Court upholds $70m award to Chinese firm as Nigeria loses sovereign immunity claim

An appeal court in the United States has held that Nigeria’s claim to sovereign immunity cannot stand in a commercial venture.

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.

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.

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.