New Arbitration Regime Comes into Force in Nigeria

10 min read

On 26 May 2023, the President of the Federal Republic of Nigeria signed the Arbitration and Mediation Bill,1 which marked the end of the legislative process and the beginning of a new arbitration regime in Nigeria. The 2023 Arbitration and Mediation Act (the "Act") offers a revamped and modern legal framework to entities seeking to arbitrate their commercial disputes in Nigeria. The Act introduces several provisions that will be of interest to arbitration users in the region. We examine some of the most notable provisions below.

Award Review Tribunal

One of the most innovative features of the Act is the optional recourse to an Award Review Tribunal ("ART") for awards rendered in arbitrations seated in Nigeria.2 If parties choose the ART option in their arbitration agreement, either party may challenge the award before a second arbitral tribunal. The party may base its challenge on any of the nine grounds available under the Act.3 These grounds are identical to those for setting aside of awards under the UNCITRAL Model Law (2006).4 They are also in line with the internationally accepted grounds for refusing enforcement under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention").5 Following its constitution, the ART must 'endeavor' to decide within 60 days.

The concept of the ART is novel, and the closest parallel in international practice is the ad hoc Committee under the ICSID annulment procedure (the "Committee").6 Like the Committee, the ART can also annul an award rendered by an arbitral tribunal based on limited grounds. However, unlike the Committee, which functions as the final tier of review, the ART would operate as a middle-tier between the first arbitral tribunal and the Nigerian courts.

Although the ART may add another layer of review – and thus complexity and delay – the ART's decisions may limit the scope of the review performed the Nigerian courts. Under the Act, if the ART annuls the award, the courts can reinstate the award only if they find that the ART's decision is 'unsupportable'.7 However, if the ART affirms the award partially or wholly, the courts can then set aside the award only on the grounds of non-arbitrability and public policy.8 How Nigerian courts interpret these provisions in practice will be of great importance.

Emergency Arbitrator Procedure

The Act provides a clear procedure for the appointment and challenge of an emergency arbitrator. Consistent with global best practices, the procedure is designed to be swift and efficient for parties that need urgent interim relief before the arbitral tribunal is constituted. A party may apply to the designated arbitral institution or the Nigerian courts (when no institution is designated) for an emergency arbitrator.9 If granted, the institution or the court must appoint the arbitrator within two business days.10 If a party challenges the appointment of the emergency arbitrator, the challenge must be decided within three business days.11

Once appointed, the emergency arbitrator has the power to decide the applicable procedure and any preliminary objections. Considering the urgency inherent in these proceedings, the emergency arbitrator must render a decision within 14 days (not business days) from the date of receipt of the file. The decision of the emergency arbitrator is binding on the parties, and if a party fails to comply, the other party can enforce the decision by applying to the Nigerian courts.12 However, the decision does not bind the arbitral tribunal, which may modify or terminate the emergency arbitrator's decision in part or entirely.13

It is unusual for national legislations to contain provisions on emergency arbitrators. However, the tight timeframes and clear procedures in the Act resemble the provisions found in various institutional arbitration rules, such as those of the London Court of International Arbitration (LCIA), the International Chamber of Commerce (ICC), and the Singapore International Arbitration Centre (SIAC). The practice of these leading arbitral institutions has shown that recourse to an emergency arbitrator can be an effective and appropriate tool for securing urgent relief. The emergency arbitrator provisions in the Act thus reflect a key development in international arbitration.

Third Party Funding

Third Party Funding ("TPF") is an arrangement under which a commercial funder provides funding to a party to pursue its claims in arbitration in return for a share of the potential damages awarded. In the past, the enforceability of these funding arrangements in Nigeria was doubtful due to common law doctrines of maintenance and champerty. The Act clarifies that these doctrines do not apply to TPF arrangements for arbitrations seated in Nigeria, thus confirming that TPF is accepted in Nigeria.14 This makes Nigeria only the third jurisdiction to recognise TPF for arbitration expressly through statute after Singapore and Hong Kong.15 Following Nigeria's lead, Sierra Leone adopted similar provisions on TPF last year.16

While the Act does not regulate TPF, it requires that a party receiving funding must disclose the existence of the TPF arrangement to the other parties, the arbitral tribunal and the arbitral institution.17 The party must also disclose the name and address of the funder, and the disclosure must be made at the commencement of the arbitration or immediately once the funding agreement is signed (where the proceedings are ongoing).18 Early disclosure allows the arbitral tribunal to anticipate and address conflict of interest issues that may arise in a funded arbitration.

The Act also seeks to safeguard the respondent's interests with respect to costs. Under the Act, if a respondent submits a security for costs application based on the disclosure of TPF, the tribunal may allow the funded party or its counsel to provide an affidavit confirming whether the funder has agreed to cover adverse costs orders under the funding agreement.19 The arbitral tribunal is required to consider the affidavit while deciding whether to grant security of costs. Given that the funded party is not required to disclose the full terms of the funding agreement, such an affidavit could mitigate the respondent's concerns regarding non-payment of costs by the funder and would allow the tribunal to make an informed decision on security for costs.

Interim Measures and Their Enforcement

Interim measures are an important tool in international arbitration that seek to protect the parties' interests pending the resolution of their dispute. According to the Act, an interim measure is any "temporary measure" that orders a party to: (a) maintain or restore the status quo pending determination of the dispute; (b) take action that would prevent harm or prejudice to the arbitral process; (c) provide a means of preserving assets; or (d) preserve evidence.20

Notably, the Act recognises the power of arbitral tribunals to grant interim measures upon request by a party. The party seeking an interim measure must show that: (i) 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 (ii) there is a reasonable possibility the requesting party may succeed on its claim.21 The provisions addressing the arbitral tribunal's power to grant interim measures are identical to those in the UNCITRAL Model Law (2006) and reflect the standards adopted by many arbitration-friendly jurisdictions in the world.22

The Act also provides a clear framework for the enforcement of the interim measures ordered by the tribunal. The tribunal's decision on interim measures, irrespective of its form and the jurisdiction where it was issued, is binding upon the parties. In the event of non-compliance, a party can apply to the Nigerian courts for enforcement.23 A party can also apply directly to the Nigerian courts for interim measures of protection in relation to arbitrations seated in any jurisdiction.24 Taking into account the urgency inherent in a request for interim measures, the Act states that the relevant court must issue its decision within 15 days of any application.25 This gives the party a second forum to request interim measures without suffering the delays customary in ordinary litigation in Nigeria.

Other Notable Provisions in the Act

In addition to the developments above, we identify some provisions below that are also noteworthy for entities seeking to arbitrate in Nigeria:

  • Default appointing authority: In case of international arbitrations (but not domestic arbitrations), the Director of the Regional Centre for International Commercial Arbitration in Lagos, Nigeria will now act as the default appointing authority if the parties have not indicated an appointment procedure for the tribunal or have not designated an appointing authority in the arbitration agreement.26
  • Arbitrator immunity: The Act expressly provides immunity for arbitrators (including emergency arbitrators), appointing authorities and arbitral institutions, except where a party can show that an arbitrator's action or omission was in bad faith.27
  • Grounds for setting aside of awards: Two significant changes have been made to the grounds for setting aside of awards. First, unlike the previous arbitration legislation, the Act does not include 'misconduct of an arbitrator' and 'error on the face of the award' as grounds for setting aside the award. As noted above, the grounds for setting aside reflect those under the UNCITRAL Model Law and the New York Convention. Second, the applicant must not only prove one or more of the grounds but must also show that this 'has caused or will cause substantial injustice to the applicant'.28 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.
  • Limitation period: The Act clarifies that, in computing the time for the commencement of proceedings to enforce an arbitral award, the period between the commencement of the arbitration and the date of the award shall be excluded.29 This provision finally settles a controversial point under the previous law.30
  • Costs of arbitration and lien on final awards: Under the Act, the fees of arbitral institutions and costs of obtaining TPF are now expressly included in the costs of arbitration.31 If the parties fail to pay the necessary fees and expenses, tribunals and arbitral institutions are permitted to place a lien on final awards until such amounts are fully paid.32 Notably, the parties cannot apply to the courts for relief until they have exhausted 'every available arbitral process for appeal or review of the amount demanded'.33

Moving Forward with the New Arbitration Regime

With the growing appetite for arbitration in Nigeria and in Africa, the adoption of the Act has come at the right time. The range of provisions introduced in the Act demonstrates Nigeria's commitment to establishing itself as an arbitration-friendly jurisdiction, while drawing inspiration from global best practices and the experience of leading arbitral institutions. The true impact of these provisions remains to be seen, but these changes may contribute to establishing Nigeria's position as a major arbitration hub in Africa and globally.

1 See further our previous alert, 'Recent Arbitration Reforms in Nigeria'.
2 Section 56, Arbitration and Mediation Act, 2023 (Nigeria).
3 Section 55(3), ibid.
4 Section 34 (2), UNCITRAL Model Law (2006).
5 Article V(1), Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 ('New York Convention')
6Article 52, Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1966 ('ICSID Convention').
7 Section 56(8), Arbitration and Mediation Act, 2023 (Nigeria).
8 Section 56(9), ibid.
9 Section 16(1), ibid.
10 Section 16(5), ibid.
11 Section 17(1)(a), ibid.
12 Article 27(6), First Schedule, Arbitration and Mediation Act, 2023 (Nigeria).
13 Article 27(10), First Schedule, ibid.
14 Section 61, Arbitration and Mediation Act, 2023 (Nigeria).
15 See further our previous alert, 'A changing landscape: third-party arbitration funding in Singapore and Hong Kong'.
16 Sections 79-80, The Arbitration Act 2022 (Sierra Leone).
17 Section 62(1), Arbitration and Mediation Act, 2023 (Nigeria).
18 Section 62(2), ibid.
19 Section 62(3), ibid.
20 Section 20(2), ibid.
21 Section 21(1), ibid.
22 Article 17, UNCITRAL Model Law (2006).
23 Section 28(1), Arbitration and Mediation Act, 2023 (Nigeria).
24 Section 19, ibid.
25 Section 19, ibid.
26 Section 59, ibid.
27 Section 13(1), ibid.
28 Section 55(5), ibid.
29 Section 34(4), ibid.
30 See City Engineering Nigeria Ltd v. Federal Housing Authority (SC 204 of 1992) [1997] NGSC 1 (17 July 1997). In this judgment, the Nigerian Supreme Court held that the limitation period runs from the date the cause of action arose and not from the date of the arbitral award. This is no longer the case under the Act.
31 Section 50(1), Arbitration and Mediation Act, 2023 (Nigeria).
32 Section 54(1), ibid.
33 Section 54(4), ibid.

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