Commercial arbitration has become a preferred method of dispute resolution globally. It offers parties the advantages of privacy, flexibility, and enforceability of arbitral awards. In Nigeria, arbitration is gaining traction as an alternative to the often prolonged litigation process. It helps to reduce the time and costs associated with court proceedings.
To resolve a dispute through arbitration, the involved parties generally establish an arbitration agreement, which expresses their intent to refer specific disagreements arising from their legal relationship to arbitration. This agreement may be embedded as a clause within a contract or set out as a separate document. One or more arbitrators are then selected by the parties to review the case’s details and work toward a resolution.
This article provides an overview of the legal framework and practice of commercial arbitration in Nigeria. First, what is commercial arbitration?
What is Commercial Arbitration?
Commercial arbitration is a method of resolving disputes between businesses or commercial entities outside the court system. It involves appointing one or more neutral arbitrators who review the facts, hear both sides, and issue a binding decision.
It is widely used to handle conflicts in various sectors, including finance, trade, construction, and international commerce. It provides a practical alternative to traditional legal methods for managing complex commercial disagreements.
In Nigeria, commercial arbitration can be classified into the following categories:
- Domestic Arbitration: This is an arbitration process entirely conducted within Nigeria, governed by the ACA and local laws.
- International Arbitration: In cases where one or both parties are based outside Nigeria or where the dispute concerns international trade or investment, international arbitration principles apply.
- Ad Hoc and Institutional Arbitration: This is where the parties manage the arbitration process on their own without involving an external organization. They set their own rules, choose arbitrators, and decide how things will run. This type is flexible and can be less expensive, but it requires the parties to coordinate and make decisions independently.
Legal Framework for Arbitration in Nigeria
The Arbitration and Conciliation Act of 1988 LFN (2004) is the principal federal legislation on arbitration in Nigeria, modeled on the United Nations Commission on International Trade Law (UNCITRAL) Model Law. It outlines procedures for conducting arbitration and enforces arbitral awards in both domestic and international matters.
This Act integrates several elements from the 2006 United Nations Commission on International Trade Law (UNCITRAL) Model Law, thereby aligning Nigeria’s arbitration system with international standards.
As a federal state, Nigeria allows each of its 36 states to establish its own arbitration laws governing dispute resolution within that state. Notable examples include the Lagos State Arbitration Law 2009 (LSAL), the Rivers State Arbitration Law 2019, and the recently introduced Delta State Arbitration Law 2022.
Also, Nigeria is a signatory to several international arbitration conventions, such as the New York Convention (1958) and the International Centre for Settlement of Investment Disputes (ICSID). These conventions facilitate the recognition and enforcement of foreign arbitral awards and foster Nigeria’s engagement in international arbitration.
In Nigeria, there are multiple institutions that promote and administer commercial arbitration:
- The Nigerian Institute of Chartered Arbitrators (NICArb): NICArb offers training and certification to arbitrators, to ensure that they meet standards of professionalism and expertise.
- Lagos Court of Arbitration (LCA): The LCA provides a framework for resolving disputes and offers both arbitration and mediation services. It is highly regarded for its facilities and efficient dispute resolution processes.
- Regional and International Arbitration Centers: The International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA) have also seen a rise in cases involving Nigerian parties, reflecting the country’s integration into global commercial arbitration networks.
Advantages of Commercial Arbitration
Commercial arbitration offers a practical alternative to court litigation. It provides several key benefits including:
1. Expertise and Specialization:
Arbitration allows parties to select arbitrators with expertise specific to the dispute’s subject matter. This ensures a more informed understanding and resolution, as the arbitrators are often specialists in the relevant field.
2. Privacy and Confidentiality:
Arbitration is appealing to major corporations and high-profile individuals due to its private nature. Parties can keep both the proceedings and terms of the arbitration confidential, thereby safeguarding sensitive information from public exposure.
3. Efficiency and Time-Saving:
Arbitration generally offers a faster resolution compared to traditional litigation, avoiding lengthy court procedures that could disrupt business operations. Arbitrators are often expected to complete proceedings within set deadlines, reducing the risk of prolonged disputes.
4. Party Autonomy and Flexibility:
Arbitration provides a high degree of procedural flexibility. Parties have control over various aspects, such as choosing arbitrators with expertise relevant to the issue, deciding the number of arbitrators, selecting applicable laws, and determining the location of the arbitration. Sessions can also be scheduled around the parties’ availability, unlike court cases which must adhere to a rigid calendar.
5. Simplified Procedures and Rules of Evidence:
Arbitration is typically less formal than court proceedings, as strict evidentiary and procedural rules do not apply. While the Evidence Act doesn’t govern arbitral proceedings, basic principles of fairness and justice are upheld. Arbitral processes can be guided by established rules, such as those outlined in the Arbitration and Mediation Act 2023, ensuring fair and efficient outcomes without the strict constraints of a court trial.
Stages of Commercial Arbitration in Nigeria
As previously noted, for the arbitration process to be initiated in Nigeria, the parties must have a written arbitration agreement expressing their intent to resolve disputes through arbitration. The ACA outlines clear procedures for conducting commercial arbitration and the steps include:
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Initiating Arbitral Proceedings
Arbitral proceedings begin with the issuance of a Notice of Arbitration. According to Section 17 of the Arbitration and Conciliation Act (ACA), proceedings are considered to start on the date the request to refer the dispute to arbitration is received by the other party.
The Notice of Arbitration must include a request to refer the dispute to arbitration, the names and addresses of the parties, a reference to the arbitration clause or separate agreement, a general description of the claim, any monetary amounts involved, and the relief or remedy sought, among other details.
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Appointment of Arbitrators
Next, the parties submit their claims, evidence, and legal arguments before the arbitral tribunal. Then they select the arbitrator(s) based on an agreed-upon procedure. If no procedure is agreed, the appointment is made according to the relevant legal framework.
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Preliminary Meeting
The preliminary meeting is where the parties and arbitrators meet to agree on key points, such as jurisdiction, the hearing format (oral or documentary), the number of witnesses and how they will present their evidence, and the arbitrators’ fees and compensation.
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Submission of Statement of Claim and Defense
Both parties submit their pleadings to the arbitrator. The claimant (the party initiating arbitration) submits the statement of claim, while the defendant files the statement of defense.
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Hearing
Arbitral hearings are generally less formal and are private unless the parties agree otherwise. If a party fails to attend the hearing after proper notice, the tribunal can proceed with the case. Once the hearing is concluded, the arbitrators set a date for issuing the award.
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Award and Enforcement
Section 24 of the ACA outlines the making of an award and the termination of proceedings. The award is the tribunal’s final decision, resolving the dispute. It must be in writing, including the names of the parties, the reasons for the award (unless previously agreed to be omitted), the date, and the place where it was made.
Once the final award is issued, the arbitration process ends, as per Section 27(1) of the ACA. The ACA allows for both domestic and foreign awards to be enforced in Nigeria’s courts, provided they comply with the New York Convention.
Enforcement of Arbitral Award in Nigeria
Enforcement of arbitral awards is a key aspect of the arbitration process. It ensures that decisions made by arbitrators are respected and implemented. In Nigeria, the Arbitration and Conciliation Act (ACA) incorporates the principles of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958).
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Domestic Awards
Under Nigerian law, arbitral awards made in domestic arbitration (where both parties are Nigerian or the dispute arises within Nigeria) are enforceable under the provisions of the Arbitration and Conciliation Act.
Section 51 of the ACA explicitly provides that an arbitral award made in Nigeria is binding on the parties, and it can be enforced in the same manner as a judgment of the court. This process is relatively straightforward, with the party seeking enforcement applying to the Federal High Court or the State High Court, depending on the subject matter of the dispute.
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International Awards
International awards can also be enforced under the Foreign Judgment Act 1961, the Reciprocal Enforcement Judgement Act 1922, and the 1958 New York Convention on the Recognition and Enforcement of Foreign Awards (Section 54 of the ACA). The Act ensures that an arbitral award, regardless of the country in which it was made, is recognized as binding.
When seeking enforcement of an international award, the party must present the original arbitration agreement or a certified copy. If the agreement or award is not in English, a certified translation must also be provided.
Can an Arbitral Award be Set Aside?
Yes. In Nigeria, an arbitral award can be set aside on several grounds, including lack of jurisdiction, failure to properly constitute the tribunal, or violation of natural justice, such as denial of a fair hearing or arbitrator bias. Awards may also be annulled if they violate Nigerian public policy, involve corruption or fraud, or fail to provide adequate reasoning.
Additionally, non-compliance with procedural requirements or excessive, incompetent decisions beyond the tribunal’s mandate can lead to setting aside the award. Lastly, if the arbitration agreement is found to be invalid or nonexistent, the award may be overturned. A party seeking to challenge an award must apply to the Court to annul it.
Such applications can be filed at any State High Court or the Federal High Court, depending on the jurisdiction. The application must be made within three months of the award being issued.
Challenges Facing Commercial Arbitration in Nigeria
While arbitration offers a lot of benefits to commercial dispute resolution, there are still challenges in its implementation.
1. Judicial Interference
Although the ACA promotes limited court intervention, Nigerian courts sometimes interfere with arbitration proceedings, especially in the areas of arbitrator appointment and award enforcement. Also, some lawyers may opt to pursue litigation for cases that are eligible for arbitration, while certain businesses prefer to resolve intricate commercial disputes through the court system instead of arbitration.
2. Poor Attitude of Parties
Although an arbitral award is considered final and binding, the losing party can request the Court’s permission to annul the award on grounds such as arbitrator misconduct. In high-stakes commercial disputes with significant financial consequences, the losing party may even appeal to the Court of Appeal and subsequently to the Supreme Court if their application to overturn the award is denied. In such cases, the winning party may face challenges similar to those encountered in traditional court litigation.
3. High Costs
While arbitration can be cost-effective, it is not always cheaper, particularly when involving international arbitrators or institutional fees, which can be prohibitive for small businesses.
4. Lack of Awareness and Expertise
In some sectors, there is a limited understanding of arbitration processes. Moreover, the shortage of skilled arbitrators and legal practitioners proficient in arbitration can hinder the effectiveness of arbitration proceedings.
5. Enforcement Issues
Despite the ACA’s framework for enforcement, inconsistencies in judicial interpretations can make it challenging to enforce arbitral awards, especially where public policy is invoked.
Conclusion
In conclusion, commercial arbitration is a specialized dispute resolution process that offers a faster and more efficient way to resolve conflicts. Nothing fosters business initiatives and transactions like the certainty of quickly resolving disputes and enforcing the rights of parties involved in an agreement.
With laws that align with international standards, arbitration provides advantages as we have discussed above. While there are specific requirements for initiating arbitration, such as having a valid agreement and dealing with arbitrable disputes, the process is designed to be accessible and fair. Whether domestic or international, arbitral awards are recognized and enforced, ensuring that the decisions made are respected. Overall, commercial arbitration in Nigeria will continue to be a valuable tool for businesses.
