African Insurance Development Corporation V. Nigeria Liquified Natural Gas Limited (2000)

LAWGLOBAL HUB Lead Judgment Report

AYOOLA, J.S.C.

The main question on this appeal is whether a person who is bound under a performance bond by which he undertook to pay to the employer damages in default of performance of a contract by the contractor, is entitled to a stay of proceedings in an action against him by the employer upon the default of performance by the contractor, on the strength of an arbitration clause in the agreement between the employer and the contractor, notwithstanding that on the face of that agreement he has not been named a party thereto.

Sometime in October, 1990, Nigeria LNG Limited, “the plaintiff” entered into a contract with one Fedision Nigeria Limited, “the contractor”, for the drilling of a water well at Bonny Island, Rivers State. Clause 19.2 of the contract contained an arbitration clause in the following terms.

“Any dispute whether in contract or at law, arising out of or in connection with the contract or the work performed there under shall be finally and exclusively settled by arbitration in Lagos, Nigeria, under the Nigeria Arbitration and Reconciliation Decree of 1988 by three arbitrators appointed in accordance with the Decree.”

By a performance bond dated 21st December, 1990, the contractor and African Development Insurance Company Limited, “the defendant”, severally and jointly bound themselves to pay the plaintiff the sum of N538,122.00. The condition of the bond is in the following terms.

“Now the condition of the above written Bond is such that if the Contractor shall duly perform and observe all the terms, provisions, conditions and stipulations of the said contract on the contractor’s part to be performed and observed according to the true purport intent and meaning thereof or if on default by the Contractor the Surety shall satisfy and discharge the damages sustained by the Employer thereby up to the amount of the above written bond, then this obligation shall be null and void but otherwise shall be and remain in full force and effect, PROVIDED always and it is hereby declared that no alteration in terms of the said Contract made by agreement between the Employer and the Contractor or in the extent or nature of the works to be constructed completed and maintained there under and no allowance of time by the Employer or the Engineer under the said Contract nor forbearance or forgiveness in or in respect of any matter or thing concerning the said Contract on the part of the Employer or the said Engineer shall in any way release the Surety from any liability under the above written bond.”

By writ of summons dated 11th March, 1992, the plaintiff sued the defendant in the High Court of Lagos State on the bond. By its statement of claim it averred inter alia, that the contractor “did not duly perform, execute or complete the said contract within 91 days, and as a result the contract was terminated on April 2, 1991.” It also pleaded the terms of the bond, albeit in paraphrase. By a motion on notice dated 8tb May, 1992, the defendant applied to the High Court for a stay of the proceedings pending a reference to arbitration on the grounds that the subject matter of the action was governed by the arbitration clause.

Silva, J., before whom the matter came, granted the defendant’s application. He was of the opinion that the performance bond arose in connection with the contract between the plaintiff and the contractor and that “without this contract, there would not have been a performance bond or vice versa”. Being of that view, he concluded that “although an arbitration clause is not included in the performance bond. I think it ought to be read into it since it was brought into being by the existence of the main contract between the plaintiff and Fedision Nigeria Limited.”

On the plaintiffs appeal to the Court of Appeal, Uwaifo J.CA, (as he then was) came to the conclusion.

(1) that since the contractor was not a party to the suit before him the learned judge had no power to direct that the dispute should be referred to arbitration;

(2) that “dispute” in the arbitration clause meant dispute between the plaintiff and the contractor; and,

(3) that the defendant not being a party to the contract between the plaintiff and the contractor, the defendant could not rely on the arbitration clause in a contract to which it was not a party.

In addition to these grounds Uwaifo, J.CA, (as he then was);went on to proffer the opinion that even if the defendant could “possibly have a way of going to arbitration, it would have turned out to be a wholly undesirable waste of time. The final result would not be other than a dispute as to the effect of the performance bond; in other words the interpretation of the document.”

Kalgo J.C.A (as he then was) and Pats-Acholonu, J.C.A agreed with these views. By a unanimous decision the Court of Appeal allowed the plaintiffs appeal and set aside the decision of the High Court.