Arbitration is a process by which disputes or difference between two or more parties as to their mutual legal rights and liabilities is referred to and determined judicially with binding effect by the application of the law by one or more persons (the arbitral tribunal) instead of by a court.
An arbitration agreement is therefore where two or more persons covenant that a dispute or a potential dispute between them shall be resolved and decided in a legally binding way by one or more impartial persons in a judicial manner, upon evidence put before him or them. The agreement is called an arbitration agreement or a submission to an arbitral proceeding when after a dispute has arisen, it is put before such person or persons for decision. The procedure is called arbitration and the decision when made is called an award.
It is apposite to note that arbitration may either be voluntary or compulsory. In other words, it may be by parties’ agreement or by statutes. A voluntary arbitration is by mutual consent of the parties whilst a compulsory arbitration is that which is demanded by the provision of the statute.
2. Meaning and test of ‘dispute’ for purposes of arbitration:
The word dispute means contention, discord, conflict, friction and antagonism. It also implies a conflict or controversy. If there was concord and harmony, then the parties have no valid legal basis to seek a reference to arbitration. Our apex Court has defined dispute to mean “act of arguing against, controversy, debate, contention as to right, claims and the like or on a matter of opinion.”
A matter shall be referred to arbitration when it becomes clear or is to be interpreted to mean that a difference or dispute exists between the contending parties. Therefore, where a party admits liability of an existing debt but simply defaults to pay, or when a cause of action has been extinguished owing to the death of a party embedded in the Latin maxim, actio personalis noritur cum persona, then there is no dispute to arbitrate upon or relevant party to arbitrate with. The conflict which the parties to an arbitration agreement agree to refer to must consists of a justiciable issue triable civilly. A fair test of this is whether the difference can be compromised lawfully by way of accord and satisfaction.
The next step is to determine whether the dispute or difference necessarily arises from or it is connected with the clause contained in the agreement i.e. it falls squarely within the scope of the parties’ agreement. If a party to an agreement has compromised his position by conceding to numerous alternative remedies to the other party, other than resort to arbitration, and by showing an intention to compromise, to an act of the party which he is complaining about, he has, in consequence, robbed himself of competence or premise of referring the subject matter of complaint to arbitration.
3. Arbitrable Disputes:
It is a general perception that any agreement that contains an arbitration clause shows a clear and unmistaken indication that the contract requires the parties to resolve their disputes through an arbitration process. Unarguably, arbitration is generally encouraged in Nigeria in particular and the international community in general because arbitration clauses reduce the court dockets to resolve disputes. Therefore, in keeping with the sanctity of agreements, the law is enthusiastic to ensure the validity of arbitration clauses notwithstanding any apparent inadequacy or lack in the normal formal language with legal contracts.
Hence, once parties covenant in their agreement to resolve their dispute through arbitration and an issue is perceived or is to be interpreted to mean a difference or dispute exists, such dispute shall be referred to arbitration. The difference or dispute must, however, arise from the clauses contained in the agreement i.e. fall within the scope of the parties’ agreement. Therefore, it is not every dispute or difference that can be referred to arbitration. The Disputes must be capable of being disposed of judicially, in a civil form. These disputes include all matters in controversy about any real or personal property, disputes as to whether a contract has been breached by either party thereto, or whether one or both parties have been discharged from performance thereof.
Sections 48 (b) (i) & (ii) and 52 (2) (ii) of the Arbitration and Conciliation Act, CAP A18, Laws of Federal Republic of Nigeria provide that even when an award has been procured and it becomes clear that an agreement on which the arbitral award was premised on arose from an invalid contract or the subject matter of the dispute is not capable of settlement or is contrary to public policy, such an award is bound to be set aside. This, therefore, reinforces the position that the dispute must be capable of settlement before it qualifies as an arbitrable dispute. This is also the same position in international arbitration under Chapter VII, Article 34 (2) b) and Chapter VIII, Article 36 1) a) i) & 1 b) of UNCITRAL Model Law on International Commercial Arbitration 1985 with amendments as adopted in 2006.
4. Matters that cannot be referred to Arbitration:
It is trite that the disputes, which are the subject of an arbitration agreement, must not cover matters, which by the law of the State are not allowed to be settled privately or by arbitration usually because this will be contrary to public policy.
It is manifestly clear that the following categories of matters cannot be the subject of an arbitration agreement as enunciated by the Nigerian Supreme Court and therefore cannot be referred to arbitration: –
- an indictment for an offence of a public nature;
- disputes arising out of an illegal contract;
- disputes arising under agreements that are void as being by way of gaming or wagering;
- disputes leading to a change of status, such as a divorce petition;
- any agreement purporting to give an arbitrator the right to give judgment in Therefore, a criminal matter, like the allegation of fraud does not admit of settlement by arbitration. This is because these issues are a matter of public concern. It is contrary to public policy to compromise such disputes.
Similarly, the Nigerian Court of Appeal has held in two decisions in Esso Petroleum and Production Nigeria Ltd & Anor. (SNEPCO) vs. NNPC unreported Appeal No. CA/A/507/2012; delivered on 22 July 2016 and Shell (Nig.) Exploration and Production Ltd & 3 others vs. Federal Inland Revenue Service unreported Appeal No. CA/A/208/2012; delivered on 31 August 2016 that tax disputes arising from a Production Sharing Contract (PSC) are not arbitrable because the subject matter of the dispute is within the exclusive jurisdiction of the Federal High Court. The rationale for the above decisions seems to appear that it may be contrary to public policy to compromise the revenues due and payable to the government. These decisions are currently subject of appeals to the final Court in Nigeria. Until then, they remain the authority that tax disputes are not arbitrable.
It is pertinent to note that by the provisions of Section 2 of the Arbitration and Conciliation Act 1988 (ACA). (Cap A18 Laws of the Federation of Nigeria 2004) an
arbitration agreement shall be irrevocable except by agreement of the parties, or by leave of Court, or a Judge. Consequently, the mere fact that parties agree to proceed to arbitration once there is a dispute does not ipso facto make the agreement to arbitrate irrevocable because not all disputes are arbitrable. The disputes must be triable civilly. It should not be illegal or tainted with a crime or fraud.
However, it is worthy of mention that the right to go for arbitration is a personal right. It is not a constitutional right. Therefore, it can be waived by either of the parties to the agreement expressly or by contract, more particularly where the two contending parties submit their disputes to Court for determination.
 Miss Nigeria –v- Oyedale (1960) NCLR 191
 C. N. Onuselogu Enterprises Ltd. -v- Afribank (Nigeria) Plc. (2005) 12 NWLR (Pt. 940) 577
 Plateau State & Anor. v. AG Federation & Anor.(2006) LPELR-2921(SC)
 Chief Felix K. Ogunwale v. Syrian Arab Republic (2002) 9 NWLR (Pt. 771) 127
 United World Ltd Inc. –v- MTS Ltd (1998) 10 NWLR (Pt.568) 106.
 BCC Tropical Nigeria Ltd. v. The Government of Yobe State of Nigeria & Anor. (2011) LPELR-9230 (CA).
 Sections 48 (b) (i) & (ii) and 52 (2) (ii) of the Arbitration and Conciliation Act, CAP A18, Laws of Federal Republic of Nigeria
 Chapter VII, Article 34 (2) b) and Chapter VIII, Article 36 1) a) i) & 1 b) of UNCITRAL Model Law on International Commercial Arbitration 1985 with amendments as adopted in 2006
 B. J. Export & Chemical Company Ltd v. Kaduna Refining & Petro-Chemical Company Ltd (2002) LPELR- 12175(CA).
 Kano State Urban Development Board V. Fanz Construction Ltd. (1990) 4 NWLR (PT.142) 1 at 32-33.
 Esso Petroleum and Production Nigeria Ltd & Anor. (SNEPCO) vs. NNPC unreported Appeal No. CA/A/507/2012; delivered on 22 July 2016 and Shell (Nig.) Exploration and Production Ltd & 3 others vs. Federal Inland Revenue Service unreported Appeal No. CA/A/208/2012
 Section 2 of the Arbitration and Conciliation Act 1988 (ACA). (Cap A18 Laws of the Federation of Nigeria 2004)
 Kurubo v. Zach-Motison (Nig.) Limited (1992) 5 NWLR (Pt. 239) 102.