Reconciling Arbitration Agreements and the Inherent Jurisdiction of Courts Under Nigerian Law

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By Olasunkanmi Otuyiga

 Introduction

In Nigeria, judicial powers for the settlement of disputes are inherently vested in the courts by the Constitution. However, parties to a dispute may agree to refer their dispute to an alternative forum, such as an arbitral tribunal, instead of the Nigerian courts. In such instance, an issue may arise as to whether an agreement to settle a dispute by arbitration ousts the parties’ access to Nigerian courts. This note seeks to explore how such issues are resolved in practical reality under the Nigerian law.

Arbitration as a Dispute Resolution Mechanism Under Nigerian Law

Arbitration is a procedure in which a dispute is submitted, by the agreement of the parties, to an arbitral tribunal (made up of one or more arbitrators) which makes a binding decision on the dispute. This is a private method of dispute settlement and is sometimes regarded as a direct alternative to litigation.

The basic characteristics of arbitration include its consensual nature considering that parties to the dispute have to agree to it. It is also a confidential procedure which allows parties to safeguard confidential information (such as trade secrets) traded during the process.[1] Parties are generally free to agree on the dynamics and nuances of the arbitral process as they are able to decide on the applicable arbitral rules[2],  place of arbitration, venue of arbitration, applicable law, appointment of arbitrators and their powers.[3] In addition, the decision of the arbitral tribunal is usually final and enforceable with limited grounds of challenge under Nigerian law[4]. Such agreements are typically memorialized in an arbitration agreement, which can be a stand-alone document or usually a clause in a commercial contract.[5] Agreements of this nature help the parties to maintain some control over the dispute settlement process.

Just like most contracts, the arbitration agreement can be waived by the parties.[6] As a result, parties may elect to forego the term of their contract requiring them to submit any disagreement to arbitration and instead proceed directly to court.[7]

In any event, Nigerian law promotes the use of arbitration in the settlement of disputes. As noted earlier, due to the backlog of cases in Nigerian courts, Nigerian courts encourage the use of arbitration and other resolution methods for the settlement of disputes (including negotiation and mediation). In fact, Order 52 of the Federal High Court Rules extensively make provision for arbitration procedures. In addition, Order 1(1)(1)(b) of the Federal High Court (Alternative Dispute Resolution, ADR) Rules provide that one of the objectives of the rules is to minimise delays and frustration in the court system and provide a framework for standard procedures in arbitral proceedings. It thus shows that the courts encourage the settlement of disputes through arbitration.

Indeed, the law requires parties to an arbitration agreement to honour their contractual obligation(s). In the case of DANGOTE FARMS LTD v. PLEXUX COTTON LTD,[8] the court held that parties and the court are bound by arbitration agreements. It was held that ‘’once it is shown by credible evidence, as it was shown in the instant that the parties had willingly agreed to submit their disputes to arbitration, then they are bound by the term of their agreement and if in the arbitration proceedings as agreed upon by the parties a decision is reached on their dispute it is final.’’

While the arbitration regime in Nigeria is generally developing, it continues to gain prominence as a viable tool for the resolution of commercial disputes. The Arbitration and Conciliation Bill which is currently pending before the Federal House of Assembly is aimed at correcting the deficiencies of the extant Arbitration and Conciliation Act.

  1. The inherent jurisdiction of Nigerian courts to determine disputes

The power to settle disputes under Nigerian law is vested in the courts[9]. The provisions of the Constitution of the Federal Republic of Nigeria (as amended), particularly section 6, clearly show that Nigerian courts have the jurisdiction to entertain any matter between parties including matters which parties have elected to resolve by the submission of same to arbitration. See AG FEDERATION V AG ABIA STATE (2001) LPELR – 24862 (SC).

In view of the above, it is worth asking what the legal position would be if a party breaches an arbitral clause and instead, institutes an action in court. Would that amount to ousting the jurisdiction of the court?

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Does an arbitration agreement oust the jurisdiction of a Nigerian court to determine a dispute between the parties?

Given that the judicial powers to settle disputes are inherent in Nigerian courts, parties cannot contract to oust the powers of the court to settle such disputes,[10] the import being that parties cannot vest a court with jurisdiction by consent, neither can they oust the jurisdiction of the court by consent.[11] In the case of LIGNES AERIENNES CONGOLAISES v. AIR ATLANTIC NIGERIA LTD.,[12] the court held that arbitration clauses do not oust the jurisdiction of courts but permit parties to settle their dispute out of court.

However, when there is a valid arbitration agreement between the parties and one of the parties to the contract proceeds to court to litigate the dispute, instead of the agreed forum for the settlement of such disputes (i.e., arbitration), the other party can apply to the court to stay proceedings in the suit pending the resolution of the dispute vide arbitration per the arbitration clause between the parties and the court may accede to this application.

Indeed, this issue is dealt with by Sections 4 and 5 of the Arbitration and Conciliation Act (“ACA”). Section 4 provides that a court before which an action which is a subject of arbitration has been instituted shall, on the request of either party, stay the court proceeding and refer the matter to arbitration. In the case of BEBEJI OIL ALLIED PROD. LTD. V. PANCOSTA LTD.,[13] the court held that where a party commences an action in court in violation of the arbitration agreement, the other party can apply for a stay of proceeding. This principle is enshrined in Section 4 which provides that an arbitration proceeding may be commenced during the pendency of a court action.

Section 5 of the Arbitration and Conciliation Act further provides that a party may apply for a stay of proceeding after appearance but before delivering any pleading or taking any other steps in the suit. Section 5(2) provides that a court may order a stay where there is no sufficient reason not to refer the matter to arbitration and the applicant has shown that they are ready and willing to proceed to arbitration.[14]

The grant or otherwise of a stay of proceeding is at the discretion of the court. However, in the case of THE OWNERS OF THE M. V. LUPEX V. NIGERIAN OVERSEAS CHARTERING AND SHIPPING LIMITED[15], the court held that ‘’an exercise of discretion is a liberty or privilege to decide and act in accordance with what is fair and equitable under the peculiar circumstances of the particular case, guided by the spirit and principles of law. Where parties have chosen to determine for themselves that they would refer any of their dispute to arbitration instead of resorting to regular courts, a prima facie duty is cast upon the courts to act upon their agreement.’’

It should be noted, however, that before an action can be referred to arbitration, the considerations which must guide a court before which a request for stay of proceedings pending arbitration has been brought are well articulated in caselaw. Principally, those considerations require the court to make the following enquiries:

  1. How the parties agreed to resolve their dispute[16]
  2. Whether there is a valid agreement to submit the dispute to arbitration[17]
  3. Whether a dispute has in fact arisen
  4. Whether the dispute is one within the scope of the agreement[18]
  5. Whether the applicant is ready and willing to ensure proper conduct of the arbitration[19].
  6. Whether there is no sufficient reason why the matter should not be referred to arbitration in accordance with the arbitration agreement[20]
  7. Whether the defendant has not taken any steps in the proceedings commenced by the other party[21]

Hence, even though Nigerian courts are enjoined to respect arbitration agreements between the parties, it is within their discretion to grant such application. However, as has been earlier noted, the courts have been enjoined not to be seen to encourage breach of agreements. The courts are therefore encouraged to exercise such discretionary powers, to grant a stay, equitably.

Conclusion

This paper has discussed the rules that govern arbitration in Nigeria. It established that parties are bound to honour their agreement to submit to arbitration. This paper noted that a party can apply for a stay of proceeding where the other party to the dispute commences an action in disregard of the arbitration clause. It also noted that an arbitration clause does not oust the jurisdiction of the court although the courts are, in fact, disposed to honour arbitration agreements in order to reduce the workload on the court among other reasons.

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It is clear, based on the foregoing, that Nigerian courts uphold the sanctity of contracts, including arbitration agreements, and would typically enforce those. However, parties cannot agree to overrule or exclude the courts’ constitutional or statutory jurisdiction. Thus, with respect to arbitration clauses, the question of whether their presence would cause the court to stay proceedings is dependent on the steps taken by the party moving the court, as the court would stay proceedings and refer the parties to arbitration upon a proper application for a stay pending arbitration. The presence of an arbitration clause in a contract does not preclude or absolve the court of jurisdiction, and the court may either stay proceedings pending the conclusion of arbitration or immediately assume jurisdiction over the suit if the parties have waived their personal rights to have the matter referred to arbitration.

Olasunkanmi is a commercial dispute resolution attorney. He practices in Lagos, Nigeria and can be reached at olasunkanmiotuyiga@gmail.com


Footnotes

[1] However, confidentiality might be affected if parties appeal an arbitral decision before the court or seek to enforce an arbitral award through the court.

[2] This is determined by whether the parties agree to a specific arbitration rule or incorporate one in their arbitration agreement. Alternatively, parties can submit their dispute to an arbitral institution which has its own rules. Such institutions include the International Chambers of Commerce and the London Court of International Arbitration among others. Section 7 of the Arbitration and Conciliation Act provides that parties may specify in the arbitration agreement the procedures to be adopted.

[3] It should be noted that there is a distinction between ‘seat’ and ‘venue’ as it concerns arbitration. The seat of arbitration determines the law that applies and the courts that would have jurisdiction if the decision were to be appealed. On the other hand, ‘venue’ denotes the geographical location of where the tribunal would conduct its proceedings. In most cases, the seat of arbitration is usually the venue of arbitration.

[4] There are a few sections in the ACA that emphasize the recognition and enforceability of arbitral awards. For instance, section 31 of the Arbitration and Conciliation Act provides for the recognition and enforcement of awards. It provides that parties who seek to enforce an arbitral award shall submit to the court a copy of the arbitral award and a copy of the arbitration agreement. Section 51 provides that an arbitral award shall, irrespective of the country in which it is made, be recognized as binding and upon application to the court, will be enforced. Section 30 however provides for the limited grounds under which an arbitral award can be set aside. It provides that a party can apply for the setting aside of an arbitral award where the arbitrator has misconducted himself, or where the arbitral proceedings, or award has been improperly procured.

[5] Even in instances where the arbitration agreement is a clause in a contract, it is treated under Nigerian law as a separate agreement from the rest of the contract’s terms, and a decision declaring the contract null and void does not impugn on the arbitration clause’s invalidity. See THE VESSEL MV NAVAL GENT & ORS V. ASSOCIATED COMMODITY INT’L LTD  (2015) LPELR-25973 (CA). However, in some circumstances, such as fraud, the arbitration agreement may be found illegal on the same grounds as the broader contract. See REVENUE MOBILIZATION, ALLOCATION & FISCAL COMMISSION V. UNITS ENVIRONMENTAL SCIENCES LTD (2011) 9 NWLR (PT 1252) 379.

[6] See BCC TROPICAL NIGERIA LTD. V. THE GOVERNMENT OF YOBE STATE OF NIGERIA & ANOR (2011) LPELR-9230(CA) (P. 15, PARAS. B-G) where the court stated that “by virtue of Section 2 of the Arbitration and Conciliation Act 1988, an arbitration agreement shall be irrevocable except by agreement of the parties, or by leave of Court, or a Judge. However, the right to go for arbitration is a personal right. It is not a constitutional right. Therefore, it can be waived by either of the parties to the agreement expressly or by contract”

[7] Section 5(1) of the Arbitration and Conciliation Act provides thus: “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.”

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[8](2018) LPELR-46581(CA)

[9] Section 6(1) of the Constitution of the Federal Republic of Nigeria (as amended) provides that the judicial powers shall be vested in the courts and the powers vested shall extend notwithstanding anything to the contrary, to all inherent powers and sanctions of a Court of law. Section 6(6)(b) of the Constitution provides that the powers of the court shall extend to all matters between persons, or between government or authority and to any person in Nigeria, and to actions and proceedings for the determination of any question as to the civil rights and obligations of that person.

[10]BUREAU OF PUBLIC ENTERPRISES V. ASSURANCE BANK PLC & ORS. (2009) LPELR-3896 (CA): ‘’It is noteworthy to point out that parties cannot by their own agreement oust the jurisdiction of the Court, save in cases of presence of arbitration clause in the contract agreement or other alternative dispute resolution mechanism’’.

[11]Ibid.

[12](2005) LPELR-5808(CA)

[13](2007) (VOL. 31) WRN 163 at Per Galinje, JCA 193 lines 25-10 (CA)

[14] In KANO STATE URBAN DEV BOARD V. FANZ CONSTRUCTION COY LTD (1990) LPELR-1659 (SC), the court held that “…the exercise of the power to stay proceedings in the Court pending the determination of arbitration proceedings can only be and must be exercised in accordance with the provisions of the law Section 5 of the Arbitration Law. Failure to exercise the power in accordance with the provisions of the law renders the decision or order a nullity.” See Anisminic V. Foreign Compensation Commission &Amp; Anor (1969) 1 All ER 208 At 213.” Per ANDREWS OTUTU OBASEKI, JSC (Pp 95 – 95 Paras E – F)

[15] (2003) 15 NWLR (Pt. 844) 469 at 488, para G.

[16] KANO STATE URBAN DEV BOARD V. FANZ CONSTRUCTION COY LTD (SUPRA)

[17] OBEMBE V WEMABOD ESTATES LTD. (1977) 11 NSCC 264; KANO STATE URBAN DEV BOARD V. FANZ CONSTRUCTION COY LTD (SUPRA)

[18] The court will only refer a dispute which is within the scope of the arbitration agreement to arbitration. Thus, a dispute which is not covered under the agreement which is the subject of litigation or arbitration would not be referred to arbitration by the court. See ONWARD ENT LTD. V. MV MATRIX (2008) LPELR-4789 (CA). The Supreme Court, in KANO STATE URBAN DEV BOARD V. FANZ CONSTRUCTION COY LTD (SUPRA), in determining what will amount to a “dispute” for purposes of arbitration, has long affirmed that “the dispute or difference which the parties to an arbitration agreement agree to refer must consist of a justifiable issue triable civilly. A fair test of this is whether the difference or dispute can be compromised lawfully by way of accord and satisfaction.”

[19] The Applicant owes the court a duty to confirm its preparedness to ensure the progress of the arbitral process if the court obliges its request for a stay. Also, the fact that the dispute is not being arbitrated must not have been as a result of the actions of the applicant.

[20] In MEKWUNYE V LOTUS CAPITAL LTD & ORS (2018) LPELR-45546 (CA), the court held “…it is therefore the general policy of the Court to hold parties to the bargain into which they had entered unless there was a strong, compelling and justifiable reason to hold otherwise or interfere.”

[21] In ONWARD ENT LTD. V. MV MATRIX (SUPRA)  the court held that “…it is a basic principle of law that where parties to a contract have under the terms thereof agreed to submit to arbitration if there is any dispute arising from the contract between them a defendant who has not taken any steps in the proceedings commenced by the other party, may apply to the Court for stay of proceedings of the action to enable parties to go to arbitration as contracted.” – Per Mshelia, JCA.

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