1. Introduction to Commercial Arbitration
Isaiah Bozimo

2. Introduction to Arbitration
What is “arbitration”?
Why to parties choose arbitration to settle their disputes?
What is the legal structure of international commercial arbitration?

3. What is arbitration?

4. Definition of arbitration
It is important to know whether a particular procedure amounts to arbitration.
Article II.2 of the Convention for the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) provides:
“Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration …”
However:
No official definition of arbitration in the New York Convention, the UNCITRAL Model Law on International Commercial Arbitration or national laws on arbitration.
By leaving the term undefined, it can be adjusted over time to accommodate changed perspectives as to what amounts to arbitration.

5. Definition of arbitration
Some content must be given to the term ‘arbitration’. The main characteristics are:
arbitration is a mechanism for the settlement of disputes;
arbitration is consensual;
arbitration is a private procedure;
arbitration leads to a final and binding determination of the rights and obligations of the parties.

6. Arbitration is a mechanism for the settlement of disputes.
The Long Title of the Arbitration and Conciliation Act (ACA) states that the legislation is:
“An Act to provide a unified legal framework for the fair and efficient settlement of commercial disputes by arbitration …”
Likewise, the Long Title of the Lagos State Arbitration Law reads:
“Law to provide for the resolution of disputes by Arbitration in Lagos State …”
Further still, the Lagos Court Arbitration Model arbitration clause states:
“Any dispute arising out of or in connection with the interpretation of the provisions of this Agreement … shall be submitted to the Lagos Court of Arbitration and shall be resolved under the Rules of the Lagos Court of Arbitration …”
Arbitration is a mechanism for the settlement of disputes.
If there is no dispute, then there can be no arbitration.
This notion is supported by Nigerian laws and institutional rules on arbitration.
For example:

7. What happens if the parties settle their dispute?
Section 25, ACA
Section 45, Lagos State Law
If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms.
Where, during the arbitral proceedings, the parties settle the dispute, the Arbitral Tribunal shall terminate the arbitral proceedings, and shall, if requested by the parties, record the settlement in the from of an arbitral award on agreed terms.

8. What happens if the parties settle their dispute?
It will be noted that under Section 25(1) of the ACA, the arbitral tribunal may object to recording the settlement as an award.
This is a form of protection to the tribunal and to the arbitral process if the tribunal believes that an award would be improper under the circumstances.

9. An arbitration is consensual.
Under Section 48(a)(v) of the ACA and Section 55(2)(v) of the Lagos State Arbitration Law, a Court may set aside an award (wholly or in part) if it finds that:
“the award contains decisions on matters which are beyond the scope of the submission to arbitration …”
Similarly, under Section 52(2)(a)(v) of the ACA and Section 57(2)(e) of the Lagos State Arbitration Law, a Court may refuse recognition or enforcement of an award (wholly or in part) if it finds that:
An arbitration is consensual.
An arbitration must be founded on the agreement of the parties. This has two practical implications:
the parties must have consented to arbitrate the dispute that has arisen between them; and
the authority of the arbitral tribunal is limited to that which the parties have agreed.

10. In most cases arbitration is only semi-consensual.
Most arbitration agreements are in the form of an arbitral clause in the main contract.
The arbitration clause will provide for the settlement of disputes that may arise in the future.
If a dispute does arise, the parties may no longer be in agreement that the dispute should be submitted to arbitration.

11. The claimant in the dispute may wish to turn to the courts
The claimant in the dispute may wish to turn to the courts. However, it can be precluded by the respondent from doing so and forced to proceed in arbitration.
Under Section 4 of the ACA and Section 6 of the Lagos State Law:
where a party initiates a court action in breach of an arbitration clause, the court shall, on the request of a party, stay its proceedings and refer the parties to arbitration – provided that the requesting party has not filed its first statement on the substance of the dispute.
Conversely, the claimant may commence the arbitration in accord with the arbitration agreement, but the respondent may refuse to participate.
Nevertheless, the arbitral tribunal may continue the proceedings and make the award on the evidence before it. (Section 21 ACA; Section 41 Lagos State Arbitration Law.)
Semi-consensual
If the parties disagree that the dispute should be submitted to arbitration, two consequences follow:

12. Arbitration is a private procedure
Confidential?
Arbitration is not part of the State system of courts. Arbitral proceedings are, therefore, not open to the public.
As already noted, it is a consensual procedure based on the agreement of the parties.
The tribunal must, nevertheless ensure that the parties are treated with equality and that each party is given a full opportunity to present its case.
No automatic presumption that the proceedings are confidential.
There is a general understanding that that neither the parties, arbitrators, witnesses, experts nor any supporting personnel would reveal anything about the arbitration.
There is an exception if one of the parties has to invoke the aid of a court in regard to the arbitration or to set aside or enforce an arbitral award.

13. Article 32(2) of the Arbitration Rules in the First Schedule to the ACA and Article 34(2) of the LCA Arbitration Rules both specifically provide that the award:
“shall be made in writing and shall be final and binding on the parties …”
Most importantly, Article III of the New York Convention requires the currently 156 Contracting States to “recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon...”. This is the most important feature of international commercial arbitration.
Arbitration leads to a final and binding determination of the rights and obligations of the parties.
A procedure that does not lead to a final and binding determination of the rights and obligations of the parties is not arbitration.
Arbitration rules specifically provide for the finality and binding nature of of an arbitration award.

14. Why do parties choose arbitration to settle their disputes?

15. Why do parties choose arbitration?
The reason why parties choose arbitration to solve their disputes can be categorised into four “E’s”:
Efficiency;
Expertise;
Even-handedness; and
Enforceability.

16. Efficiency
Faster decisions and lower costs as compared to litigation has been one of the traditional arguments in favor of arbitration.
More recently, doubts have been raised as to whether arbitration is really faster or less expensive than litigation.
Whilst it is certainly cheaper to commence litigation before the Courts, these initial savings become quickly eroded by inefficiencies and delays in the litigation process.
Commercial parties value certainty. Arbitral proceedings are generally likely to be more efficient than litigation.

17. Expertise
Arbitration allows the parties to choose persons with specialized knowledge to judge their dispute.
In a construction arbitration, for instance, there may be engineers or architects as well as lawyers serving as arbitrators.
In litigation, the cases may be assigned to Judges not necessarily on the basis of expertise, but on expediency.
Judges in State courts are less likely to acquire the same degree of expertise in the technical aspects of the transactions that come before them as are the lawyers who represent the parties and who may later serve as arbitrators in similar transactions.

18. Even-Handedness
In arbitration, the parties play an equal role in the constitution of the arbitral tribunal.
For instance, in a panel of three arbitrators, the convention is that each party shall appoint one arbitrator. The two party-appointed arbitrators shall then choose the third arbitrator, who will act as the presiding arbitrator of the tribunal.
This procedure instills confidence in the parties, who will be more likely to accept the decision of a tribunal they have freely appointed.
In litigation, the State appoints a Judge to adjudicate the parties’ dispute. The parties do not play a role in this regard.

19. Enforceability
The most important reason for the popularity of commercial arbitration is the comparative ease of enforcement of an award as compared to the enforcement of a judgment of a foreign court.
Empirical data supports this. 65% of the respondents to the 2015 Queen Mary International Arbitration Survey identified enforceability of the award as the most important feature of arbitration.
As it relates to litigation, unless there is a treaty between the State in which the judgment was issued and the State in which enforcement is sought, the requested court is under no international obligation to enforce the judgment.
By contrast, 156 States are party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Each signatory has given an undertaking to recognise and enforce an award rendered in any of the Contracting States.

20. Legal Regime governing International Commercial Arbitration

21. New York Convention The New York Convention is the foundation stone on which the entire structure of international commercial arbitration is built.
Arbitration Agreements
Arbitration Awards
The 156 States that have ratified the Convention have committed themselves to recognizing arbitral agreements and, when one of the parties requests it, referring the parties to arbitration, even when the arbitration is to take place in a foreign country.
By making such a commitment they have also agreed that their courts will not exercise jurisdiction over the substance of the dispute so long as either party insists upon the arbitration clause.
Similarly, the 156 current parties to the New York Convention have agreed that they will “recognize arbitral awards as binding and enforce them in accordance with the rules of procedure” in force in the State.
Those rules may not contain “substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.”

22. National Laws
Before 1985, the divergent national laws on arbitration created an obstacle to the development of international commercial arbitration.
It was difficult for arbitration practitioners to represent clients or to serve as arbitrators in States where they were not already familiar with the local law of arbitration.
Likewise, lawyers representing clients in the negotiation of contracts were hesitant to agree to arbitration in unfamiliar locations.
The situation has changed significantly during the thirty years since the Model Law was introduced by UNCITRAL in 1985.

23. UNCITRAL Model Law
As at today, UNCITRAL lists 73 States and a total of 103 jurisdictions as having adopted the Model Law for either international commercial arbitration or for all arbitrations conducted within the State.
While each of those statutes has its own special features, the core provisions remain uniform.
The consequence is that there is a growing harmonization of the law governing international commercial arbitration with all the positive consequences for parties, their representatives and the arbitrators that follows.

24. Arbitration Rules
Most modern arbitration laws allow the parties to decide on the procedure to be followed in the arbitration.
For instance, Section 31(1) of the Lagos State Arbitration Law provides:
Except as otherwise agreed by the parties, the arbitral proceedings shall be conducted in accordance with the procedure contained in the Arbitration Rules of the Lagos Court of Arbitration in force from time to time.
Accordingly, arbitration rules constitute the third level of legal rule governing commercial arbitration.

25. Arbitration Rules
Any arbitration that takes place in the context of an institution is known as institutional arbitration will be conducted in accordance with the rules of that organization. For instance, the Lagos Court of Arbitration Rules.
Some arbitrations take place without any reference to an arbitration institution. They are referred to as ad hoc arbitrations. The most prominent rules in ad hoc arbitration are the UNCITRAL Arbitration Rules.
The arbitration rules set forth the procedures for the commencement of the arbitration, the appointment of the arbitrators, the conduct of the proceedings and the issuance of the award.

26. Any Questions?