INTRODUCTION

Last week, we continued with our discourse on the legal issues arising from this $9 billion judgment debt. Wherein, we consider some legal concepts. Today, we shall take a look at other concepts as advanced by pro-government Advisors to arrive at a just opinion. Now, let us continue.

STATE IMMUNITY

This is another argument advanced by pro-government Advisors. They claim Nigeria enjoys state immunity against enforcement of such awards.

WHAT IS STATE IMMUNITY

State immunity, or sovereign immunity as it is often referred to, is a principle of international law that has become part of the national law of many states. It derives from the theory of the sovereign equality of states, as a consequence of which one state has no right to judge the actions of another by the standards of its national law. It protects an entity in two ways: by conferring immunity from adjudication (also known as immunity from suit) and by conferring immunity from enforcement and execution.

If a party is immune from adjudication, the court will be prevented from considering claims against that party and awarding a judgement or declaring rights and obligations against it. If a party is immune from enforcement and execution, the court will be prevented from recognizing a foreign judgement or an arbitral award against the immune party and from making and executing orders or injunctions against it.

International attitudes towards state immunity vary. In general, there are two approaches: the absolute doctrine and the restrictive doctrine.

THE ABSOLUTE DOCTRINE OF STATE IMMUNITY

Initially the first and only approach, the absolute doctrine still applies in some jurisdictions, notably China and Hong Kong. Under this doctrine, any proceedings against foreign states are inadmissible unless the state expressly agrees to waive immunity

THE RESTRICTIVE DOCTRINE

The increasing involvement of the states in world trade activities led to the development of a more restrictive approach to the state immunity, where a distinction is now drawn between acts of a sovereign nature and acts of a commercial nature. Under the restrictive approach, immunity is only available in respect of acts resulting from the excessive of a sovereign power. As such, states may not claim immunity in respect of commercial activities or over commercial assets.

Although the restrictive approach is now widely adopted, state immunity continues to be an unsettled area of International Law and the scope of recognised exceptions varies from state to state. Consequently, in order to analyse the level of risk in dealing with a particular state or state entity, it is important to understand which laws shall apply in determining whether the state is entitled to claim immunity.

WHY DOES STATE IMMUNITY MATTER?

Put simply, if a state is able to claim immunity from suit or enforcement, it will be difficult for a commercial party to enforce its contractual rights against that state. A successful plea of state immunity (as Nigeria intends to do) will mean that either the courts will refuse to hear the dispute or they will be unable to give effect to any judgment or award made against the state.

Commercial parties always attempt to manage the risks associated with state immunity by obtaining a contractual waiver of immunity. This is an early step by which the state wholly waives and agrees not to claim the immunity it would otherwise be entitled to. However, increasingly, states and state entities are now refusing to abandon their rights to immunity. In many cases, they now insist on positively asserting their right to claim immunity in relevant contractual documents. In such, any party dealing with the state perfectly understands the ponderous consequences of dealing with a state entity which has not expressly waived its immunity.

The key important questions and answers a party should ask when state immunity may become an issue, as applicable under English law, i.e, under the SIA, now follows:

IS IT TRUE THAT THE KING CAN DO NO WRONG?

SOME EXCEPTIONS

When state actors invest in private equity funds, they play by different rules. Under the doctrine of “sovereign immunity,” if the relationship sours, governmental investors may be protected from legal recourse in ways that other investors are not.

The doctrine of sovereign immunity is simply about the proposition that the government cannot be sued without its consent – that is, “the King can do no wrong.” Sovereign immunity, though simple in concept, is nuanced in application. It can apply to a wide range of investors, including nation states, state agencies or departments, supranational organizations, and sovereign wealth funds and governmental pension plans. This means that a fund owner may have limited legal recourse against certain “sovereign” investors unless it has taken appropriate precautionary steps at the time of the initial investment. The stakes could be very high.

IMMUNITY FROM SUIT V. IMMUNITY FROM ENFORCEMENT

Sovereign immunity takes two forms: (1) immunity from suit (also known as immunity from jurisdiction or adjudication) and (2) immunity from enforcement. The former prevents the assertion of the claim; the latter prevents even a successful litigant from executing a judgment already delivered.

None of these forms of immunity is actually absolute. Both recognize certain exceptions that permit actions under certain circumstances. Depending on the facts, a litigant may be able to invoke an exception to immunity from suit in a situation where though he could bring and win a case, he may yet be unable to collect his money because none of the exceptions to immunity from enforcement applies. In any particular case, it is essential to consider both immunity from suit and immunity from enforcement, as well as relevant exceptions to each.

UNITED STATES LAW V. ENGLISH LAW

For United States, private equity funds and investors, sovereign immunity most often arises under either under U.S. law or under English law (or the law of territories that follow English law, such as the Cayman Islands). Whichever law applies in any particular circumstance will likely be determined by the jurisdiction in which the proceedings are brought, although the law chosen by the parties to govern their agreements may also have a direct impact on the proceedings. Either way, at each step, the key questions are the same: Who or what is entitled to immunity? If immunity exists, does an exception apply?

U.S. LAW: THE FOREIGN SOVEREIGN IMMUNITIES ACT OF 1976

The Foreign Sovereign Immunities Act of 1976 (“FSIA”) governs the rights and immunities of foreign – as opposed to U.S. – states and agencies. Under FSIA, foreign states are immune both from jurisdiction and from enforcement in the U.S., unless an exception applies.

FSIA defines “foreign state” broadly, and extends immunity not just to the sovereign nation state, but also to its political subdivisions, agencies and instrumentalities. “Agencies and instrumentalities” include (i) any separate legal entity (ii) that is (or is majority-owned by) an organ of a foreign state or political subdivision, and (iii) that is created under the laws of that foreign state. The net effect of these broad definitions is that sovereign wealth funds may be entitled to immunity from suit under FSIA.

FSIA recognizes numerous exceptions to immunity from suit, however. Three of those exceptions are particularly relevant for funds and their investors – and only one need apply for the suit to proceed:

NOW THIS COMMERCIAL ACTIVITY

An otherwise immune state entity can be sued in a U.S. court if the action is based upon a commercial activity with a sufficient nexus to the U.S. Investing in a private equity fund has been recognized as a “commercial activity” under FSIA, and a failure to make a payment in the U.S. may be sufficient to permit the suit.

AND THIS WAIVER

A state entity can waive its immunity under FSIA either explicitly (e.g., in a side letter) or by implication (e.g., by filing a responsive pleading in an action without raising a defense of sovereign immunity). (To be continued).

THOUGHT FOR THE WEEK

“Only one thing can save this country, and that’s to get a handle on this deficit and debt issue.” (Mitch McConnell).

LAST LINE

I thank Nigerians for always keeping faith with the Sunday Sermon on the Mount of the Nigerian Project, by Chief Mike Ozekhome, SAN, OFR, FCIArb., Ph.D, LL.D. I enjoin you to look forward to next week’s treatise.