The Middle Eastern And African Arbitration Review

In summary

This chapter critically examines three recent decisions of the appellate courts in Nigeria. In the first case, the Supreme Court held that the jurisdiction of the High Court to grant an order for the recognition and enforcement of an arbitral award is not limited or determined by the court's subject matter jurisdiction. It further held that any High Court listed in section 57 of the (now repealed) Arbitration and Conciliation Act has jurisdiction to enforce an arbitral award regardless of the subject matter of the underlying contract that gave rise to that award. Given the fundamental and radical nature of jurisdiction under Nigerian law and how it has been utilised by award debtors to frustrate enforcement proceedings, this decision marks a departure and considerable change from the previous jurisprudence in Nigeria which limited the jurisdiction of High Courts in the enforcement of arbitral awards to matters over which the relevant court would have had subject matter jurisdiction if the claim was litigated. In the second case, the Supreme Court of Nigeria restated its recent decision in another case that, despite the favourable disposition of the Nigerian courts towards arbitration, only real and actual disputes rather than fanciful disputes will be referred to arbitration. Accordingly, where a debt is admitted, there will be no dispute to be referred to arbitration. Furthermore, an admission of a debt or claim that is capable of making the courts to sidestep the parties' agreement referring their disputes to arbitration must be clear and unambiguous. In the third case, the Court of Appeal upheld the decision of the High Court which had refused an application for stay of proceedings pending arbitration because not only did the applicant for stay fail to show any steps it had taken to commence arbitration, the parties' agreement contained two mutually exclusive and inconsistent dispute resolution mechanisms by providing, on the one hand for the resolution of any dispute that could not be amicably resolved by arbitration, and on the other hand submitting to the exclusive jurisdiction of the Nigerian courts.

Discussion points

• Jurisdiction of a High Court to enforce an arbitral award is not limited by the subject matter of the underlying contract or the court's subject matter jurisdiction
• An arbitration clause can only be invoked where there exists an actual, genuine and real dispute as opposed to a fanciful dispute between the parties. While an admitted debt does not give rise to a dispute that is capable of being referred to arbitration, an admission of debt or liability must be clear and unequivocal for the courts to assume jurisdiction and sidestep an arbitration agreement
• The parties' choice of arbitration as an alternative to litigation must be mandatory. The parties are not allowed to pose indecisively between arbitration and litigation

Referenced in this article

• NNPC v Fung Tai Eng Co Ltd
• Sembcorp Eng Pte Ltd v IPCO (WA) Holdings Ltd
• Ayisagi Nigeria Limited v Suntory Beverage and Food Nigeria
• The Arbitration and Conciliation Act, Cap A18, Laws of the Federation of Nigeria 2004
• The Arbitration and Mediation Act 2023

NNPC v Fung Tai Eng Co Ltd¹

Facts of the case

Pursuant to an arbitration clause in the contract between the appellant and the respondent, a dispute arising from the contract was referred to arbitration by the respondent. At the conclusion of the arbitration, the arbitral tribunal made an award in favour of the respondent. Thereafter, the respondent approached the Federal High Court (the FHC) for the recognition and enforcement of the award, while the appellant also applied to the same court to set aside the award. The FHC heard both applications, recognised and ordered the enforcement of the award, and dismissed the appellant's application to set it aside.

Irked by the decision of the FHC recognising the award for enforcement, the appellant appealed to the Court of Appeal which appeal was dismissed. The appellant further appealed to the Supreme Court.

The submissions of the appellant

At the Court of Appeal, the appellant contended that since the underlying cause of action in the arbitration was contractual or based on a simple contract between the parties, the FHC court lacked jurisdiction to entertain the respondent's application for the recognition and enforcement of the resulting arbitral award. According to the appellant, the FHC can only enforce an arbitral award arising from a matter over which it has subject matter jurisdiction.

The appellant also contended that the definition of 'court' in section 57 of the Arbitration and Conciliation Act² (the ACA) was not intended to vest the courts with jurisdiction in all arbitration matters regardless of the underlying cause of action or subject matter of the arbitration and that it is the cause of action or subject matter of the arbitration that should determine which of the courts mentioned in section 57 should have jurisdiction to enforce the resulting arbitral award.

The submissions of the respondent

The respondent contended that an application for the enforcement of an arbitral award did not require the court to determine afresh the rights and obligations of the parties which has been determined by the arbitral tribunal and that the issue of the subject matter of the court over the underlying cause of action was not implicated. The respondent also contended that by virtue of the provisions of sections 29, 30, 31 and 57 of the ACA, the legislature has vested the Federal High Court with additional jurisdiction to recognise and enforce arbitral awards.

Finally, the respondent contended that it was inconsistent for the appellant who had applied to the same court to set aside the arbitral award to turn around and contend that the court lacked jurisdiction to recognise and enforce the award.

The court's decision

The Supreme Court upheld the submissions of the respondent and held that (1) the word 'court' was defined in section 57 of the ACA to mean the High Court of a State, the High Court of the Federal Capital Territory, Abuja, or the Federal High Court, and noted that in listing the courts with jurisdiction to enforce an arbitral award, no qualification or limitation of whatever nature was provided for, or prescribed in, terms of the subject matter or cause of action from which the arbitral award emanated, (2) the provisions of section 57 of the ACA are plain, clear and unambiguous and words that are not contained in that section should not be imported or read into it; the jurisdiction vested in the courts listed in section 57 of the ACA to enforce an arbitral award has nothing to do with the exercise by such courts of their respective subject matter jurisdiction and the courts possess the jurisdiction to recognise and enforce an arbitral award regardless of the subject matter of the dispute from which the award emanated, (3) the recognition and enforcement of arbitral awards is not the same thing as, and has nothing to do with, the subject matter jurisdiction vested on the courts under the constitution to entertain and try causes or matters, (4) the courts listed in section 57 of the ACA and vested with jurisdiction to enforce arbitral awards are not to adjudicate over the subject matter of the dispute from which the award arose but are to simply enforce such awards, (5) recognition and enforcement of an arbitral award by a court is purely a post-judgment procedure after the underlying dispute has been determined by an arbitral tribunal, and (6) the appellant adopted inconsistent positions by contending on one hand that the FHC lacked the jurisdiction to grant the respondent's application for the recognition and enforcement of the award while at the same time applying to the same court to set aside the award and by applying to the FHC to set aside the award, the appellant tacitly acknowledged that the court had jurisdiction to enforce the award.

Comments

Under Nigerian law, jurisdiction has been held to be the livewire, or the foundation, of adjudication and it is such an important aspect of adjudication that (1) if a court is determined to have lacked jurisdiction to entertain a matter, any decision made by such court would be held to be a nullity no matter how well conducted, and (2) it can be raised at any time during the proceedings and even for the first time in an appeal. Because of the far-reaching effect of commencing an action in a court without jurisdiction, a party seeking to enforce an arbitral award in Nigeria would be well advised to ensure to bring the application for the enforcement of the award in the appropriate court. The practice has been to file the application in the court that would have jurisdiction over the subject matter of the dispute were such dispute to be litigated.

Section 51 of the ACA provided that 'an arbitral award shall, irrespective of the country in which it is made, be recognised as binding and subject to section 52 of the ACA,³ shall upon an application in writing, be enforced by the court'. For purposes of the ACA, 'court' was defined⁴ to mean 'the High Court of State, the High Court of the Federal Capital Territory, Abuja of the Federal High Court'. The provisions of sections 51 and 52 of the ACA are reproduced in sections 57 and 58 of the Arbitration and Mediation Act 2023 (the AMA) which repealed and replaced the ACA.

From the definition of 'court' in the ACA, it would seem that an application for the recognition and enforcement of an arbitral award could be made in either the High Court of a State, the Federal High Court or the High Court of the Federal Capital Territory Abuja. However, this turned out not to be the case. Under the Constitution of the Federal Republic of Nigeria (1999, as amended), there is a constitutional allocation of subject matter jurisdiction between the Federal High Court and the High Court of the State or the High Court of the Federal Capital Territory. For instance, matters pertaining to aviation, admiralty, maritime, copyright, patents, design and trademark are exclusively reserved for the Federal High Court. ⁵

In Federal University of Technology Akure v BMA Ventures (Nig) Ltd,⁶ the Court of Appeal held (relying on the provisions of section 251 of the Constitution) that the Federal High Court lacked jurisdiction to grant an application for the recognition and enforcement of an arbitral award given that the subject matter of the award was a breach of a simple contract in respect of which the Federal High Court lacked subject-matter jurisdiction. Accordingly, the court held that the order recognising the award for enforcement was null and void. ⁷

In our view, the Supreme Court decision in NNPC v Fung Tai Eng Co Ltd is a welcome development which has reinforced the pro-arbitration stance of the Nigerian courts. The effect of the decision is that it will no longer be possible for award debtors to use or weaponise technicality to frustrate the enforcement of an arbitral award. The weaponisation of jurisdiction by award debtors is exemplified in this case where the applicant who had applied to the FHC to set aside the award turned around to impugn the jurisdiction of the FHC to enforce the award. If the court lacked jurisdiction to enforce the award, it would not have jurisdiction to set it aside. As the Court rightly held, proceedings for the enforcement of an arbitral award are a post award or judgment and therefore do not implicate the subject matter jurisdiction of the court since the rights and obligations of the parties have already been conclusively determined by an arbitral tribunal appointed by them.

Sembcorp Eng Pte Ltd v IPCO (WA) Holdings Ltd⁸

Facts of the case

The appellants and the respondents entered into an agreement for the supply, by the appellant, of various types of equipment to the respondents, to enable the respondents fulfil their obligations under a contract with the Nigerian National Petroleum Corporation (NNPC) for the refurbishment of the Bonny Export Terminal in Rivers State. The agreement between the parties was governed by the Standard Conditions of Purchase. Clause 26 of the contract provided that in the event that any dispute between the parties cannot be settled by negotiations, such dispute shall be referred to and finally settled by arbitration.

A total sum of approximately US$4,733,183 allegedly became due to the appellant under the contract, and following the respondents' failure to pay the sum despite repeated demands, the appellant commenced an action in the High Court of Rivers State ('the trial court') to recover the debt plus accrued interest.

Upon being served with the originating processes, the respondents applied for an order of the court referring the parties to arbitration as stipulated in the contract and staying further proceedings in the suit pending the determination of the matter by arbitration. The appellant opposed the application. The appellant also filed an application for the court to enter final judgment against the defendants in the sum of US$837,725 on the ground that the respondents had admitted the said sum. The trial court heard arguments on both applications, and in its ruling, held that the respondents admitted being indebted to the appellant to the tune of US$837,725 and entered judgment for the appellant in the said sum. The rest of the sum claimed by the appellant which was not admitted was referred to arbitration.

Aggrieved with the decision of the trial court, the respondents appealed to the Court of Appeal. The Court of Appeal held that there was no proof that the respondents admitted the debt of US$837,725, set aside the judgment of the trial court and referred the parties to arbitration on the entire disputed sum.

Dissatisfied with the decision of the Court of Appeal, the appellant appealed to the Supreme Court.

The appellant's submissions

The appellant contended that since the respondents had admitted part of the debt in the sum of US$837,725, the Court of Appeal was wrong to have set aside the judgment on that sum and referred the parties to arbitration; that the arbitration agreement did not apply in respect of the claim admitted by the respondents and that where a claim is partly admitted, the arbitration agreement will only apply to the disputed portion of the claim, while the court has jurisdiction to enter judgment on the admitted portion.

The court's decision

In principle, the Supreme Court agreed with the appellant that a matter will only be referred to arbitration in line with the agreement of the parties if there is a real and actual dispute within the meaning of the arbitration agreement and that where a party has admitted liability, there will be nothing left to refer to arbitration. The Supreme Court relied on and restated its earlier decision in Sakamori Construction (Nig.) Ltd v Lagos State Water Corporation (2022) 5 NWLR (Pt. 1822) 339. ⁹ The Supreme Court however held that, on the facts, there was no evidence that the respondents had admitted a part of the debt in dispute and that there was therefore no basis for the judgment of the trial court granting the appellant's claim for US$837,725 and referring the other portion to arbitration. Consequently, the Supreme Court upheld the judgment of the Court of Appeal referring the entire amount claimed by the appellant to arbitration.

Comments

Although the Supreme Court ultimately upheld the Court of Appeal judgment which referred the entire claim to arbitration, this was because, on the facts, there was no evidence of admission of the debt by the respondent. The Supreme Court, however, restated its decision in the case of Sakamori Construction (Nig.) Ltd v Lagos State Water Corporation (see above) ¹⁰ where it held that an admitted claim does not constitute a dispute within the meaning of an arbitration agreement that is capable of being referred to arbitration. The court noted that:

The Supreme Court's finding that there was no evidence of admission by the respondents highlights the importance of proof when seeking to carve out a claim out of an arbitration agreement on the ground that the claim has been admitted. A party alleging that a debt has been admitted and therefore should not be referred to arbitration has the burden of proving the admission. Where the alleged admission is not proved, the court will refer the parties to arbitration. It is our view that the Court's decision struck the right balance between giving effect to an arbitration agreement and ensuring that only real and genuine disputes rather than fanciful disputes will be referred to arbitration. Consequently, the courts will hold the parties to their agreement to arbitrate their disputes and will not sidestep that agreement on the ground of an admitted claim or debt unless there is clear and unequivocal admission of the claim or debt.

Ayisagi Nigeria Limited v Suntory Beverage and Food Nigeria¹¹

Facts of the case

The respondent, Suntory Beverage and Food Nigeria commenced an action in the High Court of Kaduna State (the High Court) against the appellant, Ayisagi Nigeria Limited, to recover the sum of 47,224,626.38 naira (approximately £25,000) being the total overdue indebtedness to the respondent as of 12 February 2018 plus the cost of prosecuting the action in the sum of 5,000,000 naira (approximately £3,000).

Upon being served with the originating process in the suit, the appellant filed an application for stay of proceedings pending arbitration pursuant to the Distribution Agreement between the parties executed on 9 December 2015. The arbitration agreement comprised in clause 39.3 of the Distribution Agreement provided as follows:

Clause 39.1 of the Distribution Agreement also provided as follows:

The respondent opposed the application for stay. The High Court heard the application and refused same. Dissatisfied with the decision of the High Court refusing the application, the appellant appealed to the Court of Appeal.

The argument of the appellant

The appellant contended that the dispute between the parties ought to have been resolved amicably and if amicable settlement failed, then the dispute should be referred to arbitration in line with the parties' agreement. The appellant also argued that it had demonstrated to the High Court its willingness to have the dispute resolved by arbitration.

The argument of the respondent

The respondent contended that the mere insertion of an arbitration clause in a contract did not mean that any issue arising between the parties would be capable of being resolved by arbitration. It was further contended that the appellant failed to comply with the mandatory provisions of section 5(2)(a) and (b) of the ACA which provides that a court to which an application is made under section 5(1) of the ACA may, if it is satisfied, (a) that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the arbitration agreement; and

(b) that the applicant was at the time when the action was commenced and still remains ready and willing to do all things necessary to the proper conduct of the arbitration, make an order staying the proceedings.

The respondent further contended that the appellant had no documentary evidence before the High Court to show its readiness and willingness to participate in arbitration.

The Court of Appeal's decision

The Court of Appeal held that it was clear that the parties intended for any dispute arising from the Distribution Agreement to be settled amicably and if the dispute could not be settled amicably within 21 days of the first meeting of the parties, the matter would be submitted to arbitration upon demand by either of the parties. On this basis, the court held that the arbitration clause was not an absolute clause because the submission to arbitration must be upon demand by either party. The Court of Appeal also held that there was nothing on record to show that either party demanded for the dispute to be submitted to arbitration. Thus, the Court of Appeal agreed with the High Court's decision that the appellant failed to show any concrete steps taken or intended to be taken for the proper conduct of the arbitration and there was no bona fide readiness and willingness on the part of the appellant to refer the matter to arbitration or to do all things necessary to the proper conduct of the arbitration.

The Court of Appeal further held that clause 39.1 of the Distribution Agreement read in conjunction with clause 39.3 of the Distribution Agreement which provided for arbitration clearly showed that the parties agreed that the Nigerian courts would exclusively resolve any dispute arising from the Agreements except when either party demands that the dispute be submitted to arbitration. The Court of Appeal held that the arbitration clause was not mandatory and was therefore unenforceable, dismissed the appeal and affirmed the decision of the High Court which refused to stay proceedings and refer the parties to arbitration.

Comments

The court's decision that the appellant ought to have demonstrated the steps that it had taken to set arbitration in motion is consistent with the trend of case law decided on the basis of section 5 (2) (b) of the now repealed Arbitration and Conciliation Act ACA which provided the court may order a stay of proceedings pending arbitration if:

This was the provision that the courts regrettably interpreted to mean that an applicant for stay of proceedings must not simply indicate willingness to participate in arbitration but must actually commence arbitration or take concrete steps to do so in order to be entitled to an order staying proceedings pending arbitration (see MV Panormos Bay v Olam, and Onward Enterprises Limited v MV Matrix & Ors). It is to be noted that the language of clause 5 (2) (b) of the ACA was omitted in the equivalent provision of the extant Arbitration and Mediation Act 2023. There will therefore be no legal basis for the courts to continue to require an applicant for stay of proceedings pending arbitration to have commenced arbitration or have taken concrete steps towards commencing arbitration as a condition precedent to the grant of a stay of proceedings pending arbitration. The effect of clause 39.3 of the Distribution Agreement was that the parties seemed undecided as to their preferred method of dispute settlement. Under Nigerian law the parties' choice to resolve any dispute arising under their contract by arbitration must be clear, unequivocal and mandatory. A dispute resolution mechanism by which the parties are timorously posed between arbitration and litigation will not be enforceable.

Footnotes

1. (2023) 15 NWLR (Pt. 1906) 117.

2. Cap A18, Laws of the Federation of Nigeria 2004. The Arbitration and Conciliation Act (the ACA) was the applicable legislation at the time but has now been repealed and replaced by the Arbitration and Mediation Act 2023.

3. Section 52 provided the grounds for setting aside an arbitral award.

4. See section 57 of the ACA.

5. Section 251 of the 1999 Constitution.

6. (2018) LPELR-44429(CA).

7. See also Kabo Air Limited v The O Corporation Limited [2014] LPELR 23616 CA. The courts did not adhere to the strict jurisdictional dichotomy between the Federal High Court and the High Court of a State or the High Court of the Federal High Court in case of an application for the appointment of an arbitrator. In Magbagbeola v Sanni, (2005) 4 SCM upholding the decision of the Court of Appeal (2002) 4 NWLR (Pt 756) 193, the Supreme Court held on the basis of the definition of Court in section 57 of the Arbitration and Conciliation Act that both the Federal High Court and the State High Court have the jurisdiction to appoint an arbitrator.

8. (2024) 17 NWLR (Pt. 1968) 531

9. Reviewed in GAR 2023.

10. Where it held that since a debt had been admitted several times, there was no dispute within the contemplation of the arbitration agreement that ought to be referred to arbitration.

11. (2024) 6 NWLR (Pt. 1933) 57

Originally published by Global Arbitration Review.

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