The Key Missing Factor with Commercial Arbitration in Nigeria

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Historically, law was a profession reserved for men, particularly, dispute resolution, and by the time one reached the apex of the profession, one was firmly above middle age. However, that narrative has changed both in gender and in age. As we celebrate International Women’s Day and the many women who through their excellence and daily triumphs #choosetochallenge the status quo, LEGAL BUSINESS, Onyinyechi Ukegbu, sits with Ngozi Efobi, Partner, AELEX as she shares her start in arbitration and what we can expect in the future.  Below are excerpts…

It’s good to have you with us. How did you get started in arbitration? And what has your experience been like?

I always had an interest in arbitration right from my law school days. Even back then, I had taken external training courses on alternative dispute resolution, and arbitration was always right there at the fore. So technically, I started by training myself and getting information on arbitration before I became a lawyer. My first practical arbitration experience was in a huge multi-party, multi-national dispute where AELEX was counsel to a Defendant. I could not have chosen a better matter to cut my teeth on as it basically opened up every aspect of arbitration to me.

The experience has been good, exciting, challenging and enlightening all at once. I have acted in a lot of arbitrations mostly as Counsel (even as Tribunal Registrar). The arbitration space is somewhere that there is a lot of cohesion and cooperation. There are constant webinars, trainings, etc. so that players in the arbitration field stay updated and in touch.

Arbitration is a popular choice with the business community. Has that interest increased or reduced as a result of Covid?

I believe the interest in arbitration as a dispute resolution mechanism has increased as a result of Covid. With lockdowns all over the world that have affected the court systems, arbitral proceedings have become even more necessary and efficient for dispute settlement. Specifically, in Nigeria where the use of virtual hearings had previously not been widely adopted, arbitration proceedings have become more attractive because of its flexibility.

Furthermore, arbitral proceedings were hardly affected by Covid because parties, especially in the case of institutional arbitrations, were able to speedily and effectively pivot to having virtual hearings with proper guidelines that reasonably ensured smooth proceedings.

The pandemic also highlighted the need for corporations to act speedily in resolving disputes to save their businesses. Parties with arbitration agreements were able to deal with the increase of force majeure claims that stemmed from the pandemic because they did not have to wait for the courts to be operational to seek relief.

I think it is a little early to fully see what the long-term effects of Covid would be on the interest in arbitration. But so far, it has enjoyed increased prominence.

Covid had a significant impact on commercial arbitration including disruptions to the supply chain. In your experience, what major issues have come up in commercial arbitration owing to this, and how are parties addressing them?

Of course, Covid had an impacted on commercial arbitration in several ways including disruptions to the supply chain. Luckily, arbitral proceedings have adapted to operate effectively without the physical movement of people or services.

Where supply chain disruptions have been pronounced has been with respect to commercial arbitration claims themselves. Due to the ripple effect that supply chain disruptions have, it has been difficult for parties to show cause when relying on the effects of the supply chain disruptions to justify their failure to meet obligations. Most agreements that generally seek to protect from unforeseen events and Acts of God did not specifically refer to pandemics or disease outbreaks. Therefore, parties have tried to rely on omnibus clauses that provide for events in the same class as those listed in the relevant agreement. Where there is no omnibus clause, parties have to show that measures such as travel restrictions have actually affected their ability to perform the agreement. This can be difficult to show because many businesses have suffered the knock-on effects rather than the direct effects of supply chain issues.

There is a higher threshold for a party seeking to rely on the supply chain disruption. The party would have to show that the disruption completely frustrated its ability to perform the agreement. It should be noted that financial difficulty is not viewed as frustration in law.

These issues have led to parties including omnibus provisions in their contracts as well as expanding their force majeure clauses to specifically include wording that refer to outbreaks. In jurisdictions where laws and guidelines were issued classifying Covid-induced supply chain disruptions as Acts of God/Force Majeure, parties have also been able to rely on those in their arbitral proceedings.

How does the interplay between the seat and venue of arbitration play out in this time of restricted travel? And what do the disruptions in this area portend for the future of international commercial arbitration?

Restricted travel does not really affect the seat of arbitration as the laws of the jurisdiction can be applied from any location.

However, it does affect the venue of arbitration. The solution to this has been to switch to virtual hearings and document submissions where both parties agree to do so. The biggest effect this switch has had is that the technology to support virtual hearings has had to rapidly improve. New systems for seamless document sharing and multi camera setups to avoid witness tampering have been developed and are being improved. Although these adjustments come at a cost, most of these costs are easily offset by the savings made on travel and other expenditure which would have been incurred in a physical hearing. I believe that even after the worst of the pandemic, the reduced costs of travel will make virtual hearings much more popular now that people have seen that they can work properly.

It seems international arbitration is tending towards contactless arbitration, how is the Nigerian legal landscape poised to handle this transition?

The Nigerian legal landscape has taken some major steps to transition to contactless arbitration. There is a significant support for and adoption of virtual proceedings. Guidelines/protocols to govern virtual hearings have been issued. There has been significant ramping up on knowledge, capacity and the requisite technology for contactless arbitration. Orders for directions in proceedings are now being made to factor in all-virtual scenarios. For electronic filing which is another crucial aspect of adopting contactless arbitration, the parties and tribunal simply share documents via email and/or make use of a secure cloud service.

However, more needs to be done to transition to seamless contactless arbitration. The basic infrastructural challenges such as inadequate power supply, insufficient depth of internet penetration, access to good internet, exorbitant cost of internet/other technology, unfamiliarity with requisite technology, online security/privacy issues persist.  Due to the fairly sophisticated profile of the parties to international arbitration proceedings, the effects might not be as keenly felt but they nonetheless need to be effectively addressed.

This issue of third-party funding in arbitration has been controversial. What is it? How ethical is it? And do we have the legal framework to adopt or accommodate this in Nigeria?

Third party funding means exactly what it says. It refers to where someone who is not a party to the dispute decides to fund one of the parties to an arbitration usually with a view to making a profit from monies recovered. It has become increasingly popular in international arbitration.

There are a number of ethical concerns with respect to third party funding. One of the major concerns is conflict of interest of the arbitrator(s). Given that third party funding is usually not disclosed to the other party, there are potential blind spots for conflict. Imagine a scenario where a small pool of funders repeatedly influence the choice of arbitrators picked by the international firms that such funders tend to work with. It is possible that the funder could use the leverage gotten from being a steady source of income to influence an arbitrator it cherry-picks as the party appointed arbitrator. Another key concern is the autonomy of the funded party. There are concerns that the funded party loses too much of its autonomy on the direction of the case especially in settlement talks where it is being funded. This is expected as the funder’s goal is to make as much money as possible and not to amicably settle the case.

At the moment, there is no regulatory framework in Nigeria for third party funding of arbitration. However, an avenue has now been created for third party funding to be part of our arbitration law as there is an Arbitration and Conciliation Bill before the National Assembly that provides for third party funding in relation to cost recovery.

With respect to accommodating the practice, I believe that Nigeria will be no different when facing the potential issues that third party funding raises. The key will be to keep up with international standards. The International Bar Association has issued guidelines that require funders to disclose a party’s funding mechanism in some instances. The Singapore International Centre has also given Tribunals the power to order the disclosure of funding and the details of such funding in some cases.

The New York convention is over 50 years old and remains the foundation of international arbitration globally. Do you think changes should be made to international arbitration agreements?

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards is a key instrument that helped jumpstart international arbitration by allowing for the enforcement of awards locally.

If I could change an aspect of the New York Convention, it would be Article V(1)(e) on the annulment of the award at the seat. This deals with scenarios where an award has been annulled in the jurisdiction it was awarded and is subsequently sought to be enforced in another jurisdiction. Due to the discretionary powers given to national courts by Article V, national courts have leeway in deciding whether to enforce an award that has been annulled at the seat of arbitration. There is also a lack of guidance on the factors that the court should consider in deciding to enforce an award that has been annulled at the seat. This has led to a range of approaches being employed from jurisdiction to jurisdiction. Noting that it is about half a century old, it would be good to have a review of the Convention so that it accommodates the many global legal changes that have taken place.

At the moment, arbitral awards are enforceable or appealable at the relevant court. However, this has posed significant challenges over the years, leading to empty judgments. Do you think there should be an appeal or enforcement system for arbitration outside the local courts?

I do not think that we need a separate appeal or enforcement systems outside of the courts. Local courts have enforcement authority and any system outside of that would experience the same issues without this advantage. What needs to be done is to strictly apply the restrictions on instances where an award can be challenged and reduce political and/or extraneous considerations. One of such ways would be by restricting the steps permitted in challenge of awards. For example, in Nigeria, a challenge to an award can go from the Federal High Court all the way to the Supreme Court.

The process of challenge can be made to stop at the Court of Appeal (or as some have advocated, even just the Federal High Court). Of course, this might require constitutional amendments, but it would help curb unbearably long challenge timeframes.

What one thing, if introduced, will advance the commercial arbitration practice in Nigeria?

I think that the key missing factor with commercial arbitration is to sensitize the paying public on the fact that arbitral proceedings can be adapted to suit the particular needs and price bracket of the parties. Arbitration is still viewed as very expensive and exclusive to agreements and transactions with huge values. In reality, ad hoc arbitration can be designed to the specification of the parties. Details from the arbitrator fees to logistics expenses can be agreed by the parties at a price point that is convenient for all sides. I believe that increased awareness, outside of the annual events planned by state judiciaries, will go a long way in advancing commercial arbitration in Nigeria.

Another thing that can advance commercial arbitration in Nigeria is addressing the issues of frivolous challenges and the time it takes to resolve such challenges. Currently, people believe that as arbitration awards can get challenged and end up going all the way to the Supreme Court, they have ended up spending as much time on an arbitration as they would have in a Court. One popular recommendation that many have made in relation to this point is to make the Federal High Court the Court of last resort in relation to challenging an arbitral award.

This was really great, thank you. Is there anything you would like to add?

I would like to thank Legal Business for this opportunity and hope that you will continue with this awareness campaign for commercial parties to embrace alternative dispute resolution (ADR) mechanisms in the resolution of their disputes. As more parties embrace ADR, the pressure on our courts’ dockets will reduce, leading to speedier and more efficient dispensation of justice.

 

 

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