When an Arbitral Award can be set aside under Nigerian Law
The High Court within the jurisdiction where a final arbitral award was made is statutorily empowered by virtue of the provisions of sections 29, 30 and 48 of the Arbitration and Conciliation Act (the “Act”) and section 55 of the Lagos State Arbitration Law (the “Law”) to set aside such arbitral award on the basis of an application brought by a party aggrieved by it.[ii]
It is noteworthy to mention that the provisions of sections 29 and 30 of the Act relate to the setting aside of arbitral Award in domestic arbitration, while section 48 which is contained in part III of the Act applies solely to international commercial arbitration and conciliation. It is also important to state that the provisions of section 55 of the Law is a replication of section 48 of the Act and this in essence brings the application of section 48 of the Act to use in the local domain (arbitrations conducted within Lagos State).[iii] Essentially, the statutory provisions raise several grounds under which an award can be set aside. The grounds include:
- Scope of submission to arbitration.
- Misconduct of the arbitrator.
- Grounds contained in the provisions of section 48.
The grounds covered in paragraphs (a) and (b) are traceable sections 29 and 30 of the Act respectively, while grounds contained in paragraphs (c) are traceable to section 48 of the Act. The enumerated the grounds set out above will be considered seriatim.
Scope of submission to arbitration
As required by section 29 the Act, an applicant who seeks to set aside an arbitral award on the ground that the award exceeds the scope of submission to arbitration must be able to furnish proof that the award contains decisions on matters which are beyond the scope of the submission to arbitration. Where this condition is satisfied, and the matters submitted to arbitration can be separated from those not submitted, then the part of the award which contains decisions on matters not submitted to arbitration may be set aside. In B.C.C. Ltd v. Imani & Sons Ltd & Shell Trustees Ltd[iv], the Supreme Court Per. Akintan JSC stated the position of the law as follows:
“By section 29 (1) (a) of Arbitration and Conciliation Act, Cap. 19, Laws of the Federation of Nigeria 1990, a party who is aggrieved by an arbitral award may within three months- (a) from the date of the award by way of an application for setting aside, request the court to set aside the award.”
It is therefore the case that when an arbitrator makes an order which is outside the scope of matters submitted to him or which the parties have not asked him to arbitrate upon, the arbitrator can be said to have acted beyond the scope of his power and function and an applicant can competently bring an application to set aside part of the award as may be affected. The application for setting aside is made to the court by Originating Summons.
Misconduct of the arbitrator
The provision of section 30 of the Act which identifies misconduct of an arbitrator as a ground for setting aside an arbitral award pertains to domestic commercial arbitration. Apparently, this ground enjoys wide patronage because categories of satiations and conditions that ground misconduct of an arbitrator are not closed. The flexibility of the term “misconduct” makes it difficult for it to be given a restrictive interpretation. However, in the case of Taylor Woodrow (Nig.) Ltd. v. S.E. GMBH Ltd.[vi] the Supreme Court at pages 141 -143 quoted and adopted with approval the reasoning of the learned authors of Halsbury’s Laws of England[vii] what may constitute misconduct. Although the learned authors made the point that it is difficult to give an exhaustive definition of what may amount to misconduct on the part of an arbitrator or umpire. They nonetheless pointed out that the expression includes on the other hand what amounts to misconduct by general standard i.e., bribery or corruption, and on the other hand mere ‘technical’ misconduct, such as making a mere mistake as to the scope of the authority conferred by the agreement of reference”. The learned authors proceeded to give ten examples of misconduct as follows:
- If the arbitrator or umpire fails to decide all the matters which were referred to him;
- If by his award the arbitrator or umpire purports to decide matters which have not in fact been included in the agreement of reference; for example, where the arbitrator construed the lease (wrongly) instead of determining the rental and the value of buildings to be maintained on the land; or where the award contains unauthorized directions to the parties; or where the arbitrator has power to direct what shall be done but his directions affect the interests of third persons; or where he decided as to the parties’ rights, not under the contract upon which the arbitration had proceeded, but under another contract;[viii]
- If the award is inconsistent, or is ambiguous; or even if there is some mistake of fact, although in that case the mistake must be either admitted or at least be clear beyond any reasonable doubt;[ix]
- If there has been irregularity in the proceedings, as, for example, where the arbitrator failed to give the parties notice of the time and place of meeting, or where the agreement required the evidence to be taken orally and the arbitrator received affidavits, or where the arbitrator refused to hear the evidence of a material witness, or where the examination of witnesses was taken out of the parties’ hands, or where the arbitrator failed to have foreign documents translated or where, the reference being to two or more arbitrators, they did not act together, or where the umpire, after hearing evidence from both arbitrators received further evidence from one without informing or hearing the other, or where the umpire attended the deliberations of the appeal board reviewing his award:
- If the arbitrator or umpire has failed to act fairly towards both parties, as, for example, by hearing one party but refusing to hear the other, or by deciding in default of defence without clear warning, or by taking instructions from or taking with one party in the: absence of the other or by talking evidence in the absence of one party or both parties, or by failing to give a party the opportunity of considering the other party’s evidence, or by using knowledge he has acquired in a different capacity in such a way as to influence his decision or the course of the proceedings, or by making his award without hearing witnesses whom he has promised to hear, or by deciding the case on a point not put to the parties:
- If the arbitrator or umpire refuses to state a special case himself or allow an opportunity of applying to the court for an order directing the statement of a special case;
- If the arbitrator or umpire delegates any part of his authority, whether to a stranger or to one of the parties, or even to a co-arbitrator;
- If the arbitrator or umpire accepts the hospitality of one of the parties, being hospitality offered with the intention of influencing his decision;
- If the arbitrator or umpire acquires an interest in the subject matter of the reference, or is otherwise an interested party;
- If the arbitrator or umpire takes a bribe from either party.
Where an arbitrator’s act can be traced to any of the foregoing, it can be said that the arbitrator or umpire has misconducted himself, and the court has power to set aside the award.” The proposition that the award of an arbitrator can be set aside on the ground of misconduct is further strengthened by the case of T.E.S.T Inc. v. Chevron (Nig.) Ltd[x] where the Court of Appeal stated the position of the law as follows:
“By section 30 of the Arbitration and Conciliation Act, Cap A18 Laws of the Federation of Nigeria, 2004 where an arbitrator has misconducted himself or where the arbitral proceedings or award has been improperly procured, the court may on the application of a party set aside the award. An arbitrator who has misconducted himself may on the application of any party be removed by the court.” (Emphasis supplied).
Aside the grounds enumerated above, J. Olakunle Orojo and M. Ayodele Ajomo, celebrated authors of the book titled “Law and Practice of Arbitration and Conciliation in Nigeria” have identified other examples that may amount to misconduct.[xi] They are as follows:
- Failure to be impartial or honest
- Failure to make an award in proper form
- Error of law on the face of the award
- Failure to award interest
- Proceeding with illegal contract.
Setting aside under section 48
It is important to state that section 48 of the Act is derived from Article 34 of the UNCITRAL Model Law. Although this section relates to international commercial arbitration, however, by virtue of the adoption and or replication of the provisions of section 55 of the Arbitration Law of Lagos State, the model becomes prominent and relevant in the domestic domain. Section 48 provides for nine circumstances under which an award may be set aside and the onus is on the applicant to furnish proof of any of the circumstances he intends to rely upon in other to succeed in his application to set aside an award. For ease of reference, section 48 of the Act provides as follows:
If the party making the application furnishes proof –
- that a party to the arbitration agreement was under some incapacity,
- that the arbitration agreement is not valid under the law which the parties have indicated should be applied, or failing such indication, that the arbitration agreement is not valid under the laws of Nigeria,
- that he was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise not able to present his case, or
- that the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or
- that the award contains decisions on matters which are beyond the scope of the submission to arbitration, so however that if the decisions on matters submitted to arbitration can be separated from those not submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside, or
- that the composition of the arbitral tribunal, or the arbitral procedure, was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Act from which the parties cannot derogate, or
- where there is no agreement between the parties under subparagraph of this paragraph, that the composition of the arbitral tribunal or the arbitral procedure was in accordance with this Act; or
- if the court finds –
- that the subject matter of the dispute is not capable of settlement by arbitration under the laws of Nigeria, or
- That the award is against public policy of Nigeria.
Before addressing the outlined circumstances, it is important to note that the first seven circumstances require the applicant to furnish proof of facts alleged. With respect to the last two, there must be finding of fact by the court.[xii] We will now address each of the circumstances.
Incapacity of one of the parties
This circumstance has its root in section 48 (a) (i) of the Act and it means incapacity at law. Thus if one of the parties is incapable by reason of age, mental condition or other legal requirement, the award may be set aside.
Invalidity of the arbitration agreement
Where the parties have agreed that the law of a particular country shall apply to the arbitration, it is presumably on the basis that the agreement is valid under the law of that country. If it turns out not to be so, then one of the parties can apply to set aside an award made on the basis of the agreement.[xiii]
Notice of the appointment of an arbitrator
This circumstance touches on the fundamental right of fair hearing of the parties and it relates to the fairness, equity and justice of the arbitral process. The Act requires that proper notice of the appointment of an arbitrator should be given to the other party. Furthermore, the Act requires that parties should be given adequate opportunity to present their respective cases, otherwise an award based on such proceedings may be set aside.
It must be noted however that where a party by his own consent or acquiescence adopts a procedure that denies him of fair hearing, he cannot afterwards complain. In the case of NNPC v. Kilfco[xiv] it was agreed by counsel that the reference would be decided on the documents which were submitted to the panel and there would be no oral hearing. During the proceeding, the panel realized that the respondent’s claim before the court was in a confused state and called the respondent to provide clarification, but the appellant was not invited. The appellant complained that the solicitation of evidence of one of the party without allowing the other was a breach of the right to fair hearing, placing reliance on the provisions of section 36 of the 1999 Constitution. The Supreme Court observed that since the appellant did not object to the admission in evidence of the affidavit deposed to by an adverse witness, he cannot be heard on appeal to say that he was denied fair hearing. The Supreme Court further held that the appellant who had acquiesced to that procedure cannot on appeal be heard to complain.
Nature of dispute
This relates to disputes not contemplated by the parties or not falling within the terms of the submission to arbitration.
Scope of matters submitted to arbitration
This circumstance is similar to the provision of section 29 (2) of the Act. Part of an award can be set aside if it is shown by the applicant that the requisite part sought to be set aside was not submitted to arbitration.[xv]
Composition of the Arbitral Tribunal and the arbitral procedure
If the composition of the Tribunal conflicts with the agreement between parties, for instance if two arbitrators were appointed instead of three as stipulated by the agreement, an aggrieved a party may apply to set aside the award published on grounds of improper composition.
Non-existence of agreement between the parties
This is a reverse of paragraph “VI” above.
Subject matter of the dispute
Where an award is made in respect of a subject matter which is not arbitrable, such an award is liable to be set aside by a party affected by it.
An award made in conflict with the public policy of the government or that is illegal or unlawful is liable to be set aside.
[i] Joshua Abe is the Managing Partner and head of Dispute Resolution Practice at CM Advocates Nigeria.
[ii] See T.E.S.T Inc. v. Chevron (Nig.) Ltd (2011) 8 NWLR Pt. 1250 P. 493 para B
[iii] See section 2 of the Lagos State Arbitration Law.
[iv] (2007) ALL FWLR (Pt. 348) 806 at 818 Paras. F – G (SC)
See Law and Practice of Arbitration and Conciliation in Nigeria by J. Olakunle Orojo and M. Ayodele Ajomo page 272.
[vi] (1993) 4 NWLR Pt. 286 pg. 127at 155
[vii] At paragraph 22, 4th Edition, Volume 2 at pages 330-331.
[viii] This example demonstrates the fact that an arbitrator is meant to be guided by the terms of the arbitration agreement between the parties before making an award. In practical terms, this example has formed the basis of the Supreme Court’s decision in the landmark case of Baker Marine (Nig.) Ltd. v. Chevron (Nig.) Ltd (2006) 13 NWLR Pt. 997 Pg. 276. In this case, clause 12.3.5 of the agreement between the parties expressly provided that the arbitral award shall exclude punitive damages, but the Supreme Court noted that the arbitrators as found by the trial court made an award relating to exemplary damages for breach of contract and this formed one of the basis for setting aside the award of the arbitrators. Reacting to the attitude of the arbitrators in this respect, His Lordship, Ogbuagu J.S.C made the following remark: “It is therefore worrisome, disturbing and surprising to me that in spite of their material findings and weighty pronouncements, they with respect, ended up in awarding punitive damages to the appellant.” This case thus underscores the point that an arbitrator while giving his award must have recourse to the agreement between the parties and must not give an award that is prohibited by the agreement between them. Where he does otherwise, the party affected by such award may bring an application to set aside such award.
[ix] This example has also savored judicial consideration by the Supreme Court in the case of Baker Marine (Nig.) Ltd. v. Chevron (Nig.) Ltd (supra). The facts relevant to this point are that the dispute referred to the arbitrators relate to a breach of contract. On completion of the trial, the Tribunal in its decision recognized that the Appellant had proved breached of contract, but had not proved the quantum of damages suffered by the breach of contract and was in the circumstances entitled to only nominal damages for the breach of contract identified, but in the end awarded a lump sum for the for both the breach and the tort of negligence. His Lordship Mukhtar JSC recognized the fact that the Tribunal went contrary when it awarded a lump sum as damages. His Lordship’s reasoning was founded on the Halsbury’s Laws of England 4th Edition (Reissue) volume 12(1), where the learned authors in paragraph 980 reiterated the position of the law on proof of loss on award of damages, thus: “An innocent party who cannot show that he occupies a worse financial position after breach than he would have occupied had the contract been performed can ordinarily recover only nominal damages for breach of contract.” Upon these findings the Supreme Court affirmed the decision of the Trial Court and the Court of Appeal setting aside the award of the Tribunal. Clearly, from the foregoing, where the award of an arbitral Tribunal does not flow from its findings or where the award of the Tribunal is inconsistent with its findings, such inconsistency or error in the face of the award is sufficient to justify a set aside order.
[xi] See pages 280-282 thereof.
[xii] See Law and Practice of Arbitration and Conciliation in Nigeria by J. Olakunle Orojo and M. Ayodele Ajomo page 272.
[xiii] Law and Practice of Arbitration and Conciliation in Nigeria by J. Olakunle Orojo and M. Ayodele Ajomo page 287.
[xiv] (2011) 10 NWLR Pt. 1255
[xv] See T.E.S.T Inc. v. Chevron (Nig.) Ltd (supra).