Day 5: Arbitration — the basics, benefits, and best practices

 

DAY 5: Arbitration: the basics, benefits and best practices 

DATE: March 9, 2024

MODERATOR: Chukwuechetagom Okenwa

TIME: 6pm

SPEAKER: Perenami Momodu

Biography of the speaker

Perenami is a Nigerian qualified disputes lawyer specialising in complex, high stakes commercial litigation and international arbitration. She has represented clients in complex international arbitration in sectors such as energy, oil & gas, maritime, infrastructure and investments under institutional rules such as the LCIA, ICC, ICSID, LCA and UNCITRAL.

She has spent over a decade handling complex litigation and international arbitration for multinationals, corporations and state-owned entities in conjunction with law firms in Africa and Europe. She has also acted as arbitrator in institutional arbitrations under the LCA Rules.

Prior to joining Gateley as a Consultant, Perenami was a Partner in a top tier commercial law firm in Africa. She is an appointed member of the Disputes Resolution & Thematic Area of the Nigerian National Assembly Business Environment Roundtable. She is a Council Member of the Roundtable. She is a Council Member of the Nigerian Bar Association, Section on Business Law. She is an ICC YAAF representative, Africa Chapter for the 2021 - 2024 mandate.

Brief history of ADR

The courts were usually the last resort to settle a matter of conflict between parties. However, the need for an alternative arose due to the court's inability to handle, effectively, certain issues. These issues include that of commercial transactions which would be said not have been resolved adequately. This need for an alternative, birthed the Alternative Dispute Resolution. As the name implies, it is a substitute, an alternative, for court action albeit not every case can be taken to an Alternative Dispute tribunal.

Disputes can be resolved alternatively through:

• Arbitration
• Mediation
• Negotiation
• Conciliation

ARBITRATION

Arbitration is one of the ways of resolving a dispute alternatively to the court system. It is a common misconception about arbitration that is a less formal, "sit around the table and talk," setting where the parties are friendly and discuss their feelings. It should be noted that arbitration is the most similar method of resolving dispute alternatively to a court's system than the other methods. 

Major differences between arbitration and court system

Inasmuch as arbitration is similar to the court system, it differs from it greatly with remarkable factors which includes:

Party autonomy: the party is given a large amount of freedom which would have been impossible in the rubrics of the court system. This autonomy guarantees the parties in the case the freedom to choose the arbitrators. The arbitrators are to arbitration what judges are to court cases. The arbitrators preside over the matter in an arbitration. The party can also choose the law used to govern the arbitration such as the rules of Lagos Multi Door courthouse, the rules of River state Multi Door courthouse. Furthermore, the parties can agree to certain things during the process of arbitration.

Arbitrators vs Judges: earlier stated, the arbitration process makes use of arbitrators who preside over the matter. Arbitrators are dissimilar to judges because they can be picked by the parties involved in the matter, whereas judges in a court matter are usually selected by the state to preside over the matter. Also, a judge is not paid by the parties who bring the matter before the court, however, the arbitrators are paid by the parties. Arbitrators have to be odd in number, that is, 1 or 3, this is to avoid a deadlock which is highly plausible in have evenly numbered arbitrators. Arbitrators can be picked in the following ways: 

i. They can be picked by the parties involved in the matter.

ii. The parties can go to a third party to appoint arbitrators to preside over the matter.

iii. The parties choose two arbitrators who are tasked with the responsibility of choosing the final arbitrator.

Third-party funding: arbitration supports third party funding unlike the court system. A party may have a good case but lacks the money to sponsor the arbitration process. The arbitration process is considerably more expensive than the regular court system. The party who lacks the finances can approach a third party funder who scrutinizes the case to ensure there is a high chance of success, provides the funds necessary for the arbitration process, and signs an agreement with the party for a percentage of what the said party would win. 

For instance, if Party A needs 12 million for an arbitration and he approaches Mbiegim who is a third party funding company, an agreement, after scrutiny, is signed by both Party A and Mbiegim for the returns of 30% of Party A's money awarded. However, if the arbitration process is unsuccessful for Party A, Mbiegem will cut his losses and move. This is because it is considered as an investment which can swing both ways.

Advantages of Arbitration

The length of the cases: arbitration cases do not take as long as most court cases do to reach its conclusion. Court cases have the tendency of taking up to 20-40 years, depending on the subject matter if it be a land dispute it is more probable. This is contrary to arbitration which may reach a definite conclusion in six months or at most four years. Therefore, the decision process is faster and less cumbersome that the court system.

Arbitrary expertise: the arbitrators picked can have a vast amount of knowledge on the subject matter to be arbitrated and this would save the process of explaining complex terms to them as they are already familiar with the subject matter. For instance, a case which borders on oil running through the land of two oil drillers, the arbitrator which could be picked would have the required knowledge in geology. The complexity of the cases elongates the matter especially when the arbitrator is unfamiliar with the filed.

Transferrable skills: when one has acquired the necessary training to become an arbitration lawyer, it is recognised internationally and as such, the lawyer does not have to undergo a different training if the lawyer decides to switch to a different country. That is, if an arbitration lawyer arbitrates in United Kingdom and moves to South Africa, the lawyer does not need to acquire another training process under arbitration in South Africa due to the internationally recognised status of arbitration. In simple terms, it is a cross boarder skill.

Disadvantages of Arbitration

Costly: arbitration is more expensive than the regular court system. This is because in an arbitration, the party has to pay certain fees which are not obtainable in the court system. These fees may include the room for arbitration. This is because there may be no established courthouse for arbitration unlike the courts and the parties need to pay for a space for this process. The fees also include the payment of the arbitrators presiding over the matter and the services rendered during the process such as power supply. 

The enforceability of the arbitral awards: After the process of arbitration, a binding decision is given through the arbitral awards. However, if the party whom the arbitral award is given against fails to fulfill the obligation of the awards, the successful party will have to institute the said award in court. This contradicts the benefit of less time spent because the end of arbitration may put the successful party in the state they had tried to avoid. 

For instance, if Party A is successful and receives an arbitral award against Party B for 10 million and Party B refuses to pay. Party A noticing that Party B owns properties across the country which is summarily over 10 million, he will institute this in court requesting for an order to enforce the award.

An arbitral award is binding and the decisions of an arbitration tribunal is binding. However, an application can be filed to set aside that award on cogent grounds.

Grounds for repeal of an arbitrary award

Breach of public policy: this is when the award is given and as such supports the illegality of the contract. That is, the decision given by the tribunal is one that champions the breach of a public policy. An example is the case of The Federal Republic of Nigeria v Process and Industrial Developments Limited in which the award given to P & ID was set aside by the court due to reasons of fraud, bribery.

Irregularities of the tribunal: the irregularities of the tribunal may include certain biases by the arbitrators or general misconduct of the arbitrators which is improper or unbecoming of an arbitrator.

Arbitrability

This includes matters that may be admissible in an arbitration tribunal and the laws that govern the process of arbitration. Matters which are not admissible in arbitration include criminal matters (as it is a crime against the state and it is not contractual), marriage matters because it is governed by the Matrimonial Causes Act and Marriage Act, tax disputes, and recently defamation matters.

Advocacy in arbitration

This is the manner of speech that is allowed during arbitration. The arbitration lawyer is allowed the opportunity to argue his or her cases to the maximum unlike in most courts were the lawyers are asked to "move in terms" that is to skip certain parts. In an arbitration matter, the lawyer is allocated a time slot to fully adumbrate on the issue, giving the said lawyer the opportunity of displaying his or her advocacy.

Also, in an arbitration, cross examinations are allowed.

Principle in arbitration

One of the major principles in arbitration is the "cost follows arbitration." This principle denotes that the party who is unsuccessful bears the cost of arbitration. All the monies spent by the successful party in paying arbitrators and the other fees will be refunded by the unsuccessful party. This is based on the fact that the unsuccessful party cannot go free for an attempt at frivolous arbitration.

Q&A

Q: Does arbitration adher to precedents like Nigerian courts?

A: Yes, it does. As long as the arbitration is done in Nigeria, then the precedents of Nigerian arbitration can be used.

Q: Can a case be withdrawn from court to be arbitrated?

A: Yes, but with the agreement of both parties.

Q: Does statute of limitations affect arbitration cases or it depends on the parties?

A: Yes, since Nigerian laws are applied, hence, the limitations apply to.