Effect of Limitation Law on Enforcement of Arbitral Awards in Nigeria- A Review of City Eng. (Nig) Ltd V. FHA By Elvis E. Asia

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Elvis Asia

Effect Of Limitation Law On Enforcement Of Arbitral Awards In Nigeria- City Eng. (Nig) Ltd V. Federal Housing Authority Was Decided Per IncuriamElvis E. Asia*

Introduction

Arbitration was once touted as the magic wand to delays in settlement of disputes through the regular courts. In Nigeria, this advantage was very significant in view of the fact that cases take up to decades in court with attendant costs, frustration, loss of relationships and empty judgments.

Arbitration was therefore widely embraced and incorporated into virtually every agreement.

Though the courts have been supportive of arbitration practice, the attitude of legal practitioners during arbitration process and in enforcement proceedings occasions delays and in most cases, defeats the object of arbitration. Parties also hardly settle arbitral awards voluntarily and hence, the frequent resort to the judicial process for enforcement[1].

An award, whether domestic or international is not self-executory[2] and the major hurdle to enforcement is limitation laws across the country. The current thought is that under the various limitation laws, an action predicated on arbitral award must be instituted within six years of the course of action. This reasoning is often predicated on the case of City Eng. (Nig) Ltd v. Federal Housing Authority[3], where the Supreme Court held that the six years period begins to run from the date of the original cause of action on the basis of which parties went to arbitration and not from the date of the award.[4]

This decision features in most enforcement proceedings but to what extent was the Supreme Court right in its decision? An attempt is made here to critically examine the judgment vis a vis the limitation law it was based on. Options for enforcement are also considered. 

Review of the decision in City Eng. (Nig) Ltd v. Federal Housing Authority

In deciding this case, the Supreme Court interpreted Section 8 of the Limitation Law of Lagos State[5]. The court was of the view that based on the law, the action to enforce the arbitral award in the case was statute barred in that the cause of action arose more than six years from when the facts giving rise to cause of action arose[6].

It is submitted that the decision of the Supreme Court was made per incuriam. In the first place, a cause of action to enforce an arbitral award cannot possibly arise before the award is made. This is because the award itself is the cause of action.  Common sense and the interest of justice would suggest that since a party can only take the step to enforce an award after the award is made, the cause arises from the date of the award. This is the position in England from where we adopted most of our legal principles[7]. It would seem that the court was influenced by old position of law which had been jettisoned in England[8].

Secondly, the court wrongly interpreted section 8(1) of the Limitation Law of Lagos State. This is because on a true construction of said section, the legislature excluded arbitration awards made under the Arbitration and Conciliation Act (ACA)[9] from the application of the section.  Section 8(1) (d) of the law provides thus:

“(1)      The following actions shall not be brought after the expiration of six years from the date on which the cause of action accrued –

(a)        actions founded on simple contract;

(b)       actions founded on quasi-contract;

(c)        actions to enforce a recognisance;

(d)       actions to enforce an arbitration award, where the arbitration agreement is not under seal or where the arbitration is under any enactment other than the Arbitration and Conciliation Act

From the above provision, the six-year limitation period is applicable to the following:

(a)  Arbitral award predicated on arbitration agreement that is not under seal

(b) arbitral award flowing from arbitration conducted under any other enactment except the Arbitration and Conciliation Act.

This is an express exclusion of awards made from arbitration proceedings conducted under the ACA or predicated on arbitration agreements that were made under seal. The award in issue in that case was conducted under the ACA.

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The above conclusion is unimpeachable when one considers the fact that Lagos State Legislature cannot constitutionally determine the extent to which an award conducted under a federal enactment can be enforced. Any contrary interpretation will clearly violate the elementary constitutional principles of the doctrine of covering the field and the express and unambiguous intention of parliament as expressed in sub-section d of section 8(1) of the Limitation Law[10].

In the light of the above interpretation, this decision can be distinguished when the arbitration agreement is under seal which is unusually the case in modern times or where proceedings were conducted under the arbitration and conciliation Act. These issues were not raised before the Supreme Court and therefore were not considered before the decision was made. It is hoped that the Supreme Court will have an opportunity soon to overrule itself or rather distinguish the authority in cases where the arbitration agreements were made under seal or the proceedings were conducted under the arbitration and conciliation act.

The following options may be considered where the original cause of action is more than six years:

Awards obtained from proceedings conducted under the Arbitration and Conciliation Act 

A party may apply to enforce an award where the award was obtained from proceedings conducted under the ACA by seeking to distinguish the decision of the Supreme Court in the light of the express provisions of Limitation Laws across the country. Where the arbitral award is an international award conducted under a different law, the same principle will be applicable where it can be shown that the arbitration agreement was made under seal.

However, the courts are yet to make a decision in this regard. Recently, the authors canvassed these arguments before the Federal High Court in Lagos but unfortunately, the court refused to make a pronouncement but rather decided the case on other grounds.

Application for enforcement under the Lagos State Arbitration Law, 2009.

Section 35(5) of the law provides thus:

“In computing the time for the commencement of proceedings to enforce an arbitral award, the period between the commencement of the arbitration and the date of the award shall be excluded.”

The import of the above provision is that the effect of section 8(1) of the Limitation Law of Lagos State as interpreted by the Supreme Court in City Engineering case has been amended to read that the period of limitation starts to run from the date of the award[11].  This means that the case is no longer applicable. However, this only applies in Lagos State. It is hoped that other states would take a cue from this going forward.[12] 

Action for breach of implied term to perform the award 

A common law action for breach of the implied term to perform the award can be instituted. The only challenge here is that the matter will have to go through the whole rigours of a trial with attendant delays. This defeats the purpose of arbitration in the first place.

Winding Up proceedings

This is a contentious approach and it is not strictly speaking, an enforcement procedure. The fundamental premise is that when parties enter into an arbitration agreement, they undertake to be bound by its findings. This invariably means that an undisputed arbitral award is a contractual debt on which a winding up proceedings can be predicated like any other certain debt. Under the Companies and Allied Matters Act (CAMA)[13], a winding-up proceedings for inability to pay a debt arises when the creditor has given a three weeks demand notice for a debt of more than N2, 000 (about $6) and the debtor company neglects to pay the sum demanded or compound it to the satisfaction of the creditor[14].

The question is whether an arbitral award must be enforced under the ACA before a winding up petition can be initiated. There is a difference between the right to enforce an award under the ACA and the enforceability of the contractual debt represented by the award. The only reason for application to enforce an award under the ACA is to make the award a judgment of court to which court enforcement procedures is applicable.

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It must be noted what gives an award binding effect is the agreement of the parties and statutory recognition.[15]A winding up proceedings is not a judgment enforcement procedure. A party need not go to court to enforce an arbitral award before seeking payment of the award sum or filing a winding up petition for inability to pay debt represented by the award under CAMA. For example, a creditor may choose to file an action in court to get a judgment for the purpose of enforcement but he can also choose to file a petition under section 409 of CAMA without first getting a judgment. 

Though this is a novel argument in our jurisprudence, it is not without guidance from other jurisdictions with similar provisions in arbitration law and practice.  What seems to have been established is that a domestic arbitral award can form the basis of winding-up proceedings without the need for application to enforce it under the relevant arbitration law[16].

In Re Lucky Resources[17], the Hong Kong Court of First Instance recently held that there was no need for a party to apply to enforce an award under section 84 of the Arbitration Ordinance before presenting a winding up petition.  The court found that no grounds for disputing the debt were given by the company and accordingly made the winding-up order.  The court particularly held that it was clear from the ‘authorities that the Hong Kong courts and those of other jurisdictions (such as the UK) had determined that the presentation of a petition to wind up a company on the grounds of insolvency is the exercise of a class right and does not constitute the enforcement of either a judgment, or as in this case, an arbitration award’.[18]

Conclusion

Arbitration remains a great escape from the myriads of problems associated with litigation in Nigeria. However, enforcement of awards can be quite challenging because of limitation law. Parties to arbitration agreement need to be conscious of this challenge at the time of negotiating the agreement so that they can sufficiently insert provisions to insulate the award from the problem. They should ensure the agreements are under seal with requisite formalities and should incorporate the ACA. Provisions that make enforcement as a condition precedent should be avoided.

The courts have made giant strides in supporting arbitration law and practice. With creative, innovative and persuasive arguments, they will be willing to review and reconsider the applicability of the City Engineering case and other hurdles to enforcement of arbitral awards.  There is presently also an effort being made by the National Assembly to incorporate provisions in our arbitration law that that would aid enforcement of arbitral awards[19].

*Elvis. E. Asia is a Senior Counsel in Lagos, Nigeria. Mr. Asia can be contacted at elvis.easia@gmail.com

Reference:

[1] Recourse to court for enforcement is particularly a challenge because parties can appeal from the decision of the High Court up to the Supreme Court defeating the principal essence of arbitration.

[2] The major legislation for the practice and enforcement of arbitral awards is the Arbitration and Conciliation Act, Cap. A18 Laws of the Federation of Nigeria, 2004. Lagos State which is the commercial hub of the country enacted its own arbitration Law in 2009.

[3] (1997) 9 NWLR (pt. 520) 224

[4] Murmansk State Steamship Line v. Kano Oil Millers Ltd (1974) 12 SC 1

[5] Other states in Nigeria have similar provisions. There is also the Limitation Act which applies in the Federal Capital Territory, Abuja.

[6] In Tulip (Nig.) Limited , N. T. M. S. A. S. (2011) 4 NWLR, Part 1237, p. 254, the Court of Appeal applied the six year time limit in such a manner that it began from the date of the arbitral award. However, the issue before the Court of Appeal was not whether the time limit should begin to count from the date of the award or from the date of the accrual of the original cause of action, but whether the time limit for enforcing the arbitral award should be the 6 year time limit in the Limitation Law of Lagos or the 12 months’ time limit for “registration of judgments” in section 10(a) of the Foreign Judgments (Reciprocal Enforcement) Act of 1961, (FJREA). In any event, being a decision of the Court of Appeal, the Supreme Court decision remains the law.

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[7] See Agromet Motoimport Ltd vs. Maulden Engineering Co. (Beds) Ltd ([1985] 2 All ER 436; IBSSL vs. Minerals Trading Corp  1996 1 All ER.

[8]In Agromet Motoimport Ltd, which was later confirmed in IBSSL vs. Minerals Trading Corp, the English court held that it is an implied term of an agreement to submit disputes to arbitration, that any award made upon the submission will be honoured and that the terms “action” and “cause of action ” referred to in section 7 of the English Limitation Act of 1980, are therefore the independent cause of action for breach of the implied term to perform the award and not the original cause of action. In Kano State Urban Development Board vs. Fanz Construction Co. Limited, (1990) 4 NWLR (Part 142) 1, the Supreme Court, in an obita, recognized the changed position of the law.

[9] This Act is the principal federal enactment on arbitration practice in Nigeria.

[10] Interestingly, Section 7 of the Limitation Act, 1966, which is a federal enactment, has a similar provision to section 8 of the Lagos State Limitation law in this regard.

[11] It must be noted that there is there considerable academic debate in Nigeria on the status of the Lagos State Arbitration law. The arguments centers on whether or not the law is constitutional in view of the provisions of the ACA. This debate is not within the scope of this article. See Adulrazaq Adelodun Daibu “The Lagos State Arbitration Law and the Doctrine of Covering the Field: A review”( March 2015) Vol. 6 No. 1, the Gravitas Review of Business & Property Law, pp. 44-52.

[12] There is a bill at the National Assembly, The Arbitration and Conciliation Bill, 2017 that has passed the first reading, and public Hearing. The Bill inter alia, adopts the provision of section 35(5) of the Arbitration Law of Lagos State.

[13] This is the principal legislation on incorporation and winding up of companies in Nigeria.

[14] section 409 of CAMA

[15]Section 31 of the ACA .see the cases of In R.M.A & F.C v. U.E.E Ltd (2011) 9 NWLR (Pt. 1252) 379 and Tulip (Nig.) Ltd v. N.T.M S.A.S (2011) 4 NWLR (Pt. 1237) 254 recognized that an arbitral award is not a mere piece of paper.

[16]In the India case of Dalhousie Jute Company Limited v. Mulchand Laxmichand(1983) 53 CompCas 602 or (1980) 9 TMI 220, where a question arose whether a winding-up petition can be presented on the basis of an award which has not been filed and made a rule of the court, the court in India held that the petitioning creditor was entitled to present the winding-up petition, even though the award was not made a rule of the court under the Arbitration Act for enforcement of the same. Similarly in KalyaniSpg. Mills Ltd. vs Shiva Trading Co. delivered on 17 July, 1978 or (1983) 53 Comp Cas 632 Cal, Chowdhury J. who also delivered the judgment in Dalhouse Jute Company case above referred to the case and held that it is only when the agreement to arbitrate makes it a condition that any award made must be registered with the court before it can be binding that enforcement under the arbitration law must be exhausted before a winding-up can be presented.

[17] (HK) Ltd [2016] 4 HKLRD 301

[18]https://www.lexology.com/library/detail.aspx?g=f805445f-a9fc-4444-95bf-228beaa01e5d

[19] See note 12 above

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