Foreign jurisdiction clauses

Author: | Published: 26 May 2017
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Uzoma Azikiwe and Festus Onyia of UUBO review the Nigerian courts’ approach to foreign jurisdiction clauses in commercial contracts

www.uubo.org

The growing trend of foreign jurisdiction clauses

One of the most prevalent concerns of prospective foreign investors in the Nigerian economy is whether Nigerian courts will hold the parties to their agreement and whether Nigerian courts will give effect to their choice of a foreign jurisdiction. This is understandable, given that the predictability and efficiency of a country's legal system is a determining factor for investors, either reducing or increasing the perceived risk of an investment.

There is a growing trend in international contracts, involving foreign counterparties and relating to Nigeria, of choosing a foreign jurisdiction as the venue for the determination of any disputes arising under the contract's law. It is increasingly common – usually at the instance and on the insistence of the foreign counterparties – to encounter foreign jurisdiction clauses in admiralty contracts, international syndicated loan transactions, franchise and distributorship agreements and supply contracts. Generally, foreign counterparties instinctively distrust the home country legal system of their counterparties. In some cases, this could be due to a lack of familiarity with the legal system or perhaps the baseless perception that the courts would favour the local counterparty.

Foreign counterparties, therefore, typically insist on disputes being resolved in the courts of a foreign country; usually a neutral jurisdiction ensuring adjudicative neutrality and a level playing ground. In international loan transactions, for instance, a key consideration for the lenders or syndicate of lenders is the preservation of their option to commence litigation against the borrower in multiple jurisdictions where the borrower may have assets in the event of a default. Consequently, lenders in international loan transactions almost always insist on being able to commence litigation in any foreign jurisdiction where the borrower may have assets that could be attached.

In this article we examine the attitude of Nigerian courts to the choice of foreign jurisdiction in commercial contracts relating to Nigeria.

A case review

Generally, Nigerian courts will, absent any vitiating circumstances, hold parties to their bargain and give effect to or enforce their contractual obligations (for example Sona Breweries v Peters, Owoniboys Technical Services Ltd v UBN Ltd and SE Co v NBCI).

The principles that Nigerian courts will apply when called upon to enforce a choice of jurisdiction agreement were laid down by the Supreme Court of Nigeria in the case of Sonnar (Nig) Ltd v Partenreedri MS Nordwind(the Norwind case). In that case, the plaintiffs, Sonnar and Publico Impex traders, had entered into an agreement with the defendants, namely Partenreedric Nordwind (Germany-based ship owners), Bandridge Shipping Company (the Liberia-based issuer of the Bill of Lading) and Thailand-based Chaiyapon Rice Company. The agreement was to ship 25,322 bags of parboiled long grain rice from Thailand to Nigeria.

Clause 3 of the Bill of Lading provided that:

Any dispute arising under this Bill of Lading shall be decided in the country where the 'carrier' has his principal place of business and the law of such country shall apply except as provided elsewhere herein.


The parties’ choice of jurisdiction is not absolute, as the courts have discretion to decline to give effect to [it]


A dispute arose between the parties arising from non-delivery of the goods and the plaintiffs commenced an action in the Federal High Court in Lagos, Nigeria, claiming general and special damages arising from the breach. The defendants objected to the jurisdiction of the Nigerian court to adjudicate on the matter and contended, relying on clause 3 of the Bill of Lading, that the appropriate venue for any litigation arising under the contract ought to be Germany, not Nigeria. The Federal High Court found that: the Bill of Lading provided that any disputes arising from the Bill should be submitted to the court where the carrier had its principal place of business; the carrier had its principal place of business in Germany; and the dispute arose from the contract comprised in in the Bill of Lading.

Based on this, the court granted the defendants' application for stay of proceedings in the matter. The Court of Appeal affirmed the Federal High Court's decision but upon further appeal, the Supreme Court set aside the decision of the Federal High Court and held that the Federal High Court should determine the matter in view of the peculiar circumstances of the case.

The Supreme Court held that: Nigerian courts would hold parties to their bargain and give effect to their choice of a foreign jurisdiction; the parties' choice of jurisdiction is not absolute, as the courts have discretion to decline to give effect to a stipulation made by the parties in their contract conferring jurisdiction on a foreign court; and the court's discretion will, in the absence of a strong reason to the contrary, be exercised in favour of holding parties to their bargain.

In applying the principles to this case, the Court considered the evidence adduced by the plaintiff, which showed that:

  • The action was commenced in the Nigerian court three days before the expiration of the limitation period of one year, as stipulated in the Hague Rule.
  • The effect of staying proceedings in the matter would be to permanently deprive the plaintiff of the opportunity of litigating the matter in Germany as the cause of action would have become statute barred.
  • Under German law (and based on the opinion of a German law firm presented by the plaintiffs), the owner of the vessel MV Nordwind would not be considered as the carrier.

Based on the special circumstances of this case, the Court ordered that it was appropriate to disregard the parties' choice of a foreign jurisdiction. The Court also approved the test set out in the English case of The Eleftheria, otherwise known as the Brandon Test, to be applied in determining whether or not to give effect to parties' choice of foreign jurisdiction. The tests set out by Brandon J in The Eleftheria, which the Supreme Court approved, are as follows:

(1) Where plaintiffs sue in England in breach of an agreement to refer disputes to a foreign Court, and the defendants apply for a stay, the English Court, assuming the claim to be otherwise within the jurisdiction, is not bound to grant a stay but has a discretion whether to do so or not.

(2) The discretion should be exercised by granting a stay unless strong cause or not doing so is shown.

(3) The burden of proving such strong cause is on the plaintiffs.

(4) In exercising its discretion the Court should take into account all the circumstances of the particular case.

(5) In particular, but without prejudice to (4), the following matters, where they arise, may be properly regarded:

  • in what country the evidence on the issues of fact is situated, or more readily available, and the effect of that on the relative convenience and expense of trial as between the English and foreign Courts;
  • whether the law of the foreign Court applies and, if so, whether it differs from English law in any material respects;
  • with what country either party is connected and how closely;
  • whether the defendants genuinely desire trial in the foreign country, or are only seeking procedural advantages;
  • whether the plaintiffs would be prejudiced by having to sue in the foreign Court because they would:
  • be deprived of security for that claim;
  • be unable to enforce any judgment obtained;
  • be faced with a time-bar not applicable in England; or
  • for political, racial, religious or other reasons be unlikely to get a fair trial.

More than two decades after the Nordwind Case was decided, the Supreme Court was again confronted with the question of whether or not to give effect to a foreign jurisdiction clause in an admiralty matter in the case of Nika Fishing Co Limited v Lavina Corporation. The facts of the case are that a ship named MV Frio Caribic, was chartered to transport a consignment of frozen fish from Mar del Plata in Argentina, to Apapa, Lagos, Nigeria. The ship arrived in Nigeria on December 29 1987 and discharged its cargo. Following a delay by the consignee in taking delivery of the cargo within the time agreed by the parties in the Bill of Lading, the owners of the ship brought an action against the consignee in the Federal High Court in Lagos, Nigeria, claiming the sum of $119,739, incurred as demurrage.

As in the Nordwind case, the Bill of Lading contained a jurisdiction clause which stated that:

"Any dispute arising under this bill of lading shall be decided in the country where the carrier has his principal place of business and the law of such country shall apply except as provided elsewhere herein."


Discretion is exercised in favour of staying proceedings unless the claimant is able to show a strong cause


The charterer, in response, applied to dismiss the suit for want of jurisdiction or stay proceedings on the basis of the foreign jurisdiction clause contained in the Bill of Lading. The Federal High Court refused the application for stay of proceedings on the grounds that justice would be better served by refusing the application than by granting it. The charterers' appeal to the Court of Appeal failed. Upon further appeal to the Supreme Court, the Court set aside the decision of the Federal High Court and ordered a stay of further proceedings in the matter.

In its judgment, the Supreme Court again restated its decision in the Nordwind case that the courts in Nigeria have the discretion as to whether or not to give effect to a choice of foreign jurisdiction clause, and that this discretion must be exercised judicially and judiciously, having regard to all the circumstances of the case.

The Court noted that unlike in the Nordwind case, the charterers had failed to discharge the legal burden placed on them to show a strong cause as to why the proceedings should not be stayed in favour of the foreign jurisdiction clause contained in the Bill of Lading. The Court also noted that the basis on which the Federal High Court refused to stay proceedings (which were that witnesses to prove the case were all in Nigeria and that the goods were delivered in Nigeria), were not based on any evidence presented to the Court, since the charterers did not file any counter affidavit in response to the stay application. The Court held, therefore, that the Federal High Court had failed to exercise its discretion judicially and judiciously.

Legislative intervention in admiralty cases

Prior to the enactment of the Admiralty Jurisdiction Act (AJA), Nigerian courts applied the principles established by the Supreme Court in the Nordwind case, including the Brandon tests, to all categories of cases. However, upon the enactment of the AJA, the discretion previously exercised by Nigerian courts in matters relating to choice of a foreign jurisdiction in admiralty matters was severely whittled down. Section 20 of the AJA provides that "any agreement by any person or party to any cause, matter or action which seeks to oust the jurisdiction of the court shall be null and void, if it relates to any admiralty matter falling under this Act and: if –

(a) the place of performance, execution, delivery, act or default is or takes place in Nigeria; or

(b) any of the parties resides or has resided in Nigeria; or

(c) the payment under the agreement (implied or express) is made or is to be made in Nigeria; or

(d) in any admiralty action or in the case of a maritime lien, the plaintiff submits to the jurisdiction of the Court and makes a declaration to that effect or the rem is within Nigerian jurisdiction; or

(e) it is a case in which the Federal Government or the Government of a State of the Federation is involved and the Government or State submits to the jurisdiction of the Court; or

(f) under any convention, for the time being, in force to which Nigeria is a party, the national court of a contracting State is either mandated or has a discretion to assume jurisdiction; or

(g) in the opinion of the Court, the cause, matter or action should be adjudicated upon in Nigeria.

Following the enactment of the AJA, Nigerian courts would declare as null and void foreign jurisdiction clauses contained in an admiralty contract, if such clause seeks to oust the jurisdiction of the court and if the conditions set out in sub-Paragraphs (a) to (h) of section 20 of the AJA are met.

It should be noted that it is only in paragraph (h) of section 20 that the court is given some discretion whether or not to disregard a foreign jurisdiction clause. In all other cases, as enumerated in paragraphs (a) to (g), the court must disregard the foreign jurisdiction clause and assume jurisdiction.

In the case of Lignes Aeriennes Congolaises v Air Atlantic Nigeria Limited, the aircraft lease agreement between the parties provided that the agreement shall be governed by Congolese 'Positive Law' but the court assumed jurisdiction based on the provisions of section 20 of the AJA and the fact that the aircraft in question was delivered in Nigeria, the defendant was based in Nigeria and the financial consideration for the lease was paid in Nigeria.

Other than in admiralty matters, Nigerian courts have continued to apply the principles laid down by the Supreme Court in the Nordwind case as well as the Brandon tests when called upon to decide whether or not to give effect to a foreign jurisdiction clause in contracts

The Nordwind case and Brandon tests principles prevail in most non-admiralty disputes

Whilst Nigerian courts generally hold contractual parties to their bargain where they have agreed to submit disputes arising from their contractual relationship to the jurisdiction of a foreign court, they do not consider themselves to be inflexibly bound to give effect to a foreign jurisdiction clause in commercial contracts. Rather, the courts do exercise discretion as to whether or not to uphold the agreement. The discretion is exercised in favour of staying proceedings unless the claimant is able to show a strong cause as to why the court should disregard the parties' agreement and assume jurisdiction.

In admiralty matters, however, and pursuant to section 20 of the AJA, the court's discretion has been severely whittled down as they are required to nullify any agreement to oust their jurisdiction in admiralty matters and in specified circumstances.

It is comforting to note that other than in admiralty matters, Nigerian courts have continued to apply the principles laid down by the Supreme Court in the Nordwind case as well as the Brandon tests when called upon to decide whether or not give effect to a foreign jurisdiction clauses in contracts and so the onus is on the party who is suing in Nigeria in breach of a foreign jurisdiction clause to show strong reason(s) why Nigerian courts should assume jurisdiction.

About the author
 

Uzoma Azikiwe
Partner, Udo Udoma & Belo-Osagie

Lagos, Nigeria
T: +234 1 462 2307 / 10
E: uzoma.azikiwe@uubo.org
W: www.uubo.org

Uzoma Azikiwe is a partner and head of the firm's litigation, arbitration and alternative dispute resolution team. He provides advice in maritime, aviation, employment and energy matters.

He trained as an international commercial arbitrator with several organisations, including the International Chamber of Commerce (ICC) Institute of World Business Law, the Chartered Institute of Arbitrators in the UK, the Chartered Institute of Arbitration in Nigeria, and the Chartered Institute of Mediation and Conciliation. He obtained a diploma in international commercial arbitration at St Anne's College, Oxford, and has benefitted from PIDA training in international commercial contracts and training from the Chartered Institute of Taxation of Nigeria.

He has made presentations and given evidence as a legal expert on Nigerian law before various foreign courts. He has published articles on commercial law and presented papers at seminars for various major service companies in the oil industry in Nigeria on employment and labour matters.


About the author
 

Festus Onyia
Managing associate, Udo Udoma & Belo-Osagie

Lagos, Nigeria
T: +234 1 462 2307 / 10
E: festus.onyia@uubo.org
W: www.uubo.org

Festus Onyia is a managing associate at Udo Udoma & Belo-Osagie and is with the firm's litigation and alternative disputes resolutions team. He specialises in commercial and tax litigation and arbitration and has acted for local and international companies in the petroleum, shipping, banking, energy, telecommunications and financial services sectors in complex disputes before various courts and tribunals in Nigeria. He has advised on a variety of Nigerian law issues that arose in arbitral tribunals and courts in the US and the UK. His responsibilities include overseeing the teams that evaluate the litigation portfolios of target companies involved in financings, investments, mergers and acquisitions.

He has attended training on international commercial arbitration at the International Chamber of Commerce (ICC) in Paris, as well as the Chartered Institute of Arbitrators UK. He is currently a member of the International Task Force appointed by the ICC Commission on Arbitration and ADR on the revision of the ICC Rules as Appointing Authority in Uncitral and other Ad Hoc Proceedings. He has contributed articles published in the Global Arbitration Review, Middle Eastern and African Arbitration Review, International Financial Law Review, and Nigerian Tax Law Review, among others.


 


 

 

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