A person who wrongfully holds the money of another without justification will be liable to pay interest

UNITS ENVIRONMENTAL SCIENCES LIMITED v. REVENUE MOBILIZATION, ALLOCATION AND FISCAL COMMISSION

SUPREME COURT

(ARIWOOLA; OKORO; AUGIE; ABOKI; AGIM: JJ.SC)

FACTS

Units Environmental Sciences Limited (the Appellant) and the Revenue Mobilization, Allocation and Fiscal Commission (the Respondent) entered into a consultancy agreement in 2001 for the provision of consultancy services in respect of the Respondent’s staff housing development project at Mabushi, Abuja. Under the agreement, professional fees for pre-contract services were to be paid immediately upon completion of such services, while fees for post-contract services were to be paid periodically as the work progressed. The agreement also contained an arbitration clause.

A dispute subsequently arose between the parties when the Appellant claimed entitlement to the sum of ₦65,790,663.84 as outstanding professional fees and accrued interest. Pursuant to the arbitration clause, the dispute was referred to arbitration. At the conclusion of the arbitral proceedings, the sole arbitrator awarded the Appellant the sum of ₦47,179,820.15 as outstanding fees, ₦33,934,139.53 as interest up to the date of the award together with post-award interest at the rate of ₦982,912.92 per month (or ₦32,312.95 per day) until liquidation of the award, and ₦8,176,973.02 as costs.

Dissatisfied with the award, the Respondent applied to the Federal High Court, Abuja, seeking to set it aside on the ground, among others, that the arbitrator had exceeded the scope of the parties’ agreement in computing the sums awarded. The Appellant opposed the application and in a separate motion, sought recognition and enforcement of the award. The Federal High Court struck out the Respondent’s application to set aside the award and granted the Appellant’s application for recognition and enforcement.

On appeal, the Court of Appeal held that the arbitrator lacked the power to award pre-award interest in the absence of an express contractual provision or evidence of a relevant trade custom and that since no agreement to that effect existed in the present case, the award of pre-award interest amounted to misconduct by the arbitrator. Consequently, the appeal was allowed, and both the arbitral award and the order granting leave to enforce it were set aside.

Aggrieved by the decision of the Court of Appeal, the Appellant appealed to the Supreme Court.

One of the issues for determination was: Whether the court of appeal decided and acted erroneously when it set aside the judgment of the Federal High Court as well as the arbitral award on the ground that pre-award Interest was neither claimable or awardable in the total circumstances of the appeal before it.

 

ARGUMENT

Learned Senior Counsel for the Appellant argued that the Court of Appeal’s holding that the trial court’s award of pre-award contractual interest lacked factual and legal foundation was perverse and erroneous. He submitted that the evidence clearly established the Appellant’s entitlement to interest on the ground that he was deprived of the use of his money, which constituted damage naturally flowing from the Respondent’s breach of its contractual obligations and within the reasonable contemplation of the parties. He further contended that the claim for pre-award interest was properly pleaded and proved by evidence, which was not specifically controverted or challenged, and which the sole arbitrator duly accepted. He also relied on the fact that the contract stipulated the time for payment, arguing that damages for wilful and deliberate withholding of monies due under a contract may attract interest as damages in accordance with mercantile customs, even in the absence of an express agreement on interest.

Senior Counsel further submitted that there was evidence showing that the Appellant rendered full services which were accepted and from which the Respondent derived benefit, but that the Respondent only made a derisory payment of N4 million and thereafter failed to meet its obligations, while attempting to rely on certain laws to avoid payment on the basis of frustration arising from government action. He argued that even if the Court of Appeal was justified in setting aside the award of pre-award interest, it was not entitled to set aside the entirety of the arbitral award on that basis, as the issue of pre-award interest was severable from the other heads of the award. He maintained that the proper course would have been to remit the matter to the sole arbitrator rather than set aside the award, and that it was wrong for the Court of Appeal to interfere with the award merely on the ground of error, particularly where such error did not appear on the face of the record.

Learned Counsel for the Respondent argued that the sole arbitrator acted in excess of his jurisdiction by awarding pre-award interest in favour of the Appellant. He submitted that the award of pre-contract interest formed the basis of the Respondent’s challenge to the arbitral award at both the Federal High Court and the Court of Appeal. According to counsel, the consultancy services agreement did not contemplate any form of pre-award interest, as same was not embodied in the contract between the parties. He further contended that there was no credible evidence in support of the award of pre-award interest, describing the evidence adduced as hollow and not requiring any challenge. He also argued that the Appellant’s reliance on the Central Bank of Nigeria’s mode of calculating interest was extraneous to the consultancy agreement, which alone defined the parties’ obligations and expectations.

Counsel further submitted that the award of pre-award interest had no legal or contractual basis and was rightly set aside by the Court of Appeal on the ground of misconduct, as the arbitrator exceeded his authority by granting relief not contemplated by the parties. He argued that this misconduct justified the setting aside of the entire arbitral award. He also contended that since the Appellant had sought enforcement of the entirety of the award before the Court of Appeal, it was no longer open to it to seek severance of the impugned portion on appeal. Finally, he submitted that the appeal against the decision of the Court of Appeal on costs must fail, as the parties had agreed in their consultancy services agreement that each party should bear its own costs of litigation.

DECISION OF THE COURT

In resolving the issue, the Supreme Court held that:

Where a party holds on to the money of another for a long time without any justification and thereby deprives that other party of the use of such funds for that period, such party should be liable to pay compensation by way of interest, even where interest is not claimed in an action filed for the recovery of monies that were due and payable. The Supreme Court further stated that where there is a breach of a contract to pay money as and when due under a contract involving a breach of fiduciary duty, a court can exercise its equitable jurisdiction to award interest on the amount due and payable, even in the absence of an express provision in the contract for the payment of such interest as a consequence of the breach of contract.

Furthermore, the Supreme Court explained that where interest is claimable or awardable in law or equity, but the exact rate of interest is not proved by evidence, the court has the discretion to award a minimal or nominal rate of interest that meets the justice of the case, provided such discretion is exercised judicially and judiciously. It further stated that in situations where interest cannot be claimed or awarded, damages or sums in that nature may still be granted as compensation for the loss of use of money due and not paid as at when due in breach of contract, such loss naturally flowing from the breach and being within the reasonable contemplation of the parties.

Issue resolved in favour of the Applicant.

Dr. Olumide Ayeni, SAN, Olutunde Abegunde, Esq.; Olawale Oyebode, Esq.; Favour Leonard Goin, Esq.(Mrs) and Adeniyi Olominu, Esq.  for the Appellant.

Y. Garuba, Esq. Austin Mwana, Esq. for the Respondent.

This summary is fully reported at (2022) 4 CLRN in association with ALP NG & Co.

See www.clrndirect.com ; www.alp.company.