Analysing Nigeria’s Choice Of Law Regime For Cross-Border Contracts

by Tochukwu Martins Itumo (Lagos)

Introduction:

Nigeria is one of the largest economies in Africa. With a population of over 200 million, the country is a veritable hub for international trade and investments in various sectors including shipping, banking, technology, agriculture, manufacturing and fintech. Foreign investment in Nigeria and related transactions generally involve the interplay of two or more national laws. Where disputes arise in these circumstances, the applicable law is determined by applying the appropriate choice of law principles. Therefore, a person doing business in Nigeria must necessarily be aware of the rules regulating the choice of law in the cross-border contract(s) to which he/she is a party.

For cross-border contracts, once a Nigerian Court assumes jurisdiction for a matter brought before it, it must decide what law should apply, i.e., either to apply its local law or call for the application of the law of another country in determining the matter. The rights/obligations of the parties are then determined according to the identified law. Where the laws of two or more countries can be alternatively applied to a dispute arising out of a single business relationship, a conflict of laws situation is said to have arisen.

When a such conflict exists, procedures need to be in place to resolve them. Conflict of laws (also known as Private International Law) describes the body of law of each country that is designed to resolve problems arising from the differences between legal systems. It is that body of jurisprudence that undertakes to reconcile such differences including which country’s Court has jurisdiction, which country’s law is applicable and enforcement of foreign judgments. The scope of this article is limited to the principles applied by Nigerian Courts in deciding which country’s law is applicable in cross-border disputes arising out of contracts. The choice of applicable law is important because national laws and the structure of domestic judicial systems vary considerably from country to country.

Choice of Law Rules in Nigeria

A “choice of law” or “governing law” provision in a contract allows the parties to a contract to agree that a particular country’s laws will be used to interpret the contract, even if the contract was executed in a different country. This concept is fundamental to questions relating to the formation, validity, interpretation, performance, and enforcement of a contract.¹

As a former British colony, Nigeria’s Conflict of Law Rules is largely influenced by the English legal system. With respect to the choice of law rules in contractual transactions, England enacted the Contracts (Applicable Law) Act of 1990 to give effect to the Rome Convention on the Law Applicable to Contractual Obligations (the “Rome Convention”). Nigerian is not a Party to the Rome Convention. Nigeria is also not a member of the Hague Conference on Private International Law. Consequently, and in the absence of local legislation, Nigerian Courts and legal practitioners adopt the traditional common law rules developed by English Courts. Interestingly, notable English decisions on the Choice of Law for international disputes are influenced by the Rome Convention.

Choice of law clauses is commonplace in cross-border contracts. The primary purpose of such clauses is to agree beforehand and avoid uncertainty over the law that would govern any disputes that may arise out of the relationship created by the contract. This is why ‘floating law clauses’ are regarded as invalid at common law. Floating law clauses are the contractual choice of law clauses that leave the determination of the applicable law open until a later date, or to be determined by one or both of the parties after execution or subject to an event after the date of making the contract.² In view of this common law prohibition, parties are expected to expressly provide the applicable choice of law that will guide their contract at the time of execution.

Nigerian Courts recognise the choice of law clauses in accordance with the proper law of contract doctrine.³ The proper law of contract is the law that the parties intended to apply to their transaction as evidenced expressly in their contract. Nigerian Courts have in several cases⁴ restated the basic principle of freedom of contract – that the parties retain the commercial freedom to determine their own terms, and once they are ad idem and have reduced their intentions into writing, such terms will be binding and enforced by the Court. In Nika Fishing Co. Ltd v. Lavina Corporation⁵, the Parties to the bill of laden are a Nigerian Importer and an Argentine ship owner/charterer.

The bill of laden provides that disputes between the Parties shall be decided “in the country where the carrier has his principal place of business, and the law of such country shall apply…”. The Supreme Court of Nigeria ordered a stay of proceedings of the Suit pending at the Federal High Court of Nigeria and held that the dispute between the Parties should be decided in Argentina and in accordance with Argentine laws, as agreed in the bill of laden. In his judgment, Niki Tobi JSC, held that “the bill of laden contains the contractual terms between the Parties and therefore binding on the Parties. Parties are bound by the conditions and terms in a contract they freely enter into”.⁶

Judicial Exceptions to the Parties’ Choice of Law

While the general rule is that parties are bound by the express terms of their contract regarding the choice of applicable law (and jurisdiction), Nigerian Courts have exercised discretion as to whether to be bound by the Parties’ choice or not. In doing so, they follow the test set by Brandon J. in The Eleftheria⁷. The Brandon test entails that English Courts are not bound to follow the choice of jurisdiction/law clause in an agreement but have the discretion to do so or not. In the exercise of its discretion, the Court should take into account all the circumstances of the particular case, viz –

(a) In what country the evidence on the issues of fact is situated, or more readily available, and the effect of that on the relative convenience and expense of trial as between the English and foreign Courts

(b) Whether the law of the foreign Court applies and, if so, whether it differs from English law in any material Respect?

(c) With what country either party is connected, and how closely?

(d) Whether the Defendants genuinely desire trial in the foreign country, or are only seeking procedural advantages?

(e) Whether the Plaintiffs would be prejudiced by having to sue in the foreign Court because they would (i) be deprived of security for that claim? (ii) be unable to enforce any judgment obtained? (iii) be faced with a time bar not applicable in England? or (iv) for political, racial, religious or other reasons be unlikely to get a fair trial?

The Brandon test has acquired wide acceptability in Nigerian Courts and was given judicial approval by the Nigerian Supreme Court in Sonnar (Nig) Ltd & Anor v. Partenreedri M.S. Nordwind & Anor⁸ where it held among other things, that deferring a dispute to a German Court or under German law (as agreed by parties), when the claim was already statute-barred under German law, would frustrate the claim of the Plaintiffs. The Court also held that choosing German law in the circumstances was “capricious and unreasonable”.

The choice of law clause in a contract is also subject to certain restrictions. These restrictions are regarded as mandatory notwithstanding any contractual arrangement and cannot be avoided by the parties. As such, Nigerian Courts consider its applicability in every case as against the wishes of the parties in the contract. General instances include illegal contracts⁹, contracts rendered void by statute¹⁰, contracts void on grounds of public policy¹¹, contracts tainted by fraud and undue influence, or where the choice was not made bona  fide¹² and its recognition by the Courts will adversely affect a party’s right in the contract¹³.

According to the Privy Council in Vita Food Products Inc. v. Unus Shipping Co. Ltd. (In Liquidation)¹⁴, the intention expressed by the parties must be “bona fide” and “legal”, and there must be “no reason for avoiding the choice of law on the ground of public policy.” The Nigerian Court of Appeal applied public policy considerations in Hyd Road & Others Tech Ltd v. Abia State Government of Nigeria¹⁵, where it held that the Abia State Government cannot seek refuge under the Limitation Law of the State in an international contract which has been performed. The Court reasoned that applying a law that bars the foreign company from seeking redress would “dent [Nigeria’s] image in the international community and scare away genuine investors”.

Moreover, in situations where there is no express choice of law in the contract, the Courts are bound to ascertain the intention of the parties having regard to the totality of the contract, the conduct of the parties and the circumstance of the case.¹⁶ According to the proper law of contract doctrine, where parties fail to choose the applicable law expressly or impliedly, the law governing the transaction must be determined by identifying the system of law with which the transaction has its closest and most real connection. At common law, every factor connected with a contract must be taken into account to determine the law that has the closest and most real connection to that contract.¹⁷ 

Factors which have been considered in this regard are the law of the place where the contract was negotiated or concluded (lex loci contractus), the law of the place where performance was intended (lex loci solutionis), the law of the Court where the dispute is submitted for trial (lex fori),  the domicile of the contract parties, and the law governing related transactions. Also, the Courts may conclude that the express choice of forum by the parties without expressly choosing a different law to govern their rights and obligations suffices to establish a strong presumption that the express choice of forum by the parties indicates that the law of the chosen forum should apply.¹⁸ 

In Hyd Road & Others Tech Ltd V. Abia State Government of Nigeria¹⁹, the Appellant – an English Company and the 1^st Defendant – the Abia State Government of Nigeria entered a Contract for the Arochukwu/Ohafia Water Supply Project. In Clause 25 of the Contract, it was agreed that English law shall apply and that proceedings can be commenced at the High Court of Justice in England as well as in any other jurisdiction, in this case, Nigeria (in the High Court of Justice, Umuahia). The Court of Appeal held that the trial High Court of Umuahia was right to choose the lex fori since the parties envisaged that it is not only English law that will govern their transaction.

Conclusion

The law applicable to a contract whether chosen by the parties or found by default of choice and including any mandatory rules imported into it, governs the substance of the obligations of the parties. It is evident from the foregoing that Nigerian Courts are largely influenced by common law decisions with respect to their choice of law rules. Since independence, however, there is yet no legislation specifically dealing with the choice of law in contractual disputes. Without legislative guidance, Nigerian Courts have had to sift through decisions of other common law countries to properly interpret questions of choice of law and of other conflict of law issues. It is thus understandable why there is a paucity of decided Nigerian cases on the subject. Today’s global economic integration via technology requires that Nigeria develop its conflict of laws rules to a global comparable standard.

It is imperative that legislation²⁰ be enacted to address choice of law matters with respect to contracts. The Federal Government of Nigeria should also consider becoming a signatory to relevant international Conventions in this regard. Nigeria can also become a member of the Hague Conference on Private International Law. Since its inception, over 40 Conventions and Instruments have been adopted under its auspices.21 If Nigeria were to become a signatory to some of these Conventions, it may enhance the potential for increased cross-border contractual relationships, thereby increasing international trade and investment in Nigeria.

1 The Iran Vojdan [1984] 2 Lloyd’s Rep 380, 385.

2 See the Hong Kong case of Trafalgar House Construction (Asia) Ltd & Another v The Owners and/or Demise Charterers of MV [1999] 2 HKLRD 136, at 142, Mortimer V-P

3 See the following cases – Nika Fishing Co. Ltd v. Lavina Corporation (2008) 35 NSCQR; Nimanteks Associates v. Mercc Construction Co. Ltd (1991) 2 NWLR (PT. 174) 411

4 Nika Fishing Co. Ltd v. Lavina Corporation (2008) 35 NSCQR 1 at 40; Race Auto Supply Co. Ltd & Ors v. Akib (2006) LPELR-2937(SC); Nimanteks Associates v. Mercc Construction Co. Ltd (1991) 2 NWLR (Pt. 174) 411.

5 Supra

6 See the Supreme Court decision in Sonnar (Nig) Ltd & Anor v. Partenreedri M.S. Nordwind & Anor (1987) 4 NWLR (Pt. 66) 520; where it was held that “it is in the interest of international commercial relations for Courts to be wary about departing from a choice of forum or laws made by parties in their contract.”

7 (1969) 1 Lloyds L.R 237

8 (1987) 4 NWLR (Pt. 66) 520

9 For instance, a contract to commit a crime or fraud on a 3^rd Party; a contract that is sexually immoral; a contract prejudicial to public safety or to the administration of justice; a contract to defraud the revenue.

10 See section 20 of the Admiralty Jurisdiction Act, 1991 which voids agreements that seek to oust the jurisdiction of the Federal High Court of Nigeria in admiralty matters.

11 In Beaumont Resources Ltd & Anor v. Dwc Drilling Ltd (2017) LPELR-42814(CA), the Court of Appeal held as follows, “… as a matter of public policy our Courts should not be too eager to divest themselves of the jurisdiction conferred on them by Constitution and by other laws simply because the parties in their private contracts chose a foreign forum and a foreign law.”

12 See Hyd Road & Others Tech Ltd V. Abia State Government of Nigeria (Supra)

13 Sonnar (Nig) Ltd & Anor v Partenreedri M.S. Nordwind & Anor (1987) 4 NWLR (Pt. 66) 520

14 [I939] I All E.R. 5I3.

15 (2014) LPELR-24375(CA)

16 See Nanka Bruce Vs Common Wealth Trust Ltd (1926) AC 77

17 Re United Railways of the Havana and Regla Warehouse Ltd [1960] Ch 52, 91.

18 See Basoroum v Clemessy International (1999) 12 NWLR 516.

19 Supra

20 Such as the English Contracts (Applicable Law) Act of 1990

21 There are several HCCH Conventions on Conflict of Laws that adequately cover cross-border commercial relationships and disputes.

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