DC Circuit issues opinion on sovereign immunity defenses to the enforcement of arbitration award against foreign states
On June 19, 2020, the US Court of Appeals for the District of Columbia in Process and Industrial Developments, Ltd. v. Federal Republic of Nigeria, et al. held that the DC District Court, in considering a petition to confirm an arbitral award against a foreign sovereign, must first resolve a colorable assertion of sovereign immunity, before requiring the foreign state to fully litigate their case.
In doing so, the courts have affirmed that foreign states might not only be able to rely on the doctrine of sovereign immunity to protect themselves from final judgments, but also to avoid the burdens of litigation itself. The court left open, however, the main question raised by Nigeria in the case of whether a vacated award still falls under the arbitration exception to the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. § 1605(a)(6), which provides broad jurisdictional immunity to foreign states. As described below, the case now returns to the District Court, which will decide this question before a likely further appeal to the DC Circuit to finally resolve this issue.
Background on the arbitral award
An arbitral tribunal seated in London issued the $9 billion award in favor of the engineering firm Process and Industrial Developments Ltd. (P&ID). After the award was issued, Nigeria successfully challenged the award in Nigeria, where the courts set aside the award as inconsistent with Nigerian law.
In 2018, P&ID filed a petition to confirm the award before the DC District Court. Nigeria moved to dismiss for lack of subject-matter jurisdiction, invoking the FSIA. The District Court, however, granted a request from P&ID that Nigeria first present all of its defenses − both jurisdictional and on the merits − in a single response to the petition to confirm rather than permitting Nigeria to assert its sovereign immunity defenses first. Nigeria appealed arguing that the immunity defense was a threshold issue that must be decided before proceeding to the merits.
The DC Circuit’s decision on appellate jurisdiction
On appeal, the Circuit Court first addressed P&ID’s motion to dismiss the appeal because (1) the appeal was not yet ripe and (2) Nigeria’s underlying sovereign immunity defense was not colorable. As a general rule, appellate review is limited to "final decisions," but may also extend to interlocutory orders "that are conclusive, that resolve important questions separate from the merits, and that are effectively unreviewable on appeal from the final judgment in the underlying action." The Circuit Court held that the District Court had conclusively determined that Nigeria would be forced to defend against enforcement of the final award on the merits despite an unresolved assertion of immunity, that this clearly presented an important question distinct from the merits, and that the issue would be unreviewable upon appeal because the order effectively subjected a foreign state to litigation burdens.
Next, P&ID argued that the Circuit Court still should not hear the appeal because the sovereign immunity argument asserted by Nigeria was not colorable and would, effectively, be a waste of time. Nigeria disagreed. In particular, Nigeria pointed to Article V(1)(e) of the New York Convention, which provides that recognition and enforcement of an arbitral award may be refused if "the award… has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made." On this basis, Nigeria argued that the FSIA exception that permits suits enforcing arbitration awards where the "agreement or award is or may be governed by a treaty or other international agreement in force" did not apply. Similarly, whether Nigeria had implicitly satisfied the FSIA’s waiver exception by signing the New York Convention and agreeing to arbitrate the dispute in another signatory country also remained unresolved. Thus, the court concluded that Nigeria’s immunity arguments were colorable because the question of whether the arbitration exception to the FSIA applies where an award has been vacated – including where the award is set aside in the country whose substantive law governs the arbitration as opposed to the seat – had not yet been decided conclusively.
The DC Circuit’s substantive decision
The court held that the District Court erred in requiring Nigeria to defend the merits before resolving its colorable immunity assertion. The court first highlighted the Supreme Court’s view that a fundamental policy underlying sovereign immunity included providing immunity from the burdens attendant to litigation. Accordingly, immunity must be decided as a threshold issue, even where the immunity turns on disputed factual questions and jurisdictional discovery and factual resolution of immunity questions is required.
Next, the court reasoned that, while the Federal Arbitration Act (FAA) stipulates that petitions to confirm arbitral awards must be "made and heard in the manner provided by law for making and hearing motions," nothing in the FAA prohibits the party against whom a motion is made from filing countervailing motions. While recognizing that the FAA sought to streamline the process for confirming arbitral awards, the FAA does not prohibit defense motions addressing important preliminary issues such as sovereign immunity.
The DC Circuit then addressed the District Court’s conclusion that having to brief the merits would impose a lesser burden on Nigeria than would result from discovery or a trial on the merits. The court considered that the District Court understated the litigation burdens that its order imposed on Nigeria. Although confirmation proceedings generally are decided on a single round of briefing, P&ID’s initial filings consisted not only of a 15-page petition to confirm and a 30-page merits brief in support, but also a declaration attaching over 500 pages of exhibits laying out the nearly ten-year history of the underlying contractual dispute, the London arbitration, and the competing judicial orders in the United Kingdom and Nigeria. And the District Court, without resolving Nigeria’s "colorable" immunity claim, required Nigeria to present its complete merits defense to the enforcement of the arbitration award. However, the court noted that immunity does not turn on the extent of litigation burdens imposed on the foreign sovereign. Rather, where immunity exists, it affords a complete protection from suit given that one of the "basic objectives" of the FSIA is to "respect the independence and dignity" of foreign sovereigns, not simply to ameliorate their litigation burdens.
The procedural issues decided by the DC Circuit are unlikely to arise again in precisely the same way, particularly after the District Court and, likely, the Circuit Court resolve the arguments raised by Nigeria concerning the arbitration exception. However, the substantive question of whether a vacated award still falls under the FSIA’s arbitration exception is a novel one and could have wide-reaching effects.
In determining that Nigeria’s sovereign immunity argument is colorable, the Circuit Court did not decide it was the correct interpretation of the statute. Instead, it left this decision to the District Court. Nigeria’s argument effectively calls for an exception to the FSIA’s arbitration exception where the award has been vacated. Grounded in Article V(1)(e) of the New York Convention, this argument is not merely a defense against enforcement of the arbitration award (an issue which the DC Circuit has previously addressed), but rather potentially an important jurisdictional defense.
Learn more about the implications of this decision by contacting any of the authors.