Usi Enterprises Limited V. The Kogi State Government & Ors. (2004)

LawGlobal-Hub Lead Judgment Report

ODUYEMI, J.C.A.

The appellant on 5th July, 2002 by a motion ex parte applied under Order 23 rule 1 of the High Court of Kogi State (Civil Procedure) Rules, 1991 for a writ of summons marked ‘undefended list against the defendants jointly and severally as indicated hereunder –

“1. The plaintiff claims a total sum of N5,491.008.09 (five million, four hundred and ninety-one thousand and eight Naira) being the unpaid balance of the contract sum awarded to the plaintiff by the defendants on the 30th of April, 1997.

2. The plaintiff claims interest on the sum at the rate of 21% per annum from the year 1998 when the entire contract sum became due for payment until judgment is given in this case and thereafter at the rate of 10% until the entire judgment sum plus interest thereon are fully paid.”

As provided by the rules of court, the application was accompanied by an affidavit in support containing 5 paragraphs.

There were attached to the affidavits in support 9 exhibits numbered B1 – B9.

Also, as required, paragraph 4 of the affidavit in support read:

“That I know as a fact that the defendants have no defence to the plaintiff’s claim.”

The application ex-parte was heard on 16th July, 2002. It was granted as prayed.

The return date was fixed at 15th October, 2002.

The defendants filed in the Registry of the court on 11th July, 2002 a joint memorandum of appearance.

On 19th September, 2002, the defendants again filed a joint notice of intention to defend the suit which was brought under the undefended list.

The notice was, as required by rules of court accompanied by an affidavit of 5 paragraphs which indicated the defence of the defendants.

It must be mentioned at this stage that the defence of the defendants was two pronged viz –

(a) a defence on the merit – paragraph 3;

(b) a defence on an issue of law – paragraph 4.

When the defence came up for consideration on 15th October, 2002, the learned trial Judge ruled that the defence on the merit failed while the defence on the issue of law succeeded. On account of the defence on the issue of law which had to do with the application of the Arbitration Law, Cap. 7, Laws of Northern Nigeria, 1963 to the agreement in the event of a dispute between the parties which the learned trial Judge upheld, he held thus:

“I would have proceeded to give judgment if this had been the only defence raised. However, the defendants have also pointed to the existence of an arbitration clause in the agreement between them. I have seen a copy of the agreement annexed to the plaintiff’s affidavit as annexure B2. Clause 6 of the said agreement specifically provides for the reference of any dispute arising from any disagreement on the contract to an arbitrator. This seems to be a definite agreement by the parties to submit themselves to an alternate means of resolving a dispute other than the court. It is incumbent on a court to give effect to an agreement of this nature. It is expected that a party raises such a preliminary objection at the earliest opportunity. Since no previous documents have been filed by the defendants and it is not shown that any steps have been taken by the defendants before the present proceedings it would appear that they are in order in raising the issue in their affidavit at this stage. It constitutes a defence on the merit to the suit. I am therefore transferring this case to the general cause list and ordering that the parties in the first instance exhaust the remedy available to them in their agreement by referring the matter in dispute to an arbitrator whose decision shall be binding on both parties.”

The plaintiff being aggrieved by that decision has with leave of this court, appealed to this court by a notice of appeal which contained five grounds of appeal with particulars. As required by rules of this court, the parties filed briefs of argument which they respectively adopted at the hearing of the appeal.

In the appellant’s brief, the appellant distilled three issues for determination in this appeal thus:

“(i) Whether the trial court was right to have suo motu ordered that the parties should first of all refer their matter to arbitration having regard to the subject-matter of thiinstant case and in the absence of any application by the respondents?

(ii) Whether having regard to the steps taken so far in this matter by the respondents at the trial court they could still rely on the arbitration clause as contained in the agreement duly executed by the parties?.

(iii) Whether or not the procedure adopted by the learned trial Judge actually deprived the appellant of its right to judgment under the undefended list?.”

In the respondents’ joint brief, the respondents also distilled for determination in this appeal three issues thus:

“1. Whether having regard to the documents filed by the respondents at the court below and the contract agreement, the trial court was right in asking the parties to first refer their dispute for arbitration?.

2. Whether the order of the trial court that the dispute between the parties be first referred for arbitration was made suo motu?. (Distilled from ground 5 of the ground of appeal).
3. Whether the trial Judge was right in holding that reference to an arbitration clause in the contract agreement between the parties by the respondents constitutes a defence on the merit?.

(Distilled from ground 2 of the appellant’s grounds of appeal).”

I am of the humble opinion that this appeal can be resolved upon one issue thus:

“Whether the learned trial Judge was, in the circumstances of this case right in upholding the terms of the agreement of the parties that the dispute arising between the parties under the agreement be referred to arbitration?.”

The matters in dispute between the parties could be gleaned from:

1. The following paragraphs of the affidavit in support of writ to be placed on the ‘undefended list’ viz –

Paragraphs 3(a), (b), (c), (d), (e), (g), (i), (j), (l), (m).

(a) That on the 30th of April, 1997, the defendants herein awarded in favour of the plaintiff a contract for the construction/rehabilitation of selected Water Supply Schemes in Kogi State in the sum of N11,624,714.00 (Eleven Million, six hundred and twenty-four thousand, seven hundred and fourteen Naira). A copy of the said agreement duly executed by all the affected parties is attached herewith and marked as exhibit B1.

(b) That in March, 1988, the defendants awarded additional contract to the plaintiff in the sum of N8,554,910.00 and consequently thereof, the parties jointly executed an addendum to the main agreement. A copy of the said addendum is attached herewith and marked as exhibit B2.

(c) That prior to the execution of the agreement in question by all the parties, the defendants through their letter dated 23/4/97 had communicated to the plaintiff their approval to award the said contract to the plaintiff and the plaintiff had through its letter dated 24/4/97 accepted to execute the said contract. Copies of the two letters are attached herewith and marked as exhibits B3 and B4 respectively.

(d) That as at July, 1998, the plaintiff had successfully completed the said water project at the various sites in Kogi State and a part-payment of N15,303,616.00 (Fifteen million, three hundred and three thousand six hundred and sixteen Naira) was made available to the plaintiff by the defendants.

(e) That since 1998, the plaintiff had made repeated demands to the defendants for the payment of the outstanding balance of the contract sum to the tune of N5,491.008.00. But the defendants have continued to neglect and or refuse to pay.

(g) That by virtue of letter dated 6/7/98, the then Director-General of Kogi State Water Board named Engineer G. B. Omolegbe had written the then Military Administrator of Kogi State named Col. B. L. Afakirya (as he then was) informing the latter ,that the plaintiff had successfully completed the project in question and urged him to pay the outstanding balance. A copy of the said letter is attached herewith and marked as exhibit B5.

(i) That similarly by virtue of another letter dated 6/10/98, the then Honourable Commissioner for Agriculture, Water Resources and Natural Development in Kogi State named Habash Hussain Yakubu had written the then Military Administrator of Kogi State and urged him on the need to pay the outstanding balance due and payable to the plaintiff. A copy of the said letter is attached herewith and marked as exhibit B7.

(j) Furthermore, by virtue of another letter dated 3/5/99, the then Honourable Commissioner for Agriculture, Water Resources and Rural Development in Kogi State, named Dr. Tai Fagbemi had written to the then Military Administrator of Kogi State on the need to pay the plaintiff its outstanding balance of N5,491,008.00 for the job successfully completed by the plaintiff. A copy of the said letter is attached herewith and marked as exhibit B8.

(k) That in view of all persuasive steps taken by the plaintiff to prevail on the defendants to fulfil its contractual and financial obligation to it and when it could not materialize, the plaintiff had to consult its solicitors named Messrs Murtala Yusuf & Co., based in Kaduna to intervene and the said solicitors had written and delivered to the defendants their letter of demand and or pre-action notice accordingly:

(m) That despite the ultimatum given by the plaintiff’s solicitors to the defendants in the said letter, the defendants have failed and or refused to pay the said outstanding balance to the plaintiff.

(2) The following paragraphs of the affidavit disclosing defence which accompanied the notice of intention to defend filed by defendants in the lower court on 19th September, 2002.

Paragraphs 3(a), (b), (c), (d), (e), (f), (g); and paragraph 4(a) and (b).

3. That I have been informed by the present General Manager of Kogi State Water Board in our office at about 10.00 a.m. on the 4th day of September, 2002 and I verily believe him as follows:

(a) That contract for the rehabilitation of water projects or facilities in Olufufo, Ogugu, Iga-Ikeja and Lando was awarded to the plaintiff by the State Government.

(b) That upon award of the said contract, one Alhaji Abdullahi and another person, all staff of the Kogi State Water Board were charged with the responsibility of directly supervising the execution of the said contract.

(c) That the said Alhaji Abdullahi and his colleague in a report strongly asserted that works on the said contract were not completed by the plaintiff.

(d) That since the time the plaintiff left the sites and indeed up till now, the water supply projects in Ogugu and Iga-Ikeja cannot be used by the inhabitants of these two towns because the plaintiffs have neglected or refused to complete the rehabilitation works on the two water supply projects.

(e) That a final certificate of completion of the said contract has not been issued to the plaintiff in line with the contract agreement because he has not completed the said contract.

(f) That the plaintiff is not entitled to the payment of-the entire contract sum unless and until she has completed works on the contract and a final certificate issued to that effect.

(g) That exhibits B5, B7 and B8 were issued in ignorance of the said report of the officers that directly supervised works on the contract. The defendants will produce the said report at the hearing of this suit.

4. That I have also been informed by K. A. Sule, Esq. counsel to defendants in our office at 10.15 a.m. on the same 4th day of September, 2002 and I verily believe him as follows:

(a) That by the contract agreement disputes arising from the contract must be first referred to an arbitrator.

(b) That this dispute has not been referred to any arbitrator before the institution of this suit.

(3) The following paragraphs of the agreement between the parties exhibit B1.

Paragraphs 4, 5 and 6.

“4. Completion and handing over of project.

(a) The contractor shall as soon as the project is completed give to the employer a written notice of the completion and her intention to test the project at a mutually agreed date and time and the employer shall arrange for the tests to be witnessed by two or more representatives on its behalf.

(b) Upon the testing of the project to the satisfaction of the representatives of the employer, the employer shall immediately take over the project and issue a certificate to that effect.

5. Termination of agreement.

This agreement shall terminate on the testing and handing over of the project by the contractor to the employer within the period specified by this agreement. Otherwise either party may terminate the agreement by giving the other a reasonable notice in writing of its intention to terminate the agreement after the expiration of such notice provided that this shall neither be without prejudice to the contractor to be paid for such part of the project already executed, nor to the employer for the refund by the contractor of any sum already paid to the contractor.

6. Arbitration.

Any dispute arising from or relating to this agreement shall be referred to Arbitration and the Arbitration Law of Nigeria shall apply. The arbitrator shall be the President, Nigerian Society of Engineers, Engineering Close, Victoria Island. Lagos.”

In effect, while the plaintiff/appellant claims for the unpaid balance of the contract works relying on exhibits B5, B7, B8 and B9, the defendants/respondents claim that a dispute arose between the plaintiff and defendants because the plaintiff has failed to complete two of the water supply projects forming part of the agreement, that in consequence, the handing over of project and the certificate of completion have not been effected despite exhibits B5, B7 and B8.

In the brief of argument of appellant, the appellant has contended thus:

That the order of the learned trial Judge that the parties should first refer the dispute between the in to arbitration is a nullity in that neither of the parties made an application to that effect in pursuance of section 5 of the Arbitration Law, Cap. 7, Laws of Northern Nigeria, 1963 applicable to Kogi State of Nigeria.

That this is a situation in which provision in the agreement for reference of dispute to arbitration is no longer applicable in so far as one of the parties has admitted liability or has compromised his position by an admission which is capable of altering the position of the parties in respect of the matter in dispute.

Reliance is placed on the internal memoranda between departments of the respondent inter se which in any case were never addressed to the plaintiff.

Appellant cites:

(i) United World Ltd. Inc. v: M.T.S. Ltd. (1998) 10 NWLR (Pt. 568) 106;

(ii) Kano State Urban Development Board v. Kanz Constructian Co. Ltd. (1990) 4 NWLR (Pt. 142) 1.

That the defendants having entered an unconditional appearance to the suit instead of a preliminary objection – and later a notice of intention to defend it was not open to the trial Judge in the absence of a preliminary objection to treat the notice of intention to defend as a form of preliminary objection.

It is further contended that because the respondents filed a notice of intention to defend the suit of appellant after filing an unconditional memorandum of appearance, they had, in law taken a step in the proceedings which made it erroneous for the learned trial Judge to hold that it was still in order for respondents to raise the issue of arbitration at the stage of the notice to defend.

In short, it is the contention of appellants that any step taken by a defendant under a writ placed under the undefended list beyond formal appearance will be taken as a waiver of the defendant’s right to go to arbitration.

Reliance is placed on inter alia:

(i) Kurubo v. Zach Motison Nigeria Ltd. (1992) 5 NWLR (Pt. 239) 102;

(ii) Kallo State U.D.B. v. Fanz Construction Co. Ltd. (1990) 4 NWLR (Pt. 142) 1.

For the respondents, it is contended thus-

The documents annexed to the affidavit in support of the application of the plaintiff/appellant for the issuance of a writ of summons under the ‘undefended list’ itself contains as one of its annexures the contract agreement – Clause 6 of which contains a provision for reference of any dispute arising under the agreement to arbitration and it is pursuant to that agreement of the parties that the defendants/respondents in their affidavit in support of their notice of intention to defend the action relied for their defence to the action of plaintiff/appellant that a condition precedent to the action of the appellant had not been fulfilled.

Reliance is placed on African Insurance Development Corporation v. Nigeria L.G.N. Ltd. (2000) 4 NWLR (Pt. 653) 494, (2000) 2 SCNJ p. 119.

That these documents were before the court and as such the learned trial Judge who was bound to consider the contents in his ruling was not raising the issue of reference to arbitration suo motu as it was contained in the documents and affidavit placed before the court for its consideration.

It is submitted that the order of the court was essentially in consequence of its finding that the arbitration clause contained in exhibit B2 annexed to the affidavit in support of appellant’s application to place the suit on the undefended list operated as a defence to plaintiff’s action and he thus made the consequential order of reference to arbitration.

In resolving the only issue which I have raised for determination in this appeal, the following statutory provisions call for consideration-

(a) Kogi State High Court (Civil Procedure) Rules, 1991.

(i) Order 14 rule 1; Order 23 rule 1; Order 23 rule 3

(ii) Order 23 rule 1

(iii) Order 23 rule 3(1) and (2)

(iv) Order 23 rule 4.

(b) Arbitration Law, Cap. 7, Laws of Northern Nigeria, 1963

(i) Section 2 – Definition of ‘submission’

(ii) Section 3

(iii) Section 5.

I shall first state the provisions of the rules mentioned above and give an opinion on the effect in my humble view of their combined effect on the subject matter of this appeal having regard to the submissions of respective counsel.

Order 14 rule 1 of the Kogi State (Civil Procedure) Rules, 1991 provides thus:

“Parties

1. All persons may be joined in one action as plaintiffs in whom any right to relief (in respect of or arising out of the same transaction or in a series of transactions) is alleged to exist whether jointly, severally, or in the alternative, where, if such persons brought separate actions, any common question of law or fact would arise; and judgment may be given for such one or more of the plaintiffs as may be found to be entitled to relief, for such relief as he or they may be entitled to, without any amendment:

‘Provided that if, upon the application of any defendant, it shall appear that such joinder may embarrass any of the parties or delay the trial of the action, the court or Judge in Chambers may order separate trials, or make such other order as may be expedient in the circumstances’.”

Order 23 provides thus:

“(a) The undefended list

1. Whenever application is made to a court for the issue of a writ of summons in respect of a claim to recover a debt, liquidated money demand and such application is supported by an affidavit setting forth the grounds upon which the claim is based and stating that in the deponent’s belief there is no defence thereto, the court shall, if satisfied that there are good grounds for believing that there is no defence thereto, enter the suit for hearing in what shall be called the ‘undefended list’, and mark the writ of summons accordingly, and enter thereon a date for hearing suitable to the circumstances of the particular case.”

(b) In rule 3

“3(1) If the party served with the writ of summons and affidavit as provided in rules 1 and 2 hereof delivers to the Registrar not less than five days before the day fixed for hearing a notice in writing that he intends to defend the suit, together with an affidavit disclosing a defence on the merit, the court may give him leave to defend upon such terms as the court may think just.

(2) Where leave to defend is given under this rule, the action shall be removed from the undefended list and placed on the ordinary cause list; and the court may order pleadings or proceed to hearing without further pleadings.”

(c) In rule 4

“4. Where any defendant neglects to deliver the notice of defence and affidavit prescribed by rule 3(1) or is not given leave to defend by the court, the suit shall be heard as an undefended suit, and judgment given thereon, without calling upon the plaintiff to summon witnesses before the court to prove his case formally.”

In my humble view, it is mandatory on the defendants once they were served with the writ of summons under the undefended list, not only to enter appearance as required by Order 14 rule 1 within the period stipulated in the rules, it is also of essence that not less than five days before the date fixed for hearing of the action (15th October, 2002 in this case) to cause a notice of intention to defend with an affidavit disclosing a defence on the merit to be delivered to the Registrar if they intend to defend the action.

The above quoted rules say so.

The form issued by the Registrar on the order of the court at pages 4, 5 and 6 of the record of proceedings says so also.

The effect of failure to enter an appearance by a defendant within the time stipulated is that he will not be allowed to defend the action except with leave of the court. In this case, by the argument of learned counsel for the appellant, it would appear that the provisions of Order 13 rule 7 whereby a defendant before entering an unconditional appearance has liberty to take out a summons to set aside the service upon him of the writ or other process or to discharge the order authorising the service is being confused with the mandatory provision of Order 14 rule 1 combined with the provisions of Order 23 rule 3 and of section 5 of the Arbitration Law.

In my view, a defendant in a suit under the undefended list action who adopts the procedure in Order 13 rule 7 would be taking a grave risk if he does not at the same time file the notice of intention to defend as required under Order 23 rule 3.

Such a defendant would have placed all his eggs in one basket. If it turns out that the application to set the writ aside fails, he might find himself too late to file the notice of intention to defend the action required of him under Order 23 rule 3. The effect of such failure on the part of the defendant would of course be that the action shall be heard as an undefended suit, and judgment given thereon without the court calling upon the plaintiff to summon witnesses before the court to prove his case formally – See rule 4.

Also Daniels v. Insight Engineering Co. Ltd. (2002) 10 NWLR (Pt.775) p. 231 at pp. 236 and 246.

Now to proceed to the effect on the suit of the provisions of the Arbitration Law. The following provisions of the Arbitration Law, Cap. 7, Laws of Northern Nigeria, 1963 are applicable in this appeal. They are-

(a) The definition of ‘submission’ in section 2;

(b) Section 3 and

(c) Section 5.

“2 …

(a) ‘submission’ means a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not.

(b) 3. A submission, unless a contrary intention is expressed therein, shall be irrevocable, except by leave of the court or a Judge or by mutual consent, and shall have the same effect in all respects as if it had been made an order of court.

(c) 5 …

any other party to the submission, or any other person claiming through or under him, in respect of any matter agreed to be referred, any party to such legal proceedings may at any time after appearance, and before delivering any pleadings or taking any other steps in the proceedings, apply to that court to stay the proceedings, and that court if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission, and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the proceedings.”

I have earlier on in this judgment quoted the portion of the judgment against which the appellant is aggrieved. As I have stated earlier, and as found by the learned trial Judge, the defendants have joined issues with the plaintiff in their notice along two lines of defence ’97 one, on the issue as claimed by the plaintiff of non’97payment of the balance of the contract sum due and the other on the failure of the plaintiff to fulfil a fundamental condition precedent to his right to sue under the agreement entered into by the parties. Both defences are on the merit but one is essentially a defence in law. I have already indicated in this judgment that I agree with the finding of the learned trial Judge that the defendants by merely entering appearance to the action and filing a notice of intention to defend the action cannot be said to have taken a step at any time after appearance and before delivering any pleadings or taking any other step in the proceedings whereby the notice of intention to defend, they raised the issue of the failure of plaintiff having submitted any dispute arising under the agreement to arbitration under the agreement before going to a court of law; the filing of the notice of intention to defend being the only procedure available to defendants under the undefended list procedure by which plaintiff himself initiated his suit.

It is to be pointed out that there certainly is a dispute between the parties as to whether the balance remaining unpaid is a balance due and unpaid after the completion of the contract works as maintained by the plaintiff or it is an amount unpaid because it is not yet due, in the absence of formal certificates for works executed on the site duly issued in respect of the works for which payment is claimed as required by the contract and maintained by the defendants.

In any event, Clause 4 of the agreement between the parties read thus. At the risk of repetition –

“4. Completion and handing over of project

(a) The contractor shall as soon as the project is completed give to the employer a written notice of the completion and her intention to test the project at a mutually agreed date and time and the employer shall arrange for the tests to be witnessed by two or more representatives on its behalf.

(b) Upon the testing of the project to the satisfaction of the representatives of the employer, the employer shall immediately take over the project and issue a certificate to that effect.”

I have looked through the affidavit filed in the lower court and I am unable to find any averment or document to show that the steps required under Clause 4 have been taken by the parties to the agreement. In the light of this finding I hold that exhibits B5, B7 and B8 which are internal memoranda between departments of the defendants and were not copied to the plaintiff cannot avail the plaintiff in his claim.

In the event, I find and I hold that –

(1) The defendants/respondents properly raised the issue of submission to arbitration and stay of proceedings in the action before the lower court – in accordance with sections 2, 3 and 5 of the Arbitration Law.

(2) The lower court properly, judicially and judiciously exercised its discretion to enforce the submission to arbitration claimed in the notice of intention to defend filed by the defendants.

(3) It is appropriate and consequential in the circumstances for the lower court to have made the order:

(a) transferring the suit to the general cause list; and

(b) that the parties in the first instance exhaust the remedy available to them in their agreement by referring the matter in dispute to an arbitrator …

In effect, ordering a stay of proceedings in respect of the suit which he transferred to the general cause list.

Finally, I find no merit in this appeal. I dismiss it.

I award costs of N10,000.00 in favour of the respondents.

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Other Citations: (2004)LCN/1603(CA)