In a landmark ruling, a U.S. appeals court has rejected Nigeria’s claim to sovereign immunity in a commercial dispute, paving the way for the enforcement of a $70 million arbitration award in favour of Zhongshan Fucheng Industrial Investment Co. Ltd., a Chinese investor.
The decision marks a significant setback for Nigeria as it battles the enforcement of the award across multiple jurisdictions.
The ruling, delivered on August 9 by the U.S. Court of Appeals in Washington, D.C., affirmed a previous judgment by the U.S. District Court for the District of Columbia, which held that the arbitration award is enforceable under the New York Convention. The case stems from a 2010 investment by Zhongshan in a free trade zone in Ogun State, Nigeria, which later became the subject of a dispute when the Ogun State government allegedly attempted to terminate the Chinese firm’s management contract and install a new operator in 2016.
Zhongshan initiated arbitration under the bilateral investment treaty between China and Nigeria, arguing that Nigeria had breached its obligations under the treaty. The arbitration tribunal sided with Zhongshan, awarding the firm approximately $70 million in compensation.
Nigeria’s defence hinged on its claim to sovereign immunity, arguing that the U.S. courts lacked jurisdiction to enforce the award against a sovereign state. However, the U.S. appeals court dismissed this argument, ruling that Nigeria’s involvement in a commercial venture subjected it to the arbitration exception under the Foreign Sovereign Immunities Act (FSIA). The court emphasized that the dispute arose from a legal, commercial relationship, thereby stripping Nigeria of its sovereign immunity in this case.
The majority opinion, authored by Judges Patricia Millett and Julianna Childs, stated, “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 district court therefore has jurisdiction over this case under the FSIA’s arbitration exception.”
However, the ruling was not unanimous. In a dissenting opinion, Judge Gregory Katsas argued that the New York Convention’s reference to “persons” did not include sovereign nations acting in their official capacity. Katsas further contended that the actions of the Ogun State government should not be directly attributed to the Nigerian federal government.
This ruling follows a series of legal defeats for Nigeria in its attempt to resist the enforcement of the arbitration award. Earlier, courts in the United Kingdom and France also ruled against Nigeria, with a Paris court recently ordering the seizure of three Nigerian government jets in connection with the dispute.
The Nigerian government has accused the Chinese firm of trying to use deceptive means to acquire the country’s offshore assets and has vowed to challenge the enforcement actions.
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