Client Update – Nigerian Supreme Court Takes a Pro-Business and Arbitration Stance

Introduction

Recently, the Nigerian Supreme Court had the opportunity of deciding important legal issues with transactional implications for corporate practice and the enforcement of arbitral agreement in Nigeria.

In its 2024 decision in Attorney General Bayelsa State v. Odok[1] the Supreme Court confirmed that law firms and other businesses registered as business names have the capacity to enter into contracts in their registered names. The Court further held that an arbitral award is regarded as a final and conclusive judgment on all matters referred, and that the Courts are enjoined, as far as possible, to uphold and enforce arbitral awards, having regard to the fact that it is a mode of dispute resolution voluntarily agreed upon by the parties. 

The summary of the facts of the case and the decision of the court containing the relevant ratio decidendi are as follows -

Relevant Facts

On August 25, 2011, the Respondent, acting as a legal practitioner and in the name and style of his registered business, entered into a Consultancy Agreement with the Bayelsa State Government of Nigeria for the recovery of funds owed to the State by various Federal Government agencies. An addendum to the Agreement was subsequently executed on September 15, 2011.

Pursuant to the agreement, the Respondent successfully recovered the sum of N18,705,308,094.83, entitling him to a consultancy fee of 15%, amounting to N2,820,796,214.22. However, the Bayelsa State Government refused to pay the agreed consultancy fee. In response, the Respondent invoked the arbitration clause in the Agreement and initiated arbitration proceedings.

Despite the Appellant’s initial participation in the arbitration, it refused to comply with the arbitral award, which was issued in the Respondent’s favor. Consequently, the Respondent sought enforcement of the award at the High Court of the Federal Capital Territory (FCT). The Appellant persistently employed delay tactics, filing multiple applications at both the FCT High Court and the Bayelsa State High Court in an attempt to frustrate enforcement.

After the FCT High Court dismissed the Appellant’s objections and upheld the arbitral award, the Appellant appealed to the Court of Appeal, which also dismissed the appeal. Undeterred, the Appellant further appealed to the Supreme Court, now contending that a business name lacks the legal capacity to enter into a contract, rendering the Consultancy Agreement—under which the government had benefited to the tune of N18,705,308,094.83—null and void.

Decision of the Court

The Supreme Court dismissed the appeal. Significantly, in a well-considered judgement handed down by the Court, detailed ratio decidendi (legal reasonings) on the primary legal issues submitted by the parties were given-

i)                  Whether a contract executed under a business name is enforceable?

The Supreme Court answered in the affirmative (Yes) and held that a contract entered under a business name is binding and enforceable, provided the true legal entity behind the business name is identifiable.

In the Lead Judgment, the Learned Jurist of the Supreme Court opined that “… I have failed to find the principle that a law firm registered as a business name cannot carry on business. As the name implies and as defined under Section 588 of the Companies and Allied Matters Act (CAMA) (now Section 868 (1) of CAMA 2020), a "business name" is the name under which "any business is carried on", either by an individual, firm or corporation. Business is carried on by agreements. The day-to-day transactions of a law firm is to accept briefs from clients and get paid for its legal services rendered. Is each of those briefs not a contract? Of course it is! To be frank, appellant's contention does not hold water and by prudence it is not expected to be argued among learned counsel."

ii)               whether an arbitral award which is founded on an arbitration agreement which is purportedly not recognizable in law can be validly recognized and enforced by the Court?

The Court held that Learned counsel must be aware that arbitration proceedings are sui generis and instituting an action for breach of contract before the trial Court is not the same as instituting an action for the enforcement and recognition of an arbitral award. An arbitral award is regarded as a final and conclusive judgment on all matters referred, and the Courts are enjoined, as far as possible, to uphold and enforce arbitral awards, having regard to the fact that it is a mode of dispute resolution voluntarily agreed upon by the parties.

The Supreme Court further held that a party who willingly participate in an arbitration and obtain an award, cannot subsequently challenge the validity of the underlying contract to evade compliance. Specifically, the Court held that "...it is now settled that a party who has taken benefit of an agreement or contract cannot turn around to challenge the validity of the same contract when it is time for him to perform his duties thereunder.”

Conclusion

This decision has significant implications for businesses or contracts involving an individual, firm or a corporation or tier of governments. This is also in addition to the pro-arbitration stance espoused by the Nigerian Supreme Court. Identifiable salient points deserving of note by the business community are-

        i.            Contracts under business names are enforceable – sole proprietors or professionals (legal practitioners, accountants etc.) operating under a business name can confidently enter contracts without fear of non-enforcement. Evidently, there are ample examples in service contracts for law firms such as bank accounts, office lease agreements and online research platform subscription agreements with service providers.

     ii.            The legal requirements of mandatory signing and use of NBA stamp by a legal practitioner is mainly for court processes intended for filing in a Nigerian Court and the franking of special transactional and legal documents as stipulated by the Nigerian Legal Practitioners Act

   iii.            Arbitral agreements and awards must be respected. Parties cannot selectively participate in arbitration and later challenge the validity of the main contract and arbitral agreement simply to evade payment.

   iv.            Government entities or state actors and their agents must honor contracts voluntarily entered and perform contractual obligations. It is important that frivolous litigation tactics are avoided to preserve the sanctity of contract, non-performance by a party or delayed enforcement.

QUALIFICATIONS AND DISCLAIMERS: This Publication of the law firm of NWOYE (Barristers & Solicitors) is prepared strictly for informational purposes. It should not be relied upon or serve as a substitute for proper legal advice. Legal Counsel will not be held liable for any action or inaction that is premised strictly on this paper. 

For Further Information, Please Contact –

1.   Mr. Ikemefuna Stephen Nwoye – Lead Partner  

2.  Mr. Bernard Onyeachonam Omeji – Associate Partner    

3.  Miss Similoluwa Bolarinwa Adekanye – Legal Associate

[1] A decision of the Supreme Court of Nigeria delivered on 10th May 2024 and recently reported at (2024) LPELR – 63035 (SC).