Sometime in October, 1990, Nigeria LNG Limited, '"the plaintiff " entered into a contract with one Fedision Nigeria Limited, "the contractor", for the drilling of a water well at Bonny Island, Rivers State. Clause 19.2 of the contract contained an action clause in the following terms.

"Any dispute whether in contract or at law, arising out of or in connection with the contract or the work performed thereunder shall be finally and exclusively settled by arbitration in Lagos, Nigeria under the Nigeria Arbitration and Reconciliation Decree of 1988 by three arbitrators appointed in accordance with the Decree."

By a performance bond dated 21st December, 1990, the contractor and African Development Insurance Company Limited, "the defendant", severally and jointly themselves to pay the plaintiff the sum of N538,122.00. The condition of the bond is in the following terms.

"NOW THE CONDITION of the above written Bond is such that if the Contractor shall duly perform and observe all the terms, provisions, conditions and stipulations of the said contract on the contracted part to be performed and observed according to the true purpose intent and meaning thereof or if on the default by the contractor the surety shall satisfy and discharge the damages sustained by the Employer thereby up to the amount of the above written bond, then this obligation shall be null and void but otherwise shall be and remain in full and effect. PROVIDED always and it is hereby declared that no alteration in terms of the said Contract made by agreement between the Employer and the Contractor Or in the extent or nature of the works to be constructed completed and maintained thereunder and no allowance of time by the Employer or the Engineer under the said Contract nor forbearance or forgiveness in or in respect of any matter or thing concerning the said Contract on the part of the Employer or the said Engineer that in any way release the Surety from any liability under the above written bond."

By writ of summons dated 11th March, 1992, the plaintiff sued the defendant in the High Court of Lagos Stale on the bond. By its statement of claim it averred inter alia that the contractor "did not duly perform, execute or complete the said contract within 91 days and as a result the contract was terminated on April 2, 1991.” It also pleaded the terms of the bond albeit in paraphrase. By a motion on notice dated 8th May, 1992, the defendant applied to the High Court for a stay of the proceedings pending a reference to arbitration on the grounds that the subject matter of the action was governed by the arbitration clause.

Silva J., before whom the matter came, granted the defendant’s application.

He was of the opinion that the performance bond arose in connection with the contract between the plaintiff and the contractor and that "without this contract there would not have been a performance bond or vice versa". Being of that view he concluded that "although an arbitration clause is not included in the performance bond, I think it ought to he read into it since it was brought into being by the existence of the main contract between the plaintiff and Fedision Nigeria Limited”

The respondent was dissatisfied with the decision of the trial court appealed to the Court of Appeal which allowed the appeal and reversed the ruling of the High Court.

Dissatisfied with the decision of the Court of Appeal, the appellant appealed to the Supreme Court.