Introduction
When the coronavirus pandemic heralded the globe in 2020, little was predictable, let alone known, in terms of the paralysis and crises it would cause given the unquantifiable damage and its impact on global socio-economic livelihood. The scale of the outbreak is unprecedented and quite extraordinary. One stark reality of Covid-19 is that many commercial disputes are bound inevitably to result in court or arbitration proceedings due to the adverse impact of the pandemic. This article does not dwell on specific time-honoured legal principles such as force majeure, frustration, or breach of contract, which may be triggered inevitably by Covid-19. But, bringing or defending arbitration proceedings can be quite a considerable expense, especially in a time of dire economic difficulty. How should businesses respond to such extremely grappling situations including making difficult commercial decisions, and how about dealing with associated risks and costs of arbitration proceedings? This is of significant consequence because, for some businesses, their survival or future viability is wholly dependent on making a complex choice: whether, when, and how to bring or defend claims. This short article briefly highlights some key costs-related issues that typically arise in international arbitration proceedings and proffers some practical tips that parties may usefully deploy in mitigating such risks; ensuring that the arbitration yields a desirable outcome and is cost-efficient.
Proliferation of arbitration cases and costs
International arbitration is the most popular dispute resolution method chosen by parties in resolving cross-border disputes. However, the flip side indicates that arbitration comes with relative cost implication for parties to have their dispute adjudicated by arbitration. The proliferation of arbitration cases has exacerbated cumulative costs borne by parties. Parties will doubtless be keen to ensure that they make the right choices; seeking suitable models for funding their claims, especially in the wake of the prevailing economic squeeze.
Incidence of costs in international arbitration
Parties to an arbitration will need to pay the arbitrators’ or tribunal’s fees, as well as paying fees of their own legal representatives. In contradistinction, the State employs and pays judges to sit and adjudicate litigation cases before domestic courts. So, what factors influence or drive costs in arbitration, and, why is this relevant? How costs in arbitration arise and are borne may conveniently be categorised broadly into two: whether the arbitration is ad hoc, or institutional. Whereas the latter has its inherent beneficial advantage by reason of it being independently administered by an experienced secretariat within the selected institution, however, one of its drawbacks lies in the requirement for payment of administrative fees by parties to the arbitral institution that they have selected, which is distinctly generally not the case in ad hoc arbitrations. Parties must envisage and adequately prepare to address these issues, and how they impact arbitration costs.
1. Drafting and negotiation of the underlying contract, including the arbitration clause/ agreement
Although the arbitration agreement is generally and is often conveniently set out in the “Dispute resolution” section of a contract, however, the arbitration agreement requires particular attention; future disputes are likely to make it difficult – if not impossible- to reach agreement when a dispute does crystalize. Parties should unequivocally address relevant matters in advance; doing so expressly and unambiguously: selection of type of arbitration (choosing between ad hoc or institutional arbitration), the applicable rules (of the institution), nomination of arbitrator(s), the seat or place of arbitration, the governing law, as well as deal with any other matter that will one way or the other, have some impact on the arbitration. Likewise, where there are existing safeguards regulating fees of the arbitral tribunal, it would be inappropriate for the arbitrators to request from the parties, sums higher than that expressly stipulated within such agreed institutional rules. Generally, parties must exercise great care when negotiating and drafting the arbitration agreement; recognising that the arbitration agreement is separate and separable from the rest of the main contract to which the agreement is contained. The infamy and notoriety gained by so-called “pathological arbitration clauses” must be avoided, as they often lead to delay and cost escalation for parties.
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2. Selecting counsel for an international arbitration
Given that most costs typically borne by parties in arbitration are fees payable for the parties’ legal representation, parties will be well-advised to give this close consideration in order to make informed choices when selecting counsel, including agreeing fees payable for representation. Although international arbitration was traditionally almost exclusively handled by much larger international law firms, however, by using a lean and dedicated team, smaller boutique law firms are able to provide robust and seamless representation in international arbitration; often at a fraction of the fees that are typically billed by much bigger law firms. Faced with the prevailing unprecedented and dwindling economic conditions impacting on many businesses’ bottom lines as a result of the impact of the coronavirus pandemic, businesses that are parties to any on-going or future arbitration cases, will no doubt be keen to exploring any cost-saving avenue for mitigating the costs of such disputes.
3. Dealing with enforcement issues- what is the value of an (unenforceable) arbitral award?
Aside from devising strategic and robust steps that enhance or culminate in winning the arbitration, parties and any counsel engaged need to focus on any legal obstacles that may likely impede or impact on the enforceability of the arbitral award. This is important because, an arbitral award that is unenforceable is simply of little or no pecuniary value to a winning party and/or the award creditor; a situation often described as akin to “winning the battle and losing the war”. Although the New York Convention offers a transnational legal framework for the recognition and enforcement of arbitral awards, the difficult reality is that mere adoption of the convention by a particular jurisdiction is not necessarily an indication of voluntary compliance by a losing party. And, it provides no security that an award may not be set aside or annulled by domestic courts clothed with curial or supervisory jurisdiction. Enforcement of an arbitral award is a complex and costly legal undertaking that requires proactive and strategic steps to counteract or overcome any legal impediments.
4. Are the courts and judges supportive of arbitration?
An arbitral award on its own, absent voluntary compliance by a losing party, is not enforceable; the award requires recognition and enforcement by the courts. The attitude, approach and role of courts and indeed judges, requires careful consideration; particularly in jurisdictions with less developed or developing judicial institutions. Save for substantive jurisdictional grounds, or material irregularity touching on lack of due process, which may arise in arbitration proceedings, courts must, in general, be consistent and non-interferent in enhancing and safeguarding both the arbitral process, as well as facilitating enforcement of the arbitral award that is the end product. Parties and their counsel must be alive to these realities and must be proactive in enjoining judges to strike the right balance when faced with genuine or frivolous applications. Counsel’s knowledge of the approach of courts at any jurisdiction where enforcement may be sought is thus key, to say the least.
Conclusion
There is simply no silver bullet that is a panacea for keeping arbitration costs reasonable or manageable. A holistic approach requires taking a number of steps briefly highlighted: paying attention to negotiation and drafting of the arbitration agreement; selecting counsel that will deliver a successful and cost-efficient outcome; keeping enforcement in view; and paying adequate attention to attitude and role of supervisory courts, including where any enforcement may be pursued. These are important steps within a delicate puzzle to making an arbitration successful and cost-efficient. Whereas some relative relief by way of vaccines are now available for treatment of Covid-19 (even as we need to wait to see how effective the vaccines are), however, the unfortunate reality is that the harsh economic impact of the pandemic on businesses and indeed on global commercial activity is very telling and will be for a while – with no immediate respite in sight. Thus, business owners need to take their own destiny in their hands – should they desire to stay afloat in the prevailing economic undercurrent. Businesses must devise a strategic roadmap that leads to recovery; by adopting cost-efficient means to mitigate the risks and costs of any disputes or arbitration claims.
You buy land from a family, you raise funds to start your investment while others or the land owners choose to frolic in hotels and enjoy their lives. As the investment begins to prosper, a chief emerges with a youth leader and lays siege at the gates, demanding a long list of things must do or you shut down. You peep into the list. Behold; you must employ the principal, the accountant, and the chief security from their community; you must pay homage every festival events and Christmas, you must bury chiefs and elders, you must pay levy this, levy that. You are exasperated.
This is what the state government has been trying to nip in the bud. The battle to tame the communities and allow investments into Rivers State began in the Chibuike Rotimi Amaechi era when he enacted a law banning touts around building construction sites. That period, someone would buy land, pay everybody, pay government levies, then, as he drops the first trip of sand, new ‘owners’ would emerge demanding one payment or the other. Endless groups would emerge and make demands. Investors began to relocate gradually, then in droves. The government intervened with a law that has no option of fine. The communities were not happy but businesses flourished and created jobs.
The change of administration seemed to cause some lull. Now, it seems to be business as usual. The Nyesom Wike administration seems to be pro-business. He streamlined taxes and levies, he waived some levies to allow small businesses take roots, he played down on informal tax drive. He encouraged voluntary tax compliance and this seems to have helped to push monthly IGR from about N7BN to N12BN. He listens to the organized private sector through the PHCCIMA, MAN and REIF. But, community leaders and touts seem to subtract from this progress report.
Thus, the famed friendly environment that emerged in Rivers State due to ban on multiple taxes and ban on community harassment in recent years seems to have been shattered as community leaders and chiefs are said to raise teams to invade business premises in the outskirts of the state capital.
Investigations reveal that for years, the law against invasion of business premises and ban on obstruction of construction sites had created calm in Rivers State and led to a surge in business locations outside Port Harcourt, especially Igbo-etche in Etche local council area, Oyigbo, Eleme, Emuohua, etc.
Cries of business owners seem to return as school owners in Igbo-etche seem to be at war with chiefs and youths.
The investors have accused some community leaders and youth bodies while some have called on the Rivers State government to intervene before it gets out of hand. The prevalence of Covid-10 with its attendant economic recession seems not to concern the community leaders, the investors said.
The investors have accused the community leader over issues of extortion, harassment, and threats. Some business owners have thus lamented the difficulty and constraint of doing business in Rivers State as a result of the overbearing actions of community leaders.
This comes on the backdrop of complaints by several other host communities across the State who are quick to complain about the negligence they say they suffer from the organisations operating in their areas. They claim they are justified to ask for what they call working agreements or memorandum of understanding (MOU) that leads to no understanding.
The business owners however wonder why they must pay a range of taxes and levies to community leaders after hey have bought the property and paid appropriate taxes to the state government.
One of the school owners who spoke with newsmen in an interview in Port Harcourt, Peggy Adukeh, founder of CITA International School at Umuchoko at Chokota, IgboEtche, bemoaned what she labeled the extortion of her investment in the community allegedly spearheaded by a local leader and chief she named as Elijah Okere, a charge the chief denied. .
Adukeh said Okere has deployed several means of extortion and deliberately undermining the Corporate Social Responsibility of the School (CSR) to the community.
She said the chief also makes high demands from the school to employ his nominees into senior management positions of the school as well as offer compulsory scholarships to a number of children from the community.
The CITA International School founder also said the chief resorted to other forms of pressure and media blackmail in spite of her CSR’S and the effort of the school management to attract development to the community.
The CEO lamented: “The paramount ruler of the community asked for a Memorandum of Understanding (MOU), he asked that the positions of a principal, chief security officer, and accountant to be brought from the community which of course is not possible.
“If we had found somebody who was qualified maybe we would have considered the person but for security reasons, those are very sensitive positions and we had to make him understand that we paid for the property and we are not obliged to go back to pay homage to him.
“We were not owing him any anything, the plans were approved by the government, so there was no need for us to go and ask his permission for moving in, and ever since then he demanded such homage to be paid to him, just for the sake of peace, every end of the year we would send some gift items to him and other community people especially widows,” she said.
The paramount ruler however denied the allegations saying that the community was not harassing the school. He told newsmen that since Adukeh runs a serious business in Umuchoko, she must enter into an MOU with the community and must be answerable to the principle of the authority in the community.
“All the accusations against me are baseless lies; I have never sent anyone to disturb her. The only thing I did was to try to advise her to employ some persons from the community she is operating from because she didn’t employ anyone from the community.”
Another female proprietress operating in Igbo-etche complained that community youths and chiefs have invaded her school severally with a list of uncountable items. :If you give them, they come up with another”.
The CEO of another top school whose school produced world beaters in the recent Cambridge examinations suspected the upcoming LGA elections in the state as probable cause of the upsurge on demands from business owners in nearby local council areas, and appealed to the state government to kindly save the schools by halting the invading teams.
