Corporate sabotage of alternative commercial dispute resolution
There is a popular native proverb that goes like: when the birds of prey learn to fly without perching the hunter will also learn to shoot while in motion.
This reflects the growing attitude of legal practitioners to create iron-clad arbitration clauses in commercial agreements and take action to ensure that nothing comes in-between enforcing these when necessary. It is now considered more expedient in the light of emerging trends on how large corporates explore the judicial process to their advantage.
This trend is indicated by the rising cases of defaults for commercial contracts and where some parties now prefer to ignore arbitration clauses and head straight to court. Apparently this is now one of the new strategy fads that legal departments of large corporates deploy’ to ‘excuse’ themselves from honouring contractual obligations, often with disastrous consequences for parties who have fulfilled their own end of the contract.
Unknown to many companies and service providers in Nigeria today, their business partners and even customers may be implementing what is known as the CEDI program, an acronym for contest everything and delay indefinitely. As a corporate legal strategy CEDI programs are usually known to only a handful of senior executives, and implemented with zest by an army of external law firms with the mandate to delay and frustrate another party.
A typical CEDI plan has many components as part of a corporate legal strategy.
1. Strategy of agree then contest contracts: At the cornerstone of the CEDI strategy is a deliberate corporate policy to unnecessarily contest valid contracts, especially when it is time for the party already enjoying benefit to pay. Using this method a company will raise unnecessary and avoidable disputes with its business partners, suppliers, consultants and advisors, then be the first to sue. They refuse to honour mediation and arbitration clauses, even when such clauses are part of the original contract agreements. Corporate insiders say that an intended outcome of this CEDI strategy is to wear out the party who has fulfilled its own obligations in the contract and sometimes ultimately to get them to renegotiate contract terms.
2. Engage high-profile legal teams: The CEDI plan works well with having high profile legal teams handling the implementing organisation’s cases. The mandate is to employ all sorts of legal processes, often with associated abuses of the legal process, and much to the annoyance of judges, to ensure that cases stay as long as possible in the courts.
For law firms, this is great for their revenue as annuity income is guaranteed, but for the business, community the process reduces the confidence in our judicial system. We now see more and more contracts with foreigners declining jurisdiction for Nigerian courts, opting instead for foreign laws to apply and arbitration venues set outside our borders in supposedly ‘safe’ locations.
3. Set aside & invest the expected judgement sum: The company implementing the CEDI strategy would often set aside an amount that would cover the potential exposure should they lose in the law courts. As part of the CEDI strategy, this amount is held in high-interest bearing accounts and treasury departments make good work of reinvesting them for gain in some cases. Out of the interest gains, the hefty fees of lawyers are usually settled without the organization having to shell out money to pay lawyers.
4. Have an elaborate press relations plan to sway public opinion.
CEDI can be a high stakes strategy, especially in the high profile legal matters and this is why companies practicing it also invest in image laundering. The interest from investing the would-be judgement sum funds the PR and image laundering efforts. At other times, CEDI practitioners may take extreme measures to influence judicial officers. One commentator told us that for some cases, especially judging by the amount of commercial interest involved, all cards are on the table, and the law firm is actually expected to do whatever it can to win.
5. Be ready to sacrifice staff and associates: Staff in the legal departments of these companies are often made unwilling accomplices in implementing the CEDI plans. They are also made the fall guys for when the CEOI plans go awry. Due to the secretive nature of CEDI, most staff are not told why but instructed to pursue the program as policy. Many are forced to depose to and swear to affidavits with information that they know are not facts, thus exposing them to significant legal risks personally. When things go wrong, they are easily fired and replaced. More so as the unemployment situation in our country today is such that replacements can be found easily.
Why This Has To Be Checked Now. Proponents of the CEDI strategy argue that companies practicing it in Nigeria have broken no laws but have simply adapted to the environment and are making the best of it. However, their opponents argue that CEDI by its nature is manipulative of the legal system, creates unnecessary work for judges, and harms our economy.
Hiding under the cover of delays in legal processes to deny parties their dues in legally binding contracts CEDI is cited as a cancer of some sort destroying the investment confidence in both local and international players. It is uniquely capable of slowing economic progress within a country because when done on a wide scale it can hurt thousands of business people who enter into contracts with the intention of holding up their own end of the bargain. There is no reason why they should expect not be paid.
This is why the recent call by Chief Justice Walter Onnoghen on judges to resist the temptation to throw themselves into commercial matters involving arbitration is not just timely but very strategic.
The CJN’s directive will help straighten companies and their legal advisers or representations who wilfully enter into contracts with intentions to default. One investment banker described the CEDI practice as a poison-pill for economic development, and even for the legal profession, It weakens the much developed institutions we have for arbitration by circumventing the process and encouraging companies to resort to the courts for matters that would be speedily resolved judging by the lengthy court cases that our judicial system is known for, many companies have simply gone out of business long before judgement was delivered in their matters before the courts. Unable to settle their bills or fend off creditors while these matters lasted, our businesses are left to die with the proliferation of this practice.
Recently Sunny Ade won a lengthy copyright battle over the rights to some of his creative works, and by the time the matter was resolved, the company he was suing had ceased to exist! His ability to benefit from his work over the more than 30 years that matter took to resolve was diminished, our government failed to collect taxes from whatever royalties he was owed, and the payment of salaries and benefits to the thousands of workers and other businesses whose work and life are intertwined with this single business man cum entertainer is a reason why it is now more important than ever that judges support the CJN’s recent push to have arbitration clauses respected by our courts.
Justice Walter Nkanu_Onnoghen will go down in history as the CJN who personally righted this course of courts inserting themselves into disputes with arbitration clauses. It is instructive to note that the CjN did not act alone, as on the same date and occasion where he admonished judges to steer clear of hearing matters where commercial arbitration has not been exhausted, Vice President Professor Yemi_Osinbajo (SAN) called for measures that would speed up what he termed the “crawling” judicial processes in the country.
This writer is pleased that judges have started responding to the CNN’s call and the recent ruling by Honourable (Prof) Justice Austin Obiozor of the Federal High Court Lagos in a matter involving a telecommunications company versus a consultant, Mr. Oliver Nnona, comes into full view here. In the matter, the firm (plaintiff) had approached the court to declare that a contract it entered into with the consultant in 2015 is invalid. It also sought an order restraining the consultant (defendant) from seeking to pursue any claim before any arbitration tribunal other than a court of competent jurisdiction. Prior to the firm instituting the matter, parties had been involved in arbitration proceedings before Mrs Adedoyin, O. Rhodes-Vivour acting as sole arbitrator appointed by the Chief Judge of Lagos State.
The defendant in this matter filed a motion praying the court to stay proceedings in this action pending the conclusion of arbitration proceedings inline with the Section 21 (1) and (2) of the Arbitration and Conciliation Act. The learned judge agreed with the defendant, holding that the dispute qualified to be referred to arbitration inline with the arbitration clause contained in the contract, and he ordered parties to return to arbitration.
For companies like the one in question who may be practising it, the CEDI strategy succeeded in the past primarily because judges allowed it, and lawyers went to town with all sorts of creative but endless filings to throw-up judicial obstacles in the way of a party who has fulfilled his or her own side of the bargain in a valid contract.
Justice_Obiozor’s ruling and the recent call by the CJN and Professor Osinbajo, may have begun the lengthy but necessary process of restoring the sanctity of arbitration clauses in commercial agreements. His ruling on the matter between the firm and_Mr. O. Nnona highlighted once again the autonomy of arbitration clauses in contracts.
Companies in igeria should be courageous to seek redress through our country’s system of arbitration. They should set good corporate examples and avoid acts capable of sabotaging our economy. Using the law courts to delay and frustrate legitimate business people by throwing all kinds of legal obstacles in their way is viewed by many as acts of economic sabotage, especially when practiced by a company with a foreign heritage that should ordinarily embrace the protections offered by our legal system.
With Hon. Justice Obiozor’s recent ruling cited above the signs are clear that CEDI as a strategy needs rethinking because Judges who are unwilling actors in delayed judgements will now be more poised to dispense with un-qualifying matters that could and would be best dispensed by our robust arbitration system.
The CEDI strategy exposes the dark underbelly of corporate legal ingenuity, a true apparition of worst practices (as opposed to best practices). We are a country of small businesses and when big businesses decide on which law to obey, small businesses suffer a lot, and many are actually put out of business. As Justice Obiozor put it, arbitration clauses in agreements is not a game of chance.
Lawyers should also be more mindful of arbitration clauses and ensure that they put this in place in new contacts and agreements going forward to save unsuspecting decent business people of being caught in unending but unnecessary legal issues.
Since the Vice President has commented on this same matter, we request the relevant committees in the Senate as well as the House of Representatives to take a close look at the practices by companies with a view to classifying such things as the CEDI program, where they exist, as acts of economic sabotage, with appropriate sanctions to wit.
The Honourable Minister for Trade & Investments, Dr._Okechukwu_Enelamah should also have his team working on the ease of doing business index to cover this extensively in the new framework they are creating, for if businesses can resolve disputes quickly and move on, it will definitely be easier to do business in Nigeria, and our economy will be better.
• Igwe is a public affairs analyst