A few days ago, @scalemyhustle had a Open House. Where subject matter experts answered questions on Branding, Marketing and legal. I’ve been a lawyer for almost a decade and something struck me when the lawyer was speaking. It is a big mistake Startups make.

As a Nigerian startup, when you have an agreement, you really have no business agreeing to an Arbitration Clause. Arbitration clauses are an importation from America where Arbitration is in most cases is cheaper than litigation. But that’s not the case in Nigeria.

Another reason is that Litigation and Arbitration are mutually exclusive. What do I mean? Once you agree to an Arbitration clause, you can’t go to Litigation. The Court will throw out your claim provided the clause is valid.

If you don’t like the outcome of the Arbitration, your only option is to appeal it. Where? In Court. Arbitration is a growing field in Nigeria so that means licensed Arbitrators are expensive. Lagos for instance now has Small Claims Courts to settle commercial disputes.

The National Industrial Court is also pretty good with settling Employment related disputes in time.
So before you agree to an Arbitration Clause, consult with a lawyer who knows what they are doing.
Here’s my recommendation from that session.

Have a Negotiation Clause instead. If Parties have a disagreement, they should negotiate. If it fails, then they should do Mediation. Set the grounds for Mediation eg A member of the Board of Directors will act as Mediator.

The differences are not everyone can be an Arbitrator but almost anyone can be a Mediator (provided the parties agree). Outcome of Arbitration is binding, outcome of Mediation is only binding if the parties agree that it should be.

All these nuances are important. At the point of signing, it might be tempting to sign anything. Don’t. Because it can land you in trouble years to come.
The session also broke down how to review a simple contract yourself if you do not have a lawyer or can’t afford one.

In the past, I didn’t see how Arbitration clauses weren’t ideal for Nigerian small businesses until the session broke it down. In fact, we even learned some bigger businesses use Arbitration Clauses to tie the hands of smaller businesses because they know you can’t afford it.

The point is, do not agree to a blanket Arbitration clause as first resort. Weigh your options. Try out Negotiation and Mediation before you move to Arbitration. Also know that for some types of contracts, settling in court is better alternative for you.