C.O. Ogbughalu & Sons Nigeria Limited V. Unilever Nigeria Plc (2016)
LawGlobal-Hub Lead Judgment Report
EMMANUEL AKOMAYE AGIM, J.C.A.
On 1-9-2011, the appellant commenced Suit No. HAB/57/2011 by filing a writ of summons accompanied by statement of claim, witness depositions, list of witnesses, copies of documents to be replied on in the Suit and list of documents at Ebonyi State High Court at Abakaliki against the respondent claiming for –
(i) The said various sums due and payable to the plaintiff, the details of which have been specifically pleaded herein in paragraph 5(i)-(xxv) inclusive, in the total sum of N79,609,679.99 (Seventy Nine Million, Six Hundred and Nine Thousand, Six Hundred and Seventy-Nine Naira, Ninety-nine kobo), representing credit now outstanding for payment on the footing of the key Distribution Agreement between the parties.
(ii) N141,988,771.70 (One Hundred and Forty-one million, Nine hundred and Eighty-Eight thousand, Seven hundred and Seventy-one Naira, Seventy kobo) being interest on the principal sum due calculated at the prevailing Central Bank of Nigeria interest Rates for the period 1st Jan. 2003 – 30th June 2011.”
(iii) An order of the Court directing the time within which the
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sum found due and payable to the plaintiff should be fully paid/liquidated.
(iv) An order for the payment of Interest thereon at the interest rate of 10% per annum, until the final liquidation thereof as found due and payable to the plaintiff by the defendant upon judgment.”
By a motion on notice filed on 20-12-2011, the appellant applied for leave of the trial Court to lead evidence to prove its case on the ground that the respondent had not filed its statement of defence after being served with the writ of summons, statement of claim and other documents. The respondent on 5-1-2012 filed a counter affidavit in opposition to the said application.
By a motion on notice filed on 20-11-2012, the respondent applied for –
1. An Order of this Honourable Court extending the time within which the defendant/applicant will file and serve its memorandum of appearance in this suit.
2. An Order deeming the memorandum of appearance dated 14th November 2012 as having being properly filed and served necessary fee having been paid.
3. An Order of this Honourable Court staying this suit pending the resolution of the dispute between the
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plaintiff and the defendant arising out of a distributorship contract between the plaintiff and the defendant dated 1st August 2008 by arbitration.
4. And for any further Order(s) as the Honourable Court may deem fit and expedient to grant in the circumstance.”
The application is supported by an affidavit of 16 paragraphs. The appellant on 26-11-2012 filed a counter affidavit of 18 paragraphs in opposition to the said application. The respondent on 23-1-2012 filed a further affidavit of 7 paragraphs in support of its application for stay of proceedings.
Both sides filed, exchanged and adopted their respective written addresses.
On 30-4-2013, the trial Court rendered its ruling, granting the respondent’s application and Ordered that –
1. Time is hereby extended up to today for the defendant/applicant to file and serve its memorandum of appearance in this matter.
2. The memorandum of appearance dated 14th November, 2012 is deemed to have been properly filed and served with the payment of appropriate filing fees.
3. Suit No. HAB/57/2011 shall be stayed pending the resolution of the dispute between the
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plaintiff/respondent and the defendant/applicant arising out of the distributorship contract dated 01/08/2008 by arbitration.
4. The dispute between the parties in this suit is accordingly referred to arbitration.
5. The plaintiff/respondent shall choose from any of the three (3) arbitrators already nominated by the applicant.”
Dissatisfied with this ruling, the appellants on 13-5-2013 commenced this appeal No. CA/E/378/20/3 by filing a notice of appeal containing four grounds for this appeal.
Both sides have filed, exchanged and adopted their respective briefs as follows – appellants brief and respondent brief.
The appellant’s brief raised the following issues for determination –
1. Whether the order so made for stay of proceedings pending Arbitration can be sustained on the interpretation of Section 5 of the Arbitration & Conciliation Act Cap. A 18 of the Laws of the Federation of Nigeria Vol. 1 of 2004?
2. Whether the penultimate order of the Court constraining the (plaintiff) Appellant to choose from any of the three arbitrators already nominated by the applicant (Respondent), can be justified in
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law?
The respondent’s brief also raised two issues for determination as follows –
1. “Whether the Court can exercise its discretion in law to order for a stay of proceeding in a suit subject matter of an arbitration pursuant to Section 5 of the Arbitration and Reconciliation Act?”
2. “Whether the Order of the Court for the appellant to choose from any of the three arbitrators nominated by the respondent can be justified in law as been consequential to the relief sought in the application?
Learned SAN for the appellants argued that for an application for stay of proceedings pending arbitration to succeed there must first be compliance with the conditionalities laid down under S. 5(2) of the Arbitration and Conciliation Act Cap. 18 vol.1 Laws of the Federation of Nigeria 2004, that whereas in this case there is unchallenged evidence that the appellant had repeatedly been requesting for the arbitration provided for in clause 14 of the Distributorship Agreement to hold for well over one year, the respondent consistently rebutted the said requests, that it is the dilatory conducts of the respondent that had prevented the arbitration and
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placed the appellant under serious financial predicaments, that nothing warranted the grant of the stay of proceedings pending arbitration, that the respondent offered no explanation whatsoever for its delay in giving effect to the arbitration, that by the requirements of S. 5 of the Arbitration and Conciliation Act, the conducts of the parties in the process of effectuating the arbitration clause constitutes a crucial consideration for any decision on the application for stay of proceedings pending arbitration, that a consideration of whether there was compliance with the requirements in of the said S. 5 is mandatory, that the trial Court did not engage in this consideration and thereby abandoned its bounden obligation to hear and determine any question as to the civil right of the parties under S. 6(6) of the 1999 Constitution and that the conducts of the respondent in avoiding the implementation of the arbitration clause disqualified or disentitled him from the grant of an Order of stay of proceedings under S. 5(2) of the Arbitration and Conciliation Act.
Another submission of Learned SAN for the appellant is that clause 14 of the Distributorship
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agreement did not exclude resort to litigation before the holding of the arbitration and that the existence of an arbitration clause without a Scott v. Avery Clause does not make the holding of the arbitration a condition precedent to litigating on the dispute arising from the agreement.
Learned Counsel for the respondent argued in reply that S. 5 of the Arbitration and Conciliation Act is the law that determines the steps to be taken by a party who seeks the discretion of the Court to stay proceedings pending arbitration, that it is not the contention of the appellant that the respondent did not satisfy the requirements of the said S. 5 of the said Ac, that the respondent having satisfied the requirement was entitled to bring the application for stay of the proceedings in suit No HAB/57/2011, that Subsection 2 of the said Act deals with the discretion which the Court would exercise in the event when dealing with such applications and the factors that should guide its exercise of that discretion and that that S. 52(b) requires that the applicant for such a stay of proceedings will at the time the suit was commenced still remain ready and willing to do
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all things necessary for the proper conduct of the arbitration, that the appellant failed or neglected to grant the respondents’ request vide its notice of request for arbitration dated 21st November 2011 for the appellant to appoint an arbitrator or choose from a list of three arbitrators suggested by the respondent after the appellant’s writ of summons had been served on respondent, that the acts of the respondent serving a notice of request for arbitration on the appellant and the application for stay of proceedings immediately after the commencement of the suit show that the respondent was willing and ready to do all things necessary to the proper conduct of the arbitration at the time the action was commenced and not before it was commenced that having satisfied all the conditions stipulated in S. 5 of the Act, the trial Court was right in exercising its discretion to grant the order of stay to give effect to the agreement of the parties to submit to arbitration, the appellant having not shown any reason why it should not be so. For this submission Learned Counsel relied on Obembe v. Wemabod Estates Ltd. (1997) 5 SC 115 cited earlier by Learned SAN for
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the appellant.
Learned Counsel submitted that it was the appellant who showed unwillingness and unreadiness to go to arbitration, that in a meeting of 27th and 29th August 2010, the appellant indicated he would not be able to meet the condition that it provides a particular document by 28-8-2010 to enhance the speedy resolution of the dispute, that the arbitration clause in the contract is not final and binding as it states that any party not satisfied with the decision of the arbitration can refer the matter to Court, that the trial Court did not hold that the conclusion of the arbitration is a condition precedent to litigation in Court, the trial Court stated that the first arm of the arbitration process in clause 14 of the agreement had not been exhausted before the appellant resorted to litigation to show that there is no sufficient reason why the proceedings should not be stayed pending arbitration to enable arbitration take place in accordance with the agreement of the parties, that the trial Court exercised its discretion in accordance with S. 5 of the Arbitration and Conciliation Act.
Let me now consider the merit of the above arguments
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of both sides.
Clause 14 of the distributorship agreement made on the 1st of August, 2008 states thusly- “The parties will attempt in good faith to resolve any controversy or claim arising out of or in relation to this Agreement by negotiations between senior executives of the parties. If the parties are unable to settle their differences with regard to any dispute arising out of or in connection with this Agreement the matter shall be referred to Arbitration and such Arbitration shall be conducted in Lagos under and in accordance with the Arbitration and Conciliation Act 2004 or any subsequent amendment or re-enactment thereto. If either party is not satisfied with the decision of the Arbitration, the matter shall be referred to an appropriate Court for a judication PROVIDED THAT the company shall at all times maintain its ordinary right to recover sums owing to it by the Distributor in a Court of Law without the first recourse to Arbitration.”
It is clear from the express words of this clause, that the parties to the agreement intended that reference of a dispute between them arising out of the agreement to arbitration, should not be the
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first course of action in resolving the dispute and that the reference to arbitration should occur only after attempt in good faith to amicably resolve the dispute by negotiations between the senior executives of the parties has been made and the parties are unable to settle the dispute or claim arising from the agreement. It is also clear from the terms of the said clause 14 that the parties intended that if arbitration is held to resolve any such dispute and any or all of the parties are not satisfied with the arbitral award or decision, such party can resort to litigation in Court for redress, The parties intended that the resolution of a dispute between them under the agreement should first be by amicable resolution by their respective senior executives, if that fails, then by arbitration and if any or all of the parties are not satisfied with the arbitral outcome, then it may litigate in Court. The negotiations between the senior executives of the parties did not hold to reconcile the state of the account between the parties. The matter was not referred to arbitration. The appellant believing that the respondent was unwilling to meet with its senior
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executives to negotiate or submit to arbitration, decided to file Suit No. HAB/57/2011 at the Ebonyi State High Court to recover the debts due to it from the respondent. The respondent applied to the trial Court for an order staying proceedings in the said suit to enable the dispute resolution process agreed upon by the parties in clause 14 of the Distributorship agreement be followed and that it was ready and willing to do all things necessary for the proper conduct of the arbitration.
Both sides agree that the trial Court had the power to order stay of proceedings pending arbitration by virtue of S. 5 of the Arbitration and Conciliation Act Cap. A18 vol. 1 Laws of the Federation of Nigeria 2004, that the order is not granted as a matter of course or merely because it has been applied for and that the grant of the order must be in strict compliance with the said S. 5 of the Act which 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
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any pleadings or taking any other steps in the proceedings, apply to the Court to stay the proceedings.
(2) A Court to which an application is made under Subsection (1) of his 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.”
S. 5(2) clearly lays down the two conditions that must exist before a Court can make an order staying the proceedings in a suit pending arbitration. Therefore the decision granting such an order must reflect a consideration and evaluation of the facts establishing the existence of these two conditions. The Court must find as a fact that the two conditions exist. The grant of the order of stay of proceedings pending arbitration must be as a result of the existence of the said two conditions.
It is glaring from the ruling of the trial Court that in granting the order of stay
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of proceedings, it did not comply with S. 5(2) of the said Act. The trial Court did not consider if there is no sufficient reason why the matter should not be referred to arbitration in accordance with the arbitration agreement, and did not consider if the applicant was at the time when the action was commenced still ready and willing to do all things necessary to the proper conduct of the arbitration. The ruling does not reflect a consideration of any facts establishing the existence of the above statutory conditions. It did not find as a fact that the conditions existed and therefore did not satisfy itself that they existed before it made the order staying proceedings in Suit No. HAB/57/2011 pending arbitration.
The trial Court approached the consideration of the grant or refusal to grant the order staying proceedings, by stating that “The question now is, have the parties exhausted the terms of the arbitration clause before the respondent commenced the substantive suit?” This was the question it resolved and decided to grant the order of stay. I agree with the Learned SAN for the appellant that this approach of the trial Court was contrary to S.
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5(2) of the Arbitration and Conciliation Act. There is nothing in S. 5(2) of the Act requiring the Court to consider if the parties have exhausted the terms of the dispute resolution clause in their agreement as a condition for the grant or refusal to grant the order of stay of proceedings. After framing the above question, the trial Court proceeded to reproduce the full text of clause 14 of the Distributorship agreement and then determined thusly – “From the provisions of Paragraph 14 of the agreement as reproduced which speaks for itself, in the case of dispute arising out of the distributorship agreement between the parties, they have the following recourse to the resolution of same:
(1) Negotiation by senior executives of the parties.
(2) Reference to arbitration to be conducted at Lagos under the Arbitration and Conciliation Act, 2004 or any amendment or re-enactment thereto where the senior executive of the parties fail.
From the evidence before the Court the parties have only exhausted the first arm of the arbitration clause without success. The parties are bound by the terms of their agreement and the Court is not in a position to
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re-write same.
To this effect, the parties herein who committed to arbitration in their contractual agreement (exhibit A) shall respect such agreement. See Nissan (Nig.) Ltd v. Yoganathan (2010) 4 NWLR (Pt. 1183) 135 at 157.
The 2nd issue is resolved in favour of the applicant against the respondent. The application succeeds and is granted as follows:
1. Time is hereby extended up to today for the defendant/applicant to file and serve its memorandum of appearance in this matter.
2. The memorandum of appearance dated 14th November, 2012 is deemed to have been properly filed and served with the payment of appropriate filing fees.
3. Suit No. HAB/57/2011 shall be stayed pending the resolution of the dispute between the plaintiff/Applicant arising out of the distributorship contract dated 01/08/2008 by arbitration.
4. The dispute between the parties in this suit is accordingly referred to arbitration.
5. The Plaintiff/Respondent shall choose from any of the three (3) arbitrators already nominated by the applicant.”
The clear implication of the part of the decision of the trial Court reproduced above is that
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unless and until the arbitration provided for in clause 14 is held and concluded, a party to the agreement cannot sue in Court in respect of any dispute or claim arising from the agreement. This notion is clearly contrary to S. 4 and S. 5 of the Arbitration and Conciliation Act which clearly recognizes that an action in respect of the subject matter of arbitration agreement can be brought to Court before or during the arbitral proceedings S. 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 requests not later than when submitting his first statement on the substance of the dispute, order a stay of 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 be commenced or continued, and an award may be made by the arbitral tribunal while the matter is pending before the Court.”
So by virtue of Ss. 4 and 5 of the Arbitration and Conciliation Act, a party to an agreement containing an arbitration clause, can file a suit in court in respect of a
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dispute or claim arising out of the agreement, before or during the holding of the arbitration. Ss. 4 and 5 of the Act did not limit their application to any particular type of arbitration clause. The Supreme Court in Obembe v. Wemabod Estates Ltd (supra) held that- “Any agreement to submit a dispute to arbitration such as the one referred to above, does not OUST the jurisdiction of the Court. Therefore either party to such an agreement may before a submission to arbitration or an award is made, commence legal proceedings in respect of any claim or cause of action included in the submission. (See HRRIS v. REYNOLDS (1845) 7 (QB 71). At Common Law the Court has no jurisdiction to stay proceedings where, however there is provision in the agreement as in exhibit 3, for submission to arbitration, the Court has jurisdiction to stay proceedings by virtue of its POWERS UNDER SECTION 5 ARBITRATION ACT Cap. 13 (sic A18) Laws of the Federation of Nigeria 2004 per Fatayi-Williams, CJN (of blessed memory) at 18-19 paragraph E – A”.
See also City Engineering Nig Ltd v. FHA (1997-1998) All NLR vol. 4 page 1 and the English decisions of Hayman v. Darwins Ltd.
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(1942) A.C. 356 at 376 and Henry v. Geopresco (1976) QB 726, all cited by Learned SAN for the appellant.
Since the trial Court did not comply with the provisions of S. 5(2) of the Arbitration and Conciliation Act 2004 in granting the Order of stay of proceedings pending arbitration, the order staying proceedings in suit No. HAB/57/2011 pending arbitration is a nullity and is hereby set aside. As the Supreme Court held in Kano State Urban Development Board v. Fanz Construction Co. Ltd (1990) 4 NWLR (Pt. 142) 1 at 50 “The exercise of the power to STAY PROCEEDINGS in the Court pending the determination of arbitration proceedings CAN ONLY BE and MUST be exercised in accordance with the provisions of Section 5 of the Arbitration Law. Failure to exercise the power in accordance with the provisions of the law renders the decision or order a NULLITY”. (Capitals ours).
The finding of the trial Court that “From the evidence before the Court, the parties have only exhausted the first arm of the arbitration clause without success” is not correct. The first arm of the arbitration clause is the negotiation by the senior executives of the parties. It is
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glaring from the correspondences exchanged between the parties, from the respondent’s letter terminating the distributorship agreement that the said negotiation did not hold. Under the Distributorship agreement dated 1-8-2008 and made between the respondent herein and the appellant herein, the respondent engaged the appellant as its Key Distributor for the sale and distribution of the respondents products, goods wares and merchandise throughout South East Zone. By a letter dated 30-9-2010 and addressed to the appellant, the respondent terminated the said distributorship agreement. The said termination letter stated in paragraph therein that respondent’s the Field Sales Manager for the location will be in location the appellant’s business outlet to carry out a Joint Final Reconciliation of its account with the appellant. The appellant’s auditors had by a letter dated 29-9-2010 written to the respondent requesting for reconciliation of both parties’ account under the distributorship agreement. The respondent in reply to this letter, wrote to the appellant’s auditors a letter dated 12-10-2010 stating thusly –
RE: RECONCILIATION OF C. O. OGBUGHALU & SONS
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(NIGERIA) LIMITED ACCOUNT
reference your letter dated 29th September, 2010. We will be pleased if you can come to our head office in Lagos on the 19th or 21st with evidence of claims raised in your letter.
This is necessary so that your team and ours can reconcile the account of this our esteemed customer and come out with an agreed balance in the statement of account which will be acceptable to both parties.
Thanks.”
The appellant’s auditors replied to this letter by a letter dated 26-10-2010 wherein it is stated thusly –
“RE: RECONCILIATION OF C.O. OGBUGHALU & SONS LIMITED ACCOUNT WITH YOUR COMPANY
Your letter of 12th October, 2010 on the above subject matter refers.
In reference thereto, we are sorry we could not meet up with the date chosen by your company for the reconciliation due to the fact that the letter in question got to us on the 20th of October, 2010 just a day to the 21st of October being the second optional date given us.
Be that as it may, we are rather asking for a new date preferably within the second the week of November, 2010.
We regret any inconvenience our failure to honour the
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appointment might have caused your Establishment.”
On 14-4-2011 the appellant through its lawyers wrote to the respondent a letter dated that day, demanding
1. “That you are hereby required immediately and not later than 14 (Fourteen) days from the receipt of this letter expiring on Friday 13th May 2011, pursuant to paragraph 14 of the said distribution Agreement, to nominate/appoint in writing any Senior Executive Member(s) of Unilever Nigeria Plc, the names/details and other relevant particulars of which will be communicated to this chambers to meet with the Key Distributor nominees for the sole purpose of resolving/reconciling all outstanding monetary/other existing claims lodged over the aforesaid period (2002-2010)”
2. And please further take Notice that in the event of your failure of due compliance with (i) above, we shall without any further reference to your establishment initiate proceedings in Court for the recovery of the said outstanding claims, along with all other concurring incidental damages arising from the unlawful/unilateral termination of the Distributorship Agreement.”
The respondent in reply to the above letter,
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wrote a letter dated 3-6-2011 to the appellant’s lawyers in which it is stated thusly – “We refer to your letter dated 14th April, 2011 on the above matter. Please note that investigation is ongoing in respect of your client’s claims as contained in your letter. On the account reconciliation issue, your Client’s auditor came to our office in Lagos in December 2010 and was attended to by our CD finance Manager. He was given a copy of your Client’s Statement of Account to go through and revert with areas of differences in other to facilitate smooth account reconciliation. He however insisted that he wanted to come and sit with us for reconciliation. We explained to him that reconciliation is only possible when he has identified areas of contention and highlighted same to us. We will then get all necessary supporting documents ready for the reconciliation exercise. Accordingly, we hereby request for the following documents in respect of paragraph 5.0 of your letter.
1. Invoices numbers and his bank account copy showing the double debit
2. Copy of letter
3. Invoice numbers for the 26 invoices
4. Date of payment and invoices number
5.
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Details of payment and bank statement
6. Evidence of returning stocks to qualify for market hygiene
We look forward to receiving the above from your Client’s soon to enable us get all supporting documents ready to respond to his claims and be in a position to communicate a suitable date for Reconciliation with his Auditors.”
The appellant’s lawyers replied to this letter by a letter dated 15-6-2011 which states thusly – “We must observe that your request as above has not quite fully dealt with the issues raised in our letter of 14th April, 2011, the details of which we hope will be addressed in due course at the Reconciliation Forum indicated in the said reply.
Furthermore paragraph 3 of your letter alleges that our client’s Auditor was on his visit to your Lagos office in December 2011 given a copy of our client’s Statement of Account. As per our instructions our clients demur that claim as untrue. On the contrary, his report was that he was subjected to some measure of indignities and harsh treatment before getting into your Lagos office, and merely advised that our client should submit documents to back up its claims, which
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would have since been done but for your suggestion in the Termination letter of the proposed visit of your Field Sales Manager to the business outlet for a joint final reconciliation of the Accounts.
Given the ominous predicament presently foisted on our clients business since October 2010, we sincerely hope would hasten action on these matters for the necessary reconciliations in not more than a fortnight – 2 weeks from the receipt of this letter, as we eagerly look forward to your co-operation.”
It is clear from the above reproduced correspondences that the negotiation was prevented from holding by the unwillingness of the respondent’s officials to meet with the officials of the appellant to resolve the dispute. The respondent had indicated in its letter of 30-9-2010 terminating the distributorship agreement that its Field Sales Manager for the location will be in the appellant’s business outlet to carry out a joint final reconciliation of appellants account with the respondent. The said sales manager failed to attend the joint final reconciliation of the said account at appellant’s business outlet. The respondent had by its 12-10-2010 letter
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requested the appellant’s auditor to come to the respondent’s head office in Lagos on 19th and 21st October 2010. The said auditor went to their head office in December 2011 to meet with the officials of the respondent to carry out the reconciliation. The respondent stated in their letter of 3-6-2011 that they refused to meet with him to carry out the reconciliation and that they could only do so when he has identified areas of contention in the statement of account given to him and highlighted same to them and the respondent will then get all necessary supporting documents ready for the reconciliation exercise. The appellant’s Lawyers by a letter dated 14-4-2011 to the respondent, demanded that the respondent within 14 days from 13-5-2011 nominate any of its senior executive members to meet with the nominees of the appellant to resolve/reconcile the claims for the period of 2002 – 2010 and that in the event that the respondent failed to comply with this demand, the appellant shall initiate proceedings in Court for the recovery of the said outstanding claims. The respondent did not comply with the demand and rather wrote demanding that the appellant furnish it
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with invoice numbers, a copy of bank account statement showing debits details of payments and evidence of returned stocks to enable it get all supporting documents, ready to respond to the appellant’s claims and be in a position to communicate a suitable date for reconciliation with appellant’s auditors. The senior executive officials of the parties did not meet to negotiate the claim by the appellant or settle any dispute arising under the agreement between them. The appellant on 1-9-2011 commenced suit No. HAB/17/2011 against the respondent.
The respondent who obviously avoided meeting with the officials of the appellant to amicably resolve the dispute cannot claim that it was ready and willing to do all things necessary to the proper conduct of the arbitration. It is clear from clause 14 that without the meeting of senior executives of the parties to negotiate the appellant’s claim and resolve the differences between the parties, they cannot proceed to hold the arbitration. Clause 14 provides that “If the parties are unable to settle their dispute, it shall be referred to arbitration.” The respondent by preventing the negotiation by the senior
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executives of the parties clearly prevented the arbitration from holding. It was not ready and willing to do all that was necessary to enable the arbitration hold.
The order of the trial Court referring the dispute to arbitration was unnecessary and invalid. The negotiation of the senior executives of the parties which clause 14 of the agreement require to take place before the dispute is referred to arbitration did not hold. Secondly, by virtue of S. 4(2) of the Arbitration and Conciliation Act, where an action involving the subject of an arbitration agreement is brought to 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. So the pendence of the suit by the appellant did not prevent the arbitration from being held.
In the light of the foregoing I resolve issue No. 1 in the appellant’s brief in favour of the appellant.
Let me now consider and determine issue No. 2 which asks
“Whether the penultimate order of the Court constraining the (plaintiff) Appellant to choose from any of the three arbitrators already
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nominated by the applicant (Respondent), can be justified in law?”
I have considered the arguments of both sides on this issue. The part of the ruling of the trial Court complained against under this issue is the order that the appellant shall choose from any of the three (3) arbitrators already nominated by the respondent.
It is glaring that this is not one of the reliefs asked for by the respondent in its application for stay of proceedings pending arbitration. The reliefs sought for in that application are reproduced at page 3 of this judgment. Both sides agree that it is not one of the reliefs the respondent prayed for in its application. The trial Court suo motu, without hearing both parties on whether such order should be made or not, proceeded to grant it. The trial Court was wrong to have granted this Order which was not asked for by the respondent. It is settled law that a Court cannot grant a party a relief not asked for by the party. The grant of such an order is a nullity.
I do not agree with the argument of Learned Counsel for the respondent that it is a consequential relief. Learned Counsel for the respondent has argued in
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reply that although it was not asked for, the trial Court was right in granting it because it is a consequential order in that it gives effect to the order referring the matter to arbitration. This position of Learned Counsel for the respondent is influenced by his view that “the order sought was for the referral of the suit to arbitration and that the consequence of the referral of the suit to arbitration is the appointment of arbitrators, the appointment only gave effect to the order of the Court.” This view that the order sought for was for the referral of the suit to arbitration is not correct. Apart from prayers 1 and 2 for extension of time to enter appearance and to deem the entry of appearance already separately filed as properly filed and served, the only other order prayed for is one for stay of the proceedings in suit No. HAB/57/2011 pending the resolution of the dispute arising of the distributorship agreement between the parties. Since the applicant did not pray for an order referring the dispute to arbitration, the basis for the argument that the order of stay of proceedings is a consequential one collapses.
The trial Court suo motu
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ordered that the matter be referred to arbitration, when the order was not asked for and without hearing both sides on the need for such an order. The making of such order without hearing both parties on the need for it violated the appellants’ right to fair hearing. Also the law is settled that a Court lacks the power to make an order or grant a relief not asked for by the parties. For these additional reasons the said order is a nullity.
I agree with the submission of Learned SAN for the appellant that the order that the appellant choose from any of the three arbitrators already nominated by the applicant made suo moto without hearing both parties on the need for them, violates the appellant’s right to for hearing. It is settled law that a Court cannot raise and determine an issue suo motu without hearing both parties or giving them an opportunity to be heard. It is a violation of the right of fair hearing of the parties to a case for a Court to raise and determine an issue suo moto without hearing the parties on that issue.
The trial Court’s order that the appellant choose an arbitrator from the three proposed by the respondent is contrary
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to S. 7(2) of the Arbitration and Conciliation Act.
The parties in their agreement did not stipulate in their agreement the number of arbitrators to be appointed for an arbitration and how they are to be appointed. S. 6 of the Arbitration and Conciliation Act provides that “the parties to an arbitration agreement may determine the NUMBER OF ARBITRATORS to be appointed under the agreement, but where no such determination is made, the number of arbitrators shall be deemed to be three”‘
S. 7(1) of the same Act provides that “Subject to Subsections (3) and (4) of this section, the parties may specify in the arbitration agreement in appointing an arbitrator.” S. 7 (2) (a) provides that “where no procedure is specified under Subsection (1) of this Section – (a) in the case of an arbitration with three arbitrators, each party shall appoint one arbitrator and the two thus appointed shall appoint the third, so however’ that –
(i) if a party fails to appoint the arbitrator within thirty days of receipt of a request to do so by the other party; or
(ii) if the two arbitrators fails to agree on the third arbitrator within thirty days of their
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appointments, the appointment shall be made by the Court on the application of any party to the arbitration agreement.
The order of the trial Court deprived the appellant the right given to it by S. 7(2) to independently appoint one arbitrator. The procedure of one party nominating the three arbitrators and the other party being forced to choose one of the three arbitrators nominated by his adversary completely negates the intendment of S. 7 (2)(a) of Act. Such a procedure also runs contrary to the intendment of the Act which is clearly implicit in the requirement that each party appoint one arbitrator and the two so appointed by them appoint a third or if they fail the Court can appoint the third one upon a party’s application. It is the intendment of the Act by the provisions of S. 7 (2)(a) therein that the Arbitral Tribunal shall be constituted in such a manner as to guarantee that both parties have equal arms during the proceedings. Where the three arbitrators are nominated by one party, it creates a basis for reasonable fear by the party that did not nominate them, that the Tribunal would likely be biased against it. It ab initio erodes that
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party’s confidence in the neutrality of the arbitral Tribunal.
The trial Court did not give any reason for making that order. There is nothing in the ruling to show the facts that the trial Court acted upon. The order is clearly perverse.
In the light of the foregoing, I resolve issue No. 2 in favour of the appellant.
On the whole this appeal succeeds as it has merit. It is accordingly allowed. This Court hereby sets aside the following Orders of the Ebonyi State High Court in suit No. HAB/57/2011 made on 29-4-2013 that –
i. Suit No. HAB/7/2011 shall be stayed pending the resolution of the dispute between the plaintiff/respondent and the defendant/applicant arising out of the distributorship contract dated 01/08/2008 by arbitration.
ii. The dispute between the parties in this suit is accordingly referred to arbitration.
iii. The plaintiff/respondent shall choose from any of the three (3) arbitrators already nominated by the applicant.”
The respondent shall pay costs of N100,000.00 to the appellant.
Other Citations: (2016)LCN/8961(CA)
