Following our Newsflash in June on the landmark Congo case1 and our follow up Newsflash on immunity for stateowned enterprises ("SOEs"), we report on the latest developments.

Today, the Standing Committee of the National People's Congress ("NPC") passed its resolution on the interpretation of Articles 13(i) and 19 of the Basic Law, as sought by the Court of Final Appeal ("CFA") in the Congo case. The case is a legal landmark in post-handover Hong Kong, as it is the first time the Hong Kong judiciary has referred a case to the NPC for interpretation pursuant to Article 158 of the Basic Law, on the basis that the Hong Kong judiciary did not have jurisdiction to rule on the issues at hand.  

The issues referred by the CFA for interpretation by the NPC are, in short, as follows:  

  • whether the issue of state immunity falls within "acts of state such as defence and foreign affairs";
  • whether the Basic Law requires the Hong Kong judiciary to seek the NPC's interpretation on the question of state immunity (as a matter of foreign affairs) or whether it has jurisdiction to rule on the question independently; and consequently
  • whether Hong Kong is required to adhere to the PRC policy of absolute state immunity or whether it could depart from the mainland's policy and adopt a different rule.

Pending the decision of the NPC, the CFA gave its provisional judgment that the PRC policy of absolute state immunity applies in Hong Kong. That provisional decision was in line with the position of the PRC Office of the Commissioner of the Ministry of Foreign Affairs, made clear by three letters to the Hong Kong Constitutional and Mainland Affairs Bureau during the proceedings in the lower Courts, that "absolute" immunity applied and that the Hong Kong court did not have jurisdiction over this matter, it being an "act of state such as defence and foreign affairs".

It comes as no surprise, therefore, that the NPC today confirmed its interpretation of Hong Kong's Basic Law in line with its previously stated views, (i) that the issue of state immunity is a matter of state to be decided by the Central government, and (ii) that Hong Kong, as part of the PRC, under the "one country, two systems" policy may not adopt any position inconsistent with that of the Central government.

Comment

The NPC decision (although still subject to adoption by the CFA in its final judgment) will allow parties looking to do business with foreign governments or their state organs to do so with certainty of law in mind. This may mean that business deals with foreign governments are structured in a different way (with security provided or assets located in some "restricted immunity" jurisdictions") or that commercial terms are negotiated to take into account any risks for recovery.

However, while this is a landmark decision in Hong Kong's constitutional development, its effect will be limited for Hong Kong's business community generally; the decision only directly affects those doing business with foreign governments or their state organs and, as noted in our previous Newsflashes, the decision does not affect enforcement against SOEs nor other commercial entities in Hong Kong, as an arbitration-friendly jurisdiction.