Nigeria: Election Of Foreign Arbitration Rules In Agreements Governed By Nigerian Law; Implications On The Jurisdiction Of Nigerian Courts

Last Updated: 26 April 2017
Article by Olayemi Anyanechi and Adeola Owoade

Introduction

In contracts between Nigerian counterparties, the transaction will more often than not be governed by Nigerian laws. This choice of law is always informed by many factors, including: the possibility of enforcement and recovery if proceedings are brought in the country of the parties, the lack of registration requirements for an arbitral award obtained if there is a dispute and the legal treatment of the underlying transaction under local laws. Consequently, in commercial contracts where all the parties are Nigerian entities, expectedly, the governing law and the dispute resolution clauses of the contracts are usually subject to Nigerian laws.

However, in some other cases even though the contract is between Nigerian counterparties, parties may prefer that the arbitration be held outside the shores of Nigeria. Significantly, there is a growing trend in the attitude of contracting parties electing to hold arbitral proceedings in London or New York, notwithstanding the fact that the subject matter of the contract itself is subject to Nigerian law and the parties are entities incorporated in Nigeria.

This article examines the effect of an international commercial contract which is subject to, and governed by Nigerian law but elects a different forum outside the shores of Nigeria (specifically, England) with the attendant implication of parties thereby consciously or subliminally electing a different arbitration procedure. The article further reviews the effect of the election of such different arbitration rules on the power of the Nigerian court to set aside the arbitral award or refuse its recognition.

Arbitration and Choice of Law

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 jurisdiction1. Arbitration proceedings are based on the contractual terms of the parties and are to be conducted in the manner provided in the agreement of the contracting parties.

In the determination of disputes submitted before an arbitration, recourse is to be had to the choice of law agreed by the parties, as the Court/Arbitrator will neither super-impose a different choice of law not agreed by the parties nor re-write the contractual intentions of the parties2. Her Ladyship, Augie, JCA (as she then was) in Stabilini Visinoni Limited v. Mallinson & Partners Limited3, reiterated this settled position of law as follows:

"But this is arbitration that we are talking about; the Law recognizes that parties may agree to submit to another law... and it is settled that parties are bound by the very terms of their agreement. Arbitration is a unique method of dispute resolution, and it is never the case that the terms of arbitration agreement is unilaterally altered unless the parties decide to so do. Thus, the Courts cannot vary, import or contradict the terms, rules and law agreed upon to determine their arbitration proceedings".

Accordingly, the parties and even the Courts/Arbitrators are bound to apply the choice of law agreed by the parties in the determination of any dispute resulting from arbitration or the outcome of an arbitration.4 In determining the applicable contract law, recourse will be had to the governing law and dispute resolution clause(s) of the operative contract.

In practice however, while contracting parties may agree to a choice of law to regulate the subject matter of a contract and the substantive dispute that may arise from the contract, they may nevertheless agree to a different choice of procedural law under the dispute resolution mechanism. This trend is common in commercial contracts involving a Nigerian entity and a foreign counterpart where the performance of the contract is in Nigeria or even sometimes where the parties are all Nigerian entities. In such instances, the governing law of the contract may provide that the contract is to be governed in accordance with the Laws of the Federal Republic of Nigeria but the dispute resolution clause will provide that arbitration proceedings are to be held in England under the English Arbitration Act. In these situations, the terms of the agreement have heralded an interplay of conflict of law situations.

Before reviewing the merit of such interplay of different choices of governing law and dispute resolution mechanism, it is trite law that there is a clear distinction between substantive rules governing a particular subject matter and the procedural/remedial rules governing the enforcement of any right relating to the substantive action, otherwise known as adjectival rules. The law provides for separate compartmentalization for substantive rules and adjectival rules. The Supreme Court in the case of Atolagbe v. Awuni5 stated as follows:

"It is pertinent at this juncture to point out that distinction between substantive law and procedure can be quite difficult at times. Broadly speaking, however procedural or adjectival law relates to practice and procedure, that is the rules according to which the substantive law is administered. It prescribes the method for enforcement of rights and duties and obtaining redress for wrongful invasion of those rights as well as the enforcement of obligations or duties. On the other hand, substantive law is concerned with the creation, definition, limitation of obligation."

Thus, it is both the substantive and procedural laws governing a contract that determine the jurisdiction to be invoked in the enforcement of the contract and how it is to be invoked. In Araka v. Ejeugwu6, the Court of Appeal, per Salami JCA stated the law as follows:

"The court is only vested with jurisdiction and power to adjudicate on an issue when the matter is brought before it in accordance with both substantive and adjectival law"

Consequently, as arbitration is parties' driven, the doctrine of freedom of contract allows contracting parties to determine their choice of substantive contract law, which will regulate the contract in defining the substantive liabilities of the parties and the procedural rules which will govern the rules of arbitration. It is also therefore not in doubt that parties are at liberty to choose Nigerian law as the governing law of their contract but English Arbitration rules or arbitration rules of any other jurisdiction as the operative procedural law.

International Commercial Arbitration

The election of a foreign arbitration rule in a contract or the holding of the arbitral proceedings outside the shores of Nigeria qualifies such an arbitration as an international commercial arbitration, despite the fact that parties are Nigerian entities and the governing law is Nigerian law. Section 57(2) of the Arbitration and Conciliation Act, Cap. A18, LFN 2004 (hereinafter "ACA" or the "Act") provides:

"An arbitration is international if –

  1. the parties to an arbitration agreement have, at the time of the conclusion of the agreement, their places of business in different countries; or
  2. one of the following places is situated outside the country in which the parties have their places of business –

    1. the place of arbitration if such place is determined in, or pursuant to the arbitration agreement;
    2. any place where a substantial part of the obligation of the commercial relationship is to be performed or the place with which the subject matter of the dispute is most closely connected; or
  3. the parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one country; or
  4. the parties, despite the nature of the contract, expressly agree that any dispute arising from the commercial transaction shall be treated as an international arbitration."

The implication of an arbitration which qualifies as an 'international commercial arbitration' is that provisions of Part III of the ACA applies exclusively to such an arbitration, ipso facto Section 43 of the ACA. However, the reverse is not the case and accordingly, other provisions of the ACA are applicable, mutatis mutandis, to such an arbitration in so far as they are not contradictory to the provisions of Part III.

In SPDC v. Crestar Integrated Natural Resources Limited7, the Court of Appeal reviewed the effect of an international arbitration and the applicability of the ACA thereto. The Court held as follows:

"The question then is: Is the instant matter governed by the Arbitration and Conciliation Act? Learned senior counsel for the Applicant argued that the arbitration concerned here is an international arbitration and not a domestic arbitration. Section 58 of the Act prescribes the extent of the application of the Act. The Section is to the effect that the Act 'may be cited as the Arbitration and Conciliation Act and shall apply throughout the Federation.' Therefore, as earlier noted, the provision of the Act is only applicable in respect of arbitration which are 'domestic' in the country...

It is obvious from the above provision that the instant case is an international arbitration which falls within the ambit of Paragraph (b) (i) of Section 57 (2) to the effect that the place of arbitration is situated outside Nigeria where the parties have their place of business. In the instant case, parties who are Nigerian Companies agreed that London in the United Kingdom shall be the place of arbitration pursuant to Clause 25 of the SPA executed by the parties. To this extent, the provision of 34 of the Act and the interpretation thereon by this Court in STATOIL NIG LIMITED (supra) and NIGERIAN AGIP EXPLORATION LIMITED & ANOR (supra) to the extent that Nigerian Courts cannot intervene in arbitral matters is not applicable herein."

Power to Set Aside Arbitral Awards

It is not in doubt that courts of law have jurisdiction to set aside arbitral awards in certain circumstances. This jurisdiction evolved from Common Law and is established by Statute. The powers of the Nigerian Courts to set aside an arbitral award are contained in Sections 29, 30 and 48 of the ACA. Accordingly, the enabling law conferring jurisdiction on Nigerian courts over an arbitral award and the competence to set aside the award in applicable situations, is derived, ostensibly, from the ACA. The pertinent question therefore is: can this jurisdiction be exercisable where the arbitration is subject to the arbitration rules of a foreign jurisdiction (for instance, the English Arbitration Act) and not the ACA?

In Continental Sales Limited v. R. Shipping Inc.8 where the parties agreed that their disputes be referred to arbitration in accordance with the English Arbitration Act, 1996, in deciding the issues in dispute by the Court of Appeal, the English Arbitration Act, 1996 was resorted to as the applicable law. In a similar vein, Article V Paragraph 1(e) of the New York Convention9 confirms that an award can only be "set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made." Thus, where an Arbitral Award, for instance, was made in England under the English Arbitration Act, the court with exclusive jurisdiction to set aside the Arbitral Award is the English Court. This position remains the same notwithstanding the fact that the governing law of the contract leading to the arbitration is Nigerian law or the fact that enforcement of the award is to be effected in Nigeria.

In a very recent decision10 of the Federal High Court, Lagos Judicial Division11, Coram: Dagat, J., the Court held that the jurisdiction of Nigerian Courts cannot be invoked in an action for setting aside of an arbitral award under the English Arbitration Act, as the parties, by the Terms of Reference, agreed to be bound by the provisions of the English Arbitration Act, 1996. His Lordship held as follows:

"The question is, can this Court which is a Nigerian court set aside the Arbitral Award of the International Court of Arbitration London? I had earlier held in this Judgment that this Court must give effect to the mutual agreement of the parties to the effect that the English Arbitration Act 1996 shall be the applicable Rules of Procedure. The English Arbitration Act has made provisions for the setting aside of Arbitral Awards and by the combined effect of Sections 67, 68, 69 and 105 of the Act, the Courts with jurisdiction to set aside the Award are the English High Court and the English County Court. This is not to say that the Nigerian Courts have no jurisdiction whatsoever and are bound by foreign Arbitral Awards. The Nigerian Courts have the powers only to refuse to recognize such an Award"

The necessary agitating question is: what then is the effect of the governing law of the Arbitration Agreement which is Nigerian law in the situations described above? It is our position that the governing law elected as Nigerian law will only relate to the substantive matter in dispute and not the remedial powers of the arbitrator/court or the mechanisms and procedures for enforcement of the substantive right. Thus, while we believe that the arbitration and the post-arbitration award can only be subject to the foreign arbitration rules elected, the determination of the substantive rights and obligations of the parties in those foreign jurisdictions must be subject to Nigerian law.

Refusal of Recognition of Award

Whereas the authorities tend to suggest that Nigerian courts do not have jurisdiction to set aside arbitral awards made under foreign arbitration rules, the position is not the same regarding the power of court to refuse to recognise such an Arbitral Award. As a preliminary point, a clear distinction must be made between setting aside of an Award and refusal of recognition of an Award. While an order setting aside an Arbitral Award declares such an award to be void, of no effect and unenforceable anywhere, a refusal of recognition merely restricts the recognition (and consequently, the enforcement) of the award in the country in which the order was made. The effect of refusal of recognition of an Award is that the Award may be enforced in other jurisdictions.

Thus, whilst Sections 51 and 52 of the ACA dealing with recognition and enforcement of international commercial arbitration provide that the Nigerian courts shall have powers to refuse to recognize an award "irrespective of the country in which the award is made", there is no similar phrase in Sections 30 and 48 of the ACA dealing with the power to set aside an arbitral award. It is an important canon of statutory interpretation that legislators do not waste words or speak in vain12. This further confirms the fact that Nigerian courts are not empowered to set aside arbitral awards held under foreign arbitration rules but may refuse to recognize same where any of the grounds for refusal is applicable.

It is instructive to note however that in invoking the power of Nigerian courts to refuse to recognize arbitral awards made in an international commercial arbitration, the Court will only have jurisdiction pursuant to the New York Convention where recognition of the Award has been sought by a party seeking to benefit from the Award. Accordingly, a party cannot, after an international commercial arbitration has been held and award published, immediately proceed to invoke the jurisdiction of the court to refuse to recognize the Award when the successful party has not sought recognition in Nigeria. Hence, the clear letters and express wordings of Article V Paragraph 1 of the New York Convention made specific references to words tending to show pendency of a recognition proceeding such as: "when recognition and enforcement is sought" and "at the request of the party against whom it is invoked."

Conclusion

The judicial attitude as demonstrated above has shown that there appears to be a judicial 'non-interventionist' approach to arbitral awards published under foreign arbitration rules. The implication therefore is that parties may, by electing foreign arbitration rules or holding arbitral proceedings outside Nigeria, unknowingly remove their commercial agreements from the jurisdiction of the Nigerian courts even though they have subscribed to Nigerian law as the governing law of their contract. A lesson therefore for solicitors is that while drafting commercial agreements, there must be perfect harmony between the governing law clause and the dispute resolution clause to reflect the necessary intendment of the parties. In the same vein, transactional counsel must ensure that the wishes and intentions of the contracting parties are adequately captured while drafting the governing law and dispute resolution clauses and that the jurisdiction of the Nigerian courts is left unaffected by the choice of procedural rules adopted. This can be achieved by drafting an express proviso to the effect that notwithstanding the subscription of the parties to the foreign arbitration law, the jurisdiction of any competent Nigerian court and its power to recognize and set aside any Arbitral Award made under the Agreement is preserved. After all, arbitration is parties' driven and the parties will always have their say.

Footnotes

1. Per Ogbuagu, JSC; NNPC v. Lutin Investments Ltd & Anor. [2006] LPELR 2024.

2. Except for laws that are mandatorily binding on companies or people generally, e.g. lex situs as the law which determines transfer of title.

3. [2014] LPELR-23090 CA

4. Save for the exception in fn. 2 above.

5. [1997] 9 NWLR (Pt. 522) 536 at 575

6. [1999] 2 NWLR (Pt 589) 107 

7. (2015) LPELR-40034(CA) 

8. [2013] 4 NWLR (Pt. 1343) 67

9. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards was ratified by the Federal Republic of Nigeria, incorporated into the Arbitration and Conciliation Act, 2004 by Section 54 thereof and domesticated as the Second Schedule to the Act (hereinafter "the New York Convention").

10. Suit No. FHC/L/CS/1416/15. The co-author, A. Owoade led the Respondent's team in this matter.

11. This matter is currently on appeal and the authors will accordingly refrain from making a comment on the propriety or otherwise of the dictum.

12. See Ejoh v. Inspector General of Police [1963] 1 All N.L.R. 250 @ 260; Bronik Motors v. Wema Bank Limited [1983] All N.L.R 272 

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.

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