Key Takeaways

  • Pursuant to a new law in the People’s Republic of China (PRC), from 1 January 2024, the Hong Kong Special Administrative Region (SAR) will adopt the restrictive doctrine of foreign state immunity.
  • This will allow parties to sue foreign states in the Hong Kong courts and execute against their commercial assets without requiring a waiver of immunity by the foreign state.
  • Hong Kong currently adopts absolute state immunity without such a commercial exception.
  • The new law will also recognise contractual and treaty-based waivers of immunity from both suit and execution, which were previously ineffective in Hong Kong.
  • The new law will not affect the existing position that foreign states cannot claim immunity from arbitration proceedings or that commercial state-owned enterprises (SOEs) are not entitled to immunity.
  • The new law will enhance Hong Kong’s attractiveness as a dispute resolution forum, especially for cross-border commercial disputes involving foreign states or state entities.

The existing position: absolute immunity

State immunity relates to the protection given to a state from being sued in court. In Hong Kong, the law has distinguished between, on the one hand, sovereign immunity relating to claims against foreign states, and, on the other, crown immunity affording the PRC state immunity from being sued in the courts of its own country.

Under the currently applicable absolute immunity doctrine, both the PRC and foreign states enjoy absolute immunity. This includes immunity not only from suit or adjudication but also from enforcement against state assets. This sets Hong Kong apart from other jurisdictions that implement restrictive immunity, as reflected in international conventions, such as the European Convention on State Immunity, which provide for immunity in respect of public or sovereign activities but not for private or commercial activities.

This position was determined in the landmark Court of Final Appeal decision in Democratic Republic of the Congo v. FG Hemisphere Associates [2011] HKCFA 41, which held that absolute sovereign immunity applies in Hong Kong. It was followed by a Court of First Instance decision in The Hua Tian Long (No.3)[2010] 3 HKC 557, in which it was determined that absolute crown immunity applies to the PRC government in Hong Kong.

The new law

On 1 September 2023, the PRC passed the Foreign State Immunity Law (the New Law), with effect from 1 January 2024. In an announcement dated 4 September 2023, the PRC authorities confirmed the Hong Kong SAR should follow the rules and policies in the New Law.

Without commenting on PRC law, the below sections set out some implications for Hong Kong’s arbitration regime.

Restrictive immunity and commercial activities

Foreign states will no longer be granted sovereign immunity from the jurisdiction of the Hong Kong courts in respect of suits in relation to commercial transactions and execution against state assets in Hong Kong which are used in commercial activities (Article 7). In determining whether an act constitutes a commercial activity, reference will be made to the “nature” and “purpose” of the act.1 This compares to the absolute immunity previously afforded to states at both the execution and enforcement stages.

Express waivers

A state’s express waiver of immunity from suit or execution will be effective in Hong Kong, whether that waiver is given by contract or by international treaty (Article 13 of the New Law). However, a waiver of immunity from suit will not automatically trigger a waiver in respect of execution. This is a significant development in Hong Kong as, previously, waivers of immunity commonly included in commercial contracts with foreign states were ineffective under Hong Kong law. Immunity was to be waived only “in the face of the court”, namely, when the suit or enforcement action was commenced in the court and the court was expressly asked to exercise its jurisdiction.

Arbitration proceedings

The New Law does not change the position under the existing regime that foreign states are not entitled to claim state immunity from the jurisdiction of arbitral tribunals in arbitration proceedings. However, the New Law does set out an express exception to sovereign immunity for arbitration proceedings arising out of commercial activities (Article 12). This expands the scope of enforcement of foreign and Hong Kong arbitral awards and court judgments against foreign states in Hong Kong.

Foreign state-owned enterprises

Foreign commercial SOEs, which are not deemed to perform sovereign functions on behalf of a state, will continue not to be entitled to sovereign immunity in Hong Kong. Importantly, this treatment of foreign SOEs vis-à-vis sovereign immunity is similar to the existing approach for PRC SOEs vis-à-vis crown immunity. As confirmed in the cases of The Hua Tian Long and also TNB Fuel Services SDN BHD v. China National Coal Group Corporation [2017] HKCFI 1016, the Hong Kong courts will, in determining whether a corporation is entitled to crown immunity, apply a “control test” ascertaining the nature and degree of control that could be exercised by the PRC authorities over the entity in question.

Concluding comments

By adopting the commercial activities exception, Hong Kong has taken a pro-arbitration and pro-enforcement step in expanding the categories of disputes that can be adjudicated and enforced by the Hong Kong courts.