Introduction
The general rule is that where an agreement contains an arbitration clause, the courts shall respect the sanctity of the arbitration clause by staying the court proceedings and referring the parties to resolve their dispute by arbitration. However, the courts will only refer a matter to arbitration in line with the agreement of the parties if there is a real and actual dispute within the meaning of the arbitration clause in the agreement.
In the recent decision of Sembcorp Eng. Pte Ltd -v- IPCO (WA) Holdings Ltd (2024) LPELR-62984 (SC), the Supreme Court of Nigeria had the opportunity to consider whether there was a real dispute between the parties to a contract, thereby warranting the need for the dispute to be referred to arbitration in line with the parties’ contract.
Summary of the Facts in Sembcorp Eng. Pte Ltd -v- IPCO (WA) Holdings Ltd & Anor
The appellant, Sembcorp Eng. Pte Ltd (“Sembcorp”), and the respondents, IPCO (WA) Holdings Ltd and IPCO Nigeria Ltd (“IPCO”), entered into a contract for the supply of various forms of equipment to the respondents. The respondents required the equipment to fulfil their obligations under a contract with the Nigerian National Petroleum Corporation (NNPC). Clause 26 of the contract provides that in the event that any dispute between the parties cannot be settled by negotiations, such dispute shall be referred to and finally settled by arbitration.
Sembcorp supplied some equipment to IPCO, and IPCO refused to pay for it. Accordingly, Sembcorp filed a lawsuit against IPCO claiming the outstanding sum of US$4,733,183.62 (Four Million, Seven Hundred and Thirty-Three Thousand, One Hundred and Eighty-Three US Dollars and Sixty-Two Cents), attributed to change orders, extension of contract time, and telefax charges.
Upon being served with the originating processes, IPCO applied to the trial court to refer the entire dispute to arbitration and for a stay of proceedings, as provided in the contract. Sembcorp immediately filed a counter-application, seeking final judgment for a partial sum of US$837,725 (Eight Hundred and Thirty-Seven Thousand, Seven Hundred and Twenty-Five US Dollars), contending that Sembcorp had admitted owing this amount.
The trial court heard both applications concurrently and ruled that IPCO had indeed admitted its indebtedness of $837,725 (Eight Hundred and Thirty-Seven Thousand, Seven Hundred and Twenty-Five US Dollars), basing its decision on paragraphs 5, 6, and 7 of Semcorp’s affidavit and exhibits A1, A2, and B1-B16. The trial court then entered judgment for $837,725 (Eight Hundred and Thirty-Seven Thousand, Seven Hundred and Twenty-Five US Dollars) and referred the balance of the claim to arbitration.
Dissatisfied, IPCO appealed to the Court of Appeal, arguing that the trial court should have referred the entire dispute to arbitration in accordance with the parties’ agreement, as opposed to delivering its judgment in favour of Sembcorp regarding an aspect of its claim. The Court of Appeal found that the exhibits (A1, A2, B1-B16) contained handwritten figures and cancellations, but no explicit admission by IPCO regarding its alleged indebtedness. It further noted that Sembcorp’s attempt to explain how these documents disclosed an admission was made in their Brief of Argument, not through proper affidavit evidence before the trial court. Consequently, the Court of Appeal allowed the appeal, set aside the trial court’s ruling, and referred the entire claim to arbitration.
Sembcorp appealed to the Supreme Court, and the Supreme Court dismissed the appeal on the ground that Sembcorp was unable to establish that IPCO had admitted its indebtedness of $837,725 (Eight Hundred and Thirty-Seven Thousand, Seven Hundred and Twenty-Five US Dollars) to Sembcorp. Hon. Justice Adamu Jaro, J.S.C., held as follows at Pages 19-20, Para E-A, as follows:
“Despite the favourable disposition of our courts towards arbitration agreements, it must be pointed out that a court will not order arbitration in vacuo. A matter will only be referred to arbitration in line with the agreement of the parties if there is a real and actual dispute within the meaning of the arbitration agreement. Where, for example, there is no dispute within the contemplation of the arbitration agreement or where a party has admitted liability, there will be nothing to refer to arbitration. See Sakamori Construction (Nig) Ltd v. Lagos State Water Corporation (20210 LPELR-56606 (SC), Kano State Urban Development Board v. Fanz Construction Co. Ltd (1990) LPELR-1659 (SC).”
Takeaway from the Supreme Court’s Decision in Sembcorp Eng. Pte Ltd -v- IPCO (WA) Holdings Ltd & Anor
From the Supreme Court’s decision, we can deduce the following:
- The courts will only refer a dispute to arbitration after confirming that there is a real and actual dispute within the meaning of the arbitration agreement.
- Any party that claims that there is an admission by the other party must provide cogent and verifiable evidence to establish the admission; otherwise, the court will refuse their request to determine the dispute based on the alleged admission by the other party.
- Where there is an established admission by the other party, the courts will have the jurisdiction to determine the dispute regardless of the existence of an arbitration clause in the parties’ agreement.
Please note that this article is for general information only. We do not offer it as advice on any particular matter, whether legal, procedural or otherwise. If you have questions about this article, please contact the authors at foa@abdu-salaamabbasandco.com and a.amusan@abdu-salaamabbasandco.com.
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