Introduction
Disputes are inevitable in most business relationships. Traditional litigation, while effective, often proves to be time-consuming, expensive and adversarial, potentially straining business relationships. This is particularly the case in Nigeria where litigation could take years to find its way through the courts. As a result, Alternative Dispute Resolution (ADR) methods have gained prominence, offering more amicable and efficient pathways to conflict resolution. Among these, arbitration stands out as a pivotal mechanism for resolving commercial disputes.
Arbitration is a process where parties to a dispute agree to submit their dispute to one or more neutral third parties, known as arbitrators, who render a binding decision on the matter. This method is distinct from other ADR forms, such as mediation or conciliation, in that the arbitrator’s decision is typically final and enforceable, similar to a court judgment. The consensual nature of arbitration allows parties to tailor the process to their specific needs, selecting arbitrators with relevant expertise and determining procedural rules that best suit the context of their dispute.
The advantages of using Arbitration in Commercial disputes provides confidentiality, expertise, flexibility and autonomy, enforceability, cost and time efficiency.
Regulatory Framework of Arbitration in Nigeria.
Nigeria has established a comprehensive regulatory framework for arbitration, notably through the Arbitration and Mediation Act 2023 (the Act). This legislation modernizes and consolidates the country’s approach to alternative dispute resolution, aligning it with international standards and best practices.
Key Features of the Arbitration and Mediation Act 2023:
- Unified Legal Framework: The Act provides a cohesive structure for both arbitration and mediation, facilitating the fair and efficient settlement of commercial disputes.
- Mandatory Stay of Court Proceedings: Courts are now mandated to stay proceedings and refer parties to arbitration when a valid arbitration agreement exists, unless the agreement is deemed void, inoperative, or incapable of being performed.
- Third-Party Funding: The Act explicitly permits third-party funding in arbitration, addressing previous uncertainties and enhancing access to justice. Third-Party Funding of arbitration is an arrangement where a third-party called the Funder, with no prior interest in an investment or commercial dispute, provides financial support to one of the parties engaged in the dispute resolution, in return for a share of the eventual proceeds of the award, if any.
- Award Review Tribunal: This innovative provision allows parties to opt for an Award Review Tribunal to review arbitral awards, providing an additional layer of scrutiny before resorting to court intervention.
- Interim Measures: The Act empowers both arbitral tribunals and national courts to grant interim measures ensuring the protection of parties’ interests during arbitration. Interim measures issued by arbitral tribunals are enforceable by the courts, enhancing the effectiveness of arbitration proceedings. Examples of Interim measures include injunctions, security for costs, preservation of assets.
- Arbitrator Immunity: The Act grants immunity to arbitrators, appointing authorities, and arbitral institutions, except in cases of bad faith, promoting impartiality and independence in the arbitration process.
- Electronic Communications: Arbitration agreements can now be validly made through electronic communications, broadening the scope of acceptable forms for such agreements.
These provisions collectively enhance Nigeria’s arbitration landscape, making it more attractive for both domestic and international commercial disputes. The Act’s alignment with global standards underscores Nigeria’s commitment to providing a robust and efficient dispute resolution mechanism.
Reasons Why Parties Should Choose Arbitration
Arbitration offers several compelling advantages over traditional litigation, making it an attractive option for resolving commercial disputes:
- Confidentiality: Arbitration proceedings are private, ensuring that sensitive business information remains confidential. This privacy helps protect trade secrets and maintain reputations.
- Expertise of Arbitrators: Parties can select arbitrators with specialized knowledge relevant to their industry or the specific issues at hand, leading to more informed and appropriate decisions.
- Flexibility and Control: Arbitration allows parties to tailor the dispute resolution process to their specific needs, including selecting procedural rules, timelines, and the location of proceedings.
- Enforceability of Awards: Arbitral awards are generally easier to enforce internationally compared to court judgments. Nigeria is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which means that awards obtained abroad can be enforced in Nigeria.
- Cost and Time Efficiency: Arbitration can be more expedient and cost-effective than traditional litigation. The streamlined procedures and limited discovery processes often result in faster resolutions, reducing legal fees and associated costs. For example, a typical court case in Nigeria can take 4 to 10 years to conclude, depending on the complexity of the case and the jurisdiction, with some cases taking even longer.
- Neutral Forum: In international disputes, arbitration offers a neutral venue, which can alleviate concerns about potential biases in a foreign court system. This neutrality fosters fairness and can be pivotal in disputes involving parties from different countries.
Process of Arbitration
To effectively utilize arbitration for dispute resolution, it’s essential for parties to include clear and comprehensive arbitration clauses in their commercial agreements. These clauses serve as a mutual commitment to resolve potential disputes through arbitration.
The arbitration process involves several key stages:
- Initiation of Arbitration: The process begins when a party submits a “Notice of Arbitration” or “Demand for Arbitration,” outlining the dispute and the relief sought. This notice is sent to the opposing party and where applicable, to the designated arbitration institution.
- Selection of Arbitrator(s): Depending on the clause in the agreement, parties select one or more arbitrators based on criteria such as expertise, neutrality, and availability. Selection methods vary depending on the arbitration agreement and may involve mutual consent or appointment by an arbitration institution. Example of these institutions are Nigerian Institute of Chartered Arbitrators (NICArb), Lagos Court of Arbitration International Centre for Arbitration and ADR, Maritime Arbitrators Association of Nigeria, Lagos Chamber of Commerce International Arbitration Centre etc.
- Preliminary Hearing and Scheduling: Once appointed, the arbitrator(s) conduct a preliminary hearing to discuss procedural matters, including timelines, discovery processes, and the scheduling of hearings. This stage ensures that both parties understand the procedures and have an opportunity to present their case adequately.
- Exchange of Information (Discovery): Parties exchange relevant documents and information pertinent to the dispute. While arbitration typically involves a more streamlined discovery process than litigation, it allows for sufficient information sharing to prepare for the hearing.
- Hearing: During the hearing, both parties present their evidence and argument through their lawyers skilled in arbitration. This may include witness testimonies, expert reports, and documentary evidence. Hearings can be conducted in person, via video conference, or through written submissions, depending on the agreement and circumstances.
- Deliberation and Award: After the hearing, the arbitrator(s) deliberate and issue a written decision, known as an award. This award is binding on the parties and enforceable in courts, subject to limited grounds for challenge.
Throughout the arbitration process, parties maintain control over various aspects, such as selecting arbitrators and tailoring procedures to fit the specific needs of their dispute. This flexibility, combined with the binding nature of arbitral awards, makes arbitration a valuable tool for resolving commercial disputes efficiently and effectively.
Role of the Parties in Arbitration
In arbitration, the disputing parties play a central and proactive role, exercising significant control over various aspects of the process. Their key responsibilities and rights include:
- Initiating the Process: A party seeking arbitration must file a “Notice of Arbitration” or “Demand for Arbitration,” formally initiating the proceedings and outlining the dispute and desired remedies.
- Selecting Arbitrators: Parties have the autonomy to choose arbitrators with relevant expertise and impartiality, ensuring a knowledgeable and unbiased tribunal.
- Determining Procedural Rules: Through mutual agreement, parties can establish the rules governing the arbitration, including timelines, confidentiality measures, and specific procedures, tailoring the process to their specific needs.
- Presenting Evidence and Arguments: Parties through their lawyers are responsible for presenting their case, including submitting evidence, calling witnesses, and making legal arguments to support their positions.
- Maintaining Confidentiality: Given that arbitration is a private process, parties are expected to uphold the confidentiality of the proceedings, safeguarding sensitive information and the integrity of the process.
- Complying with the Arbitral Award: Once a decision is rendered, parties are obligated to adhere to the terms of the arbitral award, which is binding and enforceable. It can be contested on specific grounds including misconduct, fraud or error in judgement.
By actively engaging in these roles, parties in arbitration can ensure a fair, efficient, and tailored resolution to their commercial disputes.
Arbitration Clauses and Pending Court Proceedings
When a commercial contract includes an arbitration clause specifying that disputes should be resolved through arbitration, and a party initiates court proceedings instead, the legal framework provides mechanisms to address this situation.
Under the Arbitration and Mediation Act 2023 (AMA), if a lawsuit is filed concerning a matter subject to an arbitration agreement, the defendant can request the court to refer the parties to arbitration. Section 5(1) of the AMA mandates that courts must refer the parties to arbitration unless the arbitration agreement is found to be “null and void, inoperative, or incapable of being performed.” This provision underscores the judiciary’s commitment to upholding parties’ agreements to arbitrate disputes.
To enforce the arbitration clause, the defendant should promptly file an application for a stay of proceedings before submitting any pleadings or taking further steps in the court process. Timeliness is crucial; any delay or participation in the court proceedings may be interpreted as a waiver of the right to arbitrate. The court, upon receiving such an application, is obligated to stay its proceedings and direct the parties to proceed with arbitration, provided the arbitration agreement is valid and applicable to the dispute at hand.
The enactment of the AMA has further solidified the legal framework supporting arbitration in Nigeria. By aligning with international standards, the AMA enhances the enforceability of arbitration agreements and awards, providing parties with greater confidence in choosing arbitration as their preferred dispute resolution mechanism.
Conclusion
Arbitration plays a crucial role in resolving commercial disputes by offering parties a flexible, efficient, and enforceable alternative to litigation. As an ADR mechanism, it provides confidentiality, expert decision-making, international enforceability and cost-effectiveness, making it a preferred choice for businesses seeking to protect their commercial interests.
By including well-drafted arbitration clauses in commercial agreements, parties can ensure that disputes are resolved in a structured manner, avoiding the delays, costs and uncertainties of court litigation.
Please note that the contents of this article are for general guidance on the Subject Matter. It is NOT legal advice.
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