Promotion Of Foreign Investments In Nigeria Through Investment Arbitration

Promotion Of Foreign Investments In Nigeria Through Investment Arbitration

Tuesday, June 30, 2020 /  05:35 PM / By Edun
Oluwatimilehin and Philips Adekemi 
 / Header Image Credit: Process-worldwide

 

Introduction

Commercial
relationships are often fraught with conflicts either from a breach of the
contractual terms or the non-performance of a party to the contract. While
conflicts are bound to happen, there must be an efficient and speedy dispute
resolution mechanism. No doubt, States with established and effective dispute
resolution mechanisms attract foreign investments. Arbitration is preferred by
disputant as a commercially efficient mechanism. From the autonomy of parties
to choose their arbitrators to the expertise of the Arbitrators to adjudicate
over parties’ dispute and the flexibility it affords, Parties to a commercial
dispute usually prefer arbitration over other dispute resolution procedures and
this preference for arbitration invariably extends to settlement of investment
disputes.

This
article seeks to examine the impact of investment arbitration vis a vis foreign
direct investment in Nigeria.

 

Overview
of Investment Arbitration

Arbitration
is a legal technique where parties to a dispute
refer it to one or more persons (the “arbitrators”,
“arbiters” or “arbitral tribunal”), by whose decision (the
“award”) they agree to be bound

Investment
Arbitration (also referred to as Investor-State Dispute
Settlement or ISDS) is a dispute resolution procedure often
utilized in resolving disputes between foreign investor and host States.
Investment arbitration affords investors full access to independent and
qualified arbitrators to resolve the dispute within the ambit of law and render
an enforceable award. Consequently, this allows for a sideline of national
jurisdictions that may be perceived to be biased or to lack independence and a
resolution of the dispute in accordance with different protections afforded
under international treaties.

Investment
arbitration differs from commercial arbitration with regards to parties. All
investments arbitration cases usually have a State as the party to the case.
However, this does not prejudice the possibility of States as parties to
commercial arbitration disputes. Where a State is a party to a commercial
arbitration dispute, such State usually act in a private capacity unlike in
investment arbitration where the State acts with sovereign power. The right to
arbitrate investment disputes majorly derives from bilateral investment
treaties or multilateral treaties between the host State and the foreign
investor(s).

Bilateral
Investment Treaties (BITs) are international agreements that govern the relationship
between countries that accord companies and individuals with special rights and
legal protections when they invest in the host State. Nigeria has signed
bilateral investment treaties with over twenty-five countries.

 

The
Concept of Foreign Investments

Foreign
Participation in Nigeria is in form of Foreign Direct Investment and Foreign
Portfolio Investment.
An
Investor who wishes to invest directly in the Nigeria is required by the law to
invest through a registered company and where there is no existing company, a
Nigerian company must be incorporated. On the other hand, Foreign Portfolio
Investment is the participation by purchasing shares in existing companies
through the Nigerian Capital market. The law further exempts certain companies
from registering in doing business in Nigeria.

The
Nigerian Investment Promotion Commission

liberalized the atmosphere for foreign investment to thrive. It allowed a
hundred percent foreign ownership in all sectors except the petroleum sector,
where FDI is limited to joint ventures and production sharing contracts. The
One-Stop Investment Center which hosts 27 governmental and parastatal agencies
was established to eliminate the bureaucratic process of doing business in
Nigeria.

Nigeria
is the third host economy for FDI
in
Africa as the Nigerian economy attracts investors in the construction, energy,
hospitality, and telecommunication sectors.

FDI represents 25.1% of the country’s Gross Domestic Products with major
investments from China, USA, UK, Netherlands, and France

An inefficient judicial system and unreliable dispute settlement mechanism rank
among several factors responsible for the decline of FDI in Nigeria.
Other factors include: Political
risks, religious and regional divisions, absence of security, among others.

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Examination
of Investment Arbitration in Nigeria

Effective dispute resolution remains a tool in the
attraction of foreign businesses to Nigeria. A free-market system such as
Nigeria presents an avenue for clash of interest and disputes in pursuit of
different business interests. The law provides several means of resolving
disputes amicably, one of which is through civil actions in court. However,
Experts have noted that Litigation is a cause of anxiety for parties concerned;
be it the litigants or the counsel primarily because of the uncertainties of
the possible outcome

Notably, the legal framework of arbitration and
alternative dispute resolution is classified into three main groups namely:

               
I.  
Customary Arbitration.

            
II.  
International/ Foreign obligation under international
instruments.

         
III.  
Statutory Framework.

 

Statutory Framework

In a bid to attract foreign investment in Nigeria,
successive governments introduced policies to enable the growth of foreign
investments. Against this backdrop, the federal government promulgated several
laws to project Nigeria as one of the most preferred destinations of doing
business in Africa. To this end, two statutes were enacted; The Nigerian
Investment Promotion Commission Act and the Foreign Exchange (Monitoring and
Miscellaneous) Act.

 

The Nigerian Investment Promotion Commission (NIPC)
was established to encourage and promote investment in Nigeria. The Law also
recognizes how dispute arising from investments related issues are resolved. In
Nigeria, the domestic legal framework for settlements of arbitral dispute is
the Arbitration and Conciliation Act. This law takes its cue from the United
Nations Model Law on International Trade law and the New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards. This Model law provides
a foundational structure for Commercial Arbitration and Settlement of
Investment disputes.

 

Fair
and Equitable Treatment Standard in Investment Arbitration Treaties/ Bilateral
Agreements.

The term “equitable treatment” dates to the 1948 Havana Charter for International Trade
Organisation. Specifically, the Charter
recommended the execution of bilateral and multilateral agreements among States
and foreign investors on the basis that foreign investments should be assured “just and equitable treatment”. Also, the Economic Agreement of Bogota adopted
by the Ninth International conference

proposed the adequate safeguards for foreign investors. It states:

“Foreign capital shall receive
equitable treatment. The States therefore agree not to take unjustified,
unreasonable, or discriminatory measures that would impair the legally acquired
rights or interests of nationals of other countries in the enterprises,
capital, skills, arts or technology they have supplied” 

 

Although the Havana Charter and
Economic Agreement of Bogota were not ratified, these agreements reflected the
collective opinions of major foreign investors and the underlying basis of
their investments towards international development. This principle has been
adopted in several modern agreements among States. Examples include: The Free
Trade Agreement between the US and Australia
,
Central America (CAFTA)
, the
US-Chile Free Trade Agreement
, US-Singapore Free Trade Agreementwhere
it was clearly stated that each Party has the obligation to “accord to the
covered investments treatment in accordance with the customary international
law, including fair and equitable treatment and full protection and security”.
Furthermore, the 1985 Convention

establishing the MIGA states that to guarantee an investment, MIGA must satisfy
itself that fair and equitable treatment and legal protection for the
investment exist in the host country concerned. This is a viable means for the
institution to lower the risk for guaranteed investments and increase
investment flows to and among developing countries. 

 

The World Bank has lent credence to
this principle. Article III (2) of the World Bank Guidelines state that:

“Each State will extend to investments
established in its territory by nationals of any other State fair and equitable
treatment according to the standards recommended in the Guidelines”.

 

Such standards of treatment shall be
accorded to foreign investors in matters such as security of person and
property rights, the granting of permits and licenses, the transfer of incomes
and profits and the repatriation of capital.  The principle of Fair
Treatment has been used as a proportional scale to measure the legitimate
economic interests of the Investor and the impact of the foreign investment on
the host State. This is important in order not to undermine the economic
development of the host state at the altar of profit realization for the
foreign investor.

 

Importance of Recognition and Enforcement of Investments Arbitration
Awards

Trade
and investments are critical to the economic development of any nation and
Arbitration being the preferred means of dispute settlement in foreign trade
and investment is of importance to Nigeria as a developing country who relies
majorly on its foreign investors/counterparts to develop its natural resources.
Nigeria has enacted several legal instruments to regulate and encourage the use
of Arbitration
. The Supreme Court in Construction
Co. Ltd v F.C.D.A
clearly
stated that “It is very clear and without any iota of doubt that an
arbitral award made by an arbitrator to whom a voluntary submission was made by
the parties to the arbitration, is binding between the parties”. 

 

Furthermore,
Investment Arbitral awards granted outside Nigeria are enforceable and binding
on the parties. Enforcement of arbitral awards further boost investor
confidence in investing in the businesses of the economy. The World Bank
recently ranked Nigeria 96th on the enforcement of contract index
and it takes about 454 days to enforce a contract through the court. This can
negatively impact on the growth of FDI in the country.

 

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Enforcement of Arbitral Award

There
is the need to enforce an arbitral award when one of the parties refuses to
voluntarily comply with the award.  However, it will be counterproductive
to resort to arbitration if the arbitration award cannot be enforced in the
courts of the State in dispute. Therefore, in recognizing and enforcing
arbitral agreements, the court plays a fundamental role in assisting parties to
realize their legitimate expectation by not only supporting the arbitral
process but also reinforcing its efficacy and integrity

 

To
underscore the enforcement of arbitral awards, it is important to understand
the theoretical basis and justification for the enforcement of arbitral awards
so as to further analyse the attitude of the Nigerian court to the enforcement
of foreign and domestic arbitral awards.

 

Enforcement of Domestic Arbitral Award

Section
31 of the Arbitration and Conciliation Act provides the legal framework
for the enforcement of domestic award in Nigeria. The law requires that an
application be made to the court for enforcement provided the parties relying
on the award present a duly authenticated or certified copy of the original
award and arbitration agreement.

 

An
application for enforcement of Arbitral judgment shall be by an Application of
a Motion on notice accompanied with an affidavit and all necessary documents
notably, a party dissatisfied can
apply to the court to set aside the arbitral award provided such party proves
to the court that the award was given outside the scope of the arbitrators.

 

Enforcement of Foreign Arbitral Award in Nigeria.

Section
51 of the Arbitration and Conciliation Act provides a legal framework for the
recognition and enforcement of arbitral awards for both local and foreign
arbitral awards. In Imani Sons & Ltd. V Bil Construction Co. Ltd
, the Court held that in
addition to the motion on notice filed by the party seeking enforcement, such
party shall additionally supply the following documents:

 

            
I.     
The
Arbitration Agreement;

         
II.     
The
Original Award;

      
III.     
The name
and last place of business of the person whom it is intended to be enforced

       
IV.     
Statement
that the award has not been complied with or complied with only in part.

Where
the court recognizes the award by granting leave to the creditor to register
same, it shall be enforced as a judgment of that Court.

 

Enforcement and Recognition of Foreign Arbitral Awards under (New York
convention) 1958

Nigeria
became a party to the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards in 1970 and this Convention was domesticated in 1988. The New York Convention on the Recognition
and Enforcement of Foreign Arbitral Award 1958 applies in Nigeria by virtue of
section 54 of the Arbitration and Conciliation Act 1990. Nigeria has made
reciprocity reservation hence, only awards made in contracting states that
undertake to recognize and enforce awards made in other contracting states,
including Nigeria, will be recognized, and enforced in Nigeria.

 

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Enforcement of Awards under the Foreign Judgement (Reciprocal
Enforcement) Act.

The
Act regulates the registration of foreign judgements in Nigeria. Under this
law, before a judgement or award obtained from a foreign country is enforced in
Nigeria, such judgement must be registered in the High Court of a State or The
Federal High Court.

 

In Tulip Nig. Ltd v Noleggioe Transport
Maritime S.A. S
, the
Court held that:

“The provisions of the Reciprocal Enforcement of
Judgment Ordinance Cap 175 LFN 1958 and the Foreign Judgment (Reciprocal
Enforcement) Act 2004 will apply in the enforcement of foreign arbitral award
where same has been elevated to the status of a judgment by leave of the High
Court sought and obtained”

 

It was further held that the judgment shall become
binding on the parties irrespective of the country that issued it. Also, the
court before whom an application is brought for enforcement is duty bound to enforce
same. Therefore for an arbitral award to be elevated to the status of a
judgment which can be registered and enforced under the Act, the creditor is
required to have applied and obtained leave of the court in the country where
the award was made in order to enforce the award in the same manner as a
judgment of that court.

 

Enforcement under the International Center for Settlement of Investments
Disputes (ICSID)

The
Convention on the international Centre for settlement of investments dispute
was promulgated by the World Bank, with the aim of settling disputes arising
from investments between contracting states through Arbitration and
Conciliation. The ICSID Act was domesticated on the 29th of November
1967 for the enforcement of awards given by the ICISD. The section of the Act
provides that:

 

“An
ICSID award shall be enforced in Nigeria as if it were an award contained in a
final judgement of the Supreme Court, if a copy of such an award is duly
certified by the Secretary General of the Centre is filled in the Supreme Court
of Nigeria by the Party Seeking its recognition and enforcement.”

 

Conclusion

Foreign
Direct Investment remains a veritable means of reviving the economy of Nigeria
from the doldrums of poverty, economic instability, and unemployment and for
Nigeria to tap into the numerous advantages of FDI; there is the need for
business owners, regulatory agencies and major Stakeholders to collaborate in
establishing an efficient investment arbitration mechanism in Nigeria. The
Nigerian legislative government also needs to be proactive by signing the bill
which seeks to amend amend the Arbitration and Conciliation Act as this will
help breathe life into the investment space in Nigeria.

 

About the Author

Edun Oluwatimilehin is a graduate of
Lagos State University and currently an Associate Counsel in the Lagos Office
of Funmi Roberts and Co. He is an innovative legal practitioner whose area of
interest includes International Trade and Investment Law, International
Arbitration, Corporate Commercial Law and Litigation, Project Finance, etc.
Edun Oluwatimilehin is a member of the Corporate Commercial Practice Group of
the firm where he advises clients on several commercial transactions. He is an
astute advocate, result-oriented, and a resourceful Legal Practitioner. He
amongst other things has a strong passion for solving complex commercial
transactions to provide a legal solution for all clients. In his leisure, he
researches and writes on various tropical legal issues within the Nigeria
Commercial and Business law space. He is a member of the Nigerian Bar
Association Section on Business Law (NBA-SBL), Association of Young
Arbitration. Edun Oluwatimilehin can be contacted via email:
officialtimilehinedun@gmail.com

 

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