The Nigerian Arbitration and Mediation Act 2023 has come into effect and promises to reform arbitration law in Nigeria substantially. How the Nigerian courts approach, apply and interpret the Act will be one of many crucial factors in its success. Dan Wilmot and Louis Peacock-Young consider some of the changes put in place by the Act, including the novel ‘Award Review Tribunals’ mechanism, third party funding and the grounds for setting awards aside.
The clear intention of the Nigerian Arbitration and Mediation Act 2023 (the “Act”) appears to be to impact the practice of arbitration in Nigeria substantially. The Act’s arrival has been received positively by practitioners in African arbitration. The Chartered Institute of Arbitrators (CIArb) Nigeria Branch hailed it as a major milestone in the legal landscape. The London Branch described it as a momentous step for dispute resolution in Nigeria.
The Act was signed into law on 26 May 2023 and repeals the Arbitration and Conciliation Act of 1988. The scope of the Act is significant. Part I relates to arbitration, and Part II to mediation (and settlement agreements resulting from the same). Many of the changes reflect the UNCITRAL Model Laws (the “Model Law”) in respect of arbitration and mediation. The First Schedule to the Act includes a comprehensive set of arbitration rules for ad hoc disputes referred to arbitration under the Act (see endnotes). The Third Schedule sets out the Arbitration Proceedings Rules 2020, a set of court procedural rules applying to and regulating “arbitration claims” made to the Nigerian domestic courts.
Together, these comprise a comprehensive reform of Nigeria’s arbitral regime. At a time when the existing growth of arbitration in Africa is set to be catalysed further as the African Continental Free Trade Agreement (AfCFTA) beds in, the Act may put the Nigerian jurisdiction in a strong position to become an arbitration hub for the region.
Part I of the Act, the focus of this article, applies to “international commercial arbitration, subject to any agreement in force between Federal Republic of Nigeria and any other country or countries”. What is “international” includes when parties to an arbitration agreement have their places of business in different countries, or when the seat of the arbitration or the parties’ performance obligations to which the arbitration relates are outside the state(s) where the parties have their places of business. It applies where the seat of the arbitration is in Nigeria.
Part I also applies to “interstate commercial arbitration” within Nigeria (meaning it applies, broadly put, where elements of the dispute or commercial relationship take place or exist in different Federating States in Nigeria), and “commercial arbitration within the Federal Republic of Nigeria”. Also, certain powers granted to the Nigerian courts under Part I apply even in circumstances where the seat of the arbitration is outside of Nigeria.
Award Review Tribunals
Perhaps the most innovative set of provisions in the Act is within section 56, which addresses the use of a so-called Award Review Tribunal (“ART”). We are not aware of any similar concept within the domestic statutory arbitral law of another major arbitration centre. If successful, the ART mechanism would stand Nigeria apart as a venue.
ARTs have been devised to perform a review function akin to a court of the seat considering a challenge or appeal to an arbitral award. The ART process is opt-in, so parties may provide in their arbitration agreement (or otherwise agree) that the ART regime will apply. Where applicable, a dissatisfied party may challenge an award before an ART on nine possible grounds within three months of the date the award was received. These are the same grounds on which a party may seek to challenge an arbitral award by recourse to the Nigerian court of the seat. The ART effectively displaces the court’s review in this sense, although a further possible review stage exists in the ART process, which involves the court (as set out below).
The Act regulates how the ART will be constituted and how the challenge or appeal procedure will run. However, it does so by reference to the provisions in the Act that apply to such matters generally. This means the ART is given a significant amount of discretion as to the procedure it adopts for the resolution of the challenge or appeal. It remains to be seen how ARTs will exercise this discretion and whether, for example, the ART process will in practice become akin to a full rehearing of the dispute.
One aspect that the Act does not leave to the ART’s discretion (and which may influence any procedure it adopts) is the timing of its award; an ART “shall endeavour” to render its decision within 60 days of its constitution. Its decision (by award) may uphold or annul the original award in full or in part. Interestingly, a party is not prevented from applying to enforce the original award before the Nigerian courts while an ART process is pending.
The relationship ARTs will have with the role of the Nigerian courts will be seen as and when parties use them. The Act provides that courts may reinstate an award if they find an ART’s decision to annul it is “unsupportable”. If the ART affirms an award in whole or in part, the court can only set the award aside if it finds matters dealt with by the award are not arbitrable or contrary to public policy. Given the court’s potential review of the ART decision, one risk is that the ART process becomes only an intermediary step between the initial award and the court’s review, thus adding to cost and delay. Whether that will be borne out remains to be seen. However, the ART process appears to be designed to meet the criticism sometimes raised of jurisdictions that users of arbitration prefer to avoid the domestic courts’ (over-) involvement in the arbitral process, especially once an arbitration award has been rendered.
It may therefore be the case (as discussion as to their effect to date has noted) that the ART process reduces the likelihood of challenges being brought before the Nigerian courts as parties have their challenges dealt with by an ART instead.
Third party funding
Third party funding is a complex area that arbitrators and parties to arbitrations have increasingly found themselves dealing with as it has grown in popularity. Many of Stewarts’ clients regularly seek to leverage our expertise in the field to put themselves in a financially strong position to pursue their cases. Increasingly, parties are using such funding to ‘off balance sheet’ legal expenditure as part of a wider, commercial risk mitigation strategy.
The Act is notable in its ambition to deal with this issue head-on for arbitrations seated in Nigeria. Only a handful of jurisdictions have sought to deal with the matter expressly in legislation and in the specific context of arbitration (given that third party funding is not unique to arbitration; it is relevant to disputes generally).
Before the Act, uncertainty hung over the ability of parties to arbitration proceedings relating to Nigeria to use third party funding due to the existence of the common law doctrines of maintenance and champerty. The Act states that those doctrines do not apply to third party funding arrangements for arbitrations seated in Nigeria or arbitration-related proceedings in any court within Nigeria. This express clarity is to be welcomed.
The Act requires a party in receipt of third party funding to disclose its existence (either at the commencement of the proceedings or immediately once the funding is in place if obtained during the proceedings). Disclosure must be made to the other party or parties to the arbitration, the arbitral institution and the tribunal, and include details of the funder.
A benefit afforded to a party in receipt of third party funding is that the Act expressly brings the costs of obtaining third party funding within the costs of the arbitration. Such costs are, therefore, in principle, capable of recovery as part of any award of costs in an arbitration.
The Act therefore seeks to resolve the previous uncertainty over the status and legality of third party funding relating to Nigerian arbitrations. One consequence of this may be to encourage more third party funding of arbitrations seated in Nigeria or the selection of Nigeria as a seat for African arbitrations. It should also give international third party funders more comfort to advance funds to parties in Nigerian arbitrations. A further consequence could be the establishment and growth of third party funders situated and operating in Nigeria and Africa.
Grounds for setting aside awards
There are two notable changes between the Act and its predecessor as to the provisions addressing the basis on which an award may be set aside. The first is that the “misconduct of an arbitrator” and “error on the face of the award” grounds are no longer present in the Act. This narrowing of the grounds has been met with positive commentary, seemingly because such grounds historically have allowed the Nigerian courts significant discretion to set aside awards. The second is that an applicant seeking to set aside an award on the grounds now provided for in the Act will also need to show that the ground “has caused or will cause substantial injustice to the applicant”. This wording creates a two-limb test: an applicant must first establish a ground and then must satisfy that the prejudice threshold is, or will be, met.
While the changes in respect of the setting aside of awards largely reflect the position set out in the Model Law, this second limb wording is an addition to the Model Law text. Such wording is found in other jurisdictions, such as the English legislation, the Arbitration Act 1996. In that context, it generally mandates a high threshold for challenges brought under the relevant provisions and, combined with other factors, reduces the number of successful challenges.
Updates with respect to arbitrators
The Act makes several changes relevant to arbitrators. For example, it provides for the default number of arbitrators to be one rather than three, as was the position under Nigeria’s previous arbitration law. It also provides certain immunities for arbitrators, appointing authorities and institutions for anything done or omitted in the discharge or purported discharge of their functions. The parties are jointly and severally liable to pay the arbitrator “reasonable fees and expenses as are appropriate in the circumstances”.
Power of the tribunal to grant interim measures
The Act incorporates provisions that expressly empower and authorise arbitral tribunals to grant interim measures and provides the requirements that must be present for a tribunal to do so. These are that the anticipated harm is not adequately reparable by an award of damages and outweighs the prejudice likely to be caused to the other party, and that there is a reasonable possibility the request may succeed. Going further, the Act clarifies that such interim measures may be granted in the form of an award or in another form and are “binding and, unless otherwise provided by the arbitral tribunal, shall be enforced upon an application to the court, irrespective of the country in which it was issued” subject to certain exceptions. It remains to be seen how the courts will discharge their role in this capacity in practice.
This represents a development on the previous arbitration law, which contained provisions in respect of interim measures in its schedule of default arbitration rules but did not codify them in the substantive law as the new Act now does. Likewise, the new law is more detailed and structured than the provisions set out in the previous rules appended to the previous law. For instance, it sets out four categories encompassing the available interim measures and the test to be applied (as set out above).
Emergency arbitration
Another development brought in by the Act is to provide a statutory basis for the availability of an emergency arbitration procedure, allowing (in principle) a party to obtain relief from an emergency arbitrator prior to the constitution of the tribunal. This is consistent with the development of institutional rules that have sought to facilitate emergency arbitration procedures and developing arbitral practice in this area. However, it is notable that the emergency arbitration procedure has been given a statutory footing, irrespective of the rules parties may have agreed to apply to their arbitrations (noting, for example, that many institutional rules make available emergency arbitration procedures an ‘opt out’ facility).
Conclusion
Many other notable changes are included in the Act, and the above addresses only a selection of them. For example, a tribunal may now continue with the arbitral proceedings in the event it has made a preliminary ruling regarding jurisdiction which a party has sought to challenge in the courts, rather than proceedings being necessarily stayed.
The decision for the Act’s scope to cover not just Nigeria’s arbitration law but also arbitral rules, court procedural rules for arbitration claims and a legal code for mediation underlines the intent behind the Act. A clear policy initiative appears to underpin this: to support the development of Nigeria as a chosen venue and seat for arbitral disputes.
Given its aims and significant scope, the Act seeks to impact arbitral practice in Nigeria in multiple ways. In many instances, the Act is a case of evolution, not revolution, building upon the Model Law. In other ways, particularly the ART process, it is an innovative piece of legislation. Ultimately, what will be key to the Act’s success will be the manner in and extent to which it influences such arbitral practice, including by the courts, and how it is employed by parties who choose Nigeria as the seat for their arbitration.
The rules for ad hoc disputes referred to arbitration under the Act are an update on the rules which were included in the previous law, and apply where parties have agreed for their disputes to be “referred for arbitration under the [Act]” (Article 1) or “where the parties do not have arbitral agreement [in respect of the procedure to be followed by the arbitral tribunal in conducting the proceedings]” (Part I, Section 31(1))
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