INTRODUCTION

In the light of increased awareness of the use of dispute resolution mechanisms in the resolution of disputes in Nigeria, arbitration has become the most commonly used alternative dispute resolution mechanism.

In 2021, major arbitration institutions published their statistical reports, and a close look, reveals that the use of arbitration increased by 25% in Nigeria compared to previous years. This shows increased participation in the process. One of the most asked questions for parties interested to use arbitration as a medium for dispute resolution is usually on the issue of cost and expenses in arbitration. In Africa, arbitration is presumed to be more expensive than litigation because to an extent the cost of litigation is subsumed by the state. This article critically assesses the cost and expenses of arbitration in Nigeria, eliciting from major arbitration institutions, and how these costs are incurred by parties.

THE COST OF ARBITRATION.

In simple vocabulary, cost is the amount of money required to be paid for something.[1] However, in legal terms, cost refers to the amount of money spent in pursuing a legal action, especially those expenses that the losing party may be required to pay.[2]  The cost of arbitration includes the fees of arbitrators and the expenses reasonably incurred in connection with the arbitration as well as its administrative charges, which would be borne by the parties. The issue of cost is very crucial in arbitration as parties in dispute may not only bear their own cost but their counterparts’ legal costs and other expenses.

There are two components of cost in arbitration, which includes;

• Arbitration costs: this includes the fees of the arbitrator(s), hiring the venue, transcribers, witnesses, administrative expenses.
• Legal cost: this involves fees for legal representation and those who assist in the preparation of the case and also the legal advice given to the parties.[3]

In ad-hoc arbitration, the arbitral tribunal fixes the cost and expenses of arbitration. However, where the arbitration is institutional i.e., under an arbitration institution that promotes and administers the arbitration process such as the International Chamber of Commerce, Nigeria (ICCN), Nigeria Chamber of Commerce Dispute Resolution Centre (NCC-DRC), Lagos Court of Arbitration (LCA), Regional Centre for International Commercial Arbitration Lagos (RCICAL) and Janada International Centre for Arbitration and Mediation (JICAM), etc. They fix the fees in accordance with the schedule of fees set down in their respective rules.

The method’s used by arbitral institutions in fixing costs include;

1. Ad valorem: the fees are fixed proportionate to the amount in dispute.[4]
2. Per diem: the fees are fixed payable per day.[5]
3. Fixed fee: A fixed amount for all arbitration without regard to the amount in dispute of the period the arbitration may take to complete.[6]

LEGISLATIONS REGARDING COSTS IN ARBITRATION.

The principal legislation that governs arbitration in Nigeria is the Arbitration and Conciliation Act (ACA).[7] Section 49 subsection 1 paragraph (a) to (e) of the Act makes provision concerning cost. It provides thus;

1. The arbitral tribunal shall fix costs of arbitration in its award and the term “cost” includes only:
2. The fees of the arbitral tribunal to be stated separately as to each arbitrator and to be fixed by the tribunal itself;
3. The travel and other expenses incurred by the arbitrators;
4. The cost of expert advice and of other assistance required by the arbitral tribunal;
5. The travel and other expenses of witnesses to the extent that such expenses are approved by the arbitral tribunal;
6. The costs for legal representation and assistance of the successful party if such costs were claimed during the arbitral proceedings, and only to the extent that the arbitral tribunal determines that the amount of such costs is reasonable.

Also the International Chamber of Commerce (ICC) Rules of Arbitration[8] in Article 38, paragraph 1 states that:

“The cost of the arbitration shall include the fees and expenses of the arbitrator and the ICC administrative expenses fixed by the Court, in accordance with the scale in force at the time of the commencement of the arbitral proceedings, as well as the fees and expenses of any expert appointed by the Arbitral Tribunal and the reasonable legal and other costs incurred by the parties for the arbitration.”

The Lagos Court of Arbitration Rules[9] as well in Article 42 stated in paragraph 1, that:

   “The term “cost” includes only:

• The fees of the Secretariat and the Arbitral Tribunal to be stated separately as to each arbitrator and to be fixed by the secretariat in accordance with the scale of fees in force at the time of commencement of the arbitration;
• The reasonable travel and other expenses incurred by the arbitrators;
• The reasonable cost of expert advice and of other assistance required by the arbitral tribunal; –
• The reasonable travel and other expenses of the witnesses to the extent that such expenses are approved by the Arbitral Tribunal;
• The legal and other cost incurred by the parties in relation to the arbitration to the extent that the Arbitral Tribunal determines that the amount of such cost is reasonable.”

The Regional Centre for International Commercial Arbitration (RCICAL) Arbitration Rules 2019[10], Article 41 – 43 expressly discusses cost under the center. Article 41 states that:

“The Arbitral Tribunal, in consultation with the Director of the Centre, shall fix the costs of arbitration in its award. The term “costs” includes:

(a) The fees of the Arbitral Tribunal;

(b) The travel and other expenses incurred by the arbitrators;

(c) The costs of expert advice and of other assistance required by the Arbitral Tribunal;

(d) The travel and other expenses of witnesses to the extent such expenses are approved by the Arbitral Tribunal;

(e) The costs for legal representation and assistance of the successful party if such costs were claimed during the arbitral proceedings, and only to the extent that the Arbitral Tribunal determines that the amount of such costs is reasonable;

(f) Where the parties have designated an appointing authority other than the Centre, any fees and expenses of such appointing authority; in such circumstances, the fees shall be fixed by the Director of the Centre in consultation with the appointing authority;

(g) The expenses reasonably incurred by the Centre in connection with the arbitration, as well as the Registration Fee and the Centre’s Administrative Charges. Any facilities made available by the Centre itself may be charged for on a comparable basis. All such expenses, fees and charges, and the costs of any facilities provided shall be fixed by the Director of the Centre.

Lastly, the Janada Centre for International Arbitration and Mediation provides under Article 47 (1) a-f of its Arbitration Rules, 2020[11] for cost that;

The term “costs” includes only:

a) The fees of the General Manager of the JICAM and the Arbitral tribunal to be stated separately as to each arbitrator and to be fixed by the tribunal itself in accordance with the scale of fees in force at the time of the commencement of the arbitration;

b) The reasonable travel and other expenses incurred by the arbitrators;

c) The reasonable cost of expert advice and of other assistance required by the Arbitral tribunal;

d) The reasonable travel and other expenses of witnesses to the extent that such expenses are approved by the Arbitral tribunal;

e) The legal and other costs incurred by the parties in relation to the arbitration to the extent that the Arbitral Tribunal determines that the amount of such costs is reasonable; and

f) Cost of third-party funding.

From the above provisions, it is evident that in the course of an arbitration proceeding, parties will be liable for the arbitrator’s fees and expenses, the arbitration institution involved, and legal costs. In the case of Corona v. Amherst Partners[12], it was held that the demanded fees by the arbitral tribunal should be reasonable and not outrageous.

The fees of the arbitrator(s) depend on several factors, which include:

1. The complexity of the case,
2. The nature of the dispute,
3. Time and the expeditious conduct of the proceedings.[13]

As regards the fees of an arbitrator, there is a consensus to the fact that an arbitrator is at liberty to negotiate his fees or charges with his client when he is appointed. However, once an arbitrator is appointed the agreement of both parties to the arbitration is required before an arbitrator can negotiate his fees with a party. The rationale for this is that once appointed, an arbitrator puts on a quasi-judicial garment and hence precluded from any unilateral negotiation for his fees. Where however an arbitrator is appointed before agreement on his fees, he is nonetheless entitled to reasonable fees for his services.

Once an arbitral tribunal is established to hear a case, it may request each party to the proceedings to deposit an equal amount as an advance for the costs referred to in paragraphs (a), (b) and (c) of section 49 (1) of the Act[14]. Where the need arises during the course of the arbitral proceedings, the arbitral tribunal may request supplementary deposits from the parties.[15] If the required deposits are not paid in full within thirty days after the receipt of the requests, the arbitral tribunal shall inform the parties so either of the parties may make the required payment; and if such payment is not made, the arbitral tribunal may order the suspension or termination of the arbitral proceedings[16]. After the award has been made, the arbitral tribunal shall render an account to the parties of the deposits received and return any unexpended balance to the parties[17].

THE PRINCIPLE OF ‘COST SHOULD FOLLOW EVENTS’

This general principle connotes that the unsuccessful party bears the cost i.e., the cost of the arbitration proceedings shall be paid by the unsuccessful party to the successful party. Article 40 (1) & (2) of the ICC Rules of Arbitration upholds this principle.[18]  However, under the common law jurisdiction, the arbitral tribunal is at liberty to apportion the costs of the arbitration as they see fit. The arbitral tribunal having to its satisfaction considered the circumstances of the case will assign the legal cost either to the successful or unsuccessful party or both. The arbitral tribunal is given discretionary power in assigning arbitration and legal cost.

The practice of allocating costs and attorneys’ fees between the parties to a dispute can be traced to Roman law, where the practice of requiring the losing party to pay the winning party’s costs developed. Interestingly, in early ecclesiastical courts there were no fees for legal advice. However, under legis actio sacramentum, litigating parties deposited a sum of money in court to ensure legal proceedings were initiated with good cause. After the action, the deposit was refunded to the prevailing party, but the deposit of the losing party was forfeited to the temple.

In the case of Ladega v Akiyili[19], the court was of the view that the objective of awarding cost is not to punish the unsuccessful litigant but to compensate the successful party for the expenses to which he has been put by having come to court. This position held by the court applies to arbitration. However, there are instances where the arbitrator may depart from applying this general principle of cost following the event. The arbitrator however uses his discretion in engaging in this crucial departure. In the case of Latoudis v Casey[20], Justice Dawson described the discretion as ‘unqualified’, Justice McHugh J described it as ‘uncontrolled’, and Chief Justice Mason described it as ‘unconfined’. Be that as it may be described, it has been held that such discretion must be exercised judicially.

The arbitrator usually considers a lot of issues and factors surrounding the arbitral proceedings before using his discretion to depart from the general rule that cost must follow the event. The arbitrator takes into consideration

1. Whether there was unreasonable delay or employing delaying tactics to frustrate the arbitral process, the arbitrators and the other party(s) in dispute, the arbitrator may not apply the cost following the event principle.[21]
2. Where the successful party has issues that tend to prolong the time span of the arbitration which was indeed not successfully contested, the arbitral tribunal can award cost against the successful party for such delay. In situations whereby the successful party was unsuccessful in a major issue that led to an increase in the cost of the arbitration, the arbitral tribunal can depart from the principle that cost follows the event.
3. The attitude of the parties in the course of the arbitral proceedings plays a significant role in whether the arbitrator will invoke his discretion in departing from the general principle. When it is discovered that the successful party had shown attributes of dishonesty or exhibited acts that are contrary to public morality and public policy in the management of the transaction that led to the arbitration, the arbitral tribunal may depart from the general principle.
4. Moreover, where it is mutually agreed in writing that the costs of the arbitration should be allocated on a certain method, the arbitrator can depart from the general rule on cost and honor the agreement between the parties.

THE JUXTAPOSITION OF COST IN ARBITRATION BETWEEN ARBITRATION INSTITUTIONS IN NIGERIA

INTERNATIONAL CHAMBER OF COMMERCE NIGERIA (ICCN)

Under the ICC, when the request for arbitration is received by the secretariat, each request to commence arbitration must be accompanied by a filing fee of US$ 5,000. Such payment is non-refundable and shall be credited to the claimant’s portion of the advance on costs. Then, the arbitration will be submitted to the scales for an amount in dispute to be calculated by the cost calculator. It does not generate an estimate of the arbitrators’ expenses (i.e. disbursements). The procedure the parties choose either, ordinary or expedited, and also the number of arbitrators will be considered during calculations. For the arbitrator’s fee under the ad valorem system, the ICC Rules set a minimum and maximum amount. 

To calculate the ICC administrative expenses and the arbitrator’s fees, the amounts calculated for each successive tranche of the amount in dispute must be added together, except that where the amount in dispute is over US$ 500 million, a flat amount of US$ 150,000 shall constitute the entirety of the ICC administrative expenses.[22]

The tables below reveal arbitration costs based on ICC’s Standard Scale.

Amount in Dispute                                                                         Administrative Expenses*

      (in US Dollars)                                                                                                (in US Dollars)

The result will provide an estimation of the advance on costs that may be fixed by the Court. Due to the rounding of figures, the estimate may vary slightly from the amount resulting from the application of the scales published in Appendix III to the ICC Rules of Arbitration. However, the Court is free to and regularly does, fix arbitrator’s fees an amount higher or lower than the average. The estimation has no legal implications and should not be considered as necessarily reflecting the Court will fix in any given case.

NIGERIA CHAMBER OF COMMERCE DISPUTE RESOLUTION CENTRE (NCC-DRC)

Under the NCC-DRC Rules of 2019, cost and expenses in arbitration are calculated in administrative expenses on the amount in dispute, and the arbitrator’s fees either on time (a daily rate of NGN 500,000 or an hourly rate of NGN 60,000) or ad valorem.

The tables below reveal the arbitration cost based on NCC-DRC’s Standard Scale:

NCC-DRC SCALE OF STANDARD ADMINISTRATIVE FEES

NCC-DRC SCALE OF STANDARD ARBITRATORS FEES

Based on time –             Rate per hour = ₦60,000

                                                 Rate per day = ₦ 500,000

 Based on Value

LAGOS COURT OF ARBITRATION

The Lagos Court Arbitration determines the exact fee by considering the arbitration’s specific circumstances, such as complexity of the case, the arbitrator’s experience, and the scheme under which a party initiates the arbitration (i.e, the Small Claims, Expedited and Standard). It calculates the administrative fees on the amount in dispute (ad valorem system) and the arbitrator’s fee based on a daily rate or hourly rate.

The tables below reveals the arbitration cost based on LCA’s Standard Scale:

LCA STANDARD ADMINISTRATIVE FEES

LCA EXPEDITED ADMINISTRATIVE FEES

LCA SMALL CLAIMS ADMINISTRATIVE FEES

LCA STANDARD ARBITRATORS FEE

Based on Time      – Rate per hour = ₦100,000

                                     – Rate per day = ₦800,000

Based on Value

LCA SMALL CLAIMS ARBITRATORS FEE

LCA EXPEDITED ARBITRATORS FEE

Based on Time      – Rate per hour = ₦ 60,000

                                   – Rate per day = ₦ 500,000

BASED ON VALUE

REGIONAL CENTRE FOR INTERNATIONAL COMMERCIAL ARBITRATION LAGOS (RCICAL)

The Centre calculates the arbitrator’s fees and administrative charges using the ad valorem system. Unlike the LCA, RCICAL appears to use separate scales for sole arbitrators and tribunals involving multiple arbitrators. The Rules set minimum and maximum fees in this regard. RCICAL’s administrative charges consist of a registration fee (USD 750) and ad valorem Secretariat fees. RCICAL designates its fees and costs in USD. Parties may presumably make NGN payments at the relevant CBN at the payment date.

The tables below reveal the arbitration cost based on RCICAL’s Standard Scale:

ADMINISTRATIVE CHARGES (USD)

ARBITRATOR’S SCHEDULE OF FEE’S FOR A SOLE ARBITRATOR

JANADA CENTRE FOR INTERNATIONAL ARBITRATION AND MEDIATION (JICAM)

Under its arbitration rules, the arbitrator’s fees and administrative charges depend on the amount in dispute. The arbitrator may also base his or her fees on time (a daily rate of USD 2000 for the hearing and an hourly rate of USD 250 for preliminary matters). Where there is a tribunal involving three members, the arbitrator’s fee is multiplied by three.

The tables below reveal the arbitration cost based on JICAM’s Standard Scale:

JICAM STANDARD ADMINISTRATIVE FEES

JICAM EXPEDITED ADMINISTRATIVE FEES

JICAM STANDARD ARBITRATOR FEES

JICAM EXPEDITED ARBITRATORS FEE

Based on Time      – Rate per hour = ₦60,000

                                   – Rate per day = ₦500,000

Based on Value

JICAM SMALL CLAIMS ARBITRATORS FEE

In conclusion, it is established that in the course of arbitration proceedings costs are incurred whether administrative or the arbitrators’ fee. Costs are mostly incurred because of the decision of the parties on whether to contest the issue between them or not, the amount of the dispute in question and how many arbitrators the parties want. There appears to be several similarities in fees from arbitral institutions in Nigeria and when a party decides to contest their issue, they should first set out a budget for the arbitration while considering the best arbitral institution for the dispute. Parties must also ask the question “do the benefits of that particular arbitration institution outweigh its costs?” If that can be answered, then parties can proceed to arbitration.

REFERENCES

[1] Encarta Dictionaries

[2] Ibid

[3] Gotanda J.Y. (1999): Awarding Costs and Attorneys’ Fees in International Commercial Arbitrations, Michigan Journal of International Law Vol. 21 No. 1, 1999

[4] Ephraim Akpata (1997): The Nigerian Arbitration Law in Focus, Lagos: West African Book Publishers Limited.

[5] Ibid.

[6] Ibid.

[7] CAP A18 Laws of the Federal Republic of Nigeria (LFN) 2004.

[8] ICC Rules of Arbitration http://www.iccwbo.org/products-and-services/arbitration-and-adr/arbitration/icc-rulesof-arbitration/ accessed January 3^rd, 2022.

[9] LCA Arbitration Rules (Amended) 2018 https://www.lca.org.ng/wp-content/uploads/2018/07/AMENDED-LCA-RULES-ilovepdf-compressed.pdf Accessed February 25th, 2022.

[10] RCICAL Arbitration Rules 2019 https://rcical.org/index.php/arbitration-rules/ Accessed on February 25^th, 2022.

[11] JICAM Arbitration Rules 2020 http://www.jicam.org/index.php/rules-law/arbitration-rules Accessed on January 3rd, 2022.

[12] No. D040084 Cal. 4th App. Dist. April 1, 2003.

[13] Article 49 (2) of the Arbitration and Conciliation Act, CAP A18 Laws of the Federal Republic of Nigeria (LFN) 2004, First schedule.

[14] Section 50(1) of the Arbitration and Conciliation Act, CAP A18 Laws of the Federal Republic of Nigeria (LFN) 2004.

[15] Section 50(2) of the Arbitration and Conciliation Act, CAP A18 Laws of the Federal Republic of Nigeria (LFN) 2004.

[16] Section 50(4) of the Arbitration and Conciliation Act, CAP A18 Laws of the Federal Republic of Nigeria (LFN) 2004.

[17] Section 50(5) of the Arbitration and Conciliation Act, CAP A18 Laws of the Federal Republic of Nigeria (LFN) 2004.

[18] Identical with Article 38 and 40 of the United Nations Commission on International Trade Law (UNCITRAL), Arbitration Rules 1976.

[19] (1975) 2 S.C. 91.

[20] (1990) 170 CLR 534.

[21] Westland Helicopters Limited v. Arab Organization for Industrialization 80 ILR (1987-10-23).

[22] Article 2, Appendix III 2021 ICC Arbitration Rules