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SAKAMORI CONSTRUCTION (NIG) LTD V. LAGOS STATE WATER CORPORATION [2021] LPELR-56606(SC)

Facts Of The Case
The Appellant instituted Suit LD/1146/2009 at the High Court of Lagos State in 2009 claiming in the main, the sum of N462,068,741.92 as outstanding payment arising from the contract for supply and laying of secondary and tertiary networks systems, under the Respondent’s water supply expansion programme between 1994 and 1999. The trial Court gave judgment in favour of the Appellant, awarding the sum of N462,068,741.92 and 10% post judgment interest. The Court held that the affidavit evidence and exhibits annexed by the Appellant were not challenged and thus, deemed admitted. The Respondent appealed to the Court of Appeal, which set aside the judgment of the trial Court on the ground that the trial Court had no jurisdiction to entertain the matter, and the parties were referred to arbitration in line with the terms of the contract between them. The Appellant appealed to the Supreme Court

Relevant Issues/Decision Of The Supreme Court
The first issue the Supreme Court considered was whether the Court of Appeal should have made an order referring the parties to arbitration. The Supreme Court held that the dispute which parties to an arbitration agreement consent to refer to an arbitration must consist of justifiable issues triable civilly, and a court or tribunal should only give effect to an arbitration clause where the dispute is unequivocally within the ambit and contemplation of the arbitration clause in question. The Supreme Court found that the arbitration clause stipulated for the “Engineer” to be the settler (arbiter) of dispute between the respective parties, and that this indicates that the dispute envisaged to come under the arbitration clause.

The Supreme Court held that the dispute in the instant appeal which arose from an admitted debt did not fall within the purview of the dispute envisaged under the parties’ arbitration agreement, especially when the debt was consistently acknowledged and admitted by the Respondent. The Supreme Court also held that the order of the Court of Appeal referring the parties to arbitration, a relief the Respondent did not seek, is inconsistent with the principle of law that courts only grant reliefs sought. In summary, the Supreme Court held that the Court of Appeal ought not to have referred parties to arbitration.

The second issue the Supreme Court considered was whether the Court of Appeal was right when it held that the trial Court did not have the jurisdiction to entertain the Appellant’s case. The points of arguments for the Respondent were that the trial Court failed to dispose of the Respondent’s pending preliminary objection challenging the jurisdiction of the trial Court, and the presence of an arbitration clause in the agreement exhibited in the Respondent’s preliminary objection. On the preliminary objection, the Supreme Court found that from the record and by the admission of the Respondent, no such application was pending prior to the delivery of the judgment of the trial Court. On the failure to give effect to the arbitration clause, the Supreme Court found that the Appellant’s claim before the trial Court was essentially a liquidated money demand for a debt which the Respondent acknowledged several times, and that the Appellant’s statement of claim was not premised on any document containing the arbitration agreement. As such the Court of Appeal ought not to have relied on the arbitration agreement to hold that the trial Court lacked the jurisdiction to entertain the Appellant’s claim.

On whether the Respondent ought to have filed a defence and/or counter affidavit to the Appellant’s processes at the trial Court, the Supreme Court held that an agreement to submit disputes to arbitration does not automatically oust the jurisdiction of the court. Thus, where a defendant does not apply for stay of proceedings or the court refuses the stay the court would proceed to entertain the claim. The Supreme Court then held that the action of the Respondent in not filing any processes in response to the Appellant’s originating process and also not responding to the application for summary judgment, only until the day of ruling on the application, was an attempt to frustrate the proceedings of the trial Court. Interestingly, the Supreme Court held that nothing in Order 22 Rule 2(1) of the High Court of Lagos State (Civil Procedure) Rules 2004 (which is in pari materia with Order 24 rule 2(1) of the 2019 Rules) which allows any party to raise a point of law in his pleading, contradicts section 5 of the Arbitration and Conciliation Act which provides for stay of proceedings of a matter the subject of which is a subject matter of an arbitration agreement. Thus, a party could file his defence to an action and raise the existence of an arbitration agreement in the defence.

Brief Comments
The decision of the Supreme Court in this case that failure to pay an admitted liability is not a dispute referrable to arbitration pursuant to an arbitration clause, is a reiteration of the position of the Supreme Court in a line of cases including K.S.U.D.B. v. Fanz Construction Ltd [1990] 4 NWLR (Pt.142) 1 at 33 para B.

The decision on the options available to a defendant in an action filed in breach of an arbitration agreement, will allow parties who seek to stay proceedings pending reference to arbitration, to file their defence pleading the existence of the arbitration agreement, without waiving their right to have the proceedings stayed. This decision is a deviation from the position maintained by the Su preme Court in cases such as Obembe v. Wemabod Estate Ltd [1977] LPELR-2161(SC), 19-20, paras F-C, where the Supreme Court had held that in order to get a stay, a party must not take any step in the proceedings, and that any application at all made to the court, and specifically filing a defence amounts to taking steps in the proceedings.

The decision provides fresh clarity on the steps to be taken by the parties without jeopardising their preference for a staying the court proceedings in aid of arbitration.