The Hong Kong court considered the scope of the 'commercial transaction' exception to sovereign immunity, finding that payments to the Democratic Republic of Congo (DRC) in consideration for the grant of a licence to exploit the DRC's mineral rights were sovereign (as opposed to commercial) in nature and were therefore immune from execution (i.e. enforcement). The case also contains clear guidance that, in the Hong Kong courts at least, mere submission of a sovereign state to arbitration will not amount to a waiver of sovereign immunity against execution of awards.
This case highlights the different approaches taken in various jurisdictions as to the effect of an arbitration agreement as a waiver of sovereign immunity, and is a clear reminder of the need for private parties to include, where possible, a waiver of immunity from execution / enforcement (in addition to immunity from suit) in any agreement with a state or state-owned entity. Without it, there remains a risk that, having successfully obtained an award against a state, a private investor may not be able to enforce such an award against assets held by the state. For such a waiver to be effective, "clear and unambiguous conduct of the State which is inconsistent with its intention to invoke sovereign immunity" must be shown.
FG sought to enforce two ICC arbitral awards against fees payable to the DRC by state-owned entities of the People's Republic of China (PRC). These fees were payable as part of a development project involving an umbrella co-operation agreement entered into by the DRC and the PRC, under which a joint venture company (owned by DRC and PRC state owned entities) was to develop the DRC's infrastructure in return for the right to exploit certain mineral resources over the life of the project.
One issue left undecided by this case is whether Hong Kong law now adopts a restrictive or absolute approach to sovereign immunity. While it is plain that, prior to 1997, Hong Kong law followed the restrictive approach (so that states engaging in commercial transactions ceased to enjoy immunity), DRC argued that an absolute theory of immunity now applies. Ultimately, Reyes J had no need to decide this point, given that he found on the facts that the payment of the Entry Fees to the DRC could not be characterised as a commercial transaction, and so would be immune from execution on either approach (absent an express waiver).
Reyes J then rejected FG's argument that DRC's submission to ICC arbitration represented a waiver of such immunity, as Article 28(6) of the ICC Rules provides that the parties undertake to carry out any award without delay and are deemed to have waived their right to any form of recourse insofar as such waiver can validly be made. He ruled that a clear and unequivocal waiver was required before the courts would allow enforcement of any award against state-owned assets and that such a waiver could be implied only by clear and unambiguous conduct on the part of the state inconsistent with an intention to invoke immunity from execution. The undertaking to carry out an award in article 28(6) of the ICC Rules was not sufficient evidence of such intention.
These issues were also considered recently by the English Commercial Court in Orascom Telecom Holding SAE v Republic of Chad & Other. In that case, Burton J considered authorities from various jurisdictions, including the French Cour de Cassation in Creighton Ltd v Qatar (a decision which Reyes J expressly declined to follow, because he found it illogical) and the US 5th Circuit Court in Walker International Holdings Ltd v Congo, in which it was found that submission to arbitration may amount to a waiver of sovereign immunity against execution. However, Burton J declined to reach a decision on whether a reference to ICC arbitration would be sufficient to amount to a waiver of immunity from execution under English law. This question therefore remains open in the UK. Thus, although it may be possible for an award-debtor to argue that an arbitration agreement amounts to a waiver of immunity from enforcement as well as from suit, it remains doubtful that such arguments would be successful before the English courts.
It is understood that Reyes J's decision is being appealed.
(FG Hemisphere Associates LLC v Democratic Republic of Congo and others (HCMP 928/2008)