Why Your Sales Agreement/Offer Letter Should Contain An Arbitration Clause

By Caleb Nicholas Echoga

In a landmark judgement, the Supreme Court on the 15^th of February, 2019 put an end to a 44-year-old property/land dispute involving Okpuloji Abba Town, and Umugama and Oranto/Akpu Villages (all in Anambra State) as it upheld the later to be the rightful owners of the disputed land which formed the crux of the age-long dispute. The dispute, which is arguably Nigeria’s longest land dispute was filed in the High Court of Anambra State in the year 1977 as suit AA/53/75 and judgement was delivered in the court of first instance in 1999. Following a subsequent appeal, the Court of Appeal in 2016 yet again found for the Umugama and Oranto/Akpu Villages as Respondents and the Supreme Court equally entered judgement in their favour in 2019.

The above illustrates the typical delay, uncertainty, loss of business and agonising episodes Parties in property or land disputes have to face when such disputes linger in Courts. Indeed, recounting the unpalatable taste of lingering Court disputes seems a statement of the obvious and perhaps the more important question is what one can do to avoid the pitfall of prolonged litigation.

Arbitration – A Tip for Real Estate Companies/Developers

This article is helpful to real estate companies because as land owners and developers, they face the constant risk of being sued either by subscribers to the units of houses they sell or their partner in the occasional joint venture agreements they go into. A useful solution and approach to addressing the risk of prolonged litigation is simply the insertion of an arbitration clause into the Sales Agreement or Offer Letters executed between real estate companies and their subscribers.

What then is arbitration? Professor Fabian Ajogwu gives a very helpful definition of arbitration within the context of its suitability as an antidote for lingering disputes – “Arbitration is the fair resolution of a dispute between two or more parties by a person or persons other than by a court of law. It is the reference of a dispute by parties thereto for settlement by a person or tribunal of their own choice rather than a court”. Arbitration as an alternate dispute resolution (ADR) i.e., an alternative to litigation essentially has the following general advantages over everyday litigation:

• Faster resolution of disputes and dispensation of justice;
• Comparative cost-effectiveness;
• Appointment of an arbitrator who better understands the dispute as against a government appointed judge who may not.
• Protection of business or trade secrets that can be lost in litigation proceedings; and
• Less rigidity and formality.

The Benefits  for Real Estate Companies

The most beneficial advantage arbitration offers any real estate business is the protection of its business and economic interests. As already stated, everyday litigation has the propensity to stall business in many ways that can only be imagined. For instance, one common problem real estate companies are fraught with, arises when their subscribers (for whatever the cause of the dispute may be), institute suits and obtain injunctions against real estate companies preventing them from dealing with the land/property which forms the subject matter of the dispute.

Depending on the nature of the injunction obtained, the Company can be restrained from further developing the land which invariably means the Company would be unable to fulfil its obligation to deliver units to other subscribers. Sometimes, the injunction could span as much as freezing the accounts of a developer on the grounds that it contains the funds paid by a subscriber for a unit not yet delivered. What could constitute the scope of an injunction are in their numbers and they are best avoided.

In a balanced view, however, does this suggest that injunctions may not be obtained in arbitration proceedings? The answer is a definite no. But the difference lies in the fact that whilst such an injunction may last for the pendency of the arbitration which may be a couple of months, in litigation, an injunction could last for years for a legion of reasons: the court not sitting for unknown reasons; court vacations; long adjournments; genuine cases of a judge being ill, the transfer of judges or their promotion etc.

The Way Forward

Moving forward, real estate companies should include arbitration clauses in their Sales Agreements for all of the benefits mentioned above. A good arbitration clause should have the following qualities:

• Intention to be Binding: Where the intent is for the agreement to be resolved by arbitration, the word “shall” which makes resort to arbitration should be used, as opposed to “may” which allows for recourse to litigation without exploring the arbitration option.
• Place/Venue: The venue of the arbitration should be carefully selected; instances abound where parties resident in Nigeria have inadvertently chosen locations far from Nigeria and have had to incur costs to undergo arbitral proceedings in such locations.
• Governing Law: The law governing the arbitration should be carefully selected and be one Party are comfortable with. For instance, it would be preferable to use Nigerian law or the law of some other common law jurisdiction as opposed to that of a country whose legal systems are unfamiliar.

NOTE: The above information should only serve as a tip to interested readers and should not be relied upon as legal advice. If you seek to utilise arbitration in the resolution of your contractual disputes, the services of a legal professional should be engaged.

ABOUT THE AUTHOR

Caleb Nicholas Echoga is a Partner and the Team Lead of the Business Advisory and Regulatory Compliance Practice at Chayfield Law Practice (chayfieldlawpractice.com.ng).

He can be reached at: 08133167586, chayfieldlawpractice.com.ng,  chayfieldlegal@gmail.com

Credit:TNL