WAIVING THE RIGHT TO A FOREIGN ARBITRATION CLAUSE BY SUBMITTING TO THE JURISDICTION OF THE NIGERIAN COURT

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Introduction

Commercial arbitration is now very popular around the globe. It forms an important part of Nigerian jurisprudence. In Nigeria, it is regulated by the Arbitration and Conciliation Act (“ACA”).[1]

Clauses designating an arbitral tribunal to resolve dispute between parties are now common place in international commercial transactions. Generally, the Nigerian courts respect and strictly enforce the parties’ choice to resolve their dispute before an arbitral tribunal in both domestic and international cases.[2] This right is however not absolute. The right to resolve disputes before an arbitral tribunal could be waived by submitting to the jurisdiction of the Nigerian court. Indeed, Section 5(1) of the ACA provides that: “If any party to an arbitration agreement commences any action in any court with respect to any matter which is the subject of an arbitration agreement any party to the arbitration agreement may, at any time after appearance and before delivering any pleadings or taking any other steps in the proceedings, apply to the court to stay the proceeding.”[3] In essence, if a party to an international arbitration clause delivers any pleadings or takes any steps in the proceedings, such a party is deemed to have waived its right to an arbitration clause by submitting to the jurisdiction of the Nigerian court,

What provokes this comment is that in a recent Nigerian Court of Appeal decision in The Vessel MT. Sea Tiger & Anor v Accord Ship Management (HK) Ltd[4] (“Tiger”), the Court of Appeal held inter alia that where a party is served with a judicial claim, in breach of a foreign arbitration clause, but fails or refuses to appear before the court, such a party is deemed to have waived its right to an arbitration agreement by submitting to the jurisdiction of the Nigerian Court. It also held that payment of an out of court settlement amounts to submission.

This comment opines that the Court of Appeal’s decision was wrongly decided insofar as it held that where proceedings are instituted in breach of a foreign arbitration clause, failure or refusal to appear before judicial proceedings, and payment of an out of court settlement amounts to waiver by submitting to the jurisdiction of the court.

 

Facts

In Tiger, the 2nd plaintiff-appellant and the 1st defendant-respondent – both foreign companies before the Nigerian Court – entered into a ship management agreement on 18th of February 2012 in Hong Kong for the management of the 1st plaintiff-appellant vessel. The parties agreed in clause 23 and 25 of the ship management agreement that any dispute arising from their agreement shall be referred to international arbitration in London.

When a dispute arose as to the payment of the management fees between the parties, the 1st defendant-respondent instituted proceedings (suit No. FHC/L/CS/1789/2013) at the Federal High Court Nigeria for the arrest of the 1st plaintiff-appellant vessel. In that proceeding, the 1st defendant-respondent (as plaintiff) sued the plaintiff-appellants (the vessel and owners of the vessel) as the defendants in that case. The plaintiff-appellants settled the claim out of court by making payments to the 1st defendant-respondent. Subsequently, on 27th February 2014, the 1st defendant-respondent as plaintiff in suit No. FHC/L/CS/1789/2013 withdrew its suit and the vessel was ordered to be released.

In consequence of the arrest of the 1st plaintiff-appellant from 31st December 2013 to 27th February 2018, the appellants sued the defendant-respondents in the Federal High Court, Lagos for a significant amount of compensation arising from what it claimed to be the wrongful arrest of the 1st plaintiff-appellant in breach of their agreement to settle their dispute by international arbitration in London.

Decision

The Court of Appeal unanimously dismissed the claim of the plaintiff-appellants by holding that they had waived their right to the international arbitration clause by submitting to the jurisdiction of the Nigerian Court. The decision was reached on two principal grounds. The first ground was failure or refusal to appear and challenge the proceedings after being served with court processes. The second ground was the payment of an out of court settlement in order to release the vessel. In order to provide more clarity, the relevant portions of the decisions are quoted.

First, Garba JCA in his leading judgment held that:

The failure or refusal by it (plaintiff-appellants) to appear in reaction to the originating processes to enable the appellant challenge the jurisdiction of the lower court on the ground of the arbitration clauses in the Ship Management Agreement…left no other reasonable presumption in law and option to the lower court than that the appellants had submitted to the jurisdiction of that court to adjudicate over the suit since the only challenge to the suit by the appellants was entirely and completely predicated and founded on the arbitration clauses in the Ship Management Agreement and not on the lack of jurisdiction on the part of the court, in any event, entertain the suit on any cognizable ground of law. The failure or refusal to enter an appearance and be represented in the suit constituted and amounted to a muted but clear submission to the jurisdiction of the lower court in the case.[5]

Second, Garba JCA held that: “…the lower court is right that the appellants submitted to its jurisdiction in the suit no:FHC/L/CS/1789/2013 by the payment and settlement of the 1st respondent’s claim in order to secure the release of the 1st appellant from the arrest and detention it was placed under in the case thereby not only taking a step in the case, but actively and effectively so, in the circumstances of the case.”[6]

 

Comments

The Court of Appeal’s decision in Tiger is very important from the perspective of private international law and international commercial arbitration. The implication of Tiger is that where proceedings are instituted in a Nigerian court in breach of a foreign arbitration clause, the party requesting arbitration would be wise to appear before the court and immediately request the court to stay its proceedings in favour of a foreign arbitration clause. If this is not done, an international arbitration clause is ineffective in Nigerian law on the basis that the party requesting arbitration would be deemed to have waived its right by submitting to the jurisdiction of the court. In addition, the payment of an out of court settlement would amount to waiver by submitting to the jurisdiction of a Nigerian court.

Prior to Tiger, waiver to an arbitration clause by submitting to the jurisdiction of the Nigerian court could only be established where the defendant enters an unconditional appearance or defends the case on its merits without challenging the jurisdiction of the court.[7]

It is submitted that Tiger is a wrong extension of the principle to the extent that it holds that failure or refusal to appear before proceedings which breach an international arbitration clause constitutes waiver by submission to the jurisdiction of a court. A defendant that does not appear before court proceedings cannot be deemed to have waived its right by submitting to the jurisdiction of the Nigerian court. In other words, failure or refusal to appear to proceedings upon being duly notified is the very antithesis of submission to the jurisdiction of a court. Indeed, there is an earlier Nigerian Supreme Court’s decision that clearly held that failure or refusal of a defendant resident in Nigeria to appear in the English court despite being duly notified of judicial proceedings in England, did not qualify as submission to the jurisdiction of the English court.[8] Though this Supreme Court case was concerned with the recognition and enforcement of foreign judgments under the 1922 Ordinance, the logic of this decision can by way of analogy be applied in Tiger’s case to the effect that failure or refusal to appear before a court cannot constitute submission. In this connection, the Court of Appeal’s decision in Tiger is therefore per incuriam.

It is illogical to hold that that a defendant who has failed or refused to appear to court proceedings has “delivered pleadings” or “taken steps in the proceedings” in the eyes of Section 5 of the ACA. A defendant is entitled to ignore court proceedings by sticking to the arbitration clause. This should also be seen as a pro-arbitration stance that is consistent with Nigeria’s approach of upholding the sanctity of arbitration agreements. Indeed, as stated in the introduction, Nigerian courts generally enforce arbitration agreements strictly.

The truth is that Tiger’s case reflects the attitude of some Nigerian judges to absentee defendants. Some Nigerian judges regard it as impolite for a defendant not to appear to court proceedings upon being duly notified. The preferable approach in Nigerian jurisprudence is to enter a conditional appearance and then challenge the jurisdiction of the court. Indeed, in Muhammed v Ajingi,[9] the Court of Appeal (Abiru JCA) unanimously held that a defendant who has been duly notified of proceedings but fails or refuses to appear to promptly challenge the jurisdiction of the court is deemed to have waived its right by submitting to the jurisdiction of the Nigerian court. Though, Muhammed v Ajingi was not an arbitration case, it demonstrates the attitude of  some Nigerian judges to absentee defendants.

The Court of Appeal in Tiger was also wrong to have regarded the payment of an out of court settlement sum by the plaintiff-appellants to release the vessel as waiver by submitting to the jurisdiction of the court. Such an approach does not amount to delivering pleadings or taking steps in the proceedings in the eyes of Section 5 of the ACA. Indeed, in the earlier case of Confidence Insurance Ltd,[10] the Court of Appeal (Achike JCA) unanimously held that: “effort made out of court to settle the matter in controversy between the parties”[11] does not amount to submission in the eyes of Section 5 of the ACA. Nigerian courts should be seen to encourage out of court settlement. The Court of Appeal in Tiger did not explicitly have regard to Achike JCA’s judicial opinion in Confidence Insurance Ltd, though it cited the case. There is wisdom in Achike JCA’s judicial opinion. If the law is that efforts made towards out of court settlement amounts to submission, this might discourage a potential defendant from making out of court settlements, where there is the presence of a foreign arbitration clause.

Tiger properly so called was an action in damages for breach of an international arbitration clause. Since it has been argued in this case that the plaintiff-appellants did not submit to the jurisdiction of the Nigerian court, damages should have been awarded for breach of the international arbitration clause.[12] If the Court of Appeal had adopted this approach, it would have honoured the Nigerian judiciary’s approach to generally and strictly enforce the sanctity of arbitration agreements. It was obvious in this case that the plaintiff-appellants suffered loss from the arrest of their ship in breach of an international arbitration clause. It is quite unfortunate that the Court of Appeal did not award compensation in this case.

Conclusion

It remains to the seen whether Tiger will go on appeal to the Nigerian Supreme Court. If it does go on appeal, it is proposed that the Supreme Court overturns the Court of Appeal’s decision. If it does not go on appeal to the Supreme Court, it is proposed that the Nigerian Court of Appeal and Supreme Court in future holds that the failure or refusal to appear to proceedings in breach of an international arbitration clause, and the payment of out of court settlement does not constitute waiver by submission to the jurisdiction of the Nigerian court.

 

[1]Cap. A18, LFN 2004.

[2]The cases in support of this are numerous. It is sufficient to cite the Nigerian Supreme Court authorities: Owners of MV Lupex v Nigerian Overseas Chartering and Shipping Ltd (2003) 15 NWLR 469; Mainstreet Bank Capital Limited & Another v Nigeria Reinsurance Corporation Plc (2018) 14 NWLR (Pt. 1640) 423, 444 (Kekere-Ekun JSC). See also CSA Okoli and RF Oppong, Private International Law in Nigeria (Hart, 2020) 127-138.

[3]It is a matter if Section 5 of the ACA applies to only domestic arbitration, and not international commercial arbitration. In Owners of MV Lupex (supra n 2) the Nigerian Supreme Court applied Section 5 of the ACA to international commercial arbitration. However, in a later case of SPDCN Ltd v CIRN Ltd (2016) 9 NWLR (Pt. 1517) 300, 323 (Obaseki-Adejumo JCA), the Court of Appeal, relying on Section 58 of the ACA, held that the ACA only applies to domestic arbitration. If the Court of Appeal’s decision is correct, then Section 5 of the ACA only applies to domestic arbitration.

It is submitted that the Supreme Court’s position in Owners of MV Lupex is preferred for three reasons. First, Section 58 of the ACA means that the ACA applies in all States of the Federation, and not that the ACA applies only to domestic arbitration. Second, there is no specific provision that states that the ACA does not apply to international arbitration. Third, Part III of the ACA has a title which states that it relates to “ADDITIONAL PROVISIONS RELATING TO INTERNATIONAL ARBITRATION AND CONCILIATION.” This implies that the ACA governs domestic and international commercial arbitration, with Part III of the ACA making additional provisions relating to arbitration.

[4](2020) 14 NWLR (Pt. 1745) 418.

[5]Tiger (n 4) 453-4.

[6] Ibid 457.

[7]Obembe v Wemabod Estates Ltd. (1977) 5 SC 115 (Fatayi-Williams JSC as he then was); K.S.U.D.B. v Fanz Const; Ltd. (1990) 4 NWLR (Pt. 142) 1, 27 (Agbaje JCS), 50 (Obaseki JSC); Mainstreet Bank Capital Limited & Another v Nigeria Reinsurance Corporation Plc (2018) 14 NWLR (Pt. 1640) 423, 445-6, 452 (Kekere-Ekun JSC); Onward Ent. Ltd. v MV Matrix (2010) 2 NWLR (Pt. 1179) 530, 551; Federal  Ministry of Health v Dascon (Nig.) Ltd (2019) 3 NWLR (Pt. 1658) 127, 139-140 (Abiriyi JCA); SCOA (Nig) Plc v Sterling Bank Plc  ( 2016 )  LPELR-40566 (CA) (Oseji JCA as he then was) Sino-Africa Agriculture  &  Ind Company Ltd and Others v Ministry of Finance Incorporation and Another (2013) LPELR-22379 (CA) 1, 33 – 36, (2014) 10 NWLR (Pt. 1416) 515, 537 (Orji-Abadua JCA); Osun State Government v Dalami (Nig.) Ltd (2003) 7 NWLR (Pt. 818) 72, 93, 101 (Onalaja JCA); Confidence Insurance Ltd v Trustees of O.S.C.E. (1999) 2 NWLR (Pt.591) 373, 386 (Achike JCA as he then was).

 

[8]Grosvenor Casinos Ltd v Ghassan Halaoui ( 2009 ) 10 NWLR 309. In this case the Supreme Court was interpreting Section 3(2)(b) of the Reciprocal Enforcement of Judgments Act 1922, Cap 175 LFN 1958 (“1922 Ordinance”), which provides that the Nigerian court will refuse to register a foreign judgment where a judgment-debtor, being a person who was neither carrying on business nor ordinarily resident within the jurisdiction of the original court, did not voluntarily appear or otherwise submit or agree to submit to the jurisdiction of that court. This implies that not appearing to a Nigerian court does not constitute submission despite being duly notified with court processes. Indeed, Section 3(2)(b) is a codification of Nigerian common law on what qualifies as submission as a basis of jurisdiction in private international law  matters. Under common law, submission in establishing jurisdiction in private international law against a defendant can only be established where there is unconditional appearance, defending the case on its merits without challenging the court’s jurisdiction or counter-claim.

[9] (2013) LPELR-20372 (CA).

[10] (n 7).

[11] Ibid 386.

[12]See generally Kallang Shipping SA v AXA Assurance Senegal [2008] EWHC 2761 (Comm). See also Okoli and Oppong (n 2) 138; JC Betancourt, “Damages for Breach of an International Arbitration Agreement under English Arbitration Law” (2018) 34 Arbitration International 511-532.

6 replies
  1. Nnamdi Amaefule says:

    A bit insightful, but I vehemently disagree with the conclusions of the author.

    I note with respect that the author has not paid very close attention to the very unique nature of Admiralty Jurisprudence, but perhaps, has a bias for Arbitration Jurisprudence which is merely subject to the common law, and now Nigerian constitutional right of access to the Courts.

    If the author had particularly given close attention to the principle that Nigerian Courts have exclusive jurisdiction in admiralty matters, notwithstanding the provisions in any other statue, may be, the author could have approached the issues quite differently.

    That said, I agree with the Judgment of the Court of Appeal, anything short of that would amount to the Courts encouraging docility or adhering to arbitral sentiments, needlessly.

    It bears mentioning that arbitration contracts, and any ensuing arbitral proceeding is merely contractual and private. Admiralty Proceedings and the right to arrest a vessel is statutory and of course, a public right.

    To the extent, that it wasn’t otherwise shown, the Court has the jurisdiction to entertain the Suit and to order the arrest of the vessel. I also have no doubt in this respect, given the nature of the preliminary Suit, that was eventually withdrawn upon settlement.

    The mere presence of Arbitration Agreement is not even enough to secure the release of a vessel, or to terminate the maritime claim Suit. A zealous Defendant, in a claim subject of an arbitration agreement can at best only procure Stay of Proceedings and probably the release of the vessel, upon provision of satisfactory security.

    If the aggrieved Plaintiff in the breach of Arbitration Suit was so eager and concerned about his right under the Arbitration Agreement, such party could have done the needful, as earlier stated. However, the party opted for settlement for whatever reasons.

    The mere existence of an Arbitration Agreement is not by itself a waiver of the constitutional right of access to the Court, which cannot be waived!

    I should also underscore that an aggrieved litigant is indeed, entitled to first secure the arrest and detention of a vessel, subject of a maritime claim, even before subsequently, proceeding to arbitration, assuming the litigant was otherwise, so inclined. It has been done and it is always done.

    The Defendant whose vessel was under arrest could not have secured the release of the vessel, by merely waiving the Arbitration Agreement, before the Court, but must still provide satisfactory security, before the vessel could be released. Otherwise, the vessel would still be under detention, while arbitration may subsequently proceed, in the event of Stay of the Court Proceedings.

    The Defendant, who then became Plaintiff in the breach of arbitration claim was simply docile or perhaps, opted for another approach to resolve his dispute, which is not out of place.

    To argue that a Court should award damages, merely because a person, approached the Court in exercise of constitutional right; or because a party failed to trigger available rights available by Statute, in this instance by seeking stay of the Court proceedings, is with respect to the author a bit ridiculous. Incidentally, the author did not cite the authority were such claim succeeded, “may be” because there is none. ( I intend to double-check)

    The Court in the preliminary maritime claim could have indeed, after service, proceeded to enter Judgement on proven claims. The mere fact that there is an Arbitration Agreement cannot vitiate the eventual Judgment.

    In the final analysis, and assuming I’m wrong in all I’ve said, I’m really at loss on where the Court would have procured the damages to award to the Plaintiff in the Breach of Arbitration Claim and the principle which could support such award.

    This is because, since damages are not awarded as of right, but on proven injuries or breach of legal rights. More so, since the mere execution of an Arbitration Contract is not a waiver of the constitutional right of access to the courts, particularly since the Federal High Court has the exclusive jurisdiction in Maritime claims, it remains to be seen what the Court of Appeal, or should I say the Supreme Court could have otherwise, done, as so encouraged by the author.

    Nnamdi Amaefule, comments from
    Lagos, Nigeria.

  2. Chukwuma says:

    Thank you for your comments Nnamdi.

    The focus of my comment was on whether failure or refusal to appear to a court process in breach of a foreign arbitration clause, and payment of out of court settlement constitutes waiver by submitting to the jurisdiction of a Nigerian court. I argued that the Court of Appeal’s decision was wrong for answering this decision in the positive.

    Prior Nigerian authorities held waiver of the right to an arbitration clause by submission to the jurisdiction of a the Nigerian court could only be established in cases of unconditional appearance and defending the case on its merits. I argued that the Court of Appeal’s decision was a wrong extension of this principle. If you fail or refuse to appear to court proceedings, or settle out of court, that cannot constitute waiver by submitting to the jurisdiction of the court.

    On the issue of admiralty jurisdiction you raised, I do not in any way suggest that the court’s jurisdiction does not exist. Indeed, access to court is a fundamental right in Nigerian jurisprudence. However, if a party breaches a foreign arbitration clause by instituting proceedings before the court, damages could be claimed against such a party. Indeed, a foreign arbitration clause is a unique contractual term that can be enforced by the court when it is breached.

  3. Nnamdi Amaefule says:

    Thanks for sharing your thoughts on my comments.

    As I pointed out from the onset, I vehemently quarrel with the conclusion- that damages will ensue or should have been awarded to the adverse party, for a party opting to approach the Court, at the expense of arbitration, as per contract.

    Your article with respect didn’t point the Nigerian authorities, (whether judicial or statutory) that support such contention. Perhaps, it’s your personal opinion, to which you are entitled. We await to see how the Court will so agree in due course, that choosing one right at the expense of the other under the circumstances, will be sufficient to amont to a breach, particularly, given the overriding nature of the jurisdiction of the Court in Admiralty claims, which is a public right that cannot be waived, but doesn’t necessarily bar or prevent parties to explore other dispute resolution mechanisms, including arbitration.

    More so, since there is no statutory right to damages under the Nigerian Arbitration Act, which merely only enjoins the Courts to stay proceedings, upon request in deserving circumstances, where the Courts have otherwise, been approached, despite an arbitration agreement.

    It also remains to be seen how the Court will hold that the contract is so breached per se, by a party approaching the Court, and what losses were suffered, notwithstanding, whether the adverse party took steps in the proceeding.

    I’m afraid to say that the question of “waiver of the right under the arbitration agreement”, was of little relevance to me earlier, as I was more concerned with the arguments and conclusion that damages should have otherwise been awarded under the circumstances.

    Upon a cursory review of the issues, I was inclined to think that the issue of waiver of the right to arbitration was a moot point, (albeit, not conclusively at this point, having not read the Judgment) despite the approach of the Court of Appeal, as you enunciated, because the Plaintiff in the breach of Arbitration Claim, did not so to speak “participate in the earlier maritime claim proceedings”, at all.

    However, since you’ve raised it, and following our extensive discussions thereon, I’ll study the Judgment and “perhaps”, then, share my thoughts on the issue of Waiver of Right of Arbitration Agreement, which though was the crux of your article and probably, reviewed by the Judgment, but not necessarily the rationale for my earlier comment.

    In all I’ve said, and ahead of my subsequent comment (should I so choose) on the waiver of right to arbitration, I don’t think I’ll still would be inclined to agree with you that damages should have otherwise, ensued, even where as you contend that the right to arbitration was otherwise, not waived, although the Court thought otherwise.

    Again, and with respect, this is why I think the issue of waiver of right to arbitration was a moot point, because I’m inclined to think that it was a case of two competing rights which was unchallenged due to docility or admission of the claim. More so, the judicial proceedings didn’t not even proceed, due to eventual amicable settlement.

    May be I’ll revert, after reading the Judgment, hopefully, there is something new to say.???

  4. Chukwuma says:

    I take your point on access to court as a human and constitutional right in the context of damages for breach of a foreign arbitration clause. This is an underlying theme that has given rise to controversy in Nigerian Courts in the context of breach of foreign jurisdiction clauses. Some Nigerian judges classify foreign jurisdiction clauses as ouster clauses, and do not enforce it. Other Nigerian judges recognise foreign jurisdiction clauses as a contractual term, and enforce it strictly.

    Currently in private international law, there is the recognition that the court’s jurisdiction exists, but this does not bar the court from granting damages (or anti-suit or anti-arbitration injunction) for breach of a foreign arbitration or jurisdiction clause.

    Finally, the interaction between human rights (in the context of access to court) and commercial arbitration is one that deserves further reflection.

  5. Nnamdi Amaefule says:

    Well, I’ve just read the Judgment of the Court of Appeal and as an aside, I’m indeed humbled, by the erudition of then Garba JCA, now justice of the Supreme Court. More wisdom to Mii Lord.

    The unique situation of the case called for unique interpretation and application of waiver of the right to arbitration. I hold the view that, it was exactly what the Court did under the circumstances.

    It would have been with respect, a dis-service to the Judiciary, the litigants and the legal community, if the Court had approached the issue of waiver by a straight jacket, anchored squarely on entry of appearance; delivery of pleadings, and defending the case on the merits, perhaps, as you so espouse.

    However, I think the issue is nebulous, particularly since the issue of “taking any steps in the proceeding” is also a consideration and not particularly defined, but subject to interpretation on the merits of each case.

    The Court of Appeal took the pains to explain why negotiating (albeit, out of Court) and procuring the release of the vessel under the Courts jurisdiction, upon the termination of the Suit was sufficient steps. I agree with the Court in that regard for the reasons stated in the Judgment.

    Second, I also thought earlier that the mere fact of the negotiated settlement, should have been a bar for subsequent action, and I was indeed, more than happy to see the Court conclude the Judgment on that point.

    It is even curious that the claim was not exactly for damages for breach of arbitration contract, but for damages for wrongful arrest, I’m not sure why you opted with respect for that slant, since it wasn’t exactly what was in issue in the Judgment.

    I always had a bit of guilt for not reading the Judgment earlier before committing, but having read the Judgment, perhaps, I was right to have focused squarely on the issue you raised which actually irked me- Damages for breach of arbitration agreement, for exploring litigation at the expense of arbitration. May be in due course, we will see what the Courts think when such issue is contested in Nigerian Courts.

    However, I have no doubt on how the Court will rule, because some of the issues I had also earlier raised were echoed eloquently in the Judgment. I’m fairly sure those issues will be the consideration when such a claim is made.

    Many thanks.

  6. Nnamdi Amaefule says:

    Well I’ve just also cross checked to notice that the claim for damages is also anchored on violation of Clause 23 of the Ship Management Agreement.

    I’ll imagine that was the Arbitration Clause which was why you opted for that slant. Fair enough.

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