Insolvency and Arbitration: An Analysis of Ghana’s Alternative Dispute Resolution Act, 2010 (Act 798)

1.Introduction

Conflict has become accepted as part of human engagements and endeavours. When conflict arises, the disposition of the parties involved in it is to solve it amicably or through the judicial avenues provided for the State. Sometimes, Parties who are engaged in any undertaking may agree that disputes which arise in the course of the undertaking should be resolved by the appointment of private adjudicators, devoid of State apparatus, whose decisions will be binding on the Parties and enforceable using State machinery. Arbitration, for all of its well documented advantages, has become an acceptable means of adjudicating disputes between businesses and individuals alike.  However, for arbitration to commence, the Parties must have agreed in writing to refer the dispute to arbitration. Arbitration is thus seen as a private treaty between Parties which should always be enforced by the State; except in clear cases where the State has prohibited such disputes as being arbitrable. In Ghana, the Alternative Dispute Resolution Act, 2010, Act 798 regulates the legal regime of arbitration in Ghana.

Every business owner dreams to build a business that will last a lifetime. However, the data available shows that this may not always be the case. Businesses may fall into difficult times and may have to go into Administration or Liquidation. When businesses fall into Administration or Liquidation, the directors of the business cease to have any of the powers that Directors normally have. An example of such powers that Directors of companies in Administration or Liquidation are deprived of, is the power to appoint Solicitors to represent the company in any transaction or disputes arising out of any transaction. That power becomes vested in the Administrator or Liquidator. Administration or Liquidation of a business is governed by the State. In other words, even though the State cannot force any resident to start a business, once the business falls into Administration or Liquidation, the State will control how the affairs of the business will be managed from that point; albeit by means of the laws which are passed in respect of such matters.  The Corporate Restructuring and Insolvency Act was passed in Ghana in 2020 as Act 1015 to provide for the administration and official winding-up of insolvent companies and other bodies corporate and for related matters.

Now, the relationship between insolvency and arbitration has received a lot of attention from academicians and practitioners alike. The reason being that whereas it is quiet settle under common law that Court actions cannot commence or continue involving a company that is under Administration or Liquidation, except in circumstances provided for by the applicable law, the same cannot be indisputably said about the effect of insolvency on arbitration proceedings.

 

This paper is aimed at analysing the relationship between these two legal concepts (i.e. insolvency and arbitration) in the context of Ghana’s Alternate Dispute Resolution Act, 2010, Act 798.

2.The Role of Courts in Arbitration Under Act 798

The statutory prescriptions on arbitration in Ghana as contained in Act 798 are not at variance with the generally internationally accepted principles of arbitration. The most important condition to be satisfied before an agreement to arbitrate a dispute can be enforced is that the agreement must be in writing.

Section 2 of Act 798 provides as follows:

(1)Parties to a written agreement may provide that a dispute arising under the agreement shall be resolved by arbitration.

(2) A provision to submit a dispute to arbitration may be in the form of an arbitration clause in the agreement or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing and may be in the form provided in the Fifth Schedule to this Act.

These provisions underline the time-honored principle of arbitral tribunal sourcing its jurisdiction from a private treaty between parties and not from any prescription of the State.

Even though Act 798, like the statutes of other Common Law Countries, provides for an arbitral tribunal to be constituted only when there is a valid arbitration agreement, the Parties are not completely denied access to a Court of competent jurisdiction; albeit in the limited circumstances provided by law. The State still reserves some power, through the established judicial avenues, to control some aspects of arbitral proceedings. The Power of the State Courts to intervene or interfere in arbitral proceedings is grounded on public policy considerations which posit that the ultimate judicial power over citizens of countries, should be vested in the State and not private tribunals. The jurisdiction of the Courts may be invoked

1. to enforce an arbitration agreement;
2. to decide on matters of law such as jurisdiction during the arbitral proceedings; and
3. to entertain an application either to enforce or set aside the arbitral award.

We will now outline how Act 798 has provided for the means by which the jurisdiction of the court may invoked along the chain of arbitral proceedings:

2.1. Before Arbitration Commences

Where there is an arbitration agreement between Parties, a court may enforce that agreement and refer the Parties to adjudicate the dispute by means of arbitration instead of the usual court proceedings.

Section 6(1) of Act 798 provides that “Where there is an arbitration agreement and a party commences an action in a court, the other party may on entering appearance, and on notice to the party who commenced the action in court, apply to the court to refer the action or a part of the action to which the arbitration agreement relates, to arbitration.”

This provision vests the Court with jurisdiction to direct the Parties to commence arbitral proceedings as had been agreed between them.

Notwithstanding the absence of an arbitration agreement, where the parties to an action before a court agree in writing to resolve their dispute by arbitration the court has the power to refer the dispute to arbitration.

Section 7(1) of Act 798 provides that “Where a court before which an action is pending is of the view that the action or a part of the action can be resolved through arbitration, that court may with the consent of the parties in writing, despite that there is no arbitration agreement in respect of the matter in dispute, refer the action or any part of the action for arbitration”.

2.2. After Arbitration has commenced

After the Parties have commenced arbitration, there are still avenues provided for under Act 798 by which a Party may invoke the jurisdiction of the court to intervene with the proceedings.

Section 26 (1) provides that “A party dissatisfied with the arbitrator‟s ruling on jurisdiction may on notice to the arbitrator and the other party apply to the appointing authority or the High Court for a determination of the arbitrator‟s jurisdiction.”

Section 39 (1) also provides that unless otherwise agreed by the parties, the High Court has power in relation to an arbitral proceedings to make an order

(a)  for the taking of evidence of witnesses;

(b)  for the preservation of evidence;

(c)  in respect of the determination of any question or issue affecting any property right which is the subject of the proceedings or in respect of which any question in the proceedings arise:

(i) for the inspection, photographing, preservation, custody or detention of property; or

(ii) for the taking of samples from or the observation of an experiment conducted upon, a property; and for that purpose authorizing any person to enter any premises in the possession or control of a party to the arbitration;

(d)  for the sale of any goods the subject of the proceedings;

(e)  for the granting of an interim injunction or the appointment of a receiver.

Section 40 (1) further provides that unless otherwise agreed by the parties, the High Court may, on an application on notice to the other party by a party to arbitral proceedings, determine any question of law that arises in the course of the proceedings if the Court is satisfied that the question substantially affects the rights of the other party.

2.3. After Award has been delivered by Tribunal

After a tribunal has delivered an award, the court still has jurisdiction to interfere in outcome of the award by the means provided for under Act 798.  The following provisions will suffice.

Section 57 (1) provides that an award made by an arbitrator pursuant to an arbitration agreement may, by leave of the High Court, be enforced in the same manner as a judgment or order of the Court to the same effect.

Section 58 allows a Party or any other person affected by an arbitral award[1] to file an application in the High Court to challenge the award.

Section 58 (1) provides that “An arbitral award may subject to this Act be set aside on an application by a party to the arbitration.

We have taken the pains to outline the instances where the jurisdiction of the Court may be invoked before arbitration proceedings commence, in the course of the arbitral proceedings and after the award has been rendered.  This is to emphasize that the jurisdiction of the court to intervene in arbitral proceedings can only be invoked if there are express statutory provisions vesting the Court with such jurisdiction. This assertion is once again in line with the generally accepted principle that because an arbitral tribunal sources its jurisdiction from a private agreement, the public institutions such as the Court, should be slow to interfere with the exercise of the jurisdiction of an arbitral tribunal except in circumstances clearly set out in law.[2] Hence, where the avenues by which a court may interfere with arbitral proceedings have been clearly set out in Act 798, any other subsequent legislation that intends to take away the jurisdiction of the court, as clearly set out in statute, should clearly state that it is amending or repealing that jurisdiction of a court.[3] 

3. Insolvency and Judicial Proceedings Under Act 1015

As indicated above, when a company goes into administration or liquidation, the State becomes interested in the outcome because there will be other interests, apart from those of shareholders which will need to be protected.

Before we continue, we will differentiate between Administration and Liquidation under Act 1015.

Section 169 of Act 1015 defines Administration as a process of enabling the rehabilitation of a company that is financially distressed beginning when an administrator is appointed to perform duties necessary to achieve the objects set out in sections 1and 2 of the Act.

Liquidation on the other hand, as described from section 80 of Act 1015, is the process of winding up a company so that the company will no longer exists.A company which may start in Administration, may end up being liquidated but not all company that go into Administration, end up being liquidated. Both processes are generally referred to as insolvency proceedings. Act 1015 has made provisions on the role of the Court when a company is either in Administration or liquidation.

With respect to when a company is in Administration;

• Section 32 of Act 1015 provides that during the administration of a company, a person shall not commence or continue proceedings in a Court[4] against the company or in relation to any property of the company except with leave of the Court and on terms that the Court considers appropriate.
• Section 33 provides that during the administration of a company, a person shall not commence or continue an enforcement process[5] in relation to the property of the company except with leave of the Court and on terms that the Court considers appropriate.
• Section 64 also provides that the Court may make any order that the Court considers appropriate in respect of the administration of a company.

With respect to when a Company is in liquidation:

• Section 87 (1) provides that “On the commencement of winding-up proceedings against a company, civil proceedings against the company shall be stayed and any transfer of shares of the company within that period is void.”
• Section 93 provides that “A person shall not, on the commencement of a winding-up proceed with or commence an action or civil proceedings against the company, other than proceedings by a secured creditor for realisation of the security of that secured creditor, except (a) by leave of the Court; and (b) subject to the terms that the Court may impose.

Having set out the various statutory provisions in the Act 978 and Act 1015, we will proceed to analyze the relationship between insolvency proceedings; arbitration agreements and arbitration proceedings.

4.1 Administration and Arbitration

4.1.1 Pre-Arbitration and During Arbitral Proceedings

Section 32 of Act 1015 provides that during the administration of a company, a person shall not commence or continue proceedings in a Court[6] against the company or in relation to any property of the company except with leave of the Court and on terms that the Court considers appropriate.

It is instructive to note that the framers of the statute prohibited the commencement or continuation of proceedings in the High Court. It did not bar commencement or continuation of arbitral proceedings when a company goes into administration.  This is in line with the expressio unios exclusio alterius” rule of interpretation which provides that the express mention of a thing excludes all others. It is trite that where the framers of a statute expressly use a word, they should be deemed to have intended to exclude all other competing words.[7] Hence, since the wording of the section 32 expressly uses Court and not tribunal or civil proceedings in general, one can conclude that the framers did not intend to bar the commencement or continuation of arbitral proceedings against a company in administration.

This conclusion is fortified by the provisions of section 4 of Act 798 which provides that “An arbitration agreement is not discharged by the death of the person or the dissolution or merger of the body corporate which is a party to that agreement and it is enforceable by or against the personal representative, liquidator or successor of the party.” The wording of this provision is explicit. An arbitration agreement is enforceable even if a party to the agreement is being dissolved or liquidated or under administration. As long as the party to the arbitration agreement has a legal successor or legal representative such as an Administrator, the agreement is enforceable against that legal representative or successor. In other words, a Party may commence and continue arbitral proceedings against another Party; even if the latter party is going through Administration.

Reading section 4 of Act 798 and section 32 of Act 1015 will lead to the conclusion that under Ghanaian Law, arbitral proceedings could be commenced and continued against a company that is undergoing administration or went into administration after the arbitral proceedings had commenced.

4.1.2 Post Arbitral Award

After an award has been delivered, an Award Debtor is generally expected to comply. In situations where the Award Debtor refuses to comply, the Award Creditor may exercise his right to enforce the award.

Section 57 (1) of Act 798 provides that an award made by an arbitrator pursuant to an arbitration agreement may, by leave of the High Court, be enforced in the same manner as a judgment or order of the Court to the same effect.  This means that no Award Creditor has the automatic right to execute or enforce an award. The enforcement or execution of an arbitral award can only be done with leave of the High Court.

Now Section 33 of Act 1015 also provides that during the administration of a company, a person shall not commence or continue an enforcement process[8] in relation to the property of the company except with leave of the Court and on terms that the Court considers appropriate.

One will notice that the wording of Section 33 of Act 1015 defines “enforcement process” to include execution against a property or any other court process. The wording of this section does not distinguish between the source of the execution process. It is therefore submitted, that this section is applicable to execution or enforcement of arbitral awards. A fortiori, even without administration, an arbitral award cannot be enforced against a company except with leave of the court and so there cannot be any iota of inconsistency in the procedure for enforcement an award against a company under liquidation as outlined in Act 798 and the procedure as outlined in Act 1015.

The author therefore concludes that under Ghanaian Law, an arbitral award cannot be executed or enforced against a company under administration, except with leave of the High Court of Ghana.

4.2 Liquidation and Arbitration

As explained above, liquidation results in the winding up of the company. In other words, once liquidation commences, the company will end up ceasing to exist. Act 1015 contains provisions which prescribes the impact of the commencement of liquidation on actions involving the company.

Section 87 (1) of Act 1015 provides that “On the commencement of winding-up proceedings against a company, civil proceedings against the company shall be stayed and any transfer of shares of the company within that period is void.”

This provision indicates that once winding-up commences, all civil proceedings against the company, which had been initiated prior to the commencement of the winding up, must be halted until the winding up is completed.

Section 93 of Act 1015 further provides that “A person shall not, on the commencement of a winding-up proceed with or commence an action or civil proceedings against the company, other than proceedings by a secured creditor for realisation of the security of that secured creditor, except (a) by leave of the Court; and (b) subject to the terms that the Court may impose.

This section brings further clarity to the provisions of section 87 (1). Under section 93, the word “an action” is introduced in addition to the civil proceedings and it requires any person who wants to initiate any action or continue with any such action against a company that has since become the subject of liquidation, can only do so with leave of the court.

Now, one will notice that with respect to administration, the framers in section 32 of the statute used the phrase “proceedings in court” but with respect to liquidation or winding up, the phrase used by the framers in both sections 87 and 93 is “civil proceedings” and “an action or civil proceedings” respectively.

It is a trite principle of interpretation of statutes that when the framers of a statute use different words, it is presumed that they intended the words to have different meanings in each context.[9] Hence, the fact that the framers of the statute used “proceedings in court” in section 32 and used “actions and civil proceedings” in sections 87 and 93 means that these phrases were not intended to have the same meaning or effect.

Civil actions and civil proceedings cannot be limited to court litigations. Civil actions and proceedings may be taken in other adjudicating fora either agreed to by the Parties or provided by any law.

The Black’s Law Dictionary[10] defines[11] civil actions as “One which seeks the establishment, recovery or redress of private and civil rights. One brought to recover some civil right, or to obtain redress for some wrong not being a crime or misdemeanor.

“Proceedings” is also defined as “ the regular and orderly progression of a lawsuit, including all acts and events between the time of commencement and the entry of judgment” in the same edition of the Black’s law dictionary.

It means that that “civil proceedings and actions” used in sections 87 and 93 of Act 1015 can be purposively interpreted to include arbitral proceedings.  If this conclusion is upheld, it means then that in Ghana, arbitral proceedings cannot be commenced or maintained against a company that is the subject of liquidation, except with leave of the court. As is the practice in other areas of law, a Party can apply for this leave from the High Court ex parte demonstrating the existence of an arbitration agreement and the injustice which will occasion that party if arbitral proceedings are not commenced. The fact that section 4 of Act 798 allows arbitration agreement to be enforced against a company that is the subject of liquidation, fortifies this position.

The request for leave from the High Court before commencement of arbitral proceedings or continuation of such arbitral proceedings against a company that is the subject of liquidation, is not applicable if the arbitration agreement was contained in an agreement for secured credit between the Claimant and the Respondent Company.

4.3 Conclusion

From the exposition above, we are of the humble opinion that under Ghanaian Law;

1. Arbitration proceedings can be commenced or maintained against a company that is gone into Administration; without leave of the Court.
2. An arbitral award can however not be executed or enforced against a company that is the subject of administration; without leave of the court.
3. Arbitration proceedings can be commenced or maintained against a company that is in liquidation of the proceedings is to enforce a secured credit arrangement.
4. However, in all other instances, arbitration proceedings cannot be commenced or maintained against a company that is in liquidation, except with leave of the High Court.

We have attempted to clarify the position of Ghanaian Law on the subject of insolvency and arbitration. There are however other subplots in this discussion which have not been explored in this paper. Questions such as what right will a Claimant in arbitral proceedings have to apply for the preservation of any property of a company which is the subject matter of liquidation; could be explored in subsequent writings on this subject.

[1] See the decision of Justice Justin Kofi Dorgu in the case of Capt. Benny Whalley v Bolton Portfolio Ltd & Anor (Suit No: CM/MISC/0385/2021)

[2] See the decision of the Supreme Court in the case of Rep v High Court, Accra; Exparte Ghacem (civil appeal no: (j5/29/2018)

[3] See the dictum of Gabriel Pwamang JSC in the case of Republic v High Court Accra: Exparte Ecobank Ghana Ltd (Origin 8 Ltd; Interested Party (civil motion no: j5/10/22)

[4] Section 169 defines “Court” as High Court

[5] “enforcement process” in relation to property, means (a) execution against property; or  (b) any other court process in relation to that property;

[6] Section 169 defines “Court” as High Court

[7] See the decision of the Supreme Court in the case of Justice Abdulai v Attorney General (Writ No J1/07/2022)

[8] “enforcement process” in relation to property, means (a) execution against property; or  (b) any other court process in relation to that property;

[9] See R v Barnier [1980] 1 S.C.R. 1124 where it was held that the corollary of the presumption that the same word bears the same meaning is the presumption that the legislature intends that different words should have different meanings

[10] 8^th Edition published in 2004

[11] The use of the definition of legal text in Black Law’s Dictionary as an aid to interpreting statutes in Ghana has received judicial affirmation in the case of the 2020 Election Petition filed by John Dramani Mahama.