Arbitrability of Claims of Forgery of Arbitration Agreement – Has Ghana Law Departed From the Prima Paint Rule?

1.Introduction

There is no doubt that in most recent times, the approach of the court in Ghana is to as much as possible, promote alternate means of settling disputes other than by judicial adjudication. Where the Parties have agreed to settle a dispute by arbitration, the courts in Ghana will, unless that agreement is waived by a Party, suspend its jurisdiction to adjudicate the dispute, and refer the parties to arbitration. In the case of De Simone Ltd v Olam Ghana Ltd[1], the Supreme Court re-affirmed its disposition to promoting alternative dispute resolution, particularly where the parties have agreed on the means of the alternative dispute resolution, in their agreement. The reason for this approach cannot be far-fetched. The number of cases pending before the courts and the advantage of obtaining technical expertise in resolving dispute, have been touted as the foremost reasons why settling disputes by arbitration have been encouraged by the court. In the case of Environmental Development Group  v Provident Insurance Co Ltd & Getfund[2] the Supreme Court held that “Also, if the alternative dispute resolution mechanism provided for in the agreement had been applied, the controversies regarding the technical aspects of the case would have been resolved by building industry experts so that any outstanding issues of pure law could then have been brought to the courts for determination”.

Despite the disposition towards encouraging parties to resolve dispute by arbitration, the courts cannot force parties to resolve a dispute by arbitration if there was no arbitration agreement prior to the dispute or if the parties have not subsequently agreed to have the dispute referred to arbitration.

Section 5 of the Alternative Dispute Resolution Act, 2010, Act 798 thus provides that “a party to a dispute in respect of which there is an arbitration agreement may, subject to the terms of the arbitration agreement, refer the dispute to any person or institution for arbitration”. For an arbitral tribunal to have jurisdiction over a dispute, there must be an arbitration agreement conferring the jurisdiction on the tribunal.

Just like every other contract, there could be vitiating factors which will render an alleged arbitration agreement ineffective, non-existent, and/or unenforceable. In this article, the Author discusses the impact of a claim that a party did not sign the alleged arbitration agreement, on the jurisdiction of the tribunal to settle the dispute by arbitration. In other words, where a party denies ever signing the alleged arbitration agreement or claims that the alleged arbitration agreement was forged, should the parties proceed to constitute an arbitral tribunal to determine that claim of forgery?

The Author will attempt an answer to this question in the light of the provisions of Act 798 and other relevant statutory regimes as well as case law, both in and outside Ghana, on the subject.

2.The Prima Paint Rule

The Supreme Court of the United States held in the case of Prima Paint Corp. v Flood & Conklin Manufacturing Co[3](referred to as the Prima Paint Rule) that if the allegation of fraud relates to the invalidity of the contract, then an arbitral forum is competent to determine such an allegation but if the fraud claim is about the arbitral provision, then on the basis of the separability doctrine, the court would have to determine it.  The facts of this case are that the Respondent (F & C), a New Jersey corporation which manufactured and sold paint and paint products to wholesale customers in a number of States, entered into a contract with petitioner (Prima), a Maryland corporation, whereby F & C agreed to perform consulting and other services relating to the transfer of operations from F & C to Prima and agreed not to compete with Prima, for which Prima agreed to pay, over the six-year life of the contract, certain percentages of receipts from sales. The contract, which stated that it “embodies the entire understanding of the parties,” contained a broad arbitration clause that“any controversy . . . arising out of this agreement, or the breach thereof, shall be settled by arbitration in the City of New York in accordance with the rules… of the American Arbitration Association.” Almost a year later, after the first payment had become due, Prima notified F&C that F & C had breached the consulting agreement and an earlier agreement involving Prima’s purchase of F & C’s paint business. Prima’s contention was that F & C had fraudulently represented that it was solvent and able to perform its obligations, whereas it was insolvent and planned to file a bankruptcy petition shortly after executing the consulting agreement. F & C responded by serving a notice of intention to arbitrate, whereupon Prima filed this diversity action in federal court for rescission of the consulting agreement on the basis of the alleged fraudulent inducement and contemporaneously sought to enjoin F & C from proceeding with arbitration. The United States Arbitration Act of 1925 provides, in section 2, that a written arbitration provision “in any . . . contract evidencing a transaction involving commerce . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract”.

Section 3 further provided that that a federal court in which suit is brought upon an issue referable to arbitration by an arbitration agreement must stay the court action pending arbitration once it has decided that the issue is arbitrable under the agreement. Section 4 also provided that a federal court whose assistance is invoked by a party seeking to compelanother to arbitrate, if satisfied that an arbitration agreement has not been honored and that “the making of the agreement for arbitration or the failure to comply with the arbitration agreement is not in issue,” shall order arbitration. The District Court granted a motion filed by F & C to stay the action pending arbitration, and the Court of Appeals dismissed Prima’s appeal.

On further appeal to the Supreme Court, the US Supreme Court held that if the claim is fraud in the inducement of the arbitration clause itself an issue which goes to the “making” of the agreement to arbitrate, then the federal court may proceed to adjudicate it.”

This decision, which has become known as the ‘Prima Paint Rule’ has been applied in a host of jurisdictions as the basis for clothing a court with jurisdiction to determine if a Party actually signed an arbitration agreement and not refer that issue to the arbitration tribunal to determine.

3.Application of Prima Paint Rule by Supreme Court of Ghana

The Supreme Court of Ghana had the opportunity to pronounce on the applicability of the Prima Paint Rule in Ghana with reference to the provisions of the Act 798 in the Unichem (Ghana) Limited & Anor v Metropolis Healthcare (Mauritius) Ltd & Anor[4].  The facts of that case are as follows:

The Plaintiffs by their Writ of Summons sought to dispute the existence of some agreements signed with the Defendants. These Agreements include a Shareholders Agreements, Share Purchase Agreements and Subscription Agreements (referred to as the Agreements). The Plaintiffs’ claimed primarily in their Statement of Claim that the transaction between the parties that diverted them of their shares in 2nd Defendant Company was fraudulent and wrong in law. They averred that, until their attention was drawn to the Agreements, they had no clue that there were such Agreements in force between Plaintiffs and 1st Defendant. They continued that, the signatures on the Agreements are not their known signatures and therefore sought an Order of the Court to declare the Agreements null and void.

When the Writ and Statement of Claim were served on the Defendants, the latter entered appearance through their counsel and filed a Motion on Notice to Stay Proceedings of the action commenced by the Plaintiffs and refer the parties to arbitration since the Agreements contain mandatory dispute resolution provisions which require the parties to refer disputes to arbitration in Mauritius should the parties fail to resolve the dispute amicably.

The Plaintiffs vehemently opposed the application for an Order of Stay of Proceedings and refer the parties to arbitration insisting that the Agreements were procured by fraud and that as the Plaintiffs did not execute the said Agreements, they are not bound by the contents of the purported Agreements including the said arbitration clauses. Consequently, the Plaintiffs have not voluntarily submitted to arbitration and are not amenable to the said purported arbitration as the allegation of fraud raised in their pleadings, which is a quasi-criminal offence, the High Court is better placed to assume jurisdiction and determine the issue of fraud as opposed to an arbitral tribunal.

The Supreme Court, per Mariama Owusu JSC concluded that the Prima Paint principle was not applicable in Ghana. She thus held “Clearly by sections 3 and 24 of Act 798, the Arbitral Tribunal is the appropriate body clothed with jurisdiction to determine the issue as to the existence or otherwise of the Container Agreements in which the arbitration agreement is contained. Section 24 (b) uses the words “the existence or validity of the agreement to which the arbitration agreement relates.” In the mind of the Supreme Court, even if a party alleges not to have seen or signed the arbitration agreement, the agreement will still be enforced to constitute a tribunal for the tribunal to determine the claim by the party.

 In all humility, the Author disagrees with this conclusion by the Supreme Court and he will seek the justify his position in the proceeding pages.

 

3.1 Is a Claim Forgery of Arbitration Agreement or Arbitration Agreement Procured By Fraud Arbitrable?

 The allegation of forgery constitutes a crime. Section 159 of the Criminal Offences Act, 1960, Act 29 provides that“Whoever forges any document whatsoever, with intent to defraud or injure any person, or with intent to evade the requirements of the law, or with intent to commit, or to facilitate the commission of, any crime, shall be guilty of a misdemeanour.”

Fraud is equally a crime. Section 131 of Act 29 provides that “Whoever defrauds any person by any false pretence shall be guilty of a second-degree felony”

Where a party to a dispute insists that he did not sign an arbitration agreement and that his signature has been forged, or that the documents he signed did not contain an arbitration agreement so that he claims that the arbitration agreement was inserted after he had signed the document, then that party is essentially alleging that his signature has been forged on the document is a forged document.  In other words, the party is claiming that the arbitration agreement does not exist.

The question then is whether or not a party who is denying signing an arbitration agreement, can be subjected to arbitration proceedings to determine the veracity or otherwise of his claim?

3.2 Purposive Interpretation of Act 798

In holding that the Prima Paint Rule, does not apply in Ghana, the Supreme Court largely relied on the provisions of sections 3 and 24 of Act 798.

Section 3 (1) of Act 798 provides that “Unless otherwise agreed by the parties, an arbitration agreement which forms or is intended to form part of another agreement, shall not be regarded as invalid, non existent or ineffective because that other agreement is invalid or did not come into existence or has become ineffective and shall for that purpose be treated as a distinct agreement.”

Section 24 of Act 798 provides that “Unless otherwise agreed by the parties, the arbitral tribunal may rule on its own jurisdiction particularly in respect of

(a)  the existence, scope or validity of the arbitration agreement;

(b)  the existence or validity of the agreement to which the arbitration agreement relates;

The focus of the Supreme Court’s decision in the Unichem case was the meaning of “non-existent” and “existent” as used in both section 3 rule (1) and section 24 (1) of Act 798. Whereas the Supreme Court concluded that “non-existence” and “existence” used in sections 3 and 24 should be interpreted to mean that the tribunal should be constituted to determine whether or not the said arbitration agreement was forged, the Author, respectfully, disagrees.

The basis of the Author’s dissent to the decision of the Supreme Court is that it is trite canon of interpretation that words take their colour from its context. Thus, where a word is used together with other words, the interpretation of that word, should be aligned with the interpretation of the words with which it is used. This is known as the principle of “noscitur a sociiss”. This principle, as a canon of interpretation, posits that a word takes its meaning from the company it keeps. In the case of Republic v Ministry of Interior Ex parte Bombelli[5], the court had to interpret the word ‘order’  as used in Article 4 (7) (a) of the 1979 constitution.  The said article provided that “Any Orders, Rules or Regulations made by any person or authority under power conferred in that behalf (a) shall be laid before Parliament.” The Court held that “By the canon of interpretation, i.e. the noscitur a sociis rule, the word “Orders” in article 4 (7) (a) of the Constitution, 1979 meant “orders” in the form of rules and regulations – not a command such as the order issued by the minister.  According to that rule of interpretation, a word took its meaning from the company it kept, and “Orders” in article 4 (7) (a) had to be interpreted as “orders” such as rules and regulations.”

Now, section 3 (1) of Act 798 provides that “Unless otherwise agreed by the parties, an arbitration agreement which forms or is intended to form part of another agreement, shall not be regarded as invalid, non existent or ineffective because that other agreement is invalid or did not come into existence or has become ineffective and shall for that purpose be treated as a distinct agreement.” (emphasis mine).

A careful reading of this section will reveal that the intention of the framers of that clause is that an arbitration agreement, which forms part of a larger agreement, shall not be deemed not to exist merely because that larger agreement has been found to be invalid or did not become ineffective or was never implemented.  For all intent and purposes therefore, an arbitration agreement, once it is found to be valid, does not lose its validity merely because the other document which the arbitration agreement is part of or relates, has been found to be ineffective, invalid, or never came into force.  This is what has become known as the principle of separability of arbitration agreement. By this principle, the arbitration clause is deemed separate from the other parts of the contract for which reason, the termination or invalidation of the rest of the contract due to vitiating factors, would not affect the arbitration clause.

The doctrine of separability, with all due respect to the Supreme Court, has no bearing on the validity of an arbitration agreement itself, which validity or existence is being challenged on grounds of fraud or forgery.

Now, section 24 (b) vests an arbitral tribunal to have the jurisdiction to determine the validity, scope and existence of an arbitration agreement or the existence or validity of the larger agreement to which the arbitration agreement is part of or relates to.

Seeing that the jurisdiction of a tribunal to determine the existence of an arbitration agreement has been tied to whether or not the larger agreement is valid, it is submitted that “existence” and non-existence” of arbitration agreement used in sections 24 and 3 of Act 798, should be given the meaning in the context of the meaning of the words of “scope and validity” that it finds in its company.

 A fortiori, a reading of Section 3 and 24 together as a whole, as is required in statutory interpretation, will lend credence to the submission that the provisions of section 24 (1) with respect to the existence of the arbitration agreement, cannot be interpreted to depart from the basis of the allegation of the non-existence of arbitration agreement provided for in section 3 (1).

The Author opines that if the entire agreement is vitiated by fraud and is found to be void by reason of the fraud, the fraud would vitiate the arbitration agreement/clause. A court or tribunal which holds that the entire agreement is vitiated by fraud should also hold that the arbitration clause in that agreement cannot stand on its own.

The Author is of the opinion that should the Supreme Court decision in the Unichem case be allowed to stand, it will mean that parties will simply forge documents claiming the existence of an arbitration agreement and that will result in the suspension of the jurisdiction of a court. As has been agreed within our jurisprudence, the jurisdiction of a court cannot be suspended unless there is an express statutory provision to that effect.

The only ground which will warrant the suspension of the jurisdiction of a court in favor of an arbitration as provided for in section 6 (1) of Act 798 is where there is an arbitration agreement. Section 6 (1) of Act 798 thus provides that “6. (1) 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.” (emphasis mine)

Now, the requirement of evidence of an agreement by parties to arbitrate disputes aligns with the principle that the agreement to arbitrate the dispute must be voluntary. The provisions of Act 798, as reproduced above, are in line with the incontrovertible position of all legal systems that arbitral proceedings cannot commence without prior voluntary agreement by the parties to submit the dispute to arbitration.

Andrea Marco Steingruber emphasized this position of law in the Oxford International Arbitration Series, where he stated that “The principal characteristic of arbitration is that it is chosen by parties by concluding an agreement to arbitrate. The arbitration agreement is considered the foundation stone of international (commercial) arbitration, as it records the mutual consent of the parties to submit to arbitration-mutual consent which is indispensable to any processes of dispute resolution outside national courts. Such processes depend for their very existence upon the agreement of the parties. Hence, this element of mutual consent is essential, as without it, there can be no valid arbitration.”[6]

It is this defining character of voluntary consent of parties before arbitral proceedings can commence that differentiates arbitration from the state sponsored adjudication process of litigation. Whereas a person has no choice but to use the state’s judicial system to settle a dispute, the state does not generally have such coercive powers when it comes to arbitration; unless there are statutory prescriptions which direct parties to settle disputes arising from the implementation of that statute to arbitration.[7]

The parties must voluntarily agree to submit their dispute to arbitration as they cannot be forced to.

In expressing his opinion on this issue, Tiewul S. A.[8] stated as follows: “A party may not evade his obligation to arbitrate by allegations, however wild, of fraud or other vitiating factors; he should be required to make out a prima facie case of the existence of such a vitiating factor. In other words, he should have the burden of establishing facts on which the court can found a provisional conclusion that the contract was probably void. At the same time, care should be taken to ensure that too much is not required of such a party, i.e. that he is not actually required at this stage to adduce definitive proof of a vitiating factor. Upon the determination of this question and based upon the way it falls, the actual merits can then be relegated to the arbitrators or the case may then proceed in court.”

The determination of whether or not there is an arbitration agreement must thus be made by the court before the court can refer the dispute to arbitration.  If a party thus claims that there was no arbitration agreement at all (without relating it to the existence of a larger agreement), then it is submitted that the court must determine that question. If it is answered in the positive that there is an arbitration agreement, then the matter will be referred to arbitration but if the court determines that there was no arbitration agreement then the dispute cannot be referred to arbitration.

This position is fortified by the provisions of Article 8(1) of the UNCITRAL Model Law thus “A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.”

In any event, forgery is a crime. If a party who alleges that his signature on an arbitration agreement has been forged and decides to pursue criminal proceedings, whiles the other party who is insisting on existence of the arbitration agreement pushes for a tribunal to be constituted to determine whether the signature was forged, which of the two institutions will be seised with jurisdiction to determine the forgery; the tribunal or the court?.  The Author is minded by the provisions of Section 1 of Act 798 which provides that This Act applies to matters other than those that relate to

(a)  the national or public interest;

(b)  the environment;

(c)  the enforcement and interpretation of the Constitution; or

(d)  any other matter that by law cannot be settled by an alternative dispute resolution method.

The Author is of the opinion that it is in the interest of the state that an allegation of forgery of signature is determined of the perpetuators to be brought to book. If that is left to an arbitral tribunal, will the tribunal have the jurisdiction to impose criminal sanctions if it concludes that the signatures were indeed forged?

3.3 The Savannah Pride Decision

The Author had the benefit of reading the dissenting opinion of Kyei Baffour JA in the court of appeal decision in this same Unichem case and tends to agree with his conclusion. In his dissenting opinion, Justice Kyei Baffour held that “I proceed on the assumption that the ADR Act, was aimed at overcoming judicial hostility to arbitration agreements. The issue as to whether an allegation of fraud in a contract preclude an arbitral forum from determination of same when there is no evidence that the parties intended to exclude that has now been authoritatively answered. In the Federal Supreme Court case of Prima Paint supra, the court held that arbitral clauses are separable from the contracts in which they are embedded, and where no claim is made that fraud was directed to the arbitration clause itself, a broad arbitration clause would be held to encompass arbitration of the claim that the contract itself was induced by fraud. This principle that began as an American judicial exceptionalism has subsequently been embraced by the English courts as exemplified in the cases cited by the Lady President. However, this line of cases flowing from Prima Paint that establishes the separability doctrine must be kept in its confines as the locus classicus did not decide that any kind of fraud allegation is determinable by an arbitral tribunal.”

The learned Judge further held that “The question therefore is what is the nature of the fraud allegation that Plaintiff has made in his pleadings? Is the fraud allegation directed against the validity of the Share Purchase and Subscription Agreement only or is the fraud allegation made further directed against the arbitration clause itself in the Share Purchase Agreement? It is my view that the nature of the fraud allegation made by the Plaintiff is a double-edged fraud allegation. The first fraud allegation is directed against the existence of the agreements that Defendants seeks to rely on. And the second allegation of fraud is directed against the arbitration clause itself. This meets the separability rule in Prima Paint case which is to the effect that where the allegation of fraud is directed against the arbitration clause, then the court ought to be the forum for the determination of the fraud allegation made.”

Justice Kyei Baffour JA thus concluded “As I have noted supra that if the complaint of fraud had just rested on the agreements only, then I would have concurred in the opinion of the majority that the parties be referred to arbitration. Having submitted in the pleadings that the arbitral provision had been procured on his blind side, I think the Plaintiff had made a case for which the High Court must assume jurisdiction but not defer to any arbitral body. It is for the above reasons that I agree with the conclusion of the court below but not the reasons it gave that the High Court must hear the suit.”

His dissenting opinion aligns with his earlier decision in the case of Savannah Pride v Hanergy Global[9] where he held that “Where there was an arbitral clause in an agreement and there was an allegation of fraud with regard to the main agreement, the proper forum for determination of the dispute was arbitration. However, if the allegation of fraud was in respect of the arbitral provision such as an allegation that a party never intended to have an arbitral settlement of the dispute and such provision was inserted on the party’s blind side, then it was the duty of the court to determine such an issue”.

It must be noted that section 73 of the Court’s Act 1993, Act 459 which promoted alternative dispute resolution of criminal offences, does not cover allegations which are felonies such as fraud. Section 73 of Act 459 provides that “Any court, with criminal jurisdiction may promote reconciliation, encourage and facilitate a settlement in an amicable manner of any offence not amounting to felony and not aggravated in degree, on payment cases of compensation or on other terms approved by the court before which the case is tried, and may during the pendency of the negotiations for a settlement stay the proceeding for a reasonable time and in the event of a settlement being effected shall dismiss the case and discharge the accused person.”

Hence if indeed, there is an allegation of fraud as to the existence of the arbitration agreement itself, same cannot be resolved by any other means apart from the court system.

4. Conclusion

The provisions of Act 798 which provide that the jurisdiction of a tribunal can be invoked to determine the validity or existence of an arbitration agreement relates to jurisdiction of the tribunal to determine a challenge to the existence or validity of the arbitration agreement in relation to the validity or existence of a larger agreement that the arbitration agreement is part of. Where a party claims that he did not sign the arbitration agreement, it is submitted that the Prima Paint rule must apply.

[1] [2017-2018] 1SCLRG 289

[2] (Suit NO. J4/31/2019)

[3] 1967 388 U.S 395

[4] (Civil Appeal No: J4/43/2023) delivered on 21^st February 2024

[5] [1984-1986] 1GLR 204

[6] “Consent in International Arbitration” (Oxford University Press, 2012)

[7] See Prof. Richard Oppong T”he Nature and Constitutionality of Statutorily-Imposed (Non-Contractual) Arbitration in Ghana” (2021) 65 Journal of African Law 205-222”

[8] In his article titled “The Enforcement of Arbitration Agreements and Award” [1974] UGLJ Vol XI No 2 143-169

[9] [2018-2019] 2GLR 626