Arbitration and litigation are separate ways of resolving disputes with peculiar features which over the years have gained both international and domestic recognition. Arbitration in its nature generally entails referring a dispute that has arisen or which has potential of arising to a private tribunal (arbitrator[s]) for settlement in a judicial manner with a binding decision enforceable by the court.
It emerged to solve some of the problems of litigation which establishes the legal rights and duties of parties based on facts determinable upon issues raised. Some of the problems of litigation includes: unduly protracted nature of cases which depict the saying ‘the legal machinery grind slowly… technicalities, cost of litigation, inconveniences etc. Although there are controversies that arbitration in some cases has the same defect as litigation, some disputes however are best resolved by arbitration than litigation.
Relying on judicial precedence and statutory authorities, this article identifies cardinal factors in choosing arbitration over litigation and argues that the nature of the dispute is important in considering the arbitrability of some disputes.
This article consists of five sections inclusive of the introductory and conclusion sections. The second section discusses the origin, statutory framework and nature of arbitration, the third section states paramount factors for choosing arbitration over litigation and the fourth section discusses the nature of dispute that are arbitrable.
1. Origin, Statutory Framework and Nature of Arbitration
Litigation conventionally was the only means of dispute resolution before the advent of other means. In Nigeria, arbitration is not alien to our various customs and traditions, as customary arbitration was a dispute resolution mechanism in various communities.
In fact, the evolution of arbitration is traceable to the pre-colonial period, colonial period and post –colonial period and these periods fit into customary arbitration, common law and statutory arbitration. International arbitration developed basically from the law, customs, usage and practices of early merchants in England subsequent to which the state and common law court gave recognition and provided statutory frameworks.
Arbitration can be domestic, international, and institutional. As a matter of necessity, it must be contained in an arbitration agreement which forms the contractual foundation for referral to arbitration. This agreement might be included as a clause in the contract or drafted as a separate agreement. In Nigeria, the Arbitration and Conciliation Act, 1958 New York Convention and 1965 Washington Convention are principal legal framework for arbitration.
2. Paramount Factors for Choosing Arbitration over Litigation
The following are paramount factors to be considered in choosing arbitration over litigation.
a. Cost and time: arbitration sometimes is cheaper than litigation especially in small to medium-sized disputes. In larger and more complex disputes, arbitration is sometimes more expensive and time-consuming than litigation. More so, the rate of court fees in some jurisdiction can determine whether a party will choose arbitration over litigation.
b. Selection of Arbitrators: arbitration allows parties select arbitrators. This makes arbitration more attractive than litigation.
c. Procedure: arbitration process is more flexible than litigation. Disputes can be resolved by relying on documents or written submission without hearing.
d. Confidentiality: hearings in arbitration are held in private unlike litigation which is held in public.
e. Neutrality: where parties come from different jurisdictions, they can choose a neutral forum of arbitration in a bid to avoid submitting to the jurisdiction of the other party.
f. Appeal Process: Parties have the leverage of minimizing court’s intervention by excluding the right of appeal in their arbitration agreement.
g. Enforcement: by virtue of enabling international conventions, arbitration award can be easily enforced across the globe than court judgments.
3. Does the Nature of Dispute Matter in Choosing Arbitration?
The answer to the above question is answered in the affirmative. The nature of the dispute matters a lot in choosing arbitration over litigation. In Nigeria, the nature of the dispute determines the arbitrability of the dispute. The court will set aside an award where the subject matter of the dispute cannot be settled by arbitration.
This is well anchored in International and domestic legal framework that regulates arbitration in Nigeria e.g. the Arbitration and Conciliation Act, the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Award, and the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration.
The subject matter and the law jurisdiction (whether common law or civil law jurisdiction) determines the arbitrability of the dispute as well. More so, political, economic and social policy is another factor states put in consideration in determining the arbitrability of some dispute. Public policy is another factor, owing to the fact that the nature of arbitration being private might not accommodate some disputes which require publicity; as such they are settled by national courts whose proceedings are held in public generally.
In Nigeria, issues have arisen as to whether tax disputes are arbitrable. This was the argument in the case Federal Inland Revenue Service v. Nigeria National Petroleum Corporation & ors (Unreported Suit No. FHC/ABJ/CS/774/11: judgment delivered on 29th February, 2012) where the Court of Appeal held that disputes arising out of Petroleum Sharing Contract having tax implications are tax disputes not subject to arbitration.
However, a different decision was reached by the court in Esso Exploration & Production Nig. Ltd and Shell Nigeria Exploration & Production Company Ltd v Federal Inland Revenue Service, and Nigeria National Petroleum Corporation (Unreported Appeal No. CA/A/507/2012: judgment delivered on 22nd July, 2016), where the court distinguished between a contractual dispute and tax dispute.
Furthermore, trade dispute is not arbitrable. In addition, the court in the case of BCC Tropicals (Nig) Ltd v Government of Yobe State of Nigeria & Anor (2011 LPELR-9230) CA, noted that disputes that can be submitted to arbitration must be justiceable and must be triable as a civil matter. It includes disputes about real or personal property, and contractual relationship.
However, some authors are of the opinion that not all justiceable civil matter is arbitrable. Asouzu, averred that matters such as trademark, patents and designs, and copy rights are not arbitrable as provided by section 251 of the 1999 Constitution of the Federal Republic of Nigeria. Ezejiofor relying on the position of the court in the case of Kano State Urban Development Board v Fanz Construction Ltd added that such dispute must be such that can be compromised by accord and satisfaction, terms of a deed of separation between husband and wife as well as pending issues before a court which parties consented and obtained leave of court for transfer to arbitration.
More so, specific questions of law such as the construction of a document can be referred to arbitration. Note that criminal matters, fraud, illegal contract inconsistent with government orders, disputes emanating from void transactions e.g. wagering and gaming contracts, an indictment for an offence of public nature cannot be referred to arbitration.
Having seen the vital factors that should be considered in choosing arbitration over litigation, it is important to note that the nature of the dispute matters as well. This is because not all disputes can be resolved by arbitration in Nigeria.