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Maximizing Alternative Solutions for Contract Effectiveness in Dispute Resolution

Maximizing Alternative Solutions for Contract Effectiveness in Dispute Resolution


It is often wise to conclude that conflicts in company and commercial transactions may take on the significance of near inevitability. However, the dispute settlement provisions used in most contracts are often boilerplates that fail at the outset of the contractual arrangement to understand the particular meaning and mutual goals of the parties. The resulting time and resources loss when parties fail to provide for adequate alternative dispute resolution is undoubtedly ineffective and bad for business.

This is because the impact of an adversarial methods-solved dispute, especially litigation, can cripple business relationships (as an example of negative impact). Specialized industry customs and practices also play a key role in choosing between litigation and the mechanisms for alternative dispute resolution (ADR). Experienced neutrals with focused market expertise can reduce the likelihood of awards/decisions/results outside the context of realistic expectations from market. Again, international investors usually incorporate ADR clauses in search of predictability and independence to prevent unknown judicial processes, foreign languages and customs and the potentially 'biased' courts of their foreign partners. What parties want from a dispute resolution process is therefore a fair outcome to their disputes with minimal negative impact on their transactions and investments.

ADR Clauses Legal status

ADR structures are fully incorporated into the legal system in Nigeria by various statutory laws, the primary legislation being the Arbitration and Conciliation Act (ACA), Cap. A18, 2004-LFN. Consequently, there are several other statutes that make provisions for using ADR. Legal practitioners are also enjoined to add sufficient importance to ADR by advising clients of this right on behalf of those clients before resorting to or continuing litigation. While some experts agree that arbitration is not an ADR process due to its formality and the contractual existence and finality of an arbitral award, Under this discourse, it is classified as an ADR mechanism to distinguish it from the litigation and the proceedings to which it relates.

There is generally no statutory regulation of ADR options such as negotiation , mediation, early neutral evaluation and hybrids. Nevertheless, the ACA establishes the legal basis for the resolution of commercial disputes by two of the ADR processes, namely arbitration and conciliation; and allows the Convention on the Recognition and Compliance of Foreign Arbitral Awards (New York Convention, 1958) applicable to any award rendered in Nigeria or in any contracting state arising out of foreign commercial arbitration. This is further confirmed by Article 19(d), the 1999 Constitution of the Federal Republic of Nigeria (CFRN), which stipulates that the goals of Nigeria's foreign policy include complying with international law and treaty obligations, as well as attempting to resolve international conflicts through negotiation, mediation , conciliation, arbitration and adjudication. Thus, in the event of a dispute, an arbitration clause in a contract will ordinarily preclude parties from initiating court proceedings without first having recourse to arbitration. In C.N. Onuselogu Ent. Ltd. v. Afribank (Nig) Ltd. The Court of Appeal (CA) held that arbitral proceedings are an acknowledged means of dispute resolution and should not be taken lightly by counsel and parties.

Are courts bound to enforce an ADR Exploitation Agreement?

The Supreme Court (SC) in Kano State Urban Development Board v. Fanz Construction Company Limited established that the courts alone have both the jurisdiction and the duty to settle disputes between parties if they are called upon to do so. However, in the exercise of that jurisdiction, the court has power to stay proceedings in an action brought to it in breach of an arbitration agreement. The SC at Onyekwuluje & Anor, again. V. The Government of Benue State & Ors. Having held that an arbitration clause does not exclude or restrict the rights or remedies of the parties but merely provides a procedure for the parties to resolve their grievances. These apparently leave ADR's enforceability to court discretion. In Niger Progress Ltd. v. N.E.I. Corp, the SC followed section 5 ACA which gives jurisdiction to the Court to stay proceedings where proceedings are brought in violation of an arbitration contract.

Section 34 ACA, on the other hand, provides that the court shall not intervene in any matter governed by the Act. The CA at Statoil & Anor v. NNPC & 3 Ors was largely on this basis, discharged the ex parte injunction granted by the FHC (Okeke J), stopping an ongoing arbitration. The CA held that: "the [ACA] was intended to market the resolution of trade disputes, and as a rule, It doesn't want the Court to intervene in proceedings referred to the jurisdiction of the arbitral tribunal by agreement of the parties."

Nevertheless, it was held that the legislature's purpose in promulgating section 34 of the ACA was not to remove the court's jurisdiction but to ensure that the court did not have direct control over arbitration proceedings. This is to ensure that ADR continues to be an alternative to judicial adjudication rather than an extension of the court case. Consequently, courts have the jurisdiction to entertain questions relating to the enforcement of an ADR exploration agreement. But are they obliged to execute such deals?

The SC in Owners of M.V Lupex v. Nigerian Overseas Chartering and Shipping Ltd., held that where parties have agreed to refer their dispute to arbitration, the court has a duty to enforce the parties' agreement by staying any proceedings against the arbitration agreement commenced in court. The SC further held that, while the arbitration proceedings were pending in London, it was an abuse of process for the respondent to institute a fresh suit against the appellant in Nigeria for the same dispute.  

  • Introduction
  • ADR Clauses legal status
  • Are courts bound to enforce an ADR Exploitation Agreement?

BY : Sunaina Jain

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