State Immunity in Hong Kong - FAQ

Following our recent reports on the Congo Case, this update offers some short answers to common questions regarding the practical effect on the position of State immunity in Hong Kong. Click on a linked question below to view our comments.

1. Can a contract with a foreign State as the counterparty be enforced in Hong Kong?
   
2. A contract includes a clause which provides that the foreign State agrees to waive sovereign immunity. Will this provide a basis upon which to enforce the contract in Hong Kong?
3. How does the Congo Case effect the an arbitral award made against a foreign State?
   
4. Does the Central People's Government of the PRC (CPG) enjoy absolute immunity in Hong Kong?
5. What is Crown immunity and how does it differ from foreign State immunity?
   
6. Can entities such as State Owned Enterprises or State invested entities of the PRC claim Crown immunity in Hong Kong and if so, in what circumstances?
7. Can Crown immunity be waived?
   

Can a contract with a foreign State as the counterparty be enforced in Hong Kong?

As a result of the recent Congo Case, it is now clear that foreign States enjoy absolute immunity from enforcement and jurisdiction in Hong Kong. Foreign States are therefore immune from the jurisdiction of the Hong Kong Courts and a contract with a foreign State cannot be enforced against the foreign State, unless the foreign State agrees to waive immunity (see below).

A contract includes a clause which provides that the foreign State agrees to waive sovereign immunity. Will this provide a basis upon which to enforce the contract in Hong Kong?

The majority of the Court of Final Appeal held that waiver of immunity by a foreign State must be unequivocal and suggested that it must be made to the Court. Accordingly, even where there is a well drafted waiver clause in the contract, the Hong Kong Courts will not grant jurisdiction over the foreign State unless, at the time of appearing before the Hong Kong Court, the foreign State expressly waives immunity from jurisdiction of the Hong Kong Courts.

How does the Congo Case effect an arbitral award made against a foreign State?

As a result of the Congo Case, an arbitral award against a foreign State cannot be enforced in Hong Kong unless the foreign State waives immunity (see above). An agreement to arbitrate will not in itself constitute a waiver of immunity.

Does the Central People's Government of the PRC (CPG) enjoy absolute immunity in Hong Kong?

The PRC government is not a "foreign" State in Hong Kong, since Hong Kong and the PRC are "one country". The Congo Case was concerned with proceedings against the Democratic Republic of Congo (a foreign State). Although foreign State immunity does not apply to the PRC in Hong Kong, a recent decision of the Hong Kong Court of First Instance held that post handover, the CPG enjoys Crown immunity in Hong Kong: Intraline Resources SDN BHD v The Owners of the Ship or Vessel "Hua Tian Long" [2010] 3 HKLRD 67.

What is Crown Immunity and how is it different to foreign State Immunity?

Foreign State immunity derives from the notion of equality of States. It is based on the premise that no State can interfere in the affairs of another foreign State by claiming jurisdiction over that State. In contrast, Crown immunity is a judicial doctrine which stems from the inequality of the ruling sovereign and the ruled and the ancient English principle that the monarch can do no wrong.

Although they stem from different concepts, the practical effect of foreign State immunity and Crown immunity in Hong Kong is the same: they confer on foreign States and the CPG respectively immunity from suit and execution in the Hong Kong courts.

Can entities such as State Owned Enterprises or State invested entities of the CPG claim Crown immunity in Hong Kong and if so, in what circumstances?

In Hua Tian Long, the Court noted that the common law had extended the meaning of the Crown from the sovereign to all bodies and persons acting as servants or agents of the Crown. When determining whether an entity is part of the Crown for the purposes of asserting immunity, the Court held the material consideration is the control the CPG exercises over the entity. If the entity is controlled by the CPG then it is likely to enjoy Crown immunity. In applying the "control test", the Court will have regard to whether the entity is able to exercise independent powers of its own. It may be that an entity is able to act independently with respect to some of its purposes, but not others. In these circumstances, it is possible that the entity may only claim Crown immunity for particular purposes. This is a complex issue which will require an assessment of the facts in each case.

Can Crown immunity be waived?

Yes, the Crown may waive immunity. In fact, the Court held in Hua Tian Long that the owner of the ship, an entity of the CPG, was entitled to claim Crown immunity but its conduct amounted to a waiver of such immunity and it had therefore submitted to the jurisidction of the Hong Kong courts. The same principles apply to waiver of Crown immunity as those which govern waiver of foreign State immunity discussed above.

Because the analysis of many of these issues, particularly with regard to issues of waiver and the reach of Crown immunity, will necessarily depend upon the particular facts, these FAQs are not intended to provide any specific advice or identify a particular solution. Rather, the purpose of these FAQs is to raise awareness of the legal problems that State immunity in Hong Kong creates.

For inquiries related to this Legal Update, please contact the following persons or your usual contacts with our firm.

John Hickin (john.hickin@mayerbrown.com)

Susanne Reynolds (susanne.reynolds@mayerbrown.com)