Key Issues & the Court’s Reasoning

The dispute centred on Ayisagi (Nig.) Ltd.’s application to stay court proceedings and resolve the dispute through arbitration.  Ayisagi’s application relied on an arbitration clause in the distributorship agreement, allowing either party to request arbitration if initial settlement efforts failed.  However, the Kaduna State High Court declined to stay proceedings, concluding that Ayisagi had not demonstrated “readiness and willingness” to arbitrate, as Section 5 of the ACA required.  The court’s refusal turned on Ayisagi’s lack of concrete steps toward initiating the arbitration.

The court found the language of the arbitration clause central to this decision.  Under the clause, arbitration did not automatically follow from a dispute but required a specific request from either party.  Ayisagi had not made this demand or otherwise indicated steps to start arbitration.  Section 5(2)(b) of the ACA mandated Ayisagi to show a clear intent to arbitrate before requesting the court’s intervention to stay proceedings.  Lacking such evidence, the court found “sufficient reason” to refuse the stay based on Ayisagi’s absence of readiness and willingness.

The agreement also included Clause 39.1, which provided:

 “Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be governed and construed in all respects by the substantive and procedural laws of the Federal Republic of Nigeria and the parties agree to submit to the exclusive jurisdiction of the Nigerian courts.”

When read together with the arbitration clause, the court interpreted Clause 39.1 as establishing the Nigerian courts as the default forum for resolving disputes unless one party explicitly requested arbitration.  The arbitration clause was therefore deemed optional, not absolute.  This led the court to hold that the arbitration clause did not override Clause 39.1, nor did it serve as a condition precedent to litigation.  Consequently, the court found that Section 5 of the ACA did not apply to confer jurisdiction on arbitration or justify a stay of the ongoing proceedings.

This ruling underscores the significance of harmonising arbitration clauses with other dispute resolution provisions in a contract.  Where an exclusive jurisdiction clause is present, it can dilute the effect of an arbitration clause unless the latter is unequivocally drafted to override the former.  Courts under the ACA framework require clear evidence of intent to arbitrate, including timely requests and substantive steps toward arbitration.  The court’s decision in Ayisagi reflects a strict adherence to these principles, emphasising the need for parties to act decisively when seeking to enforce arbitration agreements.

Implications under the Arbitration and Mediation Act 2023

The transition from the ACA to the AMA changes the requirements for staying court proceedings.  Under Section 5 of the ACA, a party requesting a stay needed to demonstrate both the absence of a “sufficient reason” against arbitration and a “readiness and willingness” to arbitrate.  This section, which the court applied in Ayisagi v. S.B.&F., made staying proceedings discretionary and required scrutiny of a party’s conduct and intent to arbitrate.  Failure to show these conditions allowed courts to proceed with litigation, as seen in Ayisagi, where the court denied a stay based on insufficient readiness.

In contrast, Section 5 of the AMA has removed the readiness requirement and simplified the criteria.  Under the AMA, a court must now grant a stay if any party to the arbitration agreement requests it before delivering their first substantive statement, unless the agreement is “void, inoperative or incapable of being performed.” This replaces the ACA’s discretionary assessment with a more objective standard focused only on the validity and operability of the arbitration agreement.  This adjustment aligns with international standards by minimising procedural barriers and clarifying that a valid arbitration agreement is enforceable without requiring the parties to prove readiness.

For similar cases under the AMA, the focus would rest on whether the arbitration agreement itself is legally enforceable.  This change would likely mean that applications similar to that in Ayisagi would be granted as long as the agreement remains valid, regardless of whether the applicant demonstrated steps toward arbitration.

However, while the AMA simplifies the requirements for staying proceedings, it does not eliminate the need to address conflicting clauses in contracts.  In cases where arbitration clauses coexist with exclusive jurisdiction clauses, the courts may still need to interpret which clause governs.  If the arbitration clause remains conditional, as it did in Ayisagi, a party’s failure to invoke arbitration through the agreed process could still lead to a denial of stay applications.

Practical Insights & Drafting Considerations

The Ayisagi decision highlights practical steps parties can take to protect their right to arbitrate.  First, demonstrating readiness to arbitrate is essential, especially where evidence of intent may be reviewed.  Documented actions, such as issuing a formal arbitration demand and preserving communications or agreements to arbitrate, can provide clear proof of intent.  Without these, as seen in Ayisagi, parties risk denial of stay applications due to a perceived lack of readiness.  Keeping thorough records early in a dispute reinforces readiness if a court later evaluates a stay request.

When drafting arbitration clauses, clarity is crucial.  In Ayisagi, the clause’s wording allowed arbitration only “upon demand by either party,” leading to interpretive issues.  Ambiguous terms like this invite challenges, as one party may argue that the necessary demand was never made.  Avoid conditional language in arbitration clauses by stating directly that disputes shall proceed to arbitration, specifying a clear initiation process.  Including defined timelines for arbitration steps following settlement attempts can strengthen the clause’s enforceability by reducing uncertainties.

Additionally, the court in Ayisagi highlighted the challenges arising from agreements that contain both arbitration and exclusive jurisdiction clauses.  Clause 39.1 in the agreement granted Nigerian courts exclusive jurisdiction over disputes, while the arbitration clause allowed parties to initiate arbitration upon demand.  Based on a combined reading of these provisions, the court interpreted the agreement to mean that Nigerian courts would have exclusive jurisdiction unless one party explicitly invoked arbitration.  This interpretation effectively rendered the arbitration clause optional rather than mandatory in the absence of a clear demand.

To avoid such conflicts, parties should clarify the relationship between arbitration and the courts.  If arbitration is intended to take precedence as the primary dispute resolution mechanism, the agreement should specify that disputes will first be referred to arbitration, with courts playing a supportive or supervisory role as provided by law.  Alternatively, parties could avoid potential contradictions by drafting exclusive jurisdiction clauses that expressly acknowledge and complement the arbitration process, specifying that court proceedings may only follow arbitration in specific circumstances.  Clear and consistent drafting ensures that the agreement aligns with both the parties’ intentions and the legal framework, avoiding unnecessary interpretive disputes.

Under the AMA, the new standard for stay applications reduces some risks seen in Ayisagi.  Now, courts must stay proceedings if an arbitration agreement exists unless it is void, inoperative, or incapable of being performed, making “readiness” less crucial.  Nevertheless, parties should still document initial actions to arbitrate, especially if any future challenge arises about the agreement’s validity or enforceability.  Early in a dispute, parties can reinforce their commitment to arbitration by clearly signalling their intent to arbitrate, which may help avoid unnecessary procedural issues.

Ultimately, Ayisagi offers valuable lessons for drafting and dispute preparation.  Clear clauses, documented actions, and a proactive stance toward arbitration at the outset all help to prevent procedural delays and uphold the parties’ intent to arbitrate.

Conclusion & Recommendations

The Ayisagi case highlights the former ACA’s requirement for visible readiness to arbitrate, where a lack of clear steps could justify denying a stay.  Under the new AMA, readiness has been removed as a central criterion, creating a more straightforward path to arbitration by focusing solely on the agreement’s validity.

Practitioners should approach drafting and dispute management with care and precision.  Under the AMA, arbitration clauses benefit from concise, unconditional language that leaves no ambiguity on steps to arbitration.  In early dispute stages, practitioners should initiate arbitration promptly, document each step, and file any necessary requests to stay court proceedings at the first opportunity.

Ayisagi underscores the importance of reconciling conflicting clauses in contracts.  Dual provisions on arbitration and jurisdiction should be drafted with precision to avoid undermining the enforceability of arbitration agreements.  This proactive approach will safeguard a party’s arbitration rights and maintain procedural integrity, taking full advantage of the AMA’s more streamlined approach to staying proceedings.

The Ayisagi decision reminds us that while arbitration agreements grant parties autonomy, courts remain vital in interpreting and enforcing these agreements within constitutional bounds.  Balancing these principles requires clear drafting and early and decisive action to pursue arbitration.