BACKGROUND
In March 2021, an arbitral tribunal chaired by Lord Neuberger awarded Zhongshan Fucheng Industrial Investment Co. Ltd (“Zhongshan”) the sum of USD 70 million against the Federal Republic of Nigeria (“FRN”) under the China–Nigeria Bilateral Investment Treaty (“BIT”). The claim arose from adverse actions taken by Nigerian state actors that were found to constitute a breach of the BIT. [1]
Following the FRN’s failure to liquidate the award, Zhongshan initiated enforcement proceedings in the British Virgin Islands (“BVI”). In these proceedings, Zhongshan, in an attempt to partially enforce the USD 70 million award, sought to attach a third-party debt in the sum of £20 million awarded to the FRN against Process and Industrial Developments Ltd. (“P&ID”) in an entirely unrelated English arbitration proceedings.
The critical issue before the BVI court was whether, under the State Immunity Act 1978 (“SIA”) and in view of the BIT, the third party debt now a property of the FRN was immune from being attached in settlement of the USD 70 million award and if so, whether the FRN’s submission to arbitration under the BIT constituted a waiver of that immunity and, of course, the incidental question was whether consent to enforcement of an award necessarily entails consent to its execution.
WAIVER OF IMMUNITY FROM EXECUTION: THE RATIONALE OF THE BVI COURT
The State Immunity Act 1978 generally protects States from enforcement measures against their assets. Section 13(2) provides:
(2) Subject to subsection (3) and (4) below
(a) relief shall not be given against a State by way of an injunction or order for specific performance or the recovery of the land or other property; and
(b) the property of a State shall not be subject to any process for the enforcement of a judgment or arbitration award or, in an action in rem, for its arrest, detention or sale. (emphasis ours)
However, this immunity is not absolute as Section 13(3) and (4) go further to qualify and provide exceptions to this immunity from execution. For ease of reference, Section 13(3) and (4) of the SIA are reproduced hereunder as follows:
(3) Subsections (2) [and (2A)] above do not prevent the giving of any relief or the issue of any process with the written consent of the State concerned; and any such consent (which may be contained in a prior agreement) may be expressed so as to apply to a limited extent or generally; but a provision merely submitting to the jurisdiction of the courts is not to be regarded as consent for the purposes of this subsection.
(4) Subsection 2(b) above does not prevent the issue of any process in respect of property which is for the time being in use or intended for use for commercial purposes;· …
Thus, the property of a State is not subject to any form of enforcement except where the State consents in writing or otherwise as may be contained in the prior agreement or where the property is used commercially.
Having established the foregoing, the BVI courts in determining whether or not the FRN had consented to a waiver of its immunity under the SIA, had recourse to the provisions of the BIT, particularly the provisions of Article 9(6) of the BIT which provides thus:
“The tribunal shall reach its decision by a majority of votes. Such decision shall be final and binding upon both parties to the dispute. Both Contracting Parties shall commit themselves to the enforcement of the award. (Emphasis ours)
Applying the reasoning of the High court in the case of General Dynamics United Kingdom Ltd v State of Libya [2]. Justice Webster concluded that the FRN had consented to the enforcement of the arbitral award. In reaching this conclusion, His Lordship stated as follows:
“The use of the sentence “Both Contracting Parties shall commit themselves to the enforcement of the award in article 9.6 must mean something. The preceding two sentences in article 9.6 make complete sense standing on their own. The first sentence states how the arbitrators make their decision (by majority votes) and the second sentence states that the decision shall be final and binding on the parties to the dispute. Nothing more needed to have been said. The addition of the final sentence shows that the contracting parties to BIT (FRN and PRC) committed themselves to the additional step of enforcing awards made in BIT arbitration proceedings. This, in my opinion, is tantamount to FRN saying that it consented to the enforcement of awards made in BIT arbitration proceedings.”
DOES “ENFORCEMENT” IMPLY “EXECUTION”?
A further question arose: does consent to “enforcement” under the BIT imply consent to “execution”? The FRN argued that these were distinct concepts, while enforcement could refer to recognition of the award, execution pertains to taking control over specific assets.
The BVI court rejected this distinction in the context of the BIT. It interpreted “enforcement” in its ordinary sense i.e. to give effect or compel compliance which, in practical terms, includes execution. As the court aptly noted:
“The ordinary meaning of enforcement includes to give force or effect to something or to compel obedience to something. This is what was intended by the parties when they committed themselves to enforcement of a BIT award. Put another way, FRN and PRC agreed to waive Immunity from enforcement against their property by whatever legal means was available to an investor and it was not necessary to include the word execution in article 9.6. Execution is by necessary implication included in the word enforcement. Accordingly, the BVI court ordered the attachment of the 3rd party debt.
LEGAL IMPLICATIONS & KEY TAKEAWAYS
1. Increased Enforcement Leverage for Investors
The decision undoubtedly enhances investor confidence in the enforceability of arbitral awards under BITs, even against sovereign properties. Moving forward, Investors and contracting parties looking to execute awards against state parties may now target sovereign properties with renewed and greater confidence
2. Does Submission to Arbitration Automatically Waive Sovereign Immunity over State Assets?
The short answer is no! Submission to arbitration, on its own, does not amount to a waiver of sovereign immunity with respect to the execution of an award. In this regard, the provisions of Section 13(3) of the UK State Immunity Act 1978 (SIA) are particularly instructive. For ease of reference, the section provides as follows:
“Subsections (2) [and (2A)] above do not prevent the giving of any relief or the issue of any process with the written consent of the State concerned; and any such consent (which may be contained in a prior agreement) may be expressed so as to apply to a limited extent or generally; but a provision merely submitting to the jurisdiction of the courts is not to be regarded as consent for the purposes of this subsection.” (Emphasis ours)
This statutory provision makes it abundantly clear that a state’s submission to the jurisdiction of a court and/or an arbitral tribunal, as the case may be, does not in itself constitute consent to enforcement or execution measures against its assets. Rather, there must be express consent to waive immunity, either in writing or through clear language in the BIT.
In this case, the BVI Court examined the specific language of the China–Nigeria BIT and found such express consent in Article 9(6), which states: “Both Contracting Parties shall commit themselves to the enforcement of the award.” The Court interpreted this clause as demonstrating a clear and unequivocal intention by the FRN to waive its immunity from execution. According to the court, the wordings of the said clause went beyond a mere agreement to arbitrate and evidenced a broader commitment to honour and give effect to the arbitral award, by enforcement and by implication, execution.
3. BITs must be drafted with Precision and Intentionality
This case underscores the importance of precise treaty drafting. Where States parties intend to preserve immunity from execution, they must expressly state so. A useful guide is the ICSID Convention, particularly Articles 54 and 55, which distinguished between enforcement and execution and provide that execution remains subject to domestic laws on sovereign immunity.
CONCLUSION
The Zhongshan v. FRN decision marks a significant development in the principle of sovereign immunity. It affirms that a State’s commitment to “enforcement” under a BIT may, where unqualified, be interpreted as a waiver of immunity from execution, unlocking a wide range of recovery options post-award. For treaty drafters, contracting parties, sovereign states and legal advisers alike, the lesson is clear, clarity matters! Where the intention is to preserve sovereign immunity, it must be expressly stated and where enforcement is intended to include execution, it must be clearly provided for.
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REFERENCE
[1]https://www.withersworldwide.com/en-gb/insight/read/withers-obtains groundbreaking-judgment-finding-waiver-of-execution-immunity-in-a-bilateral-investme
[2] [2024] EWHC 472 (Comm)
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