State and Crown immunity in Hong Kong: practical considerations in selecting and drafting disputes clauses

State and Crown immunity have been hot topics in Hong Kong. The Hong Kong Court of Final Appeal's ("CFA") preliminary decision in the Congo case1 that foreign states have the right to absolute immunity in Hong Kong has been confirmed by an Interpretation issued by the PRC Central Government on 26 August 2011.2 On 8 September 2011, the CFA issued a final judgment confirming that the principle of absolute immunity applies in Hong Kong.

State immunity does not apply, in Hong Kong, to the PRC and its entities. However, the PRC and its entities enjoy Crown immunity (as did Her Majesty the Queen in the Right of the UK prior to "handover"), as was confirmed by the 2010 decision of the Hong Kong Court of First Instance in Hua Tian Long.3

The Hong Kong Government and its entities are, however, in a different position. The Crown Proceedings Ordinance ("CPO") continues to permit civil proceedings against the Hong Kong Government and its entities.

Can Hong Kong still be used as a dispute forum in contracts involving state counterparties?

In most cases, yes.

The major impact of the Congo decision is that there is little point bringing proceedings against a foreign government in the Hong Kong courts. This includes proceedings seeking recognition or enforcement of an arbitral award against a foreign government's assets located in Hong Kong.

Importantly, a Hong Kong arbitration clause involving a foreign state is effective. There is a residual question over whether the Hong Kong courts will be able to exercise supervisory jurisdiction over an arbitration involving a foreign state or one of its entities: there are strong arguments indicating that participation in a Hong Kong arbitration would amount to a waiver of immunity in relation to the supervisory jurisdiction of the Hong Kong courts but the position is not clear. That stated the courts residual supervisory powers are very limited under Hong Kong's new legislation.

Practical Steps

You should consider the following when selecting or drafting dispute clauses involving Hong Kong where a government entity is involved:

For contracts with the Hong Kong Government or a Hong Kong Government enterprise. Selection of either the Hong Kong Courts or an arbitration clause is fine. The Hong Kong Government has, in effect, waived immunity from suit under the CPO. There is no waiver from execution proceedings, however the CPO includes provisions for payment of judgments etc by the Hong Kong Government. A foreign...