WHETHER FILING OF STATEMENT OF DEFENCE TRANSLATES TO DEFENDANT WAIVING HIS RIGHT TO INVOKE ARBITRATION CLAUSE

An Arbitration Clause is a provision in a contract requiring parties to resolve any future disputes through a private arbitrator or panel of arbitrators, rather than through a traditional lawsuit in a court (litigation). Even where there is an ongoing lawsuit in court and a defendant has filed his statement of defence, it does not waive his right to invoke an existing arbitration clause.


It is a trite principle of law that when parties entered into a contract, they are bound by the terms and clauses contained therein. Thus, where parties agree to include an arbitration clause in their contract, such agreement is enforceable and binding on them. It is also a well-established principle of procedural law that once a claimant serves their Statement of Claim, the defendant is naturally required to file a Statement of Defense to protect their interests. However, a crucial question arises where the contract between the parties contains an arbitration clause: Does the act of filing a Statement of Defence amount to a waiver of the defendant’s right to rely on arbitration? This is the central principle explored in the landmark case of Sakamori Construction Nigeria Limited v. Lagos State Water Corporation (2022) 5 NWLR (pt. 1823) 339. 


The simple fact leading to the instant legal poser is that: 

In 1994, the appellant entered into a contract with the respondent under which the appellant was to supply and lay secondary and tertiary work systems under the respondent’s water supply expansion programme. In February 1999, the appellant completely fulfilled its obligations under the contract by completing the execution of the project and maintaining it for twelve months following the completion.


In compliance with the terms of the contract and the custom of the construction industry, the appellant presented invoices demanding payment at different stages of completion of the contract. At the final completion of the project, the appellant presented its final invoice for the sum of ₦37,330,109.07 and $3,859,460.07 for payment and demanded to be paid the sums. At 31/10/2001, the debt, converted to and aggregated in naira, stood at ₦462,068,741.92.

The respondent did not dispute the debt. It acknowledged and admitted the indebtedness by its letters dated 8/1/2002, 16/5/2005, and 24/12/2007. However, the respondent refused to pay the contract sum after several demands from the appellant for payment. 
In the agreement between the parties, an arbitration clause provided that in the event of a dispute between them in connection with or arising out of the contract or the execution of their works, whether during or after completion and whether before or after termination, abandonment or breach of the contract, the dispute shall, in the first instance, be referred to and settled by “the Engineer”.


The appellant instituted an action against the respondent at the High Court of Lagos State claiming the sum of ₦462,068,741.92, interest on the sum and cost of the action. Upon being served the appellant’s originating processes and the motion on notice, the respondent did not enter appearance or respond to the originating processes. The appellant prayed for the contract sum with pre and post judgment interest and filed an application for summary judgment. After the application for summary judgment was heard and reserved for ruling, the respondent filed a motion for stay of proceedings.


The trial court dismissed respondent’s application for stay of proceedings and granted the appellant’s claims. Dissatisfied, the respondent appealed to the Court of Appeal, where the appeal was allowed on grounds that the trial court lacked jurisdiction to determine the action on account of the arbitration clause in the contract. Also dissatisfied, the appellant appealed to the Supreme Court.


From the facts stated above, one might be inclined to argue that the defendant’s failure to file a statement of defense at the trial court was a strategic decision that preserved his right to rely on the arbitration clause. However, before reaching a conclusion on the correctness or otherwise of that position, it is necessary to consider the stance of the Supreme Court on whether the filing of a statement of defense by a defendant translate to a waiver of the right to invoke arbitration proceedings.


The Supreme Court, in resolving the contention of the appellant against the respondent, stated that:

A defendant does not waive his right to invoke an arbitration clause by filing a statement of defence. This is in view of Order 22 rule 2(1) of the High Court of Lagos State (Civil Procedure) Rules 2004 which permits any party to raise any point of law in his pleadings which the court may dispose of before or at the trial. The rule does not in any way contradict the clear and unambiguous provision of section 5 of the Arbitration and Conciliation Act. In essence, no demurrer of any guise is permitted under the Rules. [Disu v. Ajilowura (2001) 4 NWLR(Pt. 702) 76 referred to.] (Pp. 380, paras. D-E; 399-400, paras. G-C)


The Supreme Court of Nigeria, while considering this issue, held that filing a statement of defense did not amount to a waiver of right of the defendant to rely on the arbitration clause contained in the agreement. The Court reasoned that by virtue of Order 22 Rule 2(1) of the High Court of Lagos State (Civil Procedure) Rules 2004, a defendant is permitted to raise any point of law in his pleadings which the court may determine either before or during trial. Thus, filing statement of defence gives a defendant the freedom to raise any point of law (like arbitration clause) and it is like utilizing the court rules to challenge it’s jurisdiction over the merit of the case.




About the Author: 
Ummulkhair Adam Abdulaziz is the Research Assistant of the Research and Litigation Directorate, Solace Chambers, Bayero University, Kano. She can be reached via +2347044411140.

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