Crown Immunity and Sovereign Immunity in Hong Claims Against Foreign States, Not Civil Claims Kong

Commercial Litigation August CROWN IMMUNITY AND 2011 SOVEREIGN IMMUNITY IN HONG KONG - 10 KEY POINTS

Hong Kong The Hong Kong Courts have recently handed not exercise jurisdiction over another State. In down landmark judgments on the application of Hong Kong, sovereign immunity relates to civil Shanghai crown immunity and sovereign immunity in Hong claims against foreign States, not civil claims Kong. against PRC entities. Singapore In Democratic Republic of the Congo v FG Crown immunity is concerned with the Melbourne Hemisphere Associates [2011] HKCFA 41 (“FG relationship between the Crown and its own Hemisphere”), the Hong Kong Court of Final courts. It is based on the principle that the Sydney Appeal (CFA) held that absolute sovereign Crown enjoys immunity from being sued in its immunity applies in Hong Kong. This decision own courts. It originates from the concept of Perth followed the Court of First Instance decision the inequality of the ruling and the ruled - “the of Justice Stone in Hua Tian Long [2010] 3 sovereign can do no wrong”. London HKC 557, in which it was held that absolute Crown immunity applies to the Central People’s 10 key points Paris Government (CPG) of the Peoples’ Republic of China (PRC) in Hong Kong. 1. In FG Hemisphere, a 3:2 majority of the CFA Rouen provisionally held that absolute sovereign In this briefing, we explain 10 key points which immunity applies in Hong Kong. This means Brussels arise from these two cases. that a Hong Kong Court does not have jurisdiction in relation to claims against a Geneva Background State party (including commercial claims), unless the State party waives immunity. This Piraeus Sovereign immunity is concerned with the is compared with the doctrine of restrictive relationship between different States. It is based immunity, which recognises the existence Dubai on the principle that the courts of one State may of an exception for purely commercial transactions. The majority of the so must absolute Crown immunity 7. The CFA’s decision in FG CFA held that Hong Kong could also apply. However, Justice Hemisphere should not affect not adopt an approach to the Stone’s decision in Hua Tian Long the choice of Hong Kong as doctrine of sovereign immunity is based on a contentious finding the seat of arbitration for claims which differed from the rest of the that Crown immunity survives in involving State parties. This is PRC - there should be “one State, post-colonial Hong Kong. It is because the CFA has confirmed one immunity”. Since Hong Kong possible that an appellate court in that an agreement to arbitrate is an administrative region of the Hong Kong will disagree. does not constitute a submission PRC, it should apply the same to any State’s jurisdiction. It doctrine of State immunity as the 5. Sovereign immunity and Crown involves merely the assumption of Mainland, which favours absolute immunity may be invoked when contractual obligations to the other sovereign immunity. the courts of the forum State party to the agreement. seek to assume jurisdiction, 2. The CFA has referred the in relation to an application to 8. However, if an arbitral award is question of the application of enforce a foreign judgment or made in Hong Kong, this does absolute sovereign immunity arbitral award, or when execution not in itself amount to a waiver to the Standing Committee of is sought against assets in the of immunity with respect to the National People’s Congress forum State. Therefore, a State enforcement of the award against (SCNPC), before a final judgment party may invoke immunity with State assets in Hong Kong. As is rendered. However, this is respect to enforcement and indicated above, enforcement unlikely to provide the claimant execution in Hong Kong, even if of an arbitral award in the Hong with much comfort. Given that a foreign judgment was validly Kong Courts requires a separate, the CFA’s decision is in line with obtained against a State party. A distinct waiver. This has the effect the PRC’s practice of affording claimant may need to establish that although an award may be absolute sovereign immunity to that the State party has waived made against a State party in foreign States, it appears likely their entitlement to immunity at the Hong Kong, the enforcement of that the SCNPC will confirm the relevant stage. the award against State assets CFA’s decision. may need to occur in a jurisdiction 6. In order to waive immunity, there that does not recognise absolute 3. In Hua Tian Long, Justice Stone must be express, unequivocal sovereign immunity. However, it is held that the CPG of the PRC submission to the jurisdiction of possible that an exception exists is entitled to absolute Crown the Hong Kong courts “in the face if the defendant is from a State immunity in Hong Kong. On of the court”. The findings of the that is a party to the New York Handover in 1997, one sovereign CFA in FG Hemisphere suggest Convention on the Recognition power in Hong Kong (the British that contractual waivers, such as and Enforcement of Foreign Crown) was replaced by another exclusive jurisdiction clauses or Arbitral Awards of 1958. (the CPG of the PRC). Accordingly, express waiver clauses, may be Justice Stone held, the immunity insufficient to waive immunity. In 9. Identifying whether an entity is which was previously enjoyed by other words, a State party can only part of a State or the Crown, and the British Crown in Hong Kong waive immunity at the time when therefore entitled to immunity, was transferred on Handover to the Hong Kong Court’s jurisdiction may be difficult in some cases. the CPG of the PRC. is invoked. In Hua Tian Long, In FG Hemisphere, the position the PRC defendant was held to was clear cut, because the 4. However, the application of Crown have waived Crown immunity by claimant was seeking to enforce immunity in Hong Kong remains filing a counterclaim in the Hong an arbitral award against the unclear. It may be tempting to Kong proceedings and, despite Democratic Republic of Congo assume that since the CFA has being aware of its right to claim (i.e. the State itself). Further, it now found that absolute sovereign immunity, not raising this argument would appear that an institutional immunity applies in Hong Kong, in good time. unit or department of a State or

02 Commercial Litigation the Crown (being the CPG) would Further, in relation to both sovereign For more information, be protected by immunity. In Hua immunity and Crown immunity, please also contact: Tian Long, Justice Stone held that the courts are yet to consider to Paul Hatzer Guangzhou Salvage Bureau was what extent they will allow entities, Hong Kong Partner entitled to Crown immunity, but which are State-owned or operated T: +852 3983 7788 had waived its claim to immunity. but have commercial activities, to [email protected] Ultimately, the degree of control invoke immunity. The full commercial Nicholas Poynder that the State or the Crown has implications of FG Hemisphere Shanghai Partner over the defendant is likely to be and Hua Tian Long are still to be T: +86 21 5888 7711 the determining factor in deciding determined. [email protected] whether it is entitled to immunity. Simon Davidson Holman Fenwick Willan acted for the Singapore Partner 10. It may be difficult for State-owned plaintiff in Hua Tian Long. T: +65 6305 9522 [email protected] enterprises to invoke immunity, particularly if their commercial For more information, please contact Gavin Vallely Melbourne Partner operations are managed Nick Luxton, Associate, on +852 T: +61 (0)3 8601 4523 separately from the State or the 3983 7774 or [email protected], or [email protected] Crown. This is demonstrated in your usual contact at HFW. Alex Baykitch a number of cases. In Trendtex Sydney Partner Trading Corporation v Central T: +61 (0)2 9320 4605 Bank of Nigeria [1977] 1 All ER [email protected] 881, the English Court of Appeal Julian Sher held that a bank, which had been Perth Partner created as a separate legal entity T: +61 (0)8 9422 4701 under statute, was not entitled to [email protected] sovereign immunity. Further, in the Damian Honey China Aviation Oil case (2005), the London Partner Singapore High Court dismissed T: +44 (0)20 7264 8354 [email protected] an application by a PRC State- owned enterprise claiming an Guillaume Brajeux Paris Partner entitlement to sovereign immunity. T: +33 (0)1 44 94 40 50 The Court held that there was [email protected] no evidence that the PRC State- Stéphane Selegny owned enterprise performed Rouen Partner acts under the PRC’s sovereign T: +33 (0)1 44 94 40 50 authority, as its activities were [email protected] mainly commercial. Konstantinos Adamantopoulos Brussels Partner Conclusion T: +32 2 535 7861 [email protected] The decisions in FG Hemisphere and Jeremy Davies Hua Tian Long limit the jurisdiction of Geneva Partner the Hong Kong Courts to adjudicate T: +41 (0)22 322 4810 [email protected] cases involving State parties, including PRC entities. However, in relation to Dimitri Vassos Piraeus Partner Crown immunity, it should be kept T: +30 210 429 3978 in mind that Hua Tian Long is a first [email protected] instance decision that has not been Edward Newitt considered by the appeal courts. Dubai Partner T: +971 4 423 0555 [email protected]

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