The $9 Billion Judgement Debt: An Albatross on Nigeria’s Lean Neck (Part 5)
“GOD, WHERE, WHEN, HOW AND WHY, DID WE FIND OURSELVES IN THIS SCANDALOUS STATE OF NADIR, DOLDRUMS AND NATIONAL CALAMITY? NIGERIA AT 59!!!”
Introduction
In the last four parts of our series on this vexed issue, I have discussed the facts of the issue; the cacophony of voices, ranging from the former Attorney-General of the Federation (AGF), Michael Aondoakaa, SAN’s reaction, to Malami’s (AGF) response, and that of the Governor of Central Bank of Nigeria (CBN); the legal issues arising from the $9 billion judgement debt; the recent judgement of the Federal High Court (FHC), sitting in Abuja, ordering the winding up of the P & ID Nigeria company, and the aftermath of the judgement. Today, I shall continue with the legal issues arising from the judgement debt. Thereafter, I shall proffer my final thoughts on this issue.
Arbitration If a State entity has consented to arbitration, it may be subject to a U.S. court action brought to enforce an arbitration agreement, or to confirm an arbitration award.
The scope of immunity from enforcement, is somewhat different. Where FSIA treats foreign States and their instrumentalities roughly the same for purposes of immunity from suit, for enforcement, property owned directly by the State, is treated differently from property owned by its agencies. A judgement can only be enforced against the property of the foreign State, if the property at issue is “used for commercial activity” – a definition which has not been fully developed, as it applies to funds. Enforcement against the assets of agencies or instrumentalities, by contrast, looks to the actions of the entity, not the use of the targeted asset: the entity must be generally “engaged in commercial activity.” Even if these requirements are satisfied, enforcement may not proceed, unless an exception applies. Again, these exceptions vary, depending on whether the property subject to enforcement belongs to the foreign State, or to an agency or instrumentality.
Finally, the FSIA provides that, the property of a foreign central bank or monetary authority “held for its own account” is immune from enforcement, unless the entity, or its parent foreign State, has explicitly waived its immunity from enforcement. In other words, even if a fund secures a successful judgement or award against a foreign central bank or monetary authority, it will be virtually impossible to enforce that judgement unless the investor or its parent State, has waived its right to immunity from enforcement.
English Law: State Immunity Act of 1978 English law is similar to FSIA, but contains some differences worth noting, in the investment context. The relevant statute in the United Kingdom, is the State Immunity Act of 1978 (“SIA”), which has been extended to numerous territories that follow English law, including the Cayman Islands and the British Virgin Islands.
SIA provides that, foreign States, including their heads of state, government, and governmental departments, are immune from suit in the UK courts (or the courts of the jurisdiction that has adopted the SIA). Sovereign immunity under SIA, also extends to “separate entities” (i.e., bodies distinct from the executive organs of the government of the State and capable of suing or being sued, such as certain sovereign wealth funds), if the proceedings against the entity relate to its exercise of sovereign authority, and the circumstances are such that, the State itself would have been immune. By tying immunity to the nature of the action, rather than the quasi-governmental nature of the actor, SIA allows for a more limited form of immunity than FSIA.
SIA also recognises three exceptions to immunity, that are particularly relevant to private equity funds, although with slight differences in scope from the exceptions under the FSIA. Specifically:
Commercial Transactions In proceedings related to a commercial transaction, the State entity is not immune and can be sued, unless the parties have agreed otherwise in writing. As drafted and interpreted, this exception potentially applies to investments in a private equity fund, but there is little case law on the point. Waiver/Consent As with FSIA, immunity under SIA is waiveable. Roughly speaking, a State entity may waive immunity from suit by (i) prior written agreement (e.g., side letter), (ii) instituting proceedings without claiming immunity, (iii) submitting to jurisdiction as a defendant in a suit and (iv) intervening in or taking any steps in any suit (other than for the purpose of claiming immunity).
Arbitration Under SIA, an agreement to submit a dispute to arbitration can constitute a waiver of immunity from suit, for matters related to the arbitration.
The exceptions to immunity from enforcement under SIA are narrower than those relating to immunity from jurisdiction, and also somewhat narrower than the equivalent exceptions under FSIA. Under SIA, an action to enforce a judgement against the assets of an otherwise immune State entity requires (i) consent to enforcement (consent to suit is insufficient), or (ii) enforcement against property used or intended for use, for commercial purpose. As under the FSIA, the particular use or intent of property is a factspecific inquiry, and whether a fund capital commitment would constitute such property, has not been fully resolved. The SIA explicitly provides that the property of a sovereign’s “central bank or other monetary authority” held for its own account, is not in use for commercial purposes and cannot be enforced against absent consent. Sovereign wealth funds, are not explicitly addressed in the statute.
Foreign States v U.S. States Sovereign immunity extends not just to foreign sovereigns, but to U.S. States and their agencies and actors, which are protected from suit by the Eleventh Amendment to the U.S. Constitution. Whether any particular State actor qualifies as an “arm” of the State and immune from suit, is a complex and fact-specific question, but a number of States’ employee retirement plans, have been found to meet the test, and be presumptively, entitled to sovereign immunity.
Unlike FSIA and SIA, the Eleventh Amendment does not distinguish between immunity from suit and from enforcement, and does not provide any direct exception from immunity for acts involving a “commercial activity.” A State may engage in commercial activity – including investing – without giving up its protection from suit. A State may waive immunity, however, either with a one-off agreement (e.g., in a side letter), through more generally applicable action (e.g., by passing legislation waiving immunity for a certain category of disputes), or by failure to assert it in the context of a particular litigation.
State and local governmental investors, commonly request that any suit related to their investment in a fund be brought only in their home State courts, often because of State legislation permitting limited waiver of immunity for commercial disputes. For funds with such investors from multiple States, however, this approach presents significant challenges.
Final Thoughts While a full analysis of sovereign immunity requires careful attention to particular facts, two considerations are fundamental at the time of the investment. One is, the court chosen by the parties to determine any disputes. Understanding – in more detail than can be presented here – the particular requirements and limitations of sovereign immunity under the law of the jurisdiction where the dispute is to be determined, is essential to understanding the scope of legal recourse, if a dispute arises. The second is, the possibility of waiver. If immunity exists, it can be addressed in negotiations, and a carefully drafted waiver clause in the relevant transaction documents, can make the parties’ agreement as to immunity clear and enforceable.
For funds, it’s also important to remember that, the sovereign immunity doctrine discussed here governs the prosecution of legal actions and the judicial enforcement of judgements. In a private investment, other methods of recourse may be available, including “self-help” remedies built into the fund documentation, and may be drafted in such a way to avoid questions of immunity altogether. The End.
Tears, Sorrow, Blood: Lamentation for Nigeria at 59 Introduction Tears, Sorrow, Blood, Pains, Pangs, Anger, Hunger, Melancholy, Dejection, Hopelessness, Haplessness, Disillusionment, Poverty, Ignorance, Termites and Maggots, eat up the national edifice. Chaos and anarchy reign supreme; Impunity triumphs, Irredentism, cronyism, clannishness and nepotism, strut around
like a proud peacock. Corruption multiplies geometrically, ravaging the land. Nigeria is now the second most corrupt country in West Africa, and one of the 148 most corrupt in the world. Rule of law is subsumed, human rights crushed. Democracy is vanquished. Even basic civil liberties are suppressed and subjugated. Judges are brutalised, humiliated and denigrated, for doing their jobs. The Judiciary is weakened, traumatised, pauperised. The Legislators haemorrhage the national purse with fantastic and indefensible out-of-the-world pay packets. The Executive acts imperiously, untrammelled, uncontrolled, like Louis X1V of France. The cabal holds the nation down, by the jugular. Less than 20 people, dictate the fate of 200 million Nigerians. There are no checks and balances. Absolutism, dictatorship, fascism, brutality, bestride our democratic space like a colossus.
Yet, the people, the Civil Society, remain docile, complicit, frightened and cowed. Mediocrity is enthroned, in place of meritocracy. Hypocrisy, lies, revisionism, propaganda are elevated, celebrated and dressed in the false garb of truth and patriotism. Genuine criticism, dissent, opposition, plurality of views, are treated as treason, and at best, as treasonable felony.
Nigerians now murmur, rather than discuss freely. Soliloquy and monologue, take the place of robust dialogue. Nigerians now live like walking corpses, like the living dead. The common man and woman, languish in abject penury. The middle class diminishes. Industries relocate to neighbouring countries. Massive disinvestment, becomes the order of the day.
Nigeria, once upon a time the biggest economy in Africa, and the 3rd fastest growing in the world, is today the poverty capital of the world. Parents now sell their children to survive, and the children do likewise. Husbands kidnap wives and wives, husbands, for cheap ransom. Insecurity, becomes the order of the day. Boko Haram, herdsmen, kidnappers, armed robbers, hired assassins, control our highways, pathways and forest routes. Nigeria has been turned into, a gruesome crimson field of bloodbath. There is mass suicide and homicide. Mass unemployment, is the order of the day. Retrenchment becomes a norm. Education and certificates, are racketeered. Children learn under uncovered roofs in rain, storm and sun, sitting on the bare floor. Graduates roam the streets, without jobs. Our beautiful daughters and sisters, are sold into second slavery as sex objects. Young ablebodied men take to kidnapping, armed robbery, internet scams and ‘Otokoto’ rituals. Money bags are celebrated, no matter the illicit sources of their wealth. The Church and the Mosque are complicit, in this societal degeneration. Morals, ethics, values, recede into the abyss of historical oblivion. Prices of food have gone out of the roofs, leaving the poor prostrate and defeated. The tail now wags the dog, the leaders molest the people whose mandate they utilise. They laugh the people to scorn, exploit them, beat them, scourge them, impoverish them and misuse them.
God, where, when, how and why, did we find ourselves in this scandalous state of nadir, doldrums and national calamity? Nigeria at 59!!! A woman still crawling, flatbreasted, misused, dehumanised and degraded. There will still be sunshine, at the end of the storm. Yes, a silver lining, on a dark cloudy sky. God help us.
THOUGHT FOR THE WEEK “The speed of decision making, is the essence of good governance.” (Piyush Goyal).