On 26 May 2023, the Arbitration and Mediation Act, 2023 (the “Act”) was signed into law. The Act marks a significant milestone in the promotion and development of arbitration in Nigeria. The Act repealed the erstwhile 35-year-old Arbitration and Conciliation Act, 1988 (“ACA”), and goes a long way in bringing Nigeria’s legal framework for arbitration in conformity with contemporary international arbitration principles and practices.
The enactment of the Act is timely and demonstrates the determination of the government and the arbitration community for Nigeria to be a preferred seat of arbitration. This resolve is reasonable considering Nigeria’s position as the largest economy in Africa, the burgeoning volume of Nigeria-related cross-border trade and disputes, and the ever-increasing volume of arbitration activity arising from Nigeria.
This article considers how the Act promotes Nigeria’s reputation as an arbitral seat. It first considers the nature of an arbitral seat, and thereafter highlights relevant provisions of the Act that enhance Nigeria’s reputation as an arbitral seat. The article closes on the note that while the Act is a welcome development, more is required to make Nigeria a leading seat of arbitration.
What is a seat of arbitration and why is it important?
The seat of arbitration is widely defined as the legal home or domicile of an arbitration. This means where arbitration is legally deemed to take place.
The significance of the choice of an arbitral seat is that the seat supplies the procedural law applicable to the arbitration, and it is the courts of the seat that have supervisory jurisdiction over the arbitration and are primarily competent to deal with various practical aspects of the arbitration including issues relating to: (i) the enforcement of an arbitration agreement; (ii) jurisdiction or arbitrability of the dispute; (iii) the availability of interim reliefs; and (iv) annulment of awards. These issues are so critical that they can make or mar an arbitration. Therefore, in choosing an arbitral seat, arbitration users naturally prefer a seat whose laws respect users’ choice of arbitration and whose courts are more supportive than interventionist.
in choosing an arbitral seat, arbitration users naturally prefer a seat whose laws respect users’ choice of arbitration and whose courts are more supportive than interventionist.
Being a preferred or leading seat of arbitration means that the majority of arbitration users are confident in the country’s legal and institutional framework for arbitration, with the result that such a country maintains a high portfolio of arbitration-related work and activity. Having such a status is attractive to governments because of the associated economic benefits. First, more arbitration work means increased revenue for all participants in the legal sector – lawyers, arbitral institutions, technical experts, and arbitration service providers. Second, revenues will also increase for businesses in the hospitality and tourism sectors. An example is the annual ICC Africa Conference on International Arbitration which attracts over 350 to 450 foreigners to Nigeria each year. Also, the increased revenues translate to more tax payments to the government. Third, being a leading seat of arbitration signals an effective dispute resolution regime which, as several empirical research confirms, increases foreign direct investment in a country.
To compare the experience in the United Kingdom (London), which is the world’s preferred arbitral seat, a study conducted by TheCityUK reported that (i) over 4000 disputes were resolved by international arbitration in the UK in 2021; (ii) the UK’s legal services sector (including arbitration) contributed 30.7 billion pounds to the UK economy in 2021, and (iii) the UK’s legal and accounting sectors paid 20.5 billion pounds in taxes to the UK government in 2020.
The foregoing suggests that Nigeria may be leaving a lot of money on the table and that there is a need to make deliberate policies that ensure that arbitration is a service that factors into Nigeria’s quest for economic growth.
The impact of the Act on Nigeria’s reputation as an arbitral seat
According to the Queen Mary International Arbitration Survey 2021 and the CIArb London Centenary Principles, the top markers of quality which influence users’ choice of the arbitral seat are: ‘modern international arbitration law’, ‘independent and effective judiciary, ‘greater support for arbitration by local courts and judiciary’, ‘increased neutrality and impartiality of the local legal system’, and ‘better track record in enforcing agreements to arbitrate and arbitral awards’.
While Nigeria already has a modern arbitration law, it is evident that it needs to build on other factors. The Act addresses some of these factors through its innovative provisions such as:
(i) Enforcement of arbitration agreements – Section 5 of the Act now mandates Nigerian courts to enforce arbitration agreements by staying proceedings when disputes which are subjects of arbitration agreements are taken to court. Under the repealed ACA, stay of proceedings was discretionary and the party requesting a stay had to demonstrate its willingness to proceed with arbitration. The ‘willingness’ requirement under the ACA had generated much uncertainty and controversy, with some judicial decisions interpreting same as imposing an obligation on the requesting party to commence arbitration proceedings before seeking a stay. This severely impacted the enforcement of arbitration agreements. The Act has expunged the ‘willingness’ requirement, thereby guaranteeing that arbitration agreements will be more readily enforced.
(ii) Award challenge proceedings – The Act has made the scope for challenging arbitral awards narrower. Under the ACA, a party could challenge an award on grounds of ‘misconduct’. The vague nature of the term ‘misconduct’ made it possible for lawyers to disguise what was in effect a request for a merits review of an award, as an allegation of misconduct. This created a lot of uncertainty and distrust in the arbitral process, with the effect that some users started to view arbitration as a prelude to litigation. Section 55 of the Act corrects this error by aligning the grounds for challenging an award with the narrow grounds contained in the New York Convention. This move creates more certainty in the award review process and demonstrates Nigeria’s commitment to respecting parties’ choice to arbitrate and upholding the finality of arbitral awards.
Better still, is the uncommon provision on the Award Review Tribunal (ART) – section 56. The ART is an alternative option for parties who may prefer another tribunal, rather than the court, to handle award challenge proceedings. Notably, the ART has a timeline of 60 days from its constitution to deliver its decision. Under the ART mechanism, a court will only be competent to entertain a challenge to an award after the ART affirms the award and only on grounds of public policy and arbitrability. One evident advantage of the ART mechanism is speed; it will be significant in shortening the time for post-award challenges.
(iii) Timelines for arbitration claims in court – The Third Schedule to the Act contains the Arbitration Proceedings Rules which regulate the procedure in arbitration-related court proceedings, including proceedings to challenge an arbitral award. The rules provide for specific timelines which are designed to ensure that first-instance arbitration-related proceedings are concluded in upwards of 3 to 4 months and appellate proceedings concluded in less than 6 months.
(iv) Legal representation in arbitration proceedings – The Act clarifies that parties to arbitration proceedings can be represented by ‘any person’, and not necessarily a ‘Legal Practitioner’ (unlike under the ACA). This means that the restriction which existed under the ACA that only Nigerian lawyers were entitled to represent parties no longer applies, and users can now retain foreign counsel. This will enable the influx of global talent to Nigeria, boost collaborations and achieve up-skilling for domestic practitioners.
(v) Third-party funding of arbitration – The Act permits the third-party funding of arbitrations and has abolished the common law torts of champerty and maintenance with respect to arbitrations. Thus, funded arbitrations can now be validly seated in Nigeria.
Other innovations in the Act which enhance Nigeria’s reputation as an arbitral seat include provisions relating to (i) arbitrators’ immunity (ii) joinder, consolidation, and concurrent proceedings, (iv) interim measures of protection, and (iv) emergency proceedings.
Practical realities and future directions
The Act certainly reinforces Nigeria’s commitment to developing its arbitration practice and signals the country’s willingness to be considered a major hub for Arbitration. However, whether the Act will live up to its full potential and yield its desired benefits would depend on the attitude of the courts in interpreting and implementing its provisions.
A country’s emergence as an arbitral seat reflects the state of the country’s political, social, and economic institutions and infrastructure, and not just the strength of its arbitration laws. If Nigeria is serious about becoming a major seat of arbitration, then it must be prepared to carry out extensive institutional reforms across its major sectors, starting with the justice sector. Any reform measures for the justice sector must, at minimum, address (i) the quality, expertise, impartiality, and neutrality of judges, (ii) corruption in the legal profession and the judiciary, and (iii) the quick and efficient administration of justice.
Notably, Delta State and Ekiti State have recently enacted Administration of Civil Justice Laws which contain helpful provisions for just, efficient, timely and cost-effective resolution of disputes. Further, it is interesting to note that the proposed reform measures for the justice sector are covered in President Tinubu’s Action Plan for a Better Nigeria. While the administration appears to be, so far, focussed on security and economic policies, it remains to be seen whether the justice sector would be prioritised.
The buck does not stop at government-backed reforms. There is also a need to promote the use, awareness, and culture of arbitration among arbitration users: the judiciary, the business community, and the legal profession.
Tochukwu Anaenugwu is a Senior Associate at Aluko & Oyebode, Lagos. He specializes in commercial litigation and arbitration involving energy, finance, and banking disputes.