Hong Kong: Filling The State Immunity Lacuna In Hong Kong: The Congo Case

Last Updated: 19 July 2011
Article by Sonny Payne

In mid-2008, a Delaware company called FG Hemisphere Associates LLC ("FG Hemisphere") commenced proceedings in Hong Kong to enforce two arbitration awards ("Awards") against the Democratic Republic of Congo ("DRC") and obtained an injunction freezing US$104 million that was purportedly destined to be paid to the DRC. This triggered a complex legal debate over the extent to which the Hong Kong court has jurisdiction over foreign states in respect of lawsuits and enforcement proceedings arising out of commercial contracts between the foreign state and a non-state party.

The central issue in the proceedings was whether the regime of state immunity applicable in Hong Kong today is one of "restrictive" immunity, as was the case prior to Hong Kong's return to the People's Republic of China ("PRC") on 1 July 1997 ("the Handover"), or whether it is one of "absolute" immunity in line with the regime adhered to by the Central People's Government ("CPG"). If the former, FG Hemisphere could potentially proceed to enforce the Awards in Hong Kong. If the latter, DRC's assets in Hong Kong were immune from execution.

Although successful in persuading Hong Kong's Court of First Instance ("CFI") and subsequently the Court of Appeal ("CA") that the doctrine of restrictive state immunity had survived the Handover, FG Hemisphere was forced to retreat back to Delaware empty-handed following a "provisional" judgment delivered by Hong Kong's Court of Final Appeal ("CFA") on 8 June 2011. The CFA reversed the CA's decision and held that the "one country, two systems" principle did not extend to the doctrine of state immunity.

Background of State Immunity

A fundamental tenet of customary international law is that all states are equal. A corollary of this is that the acts and property of a state are immune from the territorial jurisdiction of the courts of another state. Up until the mid-20th century, this immunity was absolute in that there was no exception, save where the foreign state had expressly waived its immunity and consented to being subject to the jurisdiction of the foreign court.

With the increase in international trade following the Second World War, and with states increasingly entering into commercial transactions with non-state foreign parties, it became apparent that the doctrine of absolute state immunity was not only unfair to the non-state party to the commercial transaction, but that it was deterring companies from entering into commercial relationships with foreign states. A number of states in the developed world, therefore, began to allow a so-called "commercial exception" to the doctrine of absolute state immunity, thus preventing a foreign state from being able to avoid its legal obligations by invoking the defence of state immunity. This "commercial exception" gave rise to what is commonly referred to as the doctrine of restrictive state immunity.

Many states that adopted the doctrine of restrictive state immunity regulated it by statute in order to depoliticize determinations on state immunity. In the UK, the commercial exception was enshrined in the State Immunity Act 1978 ("SIA").

Notwithstanding widespread acceptance of the doctrine of restrictive immunity by developed states, a large number of developing states, including the PRC and the DRC, nonetheless continued to adhere to the doctrine of absolute state immunity. The doctrine of restrictive state immunity therefore falls short of having obtained sufficient acceptance by states to have become part of customary international law.

The State Immunity Lacuna Created by the Handover

The SIA was applied to Hong Kong in 1979 and continued to apply up until the Handover. No state immunity legislation was enacted, to replace the SIA following the Handover. Moreover, the Basic Law was silent on the issue of state immunity. In view of this, it was unclear as to whether the doctrine of restrictive state immunity continued to apply in accordance with the common law situation, or whether Hong Kong had reverted back to a regime of absolute state immunity, as had always been the case in the PRC.

Summary of the Facts in the Congo Case

The Awards related to disputes arising out of credit agreements associated with power projects dating back to the 1980s, under which Energoinvest, a Yugoslavian power provider, had provided financing to the Republic of Zaire (as the DRC was then called) to develop its power infrastructure. The DRC defaulted on its payments. In April 2003, Evergoinvest invoked the arbitration clauses in the credit agreements and, following international arbitration proceedings held in France and Switzerland under the ICC rules, obtained the Awards. The DRC did not participate in the arbitrations.

FG Hemisphere, whose principal business is in investing in distressed assets, purchased Evergoinvest's interest in the Awards in 2004 (presumably at a substantial discount) and has subsequently attempted to enforce the Awards in a number of jurisdictions around the world.

On 15 May 2008, FG Hemisphere obtained an ex parte order from the Hong Kong Court granting leave to enforce the Awards against the DRC and, at the same time, was granted an injunction freezing US$104 million held by the China Railway Group of companies. According to FG Hemisphere, the US$104 million was destined to be paid to the DRC pursuant to an agreement between the PRC and the DRC under which the PRC had agreed to finance and build extensive infrastructure in the DRC in return for the rights to exploit copper and cobalt reserves in the DRC.

The Secretary for Justice joined in the proceedings in the capacity of an "intervener" on the grounds of public interest.

Decision of the CFI

In the CFI, Reyes J decided that, regardless of whether state immunity in Hong Kong is absolute or restrictive, FG Hemisphere was not entitled to enforce the Awards by executing against the US$104 million payable by the China Railway Group to the DRC because the transaction to which the monies related was, in effect, a cooperative venture driven by governments as opposed to private entities and could not be characterized as a commercial transaction that fell within the contemplation of the restrictive approach.

Reyes J did nonetheless venture to express an arbiter opinion on the issue of state immunity in Hong Kong, opining that, following the Handover, the common law as it had developed prior to the extension of the SIA to Hong Kong was revived and continued to apply. Thus, in his view, Hong Kong continued to be subject to a regime of restrictive state immunity.

Decision of the CA

The CA disagreed with Reyes J's reasoning and held that, in deciding whether or not the payments from China Railway to the DRC are available for execution, it is necessary to look at the use for which the payments will be used, not the transaction to which they relate. Since there was evidence that the payments were to be used for a commercial purpose, this issue should be remitted to the CFI for determination.

On the broader issue of state immunity, the CA held by a 2–1 majority (Hon Stock VP and Yuan JA in the majority with Yeung JA dissenting) that, following the Handover, state immunity in Hong Kong reverted back to the common law position, which was one of restrictive immunity. In arriving at this decision, the CA was persuaded by the fact that no action has been taken to fill the lacuna left by the lapse of the SIA and, given that Hong Kong is a centre of international commerce, a reversal from restrictive state immunity to absolute state immunity could not simply be implied. The majority of the CA were also of the view that, since a claim for state immunity is not in itself "an act of state", it is not inconsistent with article 19 of the Basic Law to have one country and two systems of state immunity.

The CA accepted that the situation in the Mainland of China is one of absolute state immunity. However, the majority were of the view that adopting a restrictive approach in Hong Kong does not cause prejudice or embarrassment to the PRC's sovereignty.

In his dissenting opinion, Yeung JA opined that there is no room for "two systems" on the issue of state immunity and that the position and practice of the PRC is of paramount and overriding importance. In his view, therefore, state immunity in Hong Kong changed from being restrictive to absolute following the Handover.

Decision of the CFA

The CFA held, by a 3–2 majority (Chan PJ, Ribeiro PJ, and Sir Anthony Mason in the majority with Bokhary PJ and Mortimer NPJ dissenting ), that as a matter of legal and constitutional principle, it is not open for Hong Kong to adopt a different regime of state immunity to that practiced by the CPG. The CFA reasoned that state immunity is, by its very nature, a doctrine concerned with the relations between states and as such is a matter of policy to be determined by the executive. The executive may permit the legislature to take over this responsibility (as is the case in the UK and USA); however, in the absence of such delegation, the executive and the courts should "speak with one voice".

The CFA noted that there was nothing in the common law jurisprudence to support an argument that a region that forms part of a unitary state can disregard the policy of executive and establish its own practice on state immunity. The CFA also noted that it was accepted by all parties to the proceedings that Hong Kong lacks the attributes of a state and could not claim immunity for itself in the courts of a foreign state—such state immunity would have to be claimed by the PRC.

The CFA considered three letters from the Office of the Commissioner of the Ministry of Foreign Affairs ("OCMFA"), two of which had been placed before the lower courts in the previous hearings. These letters essentially set out the PRC's policy and practice as regard to state immunity. The CFA considered that the letters were to be treated as establishing "facts which are peculiarly within the cognizance of the Executive" and rejected the suggestion that the letters sought to dictate to the Hong Kong courts how state immunity cases should be decided. In view of these letters, the CFA accepted that the PRC had consistently adhered to the doctrine of absolute state immunity. Accordingly, the practice of state immunity that applied in Hong Kong was held to be one of absolute immunity.

The CFA considered in detail the relevant provisions of the Basic Law and concluded that the Basic Law fully supported the view that the CPG was responsible for determining Hong Kong's policy on state immunity. In particular, Article 13 of the Basic Law expressly reserves the conduct of foreign affairs to the CPG. Furthermore, papers from the Legislative Council (not previously adduced at the hearing before the CA) made it clear that a proposed bill tabled in December 1996, which sought to localize many of the provisions of the SIA, had been rejected by the CPG over concerns to retain the commercial exception to absolute immunity. This fact was very damaging to FG Hemisphere's argument that since no local legislation on the issue of state immunity had been enacted pursuant to Article 18(3) of the Basic Law, it must have been intended that the restrictive approach under common law would prevail in Hong Kong following the Handover.

The dissenting minority of the CFA were essentially of the same mind as the majority in the CA: that the state immunity regime in Hong Kong following Handover had reverted back to the common law position of restrictive state immunity

Reference to the Standing Committee of the National People's Congress

Notwithstanding having made its own interpretation of the Basic Law, the CFA felt compelled to refer certain questions of interpretation to the Standing Committee of the National People's Congress ("SCNPC") under Article 158 of the Basic Law. This is the first time since the Handover that the CFA has taken this step. The judgment of the CFA is therefore "provisional", pending the response from the SCNPC.


The Congo case uncovered a lacuna that was created in Hong Kong's state immunity laws following the Handover, thus sparking an in-depth legal analysis of the nature of state immunity and its application in Hong Kong in the face of the one country, two systems principle. The one country, one system of state immunity arguments prevailed, and the lacuna has been filled, albeit subject to endorsement by the SCNPC. Given the position of the CPG as set out in the OCMFA letters, however, the interpretation of the SCNPC is highly unlikely to disturb the decision of the CFA.

The judgment will be welcomed by the DRC and other debt-ridden states. They know that Hong Kong is now a safe haven through which they can transfer their assets without fear of them being snatched by so-called "vulture funds" recovering bad debts. The judgment will also be welcomed by the CPG, which feels that allowing foreign states to be impleaded in Hong Kong would undoubtedly prejudice the sovereignty of China and hamper normal intercourse and cooperation with other states.

The CFA judgment in the Congo case followed closely in the wake of Hong Kong's new Arbitration Ordinance, which came into effect on 1 June 2011 and was widely applauded for promoting Hong Kong as an international arbitration centre. The Congo case highlights that, regardless of how arbitration-friendly the new legislation may be, it has its limits when it comes to enforcing awards against foreign states. It also highlights the need for parties, when contracting directly with foreign states, to not only obtain a waiver of state immunity in respect of suit, but also to get an express waiver to submit to any enforcement proceedings that may subsequently follow.

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.

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

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

Similar Articles
Relevancy Powered by MondaqAI
Mayer Brown
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
Similar Articles
Relevancy Powered by MondaqAI
Mayer Brown
Related Articles
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

Mondaq.com (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 www.mondaq.com

To Use Mondaq.com 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