New Zealand: Show me the money: the sharp end of disputes with state entities

Brief Counsel

Winning an international commercial dispute is one thing. Recovering any monies owed can be quite another – as a recent saga played out by final courts in London and Hong Kong demonstrates.

New Zealand companies contracting with foreign governments or state entities, including in PPP projects, need to understand their reduced leverage should a dispute arise.

The message is simple: state immunity problems are very real, but commercial solutions can be found if they are identified and addressed at an early stage.

The context

FG Hemisphere Associates LLC (Hemisphere) is a Delaware corporation that invests in distressed assets, including complex litigation claims.

In 2004 it purchased the assignment of two substantial International Chamber of Commerce arbitration awards (the Awards) validly made in 2003 against the Democratic Republic of the Congo (DRC), following arbitrations in Paris and Zurich respectively.

The Awards had arisen from supply and financing contracts entered into by the DRC during the Mobutu era with the then Yugoslavian company Energoinvest DD to build a hydro-electricity facility and transmission lines. To finance the works, Energoinvest DD extended credit to the DRC and to a state-owned electricity company, Société Nationale d' Electricité (SNd'E). But the DRC and SNd'E defaulted on their repayment obligations.

Together the Awards were worth over US$20m, plus interest. The question was against what DRC assets could Hemisphere enforce?

  • In Hong Kong, Hemisphere sought money due to be paid, as entry fees for a mining project, by several Chinese companies to La Générale des Carrières et des Mines Sarl (Gécamines), a company with global interests wholly owned by the DRC. The Hong Kong Court of Final Appeal, however, refused Hemisphere leave to enforce the arbitral awards against those assets as the DRC had absolute immunity from suit, which it had not waived.
  • In Jersey, Hemisphere sought to enforce against valuable shares Gécamines owned in a Jersey joint venture company. Hemisphere sought both the shares and the income due to Gécamines under an associated sales contract. The Privy Council, however, decided that Gécamines was not an organ of the DRC and so not liable for its debts.

What does this all mean?

Perhaps the first issue transnational lawyers will consider when contracting with states or state entities is whether, and to what extent, state immunities apply. There are two basic doctrines of immunity:

  • absolute immunity, under which a court in one state will not determine matters, or seek to enforce process over assets, affecting the rights of another state (or state entity), and
  • restricted immunity, under which the state (or state entity) does not have immunity where it is engaged in, or the relevant assets are being used for, purely commercial activities.

The Hong Kong decision

This decision is notable because – due to the constitutional arrangements between Hong Kong and China – the Court of Final Appeal applied the doctrine of absolute, and not restrictive, immunity.

As absolute immunity applied, Hemisphere needed to establish that the DRC had waived its immunity according to applicable common law principles. Hemisphere needed to establish both that the DRC had waived:

  • its immunity from jurisdiction in Hong Kong, and
  • separately, its immunity from execution over its property in Hong Kong.

In argument limited by agreement to the first point, the Court found that the DRC had not waived immunity from jurisdiction. Thus, the enforcement claim did not get past first base.

The fact that the DRC submitted to arbitration did not assist as Hong Kong does not – unlike the United Kingdom, for instance – deem submission to arbitration to constitute a waiver in respect of related court proceedings. Furthermore, the common law does not include any principles of implied waiver. Accordingly, Hemisphere was prevented from attempting to execute the Awards using Hong Kong courts.

The Privy Council decision

Unlike Hong Kong, United Kingdom law – like New Zealand law – applies restrictive immunity. Accordingly, even without waiver, enforcement is permitted in the United Kingdom against commercial assets owned by the DRC. The question for the Privy Council was, however, whether Gécamines was the organ of, and could thus be equated with, the DRC.

The Privy Council found that the issue was not determined by Gécamines being a separate entity, as such entities could be part of the state. However, separation created a strong presumption that its distinct legal status should be respected. Where a separate entity is formed for commercial purposes and the entity has its own management and budget, then even if constitutional and factual control rest with the State and the entity carries out sovereign functions, "quite extreme circumstances" would be needed to displace this presumption. This logic indicates that assets held by New Zealand's state-owned enterprises should be difficult to seize to satisfy any unpaid New Zealand government debt.

The Privy Council accordingly decided that Gécamines was not answerable for the DRC's debts. Its legal personality and commercial assets and business were substantively separate from the DRC. Despite the DRC at times using Gécamines' assets for the State's benefit, that did not justify assimilating the two.

Lesson: take care in contracting with overseas governments or state entities

Both cases, especially when considered together, provide a salutary reminder of the practical difficulties facing parties needing to enforce their international judgments or awards against State assets. Depending on the jurisdiction where the assets are based, a party may, even today, face the obstacle of absolute immunity. In other jurisdictions, the focus will remain on the less difficult, but still onerous, task of providing that the relevant commercial assets substantively belong to the State.

For companies involved in significant cross-border activity with governments or state entities, it is important to consult an expert. Commercial solutions to state immunity difficulties can be found if they are addressed early enough. Common techniques include:

  • drafting effective waiver clauses into commercial contracts
  • identifying in advance whether significant commercial assets are both held in appropriate jurisdictions, and likely to be recoverable
  • using a bond or escrow mechanism to reduce the risk of uncompensated loss through contractual breach, and
  • taking out political risk or other insurance.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions