National Arbitration Policy in Nigeria: Looking Beyond the Trappings of Interventionism
1. Recently, stakeholders in the Arbitration Community published a Joint Memorandum (Memo) in reaction to the proposal by the Honourable Attorney General of the Federation (HAGF) to establish a National Arbitration Policy for Nigeria. In October 2020, the HAGF inaugurated the National Arbitration Policy Committee (Committee), with the mandate to, inter alia, (a) review the current laws and policies on Arbitration in Nigeria, (b) proffer advice on a new National Arbitration Policy, (c) draft an Executive Order to support the application of the new Arbitration Policy across government agencies, (d) develop an implementation plan; and (e) advise on the required infrastructure for setting up world standard Arbitration Centres in Lagos and Abuja.
2. Having commended the HAGF for the effort at developing a transformational policy framework to address issues arising from the arbitration process and agreements in concerning Nigeria, the Memo notes prefatorily that the consideration of a National Policy on Arbitration must be determined in the context of the overarching principle of party autonomy and laissez-faire in commercial relations. Certainly, any policy to impose the seat of arbitration on parties in a private arrangement may create unintended consequences that could defeat the neutrality objective of international commercial arbitration. The Memo adopts a line-drawing approach in assessing the impact of the Policy on private and public contracts.
3. In considering the impact of any policy intervention on private contracts, the Memo identifies two foreseeable arrangements – (a) contracts between private individuals/corporations inter se operating or carrying on business in Nigeria in respect of a transaction to be performed in Nigeria or outside Nigeria; and (b) contracts between private individuals/corporations operating or carrying on business in Nigeria and foreign private individuals/corporations inter se in respect of a transaction to be performed in Nigeria or outside Nigeria.
4. The Memo notes that government should not through mandatory rules or regulations purport to direct, influence or impede on private rights of individuals or companies to manage their contractual affairs in the manner they deem fit. Rather, party autonomy, the parties’ bargaining power and the experience of the contract negotiators should be the determining factors. Relying on sections 16 and 47 of the ACA, the Memo notes that parties to international arbitration must, as of right, determine the governing law and the seat of the arbitration.
5. Regarding Public/State contracts, the Memo notes that there may be policy which specifies both Nigerian arbitrators and Nigeria as the seat of arbitration as the default rule. It however suggests that the policy be embedded in policy documents, harmonized standard operating procedures and guidelines rather than mandatory statutory provisions – to allow for flexibility in the negotiation of government contracts. It further notes that in respect of State contracts involving general commerce between the Nigerian State or a state entity and a foreign individual/corporation, there may be policy which specifies a Nigerian seat for the resolution of disputes with the possibility of the default position being displaceable by a written fiat of the Attorney General of the Federation (AGF) or Attorney General of the State (AG), as the case may be, upon the unanimous recommendation and approval of a Committee of Ministers comprising the Minister of Trade and Investment, Minister of Finance.
6. Lastly, on the form that any policy intervention should take – whether hard or soft law, the Memo notes the argument of some commentators that the uniquely binding force of mandatory laws is necessary to regulate arbitration and the current implicated challenges. Commentators have relied on the recent award in Process & Industrial Developments Ltd v. Federal Republic of Nigeria, which has made a spectacle of Nigeria in the international business community. Given the serious policy issues, it has been argued that mandatory laws will be more effective because they will be binding and enforceable against non-conforming parties in a way that soft law instruments cannot yield.
7. The Memo proposes a mix of mandatory laws (for inter-governmental contracts and contracts involving the grant of concessions of public infrastructure and assets) and soft law instruments (for other contracts between governments and private parties). It concludes that the Policy would achieve same results, if well and forcefully implemented without labelling Nigeria as an anti-party autonomy state.
8. The Memo proffers several recommendations for the consideration of the HAGF and the Committee. It also presents a draft National Arbitration Policy and Model Clauses for adoption in government-related contracts. The recommendations and Draft Policy are set out below.
Recommendations
8.1 Justice sector reform – The Memo recommends that government should address the shortcomings in the Nigerian justice sector that provide legitimate grounds for parties to opt for foreign seats. The success of any particular jurisdiction as it concerns international commercial arbitration depends on the quality of its courts. The 2015 Queen Mary International Arbitration Survey confirms that supervising seat courts and enforcing courts are a critical component in the successful operation of international commercial arbitration. While arbitration commences as a private settlement process between the parties by way of private proceedings, it relies on the courts to uphold and enforce arbitral awards and to support the arbitral process. Beyond addressing the intricate problems of delay and long trials, it is important that the court must be commercial in its focus and approach - which requires that the judges handling arbitration related proceedings should understand the commercial context of the substantive dispute and the implications of the parties’ choice of arbitration. Simply knowing arbitration law and practice is not enough. The task of making Nigeria an attractive seat for commercial arbitration requires a judicial understanding of the perspectives and approach that facilitate the smooth working of the arbitral system. Furthermore, the Memo recommends the speedy passage of the Administration of Civil Justice Bill into law, to eliminate the bottlenecks and delays in civil justice delivery.
8.2 Non-intervention in private contracts – The Memo recommends that government should not through mandatory rules or regulations purport to direct, influence or impede private rights of individuals or companies to negotiate or manage their contracts. Rather, the bargaining power of the parties and the experience of the contract negotiators should be the determinants.
8.3 Reviewing existing treaties – The Memo notes that the Nigerian Investment Promotion Commission (NIPC) is already reviewing and analyzing all existing BITs and International Investment Agreements (IIAs) between the Federal Republic of Nigeria and other countries. It therefore recommends that the current practice of subjecting all IIAs to the IIA Team, which has NIPC as technical lead should be maintained. The IIA Team should also have oversight of all investment-related agreements signed by any Federal or State Government entity.
8.4 Developing capacity of the Ministry of Justice – In specific response to the question relating to creation of an office of a Senior Special Assistant to the Honorable Minister of Justice on commercial disputes and investments, the Memo recommends that such office should not be created. Rather, the capacity of the Solicitors Department of the Ministry of Justice should be enhanced for effective contract negotiation, drafting, and implementation monitoring. The rationale being that training and capacity development for key staff in the Solicitors Department will ensure long term sustainability of contract administration process and implementation of the National Arbitration Policy, rather than the creation of an office for a single political appointee.
8.5 Strengthening institutional arbitration – The Memo recommends that capacity of the Regional Centre for International Commercial Arbitration (RCICAL) should be improved by full staffing, training of arbitration staff and proper funding, so they can compete with other AALCO centres, attract important references and benefit from the potential disputes that will emanate after the Policy has been issued.
8.6 Regionalizing policy intervention - The Memo recommends that the Policy should be “regionalized” to enjoy its full benefits. There is already a pointer in this direction by the Pan African Investment Code, which recommends that ISDS in relation to Intra-African Investment disputes should be administered by public and private African institutions. It further recommends that during the Phase II negotiations for the Investment Protocol to the Africa Continental Free Trade Agreement (AfCFTA), the Nigerian government should work to ensure that the dispute provisions in the Protocol reflect the policy direction to arbitrate intra-African disputes in Africa – with Africans as arbitrators.
8.7 Speedy passage of the Arbitration and Mediation Bill 2019 – The Memo recommends that the Arbitration and Mediation Bill before the National Assembly be passed into law given that the initial version of the Bill was with the National Assembly for more than 10 years. It notes that having a modern national law on arbitration, offers greater benefits for the country than the National Policy on Arbitration.
Draft National Arbitration Policy
Preamble
1. As the Federal Government of Nigeria (FGN) drives its agenda of improving the enabling environment for both local and foreign investors to partner with the FGN to deliver public utility and commercial projects across the different sectors of the economy, it is expected that, in line with global practices, the adoption of arbitration as the dispute resolution mechanism will be a mainstay in the FGN’s contractual engagements with investors.
2. Presently, Ministries, Departments, and Agencies (MDAs) of the FGN and FGN owned/controlled entities conclude arbitration agreements on a case by case basis, often, without regard to proper coordination and defined approach. The shortcoming of this unstructured approach to arbitration by FGN, its agencies, and controlled entities, was best demonstrated in the case of Process & Industrial Developments Ltd (P&ID) v. Federal Republic of Nigeria2 where uncertainties in the arbitration agreement (on the seat, venue, governing law) contained in the Gas Supply and Processing Agreement between the Ministry of Petroleum Resources and P&ID occasioned a questionable arbitral proceeding which ultimately resulted in the English Court judgment that (a) potentially exposes Nigeria’s assets to the risk of enforcement; and (b) has made a spectacle of Nigeria in the international business community.
3. Considering Nigeria’s growing status as a preferred investment destination, it is certain that government will continue to negotiate contracts such as that entered in the P&ID case. Given this reality, it is pertinent that Nigeria develops a strategy to ensure that (a) going forward, the inclusion of ambiguous arbitration agreements in FGN contracts never recurs; (b) the FGN is able to manage the conduct of arbitration arising from previously negotiated arbitration agreements.
4. Also, it is important to ensure that FGN’s engagement in a commercial transaction or agreement to arbitrate does not expose the assets of the Nigeria Sovereign Investment Authority (NSIA), the Central Bank of Nigeria (CBN), and the Nigeria National Petroleum Corporation (NNPC) to any risk of award enforcement or execution. Given the divergent positions within the international community on the level of immunity afforded state owned/controlled entities, it is important that the FGN takes a proactive approach to, by its contracts, ringfence the assets of the NSIA, CBN, and NNPC in accordance with the Circular (Ref.No.SGF/OP/1/S.3/X/737) dated 11 August 2014, issued by the Secretary to the Government of the Federation.
5. To this end, a National Arbitration Policy (NAP) should present a number of measures and policy direction that the FGN, MDAs and FGN owned/controlled entities should adopt to indicate the country’s consolidated approach for negotiating arbitration agreements, and participating in arbitral proceedings, in order to avoid the pitfalls prevalent in the current unstructured process.
Federal Government of Nigeria’s Guidelines on Arbitration
A. Dispute Resolution Clause
6.1 The FGN, its MDAs, and FGN owned/controlled entities shall stipulate arbitration as the dispute resolution mechanism in all contracts to which they are parties.[1] Prior to arbitration, other dispute resolution methods including negotiation and mediation may be adopted.[2]
6.2 The arbitration agreement shall stipulate Nigeria as the seat of arbitration. This shall operate as a default position and can only be displaced by a written fiat of the Attorney General of the Federation (AGF) or Attorney General of the State (AG) upon the unanimous recommendation and approval of a Committee of Ministers comprising the Minister of Trade and Investment, Minister of Finance and the AGF or their equivalents at State level.
6.3 The FGN, its MDAs, and FGN owned/controlled entities and their counterparties are at liberty to agree on any arbitration rules that will apply to the dispute. Where there is no such agreement, the Arbitration Rules under the Arbitration and Conciliation Act (Cap A18) Laws of the Federation of Nigeria, shall apply.
6.4 The dispute resolution clause shall incorporate the Circular (Ref.No.SGF/OP/1/S.3/X/737) dated 11 August 2014, titled ‘Protection of the Federal Government and Its Corporation from Foreign Enforcement Proceedings Arising from Contract or Arbitration in Foreign Jurisdictions,’ issued by the Secretary to the Government of the Federation (SGF) for the protection of assets of certain FGN controlled entities against enforcement of judgments and arbitral awards.
6.5 For uniformity, model language to be adopted by the FGN, its MDAs, and FGN owned/controlled entities, in drafting the relevant dispute resolution clauses are provided in the Schedule to this Policy.
B. Selection of Arbitrator
7.1 Where the parties agree that the arbitral tribunal shall comprise of three (3) arbitrators, the arbitrator to be appointed by FGN, its MDAs, and FGN owned/controlled entities shall be a Nigerian with the requisite competence to act as an arbitrator. The HAGF’s office may maintain a pool of qualified arbitrators from where arbitrators are to be appointed, having regard to other objective criteria for the appointments.
7.2 In the event that parties agree to appoint a sole arbitrator, parties shall be at liberty to agree the modalities of such appointment.
C. Contract Drafting and Arbitration Monitoring
Contract Drafting and Monitoring of Arbitration cases involving the Federal Government and the MDAs
8.1. Capacity of the Solicitors Department (SD) in the Federal Ministry of Justice shall be developed for the purposes of contract negotiation, drafting, and implementation monitoring. The SD shall be tasked with the responsibility of (a) participating in the negotiation and drafting of commercial contracts involving MDAs and FGN owned/controlled entities, especially where foreign parties are involved (b) monitoring implementation of contracts involving MDAs and FGN owned/controlled entities, and (c) monitoring ongoing commercial arbitration proceedings and arbitration related matters before a court of law. A bi-annual report shall be provided to the Honourable Attorney General of the Federation.
8.2 All disputes that emanate from investment agreements should be centrally managed by a team comprising of representatives of the SD and members of the International Investment Agreement (IIA) Team, so that the learnings from the experience of managing disputes feeds into future IIA negotiation processes.
National Arbitration Register (commercial and investment arbitration portfolio)
8.3. All MDAs and FGN owned/controlled entities shall provide in detail, full particulars of all ongoing and pending investment or commercial arbitration cases before any arbitral tribunal or arbitration related matter before a court of law in a register to be maintained and kept by the SD. The MDAs and FGN owned/controlled entities shall furnish to the SD, copies of the Arbitration Agreement in the pending investment or commercial arbitration cases.
Repository for Bilateral Investment Treaties
8.4. The Federal Ministry of Justice shall be the repository of all existing Bilateral Investment Treaties (BITs) between Nigeria and other countries. Therefore, all treaties entered by the federation and any other country shall be deposited with the Federal Ministry of Justice for record purposes. Further to its obligation under section 5 of the Treaties (Making Procedure, Etc) Act, 2004, the Federal Ministry of Justice shall maintain an up-to-date register of treaties, which shall be open at all reasonable times for inspection by members of the public.
Creating a portal to monitor arbitration cases involving the Federal Government
8.5. In achieving the foregoing objectives, the Federal Ministry of Justice shall maintain an arbitration monitoring portal to track all ongoing and pending arbitration matters and deploy the necessary technology in that regard.
Criteria for engagement of counsel and appointment of arbitrators
8.6. The FGN, its MDAs and FGN owned/controlled entities shall adopt a clear and transparent process for engaging foreign and local counsel to represent them in any arbitration mandate. Provided that foreign counsel can only be engaged (if at all), where they partner with and are engaged by counsel practicing in Nigeria.
8.7. The choice of counsel shall be entirely based on merit and will have significant consideration for the technical ability, international arbitration expertise and depth of experience of the counsel and/or law firm to be engaged for each dispute.
E – National Judicial Policy on Arbitration
Judicial Policy on Arbitration
9.1. Further to the Directive (No. NJI/CJI/CON/IV) issued by the former Chief Justice of Nigeria, Hon Justice Walter Samuel Onnoghen, GCON, all Heads of Courts throughout the federation are encouraged to comply with the Directive and issue specialised rules to fast track proceedings and conduct efficient determination of arbitration related matters.
9.2. The judicial policy shall enjoin courts to refrain from entertaining actions in respect of a contract in which the parties have included an arbitration clause, without first giving effect to the arbitration clause.
9.3 Courts are encouraged to stay proceedings in actions where satisfied that there is no reason why the matter should not be referred to arbitration in accordance with the arbitration clause.
9.4 All Heads of Courts throughout the federation are encouraged to designate one or more courts, as may be necessary, having regard to the volume of cases pending or likely to be instituted in the relevant court, for the hearing and determination of arbitration related matters.
Enforcement of the National Arbitration Policy
10.1. Where one of the parties in any contract is an MDA or FGN owned/controlled entity, the party shall be required to comply with this Policy.
10.2. The Solicitor General of the Federation shall in conjunction with the Honourable Attorney General of the Federation ensure the effective implementation of this Policy.
10.3. Government MDAs and FGN owned/controlled entity may be required to submit periodic reports to the Honourable Attorney-General of the Federation and Minister of Justice, outlining its use of arbitration in a particular period; costs expended on same and enforcement methods employed.
Conclusion
11. The main thrust of a National Arbitration Policy is to establish fundamental principles to guide the FGN’s participation in arbitration in a way that protects national interests and ensure the continued attraction of Nigeria as an investment destination to foreign investors. The Policy recognises the roles to be played by the key stakeholders in the development of a highly efficient arbitration practice.
Schedule 1
Model Clauses
1. Governing Law
“This Agreement and all non-contractual obligations arising out of or in connection herewith shall be governed by and construed in accordance with the laws of the Federal Republic of Nigeria.”
2. Arbitration
a. Any party shall refer a dispute, controversy or other claim arising out of, or in relation to this Agreement, or the breach, termination or invalidity thereof [which has not been resolved in accordance with amicable settlement options][3] [and which is outside the expert’s scope][4] for final resolution by arbitration.
b. The seat of arbitration shall be Nigeria. The arbitration shall be conducted in the English language.
c. Where any dispute arising out of, in relation to the agreement has been referred to arbitration, the arbitration shall be conducted in, accordance with the Arbitration Rules [or any other arbitration rules agreed by the parties].
d. The award of the arbitrators shall be final and binding on the parties to the arbitration and may be entered as an award or judgment of a court of competent jurisdiction. The costs of the arbitral proceedings shall be borne equally by the parties to the arbitration.
3. Multi-Tiered Dispute Resolution Clause
Any dispute relating to this Agreement which cannot be resolved by negotiation between the parties within [insert number] days of either party giving notice to the other party that a dispute has arisen, shall be submitted to mediation pursuant to the Mediation Rules of [insert administering institution] and failing settlement of that dispute within [insert number] days thereafter, the dispute shall be submitted by any party for final resolution by arbitration.
Where a dispute has been referred to arbitration under this Clause, the Arbitration and Conciliation Act (Cap A18) Laws of the Federation of Nigeria, and its Arbitration Rules [or any other arbitration rules agreed by the parties] shall apply. The seat of arbitration shall be Nigeria. The arbitration shall be conducted in the English language. The award of the arbitrators shall be final and binding on the parties to the arbitration and may be entered as an award or judgment of a court of competent jurisdiction. The costs of the arbitral proceedings shall be borne equally by the parties to the arbitration.
4. Protection of Assets of the CBN, NNPC and NSIA
The parties agree that in compliance with Circular (Ref.No.SGF/OP/1/S.3/X/737) dated 11 August 2014, neither party shall enforce any award or judgment in relation to, or connected with this Agreement, against the assets of the Central Bank of Nigeria (CBN), Nigerian National Petroleum Corporation (NNPC) and the Nigerian Sovereign Investment Authority (NSIA) domiciled in any jurisdictions around the world.
[1] This should operate as a default position, but parties can opt for litigation where arbitration is not best suited for the dispute.
[2] Where parties opt for other dispute resolution methods prior to arbitration, a multi-tiered dispute resolution clause as in Schedule 1 may be adopted.
[3] Where parties agree that negotiations will be the first option for settlement of disputes
[4] Where expert determination will be relied on by parties
Attorney Licensed in Ontario and Nigeria
3yInteresting !
Member of the Permanent Court of Arbitration in The Hague and Emeritus Chairman at Chartered Institute of Arbitrators Kenya Branch
3yVery good read