02.24Enforcement of Convention Award Against Sovereign Not a Convention Member State
A recent judgment of the Hong Kong Court of Appeal addresses in painstaking detail the sovereign immunity issues implicated when enforcement and execution are sought of a private arbitration award which, while made in the territory of a Member State of the New York Convention, runs against a sovereign state that is not itself a Member State of the Convention. (FG Hemisphere Assocs. v. Democratic Republic of the Congo, CACV 373/2008 & CACV 43/2009, unpublished judgment, copy available from this writer).
Two members of the three-judge panel agreed, and held, that
(i) at the time of transfer of Hong Kong sovereignty to the PRC, the restrictive theory of sovereign immunity (i.e. no immunity where the State engages in commercial activity) was a principle of customary international law and as such had been incorporated into the common law of Hong Kong;
(ii) the PRC having not abrogated this common law principle by statute applicable to Hong Kong after the transfer of sovereignty, restrictive immunity remains the law in Hong Kong, despite the fact that the PRC applies absolute immunity, by statute, on the Mainland and asserts in international affairs its adherence to the principle of absolute immunity;
(iii) the transactions that gave rise to the ICC award against the Democratic Republic of the Congo (”DRC”) were commercial, and so the DRC had no immunity from the jurisdiction of the Hong Kong courts to enforce the award; and
(iv) the first instance court would be permitted to find, on remand, that all or part of the DRC assets located in Hong Kong, and against which execution was sought, were dedicated to commercial rather than sovereign purposes and thus had no immunity from execution.
The result of the judgment was to reinstate asset-freeze orders of the first instance court, which had restrained PRC and Hong Kong companies that were indebted to the DRC from transferring the funds to the DRC pending final determination of whether those funds should be applied in satisfaction of the ICC award against DRC. A first-level appeals court had vacated those orders.
The separate opinions of the three judges reflect painstaking attention to the evolution of restrictive immunity in 20th century jurisprudence, and in national laws. The dissenting judge finds that restrictive immunity does not deserve recognition as customary international law, having failed to achieve sufficiently widespread recognition and application as a matter of perceived legal obligation. For the dissenting judge, it appears that the world is divided between the developed and capitalist countries countries that seek to treat sovereign states as commercial parties, and less developed and socialist states, which tend to be more protective of sovereign prerogatives. One is reminded that whether an international legal principle deserves recognition as custom can depend heavily on what sources are consulted — and here the reliance of the majority on Western jurisprudence and practice cannot be denied.