Nigeria: A Preferred Arbitration Seat for International Arbitration

NIGERIA: A PREFERRED ARBITRATION SEAT FOR INTERNATIONAL ARBITRATION

Can Nigeria become the preferred seat for international arbitration? In dealing with the question – ‘How can we reduce the Scope for setting aside Awards in African Arbitration?’ at a similar forum, I had stated: “Proponents of a liberal approach to setting aside arbitral awards justify it on the ground that it is somewhat a guarantee against breach of fair hearing rights. Critics of that approach argue that it defeats the whole essence of arbitration as a means for the speedy resolution of disputes. I am of the view that it becomes an exercise in pretence if we downgrade arbitration (through action, inaction or indifference) to simply - a drama that precedes litigation. It is received wisdom that arbitration accords more with the time value of money in commercial disputes, and for this reason and more, a deferential view is recommended.”

Introduction Arbitration is the dispute-resolution method of choice in international commercial contracts. In recent years, the number of transboundary arbitral disputes has grown dramatically. Although there is no comprehensive record of the number of international arbitrations, the International Court of Arbitration of the International Chamber of Commerce (ICC) publishes yearly statistics in respect of ICC arbitrations. These figures, which are illustrative of the wider boom in international arbitration, reveal that ICC arbitrations have risen steadily for decades, rising sharply in recent years.

With much of the discussion on arbitration being largely centred on definition, appointments, and pre-award stages; a discussion on the key elements that make Nigeria a preferred seat for international arbitration, id est, awards and protection of integrity of awards, will not only fill an important gap in literature, it will fill in the gaps of policy and attitude of the Courts, counsel and parties to arbitration especially the loser (or less nicely put – the sore loser). Reducing the key elements that drive away disputants from arbitrating their disputes in Nigeria, id est, reducing among other things, the scope for setting aside arbitral awards in Nigeria helps the argument for increasing Nigeria’s share of arbitration starting with home generated disputes. It deals with the reality as well as the perception issues, and the perception of the users of arbitration is as strong (if not stronger) than the reality.

In today’s ever-globalising world, it has become increasingly important for jurisdictions to promote commerce with foreign parties. One manner in which jurisdictions can encourage international business is to modernise their international commercial arbitration statutes. The UNCITRAL Model Law on International Commercial Arbitration (the Model Law) is designed “to assist States in reforming and modernising their laws on arbitral procedure.”

A fundamental choice that contracting parties must make in relation to arbitration at the outset is where the seat of that arbitration will be, i.e. which country’s laws will govern the procedure of the arbitration and which country’s courts will oversee it. There are a number of reasons why parties might choose a seat in an African jurisdiction. It may for instance be more cost effective to resolve disputes close to where the parties are doing business, particularly if there are likely to be many witnesses based there, or an African party may insist that an arbitration is seated in Africa. However, it should be borne in mind that, despite the growth of arbitration across Africa, some African states have been slow to adopt modern arbitration legislation. It is therefore vital that parties weigh up the options carefully before choosing a seat, taking account of all the circumstances.

It is almost universally acknowledged that, as regards an international arbitration, the seat (or place) of arbitration has an important role to play. In the words of one leading commentator:

“A concept of central importance to the international arbitral process is that of the arbitral seat. . . . The location of the arbitral seat is fundamental to defining the legal framework for international arbitral proceedings and can have profound legal and practical consequences in an international arbitration.”

Although the courts of other countries may become involved in one way or another at various stages of arbitration, the courts of the seat play the predominant role in terms of supervision of the arbitral process. As a general rule, the courts of the seat are the only judicial authority able to remove an arbitrator (for example, for lack of independence or impartiality) and proceedings for the setting aside of an arbitral award on the basis of lack of jurisdiction or some procedural defect will almost invariably be brought before the courts at the seat of arbitration.

In 2010, the School of International Arbitration conducted a study to determine what factors influenced choices in International Commercial Arbitration. The study amongst other things focused on the primacy of considerations for commercial parties in negotiating an arbitration agreement. On the choice of the seat of arbitration, the study found London to be the most preferred and widely used seat. Other frequently used seats were Paris, New York and Geneva with Singapore emerging as a regional leader in Asia. A few years down the line London remains the most popular seat of international commercial arbitration though with competition from emerging regional seats such as Singapore, Hong Kong and Dubai among others. Delivering a speech at the International Arbitration Centre, Seoul, Korea, Lucy Scott-Moncrieff, former president of The Law Society of England and Wales, identified certain key aspects of London that made it retain its position as the number one international arbitration seat –

“…our legal system - built with the rule of law at its foundation, second, the volume, variety, and quality of specialist expertise available in London, and lastly, but not least, our longstanding experience in dealing with complex and multi-jurisdictional disputes and international parties.”

Peter McQueen, takes the view that ‘in order for an arbitration seat to be chosen as a place in which to conduct arbitration, it must be attractive to commercial parties; having a combination of features. Those combinations of features are its arbitration legislation, its courts, its arbitration practitioners and its facilities and its support services:

- The legal framework in each must be supportive of arbitration and reflect policies of pro-arbitration and of pro-enforcement of arbitration agreements and awards.

- The commercial courts must be efficient, of the highest integrity and independence and noted for the consistency of their decisions. In addition, they must appreciate the independence and significance of arbitral proceedings and be rigorous in enforcing awards. Participants can then engage in proceedings before those courts with a high degree of certainty and confidence of what to expect.

- The legal profession, the arbitration practitioners and the arbitration institutions operating in each seat need to have internationally recognised capability in the practice of international arbitration.

- Each seat must possess excellent facilities, infrastructure and logistical support, which include the existence of a dedicated disputes centre.’

Nigeria sits in a region with globally identified investment opportunities albeit with a bit of suspicion. As international arbitration thrives on commercial activities, chances are that there would be consistent increase in the number of international arbitration involving African parties. The investment climate presents a perfect mix of factors for a popular regional arbitration seat to emerge in Africa. With such great competition from and head start of currently popular arbitration seats and emerging regional seats, Nigeria must sustain the drive to gain entry and market significance in the burgeoning industry of international commercial arbitration.

Why is an Arbitration Seat important?

Choosing an arbitration seat is one of the most important decisions contracting parties will need to consider before inserting the Arbitration clause in their agreement or settling down for the proceedings. However this has not been the case, as parties tend to overlook the importance of this fairly simple but important decision. As Claudia Salomon and Irinia Sivachenko put it in their book “Choosing An Arbitral Seat In The United States“, Venue is the seat, or the legal place, of the arbitration. Frequently overlooked by the parties at the time of contracting, the selection of the seat is one of the most important choices to make during contract negotiations. Indeed, the seat of the arbitration usually determines the applicable procedural law, lex arbitri, with important practical and legal implications, including the role of local courts in relation to the arbitration

The law of the place of arbitration indirectly influences the procedural approach chosen by the panel, for example, what rules to rely on, what mode of evidence to adopt, limitation periods, how will awards be executed etc. We cannot also underestimate the role of the law makers in expanding the frontiers of international arbitration in this regard.

Research has shown that when parties to international commercial transactions make decisions about an arbitration seat, they consider the legal infrastructure of the seat, the governing law of the dispute, convenience and general infrastructure (in that order of importance) ahead of a few other considerations. It has also been noted that the seat plays a pivotal role in international arbitration as it defines the legal framework for the arbitral process.

The seat of the arbitration does not directly influence the law applied by arbitrators to decide disputes on their merits. Under most international arbitration laws, the real consequence of designating the seat of the arbitration is to determine the law applicable to the arbitration itself (lex arbitri) and the courts that will have jurisdiction to review the validity of the arbitral award. Virtually all national arbitration laws provide that parties have the freedom to choose which law governs the substance of the dispute and, if such a choice has been made, which law should be applied by the arbitrators to resolve the dispute. As a result, parties often select one jurisdiction as the seat of the arbitration while choosing the law of another jurisdiction to govern the contract or dispute.

This makes perfect sense, as the rationales for choosing the arbitration’s seat and the law governing the contract is quite different. On the one hand, the arbitration’s seat should be chosen to ensure that the applicable national arbitration law favours international commercial arbitration and its national courts adhere to such law. As an example, local courts should stand ready, willing, and able to offer efficient and effective remedies to aid the arbitration should one party become recalcitrant. On the other hand, the law governing the contract should be chosen because of the quality of its contract law.

How does Nigeria Measure up? Before making any argument on whether Nigeria has indeed measured up to international Arbitration practice(s) to make it desirable for international arbitration, it is worthy of note to state that the historical development of formal arbitration in Nigeria can be traced back to the Arbitration Ordinance 1914 which was more of an adaptation of the English Arbitration Act of 1889. Also by virtue of Nigeria’s colonial inclination, in 1958, Nigeria adopted the United Nations Convention on the Recognition and Enforcement of Foreign Arbitration Awards.

Although there have been major changes and updates to most international legal framework on arbitration such as the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules, the United Kingdom’s Arbitration Act, International Chamber of Commerce Rules of Arbitration and many more, nothing or not much review has been said about our Arbitration and Conciliation Act.

The question one is tempted to ask then in the face of this reality is, can Nigeria be safely regarded as a desired destination seat for Arbitration? This question can best be answered objectively after considering the relevant statutory and regulatory regime in Nigeria, Court support system, enforcement and challenge of awards and convenience of parties.

The Arbitration Rules, which is attached as a schedule to the Arbitration and Conciliation Act is modelled generally in line with the UNCITRAL rules. Section 53 of the Arbitration and Conciliation Act provides as follows:

“Notwithstanding the provisions of this Act, the parties to an international commercial agreement may, agree in writing that disputes in relation to the agreement shall, be referred to arbitration in accordance with the Arbitration Rules set out in the First Schedule to this Act, or the UNCITRAL Arbitration Rules or any other international arbitration rules acceptable to the parties.

Article 3 of the Arbitration Rules has similar provisions with Article 3 of the UNCITRAL rules. Sections 51, 52 and 54 also deal with the recognition and enforcement of awards whether made in Nigeria or not.

Over the years there have been major reviews of many international laws and rules on arbitration such as the United Kingdom’s Arbitration Act of 1996, UNCITRAL Arbitration rules of 2010 et cetera, these reviews have largely been due to greater demands for party autonomy, finality and reduced judicial interference. Although there have been a review of the Nigerian Arbitration and Conciliation Act, 1988, the law itself has not been amended. However, in 2008, Lagos State (the largest commercial hub in West Africa) saw a growth in commercial disputes, which goes with increased international trade. The Lagos State Government saw the need to attract international businessmen and contracting parties to settle their disputes (both those that originated and not), in Lagos. This need gave rise to the enactment of the Lagos State Arbitration Law, 2009.

Although Nigeria’s Arbitration and Conciliation Act applies to both domestic and international arbitration throughout Nigeria, section 2 of the Lagos State Arbitration Law provides that from its commencement May 18, 2009, the legislation applies to all arbitration with Lagos State as the venue unless parties have expressly agreed

otherwise.

To make Lagos State a more attractive venue for Arbitration, the Lagos State Arbitration Law, unlike the Arbitration and Conciliation Act, provides for a sole arbitrator, provides for consolidation or concurrent arbitral proceedings; specifically grants the arbitral tribunal power to award interest, order security for costs and exercise a lien over its award until fees are paid.

The Lagos State Government also went ahead to establish the Lagos Court of Arbitration which has the power to establish an arbitral tribunal in respect of any dispute referred to it. The Tribunal shall consist of Arbitrators, Mediators as well as other experts with special skills and experience in specialised areas for this purpose. These provisions are practical considerations when opting for a venue for Arbitration Proceedings.

A pertinent question to ask would be; to what extent can the Nigerian Courts intervene in Arbitration proceedings? Or more importantly, do the Nigerian Courts have any power over the Arbitral proceedings? In answering this, an attractive consideration will be the enforcement of Arbitral Awards as this is a Legal factor that often comes into play in choosing an Arbitral Seat. The award in this case represents the judgment of the tribunal.

Arbitral Awards are only binding and enforceable as a judgment after registration. The Supreme Court, in Okechukwu v Etukokwu addressed the nature of an award in terms of its recognition, and enforceability thus:

“Section 31 (1) of the Arbitration and Conciliation Act, Cap 19, Laws of the Federation of Nigeria, 1990 provides:- An Arbitral award shall be recognised as binding and subject to this section and section 32 of this Act, shall, upon application in writing to the court, be enforced by the court. In law, an arbitral award per se, lacks enforcement or enforceability. It does not carry any element of sanction until a court of law, by its judicial powers, breathes enforceability or a sanction on it. At the completion of the arbitration, the award is a toothless dog which cannot bite until a court of law gives teeth to it….”

Awards are therefore not enforced until all legal processes have been exhausted. In Nigeria, it is now settled that enforcement of awards by Courts is one of the areas in which Federal and State Courts enjoy concurrent jurisdiction. This makes for ease of enforcement. It is idle to suggest that the subject matter of the dispute or contract can affect the jurisdiction of the court to recognise and enforce an award. Effectively, the Court – whichever it may be – has the power to enforce an award made on a subject matter in respect of which it would not ordinarily have jurisdiction.

In Tulip (Nig.) Ltd v Noleggioe Transport Maritime SAS, the High Court ordered the recognition and enforcement of an arbitral award made in the UK, ordering also that the losing party pay “interest on the outstanding sums at the rate of 8% per annum “compounded quarterly”. Counsel argued that the Court had no jurisdiction to award post-judgment interest on a compound basis and that the subject matter was therefore beyond the jurisdiction of the enforcing court. The Court of Appeal held that: “The learned trial judge only recognised and enforced what was already awarded pursuant to the arbitration proceedings between the parties. The learned trial judge in my humble view had no discretion to alter what the arbitrator awarded…..the learned trial judge was only enforcing the award granted by the arbitrator in England. It is therefore correct to say that the court below lacked jurisdiction to award compound interest.”

The idea that International Awards can be enforced as the Judgement of either the Federal or the State High Court in Nigeria without having recourse to the subject matter of the dispute to determine proper jurisdiction make Nigeria an attractive choice for the seat of International Arbitration. Following the transition in government, and the plan to enhance the fight against corruption, Nigeria should hopefully be more attractive to international players. Like Singapore, this is expected to increase confidence of arbitrating parties to Nigeria’s legal, social and economic realities.

The role of arbitration institutions world over cannot be over-emphasised, their importance range from inducting members, provision of continuous training to members, and development programmes, administration of arbitration proceedings and co-ordinating the professional and ethical behaviour of arbitrators. Arbitration institutions usually have formal procedures and rules designed to assist parties in the conduct of their arbitral proceedings. Although many may complain about arbitration institution’s bureaucracy or additional expense, they are very advantageous both to a nation and the practicing arbitrators. They help resolve disputes irrespective of parties’ location or systems of law.

Arbitration institutions help to organise arbitration practice, they have a list of arbitrators who are usually members and have had a trail of subject matters which they have arbitrated upon. It becomes easier for parties who refer their matters to arbitration institutions to have the confidence of thorough bred professionals to arbitrate on their issues. Some international arbitration institutions include, the International Centre for Dispute Resolution; Organisation for the Harmonisation of Business Law in Africa; International Centre for Settlement of Investment Disputes; London Court of International Arbitration; International Court of Arbitration, International Chamber of Commerce et cetera.

Nigeria like other nations has a number of arbitration institutions who also help to shape the face of her arbitration practice. Some of the Nigerian arbitration institutions include: The Regional Centre for International Commercial Arbitration; the Chartered Institute of Arbitrators, Nigeria, the Chartered Institute of Arbitrators, UK (Nigerian Branch), Maritime Arbitration Association of Nigeria; Citizens’ Mediation Centre; Lagos State Multi-door Court House; Negotiation & Conflict Management Group (NCMG); and Lagos Court of Arbitration. These institutions have thousands of members who are being trained to ensure that Nigeria meets up with global arbitration standards. Whilst some are industry focused like the Maritime Arbitration Association of Nigeria, others have a wider scope.

The Nigerian curriculum for law students in the tertiary institutions has always ensured the practice of law using the moot and mock trial. This practice envisages litigation and not arbitration. However, in the light of development in Nigerian legal practice and arbitration, the Nigerian Law School and recently some Nigeria Universities now conduct moot arbitrations to have a feel of real life arbitration practice.

One can safely say that arbitration has substantially developed in Nigeria. More contracts now bear arbitration clauses, and several international contracts are now being arbitrated in Nigeria due to the aggressive activities of the arbitration institutions. Similarly, in terms of court support, under the Nigerian law, parties to an arbitral proceeding can apply to the court for some interim/interlocutory orders pending the conclusion of the arbitral proceeding. Section 13 of the ACA gives the tribunal powers to make interim orders during an arbitral proceeding upon application by a party.

Apart from bringing an application to protect the subject matter of the arbitration, a party can also bring an application to challenge the appointment of an arbitrator. An Arbitrator may be challenged in Nigeria if circumstances exist that give rise to justifiable doubts as to his impartiality or independence or if he does not possess the qualifications agreed by the parties. This is in line with international best practices. Nigeria became a signatory to the New York Convention on 17 March, 1970 adopting both the reciprocal and commercial reservations. The Convention came into force on June 15, 1970.

Nigerian Courts will therefore enforce awards made in a state which is also a party to the New York Convention. The Convention equally applies to differences which arise out of legal relationships which are contractual. As stated already, Arbitration bodies relevant to international arbitration that are based in Nigeria include the Chartered Institute of Arbitrators (Nigerian Branch), the Regional Centre for International Commercial Arbitration, the Arbitration Commission of the International Chamber of Commerce (Nigerian National Committee), the Lagos Court of Arbitration (LCA) and the Lagos Maritime Arbitration Association (LMAA).

Arbitrations are conducted in Nigeria from time to time under the International Chamber of Commerce (ICC) Rules of Arbitration. Upon request from the ICC International Court of Arbitration in Paris, the Arbitration Commission of the ICC Nigerian National Committee nominates arbitrators for appointment by the ICC Court of Arbitration in Paris. The Chartered Institute of Arbitrators and the Regional Centre for International Commercial Arbitration administer arbitrations under their own rules and also act as appointing authorities. The Arbitration Rules of the Regional Centre for International Commercial Arbitration are based on the UNCITRAL Model Law.

The Lagos Court of Arbitration (LCA) administers arbitrations and also acts as an appointing authority. Apart from the above mentioned institutions, there are also a few other institutions catering for disputes arising in particular to trade or industry such as Construction and Maritime. Foreign arbitral providers such as the ICC, the Stockholm Chamber of Commerce (SCC), the International Centre for Dispute Resolution (ICDR) and other bodies can operate in Nigeria. International arbitrations under the rules of the ICC are conducted in Nigeria from time to time.

It is noteworthy that the International Centre for the Settlement of Investment Disputes (ICSID) recently signed a collaboration agreement with the Lagos Regional Centre for International Arbitration. By this collaboration, ICSID arbitrations can now take place in Lagos, Nigeria. Little wonder why international arbitration institutions now come en masse to sensitise Nigerians to become members of their institutions.

It can be safely concluded that Nigeria’s participation in international arbitration has improved tremendously with Nigeria being signatory to international treaties or rules, or by Nigerians being members to international arbitration organisations and institutions. There is no doubt that Nigeria is fast becoming a desirable international seat, of course it can get better if we take pro-active steps to reviewing our arbitration laws and rules like Singapore and Switzerland, meeting emerging trends and demands.

Arbitration and Conciliation Act The earliest attempt at consolidating arbitration in Nigeria was in 1914 when the first statute was enacted- the Arbitration Ordinance of 1914 which applied to all the parts of the country. Expectedly, the Nigerian Arbitration Ordinance was modelled after the English Arbitration Act 1889 in view of its colonial history. Later that year the ordinance was replaced by an Act and became Arbitration Ordinance Act, 1914. In 1954, the Act applied to all the regions in the country. It is interesting to note that the application of the Act relates to both domestic and international arbitration.

The extant law on arbitration in Nigeria is the Arbitration and Conciliation Act 1988. The aim of the Act is to provide a unified legal framework for the fair and efficient settlement of commercial disputes by arbitration and conciliation; and to make applicable the Convention on the Recognition and Enforcement of Arbitral Awards (New York Convention) to any award made in Nigeria or in any contracting State arising out of international commercial arbitration.

Part III of the Act relates to the International Commercial Arbitration. Section 48 sets the grounds under which an arbitral award may be set aside. The procedural requirements mentioned in the second ambit of the section indicates that, by using the word ‘shall’ which is a legal imperative, compliance must be followed vigorously, otherwise there could be refusal to enforce the foreign award.

The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Award (New York Convention)

This Convention provides certain rules as a matter of uniform applicability for national courts to adhere to. These rules require national courts to recognise and enforce foreign arbitral awards, subject to specified exceptions; recognise the validity of arbitration agreements, subject to specified exceptions; and refer parties to arbitration when they have entered into a valid agreement to arbitrate under the Convention.

The United Nations Commission on International Trade Law (UNCITRAL) Model Law

The UNCITRAL Model Law is designed to assist States in reforming and modernising their laws on arbitral procedure so as to take into account the particular features and needs of International Commercial Arbitration. It has indeed propelled States to dramatically adapt their laws in conformity with modern dictates and trend in international commercial transactions, despite different legal or economic systems of the States. In fact, the Model law recommends an oral arbitration agreement, which would otherwise be unthinkable especially in third world Countries where States are still grappling with Information Communication and Technology development and much reliance is placed on physical conduct of business. The Model Law was adopted in Nigeria in 1960 making Nigeria a model law country. In 2006, however, there was a revision to the Model Law to improve the framework for acceptability and as a result of the technological innovations in the modern world and in the international arbitral process.

UNCITRAL Arbitration Rules The UNCITRAL Arbitration Rules sets the model for Nigeria’s arbitral process. It provides a comprehensive set of procedural rules upon which parties may agree for the conduct of arbitral proceedings arising out of their commercial relationship and are widely used in ad-hoc arbitrations as well as institutional arbitrations. The main objective was to create a unified, predictable procedural framework for international arbitrations without stifling the informal and flexible character of such dispute resolution mechanisms. The Rules cover all aspects of the arbitral process, providing a model arbitration clause and the conduct of arbitral proceedings. Section 53 of the Arbitration and Conciliation Act (ACA) has significantly adopted the UNCITRAL Rules. Thus parties are ab initio obligated to make use of the Arbitration Rules once it is acceptable to them.

The Nigerian Investment Promotion Commission Act

The Act aims at promoting investments in Nigeria. In the light of the foregoing, it contains specific provision for the resolution of disputes arising between an investor (Nigerian or foreign) and any Government of the Federation of Nigeria. Section 26 of the Act provides that where a dispute arises between an investor and any Government of the Federation in respect of an enterprise, all efforts shall be made through mutual discussion to reach an amicable settlement. However, in the event that an amicable settlement cannot be reached, the aggrieved party can proceed to arbitration.

Foreign Judgment (Reciprocal Enforcement) Act

The effect of this Act is that it applies to registration of foreign judgments given by a competent court or in an international commercial arbitration. A foreign judgment cannot be enforced automatically in Nigeria. This is due to the fact that legal systems are territorially limited. Such limitation is an indispensable feature of territorial sovereignty.

By virtue of section 3(1) of the Act, only judgments from countries, which accord reciprocal treatment to judgments given in Nigeria as designated by the Minister of Justice, would be recognised.

Being a Paper delivered by Professor Fabian Ajogwu, SAN at the International Law Association (Nigerian Branch) Second Annual Conference in Collaboration with Lagos Court of Arbitration on October 29, 2015.