100KVA generator set, and attaching copies of the agreement and all the relevant correspondences it exchanged with the 1st Respondent. After consideration of the Appellant’s letter and the attachments thereto, the 2nd Respondent invited the 1st Respondent on a case of Criminal Breach of Trust.
The Appellant averred that this allegation was made by the 2nd Respondent without recourse or reference to the Appellant. The 1st Respondent reported to the office of the 2nd Respondent, made statements and was granted bail on the same day, upon filling a bail bond on self recognizance. The 1st Respondent however alleged he was only released the next day and that he had not been arraigned before any Court of law. Aggrieved by his arrest and detention overnight without having committed any criminal offence, the 1st Respondent approached the Federal High Court to enforce his fundamental rights against the Appellant and the 2nd Respondent. The learned trial judge found and ruled in favour of the 1st Respondent and ordered damages, in the sum of N500,000.00 against the Appellant and 2nd Respondent jointly. Dissatisfied with the decision, the Appellant appealed against same on the ground, among others, that the arbitration clause in the Brand Exclusivity agreement required reference to arbitration and not recourse to the court.
Ruling on whether the dispute referred to the court amounts to a dispute within the contemplation of the arbitration clause, the Court of Appeal per Onyekachi,JCA referenced prior Supreme Court cases and observed that:
“Expounding the nature and function of an arbitration clause, the Supreme Court in Royal Exchange Assurance v. Bentworth Finance (Nig) Ltd (1976) LPELR-2961(SC) at page 22 of the E-Report said: “An arbitration clause in a written contract is quite distinct from the other clauses. Whereas the other clauses in a written contract set out obligations which the parties undertake towards each other, the arbitration clause merely embodies the agreement of both parties that if any dispute should occur with regard to the obligations which the other party has undertaken to the other, such dispute should be settled by a Tribunal of their own constitution and choice.”
Further elucidating on the point, the court referenced a prior Court of Appeal decision[4] in which Ndukwe-Anyanwu, JCA explained that, “In a contract, an arbitration clause is a clause inserted in a contract providing for compulsory arbitration in case of dispute as to rights and liabilities under such contract. The purpose of that clause is to avoid having to litigate disputes that might arise.”
Whether Arbitration Clauses Have the Effect of Ousting the Jurisdiction of Courts
The question often arises as to whether parties may disregard the arbitration clause and instead submit to adjudication by the court on the application of any of the parties. In other words, whether the inclusion of an arbitration clause in an agreement ousts the jurisdiction of the courts from entertaining any question(s) submitted to it by the parties.
The facts of the earlier-cited case of SCOA Nigeria Plc. V. Sterling Bank Plc illustrates the point of this question. In 1996, the Appellant executed a lease agreement with the Respondent in respect of the property situate at No. 67 Marina, Lagos at a yearly rent of Three million, three hundred and eighty-seven thousand, three hundred and forty Naira, beginning on August 1, 1996. Clause 4 of the Lease Agreement provided that the lease was renewable at a rent to be mutually agreed upon by the parties. The clause also provided that, in the event of a disagreement on the rent to be paid, the matter shall be referred to an arbitrator to fix the rent payable.
In the course of the year 2004, the Respondent indicated in writing its interest in renewing the lease. Thereafter, there was an exchange of series of correspondences to negotiate an agreeable rent for the property. Eventually, the Respondent paid the sum of N45 million Naira to the Appellant and stated in an accompanying letter that the money is for three years’ rent at the rate of N15 million per annum. The Appellant however wrote in reply that the rent was to be the sum of N22.5 million per annum and that the sum of N45 million will be treated as rent for two years.
Records showed that the disagreement over the actual rent payable continued till the Respondent vacated the property after issuing a cheque for the sum of N33, 333, 33 “as payment for arrears of rent for the period 1-9-2007 to 31-12-2008.” Being dissatisfied, the Respondent instituted an against the Respondent as Defendant claiming due rent and costs of action. In response, the Respondent filed a Statement of Defence and the Appellant filed a Reply.
The matter went to trial with each party calling a witness each. However, in the judgement delivered, the trial judge dismissed the action for lack of jurisdiction to try the same on the basis that the agreement between the parties required them to submit disputes on payable rent to an arbitrator.
The first question submitted for determination on appeal was “Whether it is proper for the trial Court to divest the Court of jurisdiction after parties have duly and voluntarily submitted themselves to the jurisdiction of the Court, in spite of an arbitration clause contained in the agreement executed by them, and after parties have fully participated in the trial conducted in the matter.”
In summarising the arguments of the parties, Samuel Chukwudumebi Oseji, J.C.A., who delivered the Leading Judgement, noted as follows:
In the instant case, none of the parties had recourse to the provision of Clause 4 of the lease agreement. The Appellant opted to institute an action in the Lower Court to claim for rents owed to it by the defendant. The Defendant responded by filing a statement of defence. It also participated in the pretrial conference, the mediation session as well as the full trial including calling of witness in defence and cross examination of the claimant’s witness. Both parties also filed and served their final written addresses culminating in the judgment of the Lower Court which is the subject of this appeal.
Given the above stated scenario, it calls for the question whether the Lower Court should divest itself of jurisdiction on the basis of non-compliance with clause 4 of the Agreement by first referring the dispute over the rent payable to an arbitrator.
For the Respondent, the Appellants failure to comply with clause 4 of the Agreement divests the Lower Court of the jurisdiction to hear the suit and this cannot be waived by either of the parties. But for the Appellant, granted that ordinarily non-compliance with clause 4 will oust the jurisdiction of the Court, but the Respondent ought to have raised the issue timeously before taking any further steps in the proceedings in accordance with Section 5 of the Arbitration and Conciliation Act, 2004. Therefore, having fully and wholly participated in the whole process of the trial of the suit up to the point of filling final written addresses, the Respondent can no longer complain because he is deemed to have waived the right to any objection on that ground.
Thereafter, on the issue of whether it was proper for the Lower Court to divest itself of jurisdiction on the basis of the existence of an arbitration clause notwithstanding that the parties voluntarily participated in the whole trial of the case till judgment, the court noted that,
It is trite that where a clause in an agreement provides that any difference or dispute arising out of the agreement shall be referred to an arbitrator, both parties ought to honour and comply with provisions of the clause. It is also trite law that any agreement to submit a dispute to arbitration does not oust the jurisdiction of the Court. See OBEMBE VS WEMABOD ESTATES LTD. (1977) 5 SC 70. The jurisdiction of the Court can only be ousted based on certain qualifications as provided in the Arbitration and Conciliation Act.
In the instant case Section 5 of the Arbitration and Conciliation Act provides that:-
“If any party to an arbitration 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 proceedings.”
In the circumstance, l agree entirely with the Appellant that the Respondent had totally waived the right to insist on compliance with clause 4 of the lease Agreement.
The court then referenced the case of Fawehimi Construction Company Ltd Vs Obafemi Awolowo University,[5] where the Supreme Court held that,
When a party has a right whether by way of agreement or under a statute, he can exercise it at the earliest possible time and can equally waive it if the statutory right is not absolute and mandatory. The waiver must be clear and unambiguous like allowing all evidence to be taken or even decision given before challenging the hearing. It will then be shown that the party deliberately refused to take advantage of the right when it availed him.
Another principle relied on by the Court of Appeal in the SCOA case is the one stated in the Supreme Court case of Feed And Food Farms (Nig) Ltd Vs NNPC[6]to the effect that matters affecting the jurisdiction of the Court should be categorized into two areas or compartments. These are matters affecting the public in the litigation process and those affecting the personal private or domestic rights of the party. While the former cannot in law be waived, the later can be waived in law.
Conclusion
This writ-up has explored and highlighted four of the most litigated issues in relation to the foundational, fundamental, and “all-important” arbitration clause in Nigerian courts. It is clear that judicial authorities preponderantly agreed on the resolution of these issues. Moreover, the judicial positions have statutory backings in the Arbitration and Conciliation Act, 2004.
While the facts of future cases will understandably differ and the commercial stakes will vary in value and consequence, it is this writer’s hope that this collection of authoritative and persuasive judicial authorities will reduce the number of incidences when the issues will be litigated, thus reducing the overall time for the resolution of disputes.
[1] SCOA (Nig) Plc v Sterling Bank Plc (2016) LPELR-40566(CA).
[2] ARBITRATION CLAUSES: A paper delivered by Mrs. Obosa Akpata at the Chief G.O. Sodipo Memorial Lectureheld at the Regional Centre for Commercial Arbitration, No. 1 Alfred Rewane Road, Ikoyi, Lagos on 7th December, 2015 accessed on 5th April, 2021 at https://www.patrelipartners.com/wp-content/uploads/2016/03/Arbitration-Clauses.pdf
[3] (2019) LPELR 47267 (CA)
[4] BCC Tropical (Nig) Ltd v. Government of Yobe State of Nigeria & Anor (2011) LPELR-9230(CA).
[5] (1998) 6 NWLR (PT 553)171 or (1998) 5 SC 43.
[6] (2009) 6-7 S C 1.
