Zhongshan Fucheng v. Nigeria

Case summary

At a glance

Parties: Zhongshan Fucheng Industrial Investment Co. Ltd. (China) v. the Federal Republic of Nigeria
Case no.: Ad hoc arbitration (no institutional number); enforcement: US D.D.C. No. 1:22-cv-00170 / D.C. Cir. No. 23-7016; EWHC CL-2021-000720; EWCA CA-2022-002477; Quebec 500-11-061884-231; BVIHCM 2022/0017
Forum and rules: Ad hoc arbitration under Article 9 of the BIT, UNCITRAL Rules, seated in London; the PCA provided administrative support
Treaty: China–Nigeria BIT (Agreement for the Reciprocal Promotion and Protection of Investments, 2001)
Tribunal: Lord Neuberger of Abbotsbury (presiding), Matthew Gearing QC, Rotimi Oguneso SAN
Sector: Free trade zone development; industrial real estate
Outcome: Final Award of 26 March 2021: all of Nigeria's objections rejected and Nigeria held liable for expropriation and other Treaty breaches. Courts in England, the US, Quebec and the BVI later rejected Nigeria's immunity defences to enforcement.
Amount: Claimed: USD 1,078 million on a DCF basis (USD 1,446 million on a comparable-transaction basis). Awarded: USD 55.6 million compensation, USD 75,000 moral damages and USD 9.4 million pre-award interest; costs of £2,509,789.57 (legal) and £354,655.17 (arbitration); post-award interest at one-month LIBOR + 2%, compounded monthly.

The dispute

Zhongshan, a Chinese company, invested through its Nigerian subsidiary Zhongfu International Investment (NIG) FZE in the Ogun Guangdong Free Trade Zone in Ogun State. It held rights under a 2010 Framework Agreement over Fucheng Industrial Park and a 2013 Joint Venture Agreement under which Zhongfu held 60% of the zone company. Between April and August 2016, after a note verbale from the Chinese Consulate claimed that management rights belonged to another group, Ogun State, the Nigeria Export Processing Zones Authority (NEPZA) and the police ousted Zhongfu. They demanded that it vacate the zone, threatened its executives, and arrested one executive, Mr Zhao, at gunpoint and detained and mistreated him for ten days. Zhongshan claimed under the China–Nigeria BIT for expropriation, breach of fair and equitable treatment, unreasonable and discriminatory measures and failure of continuous protection. Nigeria argued that the conduct was not attributable to it, that there was no investment, that the six-month negotiation period had not run, that the fork-in-the-road clause applied, that China had to take part, and that Zhongfu had obtained its rights by misrepresentation and concealment.

Key holdings

The conduct of Ogun State, NEPZA and the police is attributable to Nigeria under customary international law (ARSIWA Articles 4 and 5). The cases on mere breach of contract by a local authority do not apply because the claims rest on the Treaty. Award ¶¶ 72–75
Zhongshan held an investment under the broad definition in Article 1(1), whether that is its shareholding in Zhongfu or Zhongfu's contractual rights. The six-month negotiation period ran from Zhongshan's notice of 21 September 2017, to which Nigeria never replied. The fork-in-the-road clause was not triggered: Zhongfu's Nigerian court cases failed the triple identity test (different parties, cause and relief), and the result would have been the same under the fundamental basis test. Award ¶¶ 77–89
Nigeria failed to prove that Zhongfu induced the 2013 JVA by misrepresenting that the previous developer, CAI, had been wound up. Zhongfu also had no duty to disclose the Equity Agreement it had negotiated with CAI's parent company. Award ¶¶ 104–120
The 2016 Activities were designed to deprive Zhongfu of its rights, and succeeded, with no domestic-law basis and through actual and threatened illegitimate use of State power. They breached continuous protection, the bar on unreasonable and discriminatory measures, and fair and equitable treatment. They were also an unlawful expropriation that met none of the four conditions in Article 4. The operative part records breaches of Articles 2(3), 3(1) and 4(1). Award ¶¶ 125–132, 198
The Tribunal applied full reparation, valued as at 22 July 2016. It accepted a DCF valuation only for Fucheng Park (30-month let-up, 20-year cut-off) and, at a reduced letting rate, for the Pharmaceutical Park. It gave the rest of the zone no value as too speculative and gave no weight to the Nkok (Gabon) comparable. Compensation: USD 55.6 million. Moral damages: USD 75,000, mainly for Mr Zhao's treatment. Award ¶¶ 147–178
Interest runs at one-month USD LIBOR + 2%, compounded monthly, from 22 July 2016 (USD 9.4 million to the date of the Award). Nigeria, as the losing party, bears the arbitration costs. Zhongshan's legal costs claim of £3,012,067.61 was cut to £2,400,000, plus £109,789.57 in amendment costs. Award ¶¶ 179–198
The US Court of Appeals for the D.C. Circuit affirmed, by majority, that the FSIA arbitration exception applies. The Award falls under the New York Convention because the BIT created a commercial legal relationship between Nigeria and the investor, and a State is a 'person' under the Convention even for sovereign acts. Judge Katsas dissented: in his view the Convention does not cover States acting in their sovereign capacity. D.C. Cir. Opinion, pp. 11–37; dissent
The BVI High Court held that Article 9(6) of the BIT, under which both States 'commit themselves to the enforcement of the award', is written consent under section 13(3) of the State Immunity Act 1978 and covers execution. It made final the attachment of a £20 million debt owed to Nigeria by Process & Industrial Developments Ltd. Separately, the English High Court made final charging orders over two Liverpool properties owned by Nigeria, finding them in commercial use through residential lettings. BVI Judgment ¶¶ 30–40; EWHC ¶¶ 38–65