In structuring a commercial transaction, the dispute resolution mechanism is an important component that parties must consider.  In Nigeria, both litigation and Alternative Dispute Resolution (ADR) mechanisms, particularly arbitration, are established methods of resolving complex commercial disputes. The choice between arbitration and litigation can influence cost exposure, confidentiality, enforceability, and even the preservation of business relationships.

Litigation is conducted through constitutionally established courts such as the Federal High Court of Nigeria[1], State High Courts[2], Court of Appeal[3], the Supreme Court of Nigeria[4], etc. Each Court is governed by its Civil Procedure Rules, which usually highlight the manner and procedure of proceedings in the respective courts. Arbitration, by contrast, is a dispute resolution process governed principally by the Arbitration and Mediation Act 2023. However, there are arbitration institutions that operate by their own established arbitral rules[5].

While both mechanisms end in a binding decision enforceable by Nigerian courts, they differ substantially in structure, procedure, flexibility, and strategic implications. Against this background, the decision between arbitration and litigation must be made with a clear understanding of what both procedures entail, with a view to helping parties choose the best option for each commercial dispute. Some of the components are highlighted below:

1.    SPEED OF RESOLUTION:

Time is of the essence in commercial disputes. Delay can mean frozen capital, delayed projects, or damage to a party’s reputation. Arbitration is commonly regarded as the faster route as the process is largely party-driven[6]. Timelines can be agreed upon and procedural steps are streamlined[7]. Hearings are scheduled based on the availability of the tribunal and parties rather than the Court’s calendar. However, arbitration is not inherently swift. Where the dispute is complex, it can cause delays, particularly where procedural disagreements arise.

Litigation, on the other hand, follows structured procedural rules that govern the court before which the dispute is brought [8]. While this structure allows for predictability and what parties can expect, court congestion, adjournments, appeals, and ensuring parties’ compliance with the procedural rules of the Court may significantly cause delay and further extend timelines. Therefore, while arbitration offers more speed, litigation offers structured progression, albeit potentially slower.

2.   COST OF PROCEEDINGS

In arbitration, parties bear the Arbitrators’ fees, which include the fees of the tribunal, the travel expenses of the tribunal, the fees of the appointing authority (administrative fees), etc[9]. Meanwhile, Litigation typically involves filing fees, Counsel fees[10], and, where needed, Expert witness costs and expenses, where the matter goes on appeal. Prolonged litigation and multiple appeals can significantly increase total cost. Therefore, while comparing the cost between the two methods, one must consider the complexity of the dispute, expected duration, appeals, amount involved, etc.

3.   CONTROL OVER PROCEEDINGS

One of arbitration’s most significant advantages is party autonomy. In arbitration, parties may choose the governing procedural rules, select arbitrators with specific commercial or technical expertise[11], determine the seat of arbitration, agree on language[12], and design procedural timetables[13]. This flexibility enables tailoring the dispute resolution mechanism to their convenience. Litigation, on the other hand, provides far less autonomy. Proceedings are governed strictly by the civil procedural rules of the Court, the matter is. Judges are assigned by the court, and parties have limited influence over scheduling and procedural direction. However, litigation offers consistency as the established procedural frameworks create familiarity and predictability, which parties may find reassuring.

4.   CONFIDENTIALITY

Confidentiality is often decisive in commercial matters. Arbitration proceedings are generally private as the parties and the tribunal are expected to treat all matters relating to the proceeding and the award as confidential[14]. However, the extent of confidentiality may depend on the arbitration agreement and the law of the arbitral seat. For instance, the Arbitration and Mediation Act (AMA) 2023 does not explicitly provide for confidentiality or privacy in arbitration, but there is an implied rule that arbitration hearings remain private, and arbitrators may only make awards public with the consent of both parties, implying a duty of confidentiality on all parties involved[15]. Litigation in Nigeria is conducted in an open court. Judgments form part of the public record, and sensitive commercial data, trade secrets, financial records, and internal communications that are disclosed during Court proceedings become publicly accessible. For businesses prioritizing discretion, arbitration typically provides a strategic advantage.

5.   INTERIM AND JUDICIAL RELIEF

While arbitral tribunals may grant interim measures under the Arbitration and Mediation Act 2023, Courts retain the broader powers. Where urgent relief, such as Mareva injunctions, Anton Piller orders, Judicial declarations, and Orders binding third parties are required, litigation may be more immediately effective. Courts possess the enforcement machinery that arbitral tribunals lack. In practice, in arbitration, parties may approach courts for interim protective measures.

6.   ENFORCEABILITY OF DECISIONS

For cross-border transactions, enforceability is a decisive factor. In Nigeria, the Arbitration and Mediation Act 2023 allows for the enforcement of an arbitral award irrespective of the country or state in which it is made, and recognizes it as binding, on application in writing to the Court[16]. In addition, Arbitral awards benefit from enforcement under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention)[17], to which over 170 Countries (Nigeria Included) are parties. This provides a relatively uniform enforcement framework internationally. 

Court judgments, by contrast, have 3 (three) methods of enforcement, such as the Reciprocal Enforcement of Judgments Act 1958, Action at Common Law, and the Foreign Judgments (Reciprocal Enforcement) Act 1990. Where assets are located outside Nigeria, arbitration awards are often easier to enforce. However, where enforcement is purely domestic, litigation may have the advantage.

7.   INITIATION PROCESS

Arbitration is consensual. Without a valid arbitration agreement, parties cannot compel arbitration[18]. Litigation, however, does not depend on prior agreement. There are many factors parties must consider before instituting an action in Court, such as jurisdiction, locus standi, and many more[19]. Courts possess inherent jurisdiction and coercive authority to compel attendance, join third parties, issue subpoenas[20], and enforce compliance upon application by parties. In disputes involving multiple parties not bound by a common arbitration agreement, litigation may be more practical.

CONCLUSION

The optimal choice for dispute resolution depends on the nature of the transaction, the need for confidentiality, the urgency of relief, and the complexity of the parties involved. Arbitration offers flexibility, confidentiality, and strong cross-border enforceability. Litigation offers institutional authority, coercive powers, and structured procedural steps. Commercial diligence commands that parties ensure that they deliberately align their dispute resolution mechanism with their broader commercial goals. In doing so, they transform dispute resolution from a reactive afterthought into a proactive strategic tool.

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[1] Section 255 of the Constitution of the Federal Republic of Nigeria, as amended (1999)

[2] Section 270 of the Constitution of the Federal Republic of Nigeria as amended (1999)

[3] Section 235 of the Constitution of the Federal Republic of Nigeria as amended (1999)

[4] Section 230 of the Constitution of the Federal Republic of Nigeria as amended (1999)

[5] The Chartered Institute of Arbitrators UK promotes arbitration and has the CIArb Arbitration Rules

[6] https://globallawexperts.com/the-role-of-arbitration-in-resolving-disputes-in-nigeria/

[7] Article 17 (2) of the Arbitration Rules of the Arbitration and Mediation Act 2023

[8] Each Court has its Civil Procedure Rules, which guide proceedings

[9] Article 48 (2) of the Arbitral Rules of the Arbitration and Mediation Act 2023

[10] By virtue of the Legal Practitioners Remuneration Order 2023

[11] Section 6 of the Arbitration and Mediation Act, 2023

[12] Article 19 of the Arbitral Rules of the Arbitration and Mediation Act 2023

[13] The Arbitration Clause in a contract empowers a party to make the decision.

[14] Article 38(1) of the Nigerian Institute of Chartered Arbitrators (NICArb) Arbitration Rules 2021

[15] https://blog.nicarb.org/index.php/2024/03/05/the-significance-of-confidentiality-in-arbitration-proceedings/

[16] Section 57 (1) of the Arbitration and Mediation 2023

[17] https://www.newyorkconvention.org/english

[18] Section 1 (3) of the Arbitration and Mediation Act 2023 

[19] Gabriel Madukolu & Ors v. Johnson Nkemdilim (1962) 2 SCNLR 341

[20] Sections 218 and 219 of the Evidence Act

Written by Toluwani Kalaro for The Trusted Advisors

Email us: info@cms.trustedadvisorslaw.com

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