Trendtex Trading Corporation v.

Central Bank of Nigeria

FACTS: The Central Bank of Nigeria (The Bank) was incorporated in 1958 by a Nigerian
statute as a central bank modelled on the Bank of England. It issued legal tender and acted
as banker and financial adviser to the Government of Nigeria. It also acted as banker for
other banks and its affairs were under considerable governmental control.

The Ministry of Defence in Nigeria agreed to buy 240,000 tons of Portland cement from an
English company, the Pan­African Export and Import Co. Ltd. The cement was to be shipped to
Nigeria where it was to be used to build government barracks. In pursuance of that contract the
Ministry of Defence instructed the Central Bank of Nigeria to open a letter of credit in favour of
Pan­African to the extent of U.S. $14,400,000 to be valid for payment against shipping
documents conformable to the contract of purchase. In order to fulfill their contract to supply the
cement, Pan­African entered into a contract with the Trendtex Trading Corporation (Trendtex) of
Zurich, Switzerland. By it Pan­African agreed to buy 240,000 tons of Portland cement from
Trendtex. The letter of credit was transferred to Trendtex. Trendtex shipped the cement to
Nigeria but there was congestion in the port of discharge and the Central Bank declined to make
payments claimed to be due for the price and for demurrage. By writ of November 1975
Trendtex claimed against the Central Bank for payments due in respect of the bank’s breaches
and repudiation of the letter of credit.

Judge Mocatta granted the plaintiff an injunction. The Bank submitted its application by
summons for the writ to be set aside contending that by on the ground that it was a department
of the Federal Republic of Nigeria and was thereby immune from suit. Judge Donaldson set
aside the writ and stayed further proceedings in the action on the ground that the bank was an
alter ego and a department of the State of Nigeria and was therefore immune from suit.

ISSUE: W/N Central Bank of Nigeria can claim sovereign immunity. NO.

HELD: There is a European Convention on State Immunity, which has been signed by most of
the European countries, wherein the theory of absolute sovereign immunity has been
abandoned and a more restrictive view was adopted especially concerning commercial
transactions.

There are 2 schools of thought on this issue. One school of thought holds to the doctrine of
incorporation. It says that the rules of international law are incorporated into English law
automatically and considered to be part of English law unless they are in conflict with an Act of
Parliament. The other school of thought holds to the doctrine of transformation. It says that the
rules of international law are not to be considered as part of English law except in so far as they
have been already adopted and made part of our law by the decisions of the judges, or by Act of
Parliament, or long established custom. The difference is vital when you are faced with a
change in the rules of international law. Under the doctrine of incorporation, when the rules of
international law change, our English law changes with them. But, under the doctrine of
transformation, the English law does not change. It is bound by precedent. It is bound down to
those rules of international law that have been accepted and adopted in the past. It cannot
develop as international law develops.(The doctrine of incorporation is the more favored theory.)

(i) The doctrine of absolute immunity. A century ago no sovereign state engaged in
commercial activities. It kept to the traditional functions of a sovereign – to maintain
 law and order – to conduct foreign affairs – and to see to the defence of the country.
It was in those days that England – with most other countries – adopted the rule of
absolute immunity. It was adopted because it was considered to be the rule of
international law at that time.
(ii) The doctrine of restrictive immunity. In the last 50 years there has been a complete
transformation in the functions of a sovereign state. Nearly every country now
engages in commercial activities. It has its departments of state – or creates its own
legal entities – which go into the market places of the world. They charter ships.
They buy commodities. They issue letters of credit. This transformation has changed
the rules of international law relating to sovereign immunity. Many countries have
now departed from the rule of absolute immunity. So many have departed from it that
it can no longer be considered a rule of international law. It has been replaced by a
doctrine of restrictive immunity. This doctrine gives immunity to acts of a
governmental nature, described in Latin as jure imperii, but no immunity to acts of a
commercial nature, jure gestionis.

The bank, which had been created as a separate legal entity with no clear expression of intent
that it should have governmental status, was not an emanation, arm, alter ego or department of
the State of Nigeria and was therefore not entitled to immunity from suit

That even if the bank were part of the Government of Nigeria, since international law
now recognised no immunity from suit for a government department in respect of
ordinary commercial transactions as distinct from acts of a governmental nature, it was
not immune from suit on the plaintiff’s claim in respect of the letter of credit.

The modern principle of restrictive sovereign immunity in international law giving no immunity to
acts of a commercial nature is consonant with justice, comity and good sense. That since the
bank was not entitled to immunity from suit the injunction preserving funds within the jurisdiction
to satisfy the plaintiff’s claim should be continued.

Separate Opinions: (Found some of these summaries online)

Concurring Shaw L.J: In the conditions of international relations which now prevail the
restrictive principle which has emerged is manifestly in better accord with practical good sense
and with justice. This is indeed the motive force which has brought about its establishment in
place of the old rule. When once a rule or international law has been recognised and adopted
and applied by an English court a transformation of the English law is brought about whereby
the adopted rule becomes part of the corpus of English law. “a foreign sovereign has no
immunity when it enters into a commercial transaction with a trader here and a dispute arises
which is properly within the territorial jurisdiction of our courts.

Dissenting Lawton L.J: He expressed concern as to the possible prejudice which might result
to those engaged in international trade if changes in international law brought about ipso facto
corresponding changes in the law of England. But even the law of England changes quite apart
from what may be happening to international law. Moreover, changes in rules of international
law do not come about abruptly; and changes will not be recognised in an English court without
convincing support.