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Why arbitral awards against Nigeria may continue 19 Sep 2024

Nigeria is having a somewhat deja vu experience. This is with regard to the enforcement order obtained on 14 August 2024 from a Paris Judicial Tribunal by the Chinese company, Zhongshan Fucheng Industrial Investment Co. Ltd., against Nigeria. The order permits the company to seize three presidential jets owned by the Federal Republic of Nigeria, towards the enforcement of the $70 million arbitral award Zhongshan obtained against the country on 26 March 2021.

Earlier, in January 2017, the Irish company registered in the tax-haven British Virgin Islands, Process & Industrial Development Ltd (P&ID), obtained an arbitral award of $6.6 billion against Nigeria for contractual violations. The award, which had risen to over $11 billion in value (including interest) was ultimately quashed on 23 October 2023 by the English High Court. The gas processing contract, which led to over a decade of arbitration, was found to be fraudulent.

Nevertheless, these cases are quite embarrassing for the country. Without prejudice to the peculiarities of the current case, the country seems to have not made the necessary structural adjustments to prevent its vulnerability to arbitral proceedings against it by foreign counterparties after the P&ID saga.

The underlying transaction, in the case by Zhongshan, is a joint venture with the Ogun State government (OGSG). Although Nigeria, as a country, is not a direct party to the contract, the arbitral proceedings were brought against Nigeria under its bilateral investment treaty (BIT) with China.

According to media accounts, in 2010, Zhongfu, a subsidiary of Zhongshan, acquired rights to develop some parts of the Ogun Guangdong Free Trade Zone (OGFTZ) in Ogun State, Nigeria. The following year, the Chinese firm incorporated a wholly-owned subsidiary in Nigeria to manage the project. However, a dispute arose among the parties in 2016, which led to the termination of the contract. Zhongfu further alleges the use of state force against its officials, culminating in the assault, arrest, and detention of its CEO and CFO.

Zhongfu subsequently began arbitral proceedings against Nigeria under the 2001 Nigeria-China BIT. In March 2021, an arbitral tribunal chaired by David Neuberger, a former president of the United Kingdom Supreme Court, ruled that Nigeria was in breach of its obligations under the BIT. The panel awarded Zhongshan around $70 million. With interest, the amount grew to $81 million. Zhongshan began enforcement proceedings in several jurisdictions where it could locate Nigeria’s assets and secured a court order in France attaching three Nigerian presidential aircrafts in the European country.

The governor of Ogun State during the substantive period of the dispute and termination of the joint venture, Ibikunle Amosun, now a senator in the National Assembly, has rendered his version of events to the media. He stated that, upon his assumption of office in 2011, two different Chinese companies – China Africa Investment FXE and Zhongfu – laid claims to the management rights over the OGFTZ, as the lawful representative of the original joint venturer, Guangdong Province, China.

Amosun, as then governor, would have had access to the executed joint venture agreements to be able to determine the lawful representative of the counterparty to the venture. He, however, stated that the OGSG appointed Zhongfu as Interim Zone Manager for the OGFTZ pending further evaluation in 2012. He further stated that it was subsequently discovered that China Africa Investment FXE was the official representative of the Chinese Guangdong Province and the lawful manager of the project.

Senator Amosun alleged that Zhongfu sought to de-market China Africa Investment FXE and surreptitiously convert the state-owned assets of the Guangdong Province, including the ownership and management rights of its business rival. This discovery was allegedly made through the intervention of the Chinese Government via Diplomatic Note 1601, dated 11 March 2016. The resultant actions, including the service of a formal termination notice to Zhongfu by the OGSG, dated 27 May 2016, thus “gave effect to the request of the Chinese Government.”

Amosun added that Zhongfu instituted actions in Nigerian courts and lost all four cases. He further claimed that the trade dispute was actually between two Chinese entities – Zhongfu and China Africa Investment FXE, with little or no connection with either Ogun State or the FGN. The senator said Zhongfu petitioned the Nigerian Presidency; Hon. Minister of Industry, Trade & Investment; Attorney General & Minister of Justice; Inspector General of Police; EFCC; and the National Assembly (both the House of Representatives and the Senate), among others but the OGSG was able to successfully defend its positions at all the fora. He denied the use of state force by the government and suggested that any such occurrence must have been instigated by the disputing Chinese rival party to Zhongfu.

“The material facts in the transaction between the Ogun State government and Zhongshan point to another P&ID case in which unscrupulous and questionable individuals falsely present themselves as investors with the sole objective of undercutting and scamming governments in Africa,” Amosun was quoted to have said.

But assuming, without conceding, that the position of the former Ogun State governor is accurate, the vulnerabilities that make Nigeria an easy target for such high-profile international “scams” is worthy of interrogation. Sadly, though, the Nigerian government officials’ routine violation of their fiduciary responsibilities suggests their likely complicity, rather than naivety, in the contractual disputes.

In Nigeria’s public project delivery, the tendency for corruption begets lack of respect for contractual obligations, fueling the landscape with uncompleted or abandoned projects. The malaise is end to end. Nigeria’s response to contractual dispute resolution mechanisms is also incredibly poor. This was a major issue in the P&ID case. Lack of seriousness to the dispute resolution process is also glaring in the case with Zhongfu.

Article 9 of the Nigeria-China BIT, which deals with disputes between investors and the counter state-party, provides that such dispute shall, as far as possible, be settled amicably through negotiations. When this fails, either party may submit the dispute to the competent court to the “contracting party” accepting the investment or to a three-member arbitral panel. This provides significant protection for the country barring any dereliction of the government’s legal duties.

It is evident from the facts narrated by Senator Amosun that Zhongshan sought redress in the Nigerian courts before heading to arbitration. But there is not much information about Nigeria’s conduct of the substantive arbitral proceedings beyond its objections on the ground that it is not a party to the underlying contract, which was rejected by the tribunal.

From publicly available facts, Nigeria challenged the award before the Commercial Courts of England and Wales under Section 67 of the English Arbitration Act 1996, on the same jurisdictional grounds that had been considered and dismissed by the arbitral tribunal, and an additional ground of the validity of the arbitration clause in the Nigeria-China BIT. Nigeria, however, withdrew this challenge to the arbitral award a few days to the hearing. Zhongshan, therefore, applied for the recognition and enforcement of the award before the same courts.
 
Mrs. Justice Cockerill granted the ex-parte enforcement order in December 2021 but granted Nigeria the right to challenge the order within 74 days of being served. The country failed to apply to challenge the order within the stipulated time and applied to the court for extension of time to challenge the order after the 74-day period had elapsed. Nigeria missed a further filing deadline in reply to Zhongshan’s response and was forced to request another extension. But the court said that Nigeria had not given a good reason for the delay and the extension was refused. Thereafter, Nigeria applied for permission to appeal, and it was refused. Nigeria then appealed to the English Court of Appeal, which also refused the country’s application to challenge the enforcement order.

On 16 June 2023 and 18 August 2023, the English Commercial Court made interim charging orders in respect of two properties belonging to Nigeria in the United Kingdom, and on 14 June 2024, the Court granted a final charging order over the two properties. Asides from England, Zhongshan also brought enforcement proceedings in the United States, Belgium, France, the British Virgin Islands, and Quebec. In Quebec, Zhongshan applied for a pre-judgment order to seize a Bombardier 6000 Jet (type BD-700-1A10) registered with the Isle of Man Aircraft Registry and belonging to Nigeria. On 25 January 2023, the Quebec Court granted the order.

Nigeria was validly notified of the legal action in Quebec through diplomatic channels but did not submit its response within the time limit set by the Code of Civil Procedure. In view of the country’s failure to submit a response, Zhongshan applied for a default judgment. It wasn’t till nine months after being notified of Zhongshan's request to have the arbitral award recognised in Quebec that Nigeria submitted a response.

If the FGN did not consider the P&ID case as an indicator of the need for a comprehensive review of the contracting of foreign entities by Nigerian state parties and the representation of the country in judicial and arbitral proceedings, the case by Zhongshan should serve as a strong recommendation for such audit to be launched forthwith. That lack of internal introspection, investigations, and accountability of state actors is a national embarrassment. These cases are likely to undermine the country’s attraction of foreign investments. Or they could ensure that the country continues to attract phoney foreign investors, with the result of more embarrassing – or costly – arbitral awards against the country in the future.

Funmilayo Odude is Partner at Commercial and Energy Law Practice (CANDELP).