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'''Summary'''
By a majority, the Hong Kong Court of Final Appeal held that as the issue of state immunity is was within the realm of foreign affairs, the Court does did not have the jurisdiction to decide on this issue. A reference has had to be made to the Standing Committee of the National People’s Congress of China before a final decision can could be made. ProvisionallySince then, the NPCSC has rendered its decision and the Court expressed the view has held thatit is bound by it. Accordingly, Hong Kong, as a local administrative region of China, Hong Kong has to follow the practice of China in adopting an absolute approach to state immunity. This means that a foreign state can enjoy an absolute immunity from suit before the Hong Kong courts, whether it is engaging in sovereign activities or commercial activities.
This note has been contributed by Ken To-ching Lee, LLB(Hons), PCLL (University of Hong Kong), BCL(Oxon) and barrister-at-law in Hong Kong.It was amended on 8 September 2011
'''Background'''
Further, the majority expressed the provisional view that, as a local administrative region of China, Hong Kong could not depart from the practice adopted by the Chinese government regarding state immunity. Thus the restrictive approach adopted under the common law could not survive the handover in 1997. After 1997, Hong Kong should follow the absolute approach, and the DRC should enjoy immunity from suit in Hong Kong.
On the question of waiver, while a the majority rejected FG's argument that the waiver of immunity should not be limited to the foreign state can waive 's submission to the forum court's jurisdiction when the forum state immunity, the 's jurisdiction is invoked: A Company Ltd v Republic of X [1990] 2 Lloyd's Rep 520. The fact that it the foreign state had agreed to arbitrate in one jurisdiction did not mean that it agreed to submit to the jurisdiction of the courts in another jurisdiction for the purpose of enforcing any arbitral award: Duff Development Co Ltd v Government of Kelantan [1924] AC 797. Thus, on the facts, by agreeing to Rule 28.6, the DRC had not waived its right to claim state immunity from suit before the Hong Kong courts.
As for the minority, Bokhary PJ was of the view that the issue of state immunity was one of common law, and not a matter of executive discretion. It should be decided by courts independently. This was in contrast to the question whether a foreign state should be recognised, which was solely a matter for the executive. Thus, no reference to the NPCSC was needed. Bokhary PJ agreed with Reyes J that the restrictive approach adopted by the common law revived after the SIA ceased to take effect in 1997. This was consistent with the general approach of the international community in adopting the restrictive approach, and was more consonant with justice. As the credit agreements underlying the Awards were of commercial nature, the DRC did not enjoy state immunity. In any event, the DRC’s submission to arbitration in a commercial dispute would constitute a waiver of any immunity from suit in foreign jurisdictions.
Firstly, for readers who are not familiar with Hong Kong constitutional law, the decision reached by the Court of Final Appeal (CFA) on state immunity in its judgment in June 2011 (noted above) was, strictly speaking, provisional. The CFA could only make final orders to dispose of the case after the NPCSC had made a ruling on the issue.
Since then, the NPCSC has rendered its decision on 26 August 2011 (see http://www.info.gov.hk/gia/general/201108/30/P201108300217.htm). It reasoned that “state immunity concerns whether the courts of a state have jurisdiction over foreign states and their properties”, and “directly relates to the state’s foreign relations and international rights and obligations”. Thus, as the issue of sovereign immunity falls within the realm of foreign affairs, the Chinese government has the power to decide on this issue, and Hong Kong courts are bound to follow the PRC practice in adopting the absolute approach. Subsequently on 8 September 2011. the Court of Final Appeal formally disposed of the case by allowing the appeal by the DRC and the CR companies.
Secondly, although the majority of the CFA expressly left open the question whether assets of foreign states are immune from execution in Hong Kong (see para.412 of judgment), commercial parties should note that China adopts an absolute approach not only to a foreign state’s immunity from suit, but also to its immunity from execution. Thus it is very likely that Hong Kong is bound to adopt an absolute approach to immunity from execution as well. This does not mean that foreign arbitral awards obtained against Further, the common law only regards a foreign state can never be enforced against as capable of waiving its assets immunity before the courts and not in Hong Kong, but commercial prior written agreements. Commercial parties are well advised to insert clear and express provisions in should be aware of this risk before entering into contracts that the state waives its right to claim immunity from suit and from execution with foreign states, particularly when enforcement against assets in Hong Kongis likely.
Whether this state of affairs will change in the long term will depend on when China ratifies the UN Convention on Jurisdictional Immunities of States and Their Property 2004 (which it has already signed) and extends its application to Hong Kong. At present, the Convention still lacks the sufficient number of signatories to come into effect.
