The order had been obtained after the Federal Government of Nigeria failed to pay an arbitration award won against it by the claimant. On review, the Court said that the effects of the order on the state entity were too drastic, and that the money in the bank accounts was owed to the state entity which was not a party to the arbitration, rather than the State. The Court reserved its judgment as to whether the state entity could be equated with the State.
In this case, the claimant successfully applied to the English courts to enforce an arbitration award against the Federal Government of Nigeria which Nigeria had failed to honour. The claimant then successfully applied for permission to join the Nigerian National Petroleum Corporation (NNPC) as a defendant. Further, the claimant applied for and obtained two interim charging orders over property and shares and a third party debt order over bank accounts, all held by NNPC in London.
The without notice applications were supported by witness statements from the claimant’s solicitors alleging that NNPC was an organ of the State because the Chairman was a Minister in the Nigerian Government, the Managing Director was appointed by the National Council of Ministers and that NNPC appeared to exercise governmental powers and regulatory functions, and, as such, it was asserted that the judgment against the State should be enforceable against the assets of NNPC.
NNPC only learned of the orders because one of its employees received a text message from one of its London banks informing them that NNPC’s accounts had been frozen. On becoming aware of the orders, NNPC applied to have them all discharged. It argued that the orders had a “draconian impact” as the bank accounts were used to pay contractors, staff wages, and other everyday business expenses.
On review, Judge Jonathan Hirst QC discharged the interim third party debt order against NNPC’s bank accounts, holding that the order under CPR 72 dealt only with an order over debts owed to the judgment debtor. The debts here were owed to NNPC and not the judgment debtor, the Federal Government of Nigeria, and so the original third party debt order ought not to have been made.
With regard to the two interim charging orders, although the judge did not strike them out, he was “distinctly sceptical” about the validity of the claimant’s arguments that, even in the absence of a sham or a fraud, the separate status of a foreign corporation should be ignored just because it is an organ of a State. The claimant had based its arguments on two similar cases, Walker International v Republique Popular du Congo [2005] EWHC 2813 (Comm) and Kensington International Ltd v Republic of Congo [2005] EWHC 2684 (Comm).
This is one of an increasing number of cases in which claimants look to the assets of state entities to satisfy awards against those States – which fortunately are still few – that do not comply with awards voluntarily. This is because the assets of state entities are an attractive target, as they are often substantial, readily identifiable, and in theory at least, more easily seized than the assets of other types of State organs or agencies.
Very often at the heart of such cases is the question, “What is the State?”. The State is a construct, which may comprise many types of departments, agencies or entities. The claimant alleged that NNPC was an “organ” of the State, or in other words, that it was in truth part of “the State”. Such a result may be warranted where an entity carries out governmental functions. The judge appeared to reserve his view on this question.
Alternatively, where one is dealing with a separate legal entity that is found not to be an organ of the State, it will be necessary to show that a fraud or sham justifies the piercing of the corporate veil, although this is a significant obstacle which will only be overcome in exceptional circumstances. There appears not to have been any allegation that the corporate veil should be pierced for such reasons, but the judge’s indications were that he was not likely to have been persuaded of this, in any event.
Further information
This summary is part of the Allen & Overy Litigation Review , a monthly update on interesting new cases and legislation in commercial dispute resolution. For more information please contact Sarah Garvey sarah.garvey@allenovery.com, or tel +44 (0)20 3088 3710.