Introduction
In the world of international business, disputes among parties from various legal and cultural backgrounds are increasingly common. As the global economy expands, the resolution of these conflicts becomes more complex. International arbitration has emerged as the favoured method for resolving cross-border disputes due to its neutrality, flexibility, confidentiality and efficiency compared to traditional litigation in national courts. In this context, international arbitration addresses disputes that either cross national boundaries or involve local disputes with a foreign seat of arbitration.1
A critical and often debated element of international arbitration is the determination of the applicable laws. The choice of law process in international arbitration requires selecting the legal rules that govern the substantive rights and obligations of the parties, along with the procedures of the arbitral tribunal. This decision significantly influences the outcome of a dispute, where an unclear choice can introduce complex legal challenges.
This article explores the principles outlined in the Arbitration and Mediation Act, 2023 ("AMA" or the "Act") which govern arbitration in Nigeria. By understanding these principles, parties can effectively navigate the intricacies of international arbitration and safeguard their interests in cross-border disputes.
The Principle of Party Autonomy
The principle of party autonomy grants parties the freedom to design their arbitration framework and determine how their proceedings are conducted.2 This autonomy extends to selecting the laws that best align with their commercial objectives and specific circumstances.
The Act upholds this principle by explicitly allowing parties to decide the methods by which their disputes are resolved.3 However, it is crucial to recognize that party autonomy has its boundaries. The laws and procedural rules selected by the parties must not violate public policy or the mandatory national laws of the parties' states, nor should they undermine procedural fairness.4
Choice of Substantive Law
Parties engaged in arbitration have the liberty to choose the substantive law that will govern their arbitral proceedings.5 If parties do not specify or agree on this choice in the arbitration agreement, the arbitral tribunal will apply the conflict of laws rules that it considers most appropriate.6
Typically, in jurisdictions like Nigeria, which follow common law principles, the tribunal initially attempts to determine an implied choice of law based on the contract's provisions. If such an implied choice is not evident, the tribunal will apply the law that has the closest connection to the contract.7 This involves considering factors such as the place of contracting, the locations of the parties' businesses, and other relevant connections that may affect the dispute.8 This method ensures that the most fitting substantive law is applied to resolve the specific dispute at hand.
In non-common law jurisdictions, the tribunal generally follows the national laws of that location, incorporating its conflict of laws rules and public international law principles. To maintain neutrality, an international arbitral tribunal may opt to apply Lex Mercatoria— the widely recognized customs and conventions that govern international trade—rather than a specific national law. This choice helps ensure that the arbitration process remains neutral and globally acceptable.
Choice of Procedural Law (Curial Law)
Procedural law, also known as Lex Arbitri or Curial Law, regulates the conduct of international arbitrations. It covers various aspects such as the appointment, removal, and replacement of arbitrators, the issuance of interim orders, and the admissibility of evidence during the proceedings. It's crucial to understand that the choice of substantive law governing the dispute does not automatically determine the procedural rules to be followed. Parties typically outline in the arbitration agreement which procedural rules or arbitration institution rules will govern their proceedings.
However, the chosen procedural law is not definitive; local procedural laws at the seat of the arbitration may override the parties' selected rules, particularly in cases of legal conflict. The Act includes specific mandates on procedural issues, such as the grounds for challenging an arbitrator's appointment and the involvement of national courts in these disputes.9 In arbitrations seated in Nigeria, these procedural provisions of the Act are enforced regardless of any differing procedural law the parties may have opted for.
Choice of Arbitration Seat
One of the most important choices parties make in agreeing to arbitrate disputes is the location of the arbitration's "seat." The "seat" is a legal concept referring to the jurisdiction in which the arbitration is deemed to take place.
The seat of arbitration is critical as it determines the legal jurisdiction that will govern the procedural aspects of the arbitration process. It is crucial to distinguish between the "seat," which sets the applicable procedural laws and the authority of local courts, and the "venue," which is simply the physical location where arbitration sessions are conducted.
Parties have the freedom to choose the seat of their arbitration.10 However, failing to specify the seat can significantly disrupt the arbitration proceedings since the seat dictates the procedural laws that will apply.
Under the AMA, if parties do not designate a seat, the arbitral tribunal has the authority to choose any location in Nigeria. In making this decision, the tribunal considers factors such as the connections of the parties and the transaction to certain countries, and any laws the parties have chosen to govern the arbitration.11 This provision is only enforceable if the parties have explicitly chosen Nigerian law as their procedural law but have failed to indicate an arbitration seat.
Choice of Law Governing the Arbitration Agreement
Parties engaged in arbitration may occasionally dispute the arbitral tribunal's jurisdiction, including questioning the validity or existence of the arbitration clause/agreement. In such situations, the tribunal often faces a dilemma about which law to apply, particularly when the governing law specified in the contract diverges significantly from the law of the arbitration's seat. Whilst the Act empowers the arbitral tribunal to determine its own jurisdiction12, it does not explicitly define which law should govern these jurisdictional decisions.
Despite this ambiguity, the detailed provisions of the Act regarding the form and conditions required for a valid arbitration clause13, imply that Nigerian law is intended to govern issues concerning the validity or existence of an arbitration agreement when the arbitration seat is Nigeria. This interpretation ensures consistency within the framework of the Act, applying Nigerian legal principles uniformly to arbitration proceedings that are seated within its jurisdiction.
Conclusion
The choice of law in international arbitration plays a key role in shaping the resolution of cross border disputes. It enables parties to customize the arbitration proceedings to align with their specific commercial goals and legal considerations. Central to international arbitration is the principle of party autonomy, which provides the parties with the ability to determine the legal framework under which their dispute will be resolved.
A clear understanding and strategic application of these legal principles are essential for parties aiming to effectively manage the complexities of international arbitration. This approach not only aids in navigating through different legal systems but also ensures that their interests are adequately protected. Ultimately, making informed decisions about the choice of law can significantly enhance the efficiency of the arbitration process and strengthen the enforceability of the final arbitral award.
For further information on how to navigate the choice of law in your arbitration agreements or to seek advice on international arbitration procedures, please reach out to us scp-law.com.
Footnotes
1 The "seat" of arbitration establishes the legal jurisdiction and applicable procedural laws, and the "venue" of arbitration is simply the physical location where arbitration sessions are held.
2 See Articles V (1)a and I(d), of the New York Convention
3 Section 1(2) of the Arbitration and Mediation Act (AMA)
4 Ibid
5 See Section 15(1) of the AMA.
6 Section 15(3) of the AMA
7 Re United Railways of the Havana and Regia Warehouses Ltd [1960] Ch 52 at 91
8 Ibid
9 See Section 8 of the AMA
10 Section 32(1) of the AMA
11 See Section 32(2) of the AMA
12 Section 14(1) of the AMA
13 Section 2 of the AMA
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
