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Democratic Republic of the Congo v FH Hemisphere Associates LLC

This case has attracted much public attention. The facts of the case are briefly as follows.

After obtaining arbitral awards in France and Switzerland, an American company sought to enforce the awards against the Democratic Republic of Congo ("Congo") in Hong Kong. The majority of the Court of Final Appeal (CFA) made its provisional judgment on 8 June 2011, ruling that state immunity in Hong Kong is absolute, rather than restrictive and that, accordingly, the two arbitration awards against Congo could not be enforced in Hong Kong. The CFA's judgment was provisional because it involved interpretation of certain provisions of the Basic Law. 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 of the National Peoples Congress (SCNPC). The referral to the SCNPC sparked controversy about how such may impact on Hong Kong's judicial independence. The questions referred to the SCNPC included the following:-

1. Whether on a true interpretation of Article 13(1) of the Basic Law, the Central People's Government (CPG) has the power to determine the rule or policy of the People's Republic of China (PRC) on state immunity;

2. If so, whether on the true interpretation of Articles 13(1) and 19 of the Basic Law, the HKSAR, including its courts, is bound to apply or give effect to the rule or policy on state immunity determined by the CPG or is at liberty to depart from such and adopt a different rule.

On 26 August 2011, the SCNPC issued its interpretation as follows:-

1. The CPG does have the power to determine the rules or policies of the PRC on state immunity.

2. The conduct of foreign affairs relating to the HKSAR falls within the power of the CPG and the CPG has the power to determine the rules or policies on state immunity to be applied in the HKSAR.

3. When questions of immunity from jurisdiction and immunity from execution of foreign states and their properties arise in the adjudication of cases, the HKSAR courts must apply and give effect to the rules or policies on state immunity determined by the CPG as being applicable to the HKSAR and must not adopt a rule inconsistent with such.

4. The laws in force in the HKSAR prior to its handover to the PRC in 1997, shall only be maintained if there is no contravention of the Basic Law and shall be applied subject to such modification as necessary to bring them into conformity with the HKSAR's status after the handover. Accordingly the laws previously in force in Hong Kong relating to state immunity may continue to be applied after 1 July 1997 only if they are consistent with the CPG's rules or policies on such.

Following the SCNPC's interpretation, the CFA declared its provisional judgment final on 8 September 2011, ruling that the HKSAR could not as a matter of legal and constitutional principle, adhere to a doctrine of state immunity which differs from that adopted by the CPG and that the doctrine of state immunity applicable in Hong Kong is accordingly a doctrine of absolute immunity. Further, immunity had not been waived by Congo.

The practical implication of this case is that if a party deals with a state in a commercial contract, apart from prescribing arbitration in the agreement, the state party must expressly waive immunity before the arbitral award is enforceable against the state. Arbitration is still preferable to litigation, due to the ease of enforcing arbitral awards in countries which are member states of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958).

Key Contacts

Kwok Kit (KK) Cheung

Partner | Litigation and Dispute Resolution

Email or call +852 2825 9427

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