An arbitration clause does not strip a court of its jurisdiction to hear and resolve a dispute

MAINSTREET BANK CAPITAL LTD & ANOR v. NIGERIA REINSURANCE CORPORATION PLC.

SUPREME COURT OF NIGERIA

(MOHAMMAD; KEKERE-EKUN; NWEZE; SANUSI; EKO, JJ.SC)

BACKGROUND FACT

Mainstreet Bank Capital Ltd. and Mainstreet Bank Securities Ltd. (the Appellants) initiated an action at the Federal High Court against Nigeria Reinsurance Corporation Plc. (the Respondent) by way of originating summons. The Appellants sought the court’s determination on various issues concerning their shareholding rights, their status as shareholders, and their right to participate in the management and meetings of the Respondent. Upon being served with the originating summons, the Respondent entered a conditional appearance and subsequently filed a preliminary objection, challenging the court’s jurisdiction to entertain the suit. The Appellants opposed the preliminary objection by filing a counter affidavit and a written address, to which the Respondent replied, submitting both a reply on points of law and a counter affidavit in opposition to the originating summons. The trial court heard both the preliminary objection and the originating summons simultaneously without any objection from the parties.

In its judgment, the learned trial judge upheld the Respondent’s preliminary objection and struck out the suit for lack of jurisdiction. Dissatisfied with this decision, the Appellants appealed to the Court of Appeal, which, in a considered judgment, overturned the decision of the trial court and allowed the appeal.

However, the Appellants remained dissatisfied with certain aspects of the Court of Appeal’s decision. They particularly contested the lower court’s refusal to invoke its powers under Section 16 of the Court of Appeal Act to hear the originating summons on its merits. Consequently, they filed an appeal before the Supreme Court, seeking determination on several issues. One of the issues for determination was: Whether the lower court was right when it held that the processes filed by the respondent after filing its notice of preliminary objection, do not amount to steps taken in the proceedings?

ARGUMENTS

The Appellants’ Counsel argued that under the Arbitration and Conciliation Act, a party seeking to stay court proceedings pending arbitration must refrain from taking any further steps in the substantive suit. The only permissible step, according to counsel, is to apply for a stay of proceedings, as any other action would amount to waiver of the right to arbitration. The Appellants contended that since the Respondent had taken steps in furtherance of the substantive suit, including filing a conditional appearance, a counter-affidavit in response to the originating summons, and a reply on points of law. These steps, in the Appellants’ view, demonstrated that the Respondent had engaged with the case beyond merely seeking a stay of proceedings and, therefore, had waived its right to rely on the arbitration clause. The Appellants argued that having acknowledged that the Respondent actively participated in the proceedings, the lower courts ought to have concluded that such participation amounted to a waiver of its right to insist on arbitration. Consequently, the Respondent should not have been permitted to later raise an objection based on the arbitration agreement to strike out the suit or seek a stay of proceedings.

In response, the Respondent’s Counsel argued that the Appellants misrepresented the facts of the case and that the Respondent had not waived its right to arbitration. He contended that the Respondent’s preliminary objection was rooted in jurisdictional concerns, specifically that the trial court lacked jurisdiction to entertain the suit because the parties had agreed to resolve disputes through arbitration. The Respondent’s position was that arbitration was a binding contractual mechanism for dispute resolution and that the Appellants had bypassed this process by instituting court proceedings prematurely.

The Respondent’s Counsel further emphasized that the Respondent’s prayer before the court was to strike out the suit or, in the alternative, to order a stay of proceedings pending arbitration. Counsel argued that courts have a duty to uphold arbitration agreements and should not encourage parties to circumvent valid contractual dispute resolution mechanisms. He submitted that resorting to arbitration is not optional, but rather a condition precedent to litigation where an arbitration clause exists. The Respondent’s Counsel also maintained that by failing to submit their claim to arbitration before filing the suit, the Appellants had effectively “jumped the queue.” He contended that this failure rendered the suit incompetent, inchoate, and premature for judicial determination.

DECISION OF THE COURT

In resolving the issue, the Supreme Court held that:

The mere existence of an arbitration clause in a contract does not oust the jurisdiction of the court. While parties may agree to resolve disputes through arbitration, such an agreement does not automatically preclude a court from hearing a case. Courts retain jurisdiction, but they also have a duty to give effect to valid arbitration agreements in accordance with the Arbitration and Conciliation Act. Accordingly, where a party insists on the enforcement of an arbitration clause, the proper approach is not to object to the court’s jurisdiction outright, but rather to apply for a stay of proceedings pending arbitration. Since the arbitration clause does not strip the court of its jurisdiction, the court has the power to pause its proceedings while the dispute is referred to arbitration.

Issue resolved in favour of the Appellants.

Dr. Charles Mekwunye with Ekene Nwonu Esq., for the Appellants.
Adenrele Adegborioye, Esq., with Ezenwa Ibegbuna Esq., for the Respondent.

This summary is fully reported at (2020) 4 CLRN in association with ALP NG & Co.
See www.clrndirect.com ; www.alp.company