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Saturday, 31 December 2016

Tuesday, 29 November 2016

CHOICE OF LAW IN INTERNATIONAL COMMERCIAL ARBITRATION - ADENIYI POKANU ESQ.



CHOICE OF LAW IN INTERNATIONAL COMMERCIAL ARBITRATIONY

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.
[12] (1930) AC 500.
[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.
[16] Graveson: The Conflict of Laws, 4th Edition. London. Sweet and Maxwell. 1974. P. 415.
[17]  (1954) ALL ER 278.
[18] Sayers v. International Drilling Company (1971) 1 WLR 1176 at 1189.
[19] See Beale: “What Law Governs the Validity of a Contract” (1909) 43 Harvard Law Review, 79.
[20] 308 NY 155.
[21] O Khan-Freund “Private International Law: Contracts.” (1939) 3 Modern Law Review, 61 at 64.
[22] Beale op. cit. p. 271.
[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.
[39] Ibid at p. 604.
[40] See Hodson. LJ. In The Assuzione. Supra.
[41] See Compagnie d’ Armement  Maritime S.A. v. Compagnie Tunissiene de Navigation SA (1971) AC 572.
[42] (1939) AC 277
[43] Ibid at p. 289.
[44] (1937) AC 500.
[45] Ibid at p. 529
[46] (1937) AC 277 at 289.
[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.
[51] (1967) NCLR 133
[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