Court of Final Appeal Ruling on State Immunity in Hong Kong

Prior to the handover of Hong Kong to the Peoples Republic of China ("the PRC") in 1997, restrictive state immunity applied in Hong Kong, meaning that Hong Kong Courts had no jurisdiction over foreign states in relation to legal or enforcement proceedings, unless such arose out of commercial transactions or unless the foreign state had submitted to Hong Kong's jurisdiction and waived immunity. Conversely, state immunity in the PRC has always been absolute i.e. the PRC courts have no jurisdiction over foreign states, even in respect of commercial transactions, unless the foreign state has submitted to the PRC's jurisdiction and waived immunity.

Post-1997, it has been unclear whether state immunity in Hong Kong is still restrictive or is now absolute. On 8 June 2011, the Court of Final Appeal ("CFA") clarified the position and ruled that state immunity in Hong Kong is absolute, rather than restrictive, as Hong Kong could not have a doctrine of state immunity inconsistent with that of the PRC. Consequently, the CFA held that two arbitration awards against the Democratic Republic of Congo could not be enforced in Hong Kong.

The judgment is at present "provisional" because it has to be referred to the Standing Committee of the National People's Congress. The CFA is required by the Basic Law to refer questions of interpretation relating to foreign affairs and the relationship between the Central Authorities and Hong Kong to the Standing Committee. This is the first time since 1997 that the CFA has submitted such questions to the Standing Committee.

What are the implications of the judgment?

If the Standing Committee allows the decision to stand, it could have a significant impact on Hong Kong's standing as a dispute resolution venue, in respect of commercial agreements involving foreign states. If a party contracting with a foreign state wishes Hong Kong to be the arbitral seat in the event of any dispute, they would have to ensure that the arbitration agreement contained a very clear and unequivocal waiver of state immunity. The CFA held in this case that states can, as a matter of international and common law, waive their immunity and submit voluntarily to the jurisdiction of the forum state, but that in this case, the Democratic Republic of Congo had not done so. The court said that an agreement to refer disputes to arbitration does not amount to submitting to another state's jurisdiction and does not constitute a waiver. The court said that to be effective, any waiver of immunity had to be explicit.