FG Hemisphere Associates LLC v Democratic Republic of the Congo & Ors
12 December 2008, High Court of Hong Kong
Judgment
The Hon Reyes J ruled that the 1st Defendant was entitled to claim sovereign immunity (against execution by the plaintiff) as the "relevant transaction" between the 1st Defendant and the People's Republic of China (PRC), despite being described as "commercial", was an act between sovereigns.
The Relevant Transaction
The "relevant transaction" was a "joint venture" (JV) between the certain entities of the 1st defendant and a consortium of PRC enterprises pursuant to which the JV was to develop the 1st defendant's infrastructure in return for the right to mineral resources in the 1st defendant. The PRC would also pay an "entrance fee" of USD350 million to the Congolese parties. The JV was subject to the approvals by the China National Development and Reform Committee, the PRC Ministry of Commerce and the China State Administration of Foreign Exchange and the PRC parties included 2nd to 3rd defendants (of the China Railway group), 2 Sinohydro subsidiaries and the China Metallurgical Group Corporation.
Absolute or Restrictive Immunity
Under the "traditional thinking", a sovereign state enjoys absolute immunity from suit in the courts of another state and the domestic courts of one state would not have jurisdiction to adjudicate upon matters in which another state is named as a defendant, unless the immunity is waived.
Under the second school of thought, sovereign states only enjoy a "restrictive immunity" which does not cover transactions of a purely commercial nature.
Post-1997
Prior to 1 July 1997, the date Hong Kong reverted to China, Hong Kong adopted the restrictive approach at common law following landmark cases such as The "PHILIPPINE ADMIRAL" [1977] AC 373 (PC), Trendtex Trading Corporation v. Central Bank of Nigeria [1977] 1 QB 529 (CA), and The "I CONGRESSO DEL PARTIDO" [1983] AC 245 (HL). In 1978, the United Kingdom enacted the State Immunity Act which endorsed the restrictive immunity and the same was extended to Hong Kong by the State Immunity (Overseas Territories) Order 1979. The position post-1997 was however unclear and counsel for the parties advanced four possible theories.
The learned judge's "provisional view" (as it was not necessary for him to rule on the validity of these conflicting theories as he decided that the JV was not a commercial transaction) was that theory 1 i.e. Hong Kong adopted the restrictive approach as the common law in force in Hong Kong on 1 July 1997 and that he had "difficulties" with the other theories (2, 3 and 4).
The learned judge was unable to see how the court was said to be "embarking on an exercise involving foreign affairs" under theory 2. Under that theory, the Central People's Government shall be responsible for the foreign affairs of Hong Kong under Articles 13 and 19 of the Basic Law and the Hong Kong Court cannot adjudicate on the question of sovereign immunity.
Theory 3 (Hong Kong is governed by Hong Kong law as a starting point but that the court must conduct a comprehensive survey to determine the customary international norm incorporated into the Hong Kong common law) "seems overwrought" and the learned judge refused to adopt the position of the Secretary for Justice (as the Intervener).
The Letter
The position of the Secretary for Justice was that, as the court had no jurisdiction on matters relating to foreign affairs, the court should accept the position of the Central People's Government as set out in a letter dated 20 November 2008, which the judge said he was invited to treat as "practically conclusive". The letter was issued by the Office of the Commissioner of the Ministry of Foreign Affairs of the PRC in Hong Kong.
The thrust of the letter is that it is the position of the PRC that sovereign states enjoy absolute immunity before foreign courts. On the other hand, the PRC has also signed the United Nations Convention on Jurisdictional Immunities of States and Their Property which adopts a restrictive approach. The learned judge said that:
"The Convention must be some evidence of a trend in customary international law, even if only in relation towards "the law as it should be if it was to accord with good policy" (sometimes referred to as de lege ferenda)."
The convention is not yet in force (therefore not lex lata or de lege lata) but "having signed the Convention, the PRC Government must be taken to have at least indicated its acceptance of the wisdom of the provisions therein".
