SINO-AFRIC AGRICULTURE & IND COMPANY LIMITED & ORS v. MINISTRY OF FINANCE INCORPORATION ANOR
(2013)LCN/5966(CA)
In The Court of Appeal of Nigeria
On Friday, the 22nd day of February, 2013
CA/K/272/2009
RATIO
ARBITRATION PROCESS: WHETHER THE LAW IS GENERALLY KEEN TO UPHOLD THE VALIDITY OF ARBITRATION CLAUSES EVEN WHEN THEY LACK THE NORMAL FORMAL LANGUAGE ASSOCIATED WITH LEGAL CONTRACTS.
It is generally perceived that by any agreement containing an arbitration clause it is an indication that the contract requires the parties to resolve their disputes through an arbitration process. Undoubtedly, arbitration is usually encouraged because arbitration clauses reduce the burden on Court systems to resolve disputes. It is said that in keeping with the informality of the arbitration process, the law is generally keen to uphold the validity of arbitration clauses even when they lack the normal formal language associated with legal contracts. In Travelport Global Distribution Systems BV v. Belleview Airlines Ltd 2012 WL 3925856 (SDNY Sept. 10 2012), Travelport, a Dutch Company, entered into a Distribution Agreement with Belview, a Nigerian company, to provide a computerized travel reservation system in Nigeria. The agreement contained an arbitration clause under the auspices of the “United States Council of Arbitration and the UNCITRAL Arbitration Rules. When a dispute arose between the parties, Travelport terminated the contract and Bellview initiated an action in the Nigerian Federal High Court. Travelport argued that the dispute should be submitted to arbitration pursuant to the Distribution Agreement, but Bellview refused to terminate the Nigerian suit. Bellview argued that the arbitration clause contained in the Distribution Agreement was inapplicable because the specified arbitral body was “non-existent.” Travelport responded by filing a petition in the Southern District of New York, seeking an anti-suit injunction in respect of the Nigerian suit and a court order compelling arbitration. Bellview argued that arbitration was not mandatory because the Distribution Agreement used discretionary language. The court disagreed and concluded that the use of the permissive word “may” is not sufficient to overcome the presumption that the parties agreed to arbitrate. Bellview also argued that the arbitration agreement was invalid because it referenced the “United States Council of Arbitration”, a non-existent institution. The Court found this argument without merit and held that a technicality would not preclude enforcement of the arbitration agreement, because the parties clearly expressed their intention to resolve the dispute through arbitration. It needs to be echoed that parties generally should not be encouraged to circumvent arbitration agreement since both parties manifested their respective intention in the contract agreement signed by them to refer the matter to arbitration when dispute arises. Therefore, arbitration agreements are enforceable even if vague, so long as the parties’ intention to arbitrate as a final and binding mechanism for the resolution of their dispute is evinced therein. The arbitration agreement in the instant appeal cannot be said to be improperly or inconclusively drafted. According to some courts, however, this traditional line reasoning is no longer the trend in the con of arbitration provision in construction contracts. In TM Delmarva Power v. NCP of Virginia, the Supreme Court of Virginia held that the parties’ use of the word “may” in the dispute resolution provisions of their construction contract required mandatory participation in the arbitration at the election of one of the parties. It held that the provision i.e. arbitration clause was mandatory at the election of one of the parties. It further held that the word “may” means that either party may invoke the dispute resolution procedures, but neither is compelled to invoke the procedures. But once a party invokes the arbitration provision, the other party is bound to arbitrate”. The Court reasoned that dispute provision would be rendered meaningless if the word “may” was interpreted as permissive because parties to a commercial contract can always choose to submit their disputes to arbitration.
Given the trend that Courts have interpreted the term “may” as “shall” in the con of arbitration agreements, parties to a contract must be careful in understanding both the plain ordinary meaning and the legal meaning of the particular words used. If the parties want arbitration of disputes to be permissive and non-mandatory, they should clarify that in their contract by including more explicit language (i.e. “any and all disputes, upon mutual agreement, may be arbitrated or with consent of the other party, either party may commence arbitration.” Per. THERESA NGOLIKA ORJI-ABADUA, J.C.A.
THE EFFECT OF ARBITRATION CLAUSE
Arbitration Clause is intended to save both parties the time and expense of a lawsuit. Other notable reasons are that it may lessen the risk of punitive damages awards, may decrease exposure to class actions or other forms of aggregate litigation, may result in more accurate outcomes because of arbitrator expertise and incentives, may better protect confidential information from disclosure, enhance the ability of the parties to have their disputes resolved using trade rules and it may enable the parties to better preserve their relationship. It may also provide a neutral forum. If the contract contains an arbitration clause stating that either party to the contract may choose arbitration instead of litigation, it may not matter that the word “may” was used to try and make arbitration optional instead of mandatory. Per. THERESA NGOLIKA ORJI-ABADUA, J.C.A.
THE POSITION OF THE LAW ON THE NON-COMPLIANCE WITH THE ARBITRATION CLAUSE BY A PARTY WHO GOES STRAIGHT TO THE COURT
In Usi Enterprises Limited v. Kogi State Government (2005) 1 NWLR Part 908 page 494 at 516, it was stated that there is certainly a dispute between the parties as to whether the balance remaining unpaid is a balance due and unpaid after the completion of the contract work as maintained by the plaintiff.
It is clear from the affidavit evidence of the Respondents that they rushed straight to the Court to file an action thereby ignoring the arbitration clause in the parties contractual agreement. I must point out that where the Plaintiff goes straight to the court instead of complying with the arbitration clause, the Defendant has a remedy. The remedy in the instant matter is in Section 5 of the Arbitration and Conciliation Acts 1990. Section 5 provides thus:
5(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 pleading or taking any other steps in the proceedings, apply to the court to stay the proceedings”.
“A court to which an application is made under sub-section (1) of this section may, if it is satisfied:
a) that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the arbitration agreement; and
b) 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.
By virtue of Section 5, the court has a jurisdiction to stay proceedings pending the determination of the arbitration. This remedy is discretionary and the court will be satisfied of the merits of the application.
I must however stress that the most important and major qualification here is that the Defendant must have not delivered any pleadings or taken any steps in the proceedings beyond entering a formal appearance. See, also, Confidence Insurance Ltd v. The Trustees of the Ondo State College of Education Staff Pension (1999) 2 NWLR Part 591 page 373 at 386 – 387 in which Achike, J.C.A. (as he then was) expressed thus: “The question now is, can the arbitration clause in the trust deed avail the appellant in the circumstances of this appeal? In other words, was the lower court’s assumption of jurisdiction in the instant case proper or was the learned trial Judge “obliged to stay the proceedings before him”? No doubt. it is the Arbitration and Conciliation Act, 1990 (Cap 19 of the Laws of Federation of Nigeria) that the trust deed had in mind under clause 19. By section 5(1) of the Arbitration and Conciliation Act, it is stipulated as follows: “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.” Before giving consideration to the submissions of Counsel on arbitration it is needful to say a word or two about arbitration clause. Today, it is commonplace for parties to a contract to incorporate an arbitration clause in their agreement. Per. THERESA NGOLIKA ORJI-ABADUA, J.C.A.
ARBITRATION PROCESS: WHETHER THE INCLUSION IN AN AGREEMENT TO SUBMIT A DISPUTE TO ARBITRATION CAN OUSTER THE JURISDICTION OF THE COURT.
It should be noted that the inclusion in an agreement to submit a dispute to arbitration does not generate the heat of ouster of jurisdiction of the court. It merely postpones the right of either of the contracting parties to resort to litigation in court whenever the other contracting party elects to submit the dispute under their contract to arbitration. Second, where such reference to arbitration under the arbitration clause is properly raised the trial court seized of the action cannot overlook a party’s right to submit to the arbitration, which, clearly, is a condition precedent to the exercise of its jurisdiction.It is perfectly clear to me that mere entering an appearance by the appellant be it conditional or unconditional appearance, is not controlling nor relevant to the party’s right to rely on the arbitration clause inserted in the parties’ agreement. On the contrary, it is in fact what happens after a party has entered an appearance that matters in determining whether or not such a party can still take advantage of the aforesaid arbitration clause.” Per. THERESA NGOLIKA ORJI-ABADUA, J.C.A.
JUSTICES
AMIRU SANUSI Justice of The Court of Appeal of Nigeria
ABDU ABOKI Justice of The Court of Appeal of Nigeria
THERESA NGOLIKA ORJI-ABADUA Justice of The Court of Appeal of Nigeria
Between
1. SINO-AFRIC AGRICULTURE & IND. CO. LTD
2. MUFUTAHU BABA AHMED
3. NIGER INSURANCE PLC Appellant(s)
AND
1. MINISTRY OF FINANCE INCORPORATION
2. ATTORNEY GENERAL KANO STATE Respondent(s)
THERESA NGOLIKA ORJI-ABADUA, J.C.A. (Delivering the leading Judgment): This appeal emerged from the decision of the Kano State High Court dated 22/6/2009 in suit No. K/170/2007. The facts leading to this appeal are that by the Specially Endorsed Writ For Service Out Of Jurisdiction dated the 29th March, 2007 and the Endorsed Statement of Claim pursuant to Order 5 Rule 10 of the Kano State High Count (Civil Procedure) Rules, the Respondent herein, as the Plaintiff therein, claimed against the Appellants (the Defendants therein) the following:
“a. The plaintiffs claim the sum of Three Hundred and Fifty-Five Million, Six Hundred and Thirty One Thousand, Nine Hundred and Six Naira and Sixty Seven Kobo (N355,631,906.67) being the balance of the money paid to the first and second defendants by the plaintiffs for the supply of Fertilizer. The amount paid by the plaintiffs to Sino-Afric Agricultural And Industrial Company Limited by reason of two insurance Policies Nos. A1001800090984 and H0016000901044 issued by the 3rd defendant.
b. Special damages against the defendants jointly and severally in the sum of N130,545,656.67 being incidental expenses expended by the plaintiffs to transport to Kano from Lagos the 183,505 bags of fertilizer the plaintiffs took from the defendants.
c. Special damages from the defendants jointly and severally in the sum of N750 (Seven Hundred and Fifty Naira) per bag in respect of the 183,605 bags of fertilizer.
d. The plaintiffs claim the sum of Fifty Million Naira exemplary damages from the 1st defendant for breach of contract.
e. The plaintiffs claim the sum of Fifty Million Naira from the 2nd defendant exemplary damages for breach of contract.
f. The plaintiffs claim the sum of Fifty Million Naira exemplary damages for breach of contract from the 3rd defendant.
g. The plaintiffs claim jointly and severally against the defendants in the sum of N10,000.000 (Ten Million Naira) being general damages for breach of contract – the failure to supply to the plaintiffs the fertilizer and the failure to redeem the bonds.
h. The plaintiffs claim the sum of Fifty Million Naira punitive damages from the 3rd defendant for breach of contract.
i. General damages in the sum of N10,000,000 for breaches which gave rise to loss of harvest and farm produce.
j. Special damages from the defendants jointly and severally to the tune of One Hundred Million Naira being sums incurred at the alternative arrangement to purchase the fertilizer in order minimize loss.
k. Cost of this action.”
Upon service of the originating process on the Defendants, they filed their respective Memorandum of Conditional Appearance/Appearances under protest on 11/6/07 and 8/6/07 respectively. Then on 26/9/07, the 1st and 2nd Appellants filed a Motion dated 25/9/07 for an order that the suit is incompetent as the condition precedent to the filing or instituting the action has not been fulfilled and for an order staying the proceedings in the suit pending the appointment of an arbitrator.
The 3rd Appellant for its part filed a separate Motion on Notice dated 6/6/2007 on 8/6/07 in which it sought for (a) an order striking out the suit; and (b) or as an alternative to prayer (a) above, an order striking out the 3rd Defendant and the claims against it from the suit. The two Motions on Notice were consolidated and heard together by the trial Court in respect of which it delivered its ruling on 22/6/2009. It was the said ruling of the lower Court in the respective Motions dismissing the same that gave rise to this appeal. The Appellants filed a joint Notice of Appeal which they hinged on six grounds of appeal. Out of the six grounds of appeal, only one issue was presented by the Appellants for the determination of this Court. It says:
“Whether the Plaintiffs/Respondents can in breach of the arbitration clause contained in the contract agreement executed between the Plaintiffs/Respondents and the 1st Defendant/Appellant instituted the present action without first resorting to arbitration.”
The Respondent, though in approval of the issue raised by the Appellants, still put forward an issue for consideration by this Court, which reads:
“whether the trial Court was right to refuse the order staying the proceedings in view of clause 12 contained in Exhibit A.”
Proffering arguments on behalf of the Appellants in this appeal, their Counsel, Nassir Abdu Dangiri Esq; in their Brief of Argument adopted before this Court, centered on the provisions of Clause 12 of the Contract Agreement executed between the Kano State Government and the 1st Appellant, and then sections 4 and 5 of the Arbitration and Conciliation Act, Cap. A18, Laws of the Federation, 2004. He reproduced the contents of Clause 12 of the said Contract Agreement and the provisions of sections 4 and 5 of the Act and asserted that the Respondents have not complied with the condition precedent to the filing of the suit, and, having executed the said Contract Agreement, the parties are absolutely bound by its contents. He relied on Ifeta v. S.P.D.C (Nig.) Ltd (2006) Part 983 page 585 and Alfijir Mining v. NIDB (1999) 12 SCNJ 294 at 305 for this proposition. He, also, referred to paragraph 7 of the Plaintiffs’ Specially Endorsed Writ and paragraph 5 of their Statement of Claim where the existence of the Contract Agreement was acknowledged and pleaded by the Respondents. He further cited the cases of Union Bank v. Ozigi (1994) 3 SCNJ 42 at 53 – 54 and Nashizawani v. Jethwani (1984) NSCC 877 to support the principle that the parties are bound by what they mutually agreed upon. He quoted a part of clause 12 of the Contract Agreement where it was specified that in the case of any dispute or question arising from the contract and any other agreement relating to or in connection with the transaction, the parties shall meet to attempt to resolve the matter by mutual agreement. He submitted that at no paragraph of the Plaintiffs’ pleading, did they state that an arbitrator was appointed or that the matter has been referred to the Chief Judge for the appointment of an arbitrator. The Learned Counsel respectfully contended that the trial Court erred when it held that Clause 12 of the Contract Agreement executed by the parties is not mandatory due to the word, ‘may’ used instead of the word “shall”. He asserted that the word ‘may’ used in the contract agreement should be construed as ‘shall’ as stated in the case of Iyaho v. Effiong (2007) 11 NWLR Part 1044 page 31 at 48; per Mukhtar, J.S.C., (as she then was) preferring definition of the word ‘may’ in Black’s Law Dictionary 8th Edition. He further referred to the cases of Anakwe v. Oladeji (2008) ALL FWLR Part 399 page 571 at 587 per Fabiyi, J.C.A. (as he then was); and Mokelu v. Federal Commissioner for Works (1976) NSCC Vol. 10 page 187 at 190 and stressed that the word ‘may’ must be construed as imposing an obligatory duty because absurdity or repugnancy would follow from holding that a discretion was given.
Counsel stated that it is not in dispute that the contract executed by the Kano State Government and the 1st Appellant contained an arbitration clause, that the dispute which has arisen between the parties has not seen submitted for arbitration and that no arbitrator has been appointed as stipulated in the contract agreement. He, then, submitted that the present case falls within the scope of the provisions of sections 4 and 5 of the Arbitration and Conciliation Act and it must be enforced. He further cited the case of Royal Exchange Assurance v. Bentworth Finance Nig. Ltd (1976) NSCC 648 where the Supreme Court construed the word ‘may’ in an arbitration Clause to mean “must”, and stated that the Court is bound to appoint an arbitrator, and that the Court has no discretion in such a case. Attention was also drawn to the decisions in Madukolum v. Nkemdilim (1962) 2 SCNLR 341, Kano State v. FANZ Construction Co. Ltd (1990) 2 NSCC 399 and Obembe v. Wemabod Estate Ltd (1977) ALL NLR 130 at 141 and it was submitted that the Applicants in the present case have not taken any step in the proceedings. He stated that the appearance of the 1st and 2nd Appellants was under protest, and that the 1st and 2nd Appellants having applied for stay of proceedings in line with the terms and conditions of the contract agreement and sections 4 and 5 of the Conciliation and Arbitration Act, the dispute should be referred to an arbitrator.
The Respondents for their part conceded the issue raised by the Appellants but somewhat postulated ‘whether the trial Court was right to refuse the order staying the proceedings in view of clause 12 contained in Exhibit A! It was contended on behalf of the Respondents that within the scope of Clause 12 of Exhibit A, i.e., the Contract Agreement, only one mandatory step ought to be taken by the parties before beckoning on the Court, that is to say; to meet and attempt to resolve the dispute. Learned Counsel for the Respondents, Aliyu Umar, Esq.; submitted that by the type of the application presented before the lower Court by the Appellants, only the statement of Claim of the Respondents or in absence of the same, the Writ of Summons shall be examined by the Court to determine the same. He cited the cases of Nonye v. Anyichie (2005) 2 NWLR Part 910 page 236 and Balogun v. Ode (2007) 4 NWLR Part 1023 page 1 at 14 to support the contention that jurisdiction of a trial Court is determined by the Plaintiffs claim and not by the defendant’s denial.
Learned Counsel submitted that the trial Court was right in holding that by the word ‘may’ contained in Clause 12 of the said Agreement, either party to the agreement had an option to either resort to the arbitration or seek remedy through other means including instituting an action before a Court of Law. He noted that the second paragraph in Clause 12 needs no further interpretation than the one ascribed to it by the trial Court. He stated that there is no evidence before the trial Court that the Appellants gave any notices of disputes to the Respondents nor have they requested for the appointment of an arbitrator. He cited the provisions of Clause 12 which stated amongst other things that the dispute may be referred to Arbitration by either party in accordance with the provisions of the Arbitration and Conciliation Act, Laws of the Federation, 1990. Learned Counsel referred to the case of M.V. Panormosbay v. Olam (Nig). Plc (2004) 5 NWLR Part 865 page 1 at 15 and argued that the Appellants did not indicate in their affidavit the nature of their dispute, difference or question that is required to be referred to arbitration, that it is the duty of any of the parties to Exhibit “A” who elects to have any dispute referred to arbitration to take the necessary steps. Learned Counsel referred to paragraphs 11, 12, 13, 14 and 15 of the Respondents’ Statement of Claim where the Respondents indicated that the Appellants were in fundamental breach of the terms of the agreement between the parties in that the Appellants collected Two Billion, One Hundred and Twenty Five Million Naira and refused to supply the goods as promised. Then, at paragraph 20 it was averred that the Respondent’s were able to recover from the Appellants the sum of One Billion Three Hundred and Ninety Five Million Naira. Counsel pointedly argued that the recovery of the balance of the monies collected by the Appellants cannot be regarded as a dispute within the contemplation of Clause 12 of Exhibit “A”. He contended that the Appellants cannot hide under Clause 12 after they had fundamentally breached their duty to supply the goods to the Respondent.
Learned Counsel equally stressed that series of meetings were held by the parties to persuade the Appellants to perform their part of the contract but without success. He invited this Court to invoke its powers under section 15 of the Court of Appeal Act, 2004, then examine the Respondents’ Statement of Claim and Clause 12 of Exhibit “A”, and sections 4 and 5 of the Arbitration and Conciliation Act, 2004 to determine the issue presented before it. He made reference to the Appellant’s submissions on the word ‘may’ and contended that none of the legal authorities cited by the Appellants’ Counsel established that, in an arbitration Clause, the word ‘may’ shall be interpreted as ‘shall’. He pointed out that the cases of Iyaho v. Effiong (2007) 11 NWLR Part 1044 page 31 at 48 and Anakwe v. Oladeji (2008) ALL FWLR Part 399 page 571 at 587 are irrelevant to this appeal. He contended that there is nothing in Exhibit ‘A’ that imposed a duty on any of the Appellants that inures to the Respondents to require the Construction of the word ‘may’ as used in paragraph 2 of Clause 12 to mean ‘shall’. He cited the case of Agbareh & Anor v. Mimra & 2 Ors (2008) 1 SC 88 at 122, per Ogbuagu, J.S.C., and submitted that parties are bound by the terms of their agreement and no one including the Courts can read into the agreement, terms on which they did not agree. He further submitted that Clause 12 of the Contract Agreement executed by the parties in this appeal is not mandatory. He relied on Obembe v. Wemabod Estate Ltd NSCC Vol. 11 1977-1978, page 264 at 271 where the Supreme Court held that for arbitration clause to be a bar to instituting legal action, the Clause must specifically state so, but in other Clauses, section 5 of the Arbitration and Conciliation Act applied at the Judge’s discretion and not as a matter of right. He finally referred to M.V. Lupex v. N.O.C.S Ltd (2003) 5 SC 62 at 69 and 71 and Kano State URBAN Rev. Bound v. Fanz Contraction Co. Ltd (supra) and stressed that the failure and refusal to perform a contract is a fundamental breach of agreement. He then urged for the lone issue in this appeal to be resolved against the Appellants.
In the Appellants’ Reply Brief, it was further contended on behalf of the Appellants that the issue of failure to refer the matter to arbitration before instituting an action is very fatal and it is a jurisdictional issue which can be raised at any time and even for the first time before this Court. He cited the cases of Lagos State v. Dosunmu (1989) ALL NLR 504 at 512; NDIC v. CBN (2007) 7 L.S.W.C v. Sakamori Construction (Nig.) Ltd (2011) 12 NWLR Part 1262 page 559 in support. He remarked that the case of L.S.W.C v. Sakamori Construction (Nig.) Ltd (supra) applies with equal force to the facts and circumstances of this case. He argued that the Endorsed Statement of Claim is silent about reference of this matter to arbitration. He contended that it is incumbent on the Respondents to first of all, refer the matter to arbitration before going to Court. He further contended that there is a dispute between the parties, and that was the reason the Respondents instituted this action. He further relied on L.S.W.C. v. Sakamori Const. (Nig) Ltd (supra) at 598 paragraphs D – E, where His Lordship, Okoro, J.C.A., queried, “if there was no dispute why were the parties in Court? Are they in Court to celebrate the successful completion of the projects?”, and, then submitted that the Respondents jumped the gun or the queue by coming to Court first. He further made reference to NNPC v. Klifco (Nig.) Ltd (2011) 10 NWLR Part 1255 page 209 at 242, where the Supreme Court, per Fabiyi, J.S.C., stated that in arbitration agreements, where the arbitration clause is a part, the arbitration clause is regarded as separate. So where there is novation, the purpose of contract may fail but arbitration clause survives. He stressed that the purpose of arbitration might have failed, but the arbitration clause which is not one of the purposes of the contract survives. Learned Counsel cited the Supreme Court decision in A.G. Federation v. A.G. Abia State (2011) 11 NWLR Part 725 page 689 at 733-734 paragraphs E – C on the meaning of dispute, and, then submitted that it is the responsibility of the Respondents to refer the matter to arbitration by complying with sub-clause 2 of Clause 12 of the Contract Agreement, and, that, it is their duty to show or plead that before instituting the matter, they referred it to arbitration, that it is not the duty of the Appellants so to do.
It must be observed that one question that often arises before the Court is, whether arbitration is mandatory where the arbitration provision merely provides that the parties ‘may’ arbitrate their dispute. In some international jurisdictions particularly the United States, their Federal Courts uniformly answered the question in the affirmative by finding that the presence of the term ‘may’ does not render an arbitration Clause permissive. In Conex Florida Corp. v. Astrium Ltd 499 F. Supp. 2d 1287 (M.D Fla. 2007), the court reasoned that a contrary interpretation would render the arbitration provision illusory, as parties can always agree to arbitrate, even in the absence of a contractual provision and even if the word “may” did create an ambiguity in the arbitration provisions, meaning therefore, that any uncertainty would have to be resolved in favour of arbitration. In the U.S. Federal Case Law, the term “may” was interpreted to suggest that if a dispute arises, and one party elects to arbitrate, the arbitration will be mandatory. It has been widely held that arbitration clauses are to be given the broadest possible interpretation in order to promote the resolution of controversies outside of the Courts. See Hirschenson v. Spaccio, 800 50. 2d 670 (Fla. 5th DCA 2001); Moses H. Cone v. Mercury Constr. Corp, 460 U.S. 1, 24-25 (1983). Also, in Nigeria, in the case of the Chief J. O. Edewor v. Chief M. Uwegba & Ors (1987) NWLR Part 50 page 313, the Supreme Court, per Nnamani, J.S.C. on the meaning of the word ‘may’, expressed inter-alia as follows:-
“Generally the word “may” always means “may”. It has long been settled that may is a permissive or enabling expression. In Messy v. Council of the Municipality of Yass (1922) 222 SRNSW 494 per Cullen, C.J at pp 497, 498 it was held that the use of the word “may” prima facie conveys that the authority which has power to do such an act has an option either to do it or not to do it. See also Cotton, L. J in Re Daker, Michel v. Baker (1800) 44 CH.D 282. But it has been conceded that the word may acquire a mandatory meaning from the con in which it is used. See Johnson’s Tyre Foundary Pty Ltd v. Shire of Maffra (1949) A.L.R 88. The word may also acquires a mandatory meaning from the circumstances in which it is used.” (underlining mine)
Further in Ude v. Nwara & Anor. (1993) 2 NWLR Part 278 page 638, Nnaemeka-Agu, J.S.C., opined that it is now the invariable practice of the Courts to interpret the word ‘may’ as mandatory whenever it is used to impose a duty upon a public functionary the benefit of which enures to a private citizen.
Even in the case of Kurobo v. Zach Motison Ltd (1992) 5 NWLR Part 239 page 102 at 115 – 117, Tobi, J.C.A., (as he then was), in dealing with an arbitration clause recognized that there are known instances when the word “may” could be constructed as “shall”.
In Ogun State Housing Corporation vs. Engineer Olu Ogunsola (2000) 14 NWLR Part 687, this Court, per- Adamu, J.C.A, held that parties to a written contract agreement are bound by the terms of a contract which the parties in their free-will mutually adopted and signed provided such terms are not illegal or contrary to public policy.
Further in C. N. Onuselogu Enterprises Ltd v. Afribank (Nig) Plc (2005) 1 NWLR Part 940 page 577, Galadima, J.C.A. (as he then was) in highlighting how to couch an arbitration clause as stated in the book titled the Hand of Arbitration Practice page 18, then expressed that arbitral proceedings are recognized means of resolving disputes. He said that there must be an agreement to arbitrate which is a voluntary submission to arbitration, therefore, arbitral proceedings should not be taken lightly by both Counsel and the parties. They are recognized means of resolving disputes. Arbitration is said to be conventional process; a party cannot be forced to arbitrate a dispute unless he agrees to it.
It is generally perceived that by any agreement containing an arbitration clause it is an indication that the contract requires the parties to resolve their disputes through an arbitration process. Undoubtedly, arbitration is usually encouraged because arbitration clauses reduce the burden on Court systems to resolve disputes. It is said that in keeping with the informality of the arbitration process, the law is generally keen to uphold the validity of arbitration clauses even when they lack the normal formal language associated with legal contracts.
In Travelport Global Distribution Systems BV v. Belleview Airlines Ltd 2012 WL 3925856 (SDNY Sept. 10 2012), Travelport, a Dutch Company, entered into a Distribution Agreement with Belview, a Nigerian company, to provide a computerized travel reservation system in Nigeria. The agreement contained an arbitration clause under the auspices of the “United States Council of Arbitration and the UNCITRAL Arbitration Rules. When a dispute arose between the parties, Travelport terminated the contract and Bellview initiated an action in the Nigerian Federal High Court. Travelport argued that the dispute should be submitted to arbitration pursuant to the Distribution Agreement, but Bellview refused to terminate the Nigerian suit.
Bellview argued that the arbitration clause contained in the Distribution Agreement was inapplicable because the specified arbitral body was “non-existent.” Travelport responded by filing a petition in the Southern District of New York, seeking an anti-suit injunction in respect of the Nigerian suit and a court order compelling arbitration. Bellview argued that arbitration was not mandatory because the Distribution Agreement used discretionary language. The court disagreed and concluded that the use of the permissive word “may” is not sufficient to overcome the presumption that the parties agreed to arbitrate. Bellview also argued that the arbitration agreement was invalid because it referenced the “United States Council of Arbitration”, a non-existent institution. The Court found this argument without merit and held that a technicality would not preclude enforcement of the arbitration agreement, because the parties clearly expressed their intention to resolve the dispute through arbitration.
It needs to be echoed that parties generally should not be encouraged to circumvent arbitration agreement since both parties manifested their respective intention in the contract agreement signed by them to refer the matter to arbitration when dispute arises. Therefore, arbitration agreements are enforceable even if vague, so long as the parties’ intention to arbitrate as a final and binding mechanism for the resolution of their dispute is evinced therein. The arbitration agreement in the instant appeal cannot be said to be improperly or inconclusively drafted.
According to some courts, however, this traditional line reasoning is no longer the trend in the con of arbitration provision in construction contracts. In TM Delmarva Power v. NCP of Virginia, the Supreme Court of Virginia held that the parties’ use of the word “may” in the dispute resolution provisions of their construction contract required mandatory participation in the arbitration at the election of one of the parties. It held that the provision i.e. arbitration clause was mandatory at the election of one of the parties. It further held that the word “may” means that either party may invoke the dispute resolution procedures, but neither is compelled to invoke the procedures. But once a party invokes the arbitration provision, the other party is bound to arbitrate”. The Court reasoned that dispute provision would be rendered meaningless if the word “may” was interpreted as permissive because parties to a commercial contract can always choose to submit their disputes to arbitration.
Given the trend that Courts have interpreted the term “may” as “shall” in the con of arbitration agreements, parties to a contract must be careful in understanding both the plain ordinary meaning and the legal meaning of the particular words used. If the parties want arbitration of disputes to be permissive and non-mandatory, they should clarify that in their contract by including more explicit language (i.e. “any and all disputes, upon mutual agreement, may be arbitrated or with consent of the other party, either party may commence arbitration.”)
In the instant appeal, Clause 12 of the Contract Agreement made on the 5th day of July, 2003 between the 1st Appellant and Kano State Government reads thus:
“12. SETTLEMENT OF DISPUTE(S) In case of any dispute, difference or question arising from this Contract and any other agreement relating to or connected with this transaction, whether as to its validity, construction, performance or any dispute of any nature whatsoever or any controversy or claim or breach thereof, the parties hereto shall meet to attempt to resolve the same by mutual agreement.
Any dispute, difference or question arising between the parties hereto which cannot be resolved between the parties by mutual agreement after thirty (30) days after one party gives written notice of the dispute, difference or question, may be referred to arbitration by either party in accordance with the provision of the Arbitration and Conciliation Law (Cap. 19) Laws of the Federation 1990. The decision of a single Arbitrator appointed and agreed to by both parties shall be final and binding. In the absence of the parties reaching an agreement as to the appointment of a single Arbitrator, such appointment shall be referred to the Chief Judge of Kano State, who will be required to appoint an Arbitrator.”
By the above provisions, the parties shall, firstly, attempt to settle any differences or dispute or question that would arise from the contract and any other agreement relating to or connected with the transaction or any dispute of any nature whatsoever or any controversy or claim or breach thereof by mutual agreement.
It is when they fail to reach mutual agreement between them that the dispute may be referred to arbitration by either party in accordance with the Arbitration and Conciliation Act, Laws of the Federation of Nigeria, 1990.
This Clause evinces the intention to settle any dispute that may arise between the parties amicably either by themselves or through an arbitrator. The purport of it is for the parties to endeavour to settle the dispute that could arise from the agreement or any other agreement relating thereto outside the four walls of the Court than resorting to litigation. It should be noted that arbitration and litigation are substitutes for each other.
Arbitration Clause is intended to save both parties the time and expense of a lawsuit. Other notable reasons are that it may lessen the risk of punitive damages awards, may decrease exposure to class actions or other forms of aggregate litigation, may result in more accurate outcomes because of arbitrator expertise and incentives, may better protect confidential information from disclosure, enhance the ability of the parties to have their disputes resolved using trade rules and it may enable the parties to better preserve their relationship. It may also provide a neutral forum. If the contract contains an arbitration clause stating that either party to the contract may choose arbitration instead of litigation, it may not matter that the word “may” was used to try and make arbitration optional instead of mandatory.
It is established that in approaching the question of construction it was necessary to inquire into the purpose of the arbitration clause. In choosing arbitration the parties showed an intention to have their disputes decided by an arbitrator which they had chosen.Nevertheless, Learned Counsel for the Respondent had argued that by the meaning of the word “dispute”, no dispute as it relates to the contractual agreement ever arose between the parties and, as such, the Respondent is not bound to initiate the arbitration proceedings.
It must be observed that the obligation on the part of the 1st Appellant to supply the goods it was contracted to supply is part of the contractual agreement. Dispute has now arisen as a result of the several demands for refund of the balance of the contract sum still in the custody of the 1st Appellant. In Usi Enterprises Limited v. Kogi State Government (2005) 1 NWLR Part 908 page 494 at 516, it was stated that there is certainly a dispute between the parties as to whether the balance remaining unpaid is a balance due and unpaid after the completion of the contract work as maintained by the plaintiff.
It is clear from the affidavit evidence of the Respondents that they rushed straight to the Court to file an action thereby ignoring the arbitration clause in the parties contractual agreement. I must point out that where the Plaintiff goes straight to the court instead of complying with the arbitration clause, the Defendant has a remedy. The remedy in the instant matter is in Section 5 of the Arbitration and Conciliation Acts 1990.
Section 5 provides thus:
5(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 pleading or taking any other steps in the proceedings, apply to the court to stay the proceedings”.
“A court to which an application is made under sub-section (1) of this section may, if it is satisfied:
a) that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the arbitration agreement; and
b) 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.
By virtue of Section 5, the court has a jurisdiction to stay proceedings pending the determination of the arbitration. This remedy is discretionary and the court will be satisfied of the merits of the application.
I must however stress that the most important and major qualification here is that the Defendant must have not delivered any pleadings or taken any steps in the proceedings beyond entering a formal appearance.
See, also, Confidence Insurance Ltd v. The Trustees of the Ondo State College of Education Staff Pension (1999) 2 NWLR Part 591 page 373 at 386 – 387 in which Achike, J.C.A. (as he then was) expressed thus:
“The question now is, can the arbitration clause in the trust deed avail the appellant in the circumstances of this appeal? In other words, was the lower court’s assumption of jurisdiction in the instant case proper or was the learned trial Judge “obliged to stay the proceedings before him”? No doubt. it is the Arbitration and Conciliation Act, 1990 (Cap 19 of the Laws of Federation of Nigeria) that the trust deed had in mind under clause 19. By section 5(1) of the Arbitration and Conciliation Act, it is stipulated as follows:
“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.”
Before giving consideration to the submissions of Counsel on arbitration it is needful to say a word or two about arbitration clause. Today, it is commonplace for parties to a contract to incorporate an arbitration clause in their agreement. It should be noted that the inclusion in an agreement to submit a dispute to arbitration does not generate the heat of ouster of jurisdiction of the court. It merely postpones the right of either of the contracting parties to resort to litigation in court whenever the other contracting party elects to submit the dispute under their contract to arbitration. Second, where such reference to arbitration under the arbitration clause is properly raised the trial court seized of the action cannot overlook a party’s right to submit to the arbitration, which, clearly, is a condition precedent to the exercise of its jurisdiction.It is perfectly clear to me that mere entering an appearance by the appellant be it conditional or unconditional appearance, is not controlling nor relevant to the party’s right to rely on the arbitration clause inserted in the parties’ agreement. On the contrary, it is in fact what happens after a party has entered an appearance that matters in determining whether or not such a party can still take advantage of the aforesaid arbitration clause.”
The Kano State Government entered into an agreement at Kano with the 1st Appellant for the supply of 100,000 tones of Urea Fertilizer at the cost of N4,000,000,000.00 (Four Billion Naira). Time was of the essence of the contract. The 2nd Respondent is the CEO and/or Chairman of the 1st Respondent, while the 3rd Respondent, a Public Company was surety for advancement and full performance of the whole contract. A careful perusal of paragraphs 10, 11, 12, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 29, 30, 31, 32, 33 and 34 clearly point that serious dispute arose out of the contract between the 1st Appellant and Kano State Government. This is the type of dispute envisaged by Clause 2 of the Contract Agreement executed between the parties.
There is ample evidence in the Respondent’s pleading that several meetings had been held by the parties to settle that dispute but those efforts failed woefully. The next step prescribed by Clause 12 is the reference of the dispute to arbitration by either party. It is evident in the record that apart from entering appearance under protest, the 1st and 2nd Appellants did not deliver any pleading in the lower Court which then qualified them under section 5 of the Arbitration and Conciliation Act, 1990 to approach the lower Court for stay of proceedings.
It is my sincere view that the trial Court was in complete error when it refused to make an order staying the proceedings in the suit in view of Clause 12 contained in the Contract Agreement executed between the 1st Appellant and Kano State Government. The trial Court ought to have stayed proceedings in the matter and allow the parties to refer the matter to arbitration first, as obligated by Clause 12 since the purport is to achieve amicable settlement between the parties, moreso, where the trend is to interpret the word “may” used in such contracts to mean, the word “shall”, i.e., it is mandatory in nature and not permissive or being optional. In the light of the expositions made above, I have no option than to resolve the lone issue in this appeal in favour of the Appellants.
Accordingly, this appeal is hereby allowed. The order made by the lower Court on the 23rd June, 2009 is hereby set aside. In its place, it is hereby ordered by this Court, that the proceedings in suit No. K/170/07 between the present parties before the lower Court, instituted by the Respondents against the Appellants at the Kano State High Court be stayed pending the determination of the disputes which had arisen out of the contract executed between them by an arbitrator to be appointed by the Chief Judge of Kano State.
AMIRU SANUSI, J.C.A.: Having perused this judgment just delivered by my Lord Orji-Abadua, J.C.A., I am in entire agreement with her reasoning and conclusion that the appeal has merit I allow the same and endorse the consequential order made in the lead judgment.
ABDU ABOKI, J.C.A.: I had read before now a copy of the judgment of my learned brother, THERESA NGOLIKA ORJI-ABADUA, J.C.A., and I agree with his analysis of the issues raised in this appeal and his conclusion therein. I too, allow this appeal and hereby set aside the judgment of the lower Court delivered on the 22nd June, 2009.
Appearances
N. A. Dangiri Esq.For Appellant
AND
Shuaibu Sule Esq. D. C. C. M. O. J. Kano with
H. H. Suleiman Esq. S. S. C. and
A. A. Baturi Esq; State CounselFor Respondent
