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The Legalnaija Blawg : Chukwudi Ofili - Perfection of Security Documents ...
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Tuesday 29 November 2016
CHOICE OF LAW IN INTERNATIONAL COMMERCIAL ARBITRATION - ADENIYI POKANU ESQ.
1. INTRODUCTION
In all endeavour of mankind, disputes, one way or the
other arises. Commercial transactions are no exceptions to the happenings of
disputes which might arise between parties thereto. In international trade and
commerce, every commercial transaction is generally preceded by a contract
fixing the obligations of the parties to avoid legal disputes. In actual fact,
parties in recent times enter into contracts and sign agreements with an eye on
the effective means/methods of addressing crises and settling disputes that may
arise in due course of their relationship. Investors are increasingly adopting mechanisms
to protect their investments against legal and regulatory risks. One of such
viable and smart means being adopted and cultivated in commercial transactions
is the use of choice of law clauses. Choice of law clauses are of critical
importance to international commercial arbitrations.
Before examining the determining factors for choice of
law in international transactions, it is worthwhile to briefly explain the
concept of arbitration as a means of dispute resolution.
According to Blacks Law Dictionary, arbitration is a
process of a dispute resolution in which a neutral third party (arbitrator)
renders a decision after a hearing at which both parties select the arbitrators
who has the power to render a binding decision.[1] Arbitration
has further been defined as “reference of a dispute or difference between not
less than two parties for determination after hearing both sides in a judicial
manner, by a person or persons other than court of competent jurisdiction”.[2] This
definition was adopted in the case of Ksu
Db v. Franz Const. Ltd (1990) 4 NWLR (Pt. 142) 14
The major attraction of arbitration has been its
formality, speed, comparatively reduced cost and the involvement of the parties
in choosing the arbitrator. Another high point of arbitrator is the opportunity
it offers the parties to elect in advance the relevant rules that will govern
the arbitral proceedings.[3] This is
obviously one of the major attractions for investors as parties of varying
nationalities have the option and freewill to settle their disputes without
being subjected to the jurisdiction of the courts of a country except those of
their choice. This is made possible by the choice of law clause inserted in the
respective arbitration agreements.
2. INTERNATIONAL COMMERCIAL ARBITRATION
International commercial arbitration is styled as
international not because sovereign nations participate, but because the
parties, the facts, or the legal effects of the dispute extend beyond a single
jurisdiction. The expenses, delay and complicity of a court action are normally
avoided in the case of arbitration procedure. More so, arbitration provides a
degree of privacy, informality and convenience that cannot be matched by the
more traditional court room atmosphere. International conventions, and in
particular the latest New York Convention on Recognition and Enforcement of
Foreign Arbitral Awards 1958 (New York, 10 June 1958), together with
legislations[4]
based on the convention, have provided facilities for the enforcement of
foreign awards, having greater range and flexibility than that exist in regard
to court judgements.
The Arbitration and Conciliation Act 1990[5] provides
a unified legal framework for the fair and efficient settlement of commercial
disputes by arbitration. The Act is styled after the UNICTRAL Model Law
developed for international commercial arbitrations by United Nations Commissions
on International Trade Law (UNCITRAL). Part III of the Act makes specific
provisions for international commercial arbitration. Arbitration is
international if the parties to an arbitration agreement have, at the time of
the conclusion of the agreement, their places of business in different
countries. Arbitration is also international if any of the following
circumstances exist outside Nigeria:
a.
the agreed/determined place of
arbitration;
b.
the place where a substantial part
of the obligation is to be performed;
c.
the place with which the subject
matter of the dispute is most closely connected.
The parties can on their own expressly agree that any
dispute arising from the commercial transaction shall be treated as an
international arbitration.[6]
There is no gainsaying the fact that international
contracts traverse more than one jurisdiction hence the issue of applicable law
to the contract is germaine. The question of jurisdiction is purely based on
the law applicable to the said contract. The applicable law controls the venue of
institution of the action, the powers of the court to entertain the matter and
the jurisdiction of the judge to conduct proceedings and grant the relief
sought by the parties.
This
paper shall examine the various factors and judicial exposition guiding courts
in exercising jurisdiction over international contracts as well as the position
of Nigerian Courts on the question of choice of law in international commercial
arbitration.
3. DETERMINATION OF APPLICABLE LAW IN
INTERNATIONAL CONTRACTS
The
solution to choice of law problems with regards to international contracts in
legal systems of the common law tradition have until recently [7]
been based on what the courts have described as the “proper law of the contract”.[8] According to, Professor Goodrich while
recognizing the issues bothering on the question of ‘proper law’ noted that:
“The
question of what law determines the validity of a contract, or what Dicey calls
“essential validity” is the most confused subject in the field of conflict of
laws. Not only do rules vary in deferent jurisdictions, but decisions in the
same court often enumerate inconsistent theories upon the subject”[9]
Writers
and judges are of the consensus that ‘proper law’ governs essential validity
but definition of ‘proper law’ differs amongst them. The disagreement has
mainly centered on the means of ascertaining proper law as well as the exact
definition of this term.
Dicey
defines the term ‘proper law of a contract’ to means the law, or laws, by which
the parties intended, or may fairly be presumed to have intended to submit
themselves.[10] Westlake’s view is to the effect that
the proper law of a contract is “the law of the country with which the contract
has the most real connexion”.[11]
Lord Atkin in R. vs. International Trustee for the protection of Bondholders Ag[12]
stated the principle that –
“In
coming to its conclusion the court will be guided by rules which indicate that
particular facts or conditions lead to a prima facie inference, in some cases
an almost conclusive inference, as the intention o f the parties to apply a
particular law,’ e.g. the country where the contract is to be performed, if the
contract relates to immovables, the country where they are situate, the country
under whose flag the ship sails in which goods are contracted to be carried”[13].
Thus
besides cases of express choice by the parties to a transaction one can deduce
from the cases, certain factors which indicate the proper law. We shall now
proceed to examine these factors that serve as indicator to the ‘proper law’.
3.1
FACTORS
THAT DETERMINES PROPER LAW
3.1.1
The
Place of Contracting:
According
to Morris, [14]
the emphasis on the law of the place of contracting can be traced as far back
as Huber, a seventeenth century Dutch jurist, whose influence on the English
conflict of laws has been profound. Having stated that contracts are entirely
governed by the Lex loci Contractus he went further to state that “however, if
the parties in contracting have another place in mind, the Lex loci Contractus should not prevail.”[15]
Although
this factor’s influence may be rebutted by a contrary indication contained in
the circumstances of the case, it has been submitted that Lex Loci Contractus remains a ‘formidable’ factor in the
determination of the applicable law.[16]
In the Assuzjone [17]
Hodson, L.J. stated that the general rule is that the law of this by staying
that “the force to be attached to the place where the contract is made must…
depend on the circumstances in which it came to be made in that place.”[18]
In
the United States, the attitude was very much in favour of the Lex Loci Contractus.[19]
Until
it was abandoned in the 1954 case of Auten
Vs. Auten[20]
by the New York Court of Appeal, the legal school of thought represented by
Professor Beale and the Restatement
(first) asserted that the formation of the contract was subject to the Lex Loci Contractus, while its
performance was said to be governed by the Lex
Loci solutionis,[21] In stating the advantage of certainty
attributed to this approach, Professor
Beale declared –
“there can
only be place in which a contract is made, and what that place is can never be
subject to serious doubt.”[22]
Having
discussed in details the practice in the different States, he went on to
conclude that –
“it thus
appears that the principle which is both sound theoretically and most practical
in operation is the principle that contracts are in every case governed as to
their nature and validity by the law of the place where they are made”.[23]
Professor
J.D. McClean
has objected strongly to Beale’s argument of
certainty.[24]
According to him it is “demonstrably untrue” to argue that one can identify the
place of contracting with certainty in every case.[25]
Graveson
also does not agree that the place of contracting “can never be subject to
serious doubt”. According to him, “while
no ambiguity on this matter can arise when the parties are face to face, the
position is complicated when the parties are in different countries.”[26]
Having stated the rules of English aw with regards to the communication of
acceptance by post or telex, he goes on to say that-
“… it is
not established that the same rule applies to the making of a contract by
international telephone, for example, an auction being conducted in London at
which the auctioneer takes bids from overseas bidders over a telephone on the
rostrum.”[27]
Professor
Beale’s postulation
and the advantage of certainty attached to the Lex Loci contractus should actually be discredited first and
foremost for its inability to provide the needed certainty in a lot of cases
thereby leading to a circuitous result. To explain this point, we could illustrate
with the following hypothetical situation.
Olu,
in Lagos, Nigeria posts as offer to Adolph in Hamburg, German who immediately
posts his acceptance. Before Olu (offeror) receives the acceptance, he send a
telegraphic revocation of the offer to Adolph. Under Nigerian Law, a valid
acceptance is made when and where the acceptance is handed to the post office.
Thus, by Nigerian Law, there is a contract made in Germany.
However,
by German Law there is no contract and if for any reason a German court holds
that there is, it would declare that the contract was made in Nigeria.
Morris has
enumerated some other objections to this approach. According to him,
“First,
the place contracting may be fraudulently selected in order to give validity to
an otherwise invalid contract. Secondly, the place of contracting may Be
impossible to determine the place of contracting until the contract is
concluded. These considerations reduce the force of the predictability argument
almost to vanishing pint.”[28]
Reliance
on this factor was eventually abandoned in England in 1865[29].
However, it is submitted that this factors remains a powerful one in the
determination of applicable law with regards to international commercial
transactions in the courts of the common law systems.
3.1.2 The Place of Performance
Another
important factor considered by the courts in arriving at the proper law of
contract is the place of its performance. In fact, Graveson asserts that this
is “an even stronger factor” than the Lex
Loci contractus.[30]
Again, in comparison with the law of the place of contracting, Morris claims that the Lex Loci solutionis “may seem to have
graeter usefulness”.[31] Lord Wilberforce had occasion to comment
on the relevance of the Lex loci
solutionis in the case of Miller and
Partners Ltd. Vs. Whitworth Street Estate (Manchester) Ltd.[32]
According to him:
“If any
single factor carries more weight than others, it is the lex loci solutionis, and
this factor must be particularly important where the whole contract is so
visibly localized in one place”[33]
The
attractiveness of this approach lies in the fact that it avoids the
difficulties arising from a rigid application of the Lex loci contractus and it is based on an “internal or substantial
connection between the contract and its governing law instead of an external
and fortuitous one. Whatever else the place of performance may be, it is not
fortuitous.”[34]
However, it has its own shortcomings. Where the contract is bilateral and each
party is to perform in a different jurisdiction, the lex loci solutionis may not be helpful in arriving at a just
decision.[35]
In Graveson’s view, this inadequacy will only be remedied by the application of
the test of closest connection which may either involve a choice of one of the
two laws of the place of performance or a rejection of both of them in favour
of some other law, such as that of the law of the place of contracting.[36]
Another objection raised against the usefulness of the lex loci solutions is
that it is unhelpful in instances where the place of performance is optional.
Thus, where an international loan secured by debentures is repayable at the
debenture-holder’s option either in New York or Lagos, it is useless to rely on
this factor.[37]
3.1.3 The Situs
This
factor is only relevant with regards to cases in which the subject-matter of
the transaction are immovables. It refers to the law of the place where the property is situate. However,
one must strictly distinguish between cases where the subject-matter is foreign
immovable property itself and those where the reference to foreign land is only
with regards to some service required to be performed on it. In the former
case, the Lex situs is a relevant factor in determining the proper law of
contract, but in the latter, it is almost irrelevant. In the case of Miller and Partner Ltd. vs. Whitworth Street
Estates (Manchester) Ltd.,[38]
the contract involved making alterations on some building in Scotland.
Although the House of Lords occasionally made reference to the lex situs, it was clear that the subject
matter of the contract was not immovables but services and so the fact that
work under the contract was to be carried out on Scottish land carried very
little weight. The relevance of the situs was that performance of the contract
was to take place there. Thus, the court actually stressed the factor of the lex loci solutionis and not the lex situs. In the words of Lord Reid –
”In
the present case the form of the contract may be said to have its closet
connection with the system of
law in England but the place of performance was in Scotland and one must weigh the relative importance of these two. No
other factor has real weight in this case”.[39]
3.1.4 Other Relevant Factors
These
include the law of the ship’s flag in cases involving maritime contracts[40]
(this factor is especially relevant where the contract was made on board the
ship); the form and language used in the contract[41]
(which might not be meaningful where the countries involved use the same
official language and have similar legal systems), the domicile or nationality
of the parties, and presence of a jurisdiction or arbitration clause.
3.2
WHERE
THERE IS AN EXPRESS CHOICE OF LAW – Foreign Jurisdiction Clause
The
most classical example of this situation is the case of Vita Food Products Inc. vs. Unus
Shipping Co. Ltd.[42]
The facts of which are as follows –
A
Newfoundland statute provided that the Hauge Rules should govern any contract
of carriage from that country and that every bill of lading in respect of such
carriage should contain an express clause making the Rules applicable. A Nova
Scotian shipping company, having agreed to carry goods from Newfoundland to New
York, signed bills that omitted the express clauses. The bill expressly
provided that the contract should be governed by English law.
Both
the Rules and the bills themselves exempted the company from liability for the
negligence of the master. It was clear that Newfoundeland was the country with
which the contract was most closely connected and that there was no factual
connection whatsoever with England. The cargo was damaged as a result of the
master’s negligence and the question was whether or not the company was liable.
In
a much criticized judgement, the Privy Council held that the immunity of the
company rested upon the exemption clause in the contract and not the Hague
rules. This decision was based on the parties’ selection of English law which
had no factual connection with the transaction.
According
to their Lordships –
“It is now well settled that by
English law (and the law Nova scotia is the same), the Proper law of the
contract “is the law which the parties intended to apply” that intention is
objectively ascertained, and, if not expressed, will be presumed from the terms
of the contract and the surrounding relevant circumstances… In this case… it
might be said that the choice of English law is not valid for two reasons. It
might be said that the transaction, which is one relating to the carriage on a
Nova Scotian ship, of goods from Newfoundland to New York between residents in
those countries, contains nothing to connect it in any way with English law,
and therefore that that choice could not be taken seriously. Their Lordships
rejected this argument, both on grounds of principle and the facts. Connection
with English law is not as a matter of principle essential”[43]
Before
reaching this conclusion, Lord Wright commented on the statement of Lord Atkin in R. Vs. International Trustee[44]
in which he said that the intention of the parties will be ascertained by the
intention “expressed in the contract if any which will be conclusive.”[45] According to Lord Wright –
“It is
objected that this is too broadly stated and that some qualifications are
necessary. It is true that in questions relating to the conflict of laws, rules
cannot generally be stated in absolute terms but rather as prima facie
presumptions. But where the English rule that intention is the test that
applies and where there is an express statement by the parties of their
intention to select the law of the contract, it is difficult to see what
qualification are possible provided the intention expressed is bona fide and
legal, and provided there is no reason for avoiding the choice on grounds of
public policy”. [46]
It
is humbly submitted that Lord Wright’s statement
establishes certain limitation on the freedom of parties to choose any law to
govern their contract. These limitations are the requirements of bona fide, legality of choice and public
policy. The practical utility of these limitations cannot be separated from
their clarity.
Two
English cases illustrate the inconsistency of the courts decision on this
issue, they are The Fehmann[47]
and The Eleftheria[48]
In
The Fehmann, the contract was for the shipment of turpentine from a Russian
port to London in a German ship. The bill of lading contained a clause
providing for all disputes to be resolved exclusively in U.S.S.R. courts in
accordance with Russian law. The plaintiffs, an English company brought an
action in rem against the ship as
holders of the bill of lading alleging that the turpentine was contaminated on
delivery. Although, the proper law of the contract was Russian law, all the
plaintiff’s witnesses were resident in England. The ship regularly sailed to
England and most of the shipowner’s witnesses could conveniently testify in
England. Weighing all the relevant factors, the court declined to stay the
action and held that the English court could properly assume jurisdiction.
Denning L.J. stated that the granting of stay is subject to the overriding
principle that no one, by his private stipulation can, oust the courts of jurisdiction
in a matter that properoly belongs to them.
The
Eleftheria on its part involved the shipment of plywood from a Romanian port to
Hull on board a Greek ship. The bills of lading referred all disputes to be
settled in Greece in accordance with Greek Law. The plaintiffs, an English
company (holders of the bills of lading) brough an action in rem against the
ship in England for breach of contract. Most of the evidence was available in
England but Greek law was materially different from English law. Upon weighing
all the relevant considerations, Brandon J. stayed the action. In doing this,
he stated the tests, which should be applied in cases like this. These tests
which he repeated at the Court of Appeal were repeated by him in the The ElAmria[49]
and are as follows:
1)
Where the Plaintiff sues in
England in breach of an agreement to refer disputes to a foreign court, and the
Defendant applies for a stay, the English (local) court, assuming the claim to
be otherwise within the jurisdiction, is not bound to grant a stay but has a
discretion whether to do so or not.
2)
The discretion should be
exercised by granting a stay unless strong cause for not doing so is shown.
3)
The burden of proving such
strong cause is on the plaintiff
4)
In exercising its discretions
the court should take into account all the circumstances of the particular
case.
5)
In particular, but without
prejudice to (d), the following matters, where they arise, may be properly
regarded:
(a)
In what Country the evidence on
the issues of fact is situated, or more readily available, and the effect of
that on the relative convenience and expense of trial as between the English
and foreign Courts;
(b)
Whether the law of the foreign
Court applies and, if so, whether it differs from English (local) law in any
material respects;
(c)
With what Country either party
is connected, and how closely;
(d)
Whether the Defendant genuinely
desires trial in the foreign Country, or is only seeking procedural advantages;
(e)
Whether the Plaintiff would be
prejudiced by having to sue in the foreign Court because he would:
(1)
be deprived of security for that
claim;
(2)
be unable to enforce any
judgment obtained;
(3)
be faced with a time bar not
applicable in England; or
(4)
for political, racial, religious
or other reasons be unlikely to get a fair trial.
The
above is referred to as the Brandon Test,
named after Brandon, J. who
delivered the judgment in the The
Eleftheria. The Brandon Test gives the discretionary power to the Judge in
the exercise of his power to order a stay of proceedings. Like every discretion,
the Judge must exercise it judicially and judiciously, based on or guided by
law and discretion in favour of the Applicant unless strong cause for not doing
so is shown; and the burden of showing such strong cause for not granting the
application lies on the doors steps of the Respondent.[50]
At
this stage, we wish to examine a Nigeria statement on this issue of whether or
not the court must always give effect to an express choice of law clause. One
of the issues that confronted the Lagos State High Court in the case of Adesanya
vs. Palm Lines Ltd.[51] was whether or not the court can depart
from the expressed intention of the parties as to the law which is to govern
their transaction. The facts of the case are as follows.
The
Plaintiff, a Nigerian businessman had a cargo of potatoes consigned to him from
England on a ship of the defendant line which had officers in Lagos. Under the
bill of lading, the parties expressly accepted and agreed to all its
stipulations, exceptions and conditions. One such condition contained in the
bill of lading was that, should any dispute arise on the contract the matter
would be decided by English law. Exceptions to this condition were stated to be
questions endorsed on the bill of lading which were to be decided by Belgian or
Dutch law; and questions relating to the general average. Exclusive
jurisdiction was conferred on the English courts on any question arising on the
contract.
When
the potatoes were unloaded in Lagos, they were found to be unfit for human
consumption. The plaintiff instituted proceedings in Lagos against the
defendant applied for an order stating those proceedings contending that since
the parties had an express choice of law in their agreement, the law should
apply. The plaintiffs, on their part maintained that the choice of law clause
in the contract was void under the Hague Rules relating to Bills of Lading 1921,
as laid down in the International
Convention for the Unification of Certain Rules Relating to Bills of Lading
(1924) (Article 3 Rule 8) which states –
“Any
clause, covenant, or agreement in a contract of carriage relieving the carrier
or the ship from liability for loss or damage to or in connection with goods
arising from negligence, fault or failure, in the duties and obligations
provided in this Article or lessening such liability otherwise than provided in
these Rules shall be null and void of no effect…”
The
court did not specifically comment on the effect of this provision, neither did
it state any opinion on the validity of the choice of law clause. In refusing
to stay proceedings, it stated that since the law applied by the court
(Nigerian law) is basically English law and “the facilities in the English
courts are equal to those the parties will get here” it was more in the
interest of justice not to strictly stick to the choices expressed by the
parties in their contract.
It
is hereby humbly submitted with respect that although the result was claimed to
be informed by the need to do justice, the mode of arriving at it was rather
unclear. To say that Nigerian law should govern, simply because it is basically
English is not reflective of a proper understanding of the issues of conflict
of laws involved.
In
the Vita Food Case[52]
although Lord Wright stated that
the law of Nova Scotia was the same as the English law on the subject, he
nevertheless went ahead to discuss the issues and arrived at his conclusion
that English law applied, thus stating that the parties’ express choice of law
prevailed.
One
wonders what the ruling of the learned judge in Adesanya[53]
would have been if the case had involved another country whose legal system
is markedly different from that of Nigeria. Can this decision pass for a
precedent in such a case? We humbly do not think so.
3.3
WHERE
THERE IS NO EXPRESS CHOICE
In
cases of this nature the subjectivist view is that the court can infer the
intention of the parties and apply the law so inferred.[54]
This inference can be drawn by “applying sound ideas of business, convenience,
and sense to the language of the parties.”[55]
For the purpose of drawing this inference the court could find guidance in the
provision for arbitration or in a jurisdiction clause specifying which country
such proceedings should be undertaken, if necessary.
According
to Cheshire and North, such clauses contain “powerful implication that the law
of that country should be applied on the principle that qui elegit judicem elegit ius.’[56]
This implication is however, not conclusive as was revealed in the case of Compagnie d’Armement Maritime S.A. Vs.
Campagnie Tunisienne de Navigation S.A.[57]
the contract was for the carriage of oil by sea from one Tunisian port to
another. The parties were a Tunisian Company and French shipowners. The
contract was made in Paris through brokers who used an English printed standard
from. The contract had no connection with any system of law other than French
law except for the arbitration in London. The House of Lords held that the
proper Law of the contract was French law and that the arbitration clause was
only one of the factors to be considered in arriving at the decision. According
to Lord Wilberforce –
“An
arbitration clause must be treated as an indication, to be considered together
with the rest of the contract and the relevant surrounding facts. Always it
will be a strong indication, but it must give way where other indications are
clear”.[58]
This
judgment of the House of Lords came two years after another decision of the
Court of Appeal on this subject in which the court had decided in favor of the
intention expressed in the arbitration clause. That case, Tzortzos vs. Monark Line A/B[59]
involved the sale of a ship in Sweden by an arrangement made in Sweden between
a Swedish ship owner and Greek purchasers. Payment was to be made in sterling,
be transferable to Swedish Kronor and it was to be effected in Sweden where a
bank deposit had already been concluded. The contract contained a clause to the
effect that in the event of any dispute, arbitration should be held in London.
The arbitrator held that English law was the proper law of the contract. This
decision was upheld both by the English High Court and the Court of Appeal. The
Court inferred that the parties by providing for arbitration in London had
implied an intention that their transactions be governed by English law.
4.
ARBITRATION CLAUSE IN INTERNATIONAL CONTRACT
Arbitration Clauses have become a common feature in
modern commercial contracts. It is now of common place that arbitration clauses
are inserted in shipping documents, charter parties, building and construction
contracts, insurance policy agreements and joint venture agreements.
According to the learned authors of Halsbury[60]
“arbitration is the reference of a dispute or difference between not less than
two parties for determination to persons other than a court of competent
jurisdiction.”
In Nigeria arbitration may arise in any of the
following instances:
a) By agreement of the parties thereto out of court
b) By order of Court with or without the consent of the
parties
c) By the terms of some other instrument of statutory
force such as the Trade Disputes Act Cap T8 LFN 2004 which sets up the
Industrial Arbitration Panel.[61]
It is therefore not out of place to find international
contracts with arbitration clause as this would help to expedite settlement
whenever disputes arise.
Arbitration Clauses ousting the jurisdiction of the court
are basically of two types: an arbitration clause that merely makes an award a
condition precedent for the institution of an action in court and an
arbitration clause that attempts to oust the jurisdiction of the court. While
the former is valid the latter is void and of no effect. Whether an arbitration
clause could act as a bar to the institution of court proceedings would depend
on the category the said arbitration clause falls into.[62] The
Supreme Court clearly stated this position in the case of Obembe v. Wemabod Estates Limited[63] as follows:
“One class is where the provision for arbitration is a
mere matter of procedure for ascertaining the rights of the parties with
nothing in it to exclude a right of action on the contract itself, but leaving
it to the party against whom an action may be brought to apply the
discretionary power of the court to stay proceedings on the action in order
that the parties may resort to that procedure to which they have agreed. The
other class is where arbitration followed by an award is a condition precedent
to any other proceedings being taken, any other proceedings then being,
strictly speaking not upon the original contract but upon the award made under
the arbitration clause. Such provisions in an agreement are sometimes termed Scott
v. Avery Clauses, so named after the decision in Scott v. Avery (1856) 5 H.C. cases 811”
This distinction is paramount as it affects the right
of a party to bring court action in Nigeria. Where an arbitration clause is a
mere matter of procedure either party may commence action in court without
referring the dispute to an arbitration panel.
Thus a party to a contract containing arbitration clause of this nature
may in total disregard of the arbitration agreement proceed to commence an
action on a court of law. In the case of Obembe v. Wemabod Estate Limited[64] the
Supreme Court had the cause to interprete the following arbitration clause:
“Any dispute or difference arising out of this
agreement shall be referred to arbitration of a person to be mutually agreed
upon or failing agreement. Of some person appointed by the President for the
time being of the Institution of Consulting Engineers”
The court held that the above clause does not oust the
jurisdiction of the court and therefore either party to the agreement may
before a submission to the arbitration or award is made commence legal
proceedings in respect of any claim or cause of action included in the
submission. Nwobike pointed out clearly that the above Supreme Court
decision should not be construed as giving a party the unfettered power to
proceed to court without reference to arbitration as the opposing party is
entitled by Section 5 of the Arbitration and Conciliation Act to seek an order
for stay of proceedings from the court seised of the matter.[65]
On the other hand where the parties to the contract
agree that in event of a dispute that no action shall be brought until the
matter has been referred to arbitration and an award made, then an award of an
arbitrator shall be a condition precedent to the right to bring an action on
the contract. This type of clause is the notorious “Scott v. Avery Clause”[66]. In
that case an insurance company inserted in all its policies a condition that,
when a loss occurred, the suffering member should give in his claim and pursue
his loss before a committee of members appointed to settle the amount; that if
a difference thereon arose between the committee and the suffering member, the
matter should be referred to arbitration and that no action should be brought
except on the award of the arbitrators. In considering the scope of these
provisions, the court held that this condition was not illegal as ousting the
jurisdiction of the court but merely made an award a condition precedent for
the institution of an action in court.
Nigerian Courts have consistently held that under a Scott
v. Avery clause, there is no right of action until the arbitrators have
made their award. In Kurubo v. Zach-Motison (Nig.) Limited[67] it
was held that where parties to an agreement make provision for an arbitration
before an action can be instituted in a court of law, any aggrieved party must
first seek the remedy available in the Arbitration. According to TOBI, J.C.A.:
“In otherworld where the law places a hurdle between a
willing and prospective litigant and the court in terms of enforcing the
process of the court, the litigant must first clear or race over the hurdle
before he can enforce the court process. He cannot jump or beat the gun before
the sports official shoots the gun for the commencement of the hurdle race. He
could either get himself hurt or disqualify himself in the process. In either
case, he is the loser and he will not like that. So let him take first steps
first or first actions first. Generally therefore, if a party goes straight to
the court to file an action without reference to arbitration, as contained in
the agreement, a court of law is entitled and indeed bound to refuse
jurisdiction in the matter.”[68]
Also in the case of Hallam v. A. G. Plateau State[69] the
court held that where agreement made by the parties stipulates that any dispute
arising therefrom must first be referred to a referee, it would amount to
“jumping the queue” for any of the parties to resolve to go to court first
before the dispute between the parties is referred to an appointed referee as
provided in their agreement.
The rational for the attitude of Nigerian Courts in
the cases above is clearly based on the principle of pacta sunt servanda to the
effect that parties are bound by their agreement to refer disputes to
arbitration before proceeding to court.
There are certain categories of contracts which
must expressly designate Nigerian laws as the applicable law, e.g.
contracts/agreements relating to the transfer of technology to any Nigerian
entity which attract royalties and fees in connection with the use of trade
marks, patented inventions, supply of technical expertise etc, or the case of
contracts/agreements for the supply of goods and/or services to federal and
state governments of Nigeria. As regards to other international commercial
contracts, and depending on the manner in which the agreement is couched, the
parties are free under Nigerian law to choose the applicable law to the
transaction.
Section 47(1) of the Arbitration Act
clearly states that:
“The
arbitral tribunal shall decide the dispute in accordance with the rules in
force in the country parties have chosen as applicable substance of the
dispute”.
On
whether arbitration clause is an agreement bars resort to Court, the Court of
Appeal in L.A.C. v. A.A.N. Ltd. (2006) 2 N.W.L.R. (Part 963) C.A. 49 held
that an arbitration of the clause in an agreement generally does not oust the
jurisdiction of the Court or prevent the parties from having recourse to the
Court in respect of dispute arising therefrom. A party to an agreement with an
arbitration clause has the option to either submit to arbitration does not bar
resort to the Court to obtain security for any eventual award. (NV. Scheep v. “Mv ‘S. Araz” (2000) 15 NWLR (Pt. 691) 622; Obembe v. Wemabod Estates (1977) 5 SC 115; K.S.U.D.B. V. Fanz Ltd.
(1986) 5 NWLR (Pt. 39) 74 referred
to.) (P. 73. Paras. D-F)
5. CONCLUSION
Where
the issue before the trial Court is whether it should decline jurisdiction or
not because of prior agreement by the parties, it has a discretion. There is
also onus on the party urging the court not to decline jurisdiction, to provide
sufficient evidence to justify such grant. The circumstances which would assist
the court in reaching a decision one way or another have been set down in what
is referred to as the BRANDON TEST and they include:
(a) whether
the law of the foreign court applies; and, if so, whether it differs from
Nigerian Law in any material respects;
(b) whether
the Defendant genuinely desires trial in the foreign Country, or is only
seeking procedural advantages;
(c) whether
the Plaintiff would be prejudiced by having to sue in the Foreign Country.
[Sonnar (Nig.) Ltd. V. Nordwind (1987)
4 NWLR (Pt. 66) 520 referred to.] (P.
879., paras. E-H)
It has been suggested that Nigerian Courts must
redefine the concept of the proper law of contract under Nigerian law to
include state laws and customary laws in so far as the parties intend such to
govern their transaction or in so far as such customary law or state law is the
law with which the transaction had its closest and most real connection.[70]
Bibliography
1.
Omoruyi
I.O. “The Determination of Applicable law in
International Contracts: A Nigerian Perspective” Modern Practice Journal of
Finance & Investment Law Vol. 8 No. 3-4 (2004)
2.
Cheshire
and Morris: The Proper Law of Contract,” (1940) 56 Law
Quarterly Review, 320
3.
J.H.C.
Morris The Conflict of Laws, 2nd Edition.
London, Stevens. 1980.
4.
Graveson:
The Conflict of Laws, 4th Edition. London. Sweet and Maxwell. 1974.
5.
Beale:
“What Law Governs the Validity of a Contract” (1909) 43 Harvard Law Review
6.
Khan-Freund
“Private International Law: Contracts.” (1939) 3 Modern Law Review,
7.
Ebrenzweig
and Jayne. Private International Law. Vol. 3 Sitjhoff. 1977
8.
Fred
Agbaje “Law and
Practice of Commercial Arbitration in Nigeria” Modern Journal of Finance
and Investment Law Vol. 3 No. 1 1999
9.
Nwobike
J. C. “Arbitration
Clauses and the Right to Court Actions” Modern Journal of Finance and
Investment Law Vol. 3 No. 2 1999
10. Inam Wilson
“The Nigerian Courts and International
Arbitrations” Modern Practice Journal of Finance & Investment Law Vol.
3 No. 3 (July 1999) pg. 619
11. P.C. Anaekwe
Students Handbook on Company Law & Commercial Practice 1994 Edition pg. 89
Y Pokanu Adeniyi Funsho, LL.B
(HONS)(LASU), B.L, |Partner, Muyideen & Pokanu
[1] Blacks Law
Dictionary 6th Edition pg. 105
[2] P.C. Anaekwe
Students Handbook on Company Law & Commercial Practice 1994 Edition pg. 89
[3] Inam Wilson “The Nigerian Courts and International
Arbitrations” Modern Practice Journal of Finance & Investment Law Vol.
3 No. 3 (July 1999) pg. 619
[4] Arbitration
and Conciliation Act LFN 2004 which is based on the UNCITRAL Model Law of
International Commercial Arbitration adopted by the United Nations Assembly.
The significant important of the UNCITRAL MODEL Law id that it is not a treaty
but a model law which serves as guide to Member Nations.
[5] Now Cap A LFN
2004
[6] Section 57
(2) Arbitration and Conciliation Act 2004
[7] By reason of the Contracts (Applicable
Law) Act. 1990, Proper Law is now referred to as “Applicable Law” in England.
[8] Omoruyi I.O. “The Determination of Applicable law in
International Contracts: A Nigerian Perspective” Modern Practice Journal of
Finance & Investment Law Vol. 8 No. 3-4 (2004) pg. 468
[9] See
Cheshire and Morris: The proper Law of Contract,” (1940) 56 Law Quarterly Review,
320 cited
in Omoruyi I.O. op. cit. pg. 470 for
a discussion of this view.
[10] Ibid.
[11] Ibid.
[13] Ibid at p. 529.
[14] J.H.C. Morris The Conflict of Laws, 2nd Edition. London, Stevens.
1980. P.211. cited in Omoruyi I.O. op. cit. pg. 470
[15] Ibid.
[20] 308 NY 155.
[23] Ibid at p. 272.
[24] J.D. McClean op cit. p. 253.
[25] Ibid at p. 253.
[26] Graveson Op. Cit.
[27] Ibid pp. 415. See also Ebrenzweig and Jayne.
Private International Law. Vol. 3 Sitjhoff. 1977.
[28] J.D. McClean. Op. Cit
[29] This was in the case of P.O. Steam Navigation Co. v. Shand (1865)
3 M.P.C. (N.S.) 272 and in Lloyd v.
Guibert (1865) LR 1 QB 115.
[30] Op. Cit. p. 416.
[31] JD McClean op.cit.
[32] (1970) AC583
[33] Ibid at p. 615
[34] JDMcClean Op cit
[35] Ibid see also Ebrenzweig and Jaye. Op cit p. 34
[36] Graveson Op cit
[37] See J.D. McClean Op cit. P. 254.
[38] Supra note 31.
[41] See
Compagnie d’ Armement Maritime S.A. v.
Compagnie Tunissiene de Navigation SA (1971) AC 572.
[42] (1939) AC 277
[47] (1958) 1
W.L.R. 159
[48] (1970) p. 94
[49] (1992) L.L.R.
119
[50] See dicta of
TOBI, J.S.C. and OGUNTADE, J.S.C. in Nika Fishing Co. Ltd. v. Lavina Corporation
(2008) 16 N.W.L.R. (Part 1114) S.C. 509 @ pg. 545 paras. C-E and pg. 550-551
paras. G- F respectively.
[52] (1939) AC 277
[53] Supra note 54
[54] See R.V. International Trustee (1937) AC 500
[55] Jacob v. Credit Lyonnais (1884) 12 q13d 589
[56] Chesire and North. Supra note 2 at p. 203.
[57] Supra note 40.
[58] Ibid. p. 600
[59] (1968) WLR 406.
[60] 4th
Edition, paragraph 501
[61] Fred Agbaje
“Law and Practice of Commercial Arbitration in Nigeria” Modern Journal of Finance and Investment Law Vol. 3 No. 1 1999 pg. 69
[62] Nwobike J. C.
“Arbitration Clauses and the Right to Court Actions” Modern Journal of Finance and Investment Law Vol. 3 No. 2 1999 pg. 230
[63] (1977) 5 S.C.
115
[64] Supra
[65] Nwobike J. C.
op. cit. pg. 235
[66] This clause
was derived from the leading case of Scott v. Avery (1856) 5 H.L. Cas.
811
[67] (1992) 5 NWLR
(Pt. 239) pg. 102
[68] pg. 117
[69] (1996) 9 NWLR
(Pt. 471) pg. 242
[70] Omoruyi I.O. op. cit. pg. 490
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