Sep 28, 2017

A New Dawn for Arbitration in Nigeria | Abayomi Okubote

Nigeria has been ranked the 19th most attractive economy for investments in Africa, according to the Africa Investment Index 2017. It was reported that in 2015, Nigeria attracted a net foreign direct investment of US$3.1 billion. This inflow of investments unavoidably presents dispute and ultimately triggers a need for dispute resolution. Arbitration is now recognized as the principal process of resolving disputes in almost every aspect of commerce, investment and international trade.

Whilst the practice of arbitration is rapidly growing and several arbitration institutions are being established in Nigeria, the country’s judiciary has been viewed as “interventionists” or rather not supportive of arbitration. It is on this score that Nigeria remains one of the least arbitration destinations in Africa. This view may not be unconnected with the previous decisions by some Nigerian courts, showing lack of support for arbitration. As confirmed by the 2015 QMUL Survey, the most important factor influencing the choice of the seat for arbitration is the ‘formal legal infrastructure’ at the seat – the courts playing a crucial role in the legal infrastructure.

However, the anti-arbitration approach by some of the courts is not determinative of the judicial fabric in Nigeria. For example, the Court of Appeal in Aye-Fenus Ent. Ltd. v. Saipem Nig. Ltd [2009] 2 NWLR (Pt. 1126) 483, held that "parties to a transaction choose their Arbitrator for better or for worse to be the Judge both as to the decisions of law and decisions of fact in dispute between them. Thus, none of them can when the Award is prima facie good on the face of it, object to its decision whether upon the law or the facts, simply because the Award is not in his favour."

Also, the High Court of Lagos State in Guinness Nigeria Plc. v. NIBOL Properties Ltd, [2015] 5 CLRN 65 took a similar pro-arbitration approach, when the learned judge held that "I am in total agreement … that there is a live Judicial Policy of ascribing priority to the upholding of Arbitral Awards, by the regular Courts … and that there is a narrow compass that attracts the Courts to override this Policy by setting aside an Award. This argument is valid and pivotal for a Court to keep in mind in this type of matters for reasons espoused in the Case Law".

Notably, the incumbent Chief Justice of Nigeria (CJN), recently issued a Directive [dated 26 May 2017] requesting all heads of court in Nigeria to invoke their powers under the respective rules of court, to issue Practice Directions in the following terms:

“1. That no court shall entertain an action instituted to enforce a contract, claim, or damages arising from a breach thereof, in which the parties have, by consent, included an arbitration clause and without first ensuring that the clause is invoked and enforced.
2. The courts must insist on enforcement of the arbitration clause by declining jurisdiction and award substantial costs against parties engaged in the practice.
3. A party who institutes an action in court to enforce breach of contract containing an arbitration clause without first invoking the clause is, himself, in breach of the said contract and ought not to be encouraged by the courts.”

The foregoing represents a significant development in the arbitration practice in Nigeria and the Chief justice of Nigeria should be commended for this pro-arbitration approach. Whilst the Directive will have the effect of a soft law on the courts, the fear of sanction against a judge who fails to comply will be a compliance pull towards the observance of the Directive and appears to be the solution to the perennial problem of courts refusing to abdicate jurisdiction where there is a clear-cut agreement to arbitrate.

In the closing paragraph of the Directive, his Lordship noted “…the time saving nature of an arbitration proceeding encourages heightened commercial and economic activities and foreign investments and therefore needs the support and encouragement of the judiciary.” This is a good response to the backlash given to the Nigerian judiciary by the English Court of Appeal in IPCO v. NNPC (No 3) [2015] EWCA Civ 1144 & 1145, where the court held that “Nigerian judicial system has not kept pace with the need to give effect to the principles underlying the New York Convention”

I believe the Directive will foster the development of arbitration in Nigeria and is a good signal to foreign investors on the pro-arbitration approach of our courts under the incumbent CJN’s dispensation.

Abayomi Okubote 
PhD Candidate - International Arbitration, 
Queen's University, Canada

Source - Linkedin