The Role of Alternative Dispute Resolution (ADR) in Commercial Disputes in Nigeria; 5 Efficient Legal Solutions

At CHAMAN Law Firm, ADR has been a crucial tool in resolving commercial disputes efficiently, ensuring that businesses maintain their operations without prolonged legal battles. This article examines the role of ADR in commercial dispute resolution in Nigeria, the legal framework supporting it, relevant judicial precedents, and its practical application in various sectors.

ADR refers to processes that allow parties to settle disputes without resorting to litigation. The primary ADR methods include:

•Arbitration – A neutral third party (arbitrator) delivers a binding decision based on the evidence and arguments presented.

•Mediation – A neutral mediator facilitates dialogue between parties to help them reach a voluntary settlement.

•Conciliation – Similar to mediation, but the conciliator plays a more active role in proposing solutions.

•Negotiation – Parties engage in direct discussions to resolve disputes amicably.

1. The Arbitration and Mediation Act, 2023

The Arbitration and Mediation Act, 2023, which replaced the Arbitration and Conciliation Act 1988, strengthens ADR processes in Nigeria. It introduces enforceable mediation agreements, emergency arbitrators, and streamlined procedures for recognizing and enforcing arbitral awards.

The Supreme Court, in Statoil (Nig) Ltd & Anor v. Inducon (Nig) Ltd & Anor (2014) LPELR-22708 (CA), reinforced that courts must uphold arbitration agreements, affirming the autonomy of ADR mechanisms. This case highlights the judiciary’s support for ADR and its effectiveness in resolving commercial disputes.

Lagos State, being Nigeria’s commercial hub, enacted this law to promote institutional arbitration. Under this framework, the Lagos Court of Arbitration (LCA) facilitates arbitration proceedings for businesses, reducing reliance on litigation.

In O.S.H. Ltd v. African Continental Bank Ltd (1999) 11 NWLR (Pt. 628) 521, the Supreme Court upheld an arbitration clause in a contract, emphasizing that where parties have agreed to ADR, courts should not intervene prematurely. This principle has guided CHAMAN Law Firm in advising clients on including arbitration clauses in their commercial agreements.

Several courts in Nigeria have incorporated ADR into their dispute resolution processes. The Lagos Multi-Door Courthouse (LMDC), established in 2002, serves as a court-connected ADR center, helping to decongest the judiciary.

In Mekwunye v. Lotus Capital Ltd (2018) LPELR-45546 (CA), the Court of Appeal ruled that a mediation agreement, once voluntarily entered into, is binding on parties. This precedent underscores the enforceability of mediation outcomes, reinforcing its importance in commercial dispute resolution.

1. Contractual Disputes

Business contracts often contain ADR clauses requiring disputes to be resolved through arbitration or mediation before approaching the courts. This approach minimizes disruptions and preserves commercial relationships.

For instance, CHAMAN Law Firm recently represented a client in a contractual dispute with a multinational company. Rather than pursuing litigation, arbitration was initiated under the Arbitration and Mediation Act, 2023, leading to a favorable resolution within six months—a timeframe significantly shorter than a typical court case.

2. Banking and Financial Disputes

The Central Bank of Nigeria (CBN) encourages ADR in resolving banking disputes. Through mediation and arbitration, banks and customers can address issues such as loan defaults, wrongful deductions, and breach of financial agreements. In United Bank for Africa v. Achoru (1990) 6 NWLR (Pt. 156) 254, the court ruled that where a financial contract provides for arbitration, parties must comply before seeking judicial intervention. This principle has guided CHAMAN Law Firm in resolving banking disputes through ADR rather than costly litigation.

3. Real Estate and Property Disputes

Real estate transactions often lead to disputes over land ownership, tenancy, and contractual breaches. ADR is particularly useful in resolving these disputes efficiently, avoiding the delays associated with litigation.

CHAMAN Law Firm successfully mediated a high-value property dispute involving a commercial landlord and a multinational tenant. Through mediation, both parties reached an agreement, preventing financial losses and reputational damage. The outcome mirrored the approach taken in Akon v. Olayiwola (2006) 9 NWLR (Pt. 986) 70, where the court upheld a mediated settlement in a land dispute.

4. Maritime and Oil & Gas Disputes

The maritime and oil & gas sectors rely heavily on ADR, particularly arbitration, due to the technical nature of disputes. The Nigerian Maritime Arbitration Association (NMAA) provides a framework for resolving shipping and oil contract disputes without litigation. The case of Shell (Nig) Ltd v. Federal Inland Revenue Service (2016) LPELR-40022 (CA), reinforced the importance of arbitration in resolving oil & gas disputes. CHAMAN Law Firm recently handled an arbitration case involving an oil servicing company, where an out-of-court settlement was reached, saving the client millions in legal expenses.

ADR provides several benefits that make it preferable to litigation in commercial disputes:

1.Cost-Effectiveness – ADR is generally more affordable than litigation, which involves high legal fees and court costs.

2.Time Efficiency – ADR processes are typically faster than court proceedings, which can drag on for years.

3.Confidentiality – Unlike court cases, which are public records, ADR proceedings are private, protecting sensitive business information.

4.Flexibility – ADR allows parties to choose procedural rules, arbitrators, and mediators, making it more adaptable to business needs.

5.Preservation of Business Relationships – ADR promotes amicable settlements, preventing the hostility that often accompanies litigation.

The Supreme Court’s ruling in Mekwunye v. Lotus Capital Ltd (2018) emphasized that mediation agreements are legally binding, demonstrating the credibility of ADR in commercial disputes.

Despite its advantages, ADR in Nigeria faces certain challenges:

•Lack of Awareness – Many businesses remain unaware of ADR’s benefits and procedures.

•Judicial Interference – Some Nigerian courts still intervene in arbitration matters, undermining party autonomy.

•Enforcement Issues – While arbitral awards are legally binding, enforcing them can sometimes be problematic.

•Limited Institutional Support – ADR institutions are concentrated in major cities like Lagos and Abuja, limiting accessibility in other regions.

CHAMAN Law Firm actively works to bridge these gaps by offering ADR training, legal advocacy, and expert representation in arbitration and mediation proceedings.

ADR has revolutionized commercial dispute resolution in Nigeria, providing businesses with faster, cost-effective, and confidential alternatives to litigation. With a robust legal framework, judicial backing, and institutional support, ADR is set to play an even greater role in resolving commercial conflicts. As seen in key cases such as Statoil v. Inducon and Mekwunye v. Lotus Capital, Nigerian courts have consistently upheld ADR mechanisms, reinforcing their legitimacy and effectiveness.