Both local and foreign businesses in Lagos potentially face multiple legal challenges. Dr Bob Arnot, national programme manager of the J4A programme in Nigeria, explains the difficulties, as well as J4A’s interventions connected to commercial and other types of dispute resolution.
Does the Nigerian legal system inhibit local and foreign business start-ups?
First, it can be complicated. In Nigeria, it can be difficult to register or set up a company because there are many overlapping laws and agencies which regulate businesses and investment, which sometimes contradict each other. This makes it harder to create a new start-up.
The cost of doing business is made more expensive by lots of different tax laws, which mean that there is a multiplicity of taxes in various disguises.
New areas of commerce are not covered
It’s also tricky to invest in new, emerging areas of commerce, like online business or franchising, as there’s no legal framework to regulate, control or protect these activities.
What’s more, Nigeria’s legal and judicial system is sluggish. In 2012, it took an average of 583 days to conclude a commercial case in a court in Lagos, the commercial capital. When a case goes on appeal, it takes even longer. Nigeria’s Supreme Court is still dealing with appeals filed in 2005. Such delays tie down capital and discourage businesses from investing.
Individuals try to use land as security when borrowing funds – but it’s difficult
Land is generally the most common form of security offered as collateral in Nigeria. However, the country’s Land Use Act has created a bureaucracy that’s meant long waiting times for land registrations and documentation to be approved, and produced an environment that encouraged corruption. This makes it more difficult to use land as collateral, makes it harder to borrow money and thus deters investment. Local businesses have particularly struggled. It’s harder for them to access credit, due to the lack of legal alternatives that can be used as security instead of land.
For example, there is no legal regulation on using moveable property (personal assets, like a car) as security when borrowing money. This makes it harder for smaller companies and especially women to access credit and get their businesses off the ground.
Will reform of Nigeria’s legal system only help foreign companies?
Nigeria’s legislative gaps are damaging for foreign and local businesses, so improving them should help everyone. For instance, two of the laws that are currently under review are designed to support small businesses. The Cooperative Societies Law encourages people to pool their resources through cooperative societies. Members of these societies have access to credit facilities which can then be used to start small businesses. The Sales by Auction Law regulates the process of auctioning property used as security for loans, protecting lenders and the financial system.
The role of Alternative Dispute Resolution (ADR)
Speeding up the resolution of commercial disputes is generally important to stimulate economic activity. This need not take place solely in the court room. Encouraging people to settle disputes outside the courtroom has helped local small businesses like the Gandun Albasa General Furniture Association, a small trade association with about 55 members in Kano, northern Nigeria. After learning more about alternatives to litigation, they were able to resolve a dispute involving N17m (£68,000) in record time.
A nimble system of ‘fast-track’ courts within Nigeria’s larger court system
From the outset, the J4A programme has been assisting the establishment of ‘fast-track courts’ in Lagos, which aim to settle disputes more rapidly for both local and foreign businesses.
The model started in Lagos because it’s the commercial capital of Nigeria, and the state government is keen to encourage more investment.
The fast-track courts are based on a model that already exists in Ghana, Australia and the UK. The courts and judges operate within Nigeria’s existing High Court but only handle certain cases that qualify to be fast-tracked. To qualify, a case should involve at least N100m (£328,833); include foreign businesses or investors; or relate to mortgages.
In Lagos state, there are about 55 high courts, ten of which have been designated fast-track commercial courts. The remaining 45 courts handle other types of cases, such as criminal, land, and family disputes.
A fast-track case must be wrapped up within nine months
The fast-track courts apply the same rules as the other courts. However, when they’re dealing with fast-track cases, there are extra provisions in the rules. For instance, a fast-track case must be concluded within nine months. But there is no such time standard for other types of cases. The idea is to simplify and reduce the time between the filing of a lawsuit, and the final court judgement.
The fast-track courts focus on commercial disputes, to avoid distractions. But eventually, the system should expand to include other cases, so that every court will apply similar rules.
Many people were initially unsure that the new courts would be a good idea
Before the new fast-track courts were established, some judges were worried that they would divert attention and resources from the other courts. Lawyers were concerned that their control over cases would be eroded: for example, defence lawyers often want to delay the final judgement. Defendants argued that they would lose their rights to a fair hearing, because of the time limit on each case.
To deal with these fears, we took care to explain the benefits of the new system to everyone involved. We trained the judges, making sure they knew that the fast-track courts were a pilot which could be tested and replicated to all other courts only if they were successful. We made sure that lawyers realised that they could boost their earnings by working in the fast-track system, as they would be able to take on more cases. And to litigants, we related the benefits of resolving their cases quickly.
There were still delays in the new courts at first – until we discovered the cause
After the new fast-track courts were set up, we found that some judgements were still taking too long. We realised that these delays were happening because the judges hadn’t had any specialist training on a variety of complex topics being discussed in their courts. To make sure they felt equipped to manage these cases, the judges were giving long adjournments so they had time to read up on the subject matter. This was particularly true in complex financial cases and tax litigation.
When judges have confidence and knowledge, cases run smoothly
To deal with this, we organised monthly seminars to train the judges on the difficult commercial cases they were encountering, run by seasoned law experts. This gave the judges the knowledge and confidence to handle complex technical cases. There are now plans to extend these seminars beyond the fast-track courts.
What about justice options for Nigeria’s poor?
We are also working in a variety of other settings to improve access to justice for all Nigerians. We have supported the court-connected multi-door courthouses, which provide options of arbitration, mediation and early neutral evaluation; we work to improve the service delivery provided by the lower courts and have undertaken pilot projects in magistrate’s, customary and sharia courts; we have supported ‘citizen’s mediation centres’ where smaller cases (predominantly landlord and tenant cases) may be resolved. We have also worked with a range of business membership organisations (for example, chambers of commerce and trade associations) to improve their mediation practices so that the disputes that arise between their members need never go to court.
Our ultimate objective is to strengthen the provision of a wide range of legal services so that the inability to settle commercial disputes (of whatever size) need not be a constraint on commercial activity. If disputes can be settled quickly and cheaply without breaking the economic relationship between the parties, then this will help sustain economic activity, growth and development.
Dr Arnot will be speaking about the rule of law, access to justice and sustainable development in Nigeria at the Global Law Summit in London on 23 February 2015.
J4A is a GBP 50 million programme financed by the UK government’s Department for International Development (DFID) and managed by the British Council. Find out more our work in justice, security and conflict resolution.