On 11.11.2024, the Federal High Court, Lagos Judicial Division (FHC), ruled that a court may refer a charterparty matter to arbitration only where a real dispute exists (the Ruling). The Ruling clarifies how arbitration in maritime contracts is triggered. Olaniwun Ajayi LP (the Firm) represents the Plaintiff, Petrolex Oil & Gas Limited, and the Ruling went in the Plaintiff’s favour.
Factual matrix
The Ruling highlights the purpose of an arbitration clause. It lets contracting parties send real disputes under the contract to arbitration. Below, we outline the background of the suit and analyse the Ruling in light of existing case law.
Petrolex Oil & Gas Limited (the Plaintiff) entered a charterparty with Energy Link Infrastructure Limited (the Defendant) dated 01.06.2022 for the hire of eight (8) vessels owned by the Plaintiff (the Vessels) for crude transportation in Alakiri/Bonny Intersection, Rivers State (the Charterparty). Under the Charterparty, the Defendant would pay USD$ 3000 (Three Thousand United States Dollars) per Vessel per day in hire.
The Plaintiff delivered the Vessels to the Defendant and carried out its obligations under the Charterparty. However, the Defendant repeatedly failed to pay the accrued hire on time. So, on 11.10.2022, the Plaintiff notified the Defendant of its defaults. It also said it would suspend performance, withdraw the Vessels and end the Charterparty (the Default Notice).
Despite the Default Notice, the Defendant kept breaching the Charterparty and did not reply. In view of this, the Plaintiff terminated the Charterparty under its terms by a Termination Notice dated 11.10.2022 (the Termination Notice). It also demanded the accrued debt and asked the Defendant to remove its cargo so the Vessels could be redelivered.
Furthermore, by two letters dated 22.11.2024 and 24.01.2023, the Plaintiff demanded the release of the Vessels free of cargo (the Demand Letters). Again, the Defendant neither replied nor released the Vessels.
The suit and the stay application
Thereafter, the Plaintiff sued the Defendant by Writ of Summons (the Suit). In the main, it claimed $4,590,000 (Four Million, Five Hundred and Ninety Thousand United States Dollars). That sum was the total hire for the Vessels for the period the Defendant failed to redeliver them. After being served, the Defendant applied for a stay of proceedings pending arbitration under the Charterparty (the Application). The Plaintiff opposed the Application.
In opposing the Application, the Plaintiff contended that there was no dispute to be referred to arbitration. After all, the Defendant never disputed the Default Notice, the Termination Notice or the Demand Letters. The Plaintiff’s submissions were based on the Supreme Court’s decision in Sakamori Construction (Nig) Ltd v. Lagos State Water Corporation [2022] 5 NWLR (Pt. 1823) 90 at 395-396 paras D-H, There, the apex Court held that parties may only go to arbitration where a dispute exists between them.
Issue for determination
The issue was whether the Defendant had shown enough grounds for the court to grant a stay of proceedings pending arbitration.
Ruling on arbitration in maritime contracts
The FHC considered the arbitration clause and its role as an alternative means of dispute resolution. It held that parties can only resort to arbitration if a real dispute exists.
The FHC agreed with the submissions of the Plaintiff and relied on the Sakamori case and UBA Plc v Trident Consultant Ltd. In those cases, the Supreme Court held that a dispute between the parties activates an arbitration clause. That dispute is what goes to arbitration.
The FHC found that the Defendant’s affidavit admitted its duty to pay for keeping the Vessels past redelivery. In addition, the Defendant produced no documents showing any dispute over the debt. On this basis, the FHC held that no dispute existed to justify arbitration.
Commentary on the decision
The Ruling is laudable because it reaffirms the principle in the Sakamori case on when an arbitration clause applies. As a result, defendants in maritime cases should take care before seeking a stay of proceedings pending arbitration. Clearly, arbitration in maritime contracts applies only where a real dispute exists between the parties. For a related Supreme Court decision, see Sanctity Over Subterfuge: Supreme Court Affirms Arbitral Awards Against Illegality Claim. To read the full case alert, use the download button above.