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Court of Final Appeal holds that absolute immunity applies in Hong Kong
Practical Law UK Legal Update 5-508-0490 (Approx. 5 pages)
Court of Final Appeal holds that absolute immunity applies in Hong Kong
by Practical Law
| Published on 01 Sep 2011 • China, Hong Kong - PRC |
John Choong (Senior Associate), Freshfields Bruckhaus Deringer
In a decision rendered on 8 June 2011, the Hong Kong Court of Final Appeal provisionally decided that absolute state immunity applies in Hong Kong. However, the court referred certain questions of state immunity to the Standing Committee of the National People’s Congress, on the basis that a Hong Kong court does not have jurisdiction over foreign affairs, which fall within the responsibility of the Central People’s Government. The Standing Committee issued its response on 26 August 2011.
Background
State immunity in Hong Kong
Hong Kong, as a Special Administrative Region of the PRC, is not a sovereign state, but has its own system of law under the "one country two systems" concept. Immediately before 1 July 1997 (when Hong Kong was handed over to China), Hong Kong law adopted the common law doctrine of "restrictive immunity", which provides that a sovereign state would enjoy immunity from jurisdiction and execution in the courts of Hong Kong, except in relation to commercial transactions. The PRC, in contrast, is believed to adopt the doctrine of absolute immunity, which provides that a state will enjoy immunity from jurisdiction and execution in the courts of another country, even in relation to commercial transactions entered into by such a state.
Following the handover of Hong Kong to China, there was some uncertainty over whether Hong Kong law would now follow the restrictive immunity, or the absolute immunity doctrine.
In the course of the present proceedings, the Office of the Commissioner of the Ministry of Foreign Affairs of China in Hong Kong wrote a total of three letters to the Hong Kong courts, setting out the "consistent and principled position of China", which was that the doctrine of absolute immunity applied in the PRC.
Facts
The dispute in this case arose out of an alleged breach of financing agreements between the Democratic Republic of Congo (Congo), a Congolese state-owned electricity company (SNE), and a construction company (Energoinvest).
Disputes arose and Energoinvest brought two arbitrations, in Zurich and Paris, against Congo and SNE. Both arbitral tribunals made awards in favour of Energoinvest against Congo and SNE. Energoinvest subsequently assigned the benefit of the arbitral awards to FG Hemisphere Associates LLC (FG).
In April 2008, FG became aware that affiliates of China Railway Group Ltd had entered into a joint venture agreement with a Congolese state-owned company, with certain monies due to be paid to Congo. FG then commenced proceedings to enforce the awards against such monies, which were payable to the Congo, in Hong Kong.
In the Hong Kong High Court, Saw J initially granted leave to enforce the two awards against Congo.
Congo challenged this leave and Reyes J discharged Saw J's order in a judgment given on 12 December 2008. On appeal, the Court of Appeal restored Saw J's order on 10 February 2010, on the basis that restrictive immunity applied in Hong Kong. Congo then appealed the Court of Appeal's decision to the Court of Final Appeal. The questions before the Court of Final Appeal were:
- What is the doctrine of state immunity applicable in Hong Kong and can Hong Kong adopt a doctrine of restrictive immunity as opposed to the doctrine of absolute immunity adopted by the PRC?
- Had state immunity been waived by Congo by submitting to arbitration in Paris and Zurich?
- Was the court, in light of provisions of The Basic Law of the Hong Kong Special Administrative Region of the People's Republic of China (the Basic Law), which provided for referral of matters relating to "foreign affairs" to the Standing Committee of the National People's Congress, obliged to so refer the matter?
Decision
The Court of Final Appeal, by a majority of 3:2, provisionally upheld Congo's appeal and referred the matter to the Standing Committee of the National People's Congress for final determination.
As regards the question of state immunity, the court found that Hong Kong, as a Special Administrative Region of the PRC, lacks the very attributes of sovereignty which might enable a state to establish its own practice of state immunity. Hence, Hong Kong was bound to follow the practice of the PRC and to recognise the doctrine of absolute immunity.
The court further found that Congo had not waived its state immunity merely by submitting to arbitration, because submission to an arbitral tribunal was distinct from submission to a Hong Kong court. FG argued that submission to arbitration constituted an implied waiver of immunity, relying on academic opinion in favour of changing the law, so that an implied waiver is more readily recognised. However, the court was not persuaded that such a change would be wise or desirable. Instead, it held that for a waiver to be effective, the waiving state must voluntarily submit to the exercise of jurisdiction by the courts of the forum state over the waiving state's governmental entities or property. In addition, it found that such a submission cannot be made in advance by way of a contractual waiver of immunity, but can only be made "at the time when the forum state's jurisdiction is invoked". In other words, the waiver is only effective when it is made before the court in proceedings currently being heard.
As for the question of referral, the Basic Law states that the courts of Hong Kong have no jurisdiction over "acts of state and foreign affairs". The majority in the Court of Final Appeal were of the opinion that state immunity, which concerns relations between states, was clearly an important component in the conduct of a nation's foreign affairs in relation to other states. Furthermore, the court held that such referral was necessary as the case could not be resolved without a determination of the questions of interpretation affecting the relevant provisions of the Basic Law. In particular, the words "acts of state such as defence and foreign affairs" required interpretation by the Standing Committee. The court, therefore, found that the matter should be referred to the Standing Committee for a final determination.
Standing Committee
The referred questions were tabled for consideration by the Standing Committee of the National People's Congress, in a meeting held in late August 2011.
On 26 August, the Standing Committee issued its final response, upholding the Court of Final Appeal's decision and stating the position in Hong Kong: Hong Kong must follow PRC law in questions relating to the administration of foreign affairs. It further confirmed that the determination of state immunity rules and policies was a matter of foreign affairs.
Comment
As a result of the response of the Standing Committee, it is clear that the absolute theory of immunity applies in Hong Kong and a state cannot, by contract made prior to a dispute arising, agree to waive its immunity from court jurisdiction. However, it would appear that this "no waiver" rule would not prevent a state from agreeing to arbitrate in Hong Kong and for a tribunal to maintain jurisdiction over the state in any such arbitration.