Nigeria’s claim to sovereign immunity cannot stand in a commercial venture, a US appeal court has ruled.
The court rejected Nigeria’s sovereign immunity defence to
the enforcement of a $70 million investment treaty award won by Zhongshan
Fucheng Industrial Investment Co. Ltd., a Chinese investor, in a free trade
zone.
Nigeria had “gruesomely” violated both fundamental and
commercial rights of the Chinese firm, judges at the US Court of Appeals in
Washington DC ruled.
In a 2-1 verdict delivered on August 9, the majority ruling
affirmed the judgment of the US district court for the District of Columbia
that held that the arbitration award is enforceable.
In January 2023, Beryl Howell, the presiding judge of the
lower court, dismissed Nigeria’s argument that the court did not have
jurisdiction over the case since the country is a sovereign entity.
Howell held that the court has jurisdiction since the United
Kingdom (UK), where the $70 million arbitration award was issued against
Nigeria, is a signatory to the New York Convention.
ZHONGSHAN FUCHENG VS
NIGERIA
In 2010, Zhongshan, through Zhuhai Zhongfu Industrial Group
Co. Ltd. (Zhuhai), its Chinese parent company, acquired rights to develop a
free trade zone in Ogun state.
A year later, Zhongshan set up Zhongfu International
Investment (NIG) FZE (Zhongfu), a Nigerian entity, to manage the project under
the permission of the Ogun state government.
However, things took a different turn in July 2016 when the
investor accused the state government of abruptly moving to terminate its
appointment while attempting to install a new manager for the free trade zone.
Subsequently, Zhongfu initiated an investment treaty
arbitration against Nigeria under the bilateral investment treaty between the
People’s Republic of China and Nigeria (the China-Nigeria BIT).
The arbitrators had ruled that Nigeria was in breach of its
obligations under the China-Nigeria BIT and awarded Zhongshan compensation of
around $70 million.
In January 2022, the Chinese company initiated a case to
seek enforcement of the arbitration award.
Nigeria pleaded state immunity but was turned away by Sara
Cockerill, a high court judge in the UK, who said the country abused the time
frame for appealing arbitral awards.
THE US APPEAL COURT
JUDGMENT
In the majority judgment, the US appellant court held that
the final arbitration award is enforceable under the New York convention since
the dispute is between “persons” that share a legal commercial relationship.
The court ruled that the Foreign Sovereign Immunities Act
(FSIA) arbitration exception stripped Nigeria of the sovereign immunity in the
arbitration award case.
“For the foregoing
reasons, we hold that the final award is enforceable under the New York
convention because it arose out of differences between ‘persons’ that share a
legal, commercial relationship,” the majority judgment reads.
“The district court therefore has jurisdiction over this
case under the FSIA’s arbitration exception. The judgment of the district court
is affirmed.”
The majority judgment was issued by Patricia Millett and
Julianna Childs.
In the dissenting judgment, Gregory Katsas, the third judge,
argued that when the New York convention was drafted, the word “persons” did
not include a sovereign nation.
Katsas held that the action of Ogun state cannot be
attributed to Nigeria, adding that the arbitration award “arises solely out of
Nigeria’s sovereign acts governed by public international law”.
“Text, legal context, and drafting history all indicate that
the word ‘persons,’ as used in the New York Convention, does not include
signatory nations acting as sovereigns. I respectfully dissent,” Katsas said.
NIGERIA LOSING CASE
AGAINST CHINESE FIRMS IN MULTIPLE JURISDICTIONS
Barely three days after the judgment of the US appeal court,
a Paris court in France ordered the seizure of three jets belonging to the
Nigerian government over the dispute involving the arbitration award to the
Chinese firms.
In 2023, a court of appeal in the UK ruled that Nigeria is
liable for a $70 million arbitration award in favour of the Chinese firm.
The development means that Nigeria has lost arbitration
award cases against the Chinese firm in France, the US, and the UK.
The Nigerian government has accused the Chinese firm of
attempting to use deceptive means to acquire the country’s offshore assets.
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