In a significant legal development, an appeal court in the United States has authorized Zhongshan Fucheng Industrial Investment Co. Ltd., a Chinese firm, to enforce a $70 million arbitration award against the Nigerian government. This decision comes after a series of legal battles in different jurisdictions, underlining the complex nature of international investment disputes.
The US court’s decision was handed down on August 9, 2024, by a 2-1 majority ruling. The court upheld the decision of the US District Court for the District of Columbia, which had earlier confirmed the enforceability of the arbitration award. In January 2023, Judge Beryl Howell of the lower court dismissed Nigeria’s claim that it was immune from the court’s jurisdiction due to its status as a sovereign entity.
Judge Howell clarified that the court had jurisdiction since the United Kingdom, where the arbitration award was initially issued, is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
The origins of this dispute trace back to 2010 when Zhongshan, through its parent company Zhuhai Zhongfu Industrial Group Co. Ltd., acquired the rights to develop a free trade zone in Ogun State, Nigeria. In 2011, Zhongshan established a Nigerian entity, Zhongfu International Investment (NIG) FZE (Zhongfu), to manage the project under the Ogun State government’s permission. However, the relationship soured in July 2016, when Zhongfu accused the state government of terminating its appointment and attempting to install a new manager for the free trade zone.
In response, 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 ruled in favor of Zhongshan, stating that Nigeria breached its obligations under the BIT, and awarded Zhongshan compensation of approximately $70 million.
In January 2022, Zhongshan sought to enforce the arbitration award. Nigeria claimed state immunity, but this argument was dismissed by Judge Sara Cockerill in the UK, who criticized Nigeria for abusing the time frame for appealing arbitral awards.
The US appeal court’s majority judgment, delivered by Judges Patricia Millett and Julianna Childs, stated that the final arbitration award is enforceable under the New York Convention. The judges held that the Foreign Sovereign Immunities Act (FSIA) arbitration exception applied, which removed Nigeria’s sovereign immunity in this 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 judgment read. “The district court therefore has jurisdiction over this case under the FSIA’s arbitration exception. The judgment of the district court is affirmed.”
In a dissenting opinion, Judge Gregory Katsas argued that the term “persons” in the New York Convention does not include sovereign nations. He contended that the actions of the Ogun State government could not be attributed to Nigeria, suggesting that the arbitration award arose 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,” Judge Katsas stated.
This ruling in the US adds to a string of legal defeats for Nigeria in similar cases involving the same Chinese firm. Just three days after the US appeal court’s judgment, a Paris court in France ordered the seizure of three jets belonging to the Nigerian government as part of the ongoing dispute. Earlier in 2023, a UK court of appeal also ruled in favor of Zhongshan, making Nigeria liable for the $70 million arbitration award.
These developments indicate a pattern of unfavorable outcomes for Nigeria in arbitration cases against Zhongshan across multiple jurisdictions. The Nigerian government has accused Zhongshan of attempting to use deceptive means to acquire the country’s offshore assets. However, these legal setbacks highlight the challenges faced by sovereign nations in international arbitration, especially when dealing with complex bilateral investment treaties.
