INTRODUCTION
On 26 March 2021, Zhongshan Fucheng Industrial Investment Co. Ltd (“Zhongshan”) obtained an arbitral award in the sum of about $USD70 million against the Federal Republic of Nigeria (“Nigeria”). The award flowed from a dispute relating to the termination of an agreement between the Ogun State Government (“the OSG”) and Zhongfu International Investment (NIG) FZE (“Zhongfu”) – a subsidiary of Zhongshan.
Zhongshan had commenced arbitral proceedings against the Federal Republic of Nigeria, and was successful. Subsequently, when Zhongshan applied to enforce the arbitral award, Nigeria raised a sovereign immunity defence. However, the defence was rejected by the United States Court of Appeals for the District of Columbia. On 14 August 2024, a Paris Judicial Tribunal granted an order permitting the seizure (by Zhongshan) of three presidential jets owned by the Federal Republic of Nigeria, towards the enforcement of the arbitral award.
How did Zhongshan get to investment treaty arbitration? Why did Zhongshan commence the arbitral proceedings against the Federal Government of Nigeria rather than the OSG? Why was Zhongshan able to commence enforcement proceedings in various jurisdictions against Nigeria? Why was Nigeria’s defence of sovereign immunity rejected? This article seeks to answer these questions in the succeeding paragraphs.
Factual Background/Timeline of Events Leading to the Dispute
- On 27 August 2001, the Government of the People’s Republic of China and the Government of the Federal Republic of Nigeria entered into a Bilateral Investment Treaty (“the BIT”) to promote investment between the two countries.
Under the BIT, both Parties agreed that where an investment dispute arises between an investor of one Contracting State and the other Contracting State, the dispute was to be settled (as far as possible) by negotiations. However, where such dispute could not be settled through negotiations within six months, the aggrieved Party was entitled to submit the dispute to the competent court to the Contracting State accepting the investment. Also, it was agreed that if the dispute could not be settled within six months after resort to negotiations, it may be submitted at the request of either Party to an ad hoc arbitral tribunal provided the dispute had not been submitted to a competent court.
- However, in 2010, Zhongshan – through its parent company – acquired rights from the OSG to develop the Ogun Guangdong Free Trade Zone (“the FTZ”) in Ogun State, Nigeria.
- In 2011, Zhongshan set up Zhonghu to manage the development of the FTZ. Zhongfu carried out several works, including the development of infrastructure such as roads, sewerage and power networks, within the zone.
- In 2012, the OSG appointed Zhongfu as the interim manager of the FTZ.
- In 2013, the OSG entered into a Joint Venture Agreement (“the JVA”) with Zhongfu, making Zhongfu the permanent manager of the FTZ and giving it a majority shareholding in the project.
- Sometime in 2016, a dispute arose between the OSG and Zhongfu resulting in the abrupt termination of the JVA by the OSG. It is alleged that the OSG also took actions to expel Zhongfu from Nigeria, including harassment of its executives (by the OSG, the Police and “NEPZA” – Nigeria Export Processing Zones Authority) and revocation of immigration papers of its executives. Some of these allegations include that one of Zhongfu’s personnel, Mr. Wenxiao Zhao was arrested at gunpoint, physically beaten, detained by the Police, before subsequently being released on bail.
- On 30 August 2018, Zhongshan commenced arbitration proceedings against Nigeria, claiming breach of Articles 2 (on the promotion and protection of investments), 3 (on the treatment of investments) and 4 (prohibiting unlawful expropriation) of the BIT and seeking compensation under Article 9 of the BIT (on the settlement of disputes between investors and one Contracting State). The Arbitral Tribunal (seated in London, United Kingdom) comprised co-arbitrators, Mr Rotimi Oguneso SAN and Mr Matthew Gearing QC, and presiding arbitrator, Lord Neuberger of Abbotsbury.
- On 26 March 2021, the Arbitral Tribunal ruled that Nigeria had breached its obligations under the BIT and issued a Final Award of $USD55,675,000 (Fifty-Five Million, Six Hundred and Seventy-Five Thousand United States Dollars) with interest of $USD9,400,000 (Nine Million, Four Hundred Thousand United States Dollars) and costs of £2,864,445 (Two Million, Eight Hundred and Sixty-Four Thousand, Four Hundred and Forty-Five Euros, or the USD equivalent) – “the Final Award” – payable by Nigeria to Zhongshan.
- On 23 April 2021, Nigeria filed a Challenge in the English High Court against the Final Award, on jurisdictional grounds, contending inter alia that the arbitration clause in the BIT was invalid. Nigeria also contended, in its Challenge, that court proceedings which had been commenced in Nigeria deprived the arbitral tribunal of jurisdiction under Article 9(3) of the BIT (called the “fork in the road” provision).
However, Nigeria withdrew the Challenge, purportedly because Zhongshan filed an application requesting Nigeria to deposit security for the Final Award and security for costs before Nigeria’s application to challenge the Final Award could be heard.
- On 8 December 2021, Zhongshan commenced enforcement proceedings against Nigeria and, on 21 December 2021, an order recognising the Final Award was issued by the English Court.
- On 25 January 2022, due to Nigeria’s failure to pay any of the sums due under the Final Award, Zhongshan filed a Petition in the United States District Court for the District of Columbia, for the recognition and enforcement of the Final Award (rendered by the Arbitral Tribunal on 26 March 2021) under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the New York Convention”).
In its Petition, Zhongshan also argued that Nigeria was not entitled to rely on the defence of sovereign immunity on the basis that the Foreign Sovereign Immunities Act’s arbitration exception was applicable, since the proceedings sought to recognise and enforce a foreign arbitral award governed by the New York Convention. Zhongshan also argued that Nigeria was precluded from raising the defence of immunity in court proceedings relating to an arbitration in respect of which the State agreed in writing (i.e., the BIT). Zhongshan’s Petition for recognition and enforcement of the Final Award was thereby granted ex parte (“the Enforcement Order”).
- Nigeria was served with the Enforcement Order on 30 May 2022, and was entitled to (within 74 days from the date of service) apply to set aside or vary the Enforcement Order. Nigeria’s deadline expired on 16 August 2022.
- On 15 September 2022 (after time had expired), Nigeria filed an application, seeking relief from sanctions in respect of the delay in making the application and also sought an extension of time for its application to set aside or vary the Enforcement Order. It is, perhaps, worthy of note that the issue of state immunity was neither raised in Nigeria’s application for extension of time nor in the witness statement in support of that application.
- On 30 September 2022, Zhongshan filed a response stating that Nigeria’s failure to comply with the deadline in the Enforcement Order was significant and it had not identified any proper reason for its failure to file within time.
Nigeria then missed the 7-day deadline required for its reply to Zhongshan’s response and, on 29 November 2022 (three days before the hearing of Nigeria’s application for relief from sanctions due to the delay, and three months after the deadline to set aside the enforcement Order) served a further extension of time application in respect of the missed reply deadline. It was only in the second witness statement, in support of that further application for extension of time, that Nigeria first indicated that it might wish to raise the defence of state immunity.
- On 2 December 2022, the English Commercial Court dismissed both applications for extension of time. The court also held that the justice of the case weighed in favour of not granting Nigeria’s application for relief from sanctions due to its delay, and that application was also dismissed.
- Nigeria filed an application for permission to appeal, which was refused and on 14 February 2023, Nigeria filed another application to reopen the refusal of permission to appeal.
- On 20 July 2023, the English Court of Appeal upheld the Final Award against Nigeria, and refused Nigeria’s application to reopen the refusal of permission to appeal on the basis that none of Nigeria’s four grounds of appeal had any real prospect of success. The English Court of Appeal also rejected Nigeria’s defence of state immunity, on the basis that Nigeria had exceeded the time limit to set aside the Enforcement Order.
In our next publication, we will conclude on the timeline of events leading to the dispute and answer the questions highlighted in the introductory paragraph, which flow from this discourse.
Theophilus Emuwa and Adedapo Tunde-Olowu, SAN head our Corporate & Commercial and Dispute Resolution Practice Groups respectively. Adeyemi Gomes and Esther Siyaidon are Senior Associate and Associate respectively in our Dispute Resolution Practice Group where they represent clients on complex commercial disputes before various courts of record in Nigeria and in Arbitration.
For further information on this article, please send them an email via [email protected]
