INTRODUCTION TO ARBITRATION IN NIGERIA: A GUIDE FOR BUSINESSES

1. INTRODUCTION

The use of arbitration as a dispute resolution mechanism in Nigeria has seen a significant rise, particularly in commercial transactions. This increase is largely attributed to growing dissatisfaction with the conventional litigation process, which is often slow and inefficient. The Nigerian court system has long been perceived as overburdened with excessive caseloads, rendering it unsuitable for the timely and effective resolution of complex commercial disputes. Moreover, certain cases require adjudication by judges with specialized technical expertise, which is often unavailable, resulting in prolonged delays. Given these challenges, businesses and individuals have increasingly turned to arbitration as an alternative dispute resolution mechanism.

2. WHAT IS ARBITRATION?

Consider a scenario where two business partners, Mr. B and Mrs. J, encounter a dispute in the course of their business dealings. Opting for litigation, they file a case in court, only to experience numerous adjournments before a judgment is finally delivered. The extended duration of the case results in significant economic losses, strained relationships, and reputational damage. Had they chosen arbitration, their dispute could have been resolved more swiftly, confidentially, and amicably.

Arbitration is an alternative dispute resolution mechanism in which disputing parties, instead of resorting to the traditional court system, agree to appoint a neutral third party—an arbitrator or an arbitral tribunal—to hear their dispute and render a final and binding decision, known as an arbitral award. The Supreme Court of 1 Nigeria, in U.B.A. Plc v. Trident Consulting Ltd, defines arbitration as:

“A procedure for the settlement of disputes under which the parties agree to be bound by the decision of an arbitrator, whose decision is generally final and legally binding. The process derives its authority principally from the agreement of the parties and, additionally, from the state as a supervisor and enforcer of the legal process.”

3. LEGAL FRAMEWORK FOR ARBITRATION IN NIGERIA

Nigeria has a well-established legal framework for arbitration. The primary legislation governing arbitration is the Arbitration and Mediation Act, 2023, which was signed into law by President Muhammadu Buhari. In addition, some states, such as Lagos and Rivers, have enacted their own arbitration laws to reflect their unique legal and political climates.

On an international level, Nigeria is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This convention obligates Nigerian courts to recognize and enforce arbitration awards and uphold arbitration agreements. However, it is important to note that arbitration does not apply to criminal cases, matrimonial disputes, election petitions, matters concerning statutory interpretation, urgent cases, and other specified legal matters.

TYPES OF ARBITRATION IN NIGERIA

Arbitration in Nigeria can be classified into three main categories:

• Institutional Arbitration – Administered under the rules of recognized arbitral institutions such as the Lagos Court of Arbitration or international arbitration institutions.
  
• Ad Hoc Arbitration – Conducted without institutional administration, where parties agree on their own arbitration procedures.
  
• Customary Arbitration – Conducted in accordance with local customs and traditions.

4. ADOPTING ARBITRATION IN COMMERCIAL DISPUTE RESOLUTION

Arbitration agreements must be in writing. Disputing parties can include an arbitration clause in their commercial contracts, or they can agree to arbitration after a dispute arises. The arbitration clause is essential for avoiding litigation, ensuring a fair resolution, and reducing hostility. The Nigerian courts, as affirmed in Optimum C. & P. Dev. Ltd v. Ake Shareholdings Ltd., recognize the importance of arbitration clauses in contracts, stating:

“Parties include an arbitration clause to avoid litigation and resolve their dispute through arbitration, ensuring a fair, consensual, and impartial resolution without unnecessary expense and delay.”

It is essential to understand the doctrine of separability in this regard. More often than not, arbitration clauses are inserted in contracts. The doctrine of separability operates to the effect that the clause remains separate and distinct from the contract so, even if novation occurs or a force majeure event impacts the contract itself, the arbitration clause will be considered independent of the main contract, and may even be governed by a different law altogether. This was this stance of the court in Heyman v. Darwins Ltd.

Notably, the death of a party to an arbitration agreement does not invalidate the agreement, nor can an arbitrator’s authority be revoked due to a party’s bankruptcy, insolvency, or other changes in circumstances.

5. ARBITRATION PROCEDURE

5.1. Commencement of Arbitral Proceedings

Arbitral proceedings legally commence on the date when a written request for arbitration is received by the respondent.

5.2. Language of Arbitration

Parties are free to agree on the language to be used during the proceedings. This underscores the role and importance of freedom in arbitration agreements. In the absence of such an agreement, English is the default language.

5.3. Scott v Avery Clause and Court Intervention in Arbitration under Nigerian Law

In Nigeria, the enforcement of arbitration agreements aligns with the principles established in Scott v Avery, which require disputes to be resolved through arbitration before any recourse to litigation. Nigerian courts generally refuse to entertain cases covered by a valid arbitration agreement, as reinforced by a directive from the Chief Justice of Nigeria mandating courts to dismiss such claims and sanction parties who disregard arbitration clauses.

Where a Scott v Avery clause is in effect, litigation is expressly precluded until arbitration has been exhausted. If a party nonetheless initiates court proceedings, the opposing party can promptly apply for a stay of proceedings and referral to arbitration. However, any delay in invoking arbitration rights, or active participation in litigation, may amount to a waiver, allowing the case to proceed in court.

This approach upholds the integrity of arbitration agreements and ensures that parties honor their contractual commitments before seeking judicial intervention.

5.4. Equal Treatment of Parties

All parties in an arbitration proceeding must be treated equally and given a reasonable opportunity to present their case. The resolution must be fair, devoid of undue delays and unnecessary expenses.

5.5. Settlement During Arbitral Proceedings

Disputing parties can settle their differences at any stage before the conclusion of arbitration. If an amicable settlement is reached, the arbitral proceedings may be terminated. Alternatively, if requested by the parties, the settlement can be recorded as an arbitral award and parties can apply toa competent court in Nigeria to recognize the award as a consent judgment.

5.6. Judicial Assistance in Arbitration Under Nigerian Law

Nigerian courts play a supportive role in arbitration proceedings by providing judicial assistance in specific circumstances. Under the Arbitration and Mediation Act 2023 courts may assist arbitration by: issuing witness summons, appointing arbitrators where the germane parties fail to agree on an arbitrator in ad hoc arbitration, enforcing awards, etc.

6. ENFORCEMENT OF ARBITRATION AWARDS

An arbitral award must be in writing and signed by the arbitrator(s). However, a party may seek judicial intervention to refuse recognition or enforcement of an award if they can demonstrate that: the subject of arbitration is against public policy, or that there is a significant error of law apparent on the face of the award.

If a losing party refuses to comply with the arbitral award, the prevailing party can seek court enforcement, provided they submit: the original or a certified copy of the award, the original or a certified copy of the arbitration agreement, and where applicable, a certified English translation of the award.

The appropriate court for enforcing an arbitral award largely depends on the parties’ identity, location, and the subject matter of the dispute.

7. Conclusion

Arbitration is an effective and preferable mechanism for resolving commercial disputes in Nigeria. It offers efficiency, confidentiality, and a non-adversarial resolution process that safeguards business relationships. Due to its technical nature, businesses are encouraged to seek legal expertise to navigate the arbitration process effectively.