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20 April 2020

Introduction

Arbitration as a means of settling of commercial disputes has continued to gain prominence in Nigeria. Recent judicial decisions from Nigerian courts indicate that the courts in Nigeria are maintaining a supportive approach to arbitration and are committed to ensuring that parties who have agreed to submit their disputes to arbitration are held to their bargain and not allowed to either resile from their agreement when it seems inconvenient or to attack the resulting arbitral award on frivolous grounds usually dressed up as grounds of misconduct.

In this chapter, we will examine some of the decisions of the Nigerian courts in 2019 and their significance to the law and practice of arbitration in Nigeria. While some of the decisions reiterate settled principles of Nigerian law relating to arbitration, some of them opened new dimensions of discussions in relation to the specific subject matter. Yet again, some of the decisions could and should indeed serve as a guiding tool or compass to parties who wish to enter into contracts with arbitration clauses, in situations or circumstances where Nigeria would be either the seat of the arbitration or the agreement would be governed by Nigerian law.

Challenging an arbitrator

Nigerian National Petroleum Corporation v Total E & P Nigeria Limited and 3 Others [1]

Summary of facts

In this case, the applicant, the Nigerian National Petroleum Corporation [2] (NNPC) and the respondents entered into a production sharing contract (PSC) whereby they lifted and shared crude oil. In the year 2014, the respondents alleged that the NNPC lifted crude oil in excess of its entitlement as contained in the production sharing contract terms. On the 16 June 2015, the respondents issued a notice of arbitration to the NNPC in respect of the alleged breach. Following that, the NNPC and the respondents appointed arbitrators, both of whom then appointed Dr Wolfgang Peter as the chairman of the tribunal. The parties also agreed that the venue of the substantive hearing would be in Lagos, Nigeria.

A procedural timetable was also drawn up to govern the proceedings. The NNPC did not file its papers according to the timetable, did not pay their own share of the costs of the arbitration and did not notify the tribunal of the reason for the default. It was not until the tribunal invited the NNPC to explain the reason for these delays that it applied for an extension of time to file its papers with reasons. Although the respondents objected to the NNPC’s application for extension of time, the tribunal directed that no further correspondence was required on the issue of extension and granted the NNPC five weeks to file its statement of defence.

The NNPC then filed an application challenging the impartiality of Dr Wolfgang Peter and requesting also that the other members of the tribunal be removed or, alternatively, terminating their mandate. The NNPC alleged that Dr Wolfgang failed to make certain disclosures upon his appointment regarding his relationship with it (the NNPC) and considered him to be biased and partial. On the 15 February 2018, the tribunal published its decision on the challenges made by the NNPC and dismissed the objection.

The NNPC thereafter filed an application in the Federal High Court seeking an order of the court disqualifying Dr Wolfgang Peter from acting as the presiding arbitrator, terminating the mandate of Dr Wolfgang Peter or setting aside the interlocutory award of the arbitral tribunal made by the arbitral tribunal comprising Dr Wolfgang Peter with Stephen L Drymer and AB Mahmoud SAN on the wings.

The grounds of the application were that Dr Wolfgang Peter is the founding partner of a law firm known as Python & Peter and that that since 1997 the law firm of Python & Peter had become involved in the representation of Interocean Oil Development Company Nigeria and Interocean Oil Exploration Company Nigeria against the NNPC, which culminated in an investment arbitration at the International Centre for Settlement Disputes (ICSID) against the Federal Republic of Nigeria in ICSID Case No. Arb/13/20. It was argued that the said ICSID arbitration was, in reality, against the NNPC only and that the Federal Government of Nigeria was the party of record because it was an ICSID arbitration; that Dr. Wolfgang Peter was fully abreast and part of the matter and indeed participated as one of the counsel in the said investment arbitration; that Dr Wolgang Peter deliberately made a vague disclosure where he described a Jacques L Jones of his firm as ‘of counsel’ and that Jaques L. Jones has a stake in Interocean Oil Development Company Nigeria (the claimant in the ICSID arbitration) and gave evidence as the principal witness in the investment arbitration. The NNPC argued that the facts basing the challenge were discovered by the NNPC in December 2016 and that they gave rise to justifiable doubts as to Dr Wolfgang’s impartiality in the arbitration.

Other grounds in support of the application were that on 19 January 2017, the NNPC applied for oral hearing of its challenge in Lagos and that although the respondents initially opposed the request for an in-person or oral hearing in Lagos and proposed instead a hearing via video conference, they subsequently withdrew their objections and agreed to the request for an in-person hearing in Lagos or anywhere else. However, an order made on 6 September 2017 by the arbitral tribunal refused the NNPC’s request for an in-person hearing in Lagos or anywhere else and gave the parties the opportunity to make summary oral submissions during a hearing to be held by video conference or conference call. Then, by a procedural order made on 15 February 2018, the arbitral tribunal dismissed the NNPC’s challenge applications, thereby evincing bias and partiality. Based on the foregoing grounds, the NNPC stated that it had lost confidence in the arbitral tribunal.

In its decision, the Federal High Court noted that section 9(3) of the Arbitration and Conciliation Act [3] (ACA) provides that unless the arbitrator who has been challenged withdraws from office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge. The court further noted that article 12(1) of the arbitration rules contained in the first schedule to the ACA provides that, where an arbitrator is challenged and the challenged arbitrator does not withdraw and the other party does not accept the challenge, then the challenge shall be decided by:

  • the court where the arbitrator was appointed by the court;
  • the appointing authority, if the appointment was made by an appointing authority; or
  • in all other cases, the appointment shall be made by the court.

The court noted that the arbitration agreement between the parties did not contain any provision on the procedure for challenging an arbitrator and did not also refer to the Arbitration and Conciliation Rules. The court took the view that while section 9(3) of the ACA and article 12(1) of the Arbitration Rules are complementary rather than in conflict, section 9(3) being a substantive provision in the ACA itself, would prevail even of both provisions were to be in conflict. The court then concluded that it was the section 9(3) that governed the challenge in this case.

Based on the foregoing, the court held that, since the arbitral tribunal had already decided the challenge in its decision of 15 February 2018, the decision was final and binding on the parties and that the ACA has not given court the power to review such a decision. On this basis the court declined jurisdiction to determine the merits of the challenge.

Comments

The case draws attention to the apparent conflict [4] between the provisions contained in section 9(3) of the ACA and article 12(1) of the Arbitration Rules that are scheduled after the ACA, and the need for parties to consider indicating in their arbitration agreement which of the two provisions should apply in the case of a challenge to an arbitrator or to the entire arbitral tribunal. The implication of the court’s decision is that the provisions of section 9(2) of the ACA would become the default challenge procedure where the parties have not agreed a challenge procedure, which is just as well given that, in this event, the challenge would be decided by the arbitral tribunal rather than the courts were article 12(1) to apply. [5]

It is to be noted that the court declined jurisdiction to entertain the NNPC’s challenge application on the grounds that the ACA has vested the tribunal with the jurisdiction to determine arbitrator challenge in circumstance where, as in this case, the arbitration agreement did not contain a procedure for challenging the appointment of an arbitrator and has not given the court the jurisdiction to review or second guess the tribunal’s decision on that issue. According to the Federal High Court:

the position that the decision of the arbitral tribunal on a challenge to its authority is final is a deliberate policy choice, and indeed done to demonstrate the wider policy of zero or minimal judicial intervention in arbitration, and to deny parties the utilization of the courts to scuttle the arbitration contract which they have freely entered into.

The court’s decision is a welcome development and echoes the policy of minimal judicial intervention in arbitration matters that is encapsulated in section 34 of the ACA, which provides that a court shall not intervene in any matter governed by the ACA except where so provided in the act.

Felak Concept Ltd v A-G, Akwa Ibom State [6]

Summary of the facts

In this case, the appellant, Felak Concept Limited (FCL) had placed adverts in some national newspapers raising a caveat against the attempt by the Akwa Ibom state government of Nigeria (AKSG) to appoint a transaction adviser or project consultant for the third phase of the Ibom Deep Seaport Project, a project being executed by the AKSG in partnership with the federal government of Nigeria, and in respect of which FCL was a consultant or transaction adviser. The attorney-general of the AKSG, who was the respondent in the appeal, then approached the High Court of Akwa Ibom State (the trial court) and obtained interim injunctive reliefs against FCL contending, inter alia, that the contract with FCL had a lifespan of 16 weeks, which had expired without being renewed, and that the implications of the emerging controversy for the said project were dire and irreparable. On being served with the writ of summons and the interim injunctive orders, FCL approached the trial court with an application seeking:

  • to set aside the interim injunctive orders granted against it on the grounds that the trial court lacked jurisdiction;
  • an order referring the dispute between the parties to arbitration; and
  • an order of stay of proceedings pending arbitral proceedings.

The application was opposed by the AKSG and, after taking arguments from the both parties, the trial court refused the application. FCL was aggrieved and appealed to the Court of Appeal. At the Court of Appeal, it was considered whether the trial court was right to have refused the application of the appellant to discharge the interim orders of injunction, to grant stay of further proceedings and refer the dispute between the parties to arbitration in line with the provision of clause 9.1 of the consultancy agreement between the parties. Clause 9.1 of the consultancy agreement provided that:

Any dispute arising between the parties hereto from the execution of this agreement, which cannot be mutually settled, shall be resolved in accordance with the Arbitration Law applicable in Akwa Ibom State and each party shall bear the cost of arbitration.

However, clause 9.2 provided that

Notwithstanding provisions of paragraph 1 above either party may apply to a court of competent jurisdiction for settlement.

FCL argued that the refusal of the trial court to stay proceedings in the suit instituted by the respondent and to refer the suit to arbitration was in breach of the arbitration agreement contained in clause 9.1 of the consultancy agreement between the parties, as well as section 5 of the ACA. FCL further argued that the right of a party to litigation, irrespective of an arbitration clause, is automatic and need not be specifically set out as was done in clause 9.2, as arbitration does not oust the jurisdiction of a court but merely puts it in abeyance pending the outcome of the arbitration. Once parties agree to resolve their disputes by arbitration, FCL argued, a saving clause which preserves the right to litigation as in clause 9.2 must be construed to preserve the primacy of arbitration clause. FCL urged the Court of Appeal to hold that the effect of clauses 9.1 and 9.2 of the consultancy agreement was that any disputes arising thereunder must be resolved by arbitration. FCL finally contended (in relation to arbitration) that the trial court ought to have granted stay of proceedings in the suit as envisaged by section 5 of the ACA and that it met all the conditions precedent to the grant of stay of proceedings in the application before the trial court, while the respondent failed to establish any reasons why the matter should not be referred to arbitration. Finally, FCL urged the Court of Appeal to set aside the decision of the trial court and grant a stay of proceedings pending arbitration.

In response to FCL’s submission, the AKSG submitted that from the construction of clauses 9.1 and 9.2 of the consultancy agreement it would be seen that the parties had no binding arbitration clause as found by the trial court; that the word ‘notwithstanding’ contained in clause 9.2 completely neutralised the arbitration agreement in clause 9.1 and thereby gave unfettered right to the respondent to commence the action.

The court’s decision

The Court of Appeal reviewed earlier cases on the binding nature of an arbitration clause and held that to be binding, an arbitration clause must be mandatory, precise and unequivocal. The court also held that a court is bound to stay proceedings in favour of arbitration unless it is satisfied that there is sufficient reason to justify the refusal to refer the dispute to arbitration. The Court of Appeal took the position that the word ‘notwithstanding’ used in clause 9.2 of the consultancy agreement had the effect of excluding or neutralising the the arbitration agreement comprised in the preceding clause 9.1. According to the court:

While litigation may be open to parties and need not be stated in contracts between parties as contended by the appellant, the presence of an arbitration clause would have superceded litigation but by expressly subjugating arbitration to litigation, the parties herein by their own hands stated their preference and it is not for the courts to contradict them simply to promote arbitration.

Comments

The arbitration agreement contained in clause 9.1 of the consultancy agreement was a specie of a ‘pathological arbitration clause’. The arbitration agreement was, for that reason, ineffective and unworkable having provided for arbitration and litigation at the same time but with primacy given to litigation.

The decision above emphasises the need for parties to be much more circumspect in expressing their intention to resort to or their preference for arbitration rather than litigation. As demonstrated in the case under discourse, the presence of an arbitration clause simpliciter will not move a court to order a stay of proceedings. The court will look at the relevant arbitration clause in conjunction with other clauses to determine whether such clause is mandatory, precise and unequivocal. Where it is found that an arbitration clause is not mandatory, precise and unequivocal, or has been made subject to another clause which demonstrates the preference of the parties for another form of dispute resolution such as litigation, the party who seeks a stay of proceedings pending arbitration will be unsuccessful in such application. It has been said that equivocation is a cardinal sin when drafting an arbitration clause.

If the parties want arbitration, they should say so clearly. Some negotiators seem to believe that they can remain in limbo, poised timorously somewhere between arbitration and ordinary court action and not needing to strike out on one path or the other until a dispute arises. This is a fallacy. If the arbitration clause does not exclude recourse to the jurisdiction of the ordinary courts, one simply cannot rely on the arbitration agreement. [7]

This decision therefore underscores the need for parties who intend to refer their commercial disputes to arbitration, rather than litigation, to carefully think through their choice of arbitration clause with a view to ensuring that such clause is enforceable and does not suffer from a pathological defect that would render it ambiguous and unenforceable.

Mekwunye v Imoukhuede [8]

Summary of the facts

In this case, Mr Charles Mekwunye (the appellant), as landlord, and Mr Christian Imoukhuede (the respondent), as tenant, entered into a tenancy agreement containing an arbitration clause. Clause 3(c) of the tenancy agreement between the parties provided inter alia that:

…any conflict and/or disagreement arising out of these presents… shall be referred to a sole Arbitrator that shall be appointed by the President of the Chartered Institute of Arbitrators, London Nigeria Chapter…

A dispute arose between the parties and the appellant requested the President of the Chartered Institute of Arbitrators (UK) Nigerian Branch to appoint an arbitrator. They appointed a sole arbitrator to determine the dispute between the parties. Upon the appointment of the arbitrator, the respondent protested and challenged the arbitration but subsequently withdrew his objections and participated in the proceedings. An award was made against the respondent who applied to the High Court to set aside the award. The Court of Appeal overturned the decision of the High Court and set aside the award on the grounds, among others, that the notice of arbitration was defective.

The appellant, as the award creditor, prosecuted further appeal to the Supreme Court. At the Supreme Court, the contention of the respondent were that the notice of arbitration was defective in that it did not comply with the requirements of article 3(3) of the Arbitration Rules made pursuant to the ACA. Specifically, the respondent contended that the notice of arbitration failed to indicate:

  • the general nature of the claim;
  • the amount involved; and
  • the relief or remedy sought as contained under sub-paragraphs (e) and (f) of article 3(3) of the Arbitration Rules.

Other grounds on which the respondent sought to have the award set aside were that the ‘Chartered Institute of Arbitrators, London Nigeria Chapter’, is a non-existent body and therefore the arbitration agreement was unenforceable; that the parties to the arbitration ought to have been involved in the appointment of the sole arbitrator and that the arbitrator was guilty of misconduct by delegating her duties to a third party when she wrote to the parties on the letterhead of her law firm rather than her personal letterhead.

The court’s decision

On the issue of the notice of arbitration not complying with the provisions of article 3(3) (e) and (f) of the Arbitration Rules, the Supreme Court held that the notice of arbitration met the condition precedent required to commence an arbitration under the ACA. The court held that the respondent could not feign ignorance of the general nature of the claim, the amount involved or the relief or remedies sought by the appellant particularly because the notice of arbitration had attached to it every necessary and available document regarding the claim. The court also held that even if the notice of arbitration did not comply strictly with the requirements of article 3 (3) (e) and (f) of the Arbitration Rules, that there was substantial compliance with the law and that the doctrine of substantial compliance meant that the technical failure that does not amount to substantial deviation from the statute would be overlooked. Furthermore, the court held that the respondent had waived any rights that he might have had to challenge the award because he participated in the proceedings and withdrew his initial objections to the proceedings.

On the respondent’s contention that the arbitration agreement was unenforceable because it referred to a non-existing body, the Supreme Court restored and upheld the High Court’s decision, which had described the error as a matter of semantics. According to the Supreme Court:

there is no doubt that there was an error in the name as contained in clause 3(c) of the arbitration agreement wherein reference was made to the President of the Chartered Institute of Arbitration (London) Nigerian Chapter instead of the Chairman of the Chartered Institute of Arbitrators (United Kingdom) Nigeria Branch.

However, the court also noted that in the appellant’s letter of request dated 5 August, 2005, the appointing authority was properly referred to and described. The court held that the trial court was right to have given effect to the intention of the parties, as there was no evidence that the respondent was misled by the error or that he was in doubt as to who the appointing authority was.

On the issue of alleged misconduct on the ground that the sole arbitrator wrote a letter dated 7 May 2006 on the letterhead of her law firm, Sola Ajilola & Co, the Supreme Court described the decision of the Court of Appeal, which set aside the award on this ground, as a technicality taken too far. The court held that what happened did not amount to a delegation of the arbitrator’s duties to another person, particularly because the law firm of Sola Ajilola & Co does not enjoy a separate legal personality from its owner.

Finally, on the issue of whether the parties to the arbitration ought to have been involved in appointing the sole arbitrator after vesting the power to appoint him in an appointing authority, the Supreme Court held that the Court of Appeal went outside the express agreement of the parties and in fact made a new agreement for them when it held that the two parties must have a say in the appointment of the arbitrator even after delegating that function to a third party in their arbitration agreement. The court also held, on this point, that the respondent participated in the arbitration proceedings and failed to utilise all the available provisions under the ACA to ventilate any grievances that he had regarding the appointment of the arbitrator. [9]

The Supreme Court held on this issue that the notice of arbitration complied with all the required conditions precedent to the commencement of arbitration. Having received the notice of arbitration, the court held that the respondent could not feign ignorance of the general nature of the claim and an indication of the amount involved, if any and the relief or remedy sought as contained under (e) and (f) in article 3(3) of the Arbitration Rules. Moreover, the appellant in the said notice attached every document and information available and necessary for the use of the respondent. The court further held that even if the condition precedent was not fulfilled, there was substantial compliance. The court further held that the respondent waived the right to challenge and object to any irregularity and non-compliance to the commencement of the arbitration proceeding and was therefore bound by section 33 of the ACA. [10]

Comments

Interpretation of pathological arbitration clauses

The decision of the Supreme Court in this case laid down several important principles in relation to the interpretation of an arbitration agreement and the attitude of the court to pathological arbitration clauses. The court emphasised the need to give effect to the intention of the parties to refer their dispute to arbitration rather than adopt an approach that would defeat their intention even where the arbitration agreement suffers from some defects. The court held that, having regard to the fact that Nigeria is an arbitration friendly jurisdiction, the approach of the trial court in giving effect to the intention of the parties, notwithstanding the defective clause, is the correct approach. According to the court:

It defeats the purpose of an agreement to refer a dispute to arbitration, if, after fully participating therein, a party is allowed to raise technical objections to defeat the award.

It is our view that although the court’s decision on this point was clearly influenced by the fact that the respondent raised the issue of the pathological defect in the arbitration clause only after he had participated in the arbitral proceedings, the principle laid down by the court, being the highest court in the land, will permeate through and cascade down the judicial hierarchy and applied even where an objection is raised at the early stages of an arbitration.

Attitude to non-material defects in a notice of arbitration and frivolous misconduct allegations

Other important takeaways from the decision include the point that the courts will not allow non-material defects in the process of commencing an arbitration, particularly in the notice of arbitration to defeat the parties’ intention to refer their dispute to arbitration and that frivolous allegations of misconduct cannot be used by a disgruntled award debtor to set aside an award. The court held that the respondent was merely ‘clinging to some technical strings’ in relation to his allegations that the notice of arbitration was faulty and did not meet the requirements of the law. The court described the decision of the Court of Appeal, that the arbitrator misconducted herself and delegated her duties to a third party, as a ‘technicality taken too far clearly leading to a perverse decision as substantial justice was sacrificed for the trivial’.

Delegating appointment function to an appointing authority: You cannot eat your cake and have it

Finally, the decision shows that where, as in this case, the parties have agreed to a third party appointing their arbitrators, any grievances regarding the appointment of the arbitrator must be raised at the earliest opportunity. A party cannot be allowed to participate fully in an arbitration and then turn around to argue that the appointment of the arbitrator was irregular or that he was not consulted.

Conclusion

The recent decisions of Nigerian courts discussed above show the attitude of Nigerian courts to arbitration, which is encapsulated in the judgment of the Supreme Court in the case of Mekwunye v Imoukhuede – where the court declared that Nigeria is an arbitration friendly jurisdiction. The Federal High Court decision in the case of NNPC v.Total E & P Nigeria Limited and others further shows that the court reached its decision not to decide the merits of the NNPC’s application based on what the court described as a deliberate policy choice, intended to demonstrate the wider policy of zero or minimal judicial intervention in arbitration and to deny parties the utilisation of the courts to scuttle the arbitration contracts which they have freely entered into. Finally, the case of Felak Concept Ltd v A-G, Akwa Ibom State shows that, while Nigerian courts will give effect to parties’ agreement to refer their dispute to arbitration, they would not enforce an irredeemably defective pathological clause such as one where the parties are poised timorously between arbitration and the courts.


Notes

[1] Unreported Judgment of the Federal High Court of Nigeria (Abuja Division) per Hon. Justice (Dr.) Nnamdi Dimgba delivered on 1st March 2019. The other respondents were: Esso Exploration and Production Nigeria (Offshore East) Limited, Chevron Petroleum Nigeria Limited and Nexen Petroleum Nigeria Limited.

[2] NNPC is the Nigerian state-owned oil corporation.

[3] Chapter A18 Laws of the Federation of Nigeria 2004 compilation.

[4] Although the court thought that the two provisions were not in conflict with each other but were complementary, we think otherwise. There is an obvious conflict between the two provisions. The court was, however, right in its decision that even if they were in conflict, the provisions of Section 9(3) would prevail. Indeed Article 1 of the Rules actually recognises that the Rules are subservient to the ACA in the case of conflict. Art. 1 declares: ‘These Rules shall govern any arbitration proceedings except that where any of the Rules is in conflict with a provision of this Act, the provision of this Act shall prevail.’

[5] It is to be noted that challenge procedure set out under Section 9 of the ACA relate to domestic arbitration. The challenge procedure in relation to international commercial arbitration is set out in Section 45 of the ACA. While both provisions are substantially the same, there is however a marked difference in relation to who decides a challenge. Section 44(9) of the ACA provides that if the other party does not agree to the challenge and the challenged arbitrator does not withdraw, the decision on the challenge shall be made by: (a) an appointing authority, if the initial appointment was made by an appointing authority (b) an appointing authority even where the initial appointment was not made by an appointing authority although one has been previously designated by the parties and (c) in all other cases by an appointing authority to be designated in accordance with the procedure for designating an appointing authority as provide for in section 44 of the Act.

[6] (2019) 8 NWLR (Part 1675) 433.

[7] W. Laurence Craig, William W. Park and Jan Paulson, International Chamber of Commerce Arbitration , Second Edition, page 158, para. 9.02.

[8] (2019) 13 NWLR (Pt. 1690) 439.

[9] Such provisions include Section 7(3) which allows a party to request the court to take the necessary measure where, a third party, including an institution, fails to perform any duty imposed on it under the appointment procedure agreed by the parties; Sections 8 and 9 which provides the procedure for challenging an arbitrator.

[10] Section 33 of the ACA provides that: ‘A party who knows – (a) that any provision of this Act from which the parties may not derogate; or (b) that any requirement under the arbitration agreement, has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance within the time limit provided shall be deemed to have waived his right to object to the non-compliance.’

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