Facts
Decision
Comment



In United Bank for Africa Plc v Trident Consulting Limited(1) the Lagos Court of Appeal ruled on the basic requirements for grant of an order to stay proceedings pending reference of the dispute to arbitration.

Facts

The respondent, an IT consultancy firm, performed a contract by assisting the appellant in the implementation of automated customer relationship management software for certain aspects of the appellant's banking business.

The two parties established a written agreement to govern the contract, which included an arbitration clause. A dispute arose between the parties relating to outstanding payments owed to the respondent at the time. While attempting to resolve the dispute, the appellant sent a letter of termination of contract to the respondent. The respondent considered the letter of termination to be defamatory.

The respondent subsequently filed suit before the Lagos State High Court, claiming the following relief:

  • the sum of $489,162.42 on unpaid invoices due to it for work carried out in assisting the appellant in implementation of the automated customer relationship management software;
  • post-judgment interest of 25% a year;
  • damages for libel; and
  • legal fees and costs for prosecution of the action.

The appellant then filed a motion to stay the proceedings pending reference of the dispute to arbitration.

The court refused to grant the stay of proceedings and held, among other things, that:

  • the subject matter of the action was not within the arbitration agreement and termination of the contract had invalidated the arbitration agreement between the parties. Thus, there was no dispute to be referred to arbitration; and
  • damages for libel and legal fees were outside the parties' agreement and thus were not arbitrable.

The appellant appealed to the Lagos Court of Appeal and formulated four issues for determination:

  • whether the lower court was right in holding that the subject matter of the action was not within the arbitration agreement;
  • whether the dispute that gave rise to damages for libel and legal fees in the statement of claim was not within the arbitration agreement;
  • whether termination of the contract had also terminated the arbitration agreement, as it related to disputes that arose from the performance of the contract; and
  • whether the Lagos High Court was right in refusing to grant a stay of the proceedings and refer the dispute to arbitration.

Decision

The court of appeal found the subject matter of the action to be arbitrable, contrary to the high court's findings. However, in refusing to grant a stay of the proceedings pending reference to arbitration, the appeal court held that:

"Before a stay may be granted pending arbitration, the party applying for a stay must demonstrate unequivocally by documentary evidence and/or other visible means that he is willing to arbitrate. He does it satisfactorily by notifying the other party in writing of his intention of referring the matter to arbitration and by proposing in writing an arbitrator or arbitrators for the arbitration".

The court relied on MV Panormos Bay v Olam,(2) in which the court of appeal held, among other things, that:

"By virtue of Section 5 of Arbitration and Conciliation Act, a party applying for stay of proceedings in an action pending reference to arbitration in order to succeed must show in his affidavit evidence in support of the application by means of documentary evidence, the steps he took or intends to take for the proper conduct of the arbitration. It is not enough for him to merely depose that he is ready and willing to do all things necessary for causing the said matter to be decided by arbitration."

The court stated that "to be ready and willing to arbitrate" means that there must be documentary evidence showing that the applicant had written to the respondent notifying it of willingness to resort to arbitration over the dispute, and also specifying in the correspondence an arbitrator or arbitrators proposed to be appointed for the arbitration. Furthermore, by analogy, in Onward Enterprises Ltd v MV Matrix,(3) the appointment of an arbitrator before the party had applied for a stay was held to constitute evidence of the applicant's readiness and willingness to arbitrate the dispute.

The court further relied on the English case of Piercy v Young,(4) in which the court held that an affidavit must be produced to show readiness and willingness to refer the dispute to arbitration as evidence, in addition to the affirmative statement in the affidavit accompanying the motion. In other words, an affidavit sworn to by the party seeking arbitration could be attached as an exhibit to the application for stay, indicating the steps taken as evidence of willingness and readiness to arbitrate.

In the case at hand, the court of appeal stated that it was insufficient for the appellant to depose to the fact that it was ready to do everything necessary to the proper conduct of the arbitration with respect to the dispute between the parties. The appeal court refused to grant a stay of the proceedings pending reference of the dispute to arbitration on the sole ground that the appellant had not established readiness and willingness to arbitrate the dispute. Thus, the appellant had not satisfied the basic requirement (ie, setting of the arbitration in progress) before applying for the grant of an order to stay the proceedings pending reference to arbitration.

Comment

The high court refused to grant a stay of the proceedings pending reference of the dispute to arbitration on the ground that the subject matter of the action was not within the scope of the arbitration agreement. However, the court of appeal found that the subject matter of the action was within the scope of the arbitration agreement and thus arbitrable. Nevertheless, the appeal court refused to grant a stay of the proceedings on the sole ground that the appellant had not established readiness and willingness to arbitrate the dispute.

In determining whether to grant a stay of proceedings pending reference of the dispute to arbitration, recourse should be made to the relevant sections of the Arbitration and Conciliation Act (CAP A18, Laws of the Federation of Nigeria, 2004).

Section 4 provides that:

  1. "A court before which an action which is the subject of an arbitration agreement is brought shall, if any party so request not later than when submitting his first statement on the substance of the dispute, order or stay proceedings and refer the parties to arbitration.
  2. Where an action referred to in subsection (1) of this section has been brought before a court, arbitral proceedings may nevertheless be commenced or continued, and an award may be made by the arbitral tribunal while the matter is pending before the court."

Section 5 provides that:

  1. "If any party to an arbitration agreement commences any action in any court with respect to any matter which is the subject of an arbitration agreement, any party to the arbitration agreement may, at any time after appearance and before delivering any pleadings or taking any other steps in the proceedings, apply to the court to stay the proceedings. [emphasis added]
  2. A court to which an application is made under subsection (1) of this section may, if it is satisfied-
  • that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the arbitration agreement; and
  • that the applicant was at the time when the action was commenced and still remains ready and willing to do all things necessary to the proper conduct of the arbitration, make an order staying the proceedings."

The basic requirements for the grant of a stay of proceedings pending reference to arbitration, as distilled from the above provisions, are as follows:

  • The subject matter of the action must be within the arbitration agreement;
  • The applicant must not have taken any other steps in the proceedings after appearance; and
  • The applicant must be ready and willing to do all things necessary to the proper conduct of the arbitration.

The act does not provide that for an application for a stay of proceedings pending reference of the dispute to arbitration to be granted, before applying, the applicant must have notified the other party in writing of its intention of referring the matter to arbitration and proposed in writing an arbitrator or arbitrators. In other words, there is no such provision as to the effect that there must be an appointment of arbitrators or ongoing arbitration proceedings in order for a party's application to be successful.

Where an agreement stipulates that any dispute arising from the agreement must first be referred to arbitration, it would amount to queue jumping for any of the parties to resolve to go to the court first. However, the act does not prevent a party from approaching the court while the arbitration clause is yet to be enforced. All that the other party has to do is to apply to stay the action in accordance with Section 5(1) of the act. A prima facie duty is cast on the courts to act on the parties' agreement.

Piercy relied on by the court of appeal is an 1880 authority, which has no bearing on today's English decisions, as the courts have long since become pro-arbitration. In AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC(5) the UK Supreme Court recently upheld the sanctity of the parties' contract to refer the dispute to arbitration and held that it has the power to order a stay of proceedings, even when arbitration proceedings are not in progress or contemplated.

A party cannot both approbate and reprobate a contract; thus, a party to an arbitration agreement will be reprobating the agreement if it commences proceedings in court in respect of any dispute within the purview of the arbitration agreement. The court undoubtedly has discretion in the matter, which in the absence of any strong reason to the contrary should be exercised in favour of holding parties to their bargain. The sanctity of the parties' agreement should be upheld.

Having found the subject matter of the action to be arbitrable, the appeal court ought to have granted a stay of the proceedings pending reference of the dispute to arbitration. The appellant acted in a timely manner without taking any steps in the proceedings, as provided under the act as the condition for refusal of a grant to stay the proceedings pending reference to arbitration.

For further information on this topic please contact Rosaline Eshett at Dorothy Ufot & Co by telephone (+234 1 463 1723) or email ([email protected]).

Endnotes

(1) March 15 2013, CA/L/103/2010.

(2) (2004) 5NWLR (Part 865) 1 at 15.

(3) (2010) 2 NWLR (Part 11790) 530 at 553-554.

(4) (1880) 14 ChD 200 at 209.

(5) [2013] UKSC 35.