It takes two to tango!

An arbitrator is a neutral arbiter consensually appointed by disputing parties to help resolve their dispute. However, the process of appointment of the arbitrator (particularly a Sole Arbitrator) may run into stormy waters where the Respondent refuses to participate or cooperate in the process of selecting and appointing an arbitrator. In such circumstances, would the Claimant be justified to unilaterally appoint a Sole Arbitrator in order to save the arbitration process from getting bogged down? This was the question that the Court of Appeal had to deal with in the case of Campagnie Generale De Geophysique v. Jackson Etuk [2004] 1 NWLR (Pt. 853) 20.

Facts

The appellant/tenant and respondent/landlord entered into a tenancy agreement for a two year lease of the respondent’s property to the appellant. The tenancy agreement provided that all disputes arising out of the agreement must be referred to arbitration comprising of two (2) independent estate valuers, to be agreed by the parties. After the tenant gave up possession of the premises, a dispute arose between the parties as to the costs of repairing the premises. The landlord employed an independent valuer who estimated the cost of rehabilitation in the sum of N104,038.60. Thereupon, the landlord filed an action at the High Court of Akwa-Ibom State claiming the cost of rehabilitation as well as monetary damages for breach of tenancy agreement. The tenant entered a conditional appearance, and filed a motion for stay of proceedings pending arbitration in accordance with Tenancy Agreement. The court granted the application and referred the parties to arbitration.

The landlord appointed an arbitrator. In reaction, the tenant appointed its arbitrator and rejected the landlord’s choice of arbitrator. The landlord thereafter substituted a fresh candidate for its choice of arbitrator and rejected the tenant’s choice of arbitrator. The tenant did not respond, or appoint a new arbitrator. After a month of inactivity, the landlord sent a letter to demand that the tenant should appoint its arbitrator within seven days or risk default proceedings. The tenant failed to respond. Accordingly, the landlord appointed its arbitrator as Sole Arbitrator. The Sole Arbitrator called upon the parties to make representations, but the tenant failed to respond. Eventually, the Sole Arbitrator rendered an award against the tenant in the of N198,700.00.

The landlord filed an application to enforce the arbitral award. In response, the tenant filed an application to set aside the award, on the ground that the arbitration was convened and conducted in a manner that is contrary to the law. The two applications were heard together, and in its ruling the trial court granted the landlord’s application to enforce the award, and dismissed the tenant’s application to set aside the award. Dissatisfied, the tenant appealed.

Appeal

On appeal, the major contention between the parties was whether the landlord was right in the circumstances of the case to have unilaterally appointed a Sole Arbitrator.

The tenant/appellant argued that although the Arbitration and Conciliation Act (“ACA”) does not make provision for appointment of two arbitrators, the situation could be regulated by section 7(2)(a)(i) of the ACA which provides for the recourse to court where a party fails to appoint a second arbitrator in the case of three arbitrators. It further contended that the unilateral appointment of a sole arbitrator was improper as it was made without recourse to the court.

The landlord/respondent on the other hand contended that the applicable law is the Arbitration Law of Cross River State which specifically provides for two arbitrators, and further that by virtue of Section 7(1)(b), a party is entitled to appoint a sole arbitrator if after seven day notice, the other party refuses or neglects to appoint the second arbitrator. As such, no recourse to the court was required.

Decision

The Court of Appeal applied the legal doctrine of covering the field to hold that the applicable law is the Arbitration and Conciliation Act, as it is a federal enactment which covered the entire spectrum of arbitration and conciliation and applied to all states of the Federation. Thus, the ACA prevailed over the Arbitration Law of Cross River state, and that Section 7(2)(b) of the ACA which relates to the procedure appointment of a sole arbitrator can be stretched to apply to a case of two arbitrators. The Court then chastised the landlord:

In the instant case, it cannot be assumed that by the appointment of the sole arbitrator the independence and impartiality of the sole arbitrator would be guaranteed.  The unilateral appointment of the sole arbitrator by the respondent can be likened to one being a Judge in his own cause. The likelihood of bias on the part of the sole arbitrator could not be ruled out. Consequently, the respondent in my view, acted improperly and unreasonably in the circumstances by appointing a sole arbitrator without recourse to the court. Therefore, the unilateral appointment of the sole arbitrator by the respondent is invalid.

Comment

Whilst the basis of the Court of Appeal’s decision to apply the doctrine of covering the field to arbitration, a subject matter which is neither on the Nigerian Constitution’s exclusive or concurrent list may be debated; the court’s reasoning for rejecting the notion that a party may proceed to unilaterally appoint a Sole Arbitrator is impeccable. Clearly, it is important that the independence and impartially of arbitrators should be maintained in order to confer credibility upon arbitral awards.  It cannot be assumed that such credibility will be guaranteed if a party is allowed to unilaterally appoint a sole arbitrator, rather than resort to the courts which are in a more neutral and objective position to appoint an independent arbitrator.

Ideally, where a Sole Arbitrator is to be appointed under an arbitration clause, the clause should specify an appointing authority to deal with a deadlock situation where the parties cannot agree on the choice of arbiter. Where an appointing authority was not agreed upon, wisdom dictates that such issues should be referred to the court.

Kolawole Mayomi

*Arbitral Review is published every fortnight in LEGALBUSINESS. The Column highlights topical issues, pitfalls and developments relating to the law and practice of commercial arbitration. Feedback and comments are welcome at: kmayomi@spaajibade.com