Any Room for Arbitration In Nigeria?

In partnership with the International Chamber of Commerce, Stears assesses the role of Arbitration in Nigeria as the 2nd Annual Africa Regional Arbitration Conference commences with the theme 'Arbitration, Catalyst for Economic Growth.' 

Resolving disputes in Nigeria is an arduous process, particularly in traditional courts. Nigerian courts have an unfortunate reputation for dragging their feet, a trend that has proved problematic for many businesses. Sometimes, it is as if the courts prefer if cases go on forever, as a way of validating their own usefulness. Thankfully, an alternative exists for parties willing to resolve disputes outside the courts – arbitration. 

Companies sometimes prefer to settle out of court, conscious of the effects of court appearances and legal fees on their bottom line and public image. Arbitration, as a form of quick, confidential and binding agreements, has turned out to become a very efficient way of solving disputes.

How does Arbitration work?

Arbitration is a relatively simple process. An independent person, such as a judge or very senior lawyer, is invited by the parties involved in the dispute to assess the situation and reach a binding decision on how the parties should move forward. Companies usually include arbitration clauses in their contracts, meaning that it is often the first attempted form of dispute resolution. Other times, companies agree to go the arbitration after the dispute has arisen.

Thankfully, the Nigerian judicial system supports this process, primarily because it reduces the backlog of legal cases. Nigeria regulates arbitration at the federal and state levels through the Arbitration and Conciliation Act. Lagos State, in particular, showed an appreciation of the role of arbitration in improving the ease of business by passing the Lagos Arbitration Law, propped by the Lagos Court of Arbitration Law.

As it stands, the law provides that Nigerian courts recognise arbitration clauses in an agreement, forcing the parties to first arbitrate before coming to the courts. In Lagos and most states, judges are allowed to ask parties to try arbitration before proceeding with traditional litigation. This goes to show that lawmakers are aware of the benefits of arbitration and its impact on business. Despite government efforts to ease business activity, challenges around proper dispute resolution between transacting parties will continue to hamper business growth.

Why do we need Arbitration?

One of the many challenges with dispute settlement by courts in Nigeria is expertise. As Nigerian companies begin to deal with more sophisticated commercial and financial products, the traditional courts need to improve their understanding of the distinctions that sophisticated commercial products might reveal.

It is understandable how a judge more accustomed to traditional land disputes would find it harder to satisfactorily adjudicate on the collateral or margin in a credit default swap or securitised bond. This hands courts the difficult task of understanding the complexities of modern financial products and training their judges to understand them well enough to help businesses in court. This is where arbitration becomes particularly useful. 

The ability to choose your arbitrator is, therefore, a useful feature, because businesses can choose experts in their fields, rather than be allocated to a judge who may or may not have any experience with the industry or financial products in question. This remains a big value add of the arbitration process.

The challenges in Nigeria

For all the benefits of Arbitration, the uptake is dependent on legal practitioners. Nigerian lawyers are typically obsessed with filing matters and going to court. On occasion, lawyers have commented that arbitration cannot be considered 'real' law practice, a statement symptomatic of our aversion to this sort of alternative approach to dispute settlement. That being said, the risk arbitration poses to some lawyers is obvious. For many businesses, the first point of call in the case of a dispute is a lawyer, and litigation is more profitable than an outright settlement. Hence, there is a risk of reduced business from clients and lawyers inadvertently encourage clients to fight in courts, as opposed to encouraging them to arbitrate.

Recognising this position, and in a bid to improve the perception of arbitration, the Rules of Professional Conduct for legal practitioners, explicitly imposes a duty on lawyers to advise clients on alternative dispute resolution options, including arbitration. 

So far, the uptake is still hard to measure, and Nigerian lawyers still generally think of arbitration as the first step in the litigation process that stops at the supreme court, rather than what it really should be – a final award to determine the relationship between parties.

Making dispute resolution easier in Nigeria will not solve all our business problems. It is just one of many considerations investors take into account when funding businesses. Nevertheless, with strides being made to incentivise investors and ease business across the board, arbitration is an opportunity to begin to make foreign investors more confident about investing in Nigeria. As more companies, executives and judges continue to make way for arbitration as a means of solving disputes, Nigerians can at least be grateful that in this regard, we are making progress. 

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