Promotion Of Foreign Investments In Nigeria Through Investment Arbitration

Culled—Proshare

June 30, 2020

By Edun Oluwatimilehin and Philips Adekemi   

Introduction

Commercial relationships are often fraught with conflicts either from a breach of the contractual terms or the non-performance of a party to the contract. While conflicts are bound to happen, there must be an efficient and speedy dispute resolution mechanism. No doubt, States with established and effective dispute resolution mechanisms attract foreign investments. Arbitration is preferred by disputant as a commercially efficient mechanism. From the autonomy of parties to choose their arbitrators to the expertise of the Arbitrators to adjudicate over parties’ dispute and the flexibility it affords, Parties to a commercial dispute usually prefer arbitration over other dispute resolution procedures and this preference for arbitration invariably extends to settlement of investment disputes.

This article seeks to examine the impact of investment arbitration vis a vis foreign direct investment in Nigeria.

Overview of Investment Arbitration

Arbitration is a legal technique where parties to a dispute refer it to one or more persons (the “arbitrators”, “arbiters” or “arbitral tribunal”), by whose decision (the “award”) they agree to be bound[1]

Investment Arbitration (also referred to as Investor-State Dispute Settlement or ISDS) is a dispute resolution procedure often utilized in resolving disputes between foreign investor and host States. Investment arbitration affords investors full access to independent and qualified arbitrators to resolve the dispute within the ambit of law and render an enforceable award. Consequently, this allows for a sideline of national jurisdictions that may be perceived to be biased or to lack independence and a resolution of the dispute in accordance with different protections afforded under international treaties.

Investment arbitration differs from commercial arbitration with regards to parties. All investments arbitration cases usually have a State as the party to the case. However, this does not prejudice the possibility of States as parties to commercial arbitration disputes. Where a State is a party to a commercial arbitration dispute, such State usually act in a private capacity unlike in investment arbitration where the State acts with sovereign power. The right to arbitrate investment disputes majorly derives from bilateral investment treaties or multilateral treaties between the host State and the foreign investor(s).

Bilateral Investment Treaties (BITs) are international agreements that govern the relationship between countries that accord companies and individuals with special rights and legal protections when they invest in the host State. Nigeria has signed bilateral investment treaties with over twenty-five countries.[2]

The Concept of Foreign Investments

Foreign Participation in Nigeria is in form of Foreign Direct Investment and Foreign Portfolio Investment.[3] An Investor who wishes to invest directly in the Nigeria is required by the law to invest through a registered company and where there is no existing company, a Nigerian company must be incorporated. On the other hand, Foreign Portfolio Investment is the participation by purchasing shares in existing companies through the Nigerian Capital market. The law further exempts certain companies from registering in doing business in Nigeria.[4]

The Nigerian Investment Promotion Commission[5] liberalized the atmosphere for foreign investment to thrive. It allowed a hundred percent foreign ownership in all sectors except the petroleum sector, where FDI is limited to joint ventures and production sharing contracts. The One-Stop Investment Center which hosts 27 governmental and parastatal agencies was established to eliminate the bureaucratic process of doing business in Nigeria.

Nigeria is the third host economy for FDI[6] in Africa as the Nigerian economy attracts investors in the construction, energy, hospitality, and telecommunication sectors.[7] FDI represents 25.1% of the country’s Gross Domestic Products with major investments from China, USA, UK, Netherlands, and France[8].  An inefficient judicial system and unreliable dispute settlement mechanism rank among several factors responsible for the decline of FDI in Nigeria.[9] Other factors include: Political risks, religious and regional divisions, absence of security, among others.

Examination of Investment Arbitration in Nigeria

Effective dispute resolution remains a tool in the attraction of foreign businesses to Nigeria. A free-market system such as Nigeria presents an avenue for clash of interest and disputes in pursuit of different business interests. The law provides several means of resolving disputes amicably, one of which is through civil actions in court. However, Experts have noted that Litigation is a cause of anxiety for parties concerned; be it the litigants or the counsel primarily because of the uncertainties of the possible outcome[10]

Notably, the legal framework of arbitration and alternative dispute resolution is classified into three main groups namely:

  1. Customary Arbitration.
  2. International/ Foreign obligation under international instruments.
  • Statutory Framework.

Statutory Framework

In a bid to attract foreign investment in Nigeria, successive governments introduced policies to enable the growth of foreign investments. Against this backdrop, the federal government promulgated several laws to project Nigeria as one of the most preferred destinations of doing business in Africa. To this end, two statutes were enacted; The Nigerian Investment Promotion Commission Act and the Foreign Exchange (Monitoring and Miscellaneous) Act.

The Nigerian Investment Promotion Commission (NIPC) was established to encourage and promote investment in Nigeria. The Law also recognizes how dispute arising from investments related issues are resolved. In Nigeria, the domestic legal framework for settlements of arbitral dispute is the Arbitration and Conciliation Act. This law takes its cue from the United Nations Model Law on International Trade law and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This Model law provides a foundational structure for Commercial Arbitration and Settlement of Investment disputes.

Fair and Equitable Treatment Standard in Investment Arbitration Treaties/ Bilateral Agreements.

The term “equitable treatment” dates to the 1948 Havana Charter for International Trade Organisation. Specifically, the Charter[11] recommended the execution of bilateral and multilateral agreements among States and foreign investors on the basis that foreign investments should be assured “just and equitable treatment”. Also, the Economic Agreement of Bogota adopted by the Ninth International conference [12] proposed the adequate safeguards for foreign investors. It states:

“Foreign capital shall receive equitable treatment. The States therefore agree not to take unjustified, unreasonable, or discriminatory measures that would impair the legally acquired rights or interests of nationals of other countries in the enterprises, capital, skills, arts or technology they have supplied” [13]

Although the Havana Charter and Economic Agreement of Bogota were not ratified, these agreements reflected the collective opinions of major foreign investors and the underlying basis of their investments towards international development. This principle has been adopted in several modern agreements among States. Examples include: The Free Trade Agreement between the US and Australia[14], Central America (CAFTA)[15], the US-Chile Free Trade Agreement[16], US-Singapore Free Trade Agreement[17]where it was clearly stated that each Party has the obligation to “accord to the covered investments treatment in accordance with the customary international law, including fair and equitable treatment and full protection and security”. Furthermore, the 1985 Convention[18] establishing the MIGA states that to guarantee an investment, MIGA must satisfy itself that fair and equitable treatment and legal protection for the investment exist in the host country concerned. This is a viable means for the institution to lower the risk for guaranteed investments and increase investment flows to and among developing countries. 

The World Bank has lent credence to this principle. Article III (2) of the World Bank Guidelines state that:

“Each State will extend to investments established in its territory by nationals of any other State fair and equitable treatment according to the standards recommended in the Guidelines”.

Such standards of treatment shall be accorded to foreign investors in matters such as security of person and property rights, the granting of permits and licenses, the transfer of incomes and profits and the repatriation of capital.  The principle of Fair Treatment has been used as a proportional scale to measure the legitimate economic interests of the Investor and the impact of the foreign investment on the host State. This is important in order not to undermine the economic development of the host state at the altar of profit realization for the foreign investor.

Importance of Recognition and Enforcement of Investments Arbitration Awards

Trade and investments are critical to the economic development of any nation and Arbitration being the preferred means of dispute settlement in foreign trade and investment is of importance to Nigeria as a developing country who relies majorly on its foreign investors/counterparts to develop its natural resources. Nigeria has enacted several legal instruments to regulate and encourage the use of Arbitration[19]. The Supreme Court in Construction Co. Ltd v F.C.D.A [20]clearly stated that “It is very clear and without any iota of doubt that an arbitral award made by an arbitrator to whom a voluntary submission was made by the parties to the arbitration, is binding between the parties”. 

 

Furthermore, Investment Arbitral awards granted outside Nigeria are enforceable and binding on the parties. Enforcement of arbitral awards further boost investor confidence in investing in the businesses of the economy. The World Bank recently ranked Nigeria 96th on the enforcement of contract index and it takes about 454 days to enforce a contract through the court. This can negatively impact on the growth of FDI in the country.

 

Enforcement of Arbitral Award

There is the need to enforce an arbitral award when one of the parties refuses to voluntarily comply with the award.  However, it will be counterproductive to resort to arbitration if the arbitration award cannot be enforced in the courts of the State in dispute. Therefore, in recognizing and enforcing arbitral agreements, the court plays a fundamental role in assisting parties to realize their legitimate expectation by not only supporting the arbitral process but also reinforcing its efficacy and integrity[21]

To underscore the enforcement of arbitral awards, it is important to understand the theoretical basis and justification for the enforcement of arbitral awards so as to further analyse the attitude of the Nigerian court to the enforcement of foreign and domestic arbitral awards.

 

Enforcement of Domestic Arbitral Award

Section 31 of the Arbitration and Conciliation Act provides the legal framework for the enforcement of domestic award in Nigeria. The law requires that an application be made to the court for enforcement provided the parties relying on the award present a duly authenticated or certified copy of the original award and arbitration agreement.

An application for enforcement of Arbitral judgment shall be by an Application of a Motion on notice accompanied with an affidavit and all necessary documents[22] notably, a party dissatisfied can apply to the court to set aside the arbitral award provided such party proves to the court that the award was given outside the scope of the arbitrators.

 

Enforcement of Foreign Arbitral Award in Nigeria.

Section 51 of the Arbitration and Conciliation Act provides a legal framework for the recognition and enforcement of arbitral awards for both local and foreign arbitral awards. In Imani Sons & Ltd. V Bil Construction Co. Ltd[23], the Court held that in addition to the motion on notice filed by the party seeking enforcement, such party shall additionally supply the following documents:

  1.       The Arbitration Agreement;
  2. The Original Award;
  • The name and last place of business of the person whom it is intended to be enforced
  1. Statement that the award has not been complied with or complied with only in part.

Where the court recognizes the award by granting leave to the creditor to register same, it shall be enforced as a judgment of that Court.

 

Enforcement and Recognition of Foreign Arbitral Awards under (New York convention) 1958

Nigeria became a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1970 and this Convention was domesticated in 1988. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Award 1958 applies in Nigeria by virtue of section 54 of the Arbitration and Conciliation Act 1990. Nigeria has made reciprocity reservation hence, only awards made in contracting states that undertake to recognize and enforce awards made in other contracting states, including Nigeria, will be recognized, and enforced in Nigeria.

 

Enforcement of Awards under the Foreign Judgement (Reciprocal Enforcement) Act.

The Act regulates the registration of foreign judgements in Nigeria. Under this law, before a judgement or award obtained from a foreign country is enforced in Nigeria, such judgement must be registered in the High Court of a State or The Federal High Court[24].

In Tulip Nig. Ltd v Noleggioe Transport Maritime S.A. S[25], the Court held that:

“The provisions of the Reciprocal Enforcement of Judgment Ordinance Cap 175 LFN 1958 and the Foreign Judgment (Reciprocal Enforcement) Act 2004 will apply in the enforcement of foreign arbitral award where same has been elevated to the status of a judgment by leave of the High Court sought and obtained”

It was further held that the judgment shall become binding on the parties irrespective of the country that issued it. Also, the court before whom an application is brought for enforcement is duty bound to enforce same. Therefore for an arbitral award to be elevated to the status of a judgment which can be registered and enforced under the Act, the creditor is required to have applied and obtained leave of the court in the country where the award was made in order to enforce the award in the same manner as a judgment of that court.

Enforcement under the International Center for Settlement of Investments Disputes (ICSID)

The Convention on the international Centre for settlement of investments dispute was promulgated by the World Bank, with the aim of settling disputes arising from investments between contracting states through Arbitration and Conciliation. The ICSID Act was domesticated on the 29th of November 1967 for the enforcement of awards given by the ICISD. The section of the Act provides that:

“An ICSID award shall be enforced in Nigeria as if it were an award contained in a final judgement of the Supreme Court, if a copy of such an award is duly certified by the Secretary General of the Centre is filled in the Supreme Court of Nigeria by the Party Seeking its recognition and enforcement.”

 

Conclusion

Foreign Direct Investment remains a veritable means of reviving the economy of Nigeria from the doldrums of poverty, economic instability, and unemployment and for Nigeria to tap into the numerous advantages of FDI; there is the need for business owners, regulatory agencies and major Stakeholders to collaborate in establishing an efficient investment arbitration mechanism in Nigeria. The Nigerian legislative government also needs to be proactive by signing the bill which seeks to amend amend the Arbitration and Conciliation Act as this will help breathe life into the investment space in Nigeria.

About the Author

Edun Oluwatimilehin is a graduate of Lagos State University and currently an Associate Counsel in the Lagos Office of Funmi Roberts and Co. He is an innovative legal practitioner whose area of interest includes International Trade and Investment Law, International Arbitration, Corporate Commercial Law and Litigation, Project Finance, etc. Edun Oluwatimilehin is a member of the Corporate Commercial Practice Group of the firm where he advises clients on several commercial transactions. He is an astute advocate, result-oriented, and a resourceful Legal Practitioner. He amongst other things has a strong passion for solving complex commercial transactions to provide a legal solution for all clients. In his leisure, he researches and writes on various tropical legal issues within the Nigeria Commercial and Business law space. He is a member of the Nigerian Bar Association Section on Business Law (NBA-SBL), Association of Young Arbitration. Edun Oluwatimilehin can be contacted via email: officialtimilehinedun@gmail.com

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