Arbitration Clauses & Commercial Contractual Agreement

by Mokesioluwa Seun-Adedamola

Arbitration Clauses & Commercial Contractual Agreement¹

1. Introduction: Arbitration Clauses in Commercial Contracts have become a generally acceptable practice. Unfortunately, Parties have been known to disregard Arbitration Clauses and swiftly resort to the traditional court system to enforce the terms and provisions of such contracts or the resolution of any dispute arising from the contract. This Article seeks to probe the rationale behind the inclusion of Arbitration Clause in a Contract and the position of Nigerian Courts to the inclusion and the validity of Arbitration Clauses in Commercial Contracts.

2. What is an Arbitration Clause?: An arbitration Clause is a written consensus embodying the Agreement of parties to resort to Arbitration should any dispute arise with regards to the obligations which both parties have undertaken to observe²; it provides for compulsory arbitration in case of dispute as to rights and liabilities under such contract³. This presupposes that Arbitration is the first procedure which the Parties to that Contract intend to adopt in settling their grievances⁴

3. Does an Arbitration Clause Oust the Jurisdiction of the Court?: No, the jurisdiction of courts is statutory and not a matter of consent of parties, an Arbitration Clause therefore only seeks to temporarily suspend the intervention of the Court while parties seek other means of dispute resolution as agreed by them⁵.

4. Nigerian Courts and Arbitration Clauses: Being a clause embedded in a contract between parties, the Court would ordinarily uphold an Arbitration Clause as contained in the agreement of parties; it is settled law that parties are bound by the terms of their contracts and the Court would as much as possible uphold and enforce the terms of the contract and not allow parties renege on their undertakings.⁶

5. Arbitration: Whether a Must for Every Contractual Agreement: The Courts have declared that arbitration is merely procedural for ascertaining the rights of parties with nothing in it to exclude a right of action on the contract itself, it merely allows the party against whom an action may be brought to apply to the court to stay proceedings in the action in order that the parties may resort to the procedure which they agreed on. ⁷ In essence, parties are not obligated to insert an Arbitration Clause in their Contracts. A contract is therefore neither void nor voidable merely on the ground that it does not contain an Arbitration Clause. No Court can lawfully nullify a contract because it does not contain Arbitration Clause. 

6. Is an Arbitral Award Absolute? The disposition of the Nigerian Court is to intervene with caution and within strict guidelines in the review of an Arbitral Award; if at all. It is settled Law that an Applicant cannot ordinarily be heard complaining against the findings of the Arbitral Tribunal which on the face of it is good⁸ but in cases where there are allegations that the award is a result of corruption or that the Arbitrator is guilty of misconduct⁹, the Courts in these instances have handed out the indices upon which it may be said that an Arbitrator misconducted himself, thereby necessitating the setting aside of any award to wit:

1. An error of law on the face of an arbitral award: This means that one can find in the Award or a document actually incorporated therein, some legal proposition which is the basis of the award and which can be said to be erroneous. Thus, where it is impossible to say, from what is shown on the face of the award, what mistake, if any, the Arbitrator has made, or that the Arbitrator has tied himself down, on the face of his award, to some special legal proposition which is unusual, the award will not be disturbed.¹⁰.
2. Even when there is an error of law on the face of the Arbitral Award, the party seeking to set aside the award on such ground must show that the question(s) of law were not the ones specifically submitted to the Tribunal for determination but were unilaterally raised and determined by the Arbitral Tribunal. “… and where the question referred for arbitration is a question of construction, which is, generally speaking, a question of law, the arbitrator’s decision cannot be set aside only because the court would itself have come to a different conclusion; but if it appears on the face of the award that the arbitrator has proceeded illegally, for instance, by deciding on evidence which was not admissible, or on principles or construction which the law does not countenance, there is error in law which may be ground for setting aside the award. But the court is not entitled to draw any inference as to the finding by the arbitrator of facts supporting the award; it must take the award at its face value.”¹¹

7. Conclusion: This Article seeks to show that Nigerian Courts have great regard for the Arbitral agreement of Parties and would rarely intervene in reviewing a good Arbitral Award. While Parties often chose Arbitration because it’s faster and devoid of technicalities, Parties should be willing to be bound by the decision of the Arbitration as same was what they agreed to when they signed the Contract with the Arbitration Clause. Otherwise, since Arbitration Clauses are not compulsory in a Commercial Contract, Parties may choose to omit it from their contracts.

Footnotes

1. Kini Marcus is the Head of Chamber at the Convergence Law Practice and can be reached on info@convergencelp.com

2. M.V Lupex V N.O.C & S Ltd (2003)15 NWLR(Pt.844)16; L.S.W.C V Sakamori Const. Nig. Ltd(2013)12 NWLR (Pt.1262)569@598, paras B-C.

3. BCC Tropical Nigeria Ltd. V. The Government of Yobe State of Nigeria & Anor (2011) LPELR-9230(CA) (P. 13, paras. D-F)

4. Felak Concept Ltd V A-G., Akwa-Ibom (2019)8 NWLR(Pt.1675)433@ P456, Paras A-C.

5. Lignes Aeriennes Congolaises V. Air Atlantic Nigeria Ltd. (2005) LPELR-5808(CA) (P. 31, paras. B-F)

6. Obanye V U.B.N Plc. (2018) 17 NWLR (Pt.1648)378 @ p.389, paras D-F

7. Felak Concept Ltd V A-G., Akwa-Ibom (2019)8 NWLR (Pt.1675)433@ P456, Paras A-C.

8. Mutual Life Gen. Ins. Ltd. v. Iheme (2014) 1 NWLR (PT 1389) p. 670 at 692, paras. F-H; Commerce Assurance Ltd. v. Alhaji Buraimoh Alli (1992) 3 NWLR (pt. 232) p.710 at 725, paras. E-G

9. Section 30 of the Arbitration and Conciliation Act CAP A18 (‘‘ACA”) Laws of the Federation of Nigeria 2004.

10. Taylor Woodrow v. S.E. GMBH (supra) at 144, paras. F-H

11. Halsbury’s Laws of England 4th Edition at paragraph 623 on page 334

Credit:Mondaq