The Court of Final Appeal of Hong Kong
("CFA") gave a provisional ruling on 8
June 2011 (by a 3:2 majority) that the Democratic Republic of Congo
("DRC") can enjoy sovereign immunity
from enforcement in Hong Kong of two ICC awards, obtained in
arbitrations held in Paris and Zurich.
The provisional ruling of the Hong Kong court is dependant on
the interpretation of certain provisions of the Basic Law, (Hong
Kong's constitution), relating to "acts of state" and
"foreign affairs". These are crucial to the question of
what sort of sovereign immunity applies in Hong Kong. The Hong Kong
court is now seeking interpretation of those provisions by the
Standing Committee of the National People's Congress of the PRC
("NPC"). This is the first time that
Hong Kong courts have sought such interpretation from China after
the handover in 1997.
Arbitral awards in commercial transactions involving other
sovereign states cannot now be enforced in Hong Kong, but may well
be enforceable in many other countries which recognise the concept
of "restrictive" sovereign immunity.
PRC has always recognised "absolute immunity" whereas
Hong Kong, prior to the handover to China in 1997, has recognised
"restrictive immunity", following the position in England
(which recognised a commercial exception to absolute immunity). The
DRC argued that following the handover, Hong Kong should follow
China and therefore absolute immunity applies. The PRC Government
expressed the same view in three letters written by the Ministry of
Foreign Affairs to the Hong Kong courts in this case. The CFA held
that there is no scope for a municipality (lacking the attributes
of sovereignty such as the HKSAR) to adopt a principle of state
immunity different from that adopted by the State.
The CFA majority rejected an argument that the DRC 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 does not
involve relations between the DRC and other states.
Some commentators have expressed concern about the rule of law
in Hong Kong, and its continued role as a pre-eminent arbitration
venue. Despite this ruling, it is considered Hong Kong remains a
proarbitration jurisdiction, the judiciary is still independent,
and the judicial autonomy of the courts has not been compromised or
harmed by reference to the NPC. Cases involving sovereign states
are also rare.
The CFA did agree that a State could still waive its immunity,
and set out how this might be effected 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".
While this aspect might itself be altered by the reference to
the NPC, we recommend that for the time being, lawyers should be
invited to negotiate into all dispute clauses with States and their
departments the type of dual express waiver summarised above.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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