Foreign jurisdiction clause in Nigerian contracts plays a key role in cross-border disputes
In the recent case of Sqimnga Nigeria Ltd. v. Systems Applications Products Nigeria Ltd., the Nigerian Court of Appeal made a firm statement about preserving the sanctity of contracts, even when it means sending a dispute abroad. The heart of the matter lay in the delicate balance between the right of the parties to freely contract vs. the Nigerian court’s inherent jurisdiction to hear dispute that arise within its territory.
Both the Appellant (Sqimnga) and the Respondent (Systems Applications Products) are Nigerian companies, registered and doing business in Nigeria. They entered into a Master Service Agreement which contained a dispute resolution clause providing that the contract would be governed by the laws of the Republic of South Africa and that both parties submitted to the exclusive jurisdiction of the South African courts.
Party Autonomy and the Enforcement of Contractual Obligations
When a dispute arose, the Appellant approached the Nigerian court. The Respondent objected, pointing to the jurisdiction clause that clearly gave South African courts exclusive power to determine any disputes. The Nigerian trial court agreed and declined jurisdiction to hear the case.
On appeal, the Court of Appeal strongly affirmed the principle of party autonomy, emphasizing that agreements must be kept (pacta sunt servanda). And since the contract was not contrary to Nigerian law, fraudulently entered into, or signed under duress, it had to be adhered to in every manner and in every detail. The Court of Appeal further noted that the parties, as business entities, freely and voluntarily negotiated this decision and could not later claim inconvenience from the necessity of traveling to South Africa, as grounds to avoid their own contractual obligations.
What Does This Teach Us?
Nigerian courts retain a narrow discretion to assume jurisdiction despite the existence of a foreign jurisdiction clause. However, this discretion is heavily guided by the Brandon tests, first set out in the English case of The Eleftheria. Under these tests, courts are generally inclined to hold parties to their bargain unless there is a strong reason to do otherwise. In determining whether such a reason exists, the court must consider factors such as where the evidence and witnesses are located, the convenience and expense of litigating abroad, and whether the plaintiff would suffer serious injustice or prejudice.
In Sqimnga’s case, the Appellant failed to provide convincing evidence to meet this standard. Its counsel argued that requiring the parties to litigate in South Africa would lead to unnecessary travel and additional costs since both parties were Nigerians. The Court, however, dismissed these submissions as mere “sentiment,” noting that arguments by counsel cannot replace credible evidence. The Appellant did not file any affidavits or factual materials demonstrating hardship, prejudice, or any other strong reason for a Nigerian court to override the jurisdiction clause.
A Hollow Victory, Perhaps?
It is worth noting that while the Nigerian courts declined jurisdiction out of respect for the parties’ agreement, it remains doubtful whether a South African court would, in fact, assume jurisdiction over this dispute. Under South African law, jurisdiction is not founded merely on a contractual clause or consent. It also depends on the court’s ability to ensure that its eventual judgment can be effectively enforced. See the case of Veneta Mineraria Spa v. Carolina Collieries (Pty) Ltd 1987 (4) SA 883 (A).
In this case, both parties are Nigerian, the contract was executed and performed in Nigeria, and there are no assets or business operations in South Africa through which a South African judgment could be enforced. This means that, in practice, a South African court might decline jurisdiction and such a situation would leave both parties without an effective forum to resolve their disagreement, a classic example of jurisdictional limbo.
Unfortunately, this critical point was not raised or addressed by the Appellant before the Nigerian courts. Had it been properly argued, it might have provided a compelling reason under the Brandon tests for the Nigerian court to retain jurisdiction in the interest of justice.
The Takeaway:
The practical lesson from this case is clear. Contracts must be read carefully, understood fully, and respected completely. Clauses dealing with jurisdiction and governing law, often overlooked during negotiations, can have significant consequences when disputes arise. Once parties agree that a contract will be governed by a foreign law or resolved by a foreign court, Nigerian courts will generally hold them to that choice unless there is compelling evidence to the contrary.
— Authored by Olufemi Abidogun (Associate) and Ruth Olaoyenikan (Senior Associate)