In recent times, the increasing cost of resolving disputes has become very concerning. The astronomical cost of filing claims has given rise to a situation in which impecunious claimholders may be deprived of access to justice. Even companies with deep pockets now seek innovative ways of managing the costs of their dispute portfolios. More so, given the current economic realities in different countries, budgets for legal departments of small companies in general, are shrinking, and large corporates with ostensibly financial strengths may lose the gusto to spend, in preparation for the financial aftershock of the pandemic. So, what does this mean for the disputes market in Africa and how do impecunious or solvent parties manage the financial impact of increasingly expensive litigation and arbitration claims?
Furthermore, the most important considerations for prospective investors seeking to do business in Africa, is the costs of resolving disputes, and the factors that contribute to increasing costs. Governments, professional bodies and arbitral institutions are also interested in understanding users’ perceptions on litigation and arbitration costs, as such perceptions are important for designing an efficient dispute resolution process.
The ‘2021 Survey on Cost and Dispute Funding in Africa’ collates views from a diverse pool of participants including sole practitioners, associates and partners of law firms, in-house counsel, academics, third-party funders, representatives of arbitral institutions and other users of arbitration in Africa. It explores and evaluates the cost of disputes in Africa and identifies the different initiatives or models that may be introduced by governments and institutions to make dispute resolution more affordable and accessible.
Cost of resolving disputes in Africa
- Majority of the Respondents agree that the choice of dispute resolution methods will impact the cost of disputes.
- More than half of the Respondents believed that litigation and arbitration costs are almost at par and that in some instances, arbitration costs may be slightly higher than litigation.
- When asked about the factors that drive up litigation costs in their jurisdictions, the two most selected factors were “counsel fees” and “duration”, while “nature or value of the dispute” and “counsel fees” were chosen as the factors that drive up arbitration costs.
- Over 62% of the total Respondents opined that, with respect to arbitration disputes, construction matters are the most expensive, and disputes relating to corporate/commercial matters are the second most expensive.
- About 60% of the Respondents stated that delay in court proceedings has an impact on litigation costs in their jurisdictions while approximately 38% of the total Respondents believe that the lack of subject-matter expertise of judges impacts litigation costs.
- 57% of the Respondents believe that mediation is a more cost-effective dispute resolution option than arbitration and litigation.
Dispute Resolution Funding Options
- Dispute resolution funding is a trending phenomenon; its availability and legality vary, depending on the jurisdiction and enabling laws in that jurisdiction. Given the cut in the legal aid budget size in different jurisdictions, other funding options are, discernibly, open to deal with impecuniosity or cash-flow constraints – (a) legal expense insurance, (b) third-party funding, (c) loans, and (d) attorney financing (contingency and conditional fee arrangements).
- 71% of Respondents confirmed that legal aid is available in their jurisdictions, but it is limited to certain cases. When asked what other funding options are available for litigation and arbitration in their jurisdictions, the two most selected options are “contingency fee arrangement” (25%) and “third-party funding” (21%).
- Relatedly, 31% of Respondents chose “third-party funding” as the option to explore where they lack financial capacity to pursue a claim, while 24% of Respondents chose “contingency fee arrangement”.
- A total of 51% Respondents noted that third-party funding is not legally regulated and not commonly used in their jurisdictions, while 21% of Respondents are not aware of third-party funding.
- Out of the funding options available in the various jurisdictions, legal aid, contingency and third-party funding are the most popular options.
Factors impacting Dispute Resolution
- Many Respondents selected enforceability as the main consideration when negotiating dispute resolution clauses (21%) and this was closely followed by costs (20%).
- The Respondents are divided on the impact the Covid-19 pandemic on litigation and arbitration costs with 35% of Respondents voting in favour of no-impact and 25% of Respondents indicating that the pandemic has led to an increase in litigation and arbitration costs in their jurisdictions. Notably, 19% of Respondents stated that COVID-19 has decreased litigation and arbitration costs.
- The Respondents noted that the duration of legal proceedings in court cases is between 3-5 years (40%) while the average time for arbitration proceedings was pegged at 1-3 years by about 36% Respondents – thus confirming the fact that arbitration is indeed more efficient. Further, 60% of Respondents agree that delay in court proceedings drives up litigation costs.
- In comparing the cost of institutional arbitration to ad hocarbitration, about 48% of Respondents believed that institutional arbitration is more expensive than ad hoc arbitration, while 31% of Respondents opted for “no significant difference”.
- When asked whether the system of hourly billing contributes disproportionately to litigation or arbitration costs, a significant majority of Respondents (68%) think hourly billing increases costs.
Driving Efficiency in African Disputes
- Results of the survey show that online dispute resolution and the use of technology (artificial intelligence) is the future in Africa. Indeed, this is not surprising and the experience with the pandemic confirms this. As such, efficiency will be driven by technology; the time has come for governments and institutions in Africa to invest in critical technology and related infrastructure to ensure a more efficient dispute resolution system.
- Respondents believed South Africa, Egypt, Kenya and Nigeria have arbitrators with the expertise that meets global standards. Respondents’ choice of Nigeria and Kenya was driven by the fact that there is an availability of experienced Nigerian and Kenyan arbitrators who are well known world-wide and sit in arbitrations involving different subject matters in various African countries. Additionally, because of the nature of disputes in African countries, Respondents are more comfortable if an arbitral panel is composed entirely of arbitrators who understand a specific country and the cultural issues central to or particular to the parties and the dispute.
- South Africa, Nigeria, Kenya, Rwanda and Egypt were ranked by the Respondents as the most cost-efficient African jurisdictions for international arbitration.
- Some Respondents revealed that they had conducted international arbitration in Kenya that took two (2) years to be finalized. Others expressed that the presence of streamlined institutional arbitrations in Egypt, Rwanda, Nigeria, Ghana and South Africa has made the process faster, hence saving time taken to conclude proceedings and in effect, reducing costs. Notably, Respondents stated that having the parties and tribunal domiciled in the same continent ensured cost efficiency without compromising on the quality of awards.
- Kigali, Cairo and Nairobi were identified as the most accessible cities owing to good transport connectivity. Respondents expressed their faith in the three cities as good seats and venues with a track record in handling arbitrations and availability of support services. Availability of a variety of good quality affordable hotels for accommodation during arbitral proceedings was also raised as a factor in determining cost efficiency.
- Respondents favoured South Africa as a jurisdiction with the state-of-the-art facilities. Kenya emerged top for availability of technology and as the hub for East Africa. Respondents suggested that technology coupled with appropriate legal structures would mean less time to conclude an arbitration, hence reducing costs. Respondents pointed to Egypt, South Africa, and Nigeria as having good internet connectivity and facilities. Majority of the Respondents suggested that the use of technology (including artificial intelligence) can be introduced to make dispute resolution in Africa cost-efficient.
- Majority of the Respondents indicated that (a) there should be more jurisdictional recognition of third-party funding in dispute resolution processes, (b) a unified system of institutional arbitration in Africa should be established, and (c) the use of African institutions for arbitral proceedings makes the processes more cost-efficient.