Landmark Congo Decision May Hinder Enforcement of Arbitral Awards in Hong Kong Against Sovereign States

It was recently reported that the Hong Kong Court of Final Appeal handed down a controversial judgment holding that the Democratic Republic of Congo (DRC) enjoyed an absolute right of immunity, despite what appeared to be an express waiver of immunity in the agreements signed by the DRC (click here for the full story).


SNR Denton reports the following background information: “Post 1997, Hong Kong has been in something of a quandary with regard to the issue of sovereign state immunity. On the one hand, the pre-1997 Common Law in Hong Kong acknowledged the doctrine of restrictive state immunity, that is, that a state could be sued when it has engaged in purely commercial transactions. On the other hand, the position in the People's Republic of China [PRC] has been consistent and unequivocal: Sovereign states enjoy absolute immunity from domestic courts of another sovereign state, the only exception being where the defendant state waives immunity before the forum state.”

On August 26, 2011, this dilemma came to the fore in the case Democratic Republic of the Congo v. FG Hemisphere Associates, which involves an attempt by US-based investment fund FG Hemisphere Associates to enforce arbitral awards against Hong Kong-based assets of the DRC. In June, the Hong Kong Court of Final Appeal, in a controversial judgment overturning the Court of Appeal, came to the view that the DRC enjoyed an absolute right of immunity, notwithstanding what appeared to be an express waiver of immunity in the agreements signed by the DRC. The Court then referred the matter to the Standing Committee of the National People’s Congress, which affirmed the Court’s conclusion: the DRC enjoys absolute immunity from the domestic courts of Hong Kong, the only exception being where the DRC waives immunity.

The challenges that this decision poses to investors applies not only when dealing with states holding assets in Hong Kong, but also when assets are being held anywhere in mainland China. Because the Standing Committee of the National People’s Congress affirmed the CFA’s ruling, it would presumably similarly instruct courts located anywhere on mainland China to dismiss suits brought against sovereign states for the enforcement of arbitral awards when such states protest the jurisdiction of the courts of the PRC, regardless of what agreements the states have signed.

This is negative news for companies doing business with states (or state agencies). It likely means states could protect all of their funds and other assets in Hong Kong and mainland China and then sign whatever waivers as to sovereign immunity they wish, but when it comes to enforcing judgments awarded against them, simply not pay out refuse the jurisdiction of the courts of mainland China and Hong Kong at the hour of enforcement. The courts of China and Hong Kong will then dismiss the matters, given their policy of absolute sovereign immunity. Investors should be aware that, if a state does not pay out its judgment willingly, going to Hong Kong or mainland China for enforcement will bear little fruit.

The DRC is not a state party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which requires courts of contracting states to recognize and enforce arbitral awards made in other contracting states. Yet even if it were, it appears that the outcome of Democratic Republic of the Congo v. FG Hemisphere Associates would not have been different, since the Standing Committee of the National People’s Congress based its decision on a public policy view recognizing absolute sovereign immunity, the only exception being when a defendant state waives immunity before a foreign state’s courts, and under Art. 5(2)(b) of the New York Convention, a state my refuse to enforce a foreign arbitral award if doing so contravenes its public policy.

For these reasons, this decision should raise concerns for companies doing business with states holding assets in Hong Kong and mainland China. Should such companies ever wish to enforce a judgment against such assets, they will face the same challenges that FG Hemisphere Associates confronted.

Turkey Announces Plan to Challenge Israel’s Gaza Blockade at the International Court of Justice

Turkey has recently announced its plan to challenge Israel’s blockade of Gaza at the International Court of Justice (ICJ). A forum that is potentially open to all states, the ICJ is the widest reaching court in the international arena. Yet will it have jurisdiction to hear Turkey’s case?

Turkey has not yet announced the claims that it will bring against Israel. Presumably, it will claim an illegal use of force on the raid of Turkey’s aid flotilla last year and for Israeli state responsibility for the deaths of nine foreign nationals (eight Turks and one American) that resulted from the raid. It is unlikely that Turkey could bring suit on a law of the sea theory, as it does not share territorial seas with southern Israel, where the naval blockade is imposed. Assuming Turkey challenged the legality of the flotilla raid and claimed Israeli state responsibility for the deaths, would the ICJ have jurisdiction?

Under the UN Charter, all UN members are ipso facto parties to the Statute of the ICJ and agree to comply with the decision of the ICJ in any case to which they are parties (art. 93 UN Charter). The fact that Israel is a UN member does not however mean that the ICJ has jurisdiction to hear any claim brought against Israel by any other UN member state. Before the ICJ is able to adjudicate a particular contentious dispute, its jurisdiction must be established through the consent of all of the parties to the conflict. This consent can take any one of the following forms:

• Ad hoc basis jurisdiction. The parties to a conflict accept ICJ jurisdiction for the particular case;
• Compromissory clause. The parties enter into a treaty providing for the settlement of disputes as to the application or interpretation of the treaty by the ICJ;
• ICJ compulsory jurisdiction. The parties give general agreement to accept the ICJ’s jurisdiction for a particular category of cases in relation to other nations that have done the same; or
• Carryover jurisdiction. Jurisdiction is granted from the Permanent Court of International Justice over certain disputes and this jurisdiction is carried over to the ICJ.

It is unlikely that the ICJ’s jurisdiction will be established under any of these forms. With respect to the Court’s ad hoc basis jurisdiction, Israel will most likely refuse the Court’s jurisdiction, since Israel has already stated that it considers the UN report written by Geoffrey Palmer and Alvaro Uribe to be the definitive statement on the legality of its naval blockade, and its use of force to have been necessary as a security measure for its self defense. Because there is no treaty that would grant jurisdiction to the ICJ for this particular case (the Gaza blockade is a unilateral act on the part of Israel that is not the subject any treaty), no compromissory clause applies. Moreover, Israel has not accepted the ICJ’s compulsory jurisdiction, and carryover jurisdiction from the Permanent Court of International Justice (PICJ) is inapplicable to Israel, which did not exist at the time of the PICJ.

Therefore, the biggest challenge that Turkey will face in bringing suit against Israel is not proving that the naval blockade or use of force by Israel violated international law, but rather, establishing the Court’s jurisdiction to hear its claims against Israel, if Israel does not consent to the same.

For more on international law, the legality of the use of force and state responsibility, see Principles of International Law.