INTRODUCTION:

Today’s world is now more global than it was a century ago as modern technology has made it increasingly possible for the world to interact in one global space, called the internet. The internet world has narrow down how we think business by bringing the world together to interact in trade. From Facebook marketplace, to amazon, e-bay, alibaba, Esty, Welmart Rakuten and Jumia to mention these few, distance in trade seem not to be a challenge anymore as we can all freely interact in business seamlessly.

The idea of thinking greener ways of doing things has also dominated discussions amongst market leaders. For example, the maritime company OceanOne recently unveiled its new ferry Ahoy, an electric HADAG ferry “NeuLand’ which was launched in Hamburg on 16 September 2024, operating on electric energy, powered by battery sailing and can recharge overnight using shore power. In addition, and only recently, a swiss company called Sun-Ways turned railway tracks into solar power stations. The company is installing removable solar panels between the rails. They make use of the sun energy while trains continue to run smoothly thereby cutting down on Co2 emissions. And this is just a few example buttressing the fact that the world is rethinking business through innovations in technology and are eventing faster ways of connecting the world and bringing people together for trade.

Increase in global trade and movement of goods, products and services continue to soar with increased technology . In this modern trend, multinationals increasingly find themselves operating in multiple jurisdictions, each with its own legal complexities and a common area that often presents unique challenges is dispute resolution, especially when operating in emerging markets such as Nigeria. As businesses expand, they encounter varying legal systems, differing enforcement standards, and often unpredictable political and economic environments. These factors can quickly turn a minor contractual disagreement into a full-blown legal battle that threatens a company’s operations and reputation.

Challenges of the Nigeria Market and The Dynamism of its Legal System

Focusing on the Nigerian market, it is to be noted that Nigeria’s legal system, is rooted in common law but influenced by customary and religious laws, which presents a mixed bag for multinational companies. In practice, navigating Nigeria’s multiple legal frameworks—state, federal, customary, and even Sharia law in some parts of the north—can make resolving disputes complicated. For instance, a company based in Lagos State Nigeria, might deal with entirely different legal principles than one operating in Kano State, Nigeria. This can often present a real challenge to multinationals who trade in Nigeria, unawares of the dynamics of the legal system.
Another challenge with the Nigeria market stems from the oil and gas sector, where disagreements over Production Sharing Contracts (PSCs) between the Nigerian National Petroleum Corporation (NNPC) and foreign oil companies have resulted in years of litigation and arbitration. The Petroleum Industry Act (PIA) of 2021 was a major overhaul meant to address regulatory bottlenecks, but uncertainties continue to exist over how it will affect existing agreements. Some have wondered whether the PIA is really a game changer in the right direction as policy inconsistences in the nation’s oil and gas sector continues unabated with some multinationals such as Exxon Mobil divesting their investment in order to exit Nigeria.
Nigeria’s economy is heavily dependent on oil exports, making it vulnerable to global oil price fluctuations. In 2020, the collapse of oil prices, exacerbated by the COVID-19 pandemic, led to disputes between the Federal Government of Nigeria and multinational oil companies over revenue-sharing mechanisms and tax obligations. In an article published by the Beulah Heights University, Atanta, United States of America titled “The Politics of Oil Revenue Sharing Formula In Nigeria: Issues and Challenges” the authors noted in part thus:

“The issue of revenue allocation is partly economic but largely a matter of political compromise. Central to this compromise is the impact of a given ‘revenue allocation
structure’ on the nature of federalism. Revenue allocation is an issue which has been politicized by successive administrations in Nigeria, both Military and civilian regimes.”

This uncertainty is not limited to the oil industry. The Central Bank of Nigeria’s (CBN) evolving foreign exchange policies have affected multinationals’ ability to repatriate profits, leading to contractual disputes.
These scenarios illustrate how unpredictable regulatory environments can put multinationals at risk if they lack robust dispute resolution strategies.
Another example is Nigeria’s ongoing power sector reforms. The 2013 privatization of Nigeria’s electricity sector was expected to attract foreign investment, but it has since become a case study in regulatory uncertainty. Multinationals like Siemens, which entered the Nigerian market to help revamp the country’s power infrastructure, faced challenges as the government adjusted tariffs, subsidies, and regulations midstream, leading to a surge in disputes.

Political interference in businesses in Nigeria is alarming. How would you imagine a government revoking the land title document legitimately obtained by a multinational company in Nigeria in which the revoking government official granted a press conference to announce that it has revoked the title document of the Multinational company in order to build homes for judges with the Chief Justice of the Nigeria flagging off the construction project. The question then may be asked, where would the multinational company seek redress? In the same court where the Chief Justice of Nigeria who flagged off the construction project of the unlawfully revocation of the multinational company’s title, sits? Now pay attention.

Moreover, the courts in Nigeria can often be slow, under-resourced, and sometimes perceived as susceptible to external influences, a concern highlighted by Transparency International’s Corruption Perceptions Index.

The Strategic

A key strategy for multinationals is to embrace proactive dispute resolution planning from the outset. This begins with drafting comprehensive contracts that clearly define dispute resolution mechanisms, such as specifying arbitration in neutral venues and the applicable law. Thoughtful dispute resolution clauses can provide a level of predictability and control over potential conflicts.

In addition, engaging lawyers who understand the nuances of the local legal and business environments is crucial. A firm with expertise in both local and international arbitration can help navigate not only the letter of the law but also the cultural and political subtleties that can impact the resolution process. This dual approach is especially vital in jurisdictions where court systems may be slow or susceptible to external influence.

Alternative Dispute Resolution Key Tool for Multinationals

The term alternative dispute resolution refers to the resolution of disputes though means other than litigation. These includes negotiation (attempt by parties to mutually resolve their dispute without the involvement of a third party), Mediation (the resolution of a dispute by the parties through the help of a third party who helps the parties to facilitate the settlement of their disputes), Arbitration (less formal mechanism for the settlement of dispute by the parties through the aid of a third party called an arbitrator. The arbitrator’s decision is binding on the parties and have it force of a judgment when recognized by a local court).

While litigation remains a common approach to dispute resolution, multinationals operating in emerging markets should strongly consider alternative dispute resolution (ADR) mechanisms like arbitration and mediation. ADR offers several advantages, including confidentiality, flexibility, and the potential for faster outcomes compared to traditional litigation. In many emerging markets, there is growing recognition of the importance of arbitration, with institutions such as the Lagos Court of Arbitration in Nigeria gaining prominence. However, the choice of the right arbitration institution and rules can significantly impact the enforceability and success of the process.

Moreover, mediation, as a less adversarial approach, can preserve business relationships, which is particularly important for companies aiming to maintain long-term investments in these regions. By resolving disputes amicably, businesses can avoid the negative PR and operational disruptions that often accompany prolonged legal battles.

To mitigate the risks of prolonged litigation, multinationals are increasingly relying on Alternative Dispute Resolution (ADR), such as arbitration and mediation. Nigeria’s Lagos Court of Arbitration (LCA) and regional bodies like the Abuja-based Regional Centre for International Commercial Arbitration (RCICA) have been established to provide more efficient alternatives to traditional litigation. However, the effectiveness of these institutions can vary. For example, while the LCA has handled several high-profile cases, including disputes in the oil and telecommunications sectors, businesses operating in less-developed regions may still face challenges with ADR, where local customary practices and laws can play an unexpected role in dispute outcomes.

Navigating Enforcement Challenges of Awards in Nigeria

While Nigeria is a signatory to international treaties like the New York Convention, which facilitates the enforcement of foreign arbitral awards, local enforcement can still face challenges. Although an Award is binding on the parties and its outcome is not appealable under the Nigeria legal system, yet an aggrieve party may rightfully challenge an Award and pray the court to refuse it recognition and or enforcement under some specified grounds.

Article V(2) of the New York Convention, for instance, allows courts to refuse enforcement of arbitral awards on public policy grounds—a provision that has been used by local courts in Nigeria to delay enforcements. In 2018, the case of Process and Industrial Developments Limited (P&ID) vs. The Nigerian Government grabbed international headlines when a $9.6 billion arbitral award was granted against Nigeria, showcasing both the risks and complexities multinationals face when enforcing awards in Nigeria. This landmark case highlighted the tension between international arbitration outcomes and Nigeria’s internal legal and political dynamics.

So challenging an arbitral award in Nigeria is very common and easy with some local lawyers rethinking ways of sparing their clients from the stress of arbitrating their disputes within the country. The practical reality, to put it plainly, is that the Notice of Arbitration is served on a party to a contract in line with the parties’ intention. You then find that somehow, a party tries to frustrate the appointment process of the arbitrator(s). That may drag on for a while and may finally be resolved by the court through means adopted by the parties. Still, a party would usually challenge the powers of the arbitrator to arbitrate the parties dispute or may challenge the arbitral proceedings through grounds entirely strange to the arbitration proceedings. Dissatisfied with the tribunal’s ruling on this issue, the aggrieved party may go to court to challenge the Ruling of the Tribunal and this will usually move from the High Court to the Court of Appeal and then to the Supreme Court with the aggrieved party seeking orders of stay of the arbitral proceedings.

Should the panel of arbitrators be dogged enough to invoke the Kompetence Kompetence rule of arbitration in finding that it has jurisdiction and refusing to grant a stay of the arbitral proceedings, this may become another issue in contention that may proceed up to the Supreme Court of Nigeria, thereby wasting time, energy and resources. That is not all. When the Award is finally delivered, you would find mostly Senior Lawyers in Nigeria, permit me to say, not too knowledgeable in arbitration proceedings, filing all manner of applications to court seeking to frustrate the recognition and enforcement of the Award. In NNPC v.Fung Tai Eng. Co. Ltd. (2023) 15 NWLR (Pt. 1906) 117 the Nigeria Supreme Court held:

“While it is true that there are specific provisions under the Arbitration and Conciliation Act (ACA) for the setting aside of arbitral award in limited circumstances, the experience in practice is that almost every award is challenged, thereby defeating the purpose of the arbitration in the first place.”

Now an Award under the Nigeria legal system can only be recognised with the leave of Court. In the often cited case of Alhaji Ado Ibrahim v. Alhaji Maigida Umar the Supreme Court of Nigeria reaffirmed that before an arbitral award can be enforced in Nigeria, leave of the court must first be sought. The court held that obtaining leave is a condition precedent to the recognition and enforcement of any award, whether domestic or foreign, under the New York Convention or the Arbitration and Conciliation Act now Arbitration and Mediation Act 2023.

The procedure for enforcement summarily is that a party seeking to enforce the award files a Motion on Notice praying the court inter alia for the recognition of the arbitral Award as well as leave for the enforcement of the said Award. The losing party may then file an application seeking the refusal of recognition and enforcement of the same arbitral award. Both applications would be supported by Affidavit and attached exhibits disclosing reasons for the enforcement or refusal of the Award. A date is set for hearing by the Court and who after hearing the parties makes its ruling enforcing or refusing the enforcement of the Arbitral Award.

These rights are all well protected by the law and in most cases both applications can proceed simultaneously where the court consolidates both applications but must first determine the application for non-recognition of the Award and where it lacks merits proceed to rule on the application seeking the recognition and enforcement of the Award. All of these applications under a typical Nigeria legal battle, would proceed up to the Supreme Court with no end in sight.

Recently, I was involved in an Award enforcement proceedings where the winning party (“Party A”) approached the Federal High Court of Nigeria for the Recognition and Enforcement of an Arbitral Award. Strangely, the losing part to the Award (“Party B”) had without the knowledge of Party A filed an application at the Lagos State High Court, praying the Court to refuse the recognition and enforcement of the award on grounds unknown to law. Party B had filed its application two months before Party A approached the Federal High Court of Nigeria for the recognition and enforcement of the Award. Party B only decided to serve Party A with its application after Party A served it with its Application for enforcement. Is Party B not abusing the process of the Court? Would the Nigeria Court find Party B to be in abuse? Your opinion is welcomed but sadly, this is the reality being faced by most multinationals in Nigeria.

It is advisable therefore that, proper strategy be deployed by Multinationals in drafting the arbitration clause of their contract. Issues around the governing laws, applicable rules, and the seat of the arbitration are a crucial part of the arbitration clause of the contract that must be carefully worded and structured by the parties giving hid to potential huddles that may act to prolong the arbitral proceedings or the enforcement of its Award. This is where the help of local lawyers are relevant. They would help assess the situation having regards to the competing interest of the parties and advise appropriately.

Understanding Local Power Structures

In many instances, the resolution of disputes in Nigeria does not only hinge on legal principles but also on understanding the power dynamics between local authorities, business leaders, and the Federal Government of Nigeria. Multinationals have learned, sometimes the hard way, that resolving disputes can be accelerated or delayed depending on these relationships. Engaging local counsel who are familiar with these dynamics and can anticipate political and regulatory shifts is key. For example, in sectors like telecommunications, where the Nigerian Communications Commission (NCC) plays a pivotal role, having a local legal partner with connections and insight into regulatory affairs can be the difference between prolonged litigation and a swift resolution.

A Tailored Approach to Contracts

To minimize risks, multinationals should invest time in drafting contracts that address Nigeria-specific challenges. Contracts should not only include standard dispute resolution clauses but also take into account local peculiarities, such as fluctuating regulatory standards, the possibility of currency controls, and unpredictable political events like elections, which often result in policy reversals or delays. Elections may have come and gone in Nigeria, yet the impact is still being felt by businesses grappling with the hyperinflation in Nigeria’s economy caused majorly by instabilities in Government Policies, and this is irrespective of the political party in power. For example, the ruling All Progressive Congress regained power in the just concluded general elections which held in February 2023, yet, this did not guarantee stability in government policies. It keeps fluctuating and many believe the situation is even worse and much more unpredictable since the present administration came into power.

It may be a good strategy for a multinational entering into a joint venture agreement with a Nigerian partner, say in the agricultural sector of the economy, to adopt an ADR mechanisms under Nigerian law but designating arbitration to occur in a neutral venue, like London or Singapore.

Building Strong Legal Partnerships for Long-Term Success

For multinationals, partnering with a law firm that has deep experience in both dispute resolution and the specific legal terrain of emerging markets is essential. A firm with expertise in international arbitration and familiarity with local laws can provide invaluable guidance in drafting contracts, negotiating settlements, and representing clients in arbitration or litigation proceedings.

Conclusion:

Nigeria offers substantial opportunities for multinationals, but the risks, particularly those related to dispute resolution, cannot be overstated. By adopting proactive strategies, including drafting well-considered contracts and leveraging the strengths of local legal practitioners, companies can mitigate the complexities that arise from Nigeria’s legal and regulatory landscape. With careful planning and strategic use of ADR mechanisms, multinationals will not only navigate these challenges more efficiently but also position themselves to thrive in Nigeria’s dynamic and evolving market.

It is my advice that multinationals who continue to explore opportunities in emerging markets, must equip themselves with a robust dispute resolution strategy. By proactively preparing for potential conflicts and leveraging alternative dispute resolution mechanisms, companies can better protect their interests, navigate complex legal environments, and maintain stability in their operations. Partnering with experienced local legal practitioners, who understand both international and regional legal nuances is critical to achieving successful outcomes in any dispute.

No doubt, multinationals who invest in strategic dispute resolution will find themselves better positioned to not only resolve conflicts efficiently but also maintain strong business relationships and continue thriving in the rapidly evolving markets of the future.

Prepared by:
Brown Osarenkhoe, MCIArb (UK)
Managing Partner, Brown, Okeke & Kalejaiye
Tel. +2348164247362
brown@boklegalllp.com