Beijing brings HK into line on state immunity

PUBLISHED : Saturday, 27 August, 2011, 12:00am
UPDATED : Saturday, 27 August, 2011, 12:00am


It's official: in its first interpretation of the Basic Law requested by the Hong Kong courts, Beijing concluded that the city must follow the mainland's law on state immunity.

This means states that have entered into business deals cannot be taken to a Hong Kong court should the agreement go sour, setting in stone an eventuality lawyers primed themselves for months ago.

It was the same position expressed in letters from the Office of the Commissioner of the Ministry of Foreign Affairs in Hong Kong shown to the Court of Final Appeal months ago, and a draft response presented by the vice-chairman of the NPCSC Legislative Affairs Commission, Li Fei, on Wednesday.

And yesterday, all 157 members of the National People's Congress Standing Committee voted in favour of the interpretation.

'I see that in [Hong Kong's] Court of First Instance, the Court of Appeal and the Court of Final Appeal, judges showed differences in understanding,' Li said yesterday. 'What does this illustrate? It illustrates the need to clarify the application of state immunity policy in Hong Kong.'

The need for a ruling stemmed from a debt dispute between the Democratic Republic of Congo and United States-based fund FG Hemisphere Associates. Congo claimed it was immune from prosecution in Hong Kong, triggering the argument of whether Hong Kong follows Beijing's practice of absolute immunity or can continue with its pre-1997 regime that denies immunity to states in commercial deals.

Yesterday's interpretation said state immunity policy was considered part of foreign affairs, and therefore the central government had the right to decide the city's policy, in accordance with Article 13 of the Basic Law. And with respect to Article 19 of the mini-constitution, Hong Kong courts have no jurisdiction over matters of state immunity policy.

Now that has been decided, lawyers have another question on their hands: how can they sidestep a law that appears to give carte blanche to states that can never be prosecuted in Hong Kong courts for their business deals? That is important for both sides: a state - which might soon find no one willing to cut a deal if it was always claiming immunity - and the private parties - which would fear the state could invoke immunity.

Cheung Fai-hung, a partner at law firm Allen & Overy, said deal-makers could agree when the contract was signed to only settle disputes out of court, or agree to settle them in overseas courts where the immunity would not be upheld.

Mark Lin, partner at law firm Hogan Lovells, said absolute immunity of the state had not deterred foreigners from investing in the mainland. The interpretation gave clarity and certainty, which made striking deals easier. 'Certainty is good for businesses because they know where things stand, and that is what Hong Kong prides itself on,' he said.

Li, the Legislative Affairs Commission vice-chairman, said the immunity laws did not apply to Chinese state-owned enterprises as they have assumed the legal status of a company. But Lin said overseas state owned enterprises, central banks and sovereign wealth funds could be seen as state-controlled, yet the immunity did not automatically apply to them. 'That will have to be a decision for another day,' he said.