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The European, Middle Eastern and African Arbitration Review 2016

Nigeria

Arbitration is growing in popularity among lawyers, the business community and the Nigerian citizenry as a means of settling disputes. The courts in turn have become increasingly receptive of alternative dispute resolution, and of arbitration in particular, as a means of resolving disputes, and in several cases have demonstrated their readiness to enforce arbitral awards. Although losing parties frequently petition the courts to set aside arbitral wards, such applications are infrequently granted. Arbitration in Nigeria is governed by the Arbitration and Conciliation Act (ACA),1 which provides for the grounds for setting aside arbitral awards, including where the arbitrator has ‘misconducted’ himself. Unfortunately, however, what constitutes ‘misconduct’ is not defined in the ACA, thus the courts have resorted to the definition of the term under common law for guidance.

Legal framework of arbitration in Nigeria

Nigeria is a common law country and the principal law on commercial arbitration is the ACA. Nigeria is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (otherwise known as the New York Convention) and has, in the ACA, domesticated the Convention. The ACA is in substantial conformity with the UNCITRAL Model Law, which was adopted at the Convention of the Commission on 18 June 1985, and recommended to member countries by the General Assembly of the United Nations on 11 December 1985. Although the UNCITRAL Model Law was revised in 2006, Nigeria has not yet amended the ACA to incorporate the revised provisions of the Model Law.

It is important to mention that although there is also the Arbitration Law of Lagos State,2 the validity of the Law is mired in controversy. We have therefore limited our consideration of the subject matter of this article to the provisions of ACA and judicial decisions.

Grounds for setting aside arbitral awards under the ACA

The grounds for setting aside arbitral awards are provided for in sections 29, 30 and 48 of the ACA. Section 29(2) of the ACA provides that the Court may set aside an arbitral award if the party making the application furnishes proof that the award contains decisions on matters that are beyond the scope of the submission to arbitration, so if the decisions on matters submitted to arbitration can be separated from those not submitted, only that part of the award which contains decisions on matters not submitted may be set aside. Section 30 provides that where an arbitrator has misconducted himself, or where the arbitral proceedings or award has been improperly procured, the Court may on the application of a party set aside the award.

Section 48 provides that the Court may set aside an arbitral award if the party making the application furnishes proof that:

  • a party to the arbitration agreement was under some incapacity;
  • the arbitration agreement is not valid under the law which the parties have indicated should be applied or, failing such indication, that the arbitration agreement is not valid under the law of the country where the award was made;
  • the aggrieved party was not given proper notice of the appointment of an arbitrator, or of the arbitral proceedings, or was otherwise not able to present his case;
  • the award deals with a dispute not contemplated by, or not falling within, the terms of the submission to arbitration;
  • the award contains decisions on matters that are beyond the scope of the submission to arbitration;
  • the composition of the arbitral tribunal, or the arbitral procedure, was not in accordance with the agreement of the parties;
  • the award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which, or under the law of which, the award was made;
  • the subject matter of the dispute is not capable of settlement by arbitration under the laws of Nigeria; or
  • the recognition and enforcement of the award will be against the public policy in Nigeria.

Misconduct as a ground for setting aside arbitral awards

As already mentioned in paragraph 1.1 above, Nigerian Courts are empowered to set aside any award where the arbitrator has misconducted himself. However, the ACA does not contain any definition of the term ‘misconduct’. As a consequence of this lacuna, the courts have resorted to the definition of ‘misconduct’ under the common law. In the case of Kano State Urban Development Board v Fanz Construction Company Limited,3 the Court of Appeal, relying on various English cases, distilled various acts and procedural irregularities that would constitute ‘misconduct’ by an arbitrator, including:

  • a breach of the rule of natural justice;
  • a breach of the rule of audi alterem partem;
  • the arbitrator obtaining information from one party in the absence of the other;
  • the arbitrator examining a witness in the absence of one party who was not given opportunity to cross-examine the witness afterwards;
  • the receiving of inadmissible evidence; and
  • the arbitrator acting outside his powers or in excess of his jurisdiction.

There are, however, caveats required by the courts that any such error has to appear on the face of the award and has to be only of the point of law that was not specifically referred to the arbitrator for decision.

In the case of Taylor Woodrow of Nigeria Limited v Suddeutche Etna-Werk GMBH,4 the Supreme Court of Nigeria was confronted with the question of the meaning of the term ‘misconduct’. The Court noted that the term ‘misconduct’ is not defined in the relevant law5 and that it was necessary to ‘fall back on the common law to determine what constitutes “misconduct”’. Consequently, the Court relied on the definition of the term in the Halsbury’s Laws of England,6 and provided the following examples of what constitute ‘misconduct’:

  • if the arbitrator or umpire fails to decide all the matters which were referred to him;
  • if by his award the arbitrator or umpire purports to decide matters that have not been included in the agreement of reference – for example:
    • where the arbitrator construed the lease (wrongly) instead of determining the rental and the value of buildings to be maintained on the land;
    • where the award contains unauthorised directions to the parties;
    • where the arbitrator has power to direct what shall be done but his directions affect the interests of third persons; or
    • where he decided as to the parties’ rights, not under the contract upon which the arbitration had proceeded, but under another contract;
  • if the award is inconsistent or is ambiguous, or if there is some mistake of fact, although in that case the mistake must be either admitted or at least be clear beyond any reasonable doubt;
  • if there has been irregularity in the proceedings – for example:
    • where the arbitrator failed to give the parties notice of the time and place of meeting;
    • where the agreement required the evidence to be taken orally and the arbitrator received affidavits;
    • where the arbitrator refused to hear the evidence of a material witness;
    • where the examination of witnesses was taken out of the parties’ hands;
    • where the arbitrator failed to have foreign documents translated;
    • where, the reference being to two or more arbitrators, they did not act together;
    • where the umpire, after hearing evidence from both arbitrators received further evidence from one without informing or hearing the other; or
    • where the umpire attended the deliberations of the appeal board reviewing his award;
  • if the arbitrator or umpire has failed to act fairly towards both parties – for example:
    • by hearing one party but refusing to hear the other or by deciding in default of defence without clear warning or by taking instructions from or talking with one party in the absence of the other;
    • by taking evidence in the absence of one party or both parties;
    • by failing to give a party the opportunity of considering the other party’s evidence;
    • by using knowledge he has acquired in a different capacity in such a way as to influence his decision or the course of the proceedings;
    • by making his award without hearing witnesses whom he has promised to hear; or
    • by deciding the case on a point not put to the parties;
  • if the arbitrator or umpire refuses to state a special case himself or allow an opportunity of applying to the court for an order directing the statement of a special case;
  • if the arbitrator or umpire delegates any part of his authority, whether to a stranger or to one of the parties, or even to a co-arbitrator;
  • if the arbitrator or umpire accepts the hospitality of one of the parties, being hospitality offered with the intention of influencing his decision;
  • if the arbitrator or umpire acquires an interest in the subject matter of the reference, or is otherwise an interested party.

Although the powers of Nigerian courts to intervene and set aside any arbitral award on grounds of misconduct are very wide, thejudges have demonstrated a readiness to support arbitration by refusing to set aside awards on mere allegations of misconduct. The decision of the Court of Appeal in the case of Arbico Nigeria Limited v Nigeria Machine Tools Limited7 further demonstrates the resolve of the courts not to set aside arbitral awards where unsubstantiated allegations of misconduct are made against an arbitrator. In this decision, the Court of Appeal dismissed an appeal against the ruling of a Lagos High Court by which the lower Court refused to set aside an award on grounds of alleged misconduct by the arbitrator. The case arose from a construction arbitration between Arbico (Nigeria) Limited (Arbico) and Nigeria Machine Tools Limited (NMT), which in turn arose from a contract awarded by NMT to Arbico for the construction of the foundation for a heavy parts assembly shop. In the course of the arbitration, NMT and Arbico made various claims and counter claims respectively. The arbitrator subsumed his consideration of the counter claim in his consideration of the main claim because, according to him, the counterclaim was predicated on whether or not there was a breach of the termination clause in the contract, which was also an issue in the main claim. In his award, the arbitrator found for NMT and Arbico applied to the High Court of Lagos State to have the award set aside on grounds of alleged misconduct by the arbitrator. NMT applied to the same court, for the enforcement of the award.

The allegation of misconduct levelled against the arbitrator by Arbico, in both the High Court and the Court of Appeal, was that by reformulating an issue referred to the arbitrator for determination the arbitrator had inadvertently excluded Arbico’s counter claim from his determination. A further allegation of misconduct made by Arbico was that by appointing a firm of architects and consultants to examine the remedial works carried out by Arbico, and by receiving their report into evidence, Arbico’s right to a fair hearing had been breached since the firm of architects and consultants did not accord Arbico a hearing before preparing their report.

The Court of Appeal unanimously dismissed Arbico’s appeal on all the allegations of misconduct and on the errors of law that Arbico claimed appeared on the face of the award. In the course of its judgment, the Court of Appeal considered the meaning of ‘misconduct’ as a ground for setting aside an arbitral award and held that ‘misconduct’ does not necessarily mean wilful misconduct or an act of moral turpitude, but rather conduct in the sense of mistaken conduct. The court restated the principles identified by the Supreme Court in the Taylor Woodrow case and emphasised that, notwithstanding its wide powers, the court would be reluctant to interfere with the arbitrator’s jurisdiction as the sole judge of law and fact unless it was compelled to do so.

Implications of the lack of definition of ‘misconduct’ and reliance on the common law definition

The absence of a definition in the ACA of what constitutes ‘misconduct’ as a ground for setting aside arbitral awards does not augur well for arbitral autotomy and finality.

First, the absence of a definition of the term ‘misconduct’ in the ACA constitutes the term into a capacious expression very much like an open-ended cylinder into which the courts can pigeonhole all kinds of notions of arbitral misbehaviour or irregularities. Thus the door is permanently left open for the courts to second-guess arbitrators by relying on the common law to determine what amounts to arbitrator misconduct on a case-by-case basis. As a consequence of this, misconduct has become a staple allegation against arbitral awards in Nigeria as virtually every decision of the arbitrator that the losing party does not agreed with is framed or characterised in terms of misconduct.

Second, the continued retention of misconduct as a ground for setting aside awards under the ACA seems to undermine the intendment and purport of section 34 of the ACA, which provides that ‘a court shall not intervene in any matter governed by this Act, except where so provided in this Act’. Although the court has been empowered to set aside an award on the basis of arbitrator misconduct, the exact contours of that term have not been clearly delimited thereby providing the courts a legal basis to indirectly exercise supervisory authority to review arbitral awards.

As already underlined above, notwithstanding the lacuna in the definition of ‘misconduct’ in the ACA and the reliance by the Supreme Court on the common law in filling up the gap which unfortunately has created a very large room for all manner of subterfuge against arbitral awards, the improved friendly attitude of Nigerian judges to arbitration has shown that they will not, on any bare allegations of misconduct, exercise the wide judicial powers against arbitral awards.

Conclusions and recommendations

Considering the nature of arbitration and the need to safeguard arbitral autonomy and ensure finality of arbitral awards, we suggest that the term ‘misconduct’ as a ground for setting aside arbitral award be clearly defined8 and proper standards for determining misconduct of an arbitrator established. It is worth noting that in England, the concept of arbitrator misconduct as a ground for setting aside an arbitral award has been replaced in the English Arbitration Act of 1996 with the term ‘serious irregularity’9 affecting the tribunal, the proceedings or the award, or that the arbitral tribunal had no substantive jurisdiction. We cannot agree more with Park and Paulson when they stated:

The power to set aside awards on the vague grounds of arbitrator misconduct should be replaced by a provision allowing awards to be challenged only for clearly enumerated procedural deficiencies, or for fundamental discord between what or how the arbitrator decided and what or how the parties authorized him to decide. Admittedly, rules flexible enough to be useful may not deter an aggressive Judge straining to impose what he sees as the right result in a controversy. Nonetheless, guidelines would provide arbitration lawyers with greater measure of predictability.10

It is our view, therefore, that leaving the term without a definition creates uncertainty and a lack of predictability regarding its scope, a situation which does not augur well for arbitration since it provides courts with a back-door opportunity to second-guess arbitrators and to exercise supervisory authority to review arbitral awards. We recommend that the ACA be amended in this regard in order to clearly and exhaustively delimit the scope and contours of the term ‘misconduct’ as a ground for setting arbitral awards under Nigerian law.

Notes

  1. Chapter A18 Laws of the Federation of Nigeria 2004. In 2006, the Lagos State enacted its own Arbitration law known as the Lagos State Arbitration Law. There is, however, a shadow of doubt regarding the validity of the Lagos law given the existence of the ACA which is a federal law that is said to have covered the entire field of arbitration in Nigeria. For a discussion of the issue of validity of the Lagos State Arbitration Law, see Uzoma Azikiwe and Festus Onyia, Arbitration in Nigeria: An Examination of the Lagos State Arbitration Law 2009, p. 64
  2. Law No. 10 of 2009 of Lagos State of Nigeria
  3. (1986) 5 NWLR (Pt. 39) 74 at 89-90
  4. (1993) 4 NWLR 127 at 141 (para H); 142 (paras A- H); 143 (paras. A-F). Subsequent decisions have followed the Supreme Court’s decision on what constitutes misconduct. See for example, A Savoia Ltd v Sonubi (2000) 12 NWLR (Pt.682) 547 (paras. D- H); Arbico (Nig) Ltd v Nigeria Machine Tools Ltd (2002) 15 NWLR (Pt 789) p. 24 (paras. F- H); 25 (paras. A- G). Triana Ltd v UTB Plc (2009) 12 NWLR (Pt.1155) 335 (paras A-h); 336 (paras. A-H) and 337 (paras A-C).
  5. The Court was interpreting section 12 (1) of the Arbitration Law Cap. 10 Laws of Lagos State (1973) which is similar to section 29 (2) of the ACA.
  6. 4th Edn. Vol. 2 at pages 330-331.
  7. See note 5 supra.
  8. The need to clearly define what constitutes misconduct brings to mind the statement by Louis Brandeis, J that ‘In most matters it is more important that the applicable rule of law be settled than that it be settled right.’ In Burnet v Coronado Oil and Gas Co, 285 US 393,447 (1932) (holding non – taxable a lessee’s oil income pursuant to government lease). Cited in Park, The 2002 Freshfields Lecture- Arbitration’s Protean Nature: The Value of Rules and the Risks of Discretion, p. 279.
  9. What constitutes ‘serious irregularity ‘is defined in section 68(2) and what constitutes ‘substantial jurisdiction’ is also defined in section 82 (1) of the English Arbitration Act 1996.
  10. See Park & Paulson, The Binding Force of International Arbitral Awards, 23 VA J INT’L L, 284-85.