This article explores the legal battle between Zhongshan Fucheng Industrial Investment Co. Ltd and the Federal Republic of Nigeria arising from a joint venture between Zhongshan and the Ogun State Government that led to a $70 million arbitral award and has culminated in the recent seizure of three presidential jets belonging to the Federal Republic of Nigeria.
On Wednesday 14 August 2024, news broke that a French court had ordered the seizure of three presidential jets belonging to the Federal Republic of Nigeria as part of efforts by a Chinese construction firm, Zhongshan Fucheng Industrial Investment Co. Ltd to enforce a $70 million London-seated foreign arbitral award obtained against the Federal Republic of Nigeria on 26 March 2021. Less than a week earlier, the United States Court of Appeals for the District of Columbia had rejected Nigeria’s sovereign immunity defence in relation to the same award. Meanwhile, the same award had also resulted in the seizure of two properties belonging to Nigeria in Liverpool, England in June 2024. Who is Zhongshan Fucheng? What is the origin of its dispute with Nigeria? How or why is Zhongshan Fucheng able to approach different courts in different jurisdictions to enforce the same arbitral award? These and related questions form the basis of this publication.
What Are the Background Facts?
In 2001, the People’s Republic of China and Nigeria entered into a Bilateral Investment Treaty (“BIT” or “the Treaty”) to encourage investment between the two countries. As part of the provisions of the BIT, each country agreed to treat each other’s investors fairly and to protect each other’s investments. The BIT also afforded the investors of either country the right to arbitrate any dispute with the other country.
In 2013, the Ogun State Government (“OGSG”) entered into a Joint Venture Agreement (“the JVA”) with a company known as Zhongfu International Investment (NIG) FZE (“Zhongfu"), a wholly owned subsidiary of Zhongshan Fucheng Industrial Investment Co. Ltd ("Zhongshan") to develop the Ogun Guangdong Free Trade Zone, in Ogun State.
Sometime in 2016, after three years of development of the Zone and millions of US Dollars in investments, a dispute arose between OGSG and Zhongfu which resulted in the abrupt termination of the JVA by OGSG. Beyond that, the dispute also resulted in the use of threats by officials of OGSG and the Nigeria Export Processing Zone Authority (“NEPZA”) with the aim of getting Zhongfu to vacate the Zone and its personnel to leave Nigeria. These threats were later carried out and one of Zhongfu’s personnel, Mr. Wenxiao Zhao was arrested at gunpoint, physically beaten, detained for 10 days by the Police, and was subsequently released on bail. The Police also repeatedly asked for the whereabouts of another Zhongfu personnel, Dr. Han, but the latter was never arrested. In October 2016 both Mr. Zhao and Dr. Han fled Nigeria and never returned.
Aggrieved with the treatment they received at the hands of OGSG; the Police; and NEPZA, Zhongshan commenced arbitration proceedings against Nigeria on 30 August 2018 alleging a breach of Articles 2, 3, and 4 of the China-Nigeria BIT and seeking compensation under Article 9 of the Treaty.
What Did the Dispute Have to Do With Nigeria?
Zhongshan brought the treaty claim against Nigeria on grounds that OGSG, the Nigeria Police and NEPZA are all entities whose actions are attributable to Nigeria in international law. In opposition to the claim, Nigeria contended inter alia that Zhongshan’s complaints were not about the conduct of the Federal Republic of Nigeria (but principally those of Ogun State) and therefore Zhongshan had no claim against Nigeria.
In resolving this issue, the Tribunal, after accepting that Zhongshan’s case was primarily based on the actions of Ogun State as well as those of the Nigeria Police and NEPZA, all of which have an independent existence under Nigeria’s municipal law, nevertheless relied on the principles of customary international law and in particular the provisions of the Articles on Responsibility of States for Internationally Wrongful Acts adopted by the International Law Commission in August 2001 (“the ILC Articles”), and held that the claim was validly brought against Nigeria.
Article 2 of the ILC Articles provides that, "[t]here is an internationally wrongful act of a State when conduct consisting of an act or omission (a) is attributable to the State under international law; and (b) constitutes a breach of an international obligation of the State." Article 4.1 on its part provides that "[t]he conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial or any other functions, whatever position it holds in the organisation of the State, and whatever its character as an organ of the central government or of a territorial unit of the State."
Furthermore, Article 5 of the ILC Articles provides that, " the conduct of any person or entity which is not an organ of the State under article 4, but which is empowered by the law of that State to exercise elements of the governmental authority shall be considered an act of the State under international law..."
What is Arbitration?
Arbitration is a private dispute resolution mechanism whereby two or more parties agree in writing to have their dispute (present or future) resolved in a binding way, not through litigation in national courts, but by a person or group of persons called the arbitrator(s), whose decision is referred to an award and which is capable of being recognised and enforced in the same way as a judgment of a national court.
The arbitral tribunal that heard the dispute between Zhongshan and Nigeria comprised Lord Neuberger of Abbotsbury as the Chairman, Mr Matthew Gearing, KC (appointed by the Claimant) and Mr Rotimi Oguneso, SAN (appointed by Nigeria).
What did the Arbitral Tribunal Decide?
In its award published on 26 March 2021, the arbitral after a due consideration of all the jurisdictional points raised and argued by Nigeria, as well as the merits of the claim, found for the Claimant, Zhongshan and awarded compensation in the sum of US$55,675,000 as well as US$75,000 for moral damages plus interest of US$9,400,000 and costs of £2,864,445.
What Are the Options Open to an Award Debtor?
Under Article V of the New York Convention, there is limited scope for an award debtor to resist the recognition and/or enforcement of an award. The circumstances under which a court may lawfully refuse the recognition and enforcement of an award include where the arbitral award arises from a dispute which is not capable of settlement by arbitration or where the recognition or enforcement of such award would be contrary to the public policy of the enforcing country. The consequence of refusing to recognise and/or enforce an award in one jurisdiction, is that the award remains valid and binding, and therefore potentially capable of being recognised and/or enforced in another jurisdiction.
Intrinsic in the same Article V of the New York Convention is the fact that an award may also be set aside in its entirety. Except in very few jurisdictions, the consequence of setting aside an award is that the award ceases to be binding and therefore incapable of recognition or enforcement. This is the reason why the jurisdiction to set aside an award is not to be exercised lightly and indeed that honour is only reserved for the national courts of the country in which the award was made (i.e., the seat of the arbitration) or the country under whose law, the award was made, if different.
From the facts publicly available, Nigeria challenged the award before the Commercial Courts of England and Wales under Section 67 of the English Arbitration Act 1996 on some of the same jurisdictional grounds that had been considered and dismissed by the arbitral tribunal, and also on a novel ground, that the arbitration clause in the BIT was invalid.
What Happened to Nigeria's Challenge?
For reasons that are either inexplicable or remain unknown, Nigeria withdrew the Section 67 challenge a few days to the hearing.
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