Lawyers express divergent views on China Loan ‘Sovereignty Clause’

Lawyers express divergent views on China Loan ‘Sovereignty Clause’

By Andrew Orolua, Abuja

Two Senior Advocates of Nigeria, Chief Mike Ozekhome and Norrison Quarkers have said that the ‘China loan Sovereignty Clause’ is very dangerous and toxic and could mortgage the country to its lenders.

Minister of Justice and Attorney General of the Federation, Abubakar Malami (SAN) and his counterpart in the Transportation ministry, Rt Hon. Chibuike Rotimi Amaechi had argued that Nigeria’s sovereignty is not at risk with Chinese loan agreements.

Speaking on the China sovereign loan clause with the Daily Times on Sunday, Ozekhome said that it is very dangerous and toxic. He said the clause, which waives Nigeria’s sovereignty amounts to mortgaging our future to the Chinese because in the event of default, we cannot stop them from seizing any of our property they believe could be held to recover their loan.

He said the clause left Nigeria vulnerable because Chinese companies usually come with the majority of their workers, who remit their salaries to their home country. Chief Ozekhome said it is unfortunate that both the past administration of President Jonathan and the current President Buhari administration obtained loans with dangerous sovereign clauses that might have “mortgaged Nigerians up to ten generations and we did not know it.”

He commended the foresight of members of the National Assembly in raising objections to the clause, adding that they should go further by calling for all the agreements entered into with foreigners and cancelling the clauses that waive Nigeria’s sovereignty on any of its property. Citing several projects being executed by the Chinese, Ozekhome said past and current administrations might have entered into agreements worth about N15trn.

Also speaking on the same issue Quarkers warned that having entered several agreements with sovereign waiver clauses, the country may face economic colonialism. Quarkers said the sovereign clause in the agreement was an error and it would put the future of Nigerians in the hands of China, which has been granted the liberty to seize any viable facility to recover its loan in the event of default.

Quarkers said the argument that the loan bears a very minimal amount of interest is not persuasive enough in view of our leaders’ penchant for mismanaging resources. He also queried the drafters of the clause, adding that they only protected the interest of lenders without any consideration for the future of Nigerians who will repay the loan.

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“I agree that the Chinese must recover their loan, but a clause which waives the country’s sovereign immunity except for diplomatic and military assets is an unfair deal. It means for example that any of our air ports or oil wells can be taken over in the event of default,” he said.

He recalled that Nigeria has in the past suffered similar mistakes from the AngloGerman agreements which led Nigeria to concede Bakassi Peninsula to Cameroon decades after the agreement. But the Minister of Justice and Attorney General of the Federation, Abubakar Malami (SAN) and his counterpart in the transportation ministry, Chibuike Rotimi Amaechi, said that Nigeria’s sovereignty is not at risk with China loan agreements.

Malami and Amaechi explained on a TV programme that there is a difference between international diplomatic immunity ‘which has to do with a nation’s sovereignty, independent existence and commercial immunity which has to do with a commitment to ensure repayment of loans’, Malami said the misconception is that the National Assembly is looking at the diplomatic immunity as against the commercial immunity of a country when it has to do with loans, adding that there is no concession whatsoever made as it concerns Nigeria’s diplomatic immunity.

“If you talk of immunity within the context of diplomatic immunity which has the implication of the independence of a state and its institutions in its own right, there is no concession whatsoever made by Nigeria as it relates to diplomatic immunity that has to do with its independent existence as a nation, neither was any concession made as related to institutional diplomatic immunity of the Nigerian institutions.

“But when you talk of immunity, within the context of commercial sense; that is where I think we need to clarify issues with particular reference to the loans and commercial transactions among nations. He explained that concessions relating to immunity for the purpose of provision of commercial guarantee are a normal, traditional ritual. Nations enter into respective interstate agreements and in the course of so doing surrender their jurisdictional immunity.

“It is on account of this for example that you see Nigeria signing an agreement with other institutions or nations and agreeing to a choice of territorial jurisdiction for the purpose of determining disputes when they arise. So that is how eventually you see Nigeria submitting to jurisdiction for determination of a trade dispute in the UK, in Paris and in other international fora or jurisdiction even when Nigeria as a nation has diplomatic immunity.

“And now that brings you to commercial immunity; the context and the implication of a commercial immunity or sobriety. It’s indeed embedded in an appreciation that Country A requests for a loan facility from Country B and then Country B is entitled as a matter of right to extract a commitment, an understanding that at the end of the day, the loan advance will eventually be paid. So it is indeed a concession and sobriety, giving an undertaking, providing a guarantee for repayment of the facility when the need arises.

“So commercial immunity is in essence a mere guarantee that allows an advancing state an opportunity, right and power to claim back the financial advances made to a party state and that in its own right is indeed to an asset for the purpose of repayment of the loan.”

Also, an Abuja-based legal practitioner Bala Dakum said the clause is so imprecise, ambiguous, too broad and open to manipulation.

“Since it has to do with waiver of sovereign immunity and assets, people are free to impute any meaning into it. Honestly, it’s a broad provision which limitlessly benefits the creditor. I can tell you without doubt that if Nigeria had a good legal representation, such a clause would not be accepted. It could be described as the weakness of a desperate creditor.”

Hameed Jimoh, an Abuja-based lawyer and activist said that as far as he is concerned, the clause is a dangerous one for Nigeria. He said the nation should not consciously or unconsciously be sold out by those meant to protect her.

“When a borrower secures loan and mortgages his life as security, what would he enjoy the debt if not with his life?”

But in a recent agency report, a former President of the Nigerian Bar Association (NBA), Dr. Olisa Agbakoba (SAN), said there was nothing to worry about. He dismissed the claim that such a clause ousted the country’s immunity. The loan pact was signed by the Federal Ministry of Finance on behalf of Nigeria and the Export-Import Bank of China on September 5, 2018. It will fund the Nigeria National Information and Communication Technology Infrastructure Backbone Phase II Projects.

The contentious clause states: “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.”

The ministers clarified that the lawmakers must have misconstrued the concepts of international diplomatic immunity and commercial immunity. Agbakoba agreed, adding that the appropriate term for the clause is “a waiver of immunity clause” and that it is a standard contractual provision. He said: “There is a lot of confusion, hot air about the sovereign immunity clause. There is nothing about a sovereign immunity clause. The standard clause that is introduced when two sovereigns are doing business – like China and Nigeria – or a non-sovereign and a sovereign are doing business is for the sovereign debtor, such as Nigeria, to have her credit assessed.

“Now, look at Nigeria or Africa’s credit rating generally. Africa’s credit rating is suboptimal. No bank in Nigeria will give a loan unless there are assurances of it being repaid. If you’re the governor of a state, the bank manager will ask: ‘If I give you a loan, will you not invoke your immunity?’ and you say no. Then the manager will say, ‘Let us have it in the contract that in the event you default, you will not invoke your immunity.’ So, it’s actually a waiver of immunity clause, not a sovereign immunity clause.”

he senior advocate observed that the waiver of immunity clause was at work recently when Zambia lost assets to China after it defaulted on repaying a loan. Agbakoba said: “Zambia was not able to use sovereign immunity to avoid debt repayment. If you have good standing internationally, for instance, America will not waive its sovereign immunity because America is good for credit.

Unfortunately, few African countries are not good for credit. So, it is the credit worthiness issue that is the problem.”

On the controversy triggered by the clause, Agbakoba said: “When the National Assembly began to make all the noise, it beat me hollow; they absolutely got it wrong. There’s nothing like a sovereign immunity clause. It’s a contractual clause that simply says, ‘if you don’t pay, we’ll go after your assets.”

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