Sections 4 & 5 Of The ACA And Stay Of Proceedings Pending Arbitration

In the Supreme Court of Nigeria

Holden at Abuja

On Friday, the 7th day of July, 2023

Before Their Lordships

John Inyang Okoro

Uwani Musa Abba Aji

Helen Moronkeji Ogunwumiju

Adamu Jauro

Emmanuel Akomaye Agim

Justices, Supreme Court

SC/CV/405/2013

Between

United Bank for Africa Plc                              Appellant                                                 And

Triedent Consulting Ltd                                   Respondent

(Lead Judgement delivered by Honourable Helen Moronkeji Ogunwumiju, JSC)

Facts

The Respondent, by a Writ of Summons, instituted an action at the High Court of Lagos State in Suit No. LD/164/09 against the Appellant claiming the following reliefs: (a) Liquidated sums of $321,162.45 and $168,000 being respectively the unpaid values of the invoices dated 14th July, 2008 and 26th April, 2008 representing the payments due to the Claimant from the Defendant for the executed part of the CRM implementation project provided by the Respondent at the request of the Appellant, which the Appellant has refused, failed and or neglected to liquidate despite several demands; (b) Interest on the aforesaid sums at the rate of 25% per annum from due dates till final liquidation; (c) The sum of N250 million being special and general damages for the libel contained in the Defendant’s letter of 19th August, 2008; and (d) The sum of N32 million being the solicitor’s fee and costs for prosecution of the action.

Upon being served with the Respondent’s Writ of Summons and accompanying court processes, the Appellant filed an application for Stay of Proceedings pending Arbitration. The Respondent opposed the said application, by filing a Counter Affidavit and written address. The trial court, in its determination of the application, held in favour of the Respondent, and consequently, dismissed the Appellant’s motion.

Aggrieved by the decision of the trial court, the Appellant lodged an appeal at the Court of Appeal. The appellate court affirmed the decision of the trial court; thus, the Appellant’s further appeal to the Supreme Court. The Respondent, in like vein, filed a cross-appeal.

Issue for Determination

The Supreme Court merged the relevant points for determination into one issue thus:

Whether the court below was right to hold that before a stay can be granted pending arbitration, the party applying (the Appellant in this case) must demonstrate unequivocally by documentary evidence its willingness to submit the dispute to arbitration.

Arguments 

Arguing the appeal, counsel for the Appellant contended that the trial court and the Court of Appeal erred in law when they held that reliefs 3 (monetary claims founded on defamation) and 4 (solicitor’s fee for prosecution of the suit) were not ingredients or materials arising from the contract between the parties, and refused to grant the prayer for stay pending arbitration. Counsel for the Appellant argued that arbitration agreements without limitations should be interpreted to cover all claims in connection with a contract, notwithstanding that such claims relate to contract, tort or of a statutory nature. He contended that the Arbitration Clause/Agreement did not in any way limit the nature of disputes to be referred to arbitration, as the only qualification is that they must be disputes arising from the Agreement. In support of his position, counsel argued that allegations of defamation would not have arisen without the contract between parties in the first place. In respect of relief 4, counsel submitted that the cost of litigation sought by the Respondent is the alleged cost for prosecuting the matter, on account of the dispute which arose out of the contract.

Counsel argued further that the suit fell within the ambit of Section 4 of the Arbitration and Conciliation Act (the “ACA”) and not Section 5. In attempting a distinction, counsel remarked that under Section 4 of the ACA, there was no need to satisfy the court of the willingness and readiness to arbitrate. It was argued that submission to arbitration was not a condition precedent for a court to exercise jurisdiction in the matter, and the case of O.S.H.C. v OGUNSOLA (2000) 14 NWLR (Pt. 687) 431 was relied on. He reasoned that the phrase “not later than when submitting a statement on the substance of the dispute” as provided under Section 4 of the ACA, meant that any party making an application for a matter to be referred to arbitration must not have taken any steps on the merit of the dispute at the trial court; and that he met this condition.

Responding, counsel for the Respondent insisted that the suit fell under Section 5 of the ACA, and that an inference from Section 5(2) of the ACA would mean that where sufficient reasons on why the matter should not be referred to arbitration are adduced, stay of proceedings pending arbitration will be refused. It is the argument of the Respondent that the Appellant’s application is bereft of sufficient materials upon which the courts may exercise discretion in the Appellant’s favour. Accordingly, counsel argued that although the Appellant brought its motion for Stay of Proceeding pending Arbitration under Section 4 of the ACA, the trial court was not prevented from having recourse to the extant provision mandating stay of proceedings. He submitted that the heading of a statute can be relied upon to clarify ambiguity, and that Section 5 (which is titled “stay of proceeding”) is the applicable section in the instant case. Respondent relied on OYO STATE BOARD OF INTERNAL REVENUE v UNIVERSITY OF IBADAN (2013) LPELR-2215(CA).

Additionally, counsel for the Respondent disagreed with the Appellant that the Arbitration Agreement had no limitations. Counsel reasoned that a claim for damages for defamation predicated on communication to a third party and/or solicitor’s fee is not arbitrable, since they were questions of law outside the jurisdiction of an arbitrator.

Court’s Judgement and Rationale

Deciding the issue, the Apex Court held that an arbitration agreement cannot and does not oust the jurisdiction of court. Arbitration and litigation are not mutually exclusive, as the court often complements and supplements the functions and powers of the Arbitrator. To this extent, the Apex Court noted that there are instances where despite parties submitting to arbitration, the suitability of litigation preponderates over arbitration. These instances are (i) where the issue for resolution is essentially a legal one; (ii) where the issue turns largely on the credibility of the evidence; (iii) where immediate enforcement of a right is required; (iv) where one of the parties is intransigent; and (v) where there are multiparty disputes arising from a transaction, etc. In other words, it is the circumstances of a case that determines whether it is preferable for the matter to be litigated at first instance, or submitted to arbitration.

The Apex Court observed that the Appellant’s motion for stay of proceedings pending arbitration, was dismissed for differing reasons. For instance, the trial court held that it was not satisfied that the present claims are within the arbitration agreement, and should be referred to arbitration. The trial court found that it is evident from clause 5.3 as rightly argued by learned counsel for the Claimant that the arbitration clause 5.14 is not one of those clauses which survives after termination of the contract. The Court of Appeal on the other hand, held thus: “It follows that the court below erred by holding that the demise of the contract was also the demise of the arbitration agreement, when inexorably the termination or death of the former gave life and/or operative force to latter.” The Apex Court, however, agreed with the Court of Appeal, on the reasoning that an action which signifies the finality of the termination of a contract is the final payment of all monies due and discharge of all obligations on both sides. Working with the facts before the Apex Court, the Appellant terminated the contract via a letter dated 19th August, 2008. The Apex Court however, held that the contract cannot be said to have been fully terminated, as the Appellant was allegedly yet to pay the outstanding sum due to the Respondent on certain invoices. Given the above, the Apex Court held that, there was clear evidence of an arbitrable dispute between the parties (i.e., while Respondent claims it was owed a certain amount of money, the Appellant claimed that it had overpaid the Respondent), and thereby agreed with the lower court that reliefs 1 and 2 (anchored on breach of contract) were arbitrable.

On the question whether the issue of the alleged defamatory words in the letter terminating the contract and the claim for solicitor’s fees can be said to “arise” from the original agreement of the parties which the said parties were obligated to submit to arbitration, the Apex Court held that, a claim for defamation can only be effectively determined by a court of law since it remains a question of law, whereas, the arbitrator is not imbued with the powers to answer legal questions, or to grant a relief for damages arising from the determination of legal questions (i.e., whether the letter dated 19th August, 2008 is injurious to the reputation of the Respondent). The Apex Court reiterated that before a dispute can be referred to arbitration, same must first be arbitrable. The fate of relief 3 was shared with relief 4 (predicated on solicitor’s fees) and it was the reasoning of the Apex Court that the said costs do not arise from the arbitration agreement; rather, they are costs incurred in the prosecution of the civil claims for unpaid invoices and interest thereon in the regular court.

Addressing the last issue which relates to the interpretation of Sections 4 and 5 of the ACA, the Apex Court agreed with the Appellant that whereas under Section 4 it is the court that makes an order that parties submit to arbitration, for Section 5 of the ACA the court does not order the parties to submit to arbitration; hence, the need to satisfy the court of the willingness and readiness to arbitrate. The Apex Court observed that the Appellant’s position was that it fulfilled the condition precedent of filing for stay pending arbitration before taking steps, and that Section 4 of the ACA did not require the Appellant to satisfy the criteria of willingness and readiness before the court could stay pending arbitration. Deciding against the Appellant, the Apex Court considered the provisions of Section 4(1) of the ACA closely which relates to a party asking for stay submitting his statement on the substance of the dispute to the Arbitrators, and the court must refer the parties to arbitration about to be commenced or already commenced and continued. Their Lordships held that the intention of the draftsmen of the ACA (in Section 4) was that the provision only applies where an arbitration proceeding has been initiated – which was not seen in this case, as no material suggesting an initiated arbitration was before the trial court. With Section 5 of the ACA headed “stay of proceeding” and providing that there must be an existing court proceedings in which the Applicant has not taken steps more than filing an appearance, the Apex Court reasoned that Section 5 was the applicable Section in this regard, and, as such, the Appellant was required to have shown willingness and readiness to arbitrate, which the Appellant did not do before the trial court. The Apex Court relied on M.V. PANORMOS v OLAM (2004) 5 NWLR (Pt. 865) 1 and ONWARD ENTERPRISES LTD. v M.V. MATRIX (2010) 2 NWLR (Pt. 1179) 530 in agreeing with the courts below that documentary evidence showing willingness and readiness to arbitrate, is what the applicant for stay of proceedings pending arbitration must show. A party who is seeking stay of proceedings pending arbitration just like in a case of stay of proceedings pending appeal, is duty bound to show its utmost and genuine desire to submit before the arbitral tribunal. It could never have been the intention of the draftsmen of the Act, that an application for stay of proceedings pending arbitration will be granted as a matter of course.

The appeal was thereby dismissed.

Regarding the Cross-Appeal where the Respondent challenged the decision of the lower court which held that the termination of the agreement did not terminate the arbitration clause, the Apex Court found the cross-appeal as unwarranted and a gross abuse of court process, as the arguments therein were covered in the main appeal. The cross-appeal, lacking any merit, was consequently dismissed.

Appeal and Cross-appeal Dismissed.

Representation

Chima Okereke Esq. with Paul Omotosho, Esq. for the Appellant/Cross Respondent.

Francis Agunbiade Esq. for the Respondent/Cross-Appellant