Introduction
Generally, parties may agree on terms that they wish to maintain in their contract and when they do so, they are by principle of pacta sunct servanda bound by those terms. In a bid to create neutrality, parties to international commercial agreements usually stipulate the method of dispute resolution, and the choice of court.1
There is always the question as to what extent parties may by agreement exclude domestic courts or stipulate the manner of adjudication of their disputes. Would the choice of a foreign court for the purpose of interpreting and enforcing a contract – usually referred to as a foreign jurisdiction clause - be enforced because it was mutually agreed or would it be deemed an ouster clause intended to deprive the court of jurisdiction?
This article examines the legal implications of waiver of rights to litigation in domestic courts and the attitude of Nigerian courts to such ouster clauses whether implied or express.
Concept and Context
Waiver is the voluntary relinquishment or abandonment- express or implied- of a legal right or advantage2. It involves a party making an election between two naturally exclusive rights3 either by explicitly saying so or through their actions. The law recognises and enforces waivers to prevent the injustice that may arise where a party suddenly insists on a right they previously abandoned, especially if others have taken steps in reliance on that abandonment.4 For a waiver to be valid, the party(ies) waiving must have been fully aware of their right or choices.5 By agreement, parties may waive their rights to pursue litigation at all, or to pursue litigation in a jurisdiction where such litigation would ordinarily have been properly pursued. This kind of agreement can take the form of an arbitration clause or agreement, or a foreign jurisdiction clause.
Ouster clause in an agreement may also be express or implied. Under Nigerian law, the enforceability of ouster clauses depend on the clarity of the waiver and the courts' interpretation of public policy concerns.6
Express waiver clauses are spelt out clearly in the agreements of parties. It is the implied waivers that may pose a problem. Nigerian courts tend to approach implied waivers with caution.7 Nigerian courts often require a high level of clarity before interpreting a contract as including an implied waiver of litigation rights. The courts are particularly cautious where there is no explicit language suggesting that the parties intended to exclude litigation. In A.G. Rivers State v. A.G. Akwa Ibom8, it was demonstrated that Nigerian courts favour an interpretation that preserves access to judicial remedies unless a clear and unequivocal waiver is present.
From the foregoing, one would assume that where parties have excluded the application of a court's jurisdiction by contract, the courts should ordinarily concur with such provisions but that is not really the case.
Litigation Waiver: Arbitration Clauses and Agreements
It is now settled that courts will uphold the agreement of parties to resolve their dispute by arbitration.9 By and large, courts will hold that parties to a contract intend to resolve their dispute by arbitration where the underlying contract contains a valid arbitration clause, irrespective of whether there is an explicit waiver of the right to litigate.10 For example, a clause in a contract might state: "All disputes arising from this agreement shall be submitted to arbitration, and the parties hereby waive their rights to initiate any litigation in court." Such clauses leave no room for ambiguity and will be enforced by courts.
Arbitration clauses are not ouster clauses proper so called and are not treated as such under the law. While ouster clauses attempt to completely exclude the jurisdiction of courts, arbitration clauses reflect the parties' consensual agreement to resolve disputes through a private, alternative dispute resolution mechanism. Courts generally view arbitration clauses as an exercise of party autonomy, rather than an impermissible exclusion of judicial authority. In R.C. O.S. Ltd. v. Rainbownet Ltd,11 the Court stated that "[a]n arbitration clause in an agreement is only procedural in that a provision whereby the parties agree that any dispute should be submitted to arbitration does not exclude or limit rights or remedies but simply provides a procedure under which the parties may settle their grievances. It is not an exclusion or ouster clause properly so called"
Arbitration clauses do not oust the courts' supervisory jurisdiction, instead, they merely redirect the resolution of substantive disputes to arbitration, with the courts retaining a supportive and supervisory role, such as in the enforcement or setting aside of arbitral awards.12 The courts generally uphold express arbitration clauses in contracts, recognizing the principle of party autonomy. This was confirmed in the case of Statoil Nigeria Ltd. v. NNPC13, where the Court of Appeal emphasized that parties who have expressly agreed to arbitrate disputes should be held to that agreement.
Ouster Clause: Foreign Jurisdiction Clauses
The court's approach with respect to foreign jurisdiction clauses is characterized by an equally divided stance. On the one hand, the court would seek to enforce its jurisdiction14, as decided in Kashamu v. UBN Plc15. On the other hand, the court would enforce the parties' choice of jurisdiction, particularly where it would be justifiable and reasonable to do so.16 In Nika Fishing Ltd. v. Lavinia Corp. (2001) 16 NWLR (Pt. 740) 556, the court stated that "[t]he role of the court is simply to pronounce on the wishes of parties to a contract as manifested in the words used in their contract. However, although it is settled that parties are at liberty to contract as to the law to govern their contractual relationship, when this involves introducing a foreign jurisdiction clause into the contracts, the domestic courts have not shown unrestrained disposition to give effect to such agreement. Since such a provision is not equivalent to an arbitration clause, the court is not bound by any stipulation ousting jurisdiction as no one could by his private stipulation oust the courts of their jurisdiction in matters properly within their jurisdiction."17
Fundamentally, a party cannot completely prevent a court from exercising its jurisdiction over a dispute just by privately agreeing to submit the matter to the courts of another jurisdiction. Accordingly, where the court finds that the parties have made an agreement to derogate from the jurisdiction it otherwise has, it will, as a matter of judicial discretion rather than strict law, give effect to that agreement unless there is strong case to the contrary.
It should be noted that while the courts may allow litigation waiver clauses that present themselves in the form of foreign jurisdiction clauses or arbitration agreements, the courts would generally frown at express provisions of contracts that appear to prohibit the recourse to court in its entirety. In Bello et. al. v. Alowonle,18 the plaintiffs and defendant who were partners in a firm executed an instrument of dissolution which provided that no legal proceedings would be instituted by any of the partners against the other in respect of any matter arising from the partnership agreement, and that the rights and liabilities would be deemed to have been settled upon executing the agreement. The court held that such a clause amounted to an ouster clause and was contrary to public policy and that paragraph was held to be void.
The Position of Nigerian Courts to Foreign Jurisdiction Clauses
Over time, the courts have had mixed approaches to foreign jurisdiction clauses. On the one hand, courts have strictly applied the terms of the contract19 with foreign jurisdiction clauses premised on the principle of law that parties are to be bound by their contracts. On the other hand, the courts treat it as a party's attempt to take advantage of the court's respect for contracts to avoid dispute resolution altogether.20
The court will not always bind a party to their choice of jurisdiction. Instead, the court will look to the circumstances of the case to determine if it should be. This accords with the test set out by Brandon J. in the English case of The Eleftheria21 . In that case, an English Court held that matters relating to waivers of court's jurisdiction arising from a foreign jurisdiction clause, would not necessarily oust the jurisdiction of courts and the courts have the discretion to determine whether to uphold the foreign jurisdiction clause or not.
In exercising this discretion, the court is to put certain factors into consideration including (a) what country the material evidence relating to the case is situated or more readily available and the effect of that on the relative convenience and expense of trial as between England and foreign courts, (b) whether the law of the foreign court applies and, if so, whether it differs from English law in any material respects, (c) with what country either party is connected, and how closely (d) whether the parties genuinely desire trial in a foreign country or are only seeking procedural advantages, or (e) whether any of the parties would be significantly prejudiced if the suit is heard in a foreign court. The factors have come to be known in the legal world as the "Brandon Tests".
The Supreme Court of Nigeria famously upheld the Brandon Tests in Sonnar (Nigeria) Ltd. et al. v. Partenreedri M. S. Norwind Owners of the Ship M. et al. ("Sonnar")22. In this case, the plaintiffs, Sonnar Nigeria Ltd. and Pubico Impex Traders, initiated a claim for N417,524.00 in general and special damages against the defendants, for an alleged breach of contract due to the non-delivery of 25,322 bags of parboiled long-grain rice shipped from Bangkok, Thailand, to Lagos, Nigeria on the vessel M.V. Nordwind. The defendants included Partenreedri M.S. Nordwind, shipowners based in Germany (1st defendant); Banbridge Shipping Company, the issuing agents for the Bills of Lading based in Liberia (2nd defendant); and Chaiyapon Rice Company, suppliers of the rice and based in Thailand (3rd defendant). Furthermore, the contract was governed by the Bill of Lading, which stipulated that any dispute arising under the Bill would be resolved in the carrier's principal place of business, with the laws of that country applying. In this case, the applicable jurisdiction and governing law were identified as those of Germany. As a result, the first respondent (as defendant) applied to stay the proceedings arguing that the contract specified a foreign jurisdiction for disputes. The trial court applied the Brandon Tests from The Eleftheria case and ruled that the plaintiffs (now appellants) hadn't provided strong enough reasons to override the foreign jurisdiction clause. As a result, a stay of proceedings was granted by the judge.
The plaintiffs, dissatisfied with the ruling of the trial court appealed the decision of the trial court to the Court of Appeal. The Court of Appeal upheld the ruling of the trial court on this point. The plaintiffs appealed further to the Supreme Court of Nigeria. At the Supreme Court of Nigeria, the appeal was allowed. The plaintiffs (as appellants) based their appeal on two main grounds, namely, the (a) Court of Appeal did not adequately consider expert German legal opinion stating that German courts wouldn't accept jurisdiction in this case, as German law doesn't recognize the shipowners as carriers; and (b) Court of Appeal erred in insisting that the parties should adhere to their contract when doing so would lead to an absurd situation that the parties couldn't have intended. These arguments were taken into cognizance by the Supreme Court of Nigeria and the Supreme Court of Nigeria acknowledged the fact that granting a stay of proceedings would cause substantial difficulty to the parties concerned.
More recently, the Court of Appeal in deciding on the issue of foreign jurisdiction clauses in Sqimnga Nigeria Limited v. Systems Applications Nigeria Limited23 held that parties are to be bound by their contracts where those contracts are neither contrary to the law nor fraudulently entered. In this case, the appellant filed a lawsuit at the High Court of Lagos State, alleging that the respondent is in breach of the Master Services Agreement between the appellant and respondent ("MSA"). The respondent filed a preliminary objection, arguing that the MSA stipulated South African courts as the venue for dispute resolution. The High Court of Lagos State upheld this objection, directing the parties to approach their agreed forum. Dissatisfied, the appellant appealed to the Court of Appeal, contending that the High Court of Lagos State should not have declined jurisdiction since both parties were Nigerian entities and the contract was performed in Nigeria. The respondent countered that the parties willingly entered the MSA, and were aware of Nigerian courts' jurisdiction when signing, but chose South Africa as the forum for dispute resolution, and should be held to the terms of their contract. The Court of Appeal upheld the validity of the foreign jurisdiction clause, ruling that such clauses do not amount to is not an ouster clause.
While this principle may be misconstrued as a departure from the decision in Sonnar, it only reemphasizes the court's aversion to interfering with valid contracts between parties. Generally, parties are expected to honour contractual agreements freely entered by them. However, if compelling reasons exist suggesting that enforcing the agreement might unfairly disadvantage one party, the court may justifiably decide not to enforce the clause that appears to oust its jurisdiction, as was the case in Sonnar. Ultimately, the court reserves the right to rule either way, prioritizing the interests of justice.
Conclusion
In conclusion, the Nigerian court's stance on foreign jurisdiction clauses reflects a nuanced and flexible approach. The court recognizes that while parties' contractual agreements should generally be respected, including their choice of jurisdiction, this respect is not absolute or unconditional.
The court's position in the cases highlighted above acknowledges that the Nigerian legal system grants courts the discretion to evaluate foreign jurisdiction clauses on a case-by-case basis. This discretion allows the courts to consider various factors beyond the mere existence of a foreign jurisdiction clause in a contract. These factors include, amongst others, the (a) accessibility of evidence, (b) relative convenience and cost of proceedings in different jurisdictions, (c) connection of the case to different legal systems, and (d) relevance of foreign law to the dispute.
This approach aligns with the broader principles of justice and practicality in legal proceedings. It allows Nigerian courts to balance the importance of contractual freedom with other crucial considerations such as fairness, access to justice, and the efficient resolution of disputes. By maintaining this discretion, Nigerian courts can intervene when strict adherence to a foreign jurisdiction clause might lead to unjust or impractical outcomes.
Moreover, this stance reflects an understanding of the complexities involved in international commercial transactions and disputes. It recognizes that while parties may choose a specific jurisdiction at the time of contracting, circumstances can change, and unforeseen issues may arise that make the chosen forum less suitable or even detrimental to a fair resolution of the dispute. By allowing courts to decline to enforce jurisdiction clauses in certain circumstances, the Nigerian legal system maintains its ability to protect the rights and interests of Nigerian entities and individuals, especially in cases where enforcing a foreign jurisdiction clause might effectively deny a party their day in court or subject them to undue hardship.
Footnotes
1. Gaslink Nig. Ltd V. Reliance Textile Industries Ltd (2017) LPELR-50259(CA)
2. Bryan A Garner, Black's law dictionary (10th edn, Thomson Reuters 2014)
3. Orakul Resources Ltd. v. N.C.C. (2007) 16 NWLR (Pt. 1060) 270 and Abe v. Skye Bank Plc. (2015) 4 NWLR (Pt. 1450) 512.
4. Nwosu v Ogah et al (2016) LPELR-40851(CA)
5. Mbeledogu v. Aneto (1995) LPELR-13964(CA)
6. Nkechi et al v Anyalewechi (2021) LPELR-55611(CA)
7. Omidiran v. Orabeku et al(2013) LPELR-20527(CA)
8. (2011) 8 NWLR (Pt. 1248) 31
9. Neural Proprietary Ltd. v. UNIC Ins. Plc (2016) 5 NWLR (Pt. 1505) 374 @ 376
10. MV Lupex v. Nigeria Overseas Chartering & Shipping Ltd (2003) 15 NWLR (Pt. 844) 569.
11. (2014) 5 NWLR (Pt. 1401) 516
12. See also Confidence Ins. Ltd. v. Trustees of O.S.C.E. (1999) 2 NWLR (Pt. 591) 373; and Onyekwuluje & Anor v. Benue State Government & Ors (2015) 16 NWLR (Pt. 1484) 40.
13. (2013) 14 NWLR (Pt. 1373) 1
14. Dazhia et al. v. Spaceworld Int'l Airline (Nig) Ltd (2022) LPELR-59309(CA) and A.B.U. v. VTLS (2020) LPELR-52142 (CA).
15. (2020) 15 NWLR (Pt. 1746) 90.
16. See Nso v. Seacor Marine (Bahamas) Inc (2008) LPELR-CA; Beaumont Resources Ltd v. DWC Drilling Ltd; and Megatech Engineering Ltd v. Sky Vission Global Networks LLC (2014) LPELR-22539 (CA).
17. See also College of Medicine v. Adegbite (1973) 3 SC 149; Oduye v. Nigeria Airways Ltd. (1987) 2 NWLR (Pt.55) 126.
18. 1968 (2) A.L.R 118.
19. Enilolobo v. NPDC et al (2019) LPELR-49512(SC)
20. Tof Energy Co Ltd & Ors v. Worldpay LLC et al (2022) LPELR-57462(CA)
2.1 (1969) vol. 1 Lloyds L.R. 237
22. (1987) LPELR-3494(SC)
23. Appeal No. CA/LAG/CV/854/2022
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