Exploring arbitration potentials for dispute resolution in Nigeria

Wherever interpersonal relationships exist, disputes become inevitable as there are bound to be conflicting opinions, aspirations, and modus operandi. Parties to business transactions are often driven by a desire to preserve their business relationship and keep their affairs confidential. Consequently, they prefer the “friendly” atmosphere of arbitration and the confidentiality that same assures. Arbitration is a private system of adjudication, and parties who arbitrate have decided to resolve their disputes outside of any judicial system. Arbitration involves a final and binding decision in the form of an award that is enforceable in a national court.

Historically, arbitration has been used to resolve conflicts in Nigeria and it can be argued that the practice has its deep roots in the local traditions. This view was rightly observed by Oguntade JCA (as he then was) in his dissenting judgment in Okpuruwu v. Okpokan (1998) 4 NWLR (Pt. 90) 554, where His Lordship observed thus: “[i]n pre-colonial time and before the advent of regular courts, our people certainly had a simple and inexpensive way of adjudicating over disputes between them. They referred them to elders or a body set up for that purpose. This practice has over the years become so strongly embedded in the system that they survive today as custom”.

Read also: Arbitration and Mediation Bill, 2022: What’s new?

The history of modern arbitration in Nigeria can be traced to 1914 when the Arbitration Ordinance was enacted based on the English Arbitration Act of 1889. The Arbitration Ordinance was subsequently re-enacted in 1958 as Arbitration Ordinance, Cap 13, Laws of the Federation of Nigeria (the “1958 Arbitration Ordinance”). However, the 1958 Arbitration Ordinance was only applicable to domestic arbitration and made no mention of international commercial arbitration. The Arbitration and Conciliation Decree (1988) was later promulgated and integrated into the Nigerian body of law as the Arbitration and Conciliation Act Cap 19, Laws of the Federation of Nigeria, 1990 (“ACA”). This marked Nigeria’s formal adoption of international commercial arbitration as legislation.

Since then, arbitration has been acknowledged and accepted in Nigeria as a form of conflict resolution and has become the norm for dispute resolution in most business transactions. Arbitration gives the parties substantial autonomy and control over the process that will be used to resolve their disputes. This is particularly important in international commercial arbitration because parties do not want to be subject to the jurisdiction of the other party’s court system. Moreover, the flexibility of being able to fashion the dispute resolution process according to the needs of the parties and the opportunity to select arbitrators who are knowledgeable in the subject matter of the dispute makes arbitration particularly attractive. More importantly, delay and inefficiency in the judicial system are other factors that contributed to the increase in the use of arbitration as a dispute resolution mechanism in Nigeria.

It has become expedient to develop future-fit regulations and expertise with arbitration becoming more popular in Nigeria. Thankfully, on May 26, 2023, the erstwhile President of the Federal Republic of Nigeria, President Muhammadu Buhari GCFR signed the Arbitration and Mediation Bill into law. The Bill, now the Arbitration and Mediation Act, 2023 (the “Act”) which repealed the country’s 35-year-old ACA caters for the intricacies of international arbitration in modern times and has the potential to transform the landscape of arbitration in Nigeria.

The Act introduced several innovative provisions, including the recognition of costs of obtaining third-party funding as part of ‘costs of arbitration’ (section 50(1)(g) and Section 62 of the Act), making it possible for many corporates to maintain and defend arbitration claims despite the rising costs of arbitration. Moreso, it will increase corporates’ access to justice, while also maintaining enough cashflow for business operations. The Act also introduced the award review tribunal (“ART”) (section 56 of the Act), an opt-in mechanism that allows parties to apply to a second arbitral tribunal for a review of an arbitral award only on any of the grounds set out in section 55(3) of the AMA (grounds for application for setting aside an award). The ART, constituted in the same way as the tribunal in the original arbitration, shall render its decision within 60 days of its constitution, and during this time any enforcement proceedings must be stayed pending the decision of the ART. Thus, the grounds upon which an “ART upheld award” can be annulled by the courts have now been limited to grounds of non-arbitrability and public policy. This provision will potentially strengthen Nigeria’s legal regime for the enforcement of arbitral awards.

Read also: The Arbitration and Mediation Act 2023 and Nigeria’s quest to be an attractive seat of arbitration

Furthermore, in addressing the controversial topic regarding the enforcement of arbitral awards running from the accrual of the cause of action, the Act now provides that the time between the commencement of an arbitration and the final arbitral award will not be reckoned in considering the limitation period for enforcement of awards (section 39(1) of the Act). The Act also goes further to recognize parties’ agreement to consolidate arbitral proceedings or hold concurrent hearings on such terms as may be agreed. This will reduce the time, costs, and attendant risks of parallel proceedings, thus enhancing procedural efficiency. No doubt, these provisions alongside other innovative provisions of the Act have the potential to increase Nigeria’s attractiveness as a significant arbitration hub in Africa and even globally in no distant future.

Turning to the courts, the Nigerian Courts have generally adopted a pro-arbitration stance in the determination of arbitration-related matters. This is evidenced in several decisions of the courts that gave effect to parties’ arbitration agreements by staying proceedings instituted contrary to an arbitration agreement between the parties and referring the parties to arbitration.

A 2021 study by Broderic Bozimo & Company, titled “Analysis of Arbitration Related Decisions in Nigeria” analysed 49 cases in which the arbitral awards were directly challenged (as opposed to cases where enforcement was resisted or opposed by the award debtors), suggests that Nigerian courts are arbitration-friendly and would, in most cases, enforce arbitral awards or refuse applications to set aside arbitral awards. Out of the 49 analyzed cases, 47 concerned domestic arbitration awards (constituting 96 per cent of the cases reviewed), while two cases concerned international arbitration awards (4 percent of the cases reviewed). Out of the 47 domestic cases, 12 awards were successfully challenged (26 per cent), while the challenge was unsuccessful in 35 cases (74 percent). The challenge against international arbitration awards was unsuccessful. In relation to enforcement proceedings, the report analysed 41 cases under this category. Thirty-three of these cases were related to domestic awards (80 per cent), while eight cases concerned international awards (20 percent). Out of the 33 domestic awards, 26 were enforced (79 percent), while seven were unenforced (21 percent). Of the eight international awards, seven were enforced (88 percent), while one was unenforced (12 percent).

While the report generally buttresses the pro-arbitration stance of the Nigerian courts in terms of their ultimate determination of awards challenges, there is still the ugly trend of parties to arbitration filling all manner of “unsubstantiated and spurious challenges against otherwise good arbitration awards and the arbitral tribunal,” (Metroline (Nig.) Ltd. v Dikko (2021) 2 NWLR (Pt. 1761) 422). Hence, the prudent counsel of his Lordship, Hon. Justice Rhodes-Vivour JSC (Rtd.) in Metroline (Nig.) Ltd. v Dikko (2021) 2 NWLR (Pt. 1761) 422, highlighting the need for parties and their counsel to “always bear in mind the importance of respecting arbitration agreements, more so those that have international connotations. Building up and sustaining a globally respected dispute resolution system are major steps for the growth of our Nation into a preferred investment destination”.

Finally, with Nigeria ratifying the African Continental Free Trade Area (“AfCFTA”) Agreement coupled with the envisaged growth of intra-African trade and investments and the expected disputes, the adoption of arbitration by Nigeria alongside other African states is set to increase significantly in the nearest future. This projection is informed by the inclusion of arbitration as one of the avenues for resolution of disputes under the Protocol on Rules and Procedures on the Settlement of Disputes, which shall administer the settlement of disputes between state parties where the disputes arise from the provisions of the AfCFTA Agreement (Article 6(6) and 27 of the Protocol). Even though the Draft Investment Protocol to the AfCFTA does not mention “arbitration” in name as one of the mechanisms for the resolution of disputes between an investor and a host state relating to an alleged breach of the protocol, it can be taken that “other amicable dispute resolution mechanisms available in the Host State” in the protocol would include arbitration where Nigeria is the host state (see Article 46(1) of the Draft Investment protocol).

There is no doubt as to the appetency for arbitration in Nigeria and the fact that Nigeria’s arbitration landscape looks increasingly promising. The Act underpins the effort of the Nigerian government to cater for the intricacies of international arbitration in modern times. The impact of its innovative provisions is yet to be tested, but there is no doubt that it will place Nigeria among the comity of nations with arbitration-friendly jurisdictions. In order to be well-positioned as a nation to explore the full potential of this new arbitration regime, there is a need for upskilling and an extensive training curriculum to keep legal practitioners and judicial officers up to date with these innovations and, by extension, the developments in the field of international arbitration practice. Finally, the use of multi-door courtrooms where alternative dispute resolution mechanisms are being devised should be widely adopted in every State High Court in Nigeria.