GUTHRIE NIGERIA LIMITED V. KWARA STATE GOVERNMENT & ORS. (2017)

Background

Guthrie Nigeria Limited commenced proceedings at the High Court of Kwara State under the undefended list procedure, claiming N586,206,883.33 from the respondents. The claim concerned compensation allegedly due to the appellant under a contractual arrangement involving the Kwara State Government and the Kwara State Ministry of Social Development, Environment and Tourism. The appellant maintained that the amount had been assessed and fixed by the second respondent and that the sum was not genuinely disputed.

The contract, tendered as Exhibit B, contained an arbitration clause. Clause 19 provided that any dispute concerning a term of the agreement which could not be mutually settled would be referred to the incumbent Chairman of the Nigerian Society of Engineers, Kwara State Branch, who would appoint an arbitrator. The arbitrator’s award was stated to be final and binding.

After being served with the originating processes, the respondents filed a notice of intention to defend, together with an affidavit, under Order 23 of the Kwara State High Court (Civil Procedure) Rules. They also filed a preliminary objection challenging the jurisdiction of the High Court on the basis of the arbitration clause. The trial court upheld the objection, declined jurisdiction and directed the parties to submit the matter to arbitration. Guthrie Nigeria Limited appealed to the Court of Appeal.

Issue

The principal issue was whether, having regard to Clause 19 of Exhibit B and section 5 of the Arbitration and Conciliation Act, Cap. A18, Laws of the Federation of Nigeria 2004, the trial court was right to decline jurisdiction and refer the appellant’s suit to arbitration.

Ratio Decidendi

The Court of Appeal held that an arbitration agreement does not, by itself, oust the jurisdiction of a competent court. Arbitration is a consensual procedure by which parties agree that disputes arising from their contractual relationship may be determined by a private tribunal rather than by a court. Arbitrators are not constitutional courts and possess no independent judicial jurisdiction. The binding nature of an arbitral award arises from the parties’ voluntary agreement to submit their dispute to arbitration.

Under section 5(1) of the Arbitration and Conciliation Act, a party to an arbitration agreement may apply for a stay of court proceedings only after entering an appearance and before delivering pleadings or taking any other step in the proceedings. Section 5(2) further requires the court to be satisfied that there is no sufficient reason why the matter should not be referred to arbitration and that the applicant was, and remained, ready and willing to do everything necessary for the proper conduct of the arbitration.

Relying particularly on Obembe v. Wemabod Estates Ltd, the Court stated that taking any application in the proceedings, even an application for extension of time, constitutes a step in the proceedings. Delivery of a statement of defence is also a step. In the context of the undefended list procedure, the respondents’ notice of intention to defend and supporting affidavit did substantially more than merely enter an appearance. They set out the basis upon which judgment should not be entered for the appellant and were therefore analogous to a defence.

Court Findings

The Court found that the respondents had taken a substantial step in the proceedings before relying on the arbitration clause. Consequently, they could no longer obtain a stay under section 5 of the Arbitration and Conciliation Act. The trial court therefore erred in granting the preliminary objection and declining jurisdiction.

The Court also rejected the proposition that the mere incorporation of an arbitration clause means that every suit connected with the contract must automatically be referred to arbitration. The clause must be interpreted according to its language and scope. Clause 19 was directed at disputes concerning contractual terms that could not be mutually settled; its existence was not itself proof that an arbitrable dispute existed or that the High Court had lost jurisdiction.

Conclusion

The appeal was allowed. The ruling of the High Court declining jurisdiction and referring the matter to arbitration was set aside. The case was remitted to the Chief Judge of Kwara State for reassignment to another judge and hearing on the merits under the undefended list procedure. The concurring justices, Uwa JCA and Ugo JCA, agreed that the filing of the notice of intention to defend amounted to taking a step in the proceedings and constituted a waiver of the respondents’ right to seek a stay based on arbitration.

Significance

The decision clarifies the relationship between arbitration and the Nigerian courts. An arbitration clause generally creates an agreed procedural avenue for resolving qualifying disputes; it does not confer constitutional jurisdiction on arbitrators or permanently exclude the courts. A party seeking a stay must act promptly and must not participate substantively in the court proceedings before making the application. In particular, a notice of intention to defend accompanied by an affidavit in an undefended-list action may amount to a significant procedural step that prevents reliance on section 5 of the Arbitration and Conciliation Act. The case also emphasizes that courts must examine the precise wording of an arbitration clause and determine whether an actual dispute falls within its scope, rather than ordering arbitration merely because the contract contains such a clause.