Nigeria: Third Party Funding Vis-a-vis Public Policy Considerations In Arbitral Awards Enforcement In Nigeria

Background

Globally, third-party funding in arbitration has become quite common, as many claimants, faced with the steep costs of arbitration, turn to financiers to seek funding. Typically, such funding arrangements involve the third-party financiers providing the funds to cover the party's legal fees and other arbitration expenses, in exchange for an agreed portion of the monetary proceeds awarded in favour of such a party, in the event of the party's success in the arbitration.

While an increasing number of countries have legalised third-party funding within their jurisdictions, this is not the case in Nigeria, despite the absence of any legislation expressly prohibiting third-party funding. The reason for this can be chalked up to Nigeria's continued application of the common law principles of champerty and maintenance² which: (i) prohibit a third party from funding litigation between disputants (in which the funder has no legitimate interest); and (ii) render an agreement to provide such funds illegal and void, on the ground of public policy.³

Due to these considerations, in common law jurisdictions, when an award has been rendered in favour of a party that utilised third-party funding, the issue of enforceability arises. Under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards,⁴one of the grounds upon which recognition and enforcement of an arbitral award may be refused is if the said recognition or enforcement of the award would be contrary to the public policy of that country.⁵

This article considers the current position of third-party funding of arbitration in Nigeria as regards the doctrines of champerty and maintenance as well as the public policy considerations regarding the refusal of the enforcement of arbitral awards under the New York Convention.

Current Legal Position in Nigeria in Respect of Champerty & Maintenance

The common law doctrines of champerty and maintenance are still applicable in the Nigerian legal system as part of the received English law. This is because the doctrines of the common law are applicable in Nigeria, unless and until they are abolished (or to such extent that they are modified) by Nigerian legislations and/or case law.⁶ So far, no Nigerian law has abolished or modified these doctrines. Additionally, these doctrines have been affirmed by Nigerian Courts in the cases of Egbor & Anor v. Ogbebor⁷ and Oloko v. Ube.⁸

In Oloko v. Ube, the Court of Appeal per Edozie JCA held as follows:

"At common law, champerty is a form of maintenance and occurs when the person maintaining another stipulates for a share of the proceeds of the action or suit or other contentious proceedings where property is in dispute." ⁹

In Egbor v. Ogbebor, the Court of Appeal held that it is settled law that a situation where a person elects to maintain and bear the costs of an action for another to share the proceeds of the action or suit is champertous. The Court went further to express the view that in the determination of whether a relationship is champertous or contrary to public policy, the facts must show that the party being accused of champerty offered to maintain the action by bearing the costs of the litigation in order to be given a share of the proceeds.¹⁰

From the Court's decision in this case, it appears that for a contingency fee arrangement to be champertous, there has to be some element of maintenance. This implies that a third-party funding of litigation might not be champertous, if the third party merely 'bears the cost of an action for another', without any intention of benefiting from the suit by way of sharing the proceeds of the action.¹¹ However, the odds of this occurring in an arbitration context are very slim, as third-party funding is in fact premised on sharing the proceeds of the action.

While the above cases deal with third-party funding in litigation, the principles established may be extrapolated to arbitration cases in Nigeria. As the Nigerian courts still abide sternly by the common law doctrines of champerty and maintenance, third-party funding in arbitration might be considered contrary to public policy in Nigeria. In light of this, enforceability of arbitral awards granted to a party who utilised third-party funding is quite unlikely before the Nigerian courts.

Public Policy Grounds for Refusing the Enforcement of an Award under the New York Convention: The Nigerian Position

There is no universally acceptable definition of public policy, but various definitions of the concept have been proffered. In Macaulay v. FZB of Austria,¹² public policy was defined as the principles under which freedom of contract and private dealings is restricted by law for the good of the community. In Dale Power Systems Plc v. Witt & Busch Ltd,¹³ the Court of Appeal defined public policy to mean community sense and common conscience extended and applied throughout the State to matters of public morals, health, safety, welfare, and the like.

The violation of public policy is one of the grounds for the refusal of recognition and enforcement of an arbitral award under the New York Convention which has been domesticated in Nigeria and forms part of the Nigerian Arbitration and Conciliation Act.¹⁴.

Article V(2)(b) of the New York Convention provides that:

"Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement are sought finds that the recognition or enforcement of the award would be contrary to the public policy of that country."

The public policy provision of the New York Convention relating to the grounds for setting aside an arbitral award or for refusing recognition and enforcement of an arbitral award is also replicated in Section 52 (2)(b) of the ACA. The Section provides that:

"The court where recognition or enforcement of an award is sought may, irrespective of the country in which the award is made, refuse to recognise or enforce that award, if the court finds that the recognition or enforcement of the award is against the public policy of Nigeria".

It is worthy of note that neither the New York Convention nor the ACA define public policy. Nonetheless, Nigerian Courts have considered public policy contraventions as a ground for refusal of recognition and enforcement of awards in certain cases.

In Agro-Allied Development Enterprises Limited v. United Shipping Trading Co. Inc,¹⁵ the main issue was whether the arbitral award was against public policy in Nigeria as to trigger the application of section 52(2)(b) of the Arbitration and Conciliation Act, 1990 (now ACA, 2004).

In this case, the Appellant objected to the Respondent's application for recognition and enforcement of the arbitral award on grounds that the arbitral award was a violation of Nigerian public policy, among other reasons. The Appellant's contention that the award violated Nigerian public policy was predicated on the allegation that the arbitrators relied on the speculative opinion of the Respondent's expert witness that it was unlikely that a Court order placing a lien on government Cargo would be granted by Nigerian Courts. It was argued by the Appellant that the arbitrators' finding that: ".We considered that it would be most unlikely that government would permit a Cargo destined for its own steel works to be delayed by the exercise of a lien", was contrary to Nigerian public policy and a violation of the provisions of Section 52(2)(b)(ii) of the A CA.

In its ruling, the trial court granted the application for recognition and enforcement of the arbitral award, holding that the arbitral award was not contrary to public policy. Dissatisfied with the ruling, the Appellant filed its Notice of Appeal. One of the grounds of the appeal was that the learned trial judge erred in law and misdirected himself in considering the arbitral award when he held that the award was not contrary to public policy in Nigeria. In dismissing the appeal, the Court of Appeal held that public policy is the principle under which freedom of contract and private dealings is restricted by law for the good of the community. The Court further held that the learned trial judge rightly applied the provisions of Sections 51 and 52 of the ACA in recognizing and enforcing the arbitral award, which as he rightly observed, is not contrary to public policy in Nigeria.

In Sundersons Limited & Anor v. Cruiser Shipping PTE Limited & Anor,¹⁶ the Court of Appeal interpreted the provisions of Sections 51 and 52 of the ACA in favour of the recognition and enforcement of a foreign arbitral award made in London. The Court re-affirmed the trial court's ruling that it was not against public policy to recognize and enforce arbitral awards made in foreign venues agreed upon by the parties provided that it was just and proper to do so in the circumstances. It is noteworthy that in this case, recognition of the arbitral award was not challenged upon the basis of public policy contraventions but upon the Respondent's purported failure to place sufficient materials before the court to warrant the enforcement of the arbitral award.

Conclusion

From the foregoing, it can be deduced that Nigerian Courts will usually adopt a restrictive approach to the application of public policy in enforcing or setting aside international arbitral awards and foreign judgments. Thus, unsubstantiated allegations of breach of public policy will typically not forestall the recognition and enforcement of an arbitral award under the New York Convention in Nigerian courts.

However, since third party funding is still linked erroneously, to champerty and maintenance, enforcement of awards made in favour of parties who utilised third party funding may be herculean in Nigeria. The Arbitration and Conciliation Act currently in force makes no provision for third party funding and has thus caused some setbacks to arbitration in Nigeria. A ray of hope is offered by the Arbitration and Conciliation Act (Repeal and Re-Enactment) Bill 2017,¹⁷ which tacitly recognises third party funding.¹⁸ It is hoped that when this Bill is passed to law, the situation will take a turn for the better.

Footnotes

1 Miracle Eme, Associate, Dispute Resolution Department, SPA Ajibade & Co., Lagos, Nigeria.

2 See, Rules 17(3) and 51 of the Rules of Profession Conduct for Legal Practitioners 2007.

3 Global Legal Insights – Litigation & Dispute Resolution 2017, 6th Edition, available at: https://www.banwo- ighodalo.com/assets/resources/ec15e0778a06f779b846a141805c66ac.pdf, accessed 25^th November 2021.

4 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 10^th June 1958 ("New York Convention").

5 Article V (2) (b) United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Award (New York, 10^th June 1958).

6 A. O. Obilade, The Nigerian Legal System (Sweet and Maxwell, London, 1979) p. 79.

7 (2015) LPELR-24902.

8 2001 13 NWLR (Pt. 729) CA 161 at 181.

9 Ibid. (P. 181, Paras A-E).

10 Supra, note 8. (pp. 9-10, Paras. F-B).

11 Uche Nwokedi & Co, 'In review: Third Party Litigation Funding in Nigeria', available at: In review: third party litigation funding in Nigeria – Lexology, accessed 22^nd November 2021.

12 (1999) 4 NWLR (Pt. 600) 599.

13 (2001) 8 N.W.L.R. (Pt. 716) 699.

14 Cap A18, Laws of the Federation of Nigeria ("ACA"), 2004.

15 (2010) 9 NWLR (Pt. 1252) 258.

16 (2015) 17 NWLR (Pt. 1488) 357 C.A.

17 SB. 427, July 2017. This Bill was passed by the Nigerian Senate on 1^st February 2018, but still awaits the ratification of the Federal House of Representatives and presidential assent.

18 See, Section 52(1) (g) of the Bill, which provides as follows:

"The arbitral tribunal shall fix costs of arbitration in its award and the term "costs" includes:

(g) The costs of obtaining Third-Party Funding".

See also, Section 85(1) of the Bill which defines Third-Party Funding to mean an arrangement between a specialist funding company, an individual, a corporation, a bank, an insurance company, or an institution (the funder) and a party involved in the arbitration, whereby the funder will agree to finance some or all of the party's legal fees in exchange for a share of the recovered damages.

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