Changes to Nigeria’s Arbitration Regime

Changes to Nigeria’s Arbitration Regime

Nigeria’s Arbitration and Conciliation Act 1988 (the "1988 Act") has been repealed and replaced by the Arbitration and Mediation Act 2023 (the “2023 Act”). This has resulted in several changes to the legislative framework in Nigeria and strengthened the country’s position as a key arbitration hub in Africa. This blog post considers the criticisms of the 1988 Act and some notable changes introduced by the 2023 Act.

Criticisms of the 1988 Act

The 1988 Act was criticised for the lack of provisions for interim relief in support of an arbitration. Under the 1988 Act, only an arbitral tribunal may grant interim relief, and only in respect of a pending arbitration. This occasionally caused issues for parties seeking injunctive relief before the Nigerian courts, as illustrated in the case of NV Scheep v MV S Araz. There, the Nigerian Supreme Court refused to grant an interim order for security in support of an arbitration proceeding in London on the basis that it considered that, for the court to be able to do so, the substantive dispute concerned needed to be before the court for determination.

Furthermore, the 1988 Act has been criticised for lacking guidance on emergency arbitrators and the enforceability of emergency arbitrators' orders. Consequently, the enforceability of orders by an emergency arbitrator remained in doubt. The silence of the 1988 Act on this issue necessitated reform in order to make Nigeria a more attractive arbitration seat.

Notable Changes

1. Award Review Tribunal

For awards rendered in arbitrations seated in Nigeria, the 2023 Act has introduced an optional recourse to an Award Review Tribunal (ART).

The ART is an opt-in mechanism. Parties can include an ART option in their arbitration agreement, thereby allowing them to challenge an award before a second arbitral tribunal. This provides parties with an opportunity to reserve the right to appeal an award, taking into consideration the nature and circumstances of their dispute. However, the effectiveness of this system is questionable since parties frequently opt for arbitration over litigation to secure a binding final decision with limited recourse to an appeal by the losing party.

A challenge referred to the ART may be based on nine grounds available under the 2023 Act; these grounds are similar to those provided under the UNCITRAL Model Law 2006 and internationally recognised grounds for refusing enforcement under the New York Convention. These may be described broadly as jurisdictional, due process and public policy grounds. The ART must endeavour to reach a decision within 60 days of its constitution and can set aside the award in whole, partly or uphold the award in its entirety. Where the award is affirmed partially or entirely, the courts may set aside that part of the award only on non-arbitrability and public policy grounds.

In practice, the ART review process may add an extra layer of complexity and delay to proceedings, which is why it may not be attractive to parties at the time of entering into their arbitration agreement. However, where the award is contentious, ART review may limit the scope of set aside decisions by Nigerian courts, saving parties further costs. Under the 2023 Act, where the ART sets aside an award, the courts may reinstate the award only if they find the decision of the ART ‘unsupportable’. It remains to be seen how the Nigerian courts will interpret these provisions, and how often parties will opt-in.

2. Third party funding

Previously, it was unclear whether third party funding arrangements would be enforceable in Nigeria due to the risk of falling foul of the common law tort of maintenance and champerty. In Oyo v. Mercantile Bank, the Nigerian Court of Appeal defined maintenance as ‘…[i]mproperly stirring up litigation and strife by giving aid to one party to bring or defend a claim without just cause or excuse’ and held that champerty ‘occurs when the person maintaining another stipulates for a share of the proceeds.’ These two doctrines expressly prohibited third parties from financing disputing parties in Nigerian litigation. Whether this extended to Nigeria-seated arbitration remained unclear. Nevertheless, parties in need of funding for claims were concerned that awards rendered in respect of claims funded by third parties could be set aside for that reason. This uncertainty made Nigeria an unlikely place for third party funding.

Article 61 of the 2023 Act has clarified that these doctrines do not apply to third party funding arrangements for arbitration in Nigeria, provided that a party receiving funding discloses the existence of such funding to the other parties, the tribunal and arbitral institution at the start of proceedings or once a funding agreement is signed during proceedings. Nigeria becomes only the third jurisdiction to expressly recognise third party funding for arbitration, through statute, after Hong Kong and Singapore.

3. Emergency arbitrator proceedings

Consistent with international practice, Article 16(1) of the 2023 Act introduces an efficient procedure for appointing and challenging an emergency arbitrator by parties in need of urgent interim relief before a tribunal is constituted. A party may apply either to a designated arbitral institution or (absent a designated institution) the Nigerian courts for an emergency arbitrator who must be appointed within two business days. Under Article 16(5), any challenge to the appointment must be decided within three business days.

An emergency arbitrator, once appointed, can decide the applicable procedure, consider any preliminary objections, and must render a decision within 14 days from the date of receiving the file. This decision is binding on the parties, and where one party fails to comply with the decision, the other party can apply to the Nigerian courts for enforcement. Under the 2023 Act, an application to the courts for enforcement can be made irrespective of the country in which it was issued. However, it does not bind the arbitral tribunal, which remains free to modify or terminate the emergency arbitrator’s decision in part or wholly.

4. Grounds for setting aside awards

Under the 1988 Act, it was common for unsuccessful parties to apply to set aside an arbitral award on the grounds of alleged misconduct of the tribunal or error on the face of the award. Although these challenges were rarely successful, they significantly undermined and complicated the proceedings, which tended to be protracted and could last up to three years. The 2023 Act offers some benefits for successful parties.

Firstly, the 2023 Act no longer includes 'misconduct of an arbitrator' and 'error on the face of the award' as grounds for setting aside the award. Rather, the grounds for setting aside reflect those under the UNCITRAL Model Law and the New York Convention.

Secondly, the applicant is no longer only required to prove one or more of the grounds but must also show that this 'has caused or will cause substantial injustice to the applicant'. This introduces a more onerous test for an award to be set aside and seeks to reduce court intervention to the extent possible, thus promoting the finality of awards.

5. Consolidation of proceedings and joinder of parties 

The 1988 Act was notoriously silent on consolidation of proceedings. Consequently, related parties had to hold separate hearings, even if the dispute arising out of one contract initiated correlated actions for enforcement of rights and obligations involving other contracting parties. However, some state laws provided parties with the option to consolidate proceedings. This meant that parties would only be able to consolidate proceedings where: (i) state laws provided for it; (ii) it was provided for in the arbitration agreement; or (iii) where consolidation was provided for in institutional rules. Consequently, this resulted in duplicative proceedings, time-inefficiency, and cost-inefficiency among other issues that often accompany multiple and/or parallel proceedings.

The 2023 Act permits the parties to agree to consolidate arbitral proceedings or hold concurrent hearings. Consolidation or concurrent hearings cannot be implemented without the parties’ consent. The 2023 Act also allows the joinder of new additional parties, provided they are bound by the underlying arbitration agreement.

Comment

The 2023 Act represents a welcome development in Nigeria’s arbitration landscape, bringing many aspects in line with international practice. In other areas, the 2023 Act is distinctly progressive; making express provision for third party funding.

The recent reforms in Nigeria sit against a wider trend of arbitration reform on the African continent. Ethiopia, Tanzania, and Sierra Leone have all recently made reforms in their arbitration regimes. Common themes in these jurisdictions include enhancing respect for the arbitral tribunal's jurisdiction, strengthening the Tribunal’s powers to grant interim measures, and limiting the grounds for challenging jurisdiction and for the intervention of national courts in appealing arbitral awards.

Ultimately, the range of provisions introduced in the 2023 Act demonstrates Nigeria's commitment to establishing itself as a leading arbitration jurisdiction steeped in global best practices and the experience of leading arbitral institutions. The true impact of these changes remains to be seen, but it is hoped that these changes can contribute to establishing Nigeria's position as a major arbitration hub in Africa.

The authors would like to thank Arthur Ddamulira for his contribution to this blog post.