Arbitration Clause and the Case of Sea Tiger v. A.S.M. (HK) Ltd

by Ayodele Ashiata Kadiri

The exclusive admiralty jurisdiction of the Federal High Court of Nigeria (the “FHC”) is guarded jealously. Section 20 of the Admiralty Jurisdiction Act, 1991 (“AMJA”) unequivocally declares any agreement which seeks to oust the FHC’s jurisdiction null and void (to the extent that certain elements listed in that section are present). Nevertheless, the necessary implication from a holistic review of the AMJA is that an arbitration agreement is not in violation of section 20 of the AMJA. The AMJA itself recognises that the FHC’s admiralty jurisdiction extends to claims arising out of or for the enforcement of an arbitral award (section 2(3)(t)). The AMJA also empowers the FHC to stay or dismiss proceedings before it where a ship is arrested and it appears to the FHC that the proceeding should be stayed or dismissed on the ground that the claim in question ought to be determined by arbitration (in or out of Nigeria) or by a court of a foreign country (section 10).

An arrest of any vessel pursuant to the enforcement of a claim ordinarily subject to an arbitration agreement should, therefore, ordinarily be a breach of that arbitration agreement. This is, however, not always the case. While this is yet to be tested in Nigerian courts, it is likely that when faced with such facts, Nigerian courts will be persuaded by English case law. Nigerian authorities have acknowledged that the development of the Nigerian admiralty practice has been greatly influenced by English law. See The M.V. S Araz v. Scheep (1996) 5 NWLR (Pt. 447) 204 at 224H; and M/V Da Qing Shan v. P.A.C. Ltd. (1991) 8 NWLR (Pt. 209) 354 at 365G.

English case laws have established that “… the English Court will not restrain a party to an English arbitration clause from arresting a vessel in another jurisdiction where the sole purpose of the arrest is to obtain reasonable security for the claim to be arbitrated or litigated in England.” See Kallang Shipping SA Panama v Axa Assurances Senegal (2008) EWHC 2761 (Comm). In Kallang’s case, the English court recognised a claimant’s ability to properly arrest a vessel (in proceedings instituted in respect of claims ordinarily subject to an arbitration agreement) pursuant to s. 11 of the Arbitration Act, 1996 (the “English Arbitration Act”).

Section 11 of the English Arbitration Act and section 10(1) of the AMJA have nearly the same effect: (a) proceedings for the arrest of a ship instituted pursuant to claims subject to an arbitration agreement may be stayed where equivalent satisfactory security is provided as security for the arbitral award or (b) the ship’s arrest may be retained as security for the arbitral award. Under the English Arbitration Act (as interpreted in Kallang’s case), where the proceedings for the arrest of the ship “go beyond simply seeking reasonable security for the arbitration proceedings, there is a breach of the arbitration clause which the English Court will restrain.” The principles in Kallang’s case were also applied in Sotrade Denizcilik Sanayi Ve Ticaret SA v Amadou LO et al. (2008) EWHC 2762. Consequently, the FHC ought to come to a similar conclusion if faced with facts requiring the interpretation of section 10(1) of the AMJA.

Did The Vessel MT. Sea Tiger v. A.S.M. (HK) Ltd. (2020) 14 NWLR (Pt. 1745) 418 (“Sea Tiger”) present the Nigerian Court of Appeal with an opportunity to settle the Nigerian position? Perhaps. The facts are that foreign entities, Sea Tiger Tankers S.A. (“ST”) and Accord Ship Management (HK) Limited (“Accord”), entered into a ship management agreement (the “Agreement”) for the management of the ST’s vessel (the “Vessel”). Disputes arising from the Agreement were to be referred to arbitration in London. However, Accord instituted an action against the vessel and its owners for the arrest of the vessel in Nigeria when disputes arose from the payment of the management fees. Accord also gave an indemnity as to damages for any loss or damages if the application for the order was found frivolous (“Accord’s Suit”). Eventually Accord and ST pursued and completed an out-of-court settlement, further to which the vessel was released and Accord withdrew the suit by a notice of discontinuance. ST, thereafter instituted another action claiming damages caused by the wrongful arrest of the Vessel in Accord’s suit in violation of the Agreement (“ST’s Suit”). The FHC dismissed ST’s claims in ST’s Suit holding, among others, that ST had submitted to the FHC’s jurisdiction in Accord’s Suit. ST appealed to the Court of Appeal.

There were several issues before the Court of Appeal for its consideration. However, there was only one issue connected with arbitration, which was, whether the FHC was right to have held that (i) ST was a party in Accord’s Suit, and (ii) ST waived its right to the international arbitration clause, even though ST had taken no steps during the proceedings. The Court of Appeal found that: (a) ST did not enter a formal appearance and was not represented by counsel in Accord’s Suit and (b) ST had paid the negotiated sum of US$112,000 to Accord as settlement to secure the release of the Vessel (the “Settlement”). Consequently, the Court of Appeal held that: (a) by failing to appear in Accord’s Suit, the reasonable presumption in law was that ST had submitted to the jurisdiction of the FHC; (b) the Settlement gave the reasonable impression and presumption that ST had waived its right to insist on arbitration further to the Agreement; and (c) by waiving its right to have insisted on reference to arbitration in accordance with the Agreement, ST submitted to the procedural jurisdiction of the FHC. The Court of Appeal stated that ST should have insisted on its rights to arbitration in Accord’s Suit. Accordingly, it was not permissible for ST to “resile on the waiver and insist that the abandoned right was still available to them”.

The Court of Appeal missed the chance to expressly pronounce that arbitration agreements will not violate section 20 of the AMJA. The Court of Appeal made a generic pronouncement on the attitude of Nigerian courts to upholding arbitration clauses and agreements. The Court of Appeal was unable, however, to pronounce on the arrest of ships in a seeming breach of an arbitration agreement. Perhaps, if ST had insisted on its rights to refer disputes under the Agreement to arbitration, the outcome of Accord’s Suit would have been different. Of course, the facts in Kallang’s case are largely different from the facts in Sea Tiger. The only similarity is that in both cases, the vessels were arrested in jurisdictions outside the jurisdiction the parties agreed to submit disputes to. The reactions of the claimants to the arrest in each case were remarkably different. Similarly, the reliefs pursued by the respective claimants in each case were also different.

Sea Tiger is quite remarkable for two reasons. First, the fates of parties with no connection to Nigeria were decided in a Nigerian Court. The parties to the suit, as well as the Agreement, had no connection with Nigeria. Although not clear from the report, it appears that the seat of the arbitration would have been London. The application for the arrest of the Vessel must have been filed at the FHC because the Vessel was “within the limits of the territorial waters of Nigeria” section 7(2) of the AMJA. Second, a party’s attempt to pursue amicable settlement of an arbitrable claim may backfire if it is not exercised simultaneously with his right to insist on arbitration. This was one way the claimant’s reaction to the arrest in Kallang’s case was remarkably different from the claimant’s reaction to the arrest of the Vessel in Sea Tiger.

  • Kadiri is an associate at G. Elias & Co. where she is a member of the Disputes and New Economy (traditionally called the Technology, Media and Telecommunications) practice groups.

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