Public confidence in the judiciary is at an all-time low. Cases spend decades in courts with disputes reaching their conclusion years after its of any relevance to the parties. There is also a growing concern about the quality of decisions with both successful and unsuccessful parties unable to comprehend the factual and legal bases upon which decisions are rendered. With the business community not left out of this debacle, this piece recommends the adoption of arbitration — the same old story — but not without addressing the major concerns that come with the process. To make for an easy read, the article sets out seven (7) truths of arbitration.
Arbitration is expensive, only when you want it to
The consensus is that arbitration is expensive, but the reality is that this is only the case because the parties ‘want’ it to be. The arbitrator’s fee is the major difference between litigation and arbitration costs and, with parties responsible for appointing their arbitrator(s), an expensive arbitrator is invariably the parties’ choice. With large disputes, parties rarely complain about paying expensive arbitrators. However, the impression that arbitrators are expensive has deprived businesspeople of the benefits of arbitration for smaller disputes. For smaller disputes, appointing arbitrators of proportionate experience will invariably lead to cheaper arbitrations. The cautionary note, however, is to ensure they have the required expertise to decide the dispute. For a ‘small’ fee, parties can involve an arbitral institution in the appointment process to ‘supervise’ the process and guarantee quality.
Disputes take time, but arbitration is quicker
Even with arbitration, the dispute can still go on for a long time. However, as far as time is concerned, arbitration shortens the overall period of the dispute by up to 1-3 years. In extreme cases, this could rise as high as 5-10 years. The average arbitral proceeding lasts for around 12-15 months. After its conclusion, parties often approach the courts to review/enforce the award. This process starts at the High Court (i.e., the same court where the parties would commence the dispute if they did not opt for arbitration) and may continue at the Court of Appeal and the Supreme Court if an aggrieved party appeals the outcome. While this seems like a repetitive process, it is worth noting that the proceedings to review/enforce the award are summary proceedings that are typically concluded between 9-12 months (bringing the pre-Court of Appeal proceedings to a total of around 27 months). Without arbitration, High Court cases can go on for up to 5 years, sometimes without getting to the substance of the dispute.
Arbitration seals your dispute, even when it goes on to the courts
An added advantage of arbitration is that, even when the arbitrator’s decision ends up in court for review, the courts are precluded from ‘correcting’ it. The arbitrator’s decision is, effectively, sealed, and courts will only review the decision to ensure, broadly speaking, that the arbitrator treated the parties fairly in the process leading to the decision. This means that it is conceptually difficult to overturn an arbitrator’s decision, and aggrieved parties would need concrete grounds to do so. This is particularly helpful given that parties choose their arbitrators and often select practitioners who are experts in their sector to decide the dispute. Courts will preserve this ‘expert decision’ and will not substitute it with their judicial [and sometimes non-expert] reasoning. This is not the case with court proceedings where there could be a different winner/loser at every stage of appeal.
Arbitration avoids technicalities
A major pain point for practitioners and businesspeople has been the obscure hyper-technical bases for court decisions. Businesses lose millions of naira simply because their lawyer failed to sign the back of a court document 5 years before the conclusion of the case, or because it was signed in the name of the law firm (rather than the lawyer). In comparison, arbitration is a flexible process that gives the arbitrator the discretion to deal with administrative and procedural matters. The practice globally has seen arbitrators side-step technical points in favour of getting to the root of the parties’ dispute.
Arbitration is on your schedule
The uncertainty as to when you get your day in court, needless adjournments when the days come, and the long wait until your case is called when you escape the adjournments. These are part and parcel of the court process but are markedly absent from arbitrations. Parties agree to hearing dates in advance taking into consideration their respective schedules, and have a dedicated arbitral tribunal that, on any hearing day, will deal with only their dispute. As such, if parties are willing to have their final hearing in 3 months, it is entirely possible with arbitration.
Arbitration has become essential to businesses for effective operation much like alternative power sources.
No wasted costs in Arbitration
Businesses often invest money that would ordinarily remain in their coffers but for the dispute. In the court process, these costs are not routinely recoverable. The opposite is the case in arbitrations as the arbitrator usually orders the losing party to reimburse the winning party’s costs. This includes lawyer fees and other expenses incurred in participating in the arbitration.
It is all in your arbitration agreement
Taking advantage of arbitration to resolve your business disputes starts from your arbitration agreement i.e., either an arbitration clause inserted into your contract before signing (which is more common) or a submission agreement which is signed by both parties after the dispute arises. The arbitration agreement usually contains stipulations on major terms of the arbitration e.g., the number and appointment of arbitrators, whether the arbitration would be supervised by an arbitral institution and other specifications which could impact the cost, duration, and efficiency of the process. Parties are often advised to adopt model clauses published by arbitral institutions or arbitral organisations. Good examples are the model clauses published by the United Nations Commission on International Trade Law (UNCITRAL) and the Lagos Chamber of Commerce International Arbitration Centre (LACIAC). However, it is crucial that the business community seek legal advice before adopting any model clauses because of their far-reaching implications. For instance, a ‘supervised’ arbitration would involve an arbitral institution chaperoning the process for an additional fee. In an ‘unsupervised arbitration’ on the other hand, parties would only need to pay the arbitrator(s) and any other administrative support they require.
Arbitration has become essential to businesses. In the same way, businesses seek alternative power sources to operate efficiently, an alternative adjudication process is key to ensuring the effective and efficient resolution of disputes which are, in truth, an inevitable part of the business.
Efemena is an Associate in Linklaters LLP (London). Before joining the firm, he practiced in a leading disputes practice in Lagos, Nigeria.