Commercial agreements and Contractual relationships are often characterized by conflicts and disputes, making the need for effective dispute resolution just as important as the creation of the contract itself. This is traceable to the desire of every party to protect their interest and escape liabilities.
Arbitration is a process of resolving disputes outside of the courtroom facilitated by a neutral third party known as the Arbitrator. Parties can agree, in writing, from the beginning of the contract that in the event of a dispute arising from the contract, Arbitration by an arbitrator of their choice shall first be explored before any other form of dispute resolution. The clause that provides for this in the contract is called the Arbitration Clause.
THE NEED FOR AN ARBITRATION CLAUSE
An Arbitration clause ensures that arbitration is first explored before recourse to litigation. This allows parties to enjoy the vast benefits of arbitration over litigation, which include: Private resolution of disputes unlike the open court system available in Nigeria, parties can agree on the Arbitrator of their choice and this gives more confidence in his/her impartiality and experts knowledgeable in the subject matter can be carefully selected.
EFFECT OF AN ARBITRATION CLAUSE
Where parties have agreed to explore Arbitration before exploring other methods of dispute resolution, such an agreement has formed part of the terms of the said contract and both parties are legally bound to comply with the agreement, failure to do so might ordinarily oust the jurisdiction of the court. This particular position is, however, quite controversial.
This is because, on one hand, where there is a consensus between parties in a contract, the only duty of the court is to enforce the agreement premise on the principle of Pacta Sunt Servanda which places a responsibility on the court to respect the intention of parties and give effect to terms unanimously agreed upon, provided it does not go against the boundaries of the law.
On another hand, there is a constitutionally guaranteed right of access to court and to deny a party of such merely on the basis of contractual agreement would appear unreasonable and ultimately, unconstitutional.
In light of the above, it is safe to say that although parties cannot resort to court before exploring arbitration where an arbitration clause is present, the jurisdiction of the court is not completely ousted. Where a party approaches the court, the other party is expected to challenge the jurisdiction of the court to entertain the suit and apply for stay of proceedings pending the conclusion of Arbitration.
ARBITRATION CLAUSE AND THE COURT
In interpreting an Arbitration clause, the court must ensure that it gives life to the actual intention of the parties and not imply or impute terms not contained in the face of the Arbitration clause. This is why it is imperative to properly understand how to draft a standard Arbitration Clause which would be explained later in this article because the Arbitration clause must be strictly construed. In plain terms, stick to exactly what it says and interpret strictly by the wordings.
It is also important to note that the basis for the validity of an Arbitration clause is VOLUNTARINESS. This means that where any of the parties can prove that it is unaware of such term or was deceived or coerced into consenting to the clause, it becomes invalid and litigation can be explored without priority to Arbitration.
A “STANDARD” ARBITRATION CLAUSE
While it is very essential to ensure that your Arbitration Clause meets all the necessary requirements, there is really no one-fits-all kind of Arbitration Clause. The danger with sticking to the template characterized as “standard” is that it might not adequately address the interest and intentions of the parties in that particular contract. Bespoke Arbitration Clauses tailored to the subject of the contract and the nature of the agreement are more advisable.
To adequately tailor the Arbitration Clause to best benefit the parties of a contract, the parties and the draftsman must be careful to ensure that the clause is not defective or open to unnecessary contentions. The following questions should therefore be considered:
- What is the nature of the contract?
- What do parties intend to achieve with the Clause?
- What disputes would be resolved through Arbitration?
- Are there other Alternative Dispute Resolution Methods that should first be explored? Parties might be interested in Conciliation or Mediation before Arbitration and this must be clearly stated.
- How many Arbitrators are to be appointed and by whom?
- What Venue is to be used?
- What languagewould be used?
- What rules should guide the award of Cost?
ENFORCEMENT OF ARBITRATION CLAUSES IN NIGERIA
Generally, Arbitration Clauses are enforced with Common law principles, meaning that to be validly enforceable, they must be free from vitiating elements such as Fraud, Undue Influence, Duress, Mistake or Misrepresentation.
As earlier discussed, the presence of an Arbitration Clause suspends the jurisdiction of the court until the clause is enforced through an Arbitrator or an Arbitration Tribunal. The decision reached by the Arbitrator or Arbitration Tribunal is a final and binding decision called an Arbitral Award.
ENFORCEMENT OF ARBITRAL AWARD
An Arbitral Award is a final and binding decision. The enforcement of Arbitral awards can be discussed under two major categories:
- Domestic Award: where the award was given within Nigeria, it can either be enforced under common law or under the Arbitration and Conciliation Act. Tobe enforced under the Act, the following must be met:
- The award must be in writing, containing the date and place of the arbitration and,where authorized, the basis of the award.
- The award must be duly authenticated by the arbitrator. Where thereismore than one, simple majority of the arbitrators suffices.
- An affidavit shall be submitted attaching the original arbitration agreement or its Certified true copy.
- An application seeking to enforce the award as though it were a judgment of the High Court.
For enforcement under common law, it must be shown that:
- There was a dispute,
- It was subject to arbitration
- A valid arbitral award dulyauthenticatedhas been given.
An application to the Court within the jurisdiction where the Arbitral award was given by way of an originating summons supported by an affidavit and a written address is to be submitted with the following:
- The authenticated copy of the arbitral award or
- The certified true copy of the Award
- Payment of fees as prescribed by the Registrar of the HighCourt
Note: High Courtin this context refersto State and Federal High Court.
- International Award: Section 51 of the Arbitration and Conciliation Act provides that Arbitral awards are binding in Nigeria irrespective of where they are made. Premise on this, an application is expected to be made to the court to enforce same or by registering it as a judgment under the Foreign Judgment (Reciprocal Enforcement) Act 1990.
An Arbitration Clause is not just another unnecessary clause to further bulk up a Contract. It shows the foresight of properly advised parties. It dispenses with the back and forth that occurs when a dispute arises unexpectedly while ensuring parties enjoy all the benefits of Arbitration over litigation.
The draftsman must however be careful to ensure that the clause is properly streamlined to the contract and best suits the subject and parties. This is because, of what good is an Arbitration Clause if recourse has to first be made to the court to interpret its ambiguity or determine the extent of breach covered by the clause?
The position on whether the presence of an arbitration clause in a contract ousts the jurisdiction of the Court in Nigeria is controversial. Although the court is under obligation to respect and enforce the agreement of parties to a contract, this cannot automatically deprive a party of the Constitutionally guaranteed right of access to the Court.
Keywords:Arbitration, Arbitration Clauses, Arbitral Awards, Enforcement.
AUTHOR: Oyetola Muyiwa Atoyebi, SAN
Mr Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm).
Mr. Atoyebi has expertise in and vast knowledge of ADR Practice and this has seen him advise and represent his vast clientele in a myriad of high-level transactions. He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.
He can be reached at [email protected]
CONTRIBUTOR: Ajibade Farida
Farida is a member of the Dispute Resolution Team at OMAPLEX Law Firm. She also holds commendable legal expertise in ADR Practice
She can be reached at [email protected]
Section 6 (6)(b) and 36(1) of the Constitution of the Federal Republic of Nigeria (1999) as amended
Practice Direction NO 1 of 2017, Practice Direction for the enforcement of Arbitration clauses in matters of breach of contract with arbitration clauses made pursuant to the directive of the Hon. Chief Justice of Nigeria and under Order 58 Rule 3 of the Edo State High Court (Civil Procedure) Rules 2012.
E Majemite, B Biayebo and A Ajiboye, ‘Determining the Jurisdiction of Courts in the Face of an Arbitration Clause https://www.mondaq.com/nigeria/arbitration-dispute-resoltion/988206/determining-the-jurisdiction-of-corts-in-the-face-of-an-arbitration-clause(2020)accessed 5 April 2023
International Arbitration clauses<https://www.ashurst.com/en/news-and-see-insights/legal-updates/quickguide-interntional-arbitration-clauses/> accessed on 6 March 2023
Section 29, 30 and 57 Arbitration and Conciliation Act 1988.
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