Alternative Dispute Resolution

Going to court is slow, expensive and public, and it turns a business disagreement into a fight. For that reason, businesses increasingly settle their disputes by other means: by talking, by bringing in a neutral helper, or by agreeing that an expert will decide. These methods are called alternative dispute resolution, or ADR.

For an accountant, the practical value is large, because commercial contracts, partnership agreements and insurance policies usually contain an arbitration clause, and advising a client on which route to take is a common request. The exam asks for the types of ADR, the advantages over litigation, and above all the essentials and procedure of arbitration.

This topic covers the meaning of ADR and its types (negotiation, mediation, mini-trial, ombudsman, facilitation, fact-finding, med-arb, the multi-door courthouse and conciliation), the advantages and limitations of ADR, arbitration under the Arbitration and Mediation Act 2023 (the agreement, the tribunal, procedure, the award and its enforcement), the essentials of arbitration, and conciliation.

Meaning of ADR

For a long time litigation dominated the idea of dispute resolution and justice. Its focus is judicial intervention by an adversarial procedure between parties, whether natural persons or companies. The trend now is to de-emphasise adjudication and to resort to ADR methods.

ADR is a group of flexible approaches to resolving disputes more quickly and at lower cost than the tedious road of adversarial proceedings. It covers Negotiation, Mediation, Conciliation, Mini-trial, Case Evaluation and many hybrids. These mechanisms are alternatives to the traditional court process. They usually use impartial intervenors, called third parties (however many parties are in the dispute) or neutrals.

Some writers define ADR more broadly as finding better ways to resolve disputes, including disputes that never reach a court. Others stress the need to relieve the burden on the courts. November 2021 asked for a brief explanation (2 marks) and three mechanisms (3 marks). The examiners accepted: arbitration, mediation, conciliation, negotiation, facilitation and settlement conference.

Types of ADR

Section A past questions asked for the process that helps a group with divergent views reach a common goal (facilitation), and the November 2020 paper asked which is an alternative to a law suit (mediation).

Advantages of ADR over litigation

A past question asks for four. The reasons why people use arbitration rather than self-help or litigation include:

1. It gives a cordial and peaceful environment, not the adversarial system of the courts, which is more convenient and dignified.
2. Parties can appoint an expert on the subject matter to hear and decide the issue.
3. It is cheaper than litigation.
4. It is faster. Court proceedings suffer frequent adjournments, whereas commercial arbitration has no pleadings and the award comes within 90 days.
5. It is more private, with none of the publicity that may harm a party’s image in civil litigation.
6. It is less technical and less tortuous than court proceedings, with simple, well-defined rules that parties can agree to adopt.
7. There is strict adherence to natural justice, as in the courts.
8. States and multinational companies prefer arbitration to international litigation.

Limitations

The current syllabus adds that ADR has limits:

• its enforceability may be limited;
• the bargaining powers of the parties may be unequal;
• there is no formal precedent, as there is in judicial decisions;
• it depends on the willingness of the parties; and
• the arbitrator, mediator or conciliator may be biased or prejudiced.

Arbitration

Arbitration is a process of dispute resolution in which a neutral third party called the arbitrator makes a decision after a hearing at which both parties have made representations (November 2020, 5 marks, with the award). Where it is voluntary, the parties select the arbitrator, who has power to give a binding judgment.

It is compulsory where one party’s consent is enforced by statute, as with labour disputes under the Trade Disputes Act. An arbitrator may be legally qualified, but usually has special knowledge of the subject matter. Arbitration clauses are common in insurance contracts and partnership agreements.

Essentially, arbitration means commercial arbitration, whether or not a permanent arbitral institution runs it. International contracts include arbitration clauses, and the machinery for international commercial disputes includes the International Chamber of Commerce in Paris, the London Court of Arbitration, the UNCITRAL Arbitration Rules and the Convention on the Settlement of Investment Disputes.

Awards of international commercial arbitration are enforced under the New York Convention (Convention on Recognition and Enforcement of Foreign Arbitral Awards), to which Nigeria is a party.

The Arbitration and Mediation Act 2023

The statute that governs arbitration practice and procedure in Nigeria is the Arbitration and Mediation Act 2023. The previous syllabus referred to the Arbitration and Conciliation Act 2004. The two differ on some points below, so older past-paper answers may not match. This page follows the current syllabus.

• The agreement (section 2). An arbitration agreement may be an arbitration clause in a contract or a separate agreement, but it must be in writing, which may be electronic.
• Binding effect (section 1(3)). The agreement is binding and enforceable against each party, to the exclusion of any other dispute resolution method, unless the agreement provides otherwise or is void.

Composition of the tribunal (sections 6 and 7)

May 2021 asked how an arbitral panel is composed (3 marks). The parties may agree the number of arbitrators. If they do not, there is one arbitrator. Where the parties have not agreed on the details:

1. Three arbitrators: each party appoints one, and the two appoint the third, failing which an arbitral institution in Nigeria, or the court, as the appointing authority designated by the parties, makes the appointment.
2. One arbitrator: if the parties fail to appoint within 30 days after one party requests in writing that the dispute be referred to arbitration, the designated arbitral institution or the court appoints the sole arbitrator.

An arbitral tribunal is competent to rule on its own jurisdiction. It may order interim measures of protection at a party’s request, to preserve the subject matter pending the decision.

Conduct of the proceedings

• The parties must be treated equally and given the opportunity to present their cases.
• The place of arbitration is fixed by the tribunal, having regard to the matter and the convenience of the parties.
• The tribunal may appoint experts and order witnesses to attend.

Procedure

The agreement must include an arbitration clause, the Scott v Avery clause, under which the parties commit in advance to submit any dispute to arbitration. It indicates how to start, the rules, and how to appoint the panel. The initiative comes from the claimant, and sometimes the court appoints the arbitrator.

1. The arbitrator starts at once. Procedure is agreed.
2. The claimant files his claim, and the respondent files a defence, which may include a counterclaim. Terms of reference may be drawn up and agreed.
3. Documents are tendered and exchanged, so no party is taken by surprise.
4. Witnesses can be summoned by subpoena. The rules of evidence apply only so far as they prevent injustice. Preliminary objections may be raised, and parties may address the arbitrator.
5. The award must be made within ninety days.

The award

• The decision is by majority. A mutual settlement before the end ends the proceedings.
• The award states its reasons, date and place and is signed by the majority of arbitrators (November 2020).
• Both parties receive copies. It is expected to be final and binding.

Challenge and enforcement

• A party who is aggrieved may apply to the court within three months to set the award aside (Taylor Woodrow (Nig) v S.E. GmbH). The court may remit the award to the arbitrator or set it aside (Governor of Niger State v Albishir). It has no power to alter the award. Usually the losing party applies.
• An award is recognised as binding and, on written application to the court, is enforced. An aggrieved party may ask the court to refuse recognition or enforcement for misconduct.
• Once enforcement is ordered, the winner may levy execution under the Sheriff and Civil Process Law.
• A foreign award against an organisation in Nigeria must first be registered under the Reciprocal Enforcement of Judgments Act (for example, a United Kingdom award). Enforcement is then sought by originating summons.

Essentials of arbitration

March/July 2020 asked for four elements (8 marks) and May 2024 for six (6 marks). The syllabus gives eight essentials, and the examiners listed the same eight in May 2024:

1. a dispute between the parties about a point of law or fact;
2. the dispute must be justiciable;
3. the parties must voluntarily agree to resolve it through a third party;
4. the agreement to arbitrate must not be illegal;
5. the parties must have inserted the Scott v Avery clause, committing them to arbitrate present or future disputes;
6. there must be a formal reference of the dispute to the decision of the third party;
7. the third party must be required, expressly or impliedly, to decide according to law; and
8. it must be a term of the contract that the award is final and binding and the parties act in good faith.

The March/July 2020 examiners listed these elements in a different form:

• the parties must agree to arbitrate
• the issues must be justiciable
• the seat or place must be agreed
• the language must be acceptable
• the parties must agree the applicable law
• the dispute must be capable of compromise by accord
• the parties must agree to abide by the decision

Either list earns marks if the points are correct and clearly stated.

What can and cannot be referred to arbitration

May 2023 asked for two of each (4 marks). The examiners gave:

Conciliation

The parties to any agreement may seek an amicable settlement by conciliation. It is non-adversarial, aimed at getting the matter resolved amicably. May 2022 asked for its purpose and the composition of the body (4 marks).

• The parties appoint a conciliation body of one or three conciliators. If one, the parties appoint him jointly. If three, each party appoints one and the parties appoint the third jointly.
• The parties may appear in person or through legal representatives.
• After hearing them, the body submits its terms of settlement. If they are accepted, the body draws up and signs a record of settlement.
• If the parties do not accept the terms, the dispute goes to arbitration, or the parties may go to court.

Many disputes between employers and employees are resolved by conciliation.

Conciliation compared with arbitration

Working through the rules

Which method?

Appointing arbitrators in figures

A contract says disputes shall go to arbitration but does not say how many arbitrators. There is one. If the parties then fail to agree on him within 30 days after one gives written notice, the designated arbitral institution or the court appoints him. If the contract had said three, each party would appoint one and the two would appoint the third.

Challenging an award

An award is made on 1 March. The losing party has until about 1 June, that is, three months, to apply to set it aside. If no application is made, the winner may apply for recognition and enforcement.

Worked problems

Problem 1: Precious and Praise

1. The agreement. The arbitration clause is a valid agreement to arbitrate, if in writing.
2. Appointment. They may agree the number. If they have not, there is one arbitrator. For three, each appoints one and the two appoint the third. If a sole arbitrator is not appointed within 30 days after a written request, the designated arbitral institution or the court appoints.
3. Advantages. It is cordial, may use an expert, is cheaper and faster (award within 90 days), private, less technical, and respects natural justice.

Problem 2: Chief Odu and Mr Akpabio

1. The rule. A valid arbitration needs an agreement by the parties to submit the dispute to arbitration, including the appointment of the arbitrators.
2. The application. The parties never agreed to arbitrate. The friends set themselves up on their own initiative. The procedure for referring a matter to arbitration was not followed.
3. Advice. The proceeding is flawed and does not stop a party from going to court. An aggrieved party may in any case apply to set aside an award within three months (Taylor Woodrow). Chief Odu’s action is likely to succeed.

Problem 3: the foreign award

1. The rule. A foreign award against a Nigerian organisation must first be registered under the Reciprocal Enforcement of Judgments Act.
2. The next step. The claimant then applies to the court for enforcement by originating summons, and may levy execution under the Sheriff and Civil Process Law.
3. Note. Enforcement of international commercial awards is governed by the New York Convention, to which Nigeria is a party.

Problem 4: a dispute that cannot be arbitrated

1. The rule. The agreement to submit to arbitration must not be illegal, and disputes arising from illegal contracts cannot be referred to arbitration.
2. Advice. The dispute is not arbitrable.

Questions that have been asked on this topic, and how to answer them

Common mistakes in the exam

• Saying a mediator can impose a decision. He cannot.
• Saying an arbitration award is not binding. It is final and binding, subject to challenge.
• Saying the court may alter an award. It may remit or set aside, but not alter.
• Missing the three-month period for setting aside, or the 90-day period for the award.
• Giving three arbitrators as the default. Under the 2026 text, if the parties do not agree, there is one.
• Forgetting that the arbitration agreement must be in writing.
• Confusing conciliation (non-adversarial, proposed terms) with arbitration (a decision).
• Listing fewer than the required essentials, or forgetting the Scott v Avery clause.
• Forgetting to register a foreign award before enforcing it.

Quick revision

• ADR: negotiation, mediation, mini-trial, ombudsman, facilitation, fact-finding, med-arb, multi-door courthouse (Lagos, Abuja), conciliation, arbitration.
• Advantages: cordial, expert, cheaper, faster (90 days), private, less technical, natural justice. Limits: enforceability, unequal bargaining, no precedent, depends on willingness, bias.
• Arbitration: Arbitration and Mediation Act 2023. Agreement in writing. One arbitrator by default, or three (each appoints one, two appoint the third). 30 days. Award by majority, reasons, date, place, signed, within 90 days. Set aside in three months. Foreign awards: register first.
• Essentials: dispute, justiciable, voluntary, legal, Scott v Avery clause, formal reference, decide by law, final and binding.
• Conciliation: non-adversarial, one or three conciliators, record of settlement, else arbitration or court.

Practice questions

These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.

Section A style: multiple choice

Section B style: written questions

Model answers

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