^{Hong Kong's State of Immunity put to Test}

Colin Wright

This article by Colin Wright first appeared in Lloyd's List on 21 September 2011.

Hong Kong has for many years been a centre for shipping and international trade.  It has also for many years been a centre for the resolution of disputes relating to shipping and international trade. 

Hong Kong has a common law system of justice which developed during the years that Hong Kong was a British colony. 

On 1^st July 1997, Hong Kong became a Special Administrative Region of the People’s Republic of China (“the PRC”) following a historic and unique agreement between the United Kingdom and the PRC. 

Under that deal, Hong Kong’s sovereignty was handed over to the PRC but the existing rights and freedoms were guaranteed in a mini-constitution called the Basic Law.

In the years since 1997, the “one-country, two-systems” model has proved to be a great success.  Hong Kong continues to thrive as a commercial centre.  The Hong Kong courts enjoy independence and continue to resolve disputes in accordance with the rule of law.   

Hong Kong’s status as a Special Administrative Region of the PRC has given rise to questions relating to the circumstances in which legal claims can be brought in the Hong Kong courts against the Government of the PRC. 

The first question which has arisen is as follows: is an entity which is part of the PRC Government immune from suit in the Hong Kong courts?  A related question has arisen: are foreign states entitled to claim immunity from legal claims brought in the Hong Kong courts?

The first issue arose in Intraline Resources Snd Bhd v The Owners of the Ship or Vessel “Hua Tian Long”.  The “Hua Tian Long” was a large floating derrick crane owned by the Guangdong Salvage Bureau (“the GSB”), which was an arm of the PRC Government’s Ministry of Communications. 

The vessel was brought to Hong Kong in order to participate in a salvage operation made necessary by a collision between a container ship and a tug within Hong Kong waters. 

Whilst within Hong Kong waters, the “Hong Tian Long” was arrested in respect of an earlier commercial claim arising from an alleged failure to perform a charterparty. 

The Hong Kong court upheld the claim of the GSB that they were entitled to rely on the doctrine of “Crown immunity”.  This doctrine had developed whilst Hong Kong was a British colony and reflected the concept that the Crown was immune from the processes of its courts.  Constitutionally, in 1997, one sovereign was replaced by another with the result that the organs of the PRC were in principle entitled to claim immunity in response to the claim against them.           

The second issue arose in FG Hemisphere v Democratic Republic of Congo.  The case arose out of a contract to build a hydroelectric facility in the Democratic Republic of Congo (“the DRC”).  The DRC defaulted on its obligations and two arbitral awards were obtained against it. 

The claimants in the arbitrations sold the benefit of the awards to FG Hemisphere (“FG”) which sought to enforce the awards against the DRC. 

Hong Kong’s Court of Final Appeal by a majority gave a provisional ruling on the immunity from suit claimed by DRC. 

The case was particularly significant in that the Court of Final Appeal decided to seek an interpretation of the Basic Law from the Standing Committee of the National People's Congress of the PRC (“the NPCSC”) under Article 158(3) of the Basic Law. The Hong Kong courts had not previously sought such interpretation from the NPCSC.

The PRC has always recognised "absolute immunity" (the policy of not exercising jurisdiction over a foreign State sought to be sued in the courts of the forum State) whereas Hong Kong, before the handover in 1997, had adopted a policy of "restrictive immunity" (which recognised a commercial exception to absolute immunity).

The DRC argued that, following the handover, Hong Kong should follow the PRC and therefore absolute immunity applies. The PRC Government expressed the same view in letters written to the Hong Kong courts in the case.

The Hong Kong Court of Final Appeal held by a majority that, at common law, it is for the sovereign State to determine the principle of state immunity which it applies in its relations with other sovereign states and there is no scope for a municipality such as the Hong Kong Special Administrative Region (lacking the attributes of sovereignty) to adopt a principle of state immunity different from that adopted by the State.

According to the CFA’s reasoning, the common law principle of state immunity, modified in accordance with the requirements of the Basic Law, to be applied in the courts of Hong Kong was therefore that of absolute immunity. 

The Court of Final Appeal also held that the Basic Law, which is superimposed upon the common law, reinforces the above position.  By Article 13 of the Basic Law, responsibility for foreign affairs is allocated to the Central People's Government (“the CPG”).  State immunity forms part of foreign affairs. 

Article 19(3) of the Basic Law stipulates that the Hong Kong courts have no jurisdiction over "acts of state such as defence and foreign affairs" and that the Hong Kong courts are bound to determine questions of fact concerning acts of state in accordance with a certificate issued by the Chief Executive based on a certifying document from the CPG. 

The Court of Final Appeal also noted that whilst Article 8 of the Basic Law states that the common law previously in force continues to apply in the Hong Kong, it does so subject to such modifications, adaptations, limitations or exceptions as are necessary to bring its rules into conformity with Hong Kong's status as a Special Administrative Region of the PRC to avoid any inconsistency with the Basic Law.     

In reaching its decision, the CFA noted that the allocation of responsibility for foreign affairs on the CPG and the exclusion of foreign affairs from the sphere of autonomy of the HKSAR are made clear by Article 13, Article 18(3) and Article 158(3) of the Basic Law.  

While the Basic Law gives the HKSAR independent judicial power, Article 19(3) removes from the HKSAR courts jurisdiction "over acts of state such as defence and foreign affairs". 

The Court of Final Appeal concluded that the determination by the CPG of the PRC's policy of state immunity as a policy of absolute immunity is an "act of state such as defence and foreign affairs" within the meaning of Article 19(3) of the Basic Law.  The CFA therefore held that the courts of the Hong Kong Special Administrative Region therefore do not have jurisdiction over the determination of such policy.

The Court of Final Appeal rejected an argument that the DRC had impliedly waived its immunity by entering into the arbitration agreements resulting in the awards sought to be enforced. Those agreements contained a promise by the DRC to carry out the award and to waive any form of recourse. The majority held this contract did not involve relations between the DRC and other states.  However the Court of Final Appeal did agree that a State could in principle waive its immunity as follows: "It is well-established at common law that a party seeking to enforce an arbitration award (or a judgment) against a foreign State on the basis of a waiver of state immunity must establish a waiver at two distinct stages. The impleaded State must have waived both its jurisdictional immunity from suit in the forum State, and the immunity of property from execution by the forum State's process".

On 26 August 2011, the Standing Committee of the National People’s Congress gave the interpretation of the Basic Law which the CFA had requested.  As anticipated, the Standing Committee unanimously confirmed its agreement that the doctrine of absolute state immunity applies in Hong Kong.

The decision of FG Hemisphere is welcome in that it removes the previous uncertainty about the circumstances in which a foreign state may be sued in the Hong Kong courts.  The decision is also important on a different level in that it confirms the success of the unique system under which Hong Kong’s courts operate.