May 11, 2016

The Obembe’s Clog in the Wheels of Arbitration Law in Nigeria by Kayode Omosehin

Photo Credit - 

Preliminary View

One of the few cases in which a controversial pronouncement has ever been made by the Nigerian courts arbitration-related disputes, the case of Obi Obembe v. Wemabod Estates Ltd. (1977) All NLR 130 takes the prize. It is relatively the oldest decided case on the right of a defendant to insist that a dispute in respect of an agreement containing arbitration clause must be referred to arbitration. In the Obembe case, no earlier Nigerian case was cited or relied upon. It appears to be the oldest judicial precedent on when a defendant can rightfully request that parties to a judicial proceedings be referred to arbitration in accordance with their agreement.

The Facts
The case was filed at the High Court of Lagos State in 1971 and constituted in Suit No. LD/85/71. The dispute arose from the wrongful termination of the plaintiff/appellant’s (“appellant”) appointment as a consulting engineer. The appellant’s claim was based partly on the scale of fees laid down in a booklet published by the Association of Consulting Engineers in London (Exhibit 3). The respondent defended the suit and did not file any motion for stay of proceedings even though clause 17 in part 11 of Exhibit 3 contained reference to arbitration in case of dispute. The suit went to trial and judgment was delivered upon conclusion of trial.

The Decision by the Trial Court
In the judgment of the High Court delivered on 28th September 1973, the appellant’s case was dismissed on the ground that the appellant did not prove his case as he did not lead any evidence or put in any document to support his case. However, the judge went further to observe that
“Had I been in a position on the facts to find any of the plaintiff’s claims proved I would have been unable to enter judgment in his favour in view of the Arbitration Clauses 17 in part 11 of Ex. 3 at page 37 which the parties had agreed would govern their contract.”

The Appeal to the Supreme Court
Being dissatisfied with the judgment of the High Court of Lagos State, an appeal was lodged to the Supreme Court. The Supreme Court (consisting of Fatayi-Williams, Bello and Obaseki J.S.C.) held that the lower court was in error to have dismissed the appellant’s case and consequently held as follows: “For the above reasons, the appeal succeeds but only in respect of that part of the judgment of the trial judge dismissing the plaintiff/appellant’s claim for resident supervision by his engineer.”

In the said judgment of the Supreme Court, Fatayi-Williams CJN made a general statement that has now generated confusion in the state of the Nigerian law of arbitration. Mr. Kehinde Shofola (now SAN), Counsel to the Appellant had raised issue regarding the learned trial judge’s observation about the failure of the appellant to submit his claim first to arbitration before coming to court. The learned counsel contended that arbitration clauses fall into two classes. In one class, the provision for arbitration is a mere matter of procedure for ascertaining the rights of the parties with nothing in it to exclude a right of action on the contract itself, but leaving it to the party against whom an action is 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 the procedure which they have agreed. In the other class, arbitration followed by an award is a condition precedent to any other proceedings being taken, any further proceedings then being, strictly speaking, not upon the original contract but upon the award made under the arbitration clause.

In agreeing with Mr. Sofola, the Supreme Court held that the facts of the case fit into the first category stated in Mr. Sofola’s submission. The Supreme Court therefore held at page 140 of the law report that the arbitration agreement did not oust the jurisdiction of court and that either party to the agreement in dispute can, 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. The Supreme Court thereafter held that it was erroneous of the learned trial judge to observe as he did that even if the appellant had proved his case, he (the trial judge) would have been unable to enter judgment in the appellant’s favour. The conclusion of the Supreme Court, as can be gleaned from page 141 of the law report, was based on the fact that;

 “No stay was asked for by the defendants/respondents after they were served with the writ of summons. On the contrary, they accepted service of the statement of claim, filed their own statement of defence, testified in their defence, and took part in the proceedings until judgment was delivered. In order to get a stay, a party to submission must have taken NO step in the proceedings”.

Where the Supreme Court Went Wrong in Obembe’s case
His lordship, Fatayi-Williams CJN who delivered the judgment of the Supreme Court said at page 141 of the law report that: “In order to get a stay, a party to submission must have taken NO step in the proceedings. A party who makes any application whatsoever to the court, even though it be merely for application for extension of time, takes a step in the proceedings. Delivery of a statement of defence is also a step in the proceedings.” (Emphasis mine) The underlined statement has worked great hardship and injustice in the administration of arbitration law in Nigeria.

There is nothing in the facts of the Obembe’s case to justify the pronouncement made by Fatayi-Williams CJN. An application for extension of time could be for many purposes including to enter a conditional appearance, challenge jurisdiction, etc. Under Nigerian law, entering of appearance is not and cannot be a bar to the right of the defendant under Section 5 of the ACA to insist on referring a dispute to arbitration. See Confidence Insurance Ltd. v. The Trustees of Ondo State College of Education Staff Pension (1999) 2 NWLR (Pt. 591) 373 at 386-387 paragraphs C-G.  It is a bit of a stretch of the law to pronounce, as Fatayi-Williams JSC did, that any application whatsoever (even though it be merely for extension of time) constitutes “taking steps” in a proceedings.
With due respect, the Obembe case is not a valid authority for an issue on whether a party has taken steps in a judicial proceedings. This is because the issue was not canvassed in the case at the High Court from where the appeal culminated to the Supreme Court. The portion of the judgment of the High Court touching on arbitration and taking steps in the judicial proceedings was a mere observation made by the way in the judgment of the trial judge. The said observation was made suo motu and obiter.

Interestingly, the High Court judge had observed in his decision as follows: “Had I been in a position on the facts to find any of the plaintiff’s claims proved I would have been unable to enter judgment in his favour in view of the Arbitration Clauses 17 of Exh. 3 at page 37 which parties had agreed would govern their contract.” The foregoing observation of the High Court judge, in my respectful view, is an obiter dictum as it did not form the basis of the trial court’s dismissal of the appellant’s case. Obiter dictum is of no legal consequence in the Nigerian legal system though it may carry considerable weight if it emanates from the Supreme Court.

In view of the foregoing, the ground of appeal complaining against the said observation, the determination of which culminated into the pronouncement of Fatayi-Williams CJN, ought to have been struck out for being incompetent as the ground of appeal complained against an obiter and not against the ratio decidendi. The law is trite that it is only against the ratio decidendi in a judgment and not anobiter dictum that an appeal (if any) can be lodged. The Supreme Court in A.I.C. LTD V. NNPC (2005) 22 NSCQLR 903, at 925 (2005) 5 SC (PT. 11) 60 definedratio decidendi and obiter dicta as follows: "The ratio decidendi of a case represents the reasoning or principle or ground upon which a case is decided. Obiter simply means in passing, incidental, cursory. Obiter dicta reflects, inter alia, the opinions of the Judge, which do not embody the resolution of the Court."

The ground and issue formulated by the appellant in the Obembe case in respect of the observation made by the trial judge ought to have been struck out by the Supreme Court for being incompetent. Failure to strike out the erroneous ground and the issues consequently led to the undoubtedly erroneous pronouncement by Fatai-Williams CJN that “A party who makes any application whatsoever to the court, even though it be merely for application for extension of time, takes a step in the proceedings”. Consequently, the pronouncement of Fatayi-Williams CJN is not a statement of the law, rather it was a pronouncement made from the Supreme Court’s needless determination of a ground of appeal complaining against an obiter dictum. It was a profligate use of judicial time for a needless cause.

In Chami V. UBA Plc. (2010) 6 NWLR (PT. 1191) 474 at 493 Paragraphs E- F, the Supreme Court made the point so clear that grounds of appeal must attack only the ratios in a judgment, when it was held thus: "It is settled law that issues for determination must be distilled from Grounds of Appeal which Ground(s) must attack the ratio decidendi of the judgment not anything said by the way, or obiter dicta or be formulated in vacuo, as issue 5 in the instant case.” It is therefore my humble view that the pronouncement of Fatai-Williams CJN was made per incuriam which ought to be overruled or jettisoned by a subsequent panel of Supreme Court. It is not enough to distinguish cases from the Obembe’s case in order to avoid the shackles of judicial precedent (as in Fawehinmi Construction Co. Ltd. v. O. A. U [1998] 6 NWLR (Pt. 553) 171), the Obembe’s case needs to be overruled.

In line with the power of the Supreme Court to depart from or overrule its previous where it is shown or demonstrated that the earlier decision is either erroneous in law, or given per incuriam or that it has become an instrument of injustice or where the decision complained of hinders the proper development of the law (e.g. the law of arbitration), it is therefore my humble submission that the decision in Obembe case should be overruled by another panel of the Supreme Court not for the hardship or injustice that it creates but also for being a major impediment to the development of arbitration law in Nigeria. See Veepes Industries Ltd vs Cocoa Industries Ltd (2008) ALL FWLR (Pt.425) 1667 at 1687; Bakare v. NRC (2007) ALL FWLR (Pt.391) 1663
 It is useful to note that the referenced decision was delivered by the Supreme Court at the time when there was no what is today known as the Court of Appeal. All appeals from the High Court then were entertained by the Supreme Court which consisted of panel of justices still trying to appreciate the concept of arbitration. At the time, all appeals from the Supreme Court went to the Privy Council consisting of English Justices. Now, Nigerian legal system has evolved and our judicial policy cannot in 2016 be such that stultifies alternative dispute resolution mechanisms.

If the arbitration law must be seen to be developing in Nigeria, Obembe’s case must be overruled or corrected by an amendment of the Arbitration and Conciliation Act to allow more discretion to local courts to ensure parties resolve their dispute by agreed alternative resolution method. Also, local court should be more inclined to granting stay of proceedings for the purpose of arbitration than refusing it. 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. The fact that both parties have expressed intention to arbitrate their dispute should weigh heavily in the mind of the deciding judge in granting stay of proceedings. See the case of SINO-AFRIC AGRICULTURE & IND COMPANY LIMITED & ORS v. MINISTRY OF FINANCE INCORPORATION ANOR (2013) LPELR-22370. The grounds for refusing a motion for stay ought to be very compelling, and the onus should rest always on the party opposing resolution of the dispute by arbitration. In the absence of any binding authority, the right to seek a stay of proceedings should only be lost upon service of a substantive defence on the merits as held in the case of Usi Enterprises Limited v. Kogi State Government (2005) 1 NWLR Part 908 page 494 at 516. A mere application for adjournment to enable the defendant file defence should not constitute taking steps if the defendant thereafter applies for stay of proceedings rather than file defence. This approach will be consistent with our declared intention to encourage and entrench arbitration as an alternative dispute resolution in Nigeria.

The fact that a defendant makes an objection to the court’s jurisdiction on ground of an invalid originating process or service objection (while reserving his right to request stay of proceedings under Section 5 of the ACA) should not amount to taking steps merely because the defendants brings an application for stay much later after the initial jurisdictional objection. This much was made very clearly inFawehinmi Construction Co. Ltd. v. O. A. U [1998] 6 NWLR (Pt. 553) 171 at page 184 thus:

“When party has a right whether by way of agreement or under statute he can exercise it at the earliest time and can equally waive it if the statutory right is not absolute and mandatory. The waiver must be clear and unambiguous like allowing all evidence to be taken or even decision given before challenging the hearing. It will then be shown that the party, deliberately refused to take advantage of the right when it availed him. Such failure to take advantage of a right must be so clear that there will be no other reasonable presumption than that the right is let go. The preliminary skirmishes in this case at the trial Court could not by any imagination be presumed to be a waiver. The defendant had not filed his statement of defence and service of the statement of claim on it is certainly not a waiver by it. Had it filed a statement of defence but with indication that the preliminary objection will be raised that the suit was not properly before the Court, it would not (sic) have been a waiver.”

Also, the mere inclusion of a prayer to set aside a subsisting injunctive order in addition to a prayer for stay of proceedings in the same motion paper should not be regarded as having taken steps in the proceedings. See the case of Williams vs Williams & 3 Ors. (2013) 3 CLRN 114. The steps that a defendant is alleged to have taken in a judicial proceeding to defeat his right to arbitration must be so clear and positive as to constitute a waiver of his right to insist on the resolution of the dispute by arbitration. The steps must be inconsistent with an application for reference to arbitration.