September.08.2011
Hong Kong's highest court ruled in favor of Orrick’s client, the Democratic Republic of the Congo (DRC), in an appeal that raised the question of whether Hong Kong observes the "absolute" doctrine of sovereign immunity or the "restrictive" doctrine. FG Hemisphere (FG), a U.S. vulture fund, had purchased an assignment of two ICC arbitral awards against the DRC and pursued enforcement of those awards in various jurisdictions, including Hong Kong. The DRC resisted enforcement in Hong Kong on grounds of sovereign immunity.
While sovereign immunity would have no exception under the absolute doctrine, there is an exception for commercial matters under the restrictive doctrine. It was generally accepted that during the British colonial era following the Second World War, Hong Kong adopted the restrictive doctrine of sovereign immunity. However, in 1997 Hong Kong reverted to Chinese sovereignty, and China has consistently adopted the absolute doctrine. The case, therefore, went to the very heart of the doctrine of "One Country: Two Systems" that has applied in Hong Kong since the hand over of sovereignty in 1997.
On June 8, Hong Kong's Court of Final Appeal (CFA) provisionally held—by a majority of 3:2—that Hong Kong, as part of China, applies the absolute doctrine of sovereign immunity. It further held that the DRC, by entering into a private arbitration agreement, had not waived and could not waive its immunity, which was a matter of convention between sovereign states (Provisional Judgment). The CFA referred the question to the Standing Committee of China's National People's Congress (NPC) for a definitive ruling.
On August 26, the NPC interpreted the Basic Law as providing that Hong Kong, like the rest of the PRC, adopts the absolute doctrine of sovereign immunity, rather than the restrictive doctrine. In the context of the DRC case, this means that the DRC has the benefit of sovereign immunity and FG is not able to enforce the arbitral awards against the DRC's assets, if any, in Hong Kong.
In view of the above interpretation, on September 8, the CFA declared its Provisional Judgment final.
"The majority judgment of the Court of Final Appeal represents a tremendous victory for our client, the DRC. Although the case has raised some major legal and constitutional issues, the outcome demonstrates the strength of the Hong Kong judiciary and the merits of having a Court of Final Appeal that includes non-permanent judges who are drawn from other common-law jurisdictions and who cannot possibly be accused of political bias," explained Robert Pé, head of Orrick's Asia Dispute Resolution Group.
Hong Kong of counsel Samuel Ngocommented, "Historically most contracts involving states or state-owned enterprises would include a provision whereby the state expressly waived any claims to sovereign immunity. This judgment will certainly call into question the effectiveness of those clauses. Clients will need to review whether there's any point in having those waiver provisions."
Samuel Ngo led the representation of the DRC with support from partners Robert Pé and Andrew Dale.