Zhongshan Fucheng Indus. Inv. Co. v. Fed. Republic of Nigeria
| Decision Date | 26 January 2023 |
| Docket Number | Civil Action 22-170 (BAH) |
| Parties | ZHONGSHAN FUCHENG INDUSTRIAL INVESTMENT CO., LTD., Petitioner, v. FEDERAL REPULIC OF NIGERIA, Respondent. |
| Court | U.S. District Court — District of Columbia |
Petitioner Zhongshan Fucheng Industrial Investment Co., Ltd. (“Zhongshan”) instituted this suit against Respondent, the Federal Republic of Nigeria (“Nigeria”), to enforce an arbitration award that-nearly two years after issuance-Nigeria has failed to pay. Nigeria now moves to dismiss the petition for lack of subject matter jurisdiction and personal jurisdiction pursuant to Federal Rules of Civil Procedure 12(b)(1)-(2), on the grounds of sovereign immunity not exempted under the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. § 1602 et seq. See Resp't's Mot Dismiss for Lack of Jurisdiction Under the FSIA (“Resp't's Mot.”), ECF No. 24. Petitioner counters that the requirements of the FSIA's arbitration exception are met, and jurisdiction may therefore be exercised. See Pet'r's Mem. Opp'n Resp't's Mot. Dismiss (“Pet'r's Opp'n”), ECF No. 26. For the reasons explained below, petitioner has the better of the arguments under the binding precedent of the D.C. Circuit, requiring denial of Nigeria's motion to dismiss.
The present dispute emerges from a Chinese business investment in Nigeria-once successful enough to have garnered coverage by the Economist Intelligence Unit as an example of “China's economic model in Africa”-that ended in the expropriation of the company's assets, the flight of its executives from Nigeria after one executive was arrested at gunpoint and physically beaten by the police, and, ultimately, a $55-million-plus arbitration award against Nigeria.[1]The locus of the saga is a free-trade zone, called the Ogun Guangdong Free Trade Zone, in Nigeria's southwestern region in Ogun State, not far from Lagos.
As set forth in the arbitral tribunal's findings of facts in its Final Award, ECF No. 2-1, starting in 2007, Ogun State contracted with various Chinese companies, including petitioner, to develop the subject free-trade zone. Specifically, Ogun State entered an agreement with Guangdong Xinguang International China-Africa Investment Ltd. (“CAI”) and CCNC Group, Ltd., pursuant to which the three entities would jointly own the Ogun Guangdong Free Trade Zone Company (“OGFTZ”) for a period of 99 years, and CAI would lead the development of the Zone, encompassing nearly 8 square miles of land. See Decl. of Hussein Haeri Supp. Pet. Recognize & Enforce Foreign Arbitral Award (“Haeri Decl. Supp. Pet.”), Ex. A, Final Arbitration Award dated March 26, 2021 (“Final Award”) ¶¶ 4-5, ECF No. 2-1. After three years of limited progress, on June 29, 2010, OGFTZ entered an agreement with petitioner's parent company, Zhuhai Zhongfu Industrial Group Co. Ltd. (“Zhuhai”), giving Zhuhai control of developing and operating a fraction of the Zone's area into Fucheng Industrial Park. Id. ¶¶ 6-8.
That year, Zhuhai effectively transferred its rights to petitioner, which operated in Nigeria through its wholly-owned Nigerian subsidiary Zhongfu International Investment (NIG) FZE (“Zhongfu”). Id. ¶¶ 3, 9.[2]
From 2010 until the breakdown of the relationship in 2016, Zhongfu invested substantial assets into developing Fucheng Industrial Park. For example, to attract industrial lessees to the Park, Zhongfu built roads, upgraded communications, sewage, and power systems, and opened community services including a hospital, hotel, supermarket, and bank. Id. ¶¶ 21-22. By early 2014, the Park had attracted approximately sixteen businesses. Id. ¶ 23. During this period, CAI's management of the overall Zone had apparently broken down, resulting in Ogun State's termination of the company's participation in the OGFTZ in 2012 and appointment of Zhongfu to take its place as part owner of the OGFTZ in 2013. Id. ¶¶ 13-20.
Zhongfu's woes began in April 2016, when the Secretary of Ogun State indicated in a letter to OGFTZ-apparently on the advice of the Chinese Consulate in Lagos-that CAI had been acquired by Guangdong New South Group (“NSG”), and that this transfer may have somehow entitled NSG, rather than Zhongfu, to ownership of the Zone. Id. ¶¶ 33-34. Ogun State had received a note verbale, a diplomatic note, from the Economic and Commercial Section of the Chinese consulate in Lagos, dated March 11, 2016, which stated that the acquisition of CAI “will legally lead to the replacement of the management rights of the OGFTZ which is now in the hands of [Zhongfu] to Guangdong New South Group.” Id. ¶ 33.[3]In May 2016, according to petitioner, Ogun State purported to terminate its 2013 agreement that appointed Zhongfu as part owner of the Zone, and reneged on the 2010 agreement that had given Zhongfu and Zhongshan management rights of the Fucheng Industrial Park. Pet'r's Pet. to
Recognize & Enforce Foreign Arbitral Award (“Pet.”) ¶¶ 18-19, ECF No. 1. In July 2016, Ogun State's Secretary texted Zhongshan's managing director Jianxin Han, urging him to “leave peacefully when there is opportunity to do so,” and the following month, warrants were issued for the arrest of Han and Wenxiao Zhao, who had served as the Chief Financial Officer of the OGFTZ. Final Award ¶¶ 37, 39. Zhao was arrested at gunpoint, physically beaten, and detained for ten days by police before he and Han could flee the country-unceremoniously closing the book on Zhongshan's management of the OGFTZ and Fucheng Industrial Park. Id. ¶¶ 39-40.
Petitioner commenced an arbitration proceeding against Nigeria on August 30, 2018 pursuant to a bilateral treaty between Nigeria and China. Pet. ¶ 22-23.[4] The bilateral investment treaty, called the Agreement Between the Government of the People's Republic of China and the Government of the Federal Republic of Nigeria for the Reciprocal Promotion and Protection of Investments (“China-Nigeria BIT”), represents an agreement between the countries to promote bilateral investment by guaranteeing that the other country's investors would be treated equally and protected from the nationalization of their investments. See generally Haeri Decl. Supp. Pet., Ex. B, China-Nigeria BIT, ECF No. 2-2. Article 9 of the China-Nigeria BIT provides that, when any dispute arises between one of the countries and an investor from the other country- e.g., a dispute between Nigeria and a Chinese investor-that cannot be resolved by the parties, either party may request that an ad hoc arbitral tribunal settle the dispute with a binding decision. See id. at Art. 9.
Petitioner brought five claims against Nigeria for breaches of the China-Nigeria BIT in the arbitral action. First, petitioner claimed that Nigeria violated its obligation of fair and equitable treatment of Chinese investors under Art. 3(1). Pet. ¶ 23. Second, petitioner claimed that Nigeria unreasonably discriminated against it, violating Art. 2(3), and third, that Nigeria failed to provide the “continuous protection” afforded by Art. 2(2). Id. Fourth, petitioner claimed that Nigeria violated its contract with petitioner, violating Art. 10(2). Id. Finally, petitioner claimed that Nigeria wrongfully expropriated Zhongshan's investments without compensation, in violation of Art. 4. Id.
The London, United Kingdom-located arbitral tribunal rendered its Final Award on March 26, 2021, finding that Nigeria had violated Zhongshan's rights under the China-Nigeria BIT. Specifically, the tribunal determined that Nigeria took actions that were “plainly designed to deprive, and indeed succeeded in depriving, Zhongfu of its rights” under the 2010 and 2013 agreements. Final Award ¶¶ 125-26. In addition, the tribunal found that Ogun State, Nigeria's Export Processing Zones Authority (“NEPZA”), and the police-all state actors-took discriminatory and coercive steps against Zhongfu that resulted in Nigeria taking possession of Zhongfu's investment in the country. Id. ¶¶ 125-32. Nigeria was ordered to pay Zhongshan approximately $55.6 million in compensation for the expropriation, $75,000 in “moral damages,” $9.4 million in interest calculated between the July 22, 2016-dated expropriation and rendering of the award, approximately $3 million in legal fees and costs related to the arbitration, approximately $430,000 in other costs, and post-Award interest on the preceding sums-a total figure approaching $70 million, and growing. Pet. ¶ 33.[5]
Nigeria has already tried and failed to shirk this arbitration award in the United Kingdom. Approximately one month after the Award's rendering, Nigeria filed an arbitration claim form in the English High Court, collaterally challenging the Award under the English Arbitration Act on the basis that the tribunal lacked jurisdiction. Although Nigeria later discontinued this challenge, petitioner was still not paid the sums awarded by the tribunal. Id. ¶¶ 35-41. On December 8, 2021, petitioner commenced enforcement proceedings in the United Kingdom, and the English court issued an order that recognized the Award. Id. ¶ 42.
On January 25, 2022, Zhongshan initiated the instant lawsuit pursuant to the Federal Arbitration Act (the “FAA”), which provides for confirmation of arbitral awards falling under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, 21 U.S.T. 2517 (the “New York Convention”), see 9 U.S.C. § 201-207. See Pet. ¶ 1. The FAA provides that the New York Convention is enforceable in the courts of the United States, to which courts a party may apply for an order confirming an arbitral award issued under the Convention. Id. §§ 201, 207. In response, Nigeria filed the...
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