A simple clause can profoundly shape the trajectory of commercial relationships. A single paragraph that can redirect an entire dispute from the meeting room to the courtroom; “the arbitration clause”. This clause is a jurisdictional pivot with profound implications for cost, speed, and finality.
Arbitration is the method of dispute resolution involving one or more neutral third parties who are usually agreed to by the disputing parties and whose decision is binding[1]An arbitration is the reference of a dispute or difference between not less than two parties for determination, after hearing both sides in a judicial manner, by a person or persons other than a court of competent jurisdiction. Although an arbitration agreement may relate to present or future differences, an arbitration is the reference of actual matters in controversy.
Arbitration clause denotes a contractual provision contained in an agreement mandating arbitration of disputes regarding the respective parties’ rights, duties and liabilities[2].When parties enter into an agreement which contains an arbitration clause, they must first resort to arbitration before trial in a court of law. Thus, it is natural for the defendant in such circumstance, where the other party has filed a suit, to apply to the trial court for stay of proceedings pending arbitration.
THE ARBITRATION AND MEDIATION ACT 2023
Let us begin where every Nigerian arbitration journey must: the Arbitration and Mediation Act 2023 (AMA), which repealed the antiquated Arbitration and Conciliation Act (Cap A18, LFN 2004) and ushered in a regime that consciously mirrors the UNCITRAL Model Law while retaining distinctly Nigerian contours.
Section 3 of the AMA 2023 declares arbitration agreements to be “irrevocable except by agreement of the parties or by leave of court.” This is no mere flourish. It elevates the clause to a species of statutory immutability, binding even where the underlying contract is voidable for fraud, duress, or misrepresentation, provided the arbitration clause itself is untainted.
Under the Section 5 of the AMA 2023, an application for stay of proceedings pending arbitration is mandatory if:
- The action is brought in respect of a matter agreed to be referred to arbitration;
- The application is made by a party to the arbitration agreement before delivering any pleading or taking any other step in the proceedings; and
- The applicant is ready and willing to arbitrate.
ARBITRABILITY
Arbitrability is a fundamental concept in arbitration law that indicates whether a dispute is capable of being settled by arbitration. It relates to the jurisdiction of an Arbitral Tribunal to act upon a matter. Section 1 (5) of the Arbitration and Mediation Act 2023 (AMA) provides that arbitration provisions apply to disputes that are commercial in nature. Section 91 of the AMA, broadly defines the term “commercial” to include:
“matters arising from all relationships of a commercial nature whether commercial or not, such as any trade transaction for the supply or exchange of goods or services, distribution agreement, commercial representation or agency, factoring, leasing, construction works, consulting, engineering, licensing, investment, financing, banking, insurance, exploitation agreement or concession, joint venture and other forms of industrial or business co-operation, carriage of goods or passengers by air, sea, rail or road;
By implication, disputes concerning contracts, corporate governance, employment (excluding statutory employment), intellectual property, real estate, banking, and insurance are typically arbitrable. the Supreme Court of Nigeria held that disputes must be civilly justiciable to qualify for arbitration. [3]
An Arbitration clause ensures that arbitration is first explored before recourse to litigation. This allows parties to enjoy the vast benefits of arbitration over litigation, which include: Private resolution of disputes unlike the open court system available in Nigeria, parties can agree on the Arbitrator of their choice and this gives more confidence in his/her impartiality and experts knowledgeable in the subject matter can be carefully selected. The parties to an agreement include an arbitration clause to avoid litigation and resolve their dispute through arbitration to obtain a fair, consensual and non-hostile resolution of disputes by an impartial third party without unnecessary expense and delay[4].
The separability doctrine treats the arbitration clause as a distinct agreement, surviving the invalidity of the main contract. Drafters must therefore isolate the clause with precision, often placing it in a standalone schedule titled “Dispute Resolution” and cross-referencing it explicitly. By virtue of the doctrine of separability; whether in a clause or separate agreement, it is deemed a separate agreement and enforceable even if the rest of the part of the agreement on which arbitration clause is inserted is declared invalid.
GROUNDS FOR CHALLENGING ENFORCEABILITY:
A party resisting arbitration typically invokes Section 5 AMA; the court may decline a stay if the agreement is:
- Null and void: fraud, forgery, illegality.
- Inoperative: terminated by mutual agreement, waiver, or repudiation accepted by the other side.
- Incapable of being performed: death of a named arbitrator with no substitution mechanism, or a seat rendered inaccessible by war.
CONCLUSION:
An arbitration clause is not a mere exit ramp; it is a covenant of civility in a landscape of commercial combat. Nigerian law, through the AMA 2023, has furnished the architecture for its enforceability: separability, arbitrability, and judicial restraint. Yet architecture without craftsmanship collapses. The clause that survives judicial scrutiny is the one drafted with foresight, anchored in statute, and insulated from the frailties of the host contract.
Arbitrators, mediators, and counsel do not merely interpret these clauses; they breathe life into the promise that disputes can be resolved with dignity, dispatch, and finality. The attitude of the court towards arbitration and arbitration clauses is to enforce same and to hold parties bound to agreement voluntarily entered into by them[5]
