A Legal Historical Consideration of the Concept of Waiver of Sovereign Immunity – Much Ado About Nothing?

Sometime last week, news broke that the House of Representatives had uncovered a clause in a commercial loan agreement between Nigeria and Export-Import Bank of China in which Nigeria reportedly conceded its sovereignty to China. In the words of @TexTheLaw "there was no gaddem chill in the land."

I have consistently shared the view that Nigerian government officials at the highest level routinely execute contracts especially with foreign parties with little or no appreciation of the implications of some of the contractual terms. In this instance, even I found this latest allegation rather fantastic.

The concerns from the comments I read showed mounting concerns over the rising trend of the Nigerian government signing loan agreements with a clause that waives the sovereign immunity of the country if Nigeria defaults in its repayment plan. Tonight, I shall attempt to unpack the concept of sovereign immunity, why or how it can be waived and consider whether the concerns expressed by all & sundry, in respect of the sovereign immunity waiver at issue, are founded. I invite you to embark on this legal historical journey with me.

In 1972 Nigeria officially became a major oil producer. How those resources have been managed is beyond the purview of this intervention. I will restrict myself to one of the most incredible economic disasters imposed on a country by poor leadership, the Nigerian Cement Crisis of 1975.

Freshly admitted into the club of cash-rich countries, the Nigerian government sometime in 1975, concluded contracts for the purchase of extensive amounts of cement, to be delivered throughout the year, to satisfy the needs of its developing economy. Payment was done by letter of credit issued by the Central Bank of Nigeria, which is an undertaking to pay upon the receipt of title and transport of goods. Part of why the Nigerian government needed cement was to upgrade the facilities at Apapa Port which had been overwhelmed by the volume of goods imported into Nigeria during the period following the oil boom of the 1970s. However, the volumes ordered were so large that the capacity of the Apapa/Lagos port was hopelessly exceeded (Sounds familiar?).

For context, before 1975 the average rate of imports through all the ports of Lagos was 2 million tons of Cement every year. The total discharging capacity for Apapa/Lagos ports was 2 million tons of cargo for all commodities. Yet five different government Ministers placed separate orders for cement alone totalling over 20 million tons! leaving nothing for other vital food and materials.

These cement orders compounded matters because the ports were congested, the cement was arriving in hundreds of ships, which could not unload and therefore added to the congestion. With many more waiting. This led to a large backlog and long delays before ships could unload. In some cases, the ships waited on the high seas for months as a result of which the cement on board hardened due to a combination of moisture and humid weather, and became useless. One account says that because of the great costs of chipping out the cements from the ships which exceeded the cost of the ships, the ships had to be intentionally sunk and that they remain on the bottom of the ocean off the coast of Nigeria to date.

This crisis was part of what contributed to the toppling of Yakubu Gowon as Head of State. This is also the story behind one of the most famous judgments delivered by the legendary Lord Denning. The case of Trendtex Corporation v. Central Bank of Nigeria.

In July 1975 Murtala Muhammed/Obasanjo took office. To solve the problem, they suspended the imports of cement and required special approval of delivery before the ships sailed, and additional confirmation of the letters of credit. Otherwise the CBN would not honour the letters of credit. Trendtex, a Swiss trading corporation, consigned some shipments of cement destined for Nigeria to be used for the construction of military barracks. Because of the above policy, payment for these shipments was refused. Consequently, Trendtex dragged Nigeria before the High Court of England.

In response to the action, the CBN asked the English court to decline jurisdiction and throw away the suit because the CBN was an organ of the Nigerian State, and Nigeria in turn had SOVEREIGN IMMUNITY and therefore could not be sued, especially in the court of a foreign State. The CBN was not wrong because there is indeed a concept known in international law as sovereign immunity which is a legal doctrine that stipulates that a Sovereign or a State cannot commit a legal wrong and is therefore immune to civil suit or criminal prosecution. The potential implication of this was that due to the irresponsibility of the Nigerian government, businessmen and women were potentially facing millions of Dollars in loss and the court was likely to hold that they had no right of action, no remedy, no justice. Because of the doctrine of sovereign immunity.

It is again outside my remit to trace the historical origin of the doctrine of sovereign immunity but in a seminal work published in 1953, titled ‘Historical Approach to the Doctrine of Sovereign Immunity’ George W. Pugh did justice to the issue. Suffice it to note however that the sovereign immunity concept is partly traced to the English Law stand that "the King does no wrong", from where it spread to other places including those without sovereign monarchs and soon attained the status of a generally acceptable principle of customary international law.

As Pugh noted, in those days it used to be the case that contracts between a country and individuals were only binding on the conscience of the sovereign and had no force of law. They conferred no right of action whatsoever on the party wronged by the sovereign. For this reason the US courts held in one case that it was useless to allow parties bring lawsuits against States for the debts they owed. How could the judgments be enforced? It could only be done by waging war against the contracting State and this was unnecessary. Over time however, US courts began to see the inherent wrong in the principle and sought for ways to avoid it. In 1879, the US court pronounced that the English maxim that the King can do no wrong was not applicable in the US. Nevertheless, the doctrine of sovereign immunity remained.

Before Trendtex Corporation v Central Bank of Nigeria decision, what was generally acceptable and therefore applicable was the principle of absolute sovereign immunity which applied the doctrine of sovereign immunity without exception. In Trendtex the English Court of Appeal held that international law had moved on from a doctrine of absolute to restrictive immunity. Under the restrictive immunity rule, acta iure imperii (sovereign/public act) was to be differentiated from acta iure gestionis (private/commercial act). The new position was that it was only a sovereign/public act that was entitled to immunity. Where a sovereign undertakes a private/commercial act, such was not covered by immunity and a private party was entitled to sue the State. That's how Trendtex got justice against Nigeria.

According to Lord Denning, "a foreign sovereign has no immunity when it enters into a commercial transaction with a trader here and a dispute arises which is properly within the territorial jurisdiction of our courts. If a foreign government incorporates a legal entity which buys commodities on the London market; or it has a state dept which charters ships on the Baltic Exchange: it thereby enters into the marketplaces of the world. Int'l comity requires that it should abide by market rules."

In addition to this distinction between absolute immunity and restrictive immunity, there is also the acceptable concept whereby a sovereign is permitted to WAIVE its immunity. This concept of waiver of sovereign immunity is aptly summarised in Beers v. Arkansas an 1857 US case "it is an established principle of jurisprudence in all civilized nations that the sovereign cannot be sued in its own courts, or in any other, without its consent & permission; but it may, if it thinks proper, waive this privilege, and permit itself to be made a defendant in a suit by individuals, or by another State. And as this permission is altogether voluntary on the part of the sovereignty, it follows that it may prescribe the terms and conditions on which it consents to be sued, and the manner in which the suit shall be conducted and may withdraw its consent whenever it may suppose that justice to the public requires it."

The foregoing show that waiver of sovereign immunity is in itself an attribute of a State's sovereignty. How the House of Representatives and the other experts arrived at the conclusion that waiver of immunity is unconstitutional has been giving me sleepless nights. Indeed, Nigeria is not the first country to waive its sovereign immunity for the purpose of entering into commercial contracts. In the case of Ukraine v. The Law Debenture Trust Corporation PLC currently pending before the UK Supreme Court relating to a dispute between Ukraine and Russia, Ukraine waived its sovereign immunity which enabled the claimant sue them before the English courts.

The latest sovereign immunity waiver that appears to have triggered everyone is contained in Article 8(1) of the commercial loan agreement signed between Ministry of Finance on behalf of Nigeria and the Export-Import Bank of China on September 5, 2018. The Article provides:

“the borrower hereby irrevocably waives any immunity on the grounds of sovereign or otherwise for itself or its property in connection with any arbitration proceeding pursuant to Article 8(5), thereof with the enforcement of any arbitral award pursuant thereto, except for the military assets and diplomatic assets.”

In other words, Nigeria asked the Chinese Bank for a loan. The bank said to Nigeria, to give you this loan you have to assure me that if you default in your repayment, and I take steps to enforce my right you won’t turn around and claim Sovereign immunity. What is wrong with this? As George W. Pugh rightly asked, why should the government be legally free from contracts solemnly entered into by it with private citizens?

Think about it dispassionately, as a businessman how would you feel if your lawyer informed you that although you entered into a written agreement with government & you have performed your covenants, the contract actually affords you no rights at all if the government commits a breach of the agreement? Picture a contractor who enters int an agreement with the Federal Government of Nigeria to design and construct the 4th Mainland Bridge after which the government turns round and says there is no money and the contractor should go to hell, and the contractor would have no right to approach the courts for redress because Nigeria has sovereign immunity.

Again, Pugh opined that there is no valid reason why citizens dealing with government should do so at their peril, with no right to seek justice from their courts. And I am complete agreement with him. And I am sure every fair-minded person does. Why are we crying wolf? Are we planning to default in the loan? Because I seriously don't understand it.

That said, whether the debts which we are racking up from China and leaving for the next generation are worth it, is real issue not waiver of sovereign immunity. But once again we have succeeded in mixing up our priorities the same way the Government did with the Cement Crisis in 1975.

These views were first expressed as a Twitter thread via @OrjiUka