By: Olawumi Odeyinka- Apantaku, LLM, BL, LLB
Legal Officer (Research & Registry) NICArb
Introduction to Arbitration and Arbitration Agreements
Arbitration, which is the settling of disputes outside the courts has the advantage of being private and quicker than it would be to resolve matters in court. An arbitration agreement may be formed before a dispute arises or even after it has arisen. Arbitration clauses only serve to limit the jurisdiction of the courts and do not entirely oust it. The development of arbitration in Nigeria has been on its rise, due to different Arbitration Institutions in the country.
Notably many parties, including legal professionals fail to realize that the wording of an arbitration clause is important for arbitration to function smoothly. In practice, it is observed that where arbitration clause contains defective wording it is subject to unnecessary incidents and procedural debates. Such clauses are called “pathological clauses “. They are defined as a defect or defects liable to disrupt the smooth progress of the arbitration. Arbitration agreements can be pathological for a variety of reasons. The reference to an arbitration institution may be inaccurate or totally incorrect; the agreement may appear to allow submission of disputes to arbitration to be optional; it may contain a defective mechanism for appointing arbitrators in that[i] etc.
Components of the Arbitration Clause
- Institutional and ad hoc arbitration
These are two types of arbitration that parties can choose from to resolve disputes under their contract. Institutional arbitration is an arbitration that is administered by a recognized arbitral Institution, an example is NICArb’s Arbitration and Alternative to Dispute Resolution Centre (NICArb AADRC). An Institution such as the NICArb AADRC has its own rules and is responsible for appointing the arbitral tribunal and the administration of the arbitration. On the other hand, an ad hoc arbitration is any arbitration in which the parties have not selected an institution to administer the arbitration. This offers parties flexibility as to the conduct of all aspect of the arbitration and the Arbitral tribunal.
In most arbitrations, the arbitral tribunal may comprise of either one or three arbitrators. This is based on the selection and number of Arbitrators agreed by the parties. Where the parties have agreed on institutional arbitration, the rules of the institution will usually contain default provisions governing the number of arbitrators in the event that the parties have not covered this in the contract and cannot agree on the same.
- Procedural rules
Most arbitral institutions, and ours issue rules governing the appointment of the tribunal and the procedure for the arbitration. In many cases the procedural rules will give the tribunal ample discretion to determine the manner and timing of the various procedural steps in the arbitration in an ad hoc arbitration, it is up to the parties to agree on the procedural rules that will apply. In such cases, the parties can agree to make their own rules, or adopt internationally recognized rules such as the UNCITRAL Rules[ii].
- Venue
The venue of the arbitration is the physical location where the arbitration hearing will take place. That said, one needs to bear in mind that the place/seat of arbitration is to be distinguished from the venue of the hearing. Although the venue of the hearing can coincide with the place/seat of arbitration, this is not mandatory. As noted most national laws and institutional arbitration rules permit hearing and meetings in the arbitration to be conducted outside the arbitral seat, for reasons of convenience[iii].
- Seat
It should be noted that the seat, as one of the components of arbitration clause is the most technical. Put simply, the seat of an arbitration is the “legal place” of the arbitration. It is important because it determines:
- the procedural law governing the arbitration;
- which court has supervision over the arbitration;
- the “nationality” of the award.
While the seat and the venue of an arbitration will often be in the same country, this is not always the case and is not a mandatory requirement. This means that hearings will be held in the venue of arbitration while the seat determines the procedural law of the arbitration as well as which courts will have supervision over the arbitration and award for the purposes of enforcing the award[iv].
- Language
The language of the arbitration covers all aspects of the proceeding including the parties’ pleadings, the presentation of documentary and oral evidence and the award itself. This is an important aspect to be determine where the parties do not share a common language.
Validity of an Arbitration Clause in an Agreement
In dealing with the issue of validity of an arbitration clause in an agreement, two major issues will be considered, which are (i) substantive contract, which contains rights and obligations of the parties arising from the commercial transaction; (ii) the arbitration agreement which contains the binding obligation of the parties to resolve their disputes through the mode of arbitration. Taking cognizance of doctrine of separability and that of kompetenz – kompetenz, arbitration agreement is a separate and independent from substantive agreement underlying the contract in which it is embedded[v]. Therefore, an arbitration agreement exists and can be acted upon irrespective of whether the main/substantive contract is valid or not. The arbitration agreement is independent and distinct from the substantive contract.
Flowing from the above, an arbitration agreement cannot be rendered invalid, unenforceable or non-existent even if substantive contract is not admissible in evidence or cannot be acted upon on account of defect.
Conclusion
In conclusion, it is advised that while lawyers draft an arbitration clause, one should consider an institution with a good track record for efficient administration and the appointment of competent tribunals. Most importantly, the arbitration clause recommended by the institution in reference in an arbitration agreement should be consisted, which can be modified easily to change the seat, venue, language or number of arbitrators.
More so, with the doctrine of separability and that of kompetenz – kompetenz, an arbitration agreement confers jurisdiction on the tribunal to hear the matter, not withstanding if the substantive contract between the parties is invalid in the eyes of the law.
[i] Fouchard Gaillard Goldman on International Commercial Arbitration as follows: E. Gaillard, J. Savage, “Fouchard, Gaillard, Goldman on International Commercial Arbitration”, Kluwer Law International (1999), pp. 261-262< https://www.kluwerarbitration.com> accessed on 15th July, 2021
[ii]Evans Monari, “Drafting Effective Arbitration Clauses” (2019) <https://www.mondaq.com/southafrica/arbitration-dispute-resolution/867572/drafting-effective-arbitration-clauses> accessed on 15th July, 2021.
[iii]Jonathan Choo, “How to Draft an Effective Arbitration Clause and Arbitration Agreement”, (2021) <https://singaporeinternationalarbitration.files.wordpress.com/2012/05/guidance-note-how-to-draft-an-effective-arbitration-clause-and-arbitration-agreement1.pdf> accessed on 13th July, 2021.
[iv] G. Born, “International Commercial Arbitration, 3rd ed.”, Kluwer Law International (2020) 2205-2282<https://www.acerislaw.com/drafting-an-arbitration-clause-in-2021-recommendations/> accessed on 13th July, 2021.
[v] Vikas Goel, Vivek Gupta, “Arbitration Clause in an Unstamped Contract Is Valid” (2021)
<https://www.mondaq.com/india/arbitration-dispute-resolution/1026020/arbitration-clause-in-an-unstamped-contract-is-valid> accessed on 16th July, 2021
