(Updates with judges’ comments from fourth paragraph.)
June 8 (Bloomberg) -- Hong Kong’s top court ruled that the Democratic Republic of Congo can’t be sued in the city, saying China’s policy is one of absolute immunity for sovereign states.
Justices Patrick Chan, Robert Ribeiro and Anthony Mason handed down their orders today in a 201-page ruling, subject to an interpretation of Hong Kong’s constitution by the Standing Committee of China’s National People’s Congress. Justices Kemal Bokhary and Barry Mortimer dissented.
FG Hemisphere Associates LLC, a so-called vulture fund which buys distressed debt, sued Congo in jurisdictions around the world in a bid to seize assets to enforce two arbitration awards. In Hong Kong, its attempt to collect the payments has tested the financial center’s judicial independence.
The case cannot be resolved without the Chinese committee’s interpretation of what constitutes foreign affairs under Hong Kong’s Basic Law, Chan, Ribeiro and Mason wrote.
“The municipal courts are simply not equipped to make such a judgment,” they said of their decision to refer the matter to China. The three judges also rejected the argument of FG Hemisphere’s lawyers that by accepting statements from China’s foreign ministry the Hong Kong courts are involved in “an abdication of their proper judicial role.”
Separate Legal System
The former British colony was guaranteed an independent judiciary and a separate legal system for at least 50 years under the Basic Law when it returned to Chinese rule in 1997. Hong Kong’s rule of law and freedom of information have supported its status as a financial center.
“China’s view is at odds with some developed countries,” said David Bateson, a partner at Mallesons Stephen Jaques, referring to its position on state immunity.
“But Hong Kong will still be regarded as a pro- enforcement arbitration venue with an independent judiciary, and you can’t say that about a lot of countries in Asia,” he said.
China’s foreign ministry wrote three letters to Hong Kong’s judiciary in the course of the case stating no foreign government can be sued in the city’s courts.
The application in Hong Kong of the principle of “restrictive immunity,” which allows sovereign states to be sued for commercial matters, “would prejudice the sovereignty of China,” it wrote in an Aug. 25 letter published in today’s ruling.
The ministry today welcomed the ruling as a meaningful event toward the full implementation of the Basic Law. Hong Kong’s Justice Department welcomed the Court of Final Appeal’s decision to refer sections of the Basic Law for interpretation for the first time.
Peter Grossman, managing director at FG Capital Management Ltd., didn’t immediately respond to an e-mail requesting his comment on the ruling.
The court ordered today that subject to the Chinese committee’s interpretation, a February 2010 lower court ruling that allowed FG Hemisphere to pursue its claim be set aside.
FG Hemisphere purchased arbitration awards against Congo worth $34.25 million. The debts, originally owed to a Sarajevo- based company, now amount to more than $126 million with about $30,000 interest accruing daily, according to today’s ruling.
Congo’s assets in Hong Kong are tied to locally listed China Railway Group Ltd. and its related companies, which in 2008 entered into joint-venture agreements with a Congolese state mining company, Gecamines, as part of a $6 billion minerals-for-infrastructure agreement between China and Congo.
FG Hemisphere claimed a portion of $350 million in entry fees China Railway units agreed to pay in exchange for mining rights in Congo. The court today provisionally made an order lifting the freeze on China Railway’s payments.
“It has been known that the day would come when the court has to give a decision on judicial independence,” Bokhary wrote in his dissent. “That day has come.”
Dismissing Congo’s appeal against the claim would have been the result “required by the independent judicial application of the law,” he wrote. The transactions involved are commercial, he said.
The case is between FG Hemisphere Associates LLC and Democratic Republic of the Congo, China Railway Group (Hong Kong) Ltd., China Railway Resources Development Ltd., China Railway Sino-Congo Mining Ltd., China Railway Group Ltd. and Secretary for Justice, FACV5, 6 & 7/2010, Hong Kong Court of Final Appeal.
--With assistance from Jasmine Wang in Hong Kong. Editors: Douglas Wong, Garry Smith, Frank Longid
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