China Matters: One Country, One Immunity: Hong Kong Court of Final Appeal Holds Foreign States Have Absolute Sovereign Immunity
By James E. Berger, Charlene C. Sun & Wilson Ka-Tung Yiu
In our June 2010 edition of Stay Current, we discussed the Hong Kong Court of Appeals decision in FG Hemisphere Associates LLC v. Democratic Republic of Congo, in which the Court of Appeal held that, while China continues to follow the absolute approach to sovereign immunity, its failure to impose its immunity doctrine on Hong Kong through legislation justified a finding that the common law restrictive immunity doctrine, which had been developed prior to the 1997 transformation of Hong Kong from a British overseas territory to a special administrative region of the People's Republic of China, continued to apply in Hong Kong. The decision was appealed to the Hong Kong Court of Final Appeal.
On June 8, 2011, the Hong Kong Court of Final Appeal, in a 3-2 split, reversed that ruling and held that foreign states enjoy absolute immunity from suit in Hong Kong and that no exception from immunity for commercial activity or arbitration matters exists. The majority held that absent an explicit and unequivocal waiver of immunitymanifested by a voluntary submission to the jurisdiction of the forum statea Hong Kong court cannot exercise jurisdiction over a foreign state. This long-awaited and significant decision aligns Hong Kong common law regarding immunity with the laws of the Peoples Republic of China and, in so doing, discards a key component of pre-handover jurisprudence. Though FG Hemisphere resolved the split between the competing immunity doctrines, the resolution will undoubtedly engender concern for corporations and individuals doing or considering doing business with a foreign nation and/or from financing such undertakings in Hong Kong, as well as lead companies making foreign investments (particularly in Asia) to consider the suitability of Hong Kong as a potential forum for investor-state arbitrations, since the Courts ruling will make it virtually impossible to seek judicial assistance in aid of arbitration against foreign states in Hong Kong.