INTRODUCTION:
Arbitration is a form of alternative dispute resolution (ADR) in which parties in a dispute agree to have their cases heard and decided by a neutral third party, known as an arbitrator, rather than going to court. This process is consensual, private, and typically less formal than litigation. The arbitrator's decision, known as an arbitral award, is legally binding and can only be set aside on the limited grounds specified in Section 55 (3) of the Arbitration and Mediation Act, 2023. Some of these grounds include: where a party to the arbitration agreement was under some legal incapacity, where the arbitration agreement is not valid under the law to which the parties have subjected it, or failing such indication, under the laws of Nigeria, where a party was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise not able to present its case, amongst other grounds.
The case of Stabilini Visinoni Limited v. Mallinson & Partners Limited (2014) 12 NWLR (Pt. 1420) 134 centres around the binding nature of arbitration agreements in contracts. The core legal question, which the Court of Appeal meticulously addressed, was whether a party could deliberately frustrate an arbitral process and then challenge the resulting award in court. This case demonstrates that Nigerian courts respect the sanctity of arbitration clauses and will not allow parties to use the instrumentality of the law to circumvent an arbitration clause in their contracts.
FACTUAL BACKGROUND:
The dispute originated from two Local Purchase Orders (LPOs), where Stabilini Visinoni Ltd. (the appellant, a civil works and construction company) ordered iron rods valued at N33,600,000.00 (Thirty-three million, six hundred thousand naira) and N9,600,000.00 (Nine million, six hundred thousand naira) respectively, from Mallinson & Partners Ltd. (the respondent, an importer and seller of building materials). Both LPOs included an arbitration clause, stipulating that all disputes would be referred to an arbitrator nominated by the President of the Lagos State Chamber of Commerce, and this submission would be governed by "the law from time enforced in Nigeria". Payment for the iron rods was due 30 days after the last delivery, but the appellant failed to make these payments.
The respondent initially sent demand letters and subsequently initiated a lawsuit at the Lagos State High Court on 21 January 2010, claiming an outstanding sum of N43,200,000. (Forty-three million, two hundred thousand naira) along with interest, damages for breach of contract, and costs. The appellant, upon being served with the originating court processes, entered a conditional appearance and filed a motion to stay court proceedings, compelling compliance with the arbitration clause. The respondent conceded to this application.
Subsequently, the respondent's lawyers issued a "Notice of Arbitration" to the President of the Lagos Chamber of Commerce and Industry (LCCI), requesting the nomination of an arbitrator and specifying that the Arbitration and Conciliation Act would apply. Hon. Hairat Ade-Balogun was nominated as the sole arbitrator. The appellant initially objected to her nomination, citing perceived limited experience in the construction industry, but later withdrew this objection unconditionally.
Preliminary arbitration hearings began, but the appellant's counsel did not attend, citing a prior engagement. A settlement proposal was made by the appellant, offering a payment plan conditional on the respondent's withdrawal of all claims. The respondent made a counteroffer, which the appellant failed to respond to. Despite receiving notices, including a warning of a potential one-party arbitration if they failed to respond, the appellant and their counsel did not appear for subsequent hearings. The arbitrator proceeded with the hearing, received the claimant's (respondent's) submissions and testimony, and adjourned for the rendering of the award.
During this period, the appellant returned to the High Court, obtaining an ex parte interim order that restrained the arbitrator from taking further steps until a motion on notice to remove her was heard. Crucially, this interim order was valid for only seven days and would then "abate". It also mandated service on the arbitrator within 48 (Forty-eight) hours. The arbitrator was eventually served with this order after its 7-day validity had expired. Despite having previously informed parties that the award would be rendered, the arbitrator proceeded to render the arbitral award. The award was eventually rendered in favour of the respondent. N43,200,000.00 (Forty-three million, two hundred thousand naira) was awarded as the principal debt, N8,892,000.00 (Eight million, eight hundred and ninety-two thousand naira) was awarded as interest, N860,000.00 (Eight hundred and sixty thousand naira) was awarded for arbitration costs, and N3,000,000.00 (Three million naira) was awarded for the claimant's legal fees. Notably, the N43,200,000.00 (Forty-three million, two hundred thousand naira) principal sum matched the amount the appellant had offered in its earlier settlement proposal.
Following the award, the respondent filed a motion on notice in the original court suit to enforce the arbitral award. The appellant then filed a separate suit to set aside the award, citing lack of proper notice, fair hearing, public policy contravention, and arbitrator misconduct. The appellant also filed a preliminary objection against the respondent's enforcement application, arguing that it was incompetent because it was brought by motion on notice instead of an originating motion, as required by the Lagos State Arbitration Law, 2009. These suits and applications were consolidated and heard together.
The High Court dismissed the appellant's preliminary objection and its application to set aside the award. It found that the Lagos State Arbitration Law, 2009, was not applicable because the contract in dispute was entered into before the law's commencement date.
The High Court also determined that the appellant had ample opportunity to defend itself before the arbitrator but failed to utilise it, and found no evidence of arbitrator misconduct or the award exceeding the scope of the submission. Consequently, the court granted the respondent's application to enforce the arbitral award.
The appellant, dissatisfied with the High Court's decision, appealed to the Court of Appeal. However, the Court of Appeal, in a unanimous decision presided by Amina Adamu Augie, on Friday, 30 May 2014, dismissed the appeal.
KEY POINTS FROM THE COURT'S DECISION:
- The court upheld the fundamental principle of contract law that parties are bound by the terms they freely agree to. By including an arbitration clause in their contract, the parties voluntarily opted out of traditional litigation and committed to arbitration as their chosen method of dispute resolution. Therefore, the court's role was limited to respecting and enforcing this agreement.
- Exclusion of the Court's Jurisdiction: An arbitration clause does not permanently oust the jurisdiction of the court. Instead, it effectively suspends the court's jurisdiction over the subject matter of the dispute. Therefore, a court will only stay its proceedings and refer the parties to arbitration if a valid arbitration agreement exists between the parties. The court's role then shifts from adjudicating the dispute to a supervisory one, ensuring the arbitration process is fair and that any resulting award is enforceable.
- The Consequences of Non-Participation: A party cannot use its own non-participation in an arbitration proceeding to later invalidate the arbitral award. The court found that Stabilini Visinoni Ltd., despite actively seeking the stay of court proceedings to compel arbitration, deliberately failed to appear before the arbitrator. The court held that this did not violate the principle of a fair hearing, as the party had ample opportunity to present its case but chose not to do so.
- Finality of Arbitral Awards: The case reinforces the principle that an arbitral award is final and binding on the parties. The grounds for a court to set aside an award are very narrow and have been aptly stated in the Arbitration and Conciliation Act, which the Arbitration and Mediation Act, 2023, has now replaced. They are generally limited to instances where there has been a serious procedural irregularity, such as a breach of the principles of natural justice or where the award dealt with matters outside the scope of the arbitration agreement. Instructively, the court found no such grounds in this case.
CONCLUSION
In conclusion, the courts reinforced the fact that arbitration agreements are binding on both the courts and the parties involved. This system is based on the mutual consent of the parties to settle their disputes through arbitration rather than traditional court proceedings. Therefore, once this agreement is made, its terms, including the chosen rules and applicable law, cannot be changed unilaterally by the courts. By opting for arbitration, parties essentially relinquish their right to resolve the same dispute in court, embracing a process that is typically less formal and less technical.
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