Spotlight on planned reforms to Nigerian law on arbitration and mediation

Other Author      Cheryl Stevart, Trainee Solicitor

Recent months have seen the culmination of the development and passage through the Nigerian legislature of a new law directed at revamping the legal framework for international commercial arbitration in Nigeria. On 10 May 2022, the Nigerian Senate passed the Arbitration and Mediation Bill 2022 (the "Bill"). The Bill will repeal the Arbitration and Conciliation Act 1988 (the "1988 Act") and enact the Arbitration and Mediation Act in its place.  One final step remains for the Bill to come into force. That is the assent of the President of the Federal Republic of Nigeria, and this is expected imminently.

Ahead of the Bill coming into force, in this Legal Update we summarise the background to, and aims of, the Bill and outline its key innovations and highlights. While this Legal Update mainly focuses on arbitration, it also touches on mediation.

Background to the Bill

Federal arbitration law in Nigeria was last updated in 1988 by virtue of the 1988 Act, which was modelled on the UNCITRAL Model Law on International Commercial Arbitration (1985) ("UNCITRAL Model Law"), albeit with some exceptions. The legislative framework under the 1988 Act has been the subject of criticism, particularly as to how it has been interpreted and applied in a number of Nigerian court decisions.

Criticisms of the 1988 Act included:

1. it allowed the courts a wide scope within which to review and overturn arbitral awards; and
2. it lacked clarity as to when a stay of court proceedings in favour of arbitration was appropriate.

The prospect of legislative reform of Nigeria’s arbitration laws has long been under discussion; indeed, an Arbitration and Mediation Bill was introduced to the National Assembly over 10 years ago. The Bill goes hand in hand with the inauguration, in October 2020, of a National Arbitration Policy Committee in Nigeria (comprising arbitration specialists and representatives of government institutions) which recommended, in early 2021, the speedy passage of the Bill¹ because it "reflects international best practice"².  The Bill was passed by the Senate just over a year later.  When the Bill comes into force (the "Implementation Date"), it will apply to arbitrations commenced on or after the Implementation Date (hence the 1988 Act will therefore continue to apply to arbitrations commenced before the Implementation Date).

Further showcasing Nigeria's commitment to arbitration, the National Arbitration Policy Committee has also been tasked with delivering a National Arbitration Policy (the "Policy") to "ensure that Nigeria becomes the seat of arbitration for transactions arising from Nigeria, and for arbitration agreements in respect of contracts between the Nigerian Government and its foreign counterparties"³.  The Policy therefore aims to help establish Nigeria as a regional arbitration hub, hence reducing the number of Nigerian disputes being arbitrated overseas⁴.

What does the Bill seek to achieve?

The Bill seeks to address problems identified as disincentives to arbitrating in Nigeria. The principles underlying the Bill include promoting a fair, efficient and impartial arbitral process, where all players act properly and expeditiously, respecting the principle of party autonomy and safeguarding the binding and enforceable nature of arbitral awards (section 1(1)). 

The majority of the Bill only applies to Nigerian-seated arbitrations.  However, section 1(3) of the Bill may strengthen the role that Nigerian law plays in arbitrations seated outside of Nigeria by explicitly providing that certain provisions – including those relating to securing the attendance of witnesses, staying court proceedings, the enforcement of awards and the Nigerian courts’ powers to grant and enforce interim measures – will also apply if the seat of arbitration is outside Nigeria (or indeed if no seat has been designated).

Key innovations

1. Creation of an appellate level arbitral process

A particularly innovative aspect of the Bill is its provision for the creation of an "Award Review Tribunal" (section 56).  Under the 1988 Act, the only route to challenge an arbitral award was through the courts. This has proved problematic in some instances, as the judicial system in Nigeria has been criticised for being "plagued with delay";⁵ challenges to arbitral awards through the courts may therefore drag on for years.

Under the Bill, an Award Review Tribunal ("ART"), constituted in the same way as the tribunal in the original arbitration, can be convened and, within sixty days, decide whether to uphold or set aside an arbitral award (section 56(6)) and during this time any enforcement proceedings must be stayed (section 56(7)(a)).  This will only apply if the parties' arbitration agreement expressly provides that awards can be reviewed by an ART.  Parties will therefore need to carefully draft their arbitration clauses to cater for this if they wish to take advantage of this innovation.

Use of an ART does not wholly preclude involvement by courts.  Rather, the courts can still review an ART's decision if the ART sets aside an award (fully or partially).  Significantly though, if the ART affirms the award in whole or in part, then the court's role is reduced, since it may only review and set aside the award on limited grounds, namely: (i) arbitrability; and (ii) public policy (section 56(9)).

2. Grounds for setting aside arbitral awards

Section 55(3) of the Bill sets out the grounds on which a party can apply to the court to set aside an arbitral award.   As with the 1988 Act, the grounds of challenge broadly reflect those grounds contained in the UNCITRAL Model Law, such as invalidity of the arbitration agreement and lack of jurisdiction of the tribunal.

However, the Bill introduces the following significant changes:

1. Unlike the 1988 Act, the Bill does not include "misconduct of the arbitrator" as a ground for setting aside an arbitral award. This is a welcome development which will address the use of guerrilla tactics, such as frequent appeals to court complaining of arbitrator misconduct, often accompanied by injunctions to restrain arbitral proceedings⁶.
2. Section 55(2) expressly prevents a court from setting aside an arbitral award on "the ground of an error on the face of the award", essentially preventing a court from overturning an award on the basis that it believes the tribunal has incorrectly applied the law.
3. Section 55(5) introduces a more onerous test for an award to be set aside, which is likely to result in fewer successful challenges to an arbitral award. In particular, it is no longer sufficient for a party simply to show that one of the grounds for setting aside an award is present; it must also show that the ground "has caused or will cause substantial injustice to the applicant". This is the same test for challenging an award on the basis of a serious irregularity affecting the tribunal under section 68 of the English Arbitration Act 1996, which has proved to be a high threshold.

The Bill therefore adopts a far more robust approach to the setting aside of arbitral awards, reducing the ability for the courts to intervene in, and potentially set aside, arbitral awards, thereby enhancing the finality and preservation of awards.

3. Staying court proceedings

Under the 1988 Act, section 4 provided that the court "shall" stay court proceedings which are the subject of an arbitration agreement, whereas section 5 allowed the court a choice as to when it “may” stay proceedings.  The lack of clarity generated by this potential internal contradiction has been remedied by section 5(1) of the Bill, which states that the court "shall…refer the parties to arbitration" (i.e. stay court proceedings) if any party requests it (not later than when submitting their first statement on the substance of the dispute), unless it finds the agreement is "null and void, inoperative or incapable of being performed."  Essentially, the new legislation retains old section 4 (albeit in modified form) and does away with the old section 5, a welcome development for the enforcement of parties' arbitration agreements in Nigeria.

4. Emergency arbitrators

Section 16 of the Bill enables parties to apply for the appointment of an emergency arbitrator from an arbitral institution designated by the parties or, failing such designation, from the court, thereby ensuring that arbitration is a fully viable alternative to court proceedings in situations where urgent relief is needed.  The Bill deals with emergency arbitrator proceedings as well as challenges against emergency arbitrators, bringing Nigeria in line with international best practice, given the prevalence of emergency arbitration provisions in the leading institutional rules worldwide.

However, the new mechanism does raise a question as to whether the Nigerian courts are well placed to select and appoint an emergency arbitrator within the two-business day deadline from receipt of the application.

5. Third party funding

Although the 1988 Act did not preclude third party funding, the prevailing view was that third party funding agreements would be unenforceable due to the application of the common law doctrines of champerty and maintenance in Nigeria. This resulted in the underdevelopment of third party funding in Nigeria, in relation to arbitration as well as more broadly.

In a welcome development, which will bring Nigerian law in line with jurisdictions such as Hong Kong and Singapore, the Bill expressly abolishes the application of the torts of champerty and maintenance to third party funding of arbitration.

The Bill sets out third party funding provisions which apply to arbitrations seated in Nigeria and arbitration-related proceedings in Nigerian courts. Section 62 provides for mandatory disclosure of the name and address of any third party funder, both before and during arbitral proceedings, to guard against potential conflicts of interest. Section 62(3) is a further novel provision - where a Respondent has issued a security for costs application based on a third party funding disclosure, the "tribunal may allow the funded party or its counsel to provide an affidavit" confirming if the funder has agreed to cover adverse costs orders, which shall be a "relevant consideration to the tribunal's decision on whether to grant security for costs". 

This legitimisation of third party funding promotes access to justice by paving the way for under-resourced parties to resort to third party funders in order to pursue an arbitration and clearly demonstrates Nigeria’s acceptance of, and eagerness to welcome, third party funders. 

Other arbitration-related highlights 

• Form of the arbitration agreement : section 2(3) clarifies that an arbitration agreement concluded orally or by conduct is "in writing" if its "content is recorded in any form". Similarly section 2(4) confirms that an electronic communication which contains "accessible" information "useable for subsequent reference" would also meet the "in writing" requirement. This should make it easier for parties to show that a valid arbitration agreement has been concluded and accommodates the realities of electronic communication methods.
• Limitation period : the limitation period for the enforcement of awards now expressly excludes the period between the start of arbitration and the date of the award (section 34(4)). In this way, the controversy and lack of clarity which resulted from the Nigerian court decision in the case of City Engineering Nigeria Limited v. Federal Housing Authority has been laid to rest.
• Appointing authority : where one is needed – for example, if the co-arbitrators fail to agree on the chairman of the tribunal – the parties can designate an appointing authority, failing which any arbitral institution in Nigeria or the court can appoint an arbitrator (previously it was only the court that could assist with appointments) and must do so within 30 days of such request. In the case of international (but not domestic) arbitrations, the Director of the Regional Centre for International Commercial Arbitration in Lagos, Nigeria is the default appointing authority and will step in where the arbitration agreement is silent on the appointment process and the parties have failed to designate an appointing authority (section 59).
• Arbitrators : where the number of arbitrators is unspecified, section 6(2) states that the default is a sole arbitrator (the default was three under the 1988 Act).
• Procedural rules : the parties can agree these, failing which the Arbitration Rules outlined in the First Schedule to the Bill will apply.
• Interim measures : the Bill includes detailed provisions on a tribunal's ability to grant interim measures, including the "binding" nature of such measures and their enforcement by the courts. At section 52, the Bill also expressly empowers tribunals to order security for costs. The court may also grant interim measures in accordance with the Arbitration Proceedings Rules 2022 in the Third Schedule (all court applications must comply with these rules).
• Challenging an arbitrator : the Bill makes express provision for an arbitrator challenge to be determined by the Nigerian courts, if a challenge addressed to the tribunal itself is unsuccessful.
• Seat of arbitration : where the seat of arbitration is unspecified, section 32(2) provides that there will be a Nigerian seat, save for where the tribunal decides the seat should be another country having regard to all relevant circumstances (including those set out at section 32(2)(a)-(c)). This supports the Policy referred to above.
• Language : if the parties fail to agree on the language of the arbitration, English is now the default language under section 35(1).
• Consolidation of arbitrations, concurrent hearings and joinder : sections 39 and 40 of the Bill deal with these issues. While a tribunal is expressly empowered to join an additional party, it has no power to order consolidation or concurrent hearings unless all the parties confer such power on it.
• Enforcement of international awards : like its predecessor, the Bill expressly codifies the application of the Convention on the Recognition and Enforcement of Foreign Awards (best known as the 'New York Convention') (section 60), which Nigeria signed in 1970.
• Immunity: section 13 provides immunity for arbitrators (including emergency arbitrators), appointing authorities and arbitral institutions, save for when their behaviour is shown to have been in bad faith.
• Party default : section 41 provides useful rules dealing with party default and the tribunal's powers in this regard.
• Award interest : where the parties do not agree on interest, section 46 provides guidelines on the tribunal's power to award interest.

Mediation under the Bill

The Bill includes detailed provisions relating to mediation which are applicable to both domestic and international commercial mediations (amongst others) and it replaces the term "conciliation" with "mediation".

Part II of the Bill essentially brings Nigerian law into close alignment with the UNCITRAL Model Law on International Commercial Mediation (2018).  In particular, it sets out a mediation process by which, at the request of both parties, a jointly-appointed mediator may examine the dispute, hear from the parties and then make proposals for terms of settlement.  If agreed by the parties, a binding settlement agreement is then drawn up.  The parties retain the option to agree a different procedure.

Aiming to promote the use of mediation, section 87 of the Bill expressly codifies the application of the Singapore Convention on Mediation to international settlement agreements made in States other than Nigeria, provided that: (i) the State is a party to the Singapore Convention (reciprocity reservation); and (ii) the dispute arises out of what would be considered a "commercial" legal relationship under Nigerian law.

Key takeaways

Once enacted, the Bill will be a significant improvement on its predecessor. Only time will tell if the Bill will achieve its desired goals, but in light of the positive changes outlined above, the Bill has the potential to modernise arbitration in Nigeria and help transform the country into an attractive regional arbitration hub.

Similarly, the Nigerian legislature's efforts to actively promote the use of mediation in Nigeria through the Bill are a welcome development. It is hoped that this, along with other initiatives such as the establishment, in March 2021, of the Court of Appeal Mediation Centre (which provides a framework for the conduct of mediation by the Court of Appeal), will increase the use of mediation as a way of exploring early settlement of disputes.

Further information