STAY OF PROCEEDINGS PENDING ARBITRATION: ARE YOU READY AND WILLING?

STAY OF PROCEEDINGS PENDING ARBITRATION: ARE YOU READY AND WILLING? In Nigeria, under section 5 of the Arbitration and Conciliation Act (the ACA) where one party to an agreement that contains an arbitration clause approaches a court in respect of the same dispute covered by the arbitration clause, the other party to the agreement may apply to the court for an Order staying the court’s proceedings pending reference of the dispute to arbitration. For ease of reference, section 5 of the ACA provides that: 5. (1) If any party to an arbitration agreement commences any action in any court with respect to any matter which is the subject of an arbitration agreement any party to the arbitration agreement may, at any time after appearance and before delivering any pleadings or taking any other steps in the proceedings, apply to the court to stay the proceedings.

(2) A court to which an application is made under subsection (1) of this section may, if it is satisfied(a) that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the arbitration agreement; and (b) that the applicant was at the time when the action was commenced and still remains ready and willing to do all things necessary to the proper conduct of the arbitration, make an order staying the proceedings.

Section 5 provides for three conditions which must be satisfied by an Applicant, before the court may exercise its discretion to make an Order for stay of proceedings pending arbitration. The three conditions are that, firstly, the Applicant must have taken no step in the proceedings, secondly, there must be no sufficient reason why the matter should not be referred to arbitration and thirdly, the Applicant must at the time when the action was commenced and still remains ready and willing to do all things necessary to the proper conduct of the arbitration.

With respect to the third condition mentioned above, in many cases, Applicants seeking Orders for a stay of the court’s proceedings pending arbitration state in affidavits in support of the Applications that they are indeed ready and willing to do all things necessary to the proper conduct of the arbitration.

However, the attitude of the courts in Nigeria has generally been that such a mere deposition by an Applicant in an affidavit is insufficient for the purposes of satisfying the third condition of section 5 of

the ACA. For instance in the case of MV PANORMOS BAY V OLAM (2004) 5 NWLR (Part 865) 1 the Court of Appeal decided that: “By virtue of Section 5 of Arbitration and Conciliation Act, a party applying for stay of proceedings in an action pending reference to arbitration in order to succeed must show in his affidavit evidence in support of the application by means of documentary evidence, the steps he took or intends to take for the proper conduct of the arbitration. It is not enough for him to merely depose that he is ready and willing to do all things necessary for causing the said matter to be decided by arbitration.”

Similarly, in the case of UNITED BANK FOR AFRICA PLC V TRIDENT CONSULTING LIMITED (2013) 4 CLRN 119 the Court of Appeal decided that: “Before a stay may be granted pending arbitration, the party applying for a stay must demonstrate unequivocally by documentary and/or other visible means that he is willing to arbitrate. He does it satisfactorily by notifying the other party in writing of his intention of referring the matter to arbitration and by proposing in writing an arbitrator or arbitrators for the arbitration” Where an Applicant brings an application for stay of proceedings pending arbitration, the decisions of the Court of Appeal in the cases of MV PANORMOS BAY V OLAM and UNITED BANK FOR AFRICA PLC V TRIDENT CONSULTING LIMITED currently represent the position of the law in Nigeria with respect to the burden of proof imposed on such Applicant, where the Applicant seeks to show that ready and willing to do all things necessary to the proper conduct of the arbitration.

However, there are still practical issues that may arise in an Applicants bid to convince the court that he was at the time when the action was commenced and still remains ready and willing to do all things necessary to the proper conduct of the arbitration. One of such issues recently manifested itself and led to the refusal by the Federal High Court in SUIT NO. FHC/L/CS/52/15 CRESTAR INTEGRATED NATURAL RESOURCES LIMITED V THE SHELL PETROLEUM DEVELOPMENT COMPANY OF NIGERIA LIMITED & ORS

(Unreported decision of MB Idris J. on 6 th March, 2015) of an application for stay of the court’s proceedings pending reference to arbitration.

In the CRESTAR case there was an Agreement (the SPA) between Crestar and the three Defendants (Shell, Total and Agip) for the Defendants to assign their 45% undivided participating interest in Oil Mining Lease 25 (OML 25) to Crestar, which contained a Dispute Resolution clause that provided for arbitration in London. A dispute arose between the parties, in respect of the SPA and Crestar approached the Federal High Court seeking several reliefs against the Defendants and also obtained preservatory Orders of injunction against the Defendants. After the Defendants entered appearance in the suit, they filed an Application seeking a stay of the court’s proceedings pending arbitration in London and a discharge of the preservatory Orders of injunction. In the affidavit in support of the Application, the Defendants stated that they were ready and willing to do all things necessary to the proper conduct of the arbitration.

In response to the Defendants’ Application, Crestar contended that, amongst other things, the court ought not to stay its proceedings pending reference to arbitration because the Defendants had fallen short of discharging the burden placed on them by section 5(2)(b) of the ACA, as they hadn’t shown that they were willing and ready to do all things necessary to the proper conduct of the arbitration. In reply to Crestar’s contention and in an aim to fulfil the condition provided in section 5(2)(b) of the ACA, the Defendants wrote a letter to Crestar signifying their intention to commence arbitration against Crestar in respect of the dispute before the court and also stated the name of the arbitrator that they proposed to appoint. The Defendants then introduced this letter signifying their intention to commence arbitration proceedings against Crestar into the court proceedings by attaching it as EXHIBIT KJ6 to their Reply affidavit to Crestar’s Counter-Affidavit to the Defendants’ Application.

In its Ruling, the Federal High Court relied on section 83(3) of the Evidence Act 2011 in holding that the Defendants could not rely on EXHIBIT KJ6 for the purpose of proving that they were willing and ready to do all things necessary to the proper conduct of the arbitration, in satisfaction of section 5(2)(b) of the ACA. For ease of reference, section 83(3) of the evidence Act provides that: “Nothing in this section shall render admissible as evidence any statement made by a person interested at a time when proceedings were pending or anticipated involving a dispute as to any fact which the statement might tend to establish”

In refusing the Defendants’ Application for a stay of the court’s proceedings pending arbitration, the court held that: “It has been argued that exhibit KJ6 is inadmissible in evidence by section 83(3) of the Evidence Act having been made when proceedings are pending…Exhibit KJ6 was clearly made on 20 th February, 2015 during the pendency of the suit, after the suit was commenced and after the present motion for stay of proceedings pending arbitration was filed. The document was made, in my view, in contemplation of this application…In my view, any document whether at an interlocutory stage or at the substantive stage will be inadmissible for the purpose of establishing the fact for which the statement contains if it is made in contemplation of the suit or an application contrary to section 83(3) of the Evidence Act…I hold therefore that Exhibit KJ6 is inadmissible for having been made in contemplation of this application in particular, and the suit in general.”

In terms of practical issues which may arise from an Applicant seeking to fulfil the condition laid down in section 5(2)(b) of the ACA in the context of the decisions of the Court of Appeal in the MV PANORMOS and TRIDENT cases, the decision of the Federal High Court in the CRESTAR case is particularly instructive. The implication of the Federal High Court decision is that an Applicant seeking an order staying court proceedings pending reference to arbitration must show that the evidence of his willingness and readiness to do all things necessary to the proper conduct of the arbitration proceedings must predate his Application to the court for a stay of proceedings pending arbitration, in order to avoid being caught by the provisions of section 83(3) of the Evidence Act. From the CRESTAR case, it is clear that the Defendants’ production of their evidence of their readiness and willingness to do all things necessary to the proper conduct of the arbitration after they had brought their Application for a stay of the court’s proceedings pending arbitration was fatal to the success of the Application.

The Court of Appeal decisions in MV PANORMOS and TRIDENT cases have generally been criticised for imposing on an Applicant for an Order of stay of proceedings pending reference to arbitration, a greater burden than is contemplated by the provisions of section 5(2)(b) of the ACA. The criticism stems particularly from the fact that generally, the current worldwide and indeed Nigerian judicial disposition

to arbitration agreements is the enforcement of such agreements, without much ado. Nevertheless, at this point, pending any pronouncement of the Supreme Court to the Contrary, the decisions of the Court of Appeal in the MV PANORMOS and TRIDENT cases remains the law, with respect to section 5(2)(b) of the ACA. Also, the decision of the Federal High Court in the CRESTAR case is an important, in terms of an Applicant navigating through the obstacles of section 5(2)(b) of the ACA, the decisions of the Court of Appeal in the MV PANORMOS and TRIDENT cases and section 83(3) of the Evidence Act in his bid to obtain an Order of staying court proceedings pending arbitration.

MOFESOMO TAYO-OYETIBO1

1 MOFESOMO TAYO-OYETIBO is of the Commercial Law Practice Group at the Law Firm of Tayo Oyetibo & Co.