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The Need For A Lex Arbitri

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02/02/18 Free Law Essays Reference this

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The Need For A Lex Arbitri

Arbitration refers to the settlement of a dispute between two or more persons after hearing the parties in a quasi-judicial manner by persons other than a competent court. An exercise is not arbitration if it does not answer this definition1.

In the words of Professor Schmitthoff:

“It is a truism to state that

Arbitration is better than

Litigation, conciliation better

than arbitration and prevention

of legal disputes better than

conciliation”2

This expression sums up the spirit behind arbitration, whether under customary law under the Arbitration and Conciliation Act3 or in international law.

Generally, arbitration has a number of advantages. What appears to be the greatest advantage, however is that dispute resolution is amicably carried out without any court forcing a decision on the parties. The corollary to this is that parties to the dispute usually part as friends with one not having the feeling of a victor while the other not feeling vanquished. This is a major characteristic of customary arbitration, arbitration under the Arbitration and conciliation Act as well as international arbitration.

Characteristics of Arbitration

Sir William Searle Holdsworth in the History of English law [1] was quoted as saying:

“The practice of arbitration therefore, comes, so to speak, naturally to primitive bodies of law; and after the courts have been established by the state and a recourse to them has become the natural method of settling disputes, the practice continues because the parties to a dispute want to settle it with less formality and expense than is involved in a recourse to the courts.”

Every day in the business world, contracts are been signed by businessmen, corporations and even between states or a private citizen and a state. There are also tendencies of disputes arising from such a contract(s) and the parties would want to resolve this amicably and carry on with the earlier business relationship or as in the case of early merchants whereby business was based on unionism and disputes where settled amicably by subjecting themselves to another merchant that they both have trust in to resolve the matter.

Parties have the choice to either litigate their dispute in the court of law or by referring such disputes to an arbitral tribunal. When they choose arbitration, the national courts are enjoined to assume a supervisory role to the success of the arbitration. There are several reasons why parties choose arbitration over litigation and we shall be considering some of the reasons in brief.

Speed/Flexibility: Arbitration puts the parties in the driving seat of the proceedings. Businessmen would not want to come and sit down in a court for weeks or months in the name of settling a dispute when they could actually spend such time making money for their firms and they cannot force the court or judge to speed up things for them but this is possible in an arbitration proceeding. The freedom or “autonomy” of the parties gives them the opportunity to request for an accelerated or fast-track procedure. [2] 

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Confidentiality: Confidentiality is an essential matter for major firms who are involved in hi-tech, production, investment and research contracts. Whenever there is a dispute between them, they would not want to appear before the national court due to the issue of publicity but opt for a private dispute mechanism like the International Commercial Arbitration.

Recently, the issue of confidentiality has come under criticism following the High Court of Australia decision in Esso Australia Resources Ltd and Others v Plowman (Minister for Energy and Minerals) and others [3] and scholars like Paulsson [4] suggested that the concept of confidentiality needs to be remodel. [5] 

(c) Neutrality of Parties: Parties to a commercial contract and subsequently participants in the arbitration proceedings are usually from different countries or the nature of the dispute may be said to be a transnational contract. Therefore, they would need a neutral jurisdiction to arbitrate their dispute.

(d) Choice of Expert: When a matter is to be held before a court, the judicial system would nominate or should we say impose a judge on the parties but with arbitration, parties are free to choose who they believe has the required expertise to marshal their disputes to a convincing end. Parties are more relaxed with this choice.

(e) Enforcement of Award: This is by far the most important part of the arbitral proceeding because it will be a futile task if after all the money, time and brains that has been put into the whole arbitration process for an award to be set aside or annulled on the grounds provided for under Article V of the New York Convention 1958.

* Prof. Justus A. Sokefun and Mr. Seun Lawal, School of Law, National Open University of Nigeria. capmai @ yahoo.com

1 Ezejifor, Ganius, The Law of Arbitration in Nigeria 1997, Page 3.

2. Professor Schmitthoff, The Export Trade, 7th Edition Page 411

3. Cap. A18, Law of the Federation of Nigeria, 2004

CUSTOMARY ARBITRATION

Customary arbitration is not a new phenomenon in Africa as a whole. It is usually a means of resolving conflicts with a view to maintaining, harmony between parties in a dispute. In Nigeria, for example there is the head of family who in all intents and purposes heads a nuclear family consisting of a man, his wife or wives and children. Oftentimes there are members of the extended family living in the same habitation.

From the head of family, in a graduated from, there is the clan head. This is the head of a group of persons related by pedigree through an ancient but traceable ancestor.

After this then comes the village headship which in most cases is hereditary. In this case, by extension the inhabitants of the village share a common ancestor. There is also the traditional ruler of the town who is assisted by eminent chiefs.

All the institutions stated above4 play various roles in disputes resolution in what is usually referred to as customary arbitration5. It is the working of this phenomenon that this section intends to examine.

NATURE OF CUSTOMARY ARBITRATION

One of the main objectives of customary arbitration is that peace and harmony should be restored between contending parties through compromise and reparation for the wrong committed. Notwithstanding this, there is an inherent belief in and commitment to good relationship even after the award of the arbitration has been made. In practice, this traditional concept looks beyond legal rights of the parties to see what type of relationship is likely to prevail between the parties after the adjudication6

Another objective of customary arbitration is the maintenance of peace between geographical entities. This situation may arise where there are land disputes between village. In this instance, the traditional ruler of the larger geographical entity together with his chiefs sits as a panel of Arbitrators.

4. i.e the Family, the clon Head, the village Head and the traditional ruler.

5. Defined in Okereke & Anor V. Nwankwo & Anor (2003)FWLR Pt. 158 at 1258 as an arbitration in dispute founded on voluntary submission of the parties to the decision of the arbitrators who are either the chiefs or elders of the community and the agreement to be bound by such decision or freedom to resile where unfavourably.

6. John Wud Makec; The Customary Law of the Dinka People of Sudan. 1988, Page 221.

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It must be stated at this juncture that parties still take recourse to orthodox courts after customary arbitration award. Such award is not a judgment of the court of law and consequently, it is devoid of the force of law until it is so pronounced by a court of competent jurisdiction.

By all means, customary arbitration, notwithstanding its lack of force, has its own great advantages. For instance, it is quicker than orthodox litigation and equally less expensive. In point of fact, the whole process can be completed in a day up to judgement. Also, it takes cognizance of the convenience of the parties and their witnesses in fixing date, time and venue of hearing. In this respect, it is noteworthy that in the Eastern and Western parts of Nigeria, meetings for such purpose are held the day before market day. The rationale for this is that, at such periods, people come from outskirts of the town to market their wares. It is almost certain that, parties, their witnesses and others will be present on such occasions.

Yet another advantage is that the village sages are used as against one judge who may either sit in open court or in chambers. The village sages put their heads together to arrive at judgements that are generally favourable between the parties.

DYNAMICS OF CUSTOMARY ARBITRATION

Customary arbitration is popular among people in the villages and in later part of this section it shall be shown that it is recognized by the courts. The procedure used in this form of arbitration is that agreement to conduct proceedings is oral and decisions are not normally recorded in writing. In other words it is not regulated by the statutory law, which only deals with written agreements7.

Parties must choose their own arbitrators in disputes between them. Once they make such choice they are bound by the decision of the arbitrators and such decision will be enforced by the court. Indeed, in the Ghanaian case of Assampong v. Kweku Amuaku & Others,7 Deans, J. at the West African Court of Appeal had the following to say;

“…. where matters in dispute

between parties are by

mutual consent, investigated

7. See Oline v. Obodo (1985)3 FSC 84

by arbitrators at a meeting

held in accordance with

natural law and custom

and a decision given, it is

binding on the parties

and the Supreme Court will

enforce such decision”.

The above dictum, despite the age is still valid. In Dike v. Nwankwo8, the Supreme Court of Nigeria came to the conclusion that once parties chose their own arbitrators to be the judge in disputes between them, they cannot, when the award is good its face, object to the arbitrators decision. This decision was followed in the case of Ohanaka v. Achugwo9 where after a review of earlier cases on customary arbitration, the same court decided that the bindingness of customary arbitration is based on the consent of the parties or their agreement to be bound by the decision of the tribunal. That court noted further that the agreement or consent to be bound by the decision is a precondition and indeed a sine qua non for the bindingness of the decision.

The issue of bindingness raises estoppel. Once parties submit their matter in controversy to an arbitrator, in accordance with the customary law of the area, they are estopped from resiling on the arbitration.10 In fact in Dike v. Nwonkwo,11 the Supreme Court noted that such arbitration remained valid and binding. Consequently, it will be repugnant to good sense to allow the loosing party to reject the decision of the arbitrator whom he had previously agreed to and submitted to his jurisdiction.

All these cases took their root from the case of Oline v. Obodo12. The facts in this case were that the plaintiffs and defendants jointly executed a lease in favour of a government corporation. Later, a dispute arose between them over the sharing of the rents accruing from the grants. The District Officer in the area wrote to the parties suggesting a certain Mr. Lawrence as an arbitrator.

8. (1932) 1 WACA 192 at page 201

9. (1997) 3 NWLR (Pt. 495) 574

10. (1998) 9 NWLR (Pt. 564)37

11. See Anyobunsi v Uguwunze (1995) 6 NWLR Part 401

12. Supra

The said Mr. Lawrence met the parties at the locus whereupon they both orally agreed to be bound by the arbiter’s award. The parties and the arbiter went to the locus in quo, gave evidence and immediately the award was given. This award was reduced into writing. The defendants were not willing to abide by the terms of the award and it was on that score that the plaintiffs instituted an action against them.

The issue, treated by the then Federal Supreme Court of Nigeria, was as to the extent to which the parties could be bound by the arbitration award. The court in its wisdom decided inter alia as follows;

There was evidence that the parties voluntarily agreed to submit their dispute to an arbitrator.

Any award made by the arbitrator would bind parties

Neither of the parties could contend that they were not bound.

The whole purport of this decision rested on estoppel where the parties have submitted themselves to adjudication, the court in reviewing the award and the arbitration proceedings will not allow any such party to renege. The rationale for this appears to be that once there is voluntary submission to the jurisdiction of the arbitrator, a party cannot thereafter repudiate such a decision.

The rule on voluntaries is not sacrosanct. As a fact, in some decided cases, it had been held that when arbitral awards are contingent upon certain factors any decision of the arbitrators was not final and to that extent, could not be enforced by the court. for example in Ofoma & Other v. Anoka & Others13 there was a dispute between the parties over a piece of land. It was agreed that the elders should settle the dispute by arbitration. The elders after taking evidence found that the land belonged to the plaintiffs. Further to this, they decided that if the defendants were not satisfied, they should provide an oath to be sworn by the plaintiffs. The parties never met for the purposed of swearing. Upon these facts, the defunct East Central State of Nigeria High court decided that the award was not final since it was upon the happening of an uncertain event, in this case, oath taking. The court suggested a way out of the quagmire. It proposed that the arbitrators should have adjourned the award until the oath was sworn and they should have personally supervised the oath taking ceremony.

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13. Supra

Another matter which impeached the myth about voluntariness was the Ghanaian case of Kwasi v. Larbe14. In this matter, the plaintiff instituted an action against the defendants for title to land and injunction thereon.

On the intervention of community elders, parties submitted to customary arbitration. At that point, the Court adjourned to allow for arbitration. After hearing the parties, the elders sent court messengers to visit the locus in quo in company with the parties. The plaintiffs went and showed their boundaries to the parties. The defendants refused to show their boundaries. After this exercise, a meeting with the arbitrators was fixed. The defendants not only refused to attend but also informed the arbitrators that they had withdrawn from the arbitration. The arbitrators nonetheless made an award, expectedly in favour of the plaintiff. The matter then went back to the Native Court for the enforcement of the award. This court made the award its judgement.

The matter went as far as the Privy Council where the nature of the proceedings before the elders and the right of the defendants to resile were considered. The council came to the conclusion that the proceedings before the elders was an arbitration which went with the consent of the parties ab initio. It also decided that neither of the parties cold resile from the award either before it was made or thereafter.

It would appear on the face of it that if the right to resile was part of the negotiation before the commencement of arbitration, then parties have the right to withdraw midstream through the arbitration. Consequently where such right exists, parties could resile. This was an issue confirmed in Ohiaeri v. Akabueze15 where the Supreme Court of Nigeria held inter alia that the constituents of a valid customary arbitration were express or implied intention to be bound by the arbitral award and non-withdrawal of the parties midstream.

The Supreme Court went arbitration which is vested with judicial authorities the decision given in such arbitration is conclusive and unimpeachable once it is proved that it was in accordance with customary law and general usages.

Distillation of Judicial Authorities on Enforcement of Customary Arbitration. The foregoing are the dynamics of customary arbitration. It would appear that judicial authorities have outlined certain conditions on when the court will enforce a customary arbitration award.

14. (1974)E.C. S.I.R 251

15. (1952) 13 WACA 76

These conditions are as follows;

Parties must voluntarily submit to the judicial authority of the arbitrators16.

Parties must either expressly or impliedly agree to be bound by the award of whenever any court is called upon to review customary arbitration award. This will remove the uncertainty as to laid down conditions for the judicial enforcement of such award17

The arbitration was in accordance with the custom of the parties of their trade or business18.

Parties could resile whenever the right to resile was part of the negotiation.

Once a court of law is satisfied that the above conditions are met by parties, it should further review the conduct of the arbitrators themselves. In order words where there is misconduct on the part of any of the arbitrators, the Court should immediately set the award aside. Incidentally, not even the Arbitration and Conciliation Act of Nigeria defines misconduct. Being a term capable of wide import it is possible to suggest what may amount to misconduct as follows;

Where arbitrators have been influenced by pecuniary or other interests in giving their award.

Where rules of natural justice, equity and good conscience have been breached. In this respect, parties must be given fair hearing and evidence must have been led to that effect. Also, witnesses must have been recorded exhaustively and in the open square

Arbitrators must not veer out of their terms of reference notwithstanding that the peculiarity of this type of arbitration as being conduced by persons who are not formally literate.

The award must be shown to be without malice and not directed at third parties who were not parties to the dispute.

In view of contemporary level of civilization, customary arbitration proceedings should be formally recorded. It could even be in the local dialect or the language of the tribe. In any case. It should be recorded. It is the record of proceedings tendered in evidence that would be reviewed by the court and not fresh evidence.

16. (1992) 2 NWLR (Pt. 221)1

17. See Egesimba v. Unuzuruke (2002) 9-10 SC 1

18. Agu v. Ikewibe (1991)3 NWLR (Pt. 180) 385 where the dictum of Ikpeazu J. in Njoku v. Ekeocha (1972)2 ECSI the agreement between parties was cited with approval

19. See Onyenge & Others v. Ebere & Others (2004) 7 SCM 109

Customary arbitration has a lot in common with international arbitration. The next section of this paper is intended to examine the nature of international arbitration.

International Arbitration

International arbitration is one of the leading methods for resolving disputes arising from the various international agreement and relationships. According to the Oasis, [6] arbitration is a process to resolve disputes for securities and future markets. While The History Channel, [7] defines it ‘as a submission of a dispute to a third, unbiased party for settlement. It may be personal litigation (legal action), a trade-union dispute, or an international dispute.’

From the above definitions, one would observe that arbitration is a process which is used to resolve disputes between dissenting parties and such disputes varies from one matter to the other and it could also be of a local or international nature.

Over the past 5 decades, international arbitration has been applied by businessmen, professionals, States among others in settling disputes and some of the reasons that have been attributed to this are;

Flexibility of the process

Neutrality of the arbitrators

Arbitrators’ expertise

Inadequacy of local laws

Confidentiality

Characteristics of International Arbitration

Fouchard described arbitration as an “apparently rudimentary method of settling disputes, since it consists of submitting them to ordinary individuals whose only qualifications is that of being chosen by the parties.” [8] Under the French law, arbitration is traditionally defined as:

a device whereby the settlement of a question, which is of interest for two or more persons, is entrusted to one or more other persons- the arbitrator or arbitrators- who derive their powers from a private agreement not from the authorities of a state, and who are to proceed and decide the case on the basis of such agreement. [9] 

Article 2 of the Geneva Protocol of 1923 provides that “arbitral procedure, including the constitution of the tribunal shall be governed by the will of the parties and by the law of the Country in whose territory the arbitration takes place.” (emphasis added)

Article 1 (3) of the Model Law defines arbitration as international if:

the parties to an arbitration agreement have, at the time of conclusion of that agreement, their place of business in different States; or

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One of the following places is situated outside the State in which the parties have their places of business:

the place of arbitration if determined in, or pursuant to, the arbitration agreement;

any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or

the parties have expressly agreed that the subject matter of the agreement relates to more than one country.

Lord Justice Kerr criticised this definition, saying it is confusing, unworkable and unnecessary, and will merely give rise to litigation at the outset. [10] Dr Al-Baharna in his paper [11] criticised the comment given by Lord Justice Kerr on the definition given by the Model Law saying it seemed unfair to it. He said that the Model Law was trying to offer an alternative route to States in their efforts to define “international arbitration”.

From the above definitions, it is evident that for arbitration proceeding to be valid:

parties must have agreed to submit their dispute to an arbitral tribunal and failure to establish a valid agreement may result in an invalid arbitration. [12] 

parties must have an arbitrator or arbitrators chosen by them or by any other means available where they have failed to do so. [13] 

parties may have chosen a seat or place where their arbitration is to take place or may be chosen for them by the institution that governs the rules of arbitration where parties fail to. [14] 

there is a laid down procedure for the enforce of the award. [15] 

International Commercial Arbitration

International commercial arbitration has been a mechanism through which commercial disputes have been determined over the years. It is regarded as a private dispute resolution forum which is chosen by the disagreeing parties to resolve any dissension between them without looking to the courts of law. And it is also said to be private in the sense that the parties are allowed the freedom to choose how the session/procedure is to be conducted and what it entails, the law that will govern their disputes and so on. Ironically, parties may still need the judge’s gavel to enforce the outcome of the forum.

The arbitration proceedings are governed by various regional and international treaties and also national laws. Due to the fact that each state is supreme and not subject to any other state, therefore laws are bound to vary from jurisdiction to jurisdiction. Accordingly, national courts are enjoined to allow the arbitration autonomy but there is still the need for the parties to make recourse to the national courts for the recognition and enforcement of their award. And the applicable law to apply here is said to be the “lex arbitri” or “curial law” which simply means the law of the seat of arbitration.

Some scholars, writers and arbitrators [16] have also tried to detach or remove arbitration from the law of the seat of arbitration and this has led to award from arbitral tribunal been annulled or set aside on the ground that it is a ‘stateless’, ‘floating’ or unrecognised and unenforceable award.

This brings us to the issues that we shall be considering in this article. First, we shall be considering arbitration as a process of resolving disputes between private parties, its characteristics and reasons why they choose this method. We shall then go further by looking at the “seat theory” with its pros and cons as adduced by writers, scholars and arbitrators. Thirdly, we shall try to examine the concept of delocalisation, and also evaluate its pros and cons too and finally conclude on whether the ‘lex arbitri’ is a myth or a reality.

The “Seat Theory” what and where is it?

In well-drafted international contracts, the arbitration clauses would state a particular location which would serve as the seat for the arbitration proceedings. By specifying the seat, this does not mean the physical seat or that the arbitration has to be held here. Rather, the choice of the seat signifies the adoption of the laws that governs arbitration at the chosen place. This is what is referred to as the “seat theory”.

When a particular place is mentioned in the arbitration agreement of parties, what this means is that they are deciding the juridical seat and lex arbitri. [17] And in Bank Mellat v Helliniki Techniki [18] , Kerr LJ was quoted as saying that “our jurisprudence does not recognise the concept of arbitral procedures floating in the transnational firmament, unconnected with any municipal system of law” rather the legal system offers a ‘shoulder’ for the arbitration proceedings to lean on.

Furthermore, where parties fail to specify the seat, the court or the arbitral tribunal is empowered to choose for them. Example of this authority could be found in the ICC Arbitration Rules. [19] 

What is the significance of the lex arbitri?

The lex loci arbitri is the law of the place where arbitration is to take place and the opportunity of having to apply it to the arbitral proceeding thus not automatically regulate the entire proceedings of the arbitral tribunal as it mostly permits ample space for the application of the rules of other legal systems. The scope of its application is basically determined by the lex arbitri. The existence and the measure of the freedom of the parties in respect of the regulation of the arbitration proceedings are determined by the lex arbitri which should be taken as the starting point. [20] 

Is the autonomy of the parties completely out of the reach of the lex arbitri?

Party autonomy is regarded as a vital factor of arbitration. Arbitration is selected and structured for authority and procedure by an agreement of the parties. If contractual parties do not select arbitration, their contractual disputes are to be settled by the court. [21] An agreement to submit disputes to arbitration is a vital element for the success of arbitration. Parties as stated earlier in this essay, have the power to determine the modus operandi of the proceedings from the choice of the seat of arbitration, choice of law [22] to be applied to the arbitration and so on and so forth. But can they actually do without relying on the national courts of the seat of arbitration or could it be said that the autonomy of the parties is without limits? This shall be considered in the next heading.

Role of National Courts

Arbitration is not a separate, free-standing system of justice. It is a system established and regulated pursuant to law, and it necessarily bears a close relationship to a nation’s courts and judicial system. Under the laws that govern arbitration, the courts have an important role to play in making systems of arbitration work. [23] Before the commencement of the arbitration, parties may need to approach the court to compel one o

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