Yilin Ding, Absolute, Restrictive, or Something More: Did Beijing Choose the Right Type of Sovereign Immunity for Hong Kong?

• Citation: Vol. 26 No. 2
• Publication year: 2010

ABSOLUTE, RESTRICTIVE, OR SOMETHING MORE: DID BEIJING CHOOSE THE RIGHT TYPE OF SOVEREIGN IMMUNITY FOR HONG KONG?

INTRODUCTION

Hong Kong was a British colony until 1997 when it was returned to China.1 Today, Hong Kong remains a common law jurisdiction, distinct from Mainland China,2 and enjoys a high degree of autonomy.3 Before 1997, Hong Kong followed the British doctrine of restrictive sovereign immunity, under

which a foreign sovereign is not immune from claims arising out of commercial activities.4 China, however, has espoused the more traditional doctrine of absolute sovereign immunity, under which a foreign sovereign is always immune from suit, whether or not the claim arose from commercial activities.5

In 2008, an American vulture fund6 sued the Democratic Republic of the Congo (the “DRC”) in Hong Kong, seeking enforcement of arbitral awards by garnishing mining-right fees that certain state-owned Chinese companies owed to the DRC.7 The national government in Beijing intervened heavily in the Congo cases,8 effectively forcing Hong Kong to abandon its common law restrictive doctrine of immunity and shift to China’s more traditional absolute

1. IAN DOBINSON & DEREK ROEBUCK, INTRODUCTION TO LAW IN THE HONG KONG SAR 1 (2d ed. 2001).

2. “Mainland China” is a geographical term referring to the People’s Republic of China, minus Taiwan, Hong Kong, and Macau. See Hong Xue, The Voice of China: A Story of Chinese-Character Domain Names,

12 CARDOZO J. INT’L & COMP. L. 559, 575 (2004).

1. See DOBINSON & ROEBUCK, supra note 1, at 1–3.

2. Dem. Rep. Congo v. FG Hemisphere Assocs. (Congo III), [2011] Legal Reference System paras. 62, 502–12 (C.F.A.) (H.K.); FG Hemisphere Assocs. v. Dem. Rep. Congo (Congo I), [2009] 1 H.K.L.R.D. 410, para. 37 (C.F.I.) (H.K.); RODA MUSHKAT, ONE COUNTRY, TWO INTERNATIONAL LEGAL PERSONALITIES: THE CASE OF HONG KONG 65 (1997).

3. See, e.g., Voest-Alpine Trading USA Corp. v. Bank of China, 142 F.3d 887, 890–91 (5th Cir. 1998); Jackson v. People’s Republic of China, 794 F.2d 1490, 1494 (11th Cir. 1986); Midland Inv. Co. v. Bank of Commc’ns [1956] 40 H.K.L.R. 42, 43 (H.C.); Civil Air Transp. Inc. v. Chennault, [1950] 34 H.K.L.R. 358,

360 (H.C.).

1. A vulture fund is a professional plaintiff that buys defaulted sovereign debts owed by developing countries at a deep discount on the secondary sovereign debt market, and then sues the sovereign debtor,

   seeking recovery of the face value of the debt plus interest. See infra note 94 and accompanying text.

2. Congo I, 1 H.K.L.R.D. para. 4.

3. See, e.g., id. paras. 31, 55.

   sovereign immunity doctrine.9 Part III of this Comment argues that Beijing was wrong to require Hong Kong to regress from the restrictive to the absolute doctrine of sovereign immunity.

   
   

   Further, the Congo cases were more than just suits against a foreign sovereign defendant—they were also suits filed by a vulture fund, a highly controversial species of plaintiff.10 Part IV of this Comment proposes a solution to the problem of vulture-fund suits that does not involve shifting to

   the absolute doctrine of sovereign immunity.

   
   

   1. GENERAL BACKGROUND

      
      

      The Congo cases were brought in Hong Kong by a vulture fund plaintiff, against a sovereign defendant that claimed immunity. The Chinese government intervened heavily.11 The “core question of law” was whether Hong Kong should retain the British restrictive doctrine of sovereign immunity or shift to Mainland China’s absolute doctrine.12 This Part of the Comment will provide background information on the following: (A) the distinction between absolute and restrictive sovereign immunity; (B) restrictive sovereign immunity in

      Hong Kong before it was handed over to China; (C) the statutory vacuum after Hong Kong’s return to China; (D) China’s adherence to absolute immunity; and (E) vulture funds’ challenge to the doctrine of sovereign immunity.

      
      

      1. From Absolute to Restrictive Sovereign Immunity

         
         

         Traditionally in public international law, the government of one sovereign country, together with its agents and instrumentalities, enjoyed absolute sovereign immunity from suit in the courts of another sovereign country.13After the Second World War, as the role of the state changed, more

         and more countries shifted to a new “restrictive” doctrine of sovereign immunity, which carved out exceptions to claims of immunization from suit in

         
         

4. See Interpretation of Paragraph 1, Article 13 & Article 19 of the Basic Law of Hong Kong by the Standing Comm. Nat’l People’s Cong (2011) Cap. 2114, BLIS (requiring Hong Kong to defer to the People’s Government as to rules and policies on state immunity) [hereinafter Interpretation of Article 13].

5. See, e.g., Congo III, [2011] Legal Reference System (C.F.A.) (H.K.).

6. See, e.g., Congo I, 1 H.K.L.R.D. paras. 31, 55.

7. Congo III, [2011] Legal Reference System para. 2.

8. See generally DAVID J. BEDERMAN, INTERNATIONAL LAW FRAMEWORKS 197–98 (3d ed. 2010)

   (explaining that a state’s absolute immunity from suit in the domestic courts of another country arose in the early 19th century).

   
   

   foreign courts.14 Under a common form of restrictive sovereign immunity, foreign sovereign entities do not enjoy immunity from claims arising out of commercial activities.15

   
   

   1. Restrictive Sovereign Immunity in Hong Before 1997

      
      

      Before its return to China in 1997, Hong Kong followed the British restrictive approach and did not extend sovereign immunity to commercial transactions.16 In fact, Hong Kong was one of the earliest common law jurisdictions to adopt the restrictive rule of sovereign immunity.17 As early as 1956, Hong Kong limited sovereign immunity to acts for “public use[s],” and placed the burden of proof on the sovereign defendant claiming immunity.18 In Midland Investment, a British corporate plaintiff sued the Bank of Communications of Shanghai for surrendering securities in its account to the Chinese government after the Communists took over Shanghai.19 The defendant, an instrumentality of China, challenged the jurisdiction of the court in Hong Kong because the action impleaded the sovereign state of China.20 Finding that the defendant failed to adduce “evidence of dedication to public uses,” the judge ruled not to accord sovereign immunity to China.21

      
      

      In 1975, restrictive sovereign immunity was still a novelty in English Law.22 But the Judicial Committee of the Privy Council, which was then Hong Kong’s court of last resort,23 affirmed the application of restrictive sovereign

      
      

9. Id.

10. See generally id. at 199 (stating that, beginning after the Second World War, courts in Europe and the United States began to make exceptions to absolute sovereign immunity when the State engaged in commercial activities).

11. Congo III, Legal Reference System paras. 62, 502; Congo I, 1 H.K.L.R.D para. 37; MUSHKAT, supra

    note 4, at 65.

12. Congo III, Legal Reference System para. 132 (surveying the adoption of the restrictive approach by a number of common law jurisdictions, and noting that “Hong Kong comes early in that list”) (citing Midland Inv. Co. v. Bank of Commc’ns [1956] 40 H.K.L.R. 42 (H.C.)).

13. Midland Inv. Co. 40 H.K.L.R. at 48 (“In my view . . . it is necessary for the foreign sovereign, if he

    wishes to discharge the onus of satisfying the court that he is entitled to sovereign immunity . . . to produce satisfactory evidence that the property seized is dedicated or destined to public use.”)

14. Id. at 42.

20 Id. at 43, 45.

1. Id. at 49.

2. See Trendtex Trading Corp. v. Cent. Bank of Nigeria, [1977] Q.B. 529 at 533 (Eng.); see also Playa Larga (Owners of Cargo Lately Laden on Board ) v. I Congreso del Partido (Owners), [1983] A.C. 244 (H.L.)

278 (Lord Bridge of Harwich) (appeal taken from Eng.).

1. See DOBINSON & ROEBUCK, supra note 1, at 84.

   immunity in Hong Kong.24 In The Philippine Admiral, the Republic of the Philippines claimed sovereign immunity25 from in rem actions against a commercial trading vessel that was operated by private charterers but was owned by the Filipino government.26 The Privy Council recognized a growing prevalence around the world of the restrictive theory of sovereign immunity,27

   and found it “more consonant with justice” than the absolute theory.28 Therefore, the Privy Council decided to apply the restrictive theory to the in rem actions at bar,29 while leaving the question of sovereign immunity regarding in personam actions “open to the House of Lords to decide,” and expecting the House to reach the same restrictive conclusion.30

   
   

   The House of Lords met that expectation in I Congreso del Partido,31 in which their Lordships abolished the in rem versus in personam distinction and applied the restrictive doctrine across-the-board.32 In 1973, after a military coup in Chile,33 the Cuban government severed diplomatic ties with Chile and

   
   

2. Philippine Admiral (Owners) v. Wallem Shipping (H.K.) Ltd. (The Philippine Admiral), [1977] A.C.

373 (P.C.) 374 (appeal taken from H.K.), aff’g Wallem Shipping (H.K.) Ltd. v. Owners of the Ship “Philippine Admiral,” [1974] H.K.L.R. 111 (C.A.).

25 The Philippine Admiral, [1977] A.C. at 376.

26 Id. at 386–89.

1. Id. at 397 (“There is no doubt . . . that since the Second World War there has been . . . a movement away from the absolute theory of sovereign immunity . . . towards a more restrictive theory.”).

2. Id. at 403.

3. Id.

4. Id. at 402–03. Before the issue of restrictive immunity came up in the House of Lords, it went to the Court of Appeal of England, which ruled to adopt the restrictive approach for England. Trendtex Trading

   Corp. v. Cent. Bank of Nigeria, [1977] 1 Q.B. 529 at 558 (Eng.). The Master of the Rolls, Lord Denning, quoted the relevant passage from The Philippine Admiral, and criticized the Privy Council for drawing a useless distinction between in rem and in personam actions. Id. at 556–57 (quoting The Philippine Admiral,

   A.C. at 373). Trendtex Trading was an English case, and was never appealed to the House of Lords. Playa Larga (Owners of Cargo Lately Laden on Board ) v. I Congreso del Partido (Owners), [1983] 1 A.C. 244 (H.L.) 261 (appeal taken from Eng.). The restrictive approach that Trendtex Trading established...