It has become common practice for parties to insert an arbitration clause in their contracts stating arbitration as the agreed mechanism and proper forum for resolving any dispute that may arise from such contracts. However, despite the presence of an arbitration clause, more often than not, parties resort to the traditional court system to enforce the terms and provisions of such contracts or for the resolution of any dispute arising from the contract.
In the circumstance, the Court will have to decide between enforcing the contract despite the arbitration clause, or declining to assume jurisdiction over the matter, and referring parties to arbitration. A choice to do the latter could be construed as ousting the parties' right of access to court and fair hearing as guaranteed under the 1999 Constitution of the Federal Republic of Nigeria.
This article succinctly examines the conditions and essential features which must guide the court in deciding to assume or decline jurisdiction when faced with an arbitration clause.
What is the effect of an arbitration clause?
An arbitration clause is a written consensus which embodies the agreement of parties to resort to arbitration should any dispute arise with regards to the obligations which both parties have undertaken to observe and that such dispute should be settled by a third party or tribunal of their own choice and constitution1. According to the Court of Appeal in BCC Tropical Nigeria Ltd. V. The Government of Yobe State of Nigeria & Anor (2011) LPELR-9230(CA) (P. 13, paras. D-F), an arbitration clause is a provision inserted in a contract providing for compulsory arbitration in case of dispute as to rights and liabilities under such contract.
However, it has been clarified in plethora of judicial authorities that an arbitration clause in a contract does not necessarily oust the jurisdiction of the Court but only prescribes arbitration as the procedure which the parties intend to adopt in settling their grievances2.
Being a clause embedded in a contract between parties, the court would ordinarily enforce the arbitration clause against the parties as it is settled law that parties are bound by the terms and provisions of their contracts and that the court would as much as possible uphold and enforce the provisions of the contract agreed upon by parties and not allow parties to renege on their undertakings.3 This is based on the principle of pacta sunt servanda.
A corollary of the foregoing is the principles that Courts are confined to the four walls of the agreement entered into by the parties, in effect, the law of the parties voluntarily entered into, and the Courts cannot rewrite it for the parties except when same violates statute: to acknowledge and give effect to arbitral clause is therefore to give effect to the dispute resolution mechanism chosen voluntarily by the parties.
However, this does not mean that an arbitral clause ousts the jurisdiction of courts which is a matter of statute and not a matter of consent of the parties (indeed, conversely, parties cannot by consent vest jurisdiction on a court4): it only means that it temporarily suspends same until domestic resolution via the mode of resolution agreed to by the parties5. In view of the above, where there is an arbitration clause in a contract and one of the parties to such contract proceeds to court to litigate issues arising from the contract, the other party usually challenges the competence of the suit, the jurisdiction of the court on the premise of failure to fulfil condition precedents and consequently prays the court to stay proceedings in the suit pending the conclusion of arbitration proceedings between the parties.6
An arbitral clause is only a tool for successful stay of court's jurisdiction when there is a contractual dispute
In considering a Defendant's application for stay of proceedings pending arbitration or striking out of the suit in view of the Claimant's failure to comply with the arbitration clause contained in the contract between the parties, the court must strictly examine and construe the arbitration clause contained in the contract. This is as stated by the Court of Appeal in SCOA (Nig) Plc v. Sterling Bank Plc (2016) LPELR-40566(CA) (P. 22, Paras. B-E) where it was stated that the arbitration clause must be construed according to the language used by the parties therein without external imputation.
A typical arbitration clause usually reads that "all disputes arising from, connected to this agreement shall be referred by the parties to arbitration...". Therefore, what is being referred to arbitration is the dispute between the parties which emanates from the contract between the parties. In view of the fact that the wordings of the arbitration clause would have to be construed strictly, it important to understand what is or what constitute a dispute in a bid to clearly ascertain whether the court can proceed to enforce the contract between the parties in the absence of a dispute, notwithstanding the arbitration clause contained in the contract.
In Bendex Engineering Corporation & Anor V. Efficient Petroleum Nigeria Ltd (2000) LPELR-10143(CA) (P. 54, paras. A-B) the Court of Appeal referred to page 424 of the 5th Edition of Black's Law Dictionary in defining a dispute to mean "a conflict or controversy; a conflict of claims or rights; an assertion of a right, claim, or demand on one side, met by contrary claims or allegations on the other". Therefore, any assertion of right which is not denied or controverted by the other party does not amount to a dispute in law and can be enforced directly by the court without referral to arbitration.
Further to the above, the Supreme Court in Kano State Urban Development Board V. Fanz Construction Company Ltd (1990) LPELR-SC.45/1988 (Pp. 58-60, Paras. C-B) noted that there is no dispute within the meaning of an agreement to refer disputes where there is no controversy in being, a party already admits its liability but simply fails to pay. This position of law was restated by the Court of Appeal in United World Limited Inc v. Mobile Telecommunication Services  10 NWLR (Pt. 586) 106 where the Claimant contended that since the Defendant had already acknowledged its indebtedness, that there was no dispute capable of being referred to arbitration and that the attempt by the Defendant to rely on the arbitration clause contained in the contract between the parties is an attempt to delay liability. The Court of Appeal accordingly held as follows;
"In case of an agreement with a clause for reference to arbitration, the subject must be such as is capable of being referred to arbitration. Where a party has admitted liability or compromised his stand, by some admission capable of altering the position of the parties in respect of the matter in dispute, the matter can no longer be for reference to an arbitration."
From the foregoing, it can be gleaned that a party can proceed to enforce its claims in court against the other party where there is an admission of liability or no disputation of liability, notwithstanding the presence of an arbitration clause in the contract between the parties. This is on the premise that there is no dispute between the parties that can be referred to arbitration as parties have not joined issues on the Claimant's claims.
However, where the Defendant denies liability or controverts the Claimant's claims, then there is a dispute which has to be referred to arbitration by the parties before resorting to court.
Referral to arbitration is a personal right whilst jurisdiction of court is a constitutional issue
Notwithstanding the above, it is important to state that the right to refer a dispute to arbitration is a personal right and not a constitutional right and can therefore be waived by the parties at any time. This was affirmed by the Court of Appeal in 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 thus;
"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"
The implication of the above is that parties can decide to waive the provision of their contract which requires them to refer any dispute to arbitration and consequently proceed straight to court. In this light, 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"
The burden is therefore on the Defendant to express its non-waiver of the contractual obligation to have the matter referred to arbitration by promptly filing an application staying proceedings in the suit before filing its pleadings7. Based on the provision of Section 5(2) of the Arbitration and Conciliation Act, the Defendant applying for stay of proceedings must show the court the following in its affidavit;
- Adduce sufficient reasons why the matter should be referred to arbitration;
- Indicate its interest, readiness and commitment to an arbitral proceeding.
Consequent upon the above, the Court of Appeal in MV Panormos Bay v Olam Plc (2004) 5 NWLR Pt. 86 held that it is not sufficient for the Defendant praying the court for an order of stay of proceedings to only depose that it is willing and ready to do all things necessary for causing the said matter to be decided by arbitration and for proper conduct of the arbitration, that the Defendant must show in its affidavit, by way of documentary evidence, the steps it has taken or intend to take for the proper conduct of the arbitration.8 However, the Court of Appeal in Charles Mekunye v Lotus Capital Suit No. CA/L/1349/2016 delivered 20 April, 2018 departed from its decision in the MV Panormos Bay case (supra) when it held that there is no statutory requirement mandating an applicant for an order of stay of proceedings pending arbitration to present documentary evidence to show steps taken to refer the dispute to arbitration and that such requirement is unnecessary where there are unchallenged averments in the supporting affidavit demonstrating a willingness to submit to arbitration.
In summary, the presence of an arbitration clause in a contract does not oust or obviate the jurisdiction of the court and the court can either stay proceedings on the suit pending the conclusion of arbitration or proceed to immediately assume jurisdiction over the suit where there is no dispute between the parties or the parties have waived their personal right to have the matter referred to arbitration.
1. SCOA (Nig) Plc v. Sterling Bank Plc. (2016) LPELR-40566(CA) (P. 22, Paras. B-E)
2. Onyekwuluje & Anor V. Benue State Government & Ors (2015) Lpelr-24780(SC) (P. 37, paras. A-C)
3. Larmie V. Data Processing Maintenance & Services (D.P.M.) LTD (2005) 12 SC (Pt. 1) 93 at 103
4. Onna Traditional Rulers Council & Ors V. Umoren & Ors (2018) LPELR-44301(CA) (P. 15, Para. E)
5. Lignes Aeriennes Congolaises V. Air Atlantic Nigeria Ltd.(2005) LPELR-5808(CA) (P. 31, paras. B-F)
6. Fawehinmi Construction Company Ltd. V. OAU(1998) LPELR-1256(SC) (P.11, Paras.D-F)
7. See Brigadier G.T. Kurobo & Anor v. Zach -Motison Nigeria Limited (1992) 5 NWLR Pt 239, 102 at 117 -118
8. See also UBA v. Trident Consulting Limited (2013) 4 CLRN 119
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.