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China; Hong Kong: Congo Assets Case Tests Sovereign Immunity

(Sept. 1, 2011) On August 26, 2011, China's National People's Congress (NPC) Standing Committee unanimously affirmed an earlier decision of a Hong Kong court, declaring that companies cannot sue sovereign states to recover assets. (Sovereign States Get Legal Immunity in Hong Kong, VOICE OF AMERICA (Aug. 26, 2011); Zhao Yinan, Top Legislature Interprets HK Law, CHINA DAILY.COM (Aug. 27, 2011).)

The case in question concerned a lawsuit initiated by a U.S. investment fund to claim some of the assets in Hong Kong belonging to the Democratic Republic of the Congo. The assets are valued at over HK$800 million (about US$102.6 million). On June 8, in a split decision, the Court of Final Appeal of Hong Kong determined that a sovereign nation could not be sued in the Hong Kong courts. The matter was then referred to the NPC Standing Committee in Beijing. (Natalie Wong, One Country, One System Test for Congo Case as Interpretation Set, THE STANDARD (Aug. 25, 2011).)

The Standing Committee decision was an interpretation of articles 13 and 19 of the Hong Kong Basic Law, the mini-constitution that has governed the city since its return to Chinese control in 1997. Under article 158 of that Law, it is the Standing Committee that interprets its provisions. (The Basic Law of the Hong Kong Special Administrative Region of the People's Republic of China [HKSAR], adopted Apr. 4, 1990, Hong Kong Government website (last updated Dec. 3, 2010).) Article 13 states that the Central People's Government is responsible for the foreign affairs relating to Hong Kong, but also that the HKSAR is authorized to conduct relevant external affairs on its own, in accordance with the Basic Law. (Id.) Article 19 establishes guidelines for an independent judiciary in the HKSAR, including the power of “final adjudication,” but specifies that the courts of the HKSAR “shall have no jurisdiction over acts of state such as defence and foreign affairs.” (Id.) The issue to be settled in this case was over the definition of “acts of state.”

Commenting on the case two days before the Standing Committee decision, the Deputy Director of the Legislative Affairs Commission of the NPC, Li Fei, stated that under the Basic Law, the central government has the right to determine policy involving sovereign state immunity applied in the HKSAR, and courts in Hong Kong must comply. “If the outcome is inconsistent with existing laws in Hong Kong, amendments will have to be made,” Li added. (THE STANDARD, supra.)

The Chinese government's position was also stated by Elsie Leung Oi-sie, a member of the NPC Committee on the Basic Law, who stressed that the case is more than a commercial issue and that the nation can have only one diplomatic position, covering both the mainland and the HKSAR. She added,

Hong Kong has a high degree of autonomy in internal affairs under the 'one country, two systems' rule. But when it involves foreign affairs, there cannot be two systems. … It's like the human body. If the head faces one direction but the feet face another, the body will be ripped apart. (Id.)

The decision itself affirmed these views, stating, “[s]ince state immunity falls in the domain of a country's foreign affairs, it is up to the central government to make decisions about the policy, which should be applied universally within the territory of the People's Republic of China.” (Zhao Yinan, supra.) This case is the first in which a matter has been referred to the NPC Standing Committee from the Hong Kong Court of Final Appeal, although other matters of interpretation of the Basic Law have been considered by the Standing Committee. (Id.)

Some in Hong Kong have viewed the matter in a different light, arguing that it is a test of the independence of the HKSAR's judiciary. The argument has been made that seeking the interpretation from Beijing undermined the status of the local courts and that a decision enforcing sovereign immunity could be harmful to the city's reputation as a financial center. (China Backs HK Court on Sovereign Immunity, ASIAONE (Aug. 26, 2011).)