In a novel judgment, Intraline Resources SDN BHD v The Owners of the Ship or Vessel "Hua Tian Long" HCAJ 59/2008, the Hong Kong Court of First Instance (CFI) has decided that the English common law doctrine of Crown Immunity still subsists in Hong Kong after the handover of sovereignty in 1997. The privilege has transferred to the Central People's Government of the PRC (CPG). As a result, the Hong Kong courts lack the legal basis to challenge any act, whether functional or commercial in nature, of a PRC company which is an entity of the CPG.
Guangzhou Salvage Bureau (GSB), the owners of the vessel named "Hua Tian Long" and the defendant in the proceedings, applied for a stay and/or dismissal of the action on the grounds that the defendant enjoyed Sovereign and/or Crown Immunity and hence the Hong Kong courts had no jurisdiction over GSB. The action involved an alleged breach of contract and fraudulent representation by GSB for allegedly failing to honour its commitment to make the vessel "Hua Tian Long" – which is the largest floating derrick crane-barge based in Asia – available to Intraline Resources SDN BHD (Intraline), a Malaysian-owned engineering company, to work on offshore Malaysian and Vietnamese pipeline and oil platform projects. Intraline invoked the Admiralty jurisdiction of the Hong Kong High Court, through which the vessel was arrested in Hong Kong waters. GSB furnished bail and secured release of the vessel by an order of the Hong Kong High Court.
Amongst others, three fundamental questions of law arose in this application: (i) whether PRC state entities can claim Sovereign Immunity in Hong Kong; (ii) whether there remained any common law doctrine of 'Crown Immunity' subsisting in Hong Kong immediately prior to the handover of sovereignty to the PRC and, if so, whether it transferred to the CPG after the handover; and (iii) whether Crown Immunity applied to commercial transactions by state-owned bodies. The CFI, as part of its analysis on this point, discussed the status of commercial transactions under the concept of Sovereign Immunity.
The CFI also examined, on the facts, whether GSB's conduct was capable of waiving immunity.
The legal decision
- The doctrine of Sovereign Immunity reflects the maxim "equals have no authority over one another". The principle applied under this doctrine is that no state can intervene in the affairs of another state by claiming jurisdiction over that state. Since the PRC and Hong Kong are not separate states, the CFI held that the concept of Sovereign Immunity does not apply to matters that involve the PRC and Hong Kong. PRC state entities, therefore, cannot claim Sovereign Immunity in Hong Kong.
- The CFI turned to look at the concept of Crown Immunity. It was held that at all times Crown Immunity remained an attribute of the British Crown's sovereignty over her colonies (including Hong Kong) and the establishment of the new constitutional order did not alter this position. In colonial times, Hong Kong courts lacked the legal basis to challenge acts of the British Crown. Whilst statute enabled certain proceedings to be brought against the British Government in Hong Kong, it had no effect on and did not remove the privilege of Crown Immunity available to the British Government in the United Kingdom.
- The CFI therefore held that the concept of Crown Immunity, in its true sense, was never removed from Hong Kong law and continued to exist despite the codification of such law in the form of statute. At the handover, the existing privilege transferred automatically to the new sovereign power, the PRC.
- Having established Crown Immunity, the CFI examined whether such immunity applies to commercial transactions by state-owned bodies. Due to a lack of case law on Crown Immunity, the CFI looked at a recent case which examined how commercial transactions are treated under the concept of Sovereign Immunity. In that case, it was held that a state is not immune to private law or commercial acts. The CFI was, however, apprehensive in applying this approach to Crown Immunity. The CFI distinguished the concepts of Sovereign and Crown Immunity. Whilst Sovereign Immunity is based on the notional equality of states, Crown Immunity originated from the concept of the inequality of the ruler and the ruled, and is represented by the maxim "the sovereign can do no wrong". The CFI explained that Hong Kong, a special administrative region of the CPG established under the PRC constitution, has no power to make any law binding on the CPG (being, in effect, the sovereign state). Crown Immunity therefore applies irrespective of whether the act concerned is a functional act of state or one that is of private law or a commercial character.
The factual decision
On the evidence before the court, GSB was held to be an entity of the Ministry of Communications, which forms part of the CPG. GSB was therefore entitled to claim immunity from suit in Hong Kong courts irrespective of whether the act in question was part of a commercial transaction. However GSB's conduct waived its right to claim Crown Immunity. Relevant conduct involved: (i) filing various substantive court documents despite being aware of its rights to claim some form of immunity; and (ii) not raising the immunity argument in good time (there being a delay of almost one year).
The CFI has taken an absolute approach to Crown Immunity by holding that there is no distinction between commercial and non-commercial acts. The decision may well be appealed, but for the moment this approach potentially has wide implications.
Using Hong Kong's legal system is attractive to many foreign corporations who regularly conduct business with entities in the PRC. This decision limits the means of redress open to parties who are faced with a breach of a contract entered into with PRC state entities. Using Hong Kong's legal system is not an option where commercial disputes arise with enterprises that are part of the CPG unless they expressly submit to the jurisdiction of the Hong Kong courts or waive their right to claim immunity.
Where a party prefers to use Hong Kong as the forum to hear any disputes that arise out of a contract with an enterprise that is part of the CPG, it may want to consider whether to require the enterprise, in the contract, to expressly submit to the jurisdiction of the Hong Kong courts and to waive any such immunity.
The difficulty commonly experienced in the PRC is being able to identify whether an enterprise forms part of the CPG, partly due to the complexity of and lack of transparency in the system. Private corporations are therefore advised to conduct proper due diligence to determine the status of a PRC enterprise with which they intend to do business and to be aware of their rights prior to entering into binding commercial contracts with such enterprises.