On March 11, 2022, the United States Court of Appeals for the D.C. Circuit clarified whether U.S. courts have jurisdiction under the Foreign Sovereign Immunities Act (FSIA) over actions to enforce arbitral awards that have been annulled by a foreign court. In Process & Industrial Developments Ltd. v. Federal Republic of Nigeria, __ F.4th __ (D.C. Cir. Mar. 11, 2022), the court held that the FSIA’s arbitration exception abrogates a foreign sovereign’s immunity in an action to enforce an arbitration award against the sovereign—even if a foreign court has annulled the award. The decision resolves potential uncertainty on this issue stemming from prior D.C. Circuit decisions that suggested in dicta that annulled awards may cease to exist. The decision also makes it harder for foreign sovereigns to avoid the jurisdiction of U.S. courts by annulling unfavorable awards in the sovereign’s home courts.
Background
The FSIA provides that foreign sovereigns and their instrumentalities are, by default, immune from suit in the United States unless one of the FSIA’s exceptions to immunity applies. The FSIA’s arbitration exception, 28 U.S.C. § 1605(a)(6), abrogates this immunity in an action against a sovereign to confirm an arbitral award. Past decisions of the D.C. Circuit, however, hinted that this exception may not apply if the arbitral award is annulled by a court at the seat of the arbitration. In TermoRio S.A. E.S.P. v. Electranta S.P., for example, the court reasoned that “an arbitration award does not exist to be enforced . . . if it has been lawfully ‘set aside’ by a competent authority in the State in which the award was made.” 487 F.3d 928, 936 (D.C. Cir. 2007). Sovereigns thereafter argued that an annulled award “does not exist,” id., and thus cannot satisfy the FSIA’s arbitration exception, which applies in an action “to confirm an award,” 28 U.S.C. § 1605(a)(6).
Nigeria raised this argument repeatedly in P&ID. Nigeria hired P&ID to build a gas plant, and the parties signed a contract requiring them to arbitrate disputes under Nigerian law. After the project fell apart, P&ID won $9 billion in the resulting arbitration. Although the Nigerian courts annulled the arbitral award, P&ID petitioned the U.S. District Court for the District of Columbia to enforce the award against Nigeria.
One of Nigeria’s arguments is that it is immune from suit because the award’s annulment means that no award exists to be enforced, and so the FSIA’s arbitration exception cannot apply. The first time that the P&ID case went up on appeal, the D.C. Circuit gave a nod to Nigeria’s immunity arguments, noting that “Nigeria has at least a colorable argument that a confirmable ‘award’ under the arbitration exception cannot include an award set aside by a court with supervisory jurisdiction over the arbitration.” P&ID v. Federal Republic of Nigeria, 962 F.3d 576, 583 (D.C. Cir. 2020). The D.C. Circuit remanded the case so that the district court could consider Nigeria’s immunity defenses.
On remand, the district court declined to decide the arbitration exception issue. Instead, it focused on the FSIA’s waiver exception, 28 U.S.C. § 1605(a)(1), which abrogates sovereign immunity if the sovereign has implicitly or explicitly waived its immunity. The district court ruled that Nigeria waived its immunity in an action to enforce an arbitral award by signing a contract with an arbitration clause and ratifying the New York Convention, which provides for international enforcement of arbitral awards.
The D.C. Circuit’s Decision
The D.C. Circuit affirmed, but relied on the arbitration exception, rather than the waiver exception, to rule that Nigeria was not immune from suit. The court held that the FSIA’s arbitration exception abrogates a sovereign defendant’s immunity even when a foreign court has annulled the underlying arbitral award. The court reasoned that the question whether an annulled award deserves recognition is best treated as a merits question. In other words, the party resisting enforcement may, as an affirmative defense, argue that the award was invalid. But that merits question, the court concluded, “has no bearing on the district court’s jurisdiction” under the FSIA’s arbitration exception.
The D.C. Circuit also declined to address the FSIA’s waiver exception. Citing an amicus brief from the United States, the court explained that deciding whether ratifying the New York Convention waives sovereign immunity may trigger “significant foreign policy concerns” affecting “the treatment of the United States in foreign courts” and its “relations with foreign states.” Given its holding that the arbitration exception applies, the D.C. Circuit found it “unnecessary to wade into the murky waters of the waiver exception.”
Key Takeaways
The D.C. Circuit’s decision resolves any potential ambiguity from its prior decisions in TermoRio and P&ID on whether the FSIA’s arbitration exception applies to annulled awards. As a result of the D.C. Circuit’s ruling that the arbitration exception does apply, foreign sovereigns will not be able to avoid the jurisdiction of U.S. courts by annulling unfavorable awards in the foreign sovereign’s home courts.
The D.C. Circuit’s ruling also means that, at least in some cases, parties may be able to enforce awards more quickly against sovereigns. Sovereign defendants may be entitled to have a “colorable” sovereign immunity defense resolved—including through an interlocutory appeal—before they must brief any of their merits defenses. While sovereigns have sometimes raised annulment of the award by their home courts as a defense to enforcement, the D.C. Circuit’s decision means that this defense will be addressed on the merits rather than at the jurisdictional stage. This may result in faster enforcement against sovereigns, who, deprived of a sovereign immunity argument stemming from the annulment of the award, may not be able to use an interlocutory appeal on their sovereign immunity to delay proceedings on the merits.
