Effects of Arbitration Clause On Arbitration: Avoiding The Pitfalls

Joseph N. McCarthy Mbadugha1 McCarthy Mbadugha & Co., Barrister & Solicitors Lagos, Nigeria


Every arbitration starts with an arbitration agreement, which is an agreement by parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. The agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement, and it is required by law to be in writing2. Where an arbitration agreement is not in writing, it is governed by common law3 to the extent that the parties are resident in or carry on business in a common law country as at the time of the oral agreement.

The element of consent is essential to arbitration, without it there can be no valid arbitration. In Azov Shipping Co. v Baltic Shipping Co.,4 the English court set aside an award because the court found that the plaintiff never agreed to be bound by the underlying contract or the arbitration agreement contained in it. And in Hobbs Padgett & Co. (Reinsurance) Ltd. v J.C. Kirkland Ltd5 where a dissolution agreement (of partnership) contained a clause “suitable arbitration”, a suit by the Plaintiff to enforce the contract was stayed in favour of arbitration at the instance of the defendant. On appeal the plaintiff’s/appellant’s contention that the arbitration clause was merely an agreement to agree; that since the document, which they signed (the contract), contained a term which had not been agreed upon, there was no arbitration, hence the lower court ought not to have made the order of stay, was rejected. Whilst, disallowing the appeal, the English Court of Appeal held that “the plaintiffs were suing upon the contract in the action and therefore were affirming it to be a contract”.

The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract.6 A clause in a contract referring future dispute to arbitration is known as arbitration agreement whilst a separate agreement to refer existing dispute to arbitration is known as submission agreement.

For the purposes of this paper, both an arbitration agreement and submission agreement are referred to as arbitration clause. Arbitration clause which often is neglected (given that serious consideration is not usually given to its nitty-gritty whilst reasonable attention is given to other aspects of an underlying contract which it forms part of) play significant role in arbitration.

That said, what follows is a discussion of the various effects of arbitration clause on arbitration and how to avoid the pitfalls therein. These effects are evident in the following:

  • Scope of Jurisdiction;
  • Funding the Arbitration to Finality;
  • Security for Costs;
  • Seat;
  • Procedural Law;
  • Substantive Law;
  • Confidentiality;
  • Language of the Arbitration; and
  • Voiding the Arbitration Agreement.


An arbitral tribunal does not create its own jurisdiction rather it is conferred on it by an arbitration clause. An arbitration clause which provides for a condition precedent to commencing arbitration may, for example, divest an arbitral tribunal of the jurisdiction to act if the condition precedent is not fulfilled. In Smith v Martin,7 an arbitration was commenced before the


  1. Joseph N. McCarthy Mbadugha LL.B, B.L., LL.M (Wales), MCI. Arb., the Principal Partner of McCarthy Mbadugha & Co. and the head of the Admiralty and Cross-Boarder Practice Group of the Firm.
  2. Arbitration and Conciliation Act, CAP, A18, Laws of the Federation of Nigeria (LFN)(2004) s 1; UNCITRAL Model Law on International Commercial Arbitration 1985 (UNCITRAL) Model Law), art 7(1)(2); Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), art 11(1)(2).
  3. Merkin, Arbitration Art 1996, An Annotation Guide (1996) 21.
  4. Azov Shipping Co. v Baltic Shipping Co., 2 Lloyd’s Rep. (1999)159.
  5. Hobbs Padgett & Co. (Reinsurance) Ltd v. J.C. Kirkland Ltd, 2 Lloyd’s Rep. (1969)547
  6. UNCITRAL Model Law, art 7(2); New York Convention, art 11(2); Arbitration and Conciliation Act, CAP A 18, Laws of the Federation of Nigeria (2004), s1.
  7. Smith v Martin, 1 KB (1925) 743.

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