Nigeria: U.S. Court Sets Precedent on International Contracts

U.S. corporations' ability to sue governments and state corporations of other countries under the U.S. Foreign Sovereign Immunities Act (FSIA) of 1976 was clarified and strengthened in a precedent-setting verdict handed down last month in the Second U.S. Court of Appeals in New York.

The verdict, by Judge Irving R. Kaufman, settled an appeal of suits which were filed by four U.S. trading companies against the Government and Central Bank of Nigeria after Nigeria breached contracts with the firms for the supply of nearly I million metric tons of cement in 1975.

"In response to suits brought by disgruntled suppliers." wrote Judge Kaufman in his opinion on the case. "(Nigeria) seeks to invoke an ancient maxim of sovereign immunity-par in parem imperium non habet ("An equal has no dominion over an equal")-to insulate itself from liability."

But Kaufman decided that a provision of the FSIA, which states that foreign governments engaging in "commercial activity" that "causes direct effect in the United States" are not immune from legal action in the U.S., applied to the cement cases, and therefore Nigeria was subject to the jurisdiction of the U.S. courts.

The verdict upheld lower court awards of $1.857 million to Decor by Nikkei International, 51.986 million to East Europe Import-Export, Inc., and nothing to Chenax Majesty, Inc., and reversed a lower court dismissal of a fourth suit by Texas Trading and Milling Corp. for lack of jurisdiction.

Dozens of similar suits were filed several years ago against Nigeria in the U.S. and Europe. Nigeria had signed 109 contracts with 68 suppliers for more than 16 million tons of cement within a few months in 1975, expecting-based on previous experience-that only about twenty percent of the suppliers would come through. When cement-laden ships began to clog the Lagos/ Apapa harbor, which at most could handle 5 million tons of cement per year, the Nigerian Central Bank ordered its U.S. agent, Morgan Guaranty Trust, to stop payment for the cement traders, and many of the outstanding contracts were cancelled.

In his opinion Judge Kaufman wrote, "Our ruling today (means) corporations can enter contracts without fear that the defense of sovereign immunity will be inequitably interposed. and foreign states can bargain without paying a premium required by a trader in anticipation of a judgment-proof client. Commerce is fostered, and all interests are advanced."