Authored By: Mmesomachukwu Cynthia Ndubueze-Nduka
University of Benin, Nigeria.
ABSTRACT
In today’s business environment, arbitration has become the dispute resolution method of choice, providing parties with a confidential, flexible, and frequently expedited substitute for traditional litigation. Central to this is the arbitration clause- a contractual agreement embodying the intent of parties to submit dispute to arbitration. Such clauses, now very popular in contemporary commercial contracts, are generally considered to be final and binding. But the question arises: ‘are arbitration clauses truly absolute?’
The Nigerian legal framework, particularly the Arbitration and Mediation Act 2023, underscores the enforceability of arbitration agreements. Yet, the practical consequences of such stipulations are constantly called into question within court settings, where parties dispute, construe, or attempt to navigate around them. In this sense, the court emerges as a key forum for determining both the efficacy and constraints of arbitration clauses. This article not only theoretically but through interpretations by Nigerian courts analyzes the construction of arbitration clauses. Drawing on current judicial rulings, it critically discusses whether arbitration clauses totally preclude court intervention and how their validity may be restricted, waived, or overridden.
INTRODUCTION
Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute.1 Arbitration in Nigeria is governed by the Arbitration and Mediation Act 2023. Ogunwumiju JSC in UBA Plc v Triedent Consulting Ltd,2defined arbitration as ‘a procedure for the settlement of dispute which the parties agree to be bound by the decision of an arbitrator whose decision is, in general final and legally binding on both parties’. Arbitration clauses in commercial contracts have become a general acceptable practice. An arbitration clause is a written consensus embodying the agreement of parties to resort to arbitration should any dispute with regards to the obligations arising from the contract.3 An arbitration clause ensures that arbitration is frost explored before recourse to litigation.
S.1(3) of the Arbitration and Mediation Act 2023 provides that ‘An arbitration agreement between the parties for settlement of dispute shall be binding on parties and enforceable against each of the parties to the exclusion of any other dispute resolution method unless the parties otherwise provide or the agreement is void.’ Further S.2(1) provides that the ‘An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate complete agreement’. Even where the arbitration clause is part of a contract, it is nevertheless regarded in law as a separate contract.
ARBITRATION AGREEMENTS: ESSENTIALLY CONTRACTS
Arbitration agreements are essentially contracts whereby parties agree that any dispute arising from the foundational agreement be resolved through arbitration instead of through the traditional litigation. In Falek Concepts Ltd v AG Akwa Ibom State,5the court held:
An arbitration clause in a written contract is quite distinct for other clauses. Whereas the other clauses set out obligations which the parties undertake towards each other, the arbitration clause merely embodies the agreement of both parties that if any dispute should occur with regards the obligations which the other party has undertaken to the other, such dispute should be settled by a tribunal of their own constitution or choice.
In UBA Plc v Triedent Consulting Ltd,6 Ogunwumiju JSC stated that ‘where two or more persons agree that a dispute or potential dispute between them shall be decided in a legally binding way by one or more impartial persons of their choice, in a judicial manner, the agreement is called an arbitration agreement’.
Since arbitration clauses and agreements are essentially contracts, it therefore follows that apart from the requirement of writing as provided by S.2(2) AMA 2023, the other elements of a valid contract ought to be present for an arbitration agreement to be valid. In the UBA Plc v Triedent Consulting Ltd7the court stated that “every arbitration agreement must satisfy the normal requirement of a contract such as consensus, capacity and legal relationship. Like any other contract, the terms must be clear and certain. The court would, however lean towards a construction that will give effect to the intention of the parties”.
The Principle of Sanctity of Contract and Jurisdictional Challenges
As contracts, the both the parties and the courts are bound by the terms of the agreement, this is the principle of sanctity of contracts. However, issues frequently arise where one party initiates litigation despite the existence of an arbitration clause. This raises the question: Do arbitration clauses oust the jurisdiction of the courts? This question is answered by a plethora of judicial decisions.
In Bill & Brothers Ltd v Dantata & Sawoe Constructions Co,8one of the issues that arose was whether in view of the arbitration agreement in the development lease agreement between the plaintiff and the 1st & 2nd defendants, the trial court was robbed of the jurisdiction to hear and 4 UBA Plc v Triedent Consulting Ltd [2023] 14 NWLR (Pt. 1903) 95 at 130 determine the plaintiff’s suit. The court per Ekanem JCA held that ‘an arbitration clause in an agreement does not raise the issue of jurisdiction of a court’.9 The court held that this is because the jurisdiction of a court is donated to it by the Constitution of Nigeria and/or the statute establishing the court and so parties cannot by their agreement seek to oust the jurisdiction so donated. Further, the court noted that an arbitration clause only postpones the right of either of the parties to the agreement to resort to litigation in court whenever the other contracting party elects to submit the dispute under the agreement to arbitration. Additionally, the court stated that whenever a party to the agreement promptly and properly raises the issue of reference to arbitration, the court seized of the matter will lean towards enforcing the clause, not by striking out the case for want of jurisdiction but by staying proceedings pending arbitration. It is important to note that the court relied on the Section 5(1) Arbitration and Conciliation Act which is impair materia with the extant Arbitration and Mediation Act 2023. Similarly in UBA Plc v Triedent Consulting Ltd,10 the court held that where parties agree to arbitrate over disputes, this does not automatically oust the jurisdiction of the court.
Timely Invocation of Arbitration Clauses
Thus the law is trite that the existence of an arbitration clause or agreement does not oust the jurisdiction of the court. Instead, it is left to the other party to apply to the court to stay its proceedings. This is the position of the law as provided in S.5(1) and (2) AMA 2023:
Notwithstanding the provisions of any other law, a court before which an action is brought tin a matter, which is the subject of an arbitration agreement shall, if any of the parties request, not later than when submitting their first statement on the substance of the dispute, refer the parties to arbitration unless it finds that agreement is void, irrespective or incapable of being performed.
Where an action referred to in subsection (1) has been brought before a court, arbitral proceedings may be commenced or continued, and an award may be made by an arbitral tribunal while the matter is pending before the court
This means that even though a party to the arbitration agreement institutes an action in court, the other party has not lost its right to arbitration and can still apply to court to refer the matter to arbitration. In Federal Ministry of Health v Dacon (Nig) Ltd,11 one of the issues that the court had to determine was whether or not the trial court had jurisdiction to have entertained the case in view of the arbitration clause contained in the contract agreement executed by both parties. In this case, the court explained that:
Arbitration clauses fall into two classes. 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 to the discretionary power of the court to stay proceedings in an action in court 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 condition precedent to any other proceedings being taken, the further proceedings being upon the award made under the arbitration clause.12
The court stated that when parties enter into an agreement and there is an arbitration clause whereby the parties must first go for arbitration, the defendant in a case where the other party has filed a suit should ask for a stay of proceedings pending arbitration. That does not amount to a submission to trial. The court further clarified that where a defendant fails to raise the issue of arbitration clause and rely on same at the early stage of the proceeding but rather takes positive step in the action, he would be deemed to have waived his right under the arbitration clause. Thus it is pertinent for an application for stay of proceedings pending arbitration to be made on time as provided by S.5(1) AMA 2023. In this case, the court held in favour of the respondent because the appellant failed not only to apply to court to stay the proceedings but to bring the attention of the court to the arbitration clause.
Precision of Language: When Arbitration Clauses are Not Absolute
To be absolute, the language of an arbitration clause must be mandatory, precise, and unequivocal. This matter was exemplified in the case of Falek Concepts Limited v AG Akwa Ibom13 where the court had to interpret the arbitration clause in the contract. The agreement was thus:
9.1. Any dispute arising between the parties hereto from the execution of this agreement which cannot be, mutually settled shall be resolved in accordance with the Arbitration Law applicable in Akwa Ibom State and each party shall bear the cost of the arbitration.
9.2 Notwithstanding provisions of paragraph 1 above either party may apply to a court of competent jurisdiction for settlement.
The court held that by the contention that the arbitration agreement was restricted to clause 9.1 and that clause 9.2 should be discountenanced was not well grounded in law in view of the commencement of clause 9.2 with the word ‘notwithstanding’. The court held that the word had an excluding effect and thus by the express agreement of the parties, the impinging effect of clause 9.1 providing for arbitration was excluded thereby permitting the provisions of clause 9.2 allowing parties to litigate.
Scope and Interpretation of Arbitration Clauses
In the interpretation of arbitration clauses, the courts have been very careful to not expand the scope of the agreement. In United Bank for Africa Plc v Triedent Consulting Ltd,14 The issue raised was whether the lower court was right in holding that reliefs 3 and 4 ( the relief on libel and cost for solicitor’s fee and prosecution) were outside the contract and the Arbitration Agreement. The court per Ogunwumiju JSC held that disputes which are subject to an Arbitration Agreement must be arbitrable and by the provision of the Arbitration and Conciliation Act, parties to a contract can 12 Ibid at 139 include an Arbitration clause which allows for disputes to be settled by arbitration instead of litigation. At the end of the Arbitration, the agreement reached (award) will be enforced by the courts after registration in court. The court further stated that “courts have always upheld the autonomy and independence of the Arbitration clause in the contract. The Arbitration Agreement may be drawn up separately or may form part of the transaction between the parties. Where the arbitration clause is part of the contract, it is nevertheless regarded in law as a separate contract”.15 Accordingly, where there is a repudiation or total breach of a contract, the Arbitral clause survives. This principle of separability and autonomy. On the issue of whether reliefs 3 and 4 stem from the contract, the court examined the Arbitration clause, which provides as follows:
Parties shall use their best endeavours to settle disputes amicably arising from the agreement, failing which resort shall be made to an arbitration in accordance with the Arbitration and Conciliation Act…
The court held that “every Arbitration Agreement must satisfy the normal requirement of a contract such as consensus, capacity and legal relationship. Like any other contract, the terms must be clear and certain. The court would, however lean towards a construction that will give effect to the intention of the parties”.16 The essence of an arbitration is to refer disputes assisting between parties to arbitration. The words by which the reference is made must therefore be clear and express as an inference will not be implied. On the issue, the court held that what ‘arises’ from the Arbitration Agreement can only be predicted upon matters that take their root from the Arbitral agreement. Thus the issues of defamation and costs of action are liabilities which are secondary and not part of the liabilities contained in the contract between the parties. The appellant’s motion to stay proceeding did not take cognizance of the whole claims brought by the respondent. he court relied on Baker Marine (Nig) v Chevron Nig Ltd17 where the issue was whether damaged for the tort of confidence as opposed to that of breach of contract can be at large and that aggravated damages could be claimed and sustained by an arbitral award. The court held that any award that would be outside the arbitration agreement and the arbitrators are not allowed to rewrite the arbitration agreement to include extraneous issues or parties outside the substantive contract between the parties. The court ultimately held that in the circumstances of this instant case reliefs relating to libel and cost for solicitor’s fee and prosecution were the subject matter of litigation as they were outside the substance of the original agreement. S
CONCLUSION
While arbitration agreements are enforceable and binding under Nigerian Law, they are not necessarily absolute. They are subject to proper construction, express intention of the parties, and timely equivocation. Courts have jurisdiction notwithstanding such agreements, and the intervention of the courts may be delayed—but not precluded—by a valid arbitration agreement. To bind the parties to arbitration exclusively, an arbitration clause must be binding, specific, and not adorned with language suggesting other fora, including litigation. Further, only disputes arising directly out of the agreement are within the scope of the arbitration procedure, whereas tort claims or obligations outside it remain justiciable.
Reference(S):
1 OAL, ‘Arbitrtaion Process in Nigeria: A Step by Step Guide’ (27 August 2021) <https://oal.law/arbitration process-in-nigeria-a-step-by-step-guide/ > accessed 11 May 2025
2 UBA Plc v Triedent Consulting Ltd [2023] 14 NWLR (Pt. 1903) 95 at 126
3 Mokesioluwa Seun-Adedamola, ‘Arbitration Clauses & Commercial Contractual Agreement’ (LawPavillion, 20 August 2023)< https://lawpavilion.com/blog/arbitration-clauses-commercial-contractual-agreement/ > accessed 11 May 2025
4 Subsection (2) further requires that the agreement be in writing.
5 Falek Concelts Ltd v AG Akwa Ibom State [2019] 8 NWLR (Pt. 1673) 433 at 453
6 UBA Plc v Triedent Consulting Ltd [2023] 14 NWLR (Pt. 1903) 95 at 126
7 UBA Plc v Triedent Consulting Ltd [2023] 14 NWLR (Pt. 1903) 95 at 132
8 Bill & Brothers Ltd v Dantata & Sawoe Constructions Co [2021] 12 NWLR (Pt. 1789) 50
9Ibid at 73
10 (n7)
11 Federal Ministry of Health v Dacon (Nig) Ltd [2019] 3 NWLR (Pt. 1658) 127
13 Falek Concepts Limited v AG Akwa Ibom [2019] 8 NWLR (Pt. 1673) 433
14 United Bank for Africa Plc v Triedent Consulting Ltd [2023] 14 NWLR (Pt 1903) 95
15 Ibid at p.130
16 n(14) p. 132
17 Baker Marine (Nig) v Chevron Nig Ltd (2006)6 SC 21
