Introduction

This entry looks at various aspects of the principles that govern the form, content and operation of arbitration agreements, primarily from the perspective of Nigerian law.

Form of the Agreement

The term arbitration agreement is generally used to refer to an agreement to refer future disputes to arbitration as distinct from a “submission agreement” to submit existing dispute to arbitration but the UNCITRAL Model Law defines the arbitration agreement to include both. An arbitration must be in writing, so where an agreement to arbitrate is oral, it is not governed by the decree. Similarly, any alteration of an arbitration agreement should be in writing if it is to be valid.

To further clarify the type of writing required, Section 1(1) of the Decree provides that every arbitration agreement shall be in writing contained

  1. in a document signed by the parties; or
  2. in an exchange of letters, telegrams or other means of communication which provide a record of arbitration agreement; or
  3. in an exchange of points of claim and of defence in which the existence of an arbitration agreement is alleged by one party and not derived by another.
  4. Even a reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if such contract is in writing and the reference is such as to make that clause part of the contract.

Content of the Agreement

Although the basic requirement of an arbitration agreement or clause is the reference of a dispute arbitration, the contents of the agreement will depend on whether the agreement is for an ad hoc arbitration or an institutional arbitration. In the former, all matters of importance and of interest must be specifically provided for unless some rules or statutes are incorporated by reference.

In the latter case, it is sufficient to adopt the procedure and rules of a specified arbitration institution. Of course in this case the parties may wish to supplement the rules of such institution.

The following are some of the matters, which need to be provided for:

 THE REFERENCE

The essence of arbitration agreement is to refer disputes arising between parties to arbitration. The words by which the reference is made must therefore be clear, as a reference will not be implied. So also, what is referred must be clearly, and sufficiently stated to ensure that jurisdiction is properly conferred on the tribunal. A typical arbitration clause may run as follows:

“All disputes, differences or claims arising out of  or in connection with or in relation to the contract shall be referred to a sole arbitrator”

Such a comprehensive provision is strongly recommended. This is because disputes or differences alone may not  be sufficient to cover  the resolution of the matters between the parties. For example, there may be a claim, which is not disputed and about which there is no difference. If the reference does not cover claims, it may not possible to arbitrate a claim simpliciter. It has also been held that expression “arising out of the contract” or “arising under the  contract” does cover disputes so as to whether the contract was ever made in the first place.

To fulfil its purpose, the meaning of an arbitration agreement must be clear; not implied. Click To Tweet

Under the UNCITRAL Arbitration Rules, the following model arbitration clause is recommended:

“Any dispute, controversy or claim arising out of  or relating to this contract or the breach, termination or invalidity thereof, shall  be  settled by arbitration in accordance to the UNCITRAL Arbitration Rules as at presently in force.”

It is also recommended that parties may wish to consider adding

  1. the appointing authority;
  2. the number of arbitrators;
  3. the language to be used in the arbitral proceeding; and
  4. the seat of arbitration.

Some arbitration institutions such as I.C.C recommend arbitration clauses for inclusions in contracts where the arbitration is to be held under their auspices. The institution’s model may be modified by adding provisions in respect of arbitrators, place of arbitration, language and applicable law.

Coverage of Arbitration Clauses

Apart from the arbitrability referred to above, i.e. conformity to public policy and the law, certain rule of arbitrability had been formulated at common law.

Thus at common law an undisputed claim cannot be the subject matter of an arbitration. It has been said “unless there is a dispute, there is nothing to be referred to arbitration.” The claimant’s proper step is to bring an action and obtain a judgment.

In London & N.W Jones it was held that where a claim is partly admitted, the claimant is entitled to judgment on the admitted portion, and he may go to arbitration for the remainder. Indeed, it has been said that where the defendant has not actively admitted the claim, but has so far failed to deny it, it would seem that there is no dispute then in existence and the claimant not only can but must prosecute his claims by action, rather than arbitration. However, if the arbitration clause refers inter alia “claims” to arbitration then the arbitrator will have jurisdiction.

Sometimes, the dispute arises after the appointment of the arbitrator. The question is whether or not the arbitrator will have jurisdiction over such a dispute. Since the dispute was not in existence at the time when the arbitrator was appointed, he cannot have jurisdiction to hear it. On this question, the learned authors of commercial arbitration have observed as following

“A second consequence of a general rule that  the only disputes that may be the subject of arbitration is that the arbitrator has no jurisdiction over  disputes which were not in existence when he was appointed to act. The appointment defines his jurisdiction at the same time as creating it, and cannot be taken to give jurisdiction over something which does not at that time exist”.

Another area at which the common law creates problems is that of amendment of claim or of the defence after commencement of proceedings. This is now resolved by section 19(3) of 1988 Decree which provides that unless the parties otherwise agree, a party may amend or supplement his claim or defence during the arbitral proceedings, if the arbitral tribunal considers it appropriate to allow such amendment or supplement, having regard to the time that has elapsed before the making of the amendment or supplement.

Finally, reference is made to disputes resolved before the award. If the dispute is settled after commencement of arbitration, then where all the matters referred are so settled, the arbitrator is required to terminate the proceedings, and if requested by the parties and not objected to by the tribunal, record the settlement in the form of an arbitral award on agreed terms. If the settlement relates to only part of the disputes or claim, the settlement is embodied in the award. If on the other hand, this takes place before the arbitral proceedings the arbitrator will have no jurisdiction because by reason of the settlement, there ceases to be a dispute, difference or claim for the tribunal to resolve.

Scott v Avery Clauses

An arbitration clause, apart from stating the reference, may sometimes also provide that the award of an arbitrator shall be a condition precedent to the enforcement of any rights under the contract. The result of this is that a party will have no cause of action in respect of a claim falling within the clause unless and until an award has been obtained or unless the clause is cancelled by the court or the party has by his conduct forfeited the right to rely on it. Such a clause is referred to as a “Scott v Avery Clause”, deriving its name from the leading English case of Scott v Avery where the issue was considered.

In that case, an insurance company inserted in all its policies a condition that when a loss occurred , the suffering member should give up his claim and pursue his loss before a committee of members appointed to settle the  amount involved and that if a difference arose between them, the matter should be referred to arbitration and that no action should be brought except on the award of the arbitration. In considering the scope of these provisions, the court held that the condition was valid and not illegal as ousting on jurisdiction of the courts.

In Obembe v Wemaboard Estates Ltd the Nigerian Supreme Court considered this issue and observed inter alia as follows:

“arbitration clauses speaking generally, 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 as nothing in it to exclude a right 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 the action in order that the parties may resort to that   procedure to which they agreed. The other class is where arbitration followed by an award is a condition precedent to any other proceeding  being taken, any further proceedings, then being strictly speaking not upon the original contract but upon the award made under the arbitration clauses. Such provision in an agreement are sometimes termed ‘Scott v Avery”.

An example of an arbitration clause in the first class was according to the Supreme Court in the case of Obembe v Wemaboard Ltd where the agreement was that:

“Any dispute or difference arising out of this agreement shall be referred to arbitration by a person to be mutually agreed upon or falling agreement of some persons appointed by the president for the time being of the institute of consulting Engineers”

The Scott v Avery Clause may take the form of an express or implied term that no action shall be brought in respect of any dispute arising from the contract until an arbitration has been conducted and an award made. It may also be a provision that the only obligation of the defendant is to pay such sum as the arbitrator may award. The power of the court to protect an arbitration agreement does not depend whether or not there is a Scott v Avery Clause because section 4 and section 5 of the Decree provide for stay of proceedings by the court where an issue which is subject to an arbitration agreement is being litigated, whether or not there is Scott v Avery clause in the arbitration agreement.

The Parties

An arbitration agreement is a contract on its own just like the substantive agreement. Therefore, the parties to the arbitration agreement must have contractual capacity. They must be recognized by the law of the contract as a legal person. This is important, not only for the arbitration procedure but for the enforcement of the award.  This position is now expressly recognized in the case of international arbitration by section 52(2) which provides;

“That the court where recognition or enforcement of an award is sought or where application for refusal of recognition or enforcement thereof is brought may, irrespective of the country in which the award is made, refuse to recognize or enforce an award

  1. if the party against whom it is worked invoked furnishes the court proof.
  2. That the party to the arbitration agreement was under some incapacity.”

There is a similar provision in Article V.1(9) of the New York Convention 1958

The party to the arbitration may be a party to the arbitration agreement or an agent duly authorized, a trustee, a personal representative an assignee or any other privy. He must however have legal capacity to enter into such a contract since the arbitration clause is an agreement and subject to the same test of validity as any other contract. A party to an arbitration agreement is usually an individual, or partnership, a corporation, state or state agency.

Every individual is prima facie capable of being a party to an arbitration agreement provided that he has the contractual capacity. However, certain individuals have limited or restricted capacity. These include infants, persons of unsound mind and bankrupts.

Comments

Comments