UNITS ENVIRONMENTAL SCIENCES LIMITED v. REVENUE MOBILIZATION, ALLOCATION AND FISCAL COMMISSION.
SUPREME COURT OF NIGERIA
(ARIWOOLA; OKORO; AUGIE; ABOKI; AGIM, JJ.SC)
FACTS
Units Environmental Sciences Limited (the Appellant) entered into a Consultancy Agreement with the Revenue Mobilization, Allocation and Fiscal Commission (the Respondent) in respect of the Respondent’s Staff Housing Development Project situated in Mabushi, Abuja. Clause 15 of the Consultancy Agreement expressly stipulated that any dispute arising from or in connection with the agreement would be resolved through arbitration. A dispute subsequently arose regarding the Appellant’s claim for the payment of outstanding service fees and accrued interest, allegedly due under the terms of the Consultancy Agreement. Pursuant to the arbitration clause, the parties appointed a sole arbitrator to adjudicate the matter.
Upon conclusion of the arbitral proceedings, the sole arbitrator rendered an award in favour of the Appellant. Dissatisfied with the award, the Respondent approached the Federal High Court, Abuja, seeking to have the award set aside on the ground of misconduct. The Respondent contended that the arbitrator failed to adhere to the express or implied terms of the arbitration agreement and acted improperly by granting relief on the basis of public policy, thereby exceeding the scope of the issues submitted for arbitration. In response, the Appellant filed an application before the same court seeking recognition and enforcement of the arbitral award. The Federal High Court (trial court) dismissed the Respondent’s application and granted the Appellant’s application for enforcement.
However, on appeal, the Abuja Division of the Court of Appeal (lower court) reversed the decision of the Federal High Court. It allowed the Respondent’s appeal, set aside the enforcement order, and nullified the arbitral award.
Dissatisfied with this outcome, the Appellant has now further appealed to the Supreme Court. One of the key issues submitted for determination is: whether the Court of Appeal erred in law when it set aside both the judgment of the Federal High Court and the arbitral award, on the basis that pre-award interest was neither claimable nor awardable in the circumstances of the case.
ARGUMENTS
In submitting before the Supreme Court, the learned Senior Advocate appearing for the Appellant contended that the Court of Appeal erred both in fact and in law when it held that the Federal High Court’s affirmation of the arbitral award, particularly with respect to the pre-award interest, was without factual or legal foundation. He argued that the Appellant’s claim for pre-award interest was not only expressly pleaded but was also substantiated by uncontroverted evidence presented before the sole arbitrator. According to the learned Senior Advocate, the Appellant had fulfilled all its obligations under the Consultancy Agreement to the Respondent’s satisfaction. Despite deriving full value from the Appellant’s services, the Respondent made only a token payment of ₦4 million and failed to settle the balance due. The learned Senior Advocate submitted that this amounted to an unjust deprivation of the Appellant’s funds, entitling it to compensation in the form of interest for the period it was denied access to money rightfully owed. He further emphasised that the claim for pre-award interest was a direct and foreseeable consequence of the Respondent’s breach and fell squarely within the reasonable contemplation of the parties at the time they entered into the agreement.
He noted that the arbitrator made specific and reasoned findings that the Appellant had completely performed its contractual obligations and that the Respondent’s justification for non-payment, namely, a purported frustration of the contract due to changes in government policy, was legally untenable and unsupported by the evidence. The attempt to evade liability by invoking frustration, counsel argued, was a misapplication of the doctrine and an afterthought designed to circumvent payment obligations. The learned Senior Advocate further argued that even if, hypothetically, the Court of Appeal found merit in its objection to the award of pre-award interest, it grossly erred in law by setting aside the entire arbitral award. He maintained that the interest component of the award was severable and should not have tainted the arbitrator’s findings on the substantive claims. The proper and judicious course, he submitted, would have been for the Court of Appeal to remit the issue of interest back to the arbitrator for reconsideration, rather than nullifying the entire award.
He concluded by asserting that the appellate court acted beyond its jurisdiction by setting aside the award simply on the basis that it was allegedly erroneous, particularly in the absence of any patent error on the face of the award. In doing so, the Court of Appeal failed to accord due regard to the principle of finality that underpins arbitral proceedings, thereby undermining the integrity of the arbitral process agreed upon by the parties.
In response, learned counsel for the Respondent contended that the sole arbitrator acted beyond the scope of his jurisdiction by awarding pre-award interest in the sum of ₦33,934,139.53 in favour of the Appellant. He argued that this award of pre-award interest constituted the central grievance upon which the Respondent sought to have the arbitral award set aside before both the Federal High Court and the Court of Appeal. Counsel maintained that the Consultancy Services Agreement, which governed the relationship between the parties, did not contain any express or implied provision authorising the award of pre-award interest. In the absence of such a provision, he submitted that the arbitrator lacked the legal competence or jurisdiction to entertain or grant such a claim. He further argued that there was no credible or cogent evidence adduced before the arbitral tribunal to support the claim for pre-award interest. On the contrary, the claim was, in his view, speculative, unsubstantiated, and fundamentally inconsistent with the contractual terms binding the parties.
In further buttressing his position, counsel submitted that the Court of Appeal acted correctly in holding that the arbitrator exceeded the scope of his reference and thereby committed misconduct. He posited that the proper consequence of such misconduct was the setting aside of the arbitral award in its entirety, as was rightly done by the Court of Appeal. Additionally, counsel submitted that the Appellant could not now be heard to approbate and reprobate. Having previously sought the enforcement of the arbitral award in its entirety before the lower courts, the Appellant could not, at this stage, attempt to sever the award by seeking to enforce only the parts deemed favourable. According to him, this shift in position was not only procedurally improper but also inequitable.
Finally, he urged the Honourable Court to affirm the decision of the Court of Appeal in its entirety, including its order that each party bear its own costs, as this was consistent with the Consultancy Services Agreement, which expressly provided that parties should bear their respective costs in the event of a dispute.
DECISION OF THE COURT
In resolving this issue, the Supreme Court held that:
Certain matters, although not expressly stated in a contract, may nevertheless be implied by law to fall within the reasonable contemplation or expectations of the parties, thereby giving rise to enforceable rights and obligations. The Court emphasised that contracts are not to be interpreted in strict literal terms alone, but also in light of the presumed intentions and expectations of reasonable persons entering into such agreements. Where a contract is silent on a specific matter, the law can supply implied terms where necessary to give business efficacy to the agreement and ensure that it operates in a manner consistent with the ordinary understanding of reasonable parties.
The Court further held that in assessing the scope of implied terms or obligations, the law presumes that contracting parties are aware of the usual and foreseeable consequences that follow from the breach of contractual terms. As rational and informed parties, they are deemed to understand the types of losses or disruptions that could ordinarily arise in the course of commercial transactions. Therefore, even in the absence of express provisions dealing with certain consequences, the law will attribute to the parties a shared understanding of those consequences, provided they are such as would naturally flow from a breach of the agreement.
Moreover, the Court underscored that the absence of an explicit statement regarding the purpose of a term, such as the time of payment, or the consequences of its breach, does not render such matters irrelevant or incapable of legal enforcement. The law may, through necessary implication, treat such terms as fundamental to the commercial purpose of the contract, particularly where timeliness of performance is material to the transaction. As such, the Court affirmed that the consequences of a breach as to time of payment, though not expressly set out, can be presumed to have been contemplated by the parties at the time of entering the contract, and may accordingly give rise to legal remedies. This reasoning ensures that contractual obligations are not defeated merely by omissions in drafting, and that the law steps in to uphold fairness and commercial efficacy.
Issue resolved in favour of the Appellant.
Dr. Olumide Ayeni, SAN with Olutunde Abegun, Esq.; Olawale Oyebode Esq.;
Favour Leonard Goin, Esq.; (Mrs.) and Adeniyi Olominu, Esq., for the Appellant.
P.Y. Garuba, Esq., with Austin Mwana Esq., for the Respondent.
This summary is fully reported at (2022) 4 CLRN in association with ALP NG & Co.
See www.clrndirect.com ; www.alp.company.
