THE AUTHORS:
Joseph Siyaidon, Team Lead at Stren & Blan Partners
Stanley Umezuruike, Associate at Stren & Blan Partners
Michael Afuye, Associate at Stren & Blan Partners
The last has not been heard regarding Nigeria’s sovereign immunity defence in the Zhongshan saga. The battle has now been taken to the US Supreme Court to turn the tide of enforcement. In part one of this article, we highlighted Nigeria’s history of sovereign immunity defence examining how effective the defence of sovereign immunity has been for Nigeria in its previous international arbitration contests.
Introduction
As Nigeria’s usual strategy when faced with enforcement battles, Nigeria employed its perceived sophisticated shield of sovereign immunity in the enforcement proceedings commenced by Zhongshan before the UK Commercial Court to resist the attachment of its properties in the UK. However, Nigeria grabbed the short end of the stick when the UK Court in Zhongshan Fucheng v. Nigeria, Judgment of the High Court of Justice of England and Wales [2024] EWHC 1503, 14 June 2024 held that Nigeria’s properties in the UK were not immune from enforcement having been used for commercial purposes. As we have highlighted in part one, the defence of sovereign immunity has, over the years, been a hard rock to crack considering Nigeria’s mixed outcomes on the defence of sovereign immunity in its previous international arbitration battles. However, in the Zhongshan-Nigeria saga before the US Courts, Nigeria has once again deployed its sovereign immunity defence against the decision of the US Court of Appeals in what appears to be Nigeria’s last dance before the US Supreme Court. This time, with a more sophisticated approach than it has previously employed in its history of sovereign immunity defence, and riding on the dissenting opinion filed by Judge Katsas in the US Court of Appeals, Nigeria has crafted a new argument in its sovereign immunity defence before the US Supreme Court. This article seeks to examine Nigeria’s refined argument before the US Supreme Court and comment on the strength and weaknesses of this new defence
The Decision of the US Court of Appeals
After nearly a year of non-repayment of the award debt by Nigeria, Zhongshan commenced an action in the District Court to enforce the arbitral award. Nigeria immediately filed a motion to dismiss the suit on the ground that it was immune from the suit as the arbitration exception relied on by Zhongshan does not apply to Nigeria. and held that Nigeria was not immune to the suit having agreed to arbitrate under the China – Nigeria Bilateral Investment Treaty (BIT) (2001) and that the arbitral award was governed by the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (“New York Convention”). Nigeria appealed to the US Court of Appeals. In the Opinion of the United States Court of Appeals for the District of Columbia Circuit, 9 August 2024, the Court held that Nigeria is stripped of its sovereign immunity under the arbitration exception of the Foreign Sovereign Immunity Act (FSIA) because:
- An arbitration agreement existed between the parties under the 2001 China-Nigeria BIT.
- There was an arbitration award sought to be recognized and enforced.
- The award was governed by the New York Convention
In justifying the third ground, the Court of Appeal considered the requirement for the applicability of the New York Convention to wit- that the dispute arose from a legal relationship that existed between the parties under the Bilateral Treaty where Nigeria agreed to protect Chinese investors and to treat them fairly. Secondly, the legal relationship was considered commercial by virtue of the parties’ commitment to promote commercial development. The Court of Appeal went further to list five commercial features of the Zhongshan-Nigeria relationship:
- Zhongshan’s investment in a money-making enterprise is itself commercial.
- Zhongshan invested in a free-trade zone intended to promote commercial activity
- Nigeria relaxed tariffs in the free-trade zone. Its decision to forgo charging those duties is connected to commerce
- Nigeria collected hundreds of thousands of dollars in tax revenue from Zhongshan’s investment.
- The Investment Treaty, under which Nigeria owed duties to Zhongshan, is expressly designed to promote commerce.
Nigeria did not contest that the underlying transaction that led to the arbitration was commercial, instead, Nigeria argued that the commercial reservation limits the application of the New York Convention to arbitral awards arising from direct transactions between a signatory State and a private party which was not the case in this instance considering that the transaction was between Zhongshan and the Ogun State government and that the only connection to Nigeria was the obligation it owed to Zhongshan under the BIT to protect investments made by Zhongshan.
However, the Court of Appeal dismissed Nigeria’s arguments when it held that the BIT created a commercial relationship between Nigeria and Zhongshan to promote commercial development. Therefore, that relationship was considered commercial and, by implication, Nigeria was not immune from the action commenced by Zhongshan in the District court.
Nigeria’s Petition Before the US Supreme Court
On 7th November 2024, Nigeria filed a petition before the US Supreme Court (the “Court”) seeking a review of the US Court of Appeal decision on its defence of sovereign immunity. Nigeria presented two related questions for the determination of the Court as follows:
- Whether, for interpreting the intentions of the treaty parties regarding a word like “person,” extra-textual information such as historical context and contemporary domestic law is a material input in parallel with the textual analysis; and
- Whether the New York Convention applies to arbitration agreements governing a dispute with a sovereign nation arising out of its role as a sovereign.
Nigeria as a Sovereign
Nigeria’s argument before the US Supreme Court is that the New York Convention applies to awards “arising out of differences between persons, whether physical or legal” and that the word “person” in ordinary English does not include a sovereign acting in its sovereign capacity. It argues that its duty to protect the investment of Chinese investors under the 2001 Chinese-Nigeria BIT (the “Treaty”) is purely a sovereign duty with no commercial element. Therefore, the District Court was wrong to exercise its jurisdiction over the enforcement action instituted by Zhongshan under the FSIA arbitration exception and the New York Convention. Accordingly, Nigeria argued that the DC Circuit expressly refused to follow the Supreme Court’s precedents holding that the common usage of the word “Person” does not include sovereigns. Against this backdrop, Nigeria argues that while the term “person” under the New York Convention may encompass a government-owned company, it certainly does not include the government itself as a sovereign.
Interpretation of Statute
What constitutes “commercial” and “Person” under the Federal Arbitration Act and the New York Convention respectively, formed the basis of Nigeria’s petition to the US Supreme Court. Nigeria’s position before the US Supreme Court is that the US Court of Appeals failed to look at other extrinsic materials to assist the Court in arriving at a decision on the intendment of the New York Convention. Nigeria argued that its obligations under the Treaty were purely sovereign and that extra-textual elements like the historical context leading to the creation and ratification of the Convention ought to be considered to properly decide whether the definition of “persons” under the Convention includes States acting in their sovereign capacity.
Nigeria’s position is that no state at the time of signing the Convention would have expected a signatory to impose judicial enforcement against a foreign State acting purely as a sovereign and, the ambiguity of the word “persons” required extra-textual materials to properly guide the Court in arriving at a just decision. Additionally, Nigeria contended that the District Court veered off and neglected the Supreme Court’s longstanding interpretation of “Persons” in United States v United Mine Workers (330 U.S. 258 (1947))which excluded sovereigns acting jure imperii (the sovereign act of a Stae).
Moreover, the China-Nigeria BIT unlike some, does not provide for arbitrations under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965) (“ICSID Convention”) nor does it use any language evoking the New York Convention, and by implication, the Treaty meant no further than the mere reciprocal sovereign obligations between two States. According to Nigeria, the ripple effect of the non-reversal of the District Court’s decision would expose sovereigns to a barrage of enforcement Suits in the US even for purely sovereign conducts.
Commentary
This is not the first time Nigeria has deployed the defence of sovereign immunity to resist the commencement of an action against it in the Court of another state. However, this line of Nigeria’s sovereign immunity defence before the US Supreme Court is innovative as it is the first time Nigeria is making this sort of argument in its relatively long history on the defence of sovereign immunity. Based on the principle of sovereign immunity, it is true that a sovereign state cannot without its consent be sued in the Court of another state, however, this would not be the case where a sovereign state has acted as a commercial entity.
Nigeria’s argument before the Supreme Court then begs the question of whether it is the direct transaction between a state and an investor that brings a state under the regime of the New York Convention or whether it is the mere fact that a relationship is considered commercial or whether the New York Convention applies even to states acting in their sovereign capacity. While it may look easy to answer, this has led to Nigeria’s petition before the US Supreme Court with numerous conflicting decisions on whether a state qualifies as a “person” under the New York Convention.
A critical look at Nigeria’s argument before the Supreme Court, One would agree with Nigeria that a state should enjoy immunity from court actions especially where the state has not dabbled into any commercial activity, but whether this is the case in relation to the Zhongshan-Nigeria saga is for the Supreme Court to decide. Nigeria’s position before the Supreme Court is revolutionary as the future of enforcement of non-ICSID investment arbitration awards under the New York Convention rests on the decision of the US Supreme Court.
Conclusion
Nigeria’s sovereign immunity defence has not yielded the desired result since the international arbitration battle against Zhongshan. Across the myriads of actions commenced by Zhongshan seeking enforcement of its over 75$ Million award, Nigeria has put up a fight employing its sovereign immunity defence, but this has at every stage been trumped by Zhongshan. However, fingers are crossed to see the outcome of Nigeria’s “revolutionary” petition before the US Supreme Court, as the decision of the Court will set a new precedent on the enforcement of Awards against a Sovereign under the New York Convention.
ABOUT THE AUTHORS
Joseph Siyaidon is a Team Lead in the Stren & Blan Partners’s Arbitration, Maritime, Construction, and Energy Disputes Practice Groups. He is a graduate of Law from the Niger Delta University and the Nigerian Law School. Joseph has extensive experience in arbitration and commercial litigation. He has acted as counsel in several international arbitrations and arbitral award enforcement proceedings under major arbitration rules, including ICC, DIAC, UNCITRAL, MAAN, and RCICAL. His focus is on providing cutting-edge strategies to resolve disputes in the areas of maritime, oil and gas, commercial contracts, construction, corporate, debt recovery, bankruptcy/insolvency, and civil fraud/white-collar crimes. He is also experienced in advising clients in relation to concession contracts, joint venture agreements, maritime asset acquisition, due diligence, and distressed situation deals.
Stanley Umezuruike is an Associate in the Dispute Resolution Department of Stren & Blan Partners a Leading Law Firm in Nigeria. He holds an LL. B from the University of Nigeria and graduated from the Nigerian Law School (B.L) with a Second Class (Upper Division) and has been admitted to the Nigerian Bar. He specializes in Arbitration, Real Estate, and Maritime Practice Groups within the Dispute Resolution Department of the Firm, where he provides legal solutions to Clients. Additionally, he is an active member of the Technology, Entertainment, Media, and Sports Sectors of the Firm and consistently contributes to thought leadership and industry discussions within the Sector. Stanley was awarded a bronze medal in the International Mediation Singapore Competition, organized by the Singapore International Mediation Institute (SIMI).
Michael Afuye is an Associate in the Stren & Blan Partners‘s Dispute Resolution department. He currently works within the Arbitration, Maritime, Real Estate, and Construction team of the firm where he advises a wide range of local and international clients on their legal needs within these practice offerings. He also expends his wealth of legal knowledge on proffering innovative solutions to local and cross-border legal problems within the transportation sector of the Firm. Michael holds an LL. B from Ekiti State University and a B.L from the Nigerian Law School where he graduated top 19% of his class and bagged three awards for being the Best Graduating Student in Professional Ethics and Skills at the Nigerian Law School 2023 set. He is a member of the Nigerian Bar Association (NBA).
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
