It is increasingly common in Nigeria for commercial and other contractual disputes to be resolved by arbitration as opposed to litigation. In this respect, the primary reason why contracting parties refer their disputes to arbitration is a desire to avoid having to take their disputes to court for resolution. However, in some cases, even where there is an arbitration clause in an agreement in respect of which a dispute has arisen, the parties still end up in court. Each case is usually peculiar, in terms of the issue that has led the parties to approach the courts. In any event, most of such litigations typically revolve around the provisions of the agreement containing the arbitration clause, or indeed the arbitration clause itself. The recent decision of Akinyemi J. of the High Court of Ogun State in ZENITH GLOBAL MERCHANT LIMITED V ZHONGFU INTERNATIONAL INVESTMENT (NIG) FZE & OTHERS underscores the need for parties to pay due attention to relevant principles at the point of drafting arbitration clauses and agreements, in order to avoid a situation in which the parties end up in court litigating on the meaning of the arbitration clauses.
In that case, Zenith Global Merchant Limited (Zenith Global) sought an Order of the Ogun State High Court restraining Zhongfu and the other Defendants (Zhongfu) from continuing with arbitration proceedings at the Singapore International Arbitration Centre (SIAC) in respect of a Joint Venture Agreement (JVA) between the parties. The primary reason for which Zenith Global sought this Order was its contention that Zhongfu had waived its right to arbitration by instituting and taking steps in an action at the Federal High Court against Zenith Global and some other Defendants, in respect of the same JVA. Zhongfu however applied to the court that Zenith Global’s suit be struck out for lack of jurisdiction, on the ground that the Ogun State High Court is not a court in the seat of the arbitration so it cannot exercise supervisory jurisdiction and also that the court lacks sufficient jurisdictional nexus to be competent to grant the anti-arbitration injunction sought by Zenith Global.
From Zhongfu’s objection, it became necessary for the court to determine the issue of the seat of arbitration. In resolving the issue of the ‘seat’, the court considered clause 27.2 of the JVA which stated that disputes under the JVA shall be settled by arbitration in Singapore under the UNCITRAL Arbitration Rules in accordance with the SIAC Procedures for the administration of international arbitration and clause 27.3 which stated that the JVA was to be construed in accordance with the laws of Nigeria. In its decision, the court observed the difference between the “seat” and “venue” of arbitration and held that the seat of arbitration is a juridical concept peculiar to international arbitration and is the nation where an international arbitration has its legal domicile or juridical home. It symbolizes the jurisprudential connection between the arbitration process and the laws of the nation regarded as the seat. On the other hand, the venue is a feature of both domestic and international arbitration and refers to the physical or geographical place that the parties have chosen for the arbitration to be conducted.
In determining Zhongfu’s objection, the court noted, in the first instance, that the parties did not make any express provision in the agreement as to the seat of the arbitration. The court then went further to note the fact that all the parties were Nigerian companies, the substantive contract was to be performed in Ogun State in Nigeria and not Singapore, the applicable law of the contract was Nigeria and any award from the arbitration would be enforced in Nigeria and not Singapore as the parties and their assets are in Nigeria. Based on these facts, the court relied on the principle that the seat of an international arbitration is the nation to which the arbitration has a closer and more intimate connection and held that Nigeria has a closer and more intimate connection to the arbitration than Singapore. Consequently, the court decided that it had jurisdiction to exercise supervisory jurisdiction over the arbitration as the “seat” of arbitration is Nigeria, while Singapore was merely the venue of arbitration. The court dismissed Zhongfu’s objection and ultimately granted Zenith Global’s application by restraining the parties from further proceeding with the arbitration.
This decision highlights the importance of proper drafting of arbitration clauses and agreements and the potential consequences of inelegant drafting, which in this case was costly litigation as to the proper interpretation of the arbitration clause. As the court noted, “parties do not usually consciously choose the law of the arbitration; what they often consciously choose is the seat. Once they choose the seat, they automatically become subject to the law of the seat”. As a result, when disputes arise in respect of the substantive agreement and parties then realize their inadvertent choice of the applicable law to the arbitration, as a result of unclear arbitration clauses, collateral disputes often arise and lead to litigation in courts, with the effect that, until the collateral disputes on the arbitration clause is resolved, the resolution of the substantive dispute is put on hold.