Background

Concept of sovereign immunity

What is the general approach to the concept of sovereign immunity in your state?

Hong Kong is a Special Administrative Region of the People’s Republic of China and, therefore, is not a state though it maintains its own legal system distinct from China. The Hong Kong Basic Law makes clear that Hong Kong cannot exercise sovereign powers and has no responsibility in matters of foreign affairs.

The doctrine of absolute sovereign immunity applies in Hong Kong. This was provisionally confirmed by the Hong Kong Court of Final Appeal on 8 June 2011 in Democratic Republic of the Congo v FG Hemisphere Associates LLC [2011] HKCFA 41. The Court referred the question to the Standing Committee of the National People’s Congress of China pursuant to article 158(3) of the Basic Law on whether Hong Kong is bound to follow China’s policy on state immunity given that article 13 of the Basic Law states: ‘The Central People’s Government shall be responsible for the foreign affairs relating to the Hong Kong Special Administrative Region.’

On 26 August 2011, the Standing Committee confirmed (i) that under article 13 of the Basic Law, China has the power to determine the rules or policies on state immunity in Hong Kong as it is a foreign affair matter, and (ii) that accordingly, absolute immunity doctrine applies in Hong Kong (Instrument A114).

The doctrine of sovereign immunity only applies to foreign states. It does not apply to China because it is not a foreign state. Instead, the common law doctrine of crown immunity applies to China and its state organs. The legal basis for this is rooted in the handover on 1 July 1997, when sovereignty over Hong Kong was transferred by the British Crown back to China. Accordingly, Crown immunity previously enjoyed by the British Crown in Hong Kong was transferred to China (Hua Tian Long (No. 2) [2010] 3 HKC 557).

Crown immunity at common law is also absolute in the sense that there is no exception for commercial acts. Once it is shown that a particular entity, properly understood, is an emanation or organ of China Central People’s Government, crown immunity will apply to render that entity immune from suit in Hong Kong. Importantly, however, Chinese state-owned enterprises will not enjoy crown immunity save for in extraordinary circumstances where the enterprise is authorised to and does act on behalf of China.

Crown immunity does not apply to the Hong Kong government, pursuant to the Crown Proceedings Ordinance (Cap 300).

Legal basis

What is the legal basis for the doctrine of sovereign immunity in your state?

Before the handover, the UK extended its doctrine on state immunity to Hong Kong by virtue of the State Immunity Act 1978 (applied in Hong Kong through the State Immunity (Overseas Territories) Order 1979). However, this statute ceased to apply upon the handover. No ordinance has been enacted to replace it.

In FG Hemisphere, the Court of Final Appeal highlighted that ‘there is nothing in the common law jurisprudence to suggest that a region or municipality forming part of a unitary State can establish its own state immunity practice at variance with that of the state to which it belongs.’ Thus, the Court held that ‘[t]he HKSAR cannot, as a matter of legal and constitutional principle, adhere to a doctrine of state immunity which differs from that adopted by the PRC. The doctrine of state immunity practised in the HKSAR, as in the rest of China, is accordingly a doctrine of absolute immunity.’ Shortly thereafter, this position was confirmed by the Standing Committee that determined that rules or polices concerning state immunity is an act of state involving ‘foreign affairs’, which under article 13 of the Basic Law, China is responsible for determining (see question 1).

Multilateral treaties

Is your state a party to any multilateral treaties on sovereign immunity? Has the state made any reservations or declarations regarding the treaties?

Hong Kong is not a party to any multilateral treaty on sovereign immunity.

China is party to the 2004 United Nations Convention on Jurisdictional Immunities of States and Their Property. However, this treaty has not been extended to Hong Kong. Further, although China has signed this treaty, it has not ratified it. Its courts and the Ministry of Foreign Affairs continue to adhere to the doctrine of absolute immunity. China has also maintained this position in foreign proceedings where it was a named party (see, for example, in US proceedings, Jackson v People’s Republic of China 794 F 2d 1490 (1986) and Morris v People’s Republic of China 478 F Supp 2d 561 (2007)).

Jurisdictional immunity

Domestic law

Describe domestic law governing the scope of jurisdictional immunity.

The doctrine of absolute sovereign immunity applies in Hong Kong. Accordingly, the scope of the immunity is absolute. All that must be shown for immunity to be afforded is that a particular entity is an emanation or organ of the state. Unlike in jurisdictions that have adopted the principle of restrictive sovereign immunity, there is no exception in Hong Kong for commercial transactions between the state and private parties.

State waiver of immunity or consent

How can the state, or its various organs and instrumentalities, waive immunity or consent to the exercise of jurisdiction?

Immunity can only be waived by ‘an unequivocal submission to the jurisdiction of the forum State at the time when the forum State’s jurisdiction is invoked against the impleaded State’ (FG Hemisphere). For example, in Hua Tian Long (No. 2) [2010] 3 HKC 557, the Court of First Instance found that the Guangzhou Salvage Bureau was entitled to crown immunity, but had waived that entitlement by (among others) filing a counterclaim in the Hong Kong court proceedings.

An arbitration agreement will not amount to a waiver of state immunity. Rather, such an agreement is merely a contractual submission to the jurisdiction of the arbitrators; it is not a submission to the jurisdiction of any enforcing court. Failing to waive immunity in enforcement proceedings may amount to a breach of contract, but that is a different matter.

In which types of transactions or proceedings do states not enjoy immunity from suit (even without the state’s consent or waiver)? How does the law of your country assess whether a transaction falls into one of these categories?

As sovereign immunity in Hong Kong is absolute, states enjoy immunity from suit in all transactions and proceedings.

If one of the exceptions to sovereign immunity set out above applies, is there any related principle that could prevent a court having jurisdiction over the state?

Apart from waiver, there are no exceptions to sovereign immunity in Hong Kong.

There are, however, other doctrines that apply in Hong Kong apart from sovereign immunity. The act of state doctrine is enshrined in article 19 of the Basic Law and other legislation governing proceedings before the Hong Kong courts. Article 19(3) provides that Hong Kong courts ‘shall have no jurisdiction over acts of state such as defence and foreign affairs’. In FG Hemisphere, the Court of Final Appeal observed that this was consistent with the common law act of state doctrine.

Proceedings against a state enterprise

To what extent do proceedings against a state enterprise or similar entity affect the immunity enjoyed by the state? Is there precedent for piercing the corporate veil to subject the state itself to those proceedings?

In TNB Fuel v China National Coal [2017] HKCFI 1016, the Court of First Instance applied the common law ‘control test’ to determine whether a Chinese state-owned enterprise was afforded crown immunity. The higher the degree of control exercised by the Chinese government over the entity, the more likely it is to be considered an emanation of the state. The following factors are relevant:

  • the level of independent discretion enjoyed by the entity;
  • the degree of control exercised by the state as investor;
  • the separate legal personality of the entity;
  • the power of the state to appoint and remove senior officers; and
  • the financial autonomy of the entity.

The Court may also consider the functions of the entity. A state-owned entity that exercises governmental or public functions is more likely to be viewed as an organ of the state and thus be entitled to invoke crown immunity.

In TNB Fuel v China National Coal, the entity in question was China National Coal Group Corporation (China Coal), a Chinese state-owned enterprise. China Coal was under the direct supervision of the State-owned Assets Supervision and Administration Commission (SASAC) of China’s State Council. The Secretary for Justice of Hong Kong intervened in the proceedings. The Secretary produced to the court a letter it had received from the Hong Kong and Macao Affairs Office of the State Council. The letter stated that, under Chinese law, a state-owned enterprise is an independent legal entity with its own operations. The letter also stated that state-owned enterprises, when carrying out commercial activities, are not typically deemed part of the central government. Based on its review of this letter, and because China Coal was entitled to independent autonomy in its business operations, pursuant to the law of its incorporation (ie, PRC law), the court held that China Coal was not an organ of the state. The Court emphasised that China Coal had operational autonomy and extensive independence in carrying out its business, and held that the powers of SASAC were akin to those of a normal shareholder. The Court distinguished Hua Tian Long (No. 2), which held that the Guangzhou Salvage Bureau was entitled to immunity, on the basis that the Guangzhou Salvage Bureau was not a separate legal entity and was additionally under the direct control of the Ministry of Communications. Although the question of whether a particular entity is an organ of the state is a fact-specific inquiry, the approach adopted in China Coal and Hua Tian Long (No. 2) is likely to be followed in other cases involving Chinese state-owned enterprises.

There is no recent authority in Hong Kong on the approach to be taken in determining whether an entity is an organ of a foreign state for the purposes of sovereign immunity. However, the Court is likely to take a similar approach to that taken in respect of crown immunity.

In short, generally, state-owned enterprises formed to carry out industrial or commercial activity and independently constituted, with their own management and corporate governance, are unlikely to be afforded immunity in Hong Kong courts.

Standing

What is the nexus the plaintiff needs to have standing to bring a claim against a state?

The Hong Kong courts have not articulated any specific standing requirements for claims to be brought against sovereign states. Rather, regular civil procedure rules would normally apply.

Nexus of forum court

What is the nexus the forum court requires to exercise jurisdiction over a state if the property or conduct that forms the subject of the claim is outside the forum state’s territory?

This question has not been put before the courts in Hong Kong, and it is unclear what approach Hong Kong courts would take.

Interim or injunctive relief

When a state is subject to proceedings before a court or arbitral tribunal in your jurisdiction, what interim or injunctive relief is available?

Interim measures and interlocutory injunctive relief may be available pending the resolution of any contested claim to sovereign or crown immunity (as it was in FG Hemisphere). Any application for such relief would be determined on the basis of the usual principles, namely that there is a serious question to be tried and that the balance of convenience weighs in favour of granting the injunction. If the claim to immunity succeeds, the injunction will be discharged (again, as occurred in FG Hemisphere).

In FG Hemisphere, the Court of Final Appeal left open the possibility that an arbitration clause may amount to an implied submission to the supervisory jurisdiction of the court of the seat of the arbitration. Thus, the Hong Kong Courts may grant interim measures in aid of a Hong Kong-seated arbitration involving an entity otherwise entitled to sovereign or state immunity.

Final relief

When a state is subject to proceedings before a court or arbitral tribunal in your jurisdiction, what type of final relief is available?

Assuming that a state has waived immunity, there is no reason in principle that it could not be subject to the full range of the court’s usual powers, which include an order for the payment of damages or specific performance.

Service of process

Identify the court or other entity that must be served with process before any proceeding against a state may be issued.

Process is served on a state under Order 11, Rule 7 of the Rules of the High Court (Cap 4A). This rule continues to reference the State Immunity Act (1978), which no longer has effect in Hong Kong. No new revisions have been made to Order 11, Rule 7 despite by the Standing Committee’s decision and the Court of Final Appeal’s ruling in FG Hemisphere.

Rule 7 envisions that before service is effected on a foreign state, prior leave must first be obtained from the court. Although the rules now acknowledge that absolute sovereign immunity applies, there is no requirement that the plaintiff make clear in its application for leave, the basis upon which it is alleged that sovereign immunity does not apply at this stage.

How is process served on a state?

Under Order 11, Rule 7 of the Rules of the High Court, a plaintiff must lodge in the court registry a request for service on the state to be arranged by the Chief Secretary, along with a copy of the writ to be served and a translation of the writ in the official language of the state. Since 1997, such requests to the Chief Secretary are forwarded to China’s Ministry of Foreign Affairs. The Ministry may then effect service through diplomatic channels. Rule 7 further provides that service on a state may also be effected by other methods agreed to by the state.

Problems have arisen in cases where the Ministry does not effect service on the respondent state, resulting in the plaintiff having complied with the requirements of service but knowing that it has not actually been brought to the attention of the state.

It is therefore also possible, in certain instances, to seek leave for substituted service from the Hong Kong courts under Order 11 and Order 65 of the Rules of the High Court (Cap 4A), which may not entail going through diplomatic channels. The Hong Kong courts appear to have taken a pragmatic approach in dealing with such situations. In FG Hemisphere, the plaintiff attempted to remedy this issue by serving process informally on various government offices, ultimately resulting in the Democratic Republic of the Congo filing an acknowledgement of service through its solicitors in Hong Kong. The plaintiff then obtained an ex parte order for substituted service on the state’s Hong Kong solicitors. This approach was approved by the Court of Appeal.

Judgment in absence of state participation

Under what conditions will a judgment be made against a state that does not participate in proceedings?

Hong Kong courts have not considered this issue. However, the Hong Kong courts may have regard to English authority to the effect that proceedings may continue in the absence of the defendant, even where the defendant is a sovereign state (see Certain Underwriters at Lloyds v Syrian Arab Republic [2018] EWHC 385). The Hong Kong courts may, however, dismiss the suit for lack of jurisdiction if sovereign immunity applies. Given that doctrine of immunity in Hong Kong no longer follows that of the UK, it is difficult to assess how English authorities would be treated by the Hong Kong courts.

Enforcement immunity

Domestic law

Describe domestic law governing the scope of enforcement immunity.

In Hong Kong, the doctrine of absolute sovereign immunity applies in respect of both jurisdictional immunity and enforcement immunity. In FG Hemisphere, the Court of Final Appeal found that China had consistently adhered to the doctrine that a state and its property enjoy absolute immunity from jurisdiction and from execution. The court held that this also applied in Hong Kong.

Application of civil procedure codes

When enforcing against a state, would debt collection statutes and the enforcement sections of civil procedure codes or similar codes also apply?

Assuming sovereign immunity does not apply (for instance, because it has been waived), the full range of remedies available to any judgment creditor should be available against a state, although this has not been tested by the Hong Kong courts. In FG Hemisphere, the Court of Appeal appeared to accept that receivers could be appointed over state assets in Hong Kong. However, as discussed above, the Court of Final Appeal overturned this decision on the basis that absolute sovereign immunity applied.

Consent for further enforcement proceedings

Does a prior submission to the jurisdiction of a court or tribunal constitute consent for any further enforcement proceedings against the property of the state?

Prior submission to jurisdiction does not constitute consent to further enforcement proceedings against the property of the state. Under common law, waiver must be established at two distinct stages: the state must have first waived its jurisdictional immunity from suit in the forum state, and also waived the immunity of its property from execution by the forum state’s processes. This position was endorsed by the Court of Final Appeal in FG Hemisphere.

Property or assets subject to enforcement or execution

Describe the property or assets that would typically be subject to enforcement or execution.

As sovereign immunity from enforcement in Hong Kong is absolute, all state property is immune from enforcement (unless immunity has been waived).

Assets covered by enforcement immunity

Describe the assets that would normally be covered by enforcement immunity and give examples of any restrictive or broader interpretations adopted by the courts.

See question 19.

Explain whether the property or bank accounts of a central bank or other monetary authority would be covered by enforcement immunity even when such property is in use or is intended for use for commercial purposes.

In October 2005, China’s ‘Law on Judicial Immunity from Compulsory Measures Concerning the Property of Foreign Central Banks’ was added to Annex III of the Basic Law of Hong Kong. Annex III contains a list of Chinese legislation to be brought into force in Hong Kong through executive promulgation or legislative implementation.

Under this statute, property and bank accounts belonging to foreign central banks are immune from execution, unless the foreign central bank or state government waives such immunity in writing. Where waiver is given, the property or bank accounts sought to be executed against must have been designated for execution. Immunity granted under this statute is subject to the principle of reciprocity: immunity is only granted if the foreign state in question grants similar privileges to the China, Hong Kong and Macao central monetary authorities.

Legislation listed in Annex III of the Basic Law must first be brought into force through executive promulgation or legislative implemen­tation. Neither appears yet to have occurred in respect of this statute.

Test for enforcement

Explain whether domestic jurisprudence has developed any further test that must be satisfied before enforcement against a state is permitted.

No further test has been developed.

Service of arbitration award or judgment

How is a state served with process or otherwise notified before an arbitration award or judgment against it (or its organs and instrumentalities) may be enforced?

Service of process is effected in the same way as described above. As required by Order 11, Rule 7 of the Rules of the High Court, leave to serve must first be obtained from the Hong Kong courts, following which a request has to be lodged with the Chief Secretary.

In Hong Kong, actions for enforcement of arbitral awards are viewed as actions involving jurisdictional immunity, not enforcement immunity. FG Hemisphere concerned proceedings to enforce a pair of arbitral awards against the Democratic Republic of the Congo in Hong Kong. The Court of Final Appeal found that the Democratic Republic of the Congo was immune from suit.

The Court held that the ‘suit’ in Hong Kong was the plaintiff’s application for leave to enforce the awards in Hong Kong under the Arbitration Ordinance (Cap 609). The Court observed that, even if recognition proceedings were successful, the applicant still had to seek to execute the award. At this stage the state would have a further right to object to execution against the targeted property on the grounds of state immunity.

History of enforcement proceedings

Is there a history of enforcement proceedings against states in your jurisdiction? What part of these proceedings is based on arbitral awards?

There have not been many enforcement proceedings against states in Hong Kong.

Recent cases that have been brought have had to do with arbitral awards. FG Hemisphere, the leading recent case on sovereign immunity and proceedings against states, is a case concerning the enforcement of foreign arbitral awards.

Public databases

Are there any public databases through which assets held by states may be identified?

Yes, Hong Kong maintains public databases that can be used to identify assets held by states. Examples include land registries, business registries, trademark registries and vehicle registries. These public databases provide varying amounts of information on ownership of assets. For land searches, it is only possible to conduct searches by address and not by owner.

Court competency

Would a court in your state be competent to assist with or otherwise intervene to help identify assets held by states in the territory?

Hong Kong courts are generally competent to assist with identifying and enforcing against assets. Order 24 of the Rules of the High Court governs discovery of documents in Hong Kong proceedings, and Section 21M of the High Court Ordinance (Cap 4) allow for interim relief to be sought in Hong Kong in relation to foreign proceedings, provided that the foreign proceedings are capable of giving rise to a judgment enforceable in Hong Kong. (The relevant legal tests are set out in the Court of Final Appeal judgment in Compania Sud Americana de Vapores SA v Hin-Pro International Logistics Limited 19 HKCFAR 586.)

Norwich Pharmacal orders, Bankers Trust orders, orders for copies of bankers’ records pursuant to section 21 of the Evidence Ordinance (Cap 8), and other similar orders are available to assist with obtaining information on assets held by third parties, particularly banks.

However, it is unclear whether Hong Kong courts will take the same approach with respect to assets held by sovereign states, given that states are afforded absolute immunity in Hong Kong.

Immunity of international organisations

Specific provisions

Does the state’s law make specific provision for immunity of international organisations?

The International Organisations (Privileges and Immunities) Ordinance provides specifically for immunity of international organisations based on international agreements entered into by Hong Kong, or entered into by China and applied to Hong Kong. Under this Ordinance, the government may by order declare that provisions of such international agreements relating to immunities of international organisations shall have the force of law in Hong Kong.

Domestic legal personality

Does the state consider international organisations headquartered or operating in its territory as enjoying domestic legal personality and could such organisations be subjected to proceedings before a court or arbitral tribunal?

The above-mentioned Ordinance allows the government to give effect to provisions in international agreements on the status of various international organisations. Accordingly, whether a particular international organisation is afforded domestic legal personality, and whether they are given capacity to institute and respond to legal proceedings in Hong Kong, depends on the provisions of the international agreement in question and the domestic order giving effect to it.

Enforcement immunity

Would international organisations in the state enjoy enforcement immunity? Are there any cases where debtors sought to enforce against a state by attaching or executing assets held by international organisations?

The extent and type of immunity afforded to international organisations depends on the order made by the government under the above-mentioned Ordinance giving legal status and immunity to the international organisation. In many cases, international organisations would be given enforcement immunity.

Updates & Trends

Recent developments

Are there any other current developments or emerging trends that should be noted?

Key developments of the past year30 Are there any emerging trends or hot topics in your jurisdiction?

TNB Fuel v China National Coal, handed down two years ago by the Court of First Instance, was a welcome development (as discussed above at question 8). Moreover, while the judgment was in respect of one particular state-owned enterprise, the reasoning provides strong confirmation that Chinese state-owned entities under SASAC are unlikely to be deemed as organs of China’s central government and afforded crown immunity. This case has not been appealed. To date, no further cases have been brought in Hong Kong on this point.