Guest Post: International Arbitration and Economic Growth in Nigeria

Introduction

The thesis of the article is that arbitration has become the preferred mechanism for resolving both commercial and investment disputes and an important area, to which Nigeria must turn in its effort to attract foreign investments and stimulate economic expansion.

The World Bank Ease of Doing Business Report provides quantitative indicators on business regulations and the protection of property rights across multiple jurisdictions. The Report measures regulations affecting 11 areas of the life of a business such as starting a business, dealing with construction permits, getting electricity, registering property, getting credit, and enforcing contracts among others. Of the 189 countries surveyed in the in its 2015, Nigeria is listed in 170th position just ahead of Zimbabwe, Bangladesh and Liberia in 171st, 173rd and 174th respectively.

Poor contract enforcement mechanism, which includes dispute resolution is one of the reason why Nigeria is not one of the easiest countries to carry on business. Court congestion leading to trial delays, inefficiency of the judicial system, corruption, and lack of expertise to deal with disputes arising from complex and transnational business transactions are some of the reasons responsible for making contract enforcement difficult in Nigeria. In order to substantially increase the inflow of investments and stimulate rapid economic development, the country must create an efficient, flexible and neutral mechanism enforcing contracts and resolving disputes. It is in this sense that international arbitration becomes an inevitable and preferred option.

What Is Arbitration?

Arbitration is process whereby parties consensually submit a dispute to a non-governmental decision-maker, selected by or for the parties, to render a binding decision resolving a dispute in accordance with neutral, adjudicatory procedure allowing each party an opportunity to present its case.

The decision of the arbitrator or tribunal as the case may be is known as an award. Typically, because voluntary compliance is rare, the award is taken to court and enforced as the judgment of the court. Thus, an award, which is rendered by a non-governmental decision-maker, invokes the coercive power of the state once it is enforced as the judgment of the court and opens the judgment debtor to various liabilities including attachment of property and contempt.

Why Does International Arbitration Matter?

There are number of reasons why international arbitration has become an efficient and the preferred method for resolving international disputes whether commercial or investment.

First, it provides parties with a neutral forum that is detached from the parties and their respective home-state governments. Quite often, as Gary Born noted, parties begin to negotiate dispute resolution mechanisms with the objective of ensuring that disputes are resolved in the forum they perceive to be the most favorable to them – often the local courts in that party’s principal place of business.

These courts will be convenient and familiar to the home-town party. However, the characteristics that make one party’s local courts attractive to it will often make them unacceptable to counter-parties. As a consequence, outside of lending and similar transactions, it is often impossible for either party to obtain agreement to dispute resolution in its local courts. Thus by agreeing to resolve their disputes through arbitration, parties remove the so-called “home-boy” advantage. This feature is particularly important in the case of Nigeria because of the high incidence of corruption and the perception that judicial corruption is pervasive in Nigeria.

Second, arbitration agreements and awards are enforceable. One of the objectives of contemporary legal regimes for international arbitration is facilitating the enforcement of arbitration agreements and awards. In particular, both international arbitration conventions (particularly New York Convention) and arbitration legislation (particularly, the UNCITRAL – United Nations Commission on International Trade Law – Model Law) ensure that international arbitration agreements are more readily, expeditiously enforced and more broadly interpreted than forum selection clauses. This is consistently cited as a key benefit of international arbitration.

A Simple Working Illustration

Consider this simplistic hypothetical – party A, an Indian company entered into a joint venture with parties B and C, a Delaware and Nigerian Companies respectively for the construction of hydro-electric power station in Lagos Nigeria. The project is financed by a syndicated loan arranged by JP Morgan Chase (a London-based investment bank) and First Bank PLC (a Nigerian bank).

A dispute arose regarding the obligations of the parties under the joint venture – the Nigerian company alleges that both the Indian and Delaware companies have defaulted in their obligations under the joint venture. Let’s assume that the JV has no dispute clause. The Nigerian company institutes an action before the Lagos High Court. If both the Indian and Delaware companies, does not challenge the jurisdiction of the Court (as rarely is the case) and judgment is given in favor of the Nigerian party and against the two foreign parties, how will the Nigerian party enforce its judgment against the assets of the parties?

Remember, these parties and their assets are in their respective home countries. Unless Nigeria has entered into foreign judgments (reciprocal enforcement) treaties with both India and United States, the Nigerian company must institute court action against the parties in their respective countries – this is not an easy proposition as it sounds considering that there are jurisdictional hurdles that it must satisfy with the attendant huge cost of litigating in multiple jurisdictions over the same subject matter. In any case, nothing stops the foreign parties, upon hearing of the judgment of the Nigerian Court, from dissipating, transferring or disposing their assets in order to ensure that they are not available to satisfy the judgment of the Court.

Contrast this with a situation where there is a dispute clause in the JV stating that parties agree to submit any dispute arising from or relating to the JV to arbitration seated in Lagos. The New York Convention, with 150 contracting states including Nigeria guarantees the enforceability of both the arbitration clause in the JV and the award that may result from the arbitration.

Simplistically, the New York Convention allows the Nigerian company to take the arbitral award to both India and United States and be enforced as judgments of the courts of both countries with only minimal scrutiny to ensure there are no due process violations and for public policy, thus saving parties the huge cost arising from multiple litigations.

That is the magic of international arbitration!

Bringing It Home

International arbitration is finally gaining traction in Nigeria as more and more judges are coming to terms with the fact that private dispute resolution mechanisms are not impermissible intrusion into the sphere of exclusive jurisdictional competence of national courts but a means of facilitating trade and investments and even advancing national policy.

As a result of federalism, the Federal Arbitration and Conciliation Act, which is based on the 1985 UNCITRAL Model Law applies throughout the federation. The Act domesticated Nigeria’s treaty obligations arising under the New York Convention on the Recognition and Enforcement of Foreign Arbitral awards 1958. However, because arbitration is not listed under both the exclusive and legislative lists of the 1999 Constitution (as amended) – thus bringing it within the legislative competence of states, Lagos State has taken the lead by passing its own arbitration law which came into force on May 18, 2009.

The Lagos Arbitration Law is by far superior to the Federal Arbitration Act in content as it incorporates modern trends in the practice of international arbitration. The Law also sets up the Lagos Court of Arbitration, as an independent, not-for-profit entity comparable to the London Court of International Arbitration, for the purpose of delivering world-class arbitration and ADR services in Lagos. To signify its strategic intent, the Lagos State Government under Babatunde Fashola SAN donated a purpose-built International Arbitration Center at Remi Olowude Street, in Lekki Phase 1 to the LCA to aid its operations. The steps taken by Lagos State Government, which unfortunately did not make the headlines, yet are important to making Lagos and indeed Nigeria the investment destination and dispute resolution hub of Africa.

Conclusion And Recommendation

International arbitration can no longer be ignored by any economy that is interested in attracting foreign investments and stimulating economic expansion. Outside traditional jurisdictions like France, England and United States, in recent years, other jurisdictions such as Singapore and Hong Kong have embarked on extensive reform aimed at making the practice of international arbitration in their respective countries more efficient in order to attract foreign investments. It is therefore not surprising that Paris, London, New York and Singapore generate substantial revenue from international arbitration.

Because of its unique location and the size of its economy, Lagos can become the hub for dispute resolution in Africa with the right reforms. Mauritius is already positioning itself to becoming the dispute resolution hub of Africa by embarking on a comprehensive reform and have partnered with the London Court of International Arbitration to form the Mauritius International Arbitration Center known as the LCIA-MIAC. Lagos and indeed Nigeria cannot afford to take the back seat in this regard.

The Nigerian National Assembly must amend the outdated Federal Arbitration Act to bring “in sync” with modern practice. It must also amend the 1999 Constitution in order to list arbitration as an item on the concurrent list. The Federal and State governments must embark on comprehensive judicial reform in order to effectively support the arbitral process and enforce its outcome. Finally, judicial officers must be trained on the importance of international arbitration and the need to limit their review of arbitral awards to fundamental due process violations and public policy.

Tolu Obamuroh is a lawyer who has worked in Nigeria, the UK and the United States. He is currently in the middle of a PhD on International Arbitration. Follow him on twitter – @toluwabisi

***

This is an edited version of the piece sent to me by Tolu. We caught up a couple of weeks ago – safe to say I’ve never met anyone so passionate about arbitration (and the law in general) and knowledgeable as well. Anyway, my ears perked up when he went into the economic benefits of arbitration including boosting the hotel and tourism industry. 

So I asked him to write a primer and he obliged. 

You must join me in thanking him.

FF

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6 thoughts on “Guest Post: International Arbitration and Economic Growth in Nigeria

  1. This was very interesting, & particularly relevant to me cos I’m currently studying a master’s in International Business Law & I’m trying to write my dissertation on something that will not only relate to Nigeria as a case study, but will be useful in the not too distant future.
    @Feyi – I thoroughly enjoy your posts but this is the 1st time I’m commenting. 🙂

  2. This was very interesting, & particularly relevant to me cos I’m currently studying a master’s in International Business Law & I’m trying to write my dissertation on something that will not only relate to Nigeria as a case study, but will be useful in the not too distant future.
    @Feyi – I thoroughly enjoy your posts but this is the 1st time I’m commenting. 🙂

    Annie

  3. This is a beautiful article.
    ADR process is the new era for our Justice system ,and very much available in NIgeria regarding various sectors. Also there are provisions by the Chartered Institute Of Arbitrators UK (NIGERIA BRANCH) for entry courses as an introduction to arbitration (ASSOCIATE MEMBERSHIP) and training in International Arbitration, along side other stages required in arbitration and adr in general.

  4. Pingback: Raina Cozzone

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