Shareholder Disputes in Nigeria – Arbitrable or Not?
While parties in commercial relationships are generally at liberty to resolve their disputes by arbitration, there may be some uncertainty in this regard for shareholders disputes. So, are disputes among shareholders, between shareholders and their company or between shareholders and third parties, determinable by means other than the regular court? Put differently, are shareholders disputes arbitrable in Nigeria?
Shareholders disputes could arise from statutory obligations stemming from the applicable Companies Act, as well as from purely contractual arrangements such as shareholders agreement, share purchase agreement or joint venture agreements. Some of these agreements may contemplate arbitration as the dispute resolution mechanism.
Generally, the freedom to arbitrate in Nigeria is limited by statute and case law. Criminal matters, disputes arising or related to illegal contracts; agreements voided as being by way of gaming or wagering; change of status and any agreement purporting to give an arbitrator the right to give judgment in rem are not arbitrable.
Recently, tax matters have been included in the list of non-arbitrable matters. One of the considerations for the Nigerian courts declaring tax matters non-arbitrable was that by virtue of section 251 of the Nigerian constitution, the Federal High Court is vested with exclusive jurisdiction over tax matters. Since the same section 251 vests exclusive jurisdiction over matters regulated by the Companies and Allied Matters Act, Chapter C20, Laws of the Federation of Nigeria, 2004 (CAMA) on the Federal High Court, it is often wondered if the same principle which the courts applied in determining the arbitrability of tax disputes in Nigeria will be applied to shareholders disputes since companies are regulated by CAMA.
Different jurisdictions have taken different approaches on the arbitrability of shareholders disputes. While some have legislations permitting arbitration, others have by their judicial decisions created a pathway for arbitration of shareholders disputes. In England, the courts have held that unfair prejudice petitions under the English Companies Act are arbitrable. In China, the court’s position is that although an arbitral tribunal cannot grant a winding up order, disputes arising out of shareholders conduct leading to a winding up petition are arbitrable. In Singapore, the courts have taken the position that minority oppression claims of shareholders under the Singapore Companies Act may or may not be arbitrable depending on the claim and how it is couched. In India, the courts have held that an action for oppression or mismanagement had the “flavour” of being in rem since the reliefs under the Indian Companies Act were all remedies in rem. The Indian court’s position is that arbitral tribunals have no power to grant reliefs in a similar fashion to that available under the Indian Companies Act and therefore oppression or mismanagement petitions are non-arbitrable.
Questions regarding the arbitrability of shareholders disputes in Nigeria came to the fore in Fagbola v. Niger Offshore Service Ltd & SBM Offshore Inc. (Suit No. FHC/L/CP/1570/2014) when the Federal High Court considered whether shareholders disputes arising out of the shareholders agreement and other disputes arising out of an unfair prejudice cause of action should be referred to arbitration. The Petitioner had argued that shareholders disputes ought to be resolved by the courts since the Nigerian constitution vests the Federal High Court with jurisdiction over matters concerning the administration of CAMA. The Respondent had argued that CAMA does not forbid the waiver of the right to have the disputes resolved at the Federal High Court. The Respondent further argued that even if jurisdiction vests in the courts, a party who submits to arbitration can waive the court’s jurisdiction since under Nigerian law, a party can waive the provisions of a statute if those provisions are to the waiving party’s benefit. Additionally, the Respondent argued that reliefs being sought are not for a change of status of the company (from solvent to insolvent) and therefore can be granted by an arbitral tribunal. The Federal High Court agreed with the submissions of the Respondent and referred the matter to arbitration in accordance with the parties’ arbitration agreement. The implication of this is that so far, shareholder disputes are arbitrable in Nigeria.
Lingering shareholders disputes often affect the viability and market value of a company. Therefore, it is essential that such disputes are expeditiously resolved and kept confidential. These are the advantages which resolving shareholders disputes by arbitration hold against resolving such disputes through the courts. It is therefore important that the arbitrability of shareholders disputes is maintained or protected by ensuring that there are enforceable arbitration clauses in applicable agreements. Typically, articles of association of companies may not contain a dispute resolution clause. It may be beneficial to include an enforceable arbitrable clause in the company’s articles of association since it operates as a contract involving a company’s shareholders. This is so that even if there are no shareholders agreements, parties can still take benefit of resolving shareholders disputes through arbitration.
Perenami Momodu is a partner in the Dispute Resolution, Insolvency, Energy, Agriculture and Labour Practice at Aelex Legal.