Founding Attorney
A US court has recently rejected Nigeria’s jurisdictional objections to the enforcement of a US$70 million investment treaty award. A Chinese investor, Zhongshan, won the award. The tribunal issued the award in connection with an investment dispute concerning a joint venture to develop a free trade zone. Consequently, the court dismissed the state’s sovereign immunity defense. In this blog post, we will discuss the details of this decision. We will also explain why it matters for foreign investors in Nigeria.
Background of Dispute
This case began when Zhongshan invested in a joint venture with the Nigerian government to develop a free trade zone in Nigeria. When the joint venture fell apart, Zhongshan brought an arbitration claim against Nigeria under the China-Nigeria bilateral Investment Treaty (BIT). An arbitral tribunal ruled in favor of Zhongshan and awarded it more than $70 million in damages. That award would later test Nigeria’s sovereign immunity defense in US courts.
Zhongshan then filed an action in the United States District Court for the District of Columbia seeking enforcement of the award. However, Nigeria made several objections on jurisdictional grounds and asserted sovereign immunity as a defense. Specifically, Nigeria argued that it could not face suit in the US. In its view, it was not “present” or “subservient” within US borders. It also argued that a foreign court should not attach its assets. In effect, Nigeria claimed immunity from enforcement.
Court Decision on the Sovereign Immunity Defense
The court rejected the sovereign immunity defense. It held that international law principles establish jurisdiction where foreign states hold property or engage in business activity. The court further noted that Nigeria had consented to jurisdiction by agreeing to arbitrate disputes arising out of the BIT before an international tribunal. Courts around the world would then enforce that tribunal’s award. Furthermore, anything less than full recognition of arbitral awards would render such agreements meaningless. As a result, states would simply refuse enforcement on jurisdictional grounds whenever they were unhappy with the outcome.
This ruling is significant because it reinforces that foreign investors can seek remedies against host states. For example, remedies exist when those states wrongfully expropriate or otherwise damage their investments. In addition, it reminds countries entering into BITs to take care when drafting terms on consent to jurisdiction and enforcement. These terms could affect a state’s ability to protect its interests in investment disputes down the road. Indeed, by rejecting Nigeria’s sovereign immunity defense, this ruling sets an important precedent for similarly situated states.
If you hold an arbitral award against a sovereign state and face immunity objections, strategy matters. Contact our team to discuss enforcement options for your award.
