2023.09.27 GU, Jia (David)、JIANG, Xiaoche、LIU, Ben
State immunity is a rule under public international law. It prevents sovereign states from being sued or enforced in foreign courts or tribunals so as to facilitate sovereign states’ performance of their public functions without being interfered with by other sovereign states. State immunity generally precludes the forum state (the court or arbitral tribunal of the forum) from exercising both adjudicative jurisdiction and enforcement jurisdiction in cases where a foreign state is a party1.
Basically, the theory of state immunity is dichotomous. The traditional approach originates from the eighteenth century and is absolute immunity, whereby a sovereign state is completely immune from the jurisdiction of a foreign state. In recent years, more states have embraced a new theory of restrictive immunity, whereby sovereign states enjoy immunity from the jurisdiction of a foreign state only when they conduct a sovereign act. When conducting non-sovereign acts, sovereign states may be subject to the jurisdiction of a foreign state. Some common law jurisdictions, including the USA and the UK, have enacted statutes on foreign state immunity2. Some civil law jurisdictions, such as Japan and Russia, have also legislated their foreign state immunity statutes.
As the second largest economy in the world and a civil law state, the People’s Republic of China3 has long asserted and insisted on the absolute immunity doctrine, which was enshrined in public statements made by the PRC Ministry of Foreign Affairs and some published cases. Nevertheless, China has not promulgated a statute to fully address its position on foreign state immunity. At the international level, on 14 September 2005, China signed the United Nations Convention on Jurisdictional Immunities of States and Their Property (the “Convention”) which adopts the theory of restrictive immunity. China has not yet ratified this Convention.
On 1 September 2023, the National People’s Congress promulgated China’s first statute on foreign state immunity --- The Law of the People’s Republic of China on Foreign State Immunity (“Foreign State Immunity Statute of China”) which will take effect on 1 January 2024. Consisting of 23 legal provisions, this new statute indicates a shift in China’s position on foreign state immunity from the traditional approach to a more open mindset and is expected to serve as a centerpiece to develop China’s rule of law in relation to its foreign affairs.
The Foreign State Immunity Statute of China, to a large extent, mirrors several rules in the Convention. It recognises the restrictive immunity of foreign sovereign states and carves out exceptional circumstances where state immunity shall not apply. These exceptions include commercial activities, employment contracts, personal injury, damage to property, and commercial and investment treaty arbitration. This is a significant change to China’s policy on foreign state immunity as China’s position has remained relatively conservative and unchanged for the past few decades.
Prior to the issuance of the new law, China adopted the absolute immunity doctrine. This position was reflected through several sources of authority.
A The Public Statements of the PRC Ministry of Foreign Affairs
The PRC Ministry of Foreign Affairs asserts China’s position on state immunity issues through public statements. This is because foreign state immunity is deemed a foreign affair that should be administered by the PRC Ministry of Foreign Affairs. Previously, the PRC Ministry of Foreign Affairs’ statements were consistent, namely, that China adopted the absolute immunity doctrine that applied to foreign sovereignty.
It is common in other jurisdictions that the Ministry of Foreign Affairs of a country addresses the state immunity issue. For example, prior to the enactment of the US Foreign Sovereign Immunities Act 1976 (“FSIA”), the US Department of State was empowered to give its position on foreign state immunity issues and the US courts would generally defer to its executive branch’s decisions4.
On 5 September 2023, several days after the issuance of the Foreign State Immunity Statute of China, the PRC Ministry of Foreign Affairs held a press conference, during which it stated that this new law would “provide legal bases for Chinese courts to adjudicate over cases arising from civil activities involving foreign states and their properties” and “is aligned with international law and common practice of other jurisdictions in the world”5.
B.Enactments of Foreign State Immunity
Prior to the issuance of the Foreign State Immunity Statue of China, there have been several enactments of state immunity in China. The most remarkable one is the Law on Immunity of Foreign Central Bank’s Property from Judicial Enforcement6. This law provides that the property of the central bank of a foreign state is immune from enforcement or execution by Chinese courts, with two exceptions: the central bank or the central government of a foreign state either waives its immunity in writing or designates the relevant property of such central bank for enforcement or execution. This law only applies to the property owned by the central bank of a foreign state, and it includes cash, notes, deposits, securities, foreign currency reserves, gold reserves and real property, and others of such central bank of the foreign state. However, such a law is largely symbolic as there is no published case to illustrate that it has actually ever been applied.
This law specifies an exceptional circumstance to the absolute immunity adopted by China in the past years.
Prior to the Foreign State Immunity Statute of China, there have only been a few cases illustrating China’s position on the issue.
1.1911 Railroad Bond Case
The 1911 Railroad Bond Case is one of the most famous cases to illustrate China’s position on the state immunity issue in the 1980s. On 13 November 1979, Russell Jackson, a U.S. citizen, along with a number of other plaintiffs, filed a lawsuit against the People’s Republic of China at the U.S. District Court for the Northern District of Alabama, seeking payment of certain bonds issued by the Imperial Chinese Government (the Qing Dynasty) in 1911. The lawsuit is based on the US FSIA, stipulating that commercial acts conducted by a sovereign state shall not be subject to sovereign immunity.
Initially, China refused to participate in the proceedings. It didn’t answer the claim or appear before the US court. The US court then delivered a default judgment holding that the plaintiffs were entitled to all unpaid principals and interest, totaling more than USD 40 million7.
After the default judgment was rendered, China sent a diplomatic note to the US court in January 1983, stating that the US court judgment violated “basic norms of international law” and the Chinese government reserved its right to take “corresponding measures” should the US court proceed with the default judgment against China and enforce against China's properties in the United States8.
Following consultation with the U.S. Department of State, China filed a motion to dismiss the default judgment, arguing that the FSIA did not have a retroactive effect on a cause of action arising out of a transaction executed in 19119.
Along with the motion from China, the U.S. Department of State submitted to the U.S. district court a statement of interest, which summarised the basic position of China towards state immunity.
“China’s adherence to this principle results, in part, from its adverse experience with extraterritorial laws and jurisdiction of western powers [within China] in the nineteenth and early twentieth centuries……
China asserts that restrictive sovereign immunity has not become a rule of international law,…… only a small number of nations and by and large do not include developing countries, which find restrictive sovereign immunity not in their interest.
The United States cannot, by a change in its domestic law, abrogate the long accepted international law principle of absolute sovereign immunity. Even though restrictive sovereign immunity may be a developing customary rule of international law, China says that it is not binding upon sovereign states that do not agree to it. Thus, according to China, restrictive sovereign immunity is applicable only within the group of nations that have adopted it and is not applicable to China, which continues to adhere to the principle of absolute sovereign immunity.”10
The US court eventually ruled that “restrictive immunity was not the law at the time of the issuance or maturity of the bonds at issue”, and therefore dismissed the default judgment11. Though the plaintiffs appealed to the Eleventh Circuit Court of Appeals, the US court of appeal affirmed that the district court correctly held there was no subject matter jurisdiction over the plaintiffs’ claim12.
Although the 1911 Railroad Bond case was an American court case, China asserted its long-standing position that foreign sovereignty should be absolutely immune from adjudication and execution by the court of another state, a position it has implemented since its “open-door and reform” policy of the late 1970s.
2. FG v. Democratic Republic of the Congo
The case of FG v. the Democratic Republic of the Congo is another example of China clarifying its position in favor of absolute immunity. Although this case was brought before the Hong Kong SAR courts, it was eventually taken to the National People’s Congress of China for legislative guidance.
FG Hemisphere Associates LLC (“FG”), a Delaware company, was the assignee of the benefits of two ICC arbitral awards dated 30 April 2003 made in favor of Energoinvest against the Democratic Republic of Congo (“DRC”). The sum claimed by FG from the DRC was over USD 100 million.
On 22 April 2008, the DRC entered into an agreement between China Railway Group Limited (“CR Group”) and its subsidiaries registered in Hong Kong (collectively as “CR Subsidiaries”), where CR Subsidiaries would pay the DRC “entry fees” of USD 221 million.
FG later learned of this agreement and commenced enforcement proceedings against the DRC, CR Subsidiaries, and CR Group at the Court of First Instance in Hong Kong. It claimed that some of the “entry fees” should be considered property of the DRC in Hong Kong, and thus part of it should be enforced based on the benefit of the two ICC arbitral awards held by FG.
The DRC raised the defense that as a foreign state, it should enjoy sovereign immunity, especially immunity from enforcement against its state assets, and therefore should not be subject to the current enforcement proceeding.
On 20 November 2008, a letter was issued by the Office of the Commissioner of the Ministry of Foreign Affairs of the PRC in the Hong Kong SAR (the “MFA Office”) and was submitted by the Hong Kong Secretary for Justice (serving as an intervener of this case) to the Court of First Instance on 2 December 2008 as evidence of China’s position toward state immunity (the “First Letter”). The First Letter stated that:
“The consistent and principled position of China is that a state and its property shall, in foreign courts, enjoy absolute immunity, including absolute immunity from jurisdiction and from execution, and has never applied the so-called principle or theory of ‘restrictive immunity’…”
The Court of First Instance issued its judgment13 on 12 December 2008. In the judgment, Reyes J. believed that, despite what is stated in the First Letter, there are indications of a possible change in the position regarding sovereign immunity, since China had signed the Convention in 2005 which adopted a restrictive approach. From Reyes J.’s point of view, “having signed the Convention, the PRC Government must be taken to have at least indicated its acceptance of the wisdom of the provisions therein”.
Reyes J. held that it was not necessary to determine in this judgment which state immunity theory Hong Kong should adopt, because the act of the DRC itself should be considered a sovereign act, and the DRC would enjoy sovereign immunity either way. Reyes J. then declared that the court has no jurisdiction over the DRC. FG later appealed to the Hong Kong Court of Appeal.
In response to Reyes J.’s opinions in the abovementioned judgment, another letter was issued by the MFA Office to the Hong Kong Court of Appeal (the “Second Letter”), stating that:
“... However, until now China has not yet ratified the Convention, and the Convention itself has not yet entered into force. Therefore, the Convention has no binding force on China… After signature of the Convention, the position of China in maintaining absolute immunity has not been changed and has never applied or recognized the so-called principle or theory of “restrictive immunity”…”.
On 10 February 2010, the Court of Appeal of Hong Kong, by two to one, ruled that “the doctrine of restrictive immunity currently continues to apply in Hong Kong”, and whether the DRC may enjoy sovereign immunity depends on the nature of the “entry fees”. For parts that are of a commercial nature, the DRC shall not enjoy state immunity. The Court of Appeal therefore reversed the judgment by the Court of First Instance and granted the plaintiff leave to enforce the two arbitral awards14.
FG, CR Group, CR Subsidiaries and the Secretary of Justice subsequently appealed to the Hong Kong Court of Final Appeal.
In light of the judgment made by the Court of Appeal, the MFA Office issued a third letter to the Court of Final Appeal, stating that:
“… [T]he consistent position of China is that a state and its property shall, in foreign courts, enjoy absolute immunity, including absolute immunity from jurisdiction and from execution. …Before 30 June 1997, the United Kingdom extended the State Immunity Act 1978 to Hong Kong. That Act involved matters of foreign affairs and the so-called principle or theory of ‘restrictive immunity’ reflected therein was inconsistent with the consistent position of China in maintaining absolute immunity……
The consistent position of China in maintaining absolute immunity on the issue of state immunity has already been widely acknowledged by the international community. Being an inalienable part of China, if the Hong Kong Special Administrative Region were to adopt the principle of ‘restrictive immunity’, the consistent position of China in maintaining absolute immunity would be open to question…”.
On 6 August 2011, the Court of Final Appeal, by three to two, issued a provisional judgment and dismissed the judgment made by the Court of Appeal. It ruled that since the core issue was the immunity theory adopted by the Hong Kong judiciary, it involved the division of powers between Chinese mainland and Hong Kong SAR. It stated that because it was an issue under Hong Kong Basic Law, the case should be referred to the Standing Committee of the National People’s Congress for their interpretation of the Basic Law, based on which the Court of Final Appeal would further adjudicate on the dispute.
On 26 August 2011, the Standing Committee of the NPC issued its interpretation, confirming that the Central People’s Government “has the power to determine the rule or policy of the PRC on state immunity”, and Hong Kong SAR “is bound to apply or give effect to the rule or policy on state immunity” determined by the Central People’s Government. On 8 September 2011, the Hong Kong Court of Final Appeal issued its final judgment dismissing the whole case based on the DRC’s state immunity15.
3.TNB v. China National Coal Group Corporation
Despite its unequivocal position in favor of absolute immunity enjoyed by sovereign states, China did not extend this position to state-owned enterprises, which is indicated by its statement in TNB v. China National Coal Group Corporation.
On 17 December 2014, an arbitral award was made against China National Coal Group Corporation (“CNCGC”), under which CNCGC should pay a sum of USD 5,274,023.11 to TNB Fuel Services SDN BHD, a Malaysian private company (“TNB”).
On 10 June 2015, upon TNB’s request, the Hong Kong Court of First Instance granted leave to TNB to enforce the award in Hong Kong. CNCGC argued that it was a state-owned enterprise and an entity of the PRC Central People’s Government, and should therefore enjoy immunity from the court’s jurisdiction.
On 9 March 2017, the Hong Kong and Macao Affairs Office of the State Council issued a letter to the court. The letter was issued to the Hong Kong Justice Secretary, the intervener of the case, for its inquiry into the opinion of the Central Government in respect of the issue of immunity involved in the litigation of CNCGC. The letter stated that:
“China National Coal Group Corporation is a wholly state-owned enterprise, an enterprise legal person, established according to the law. According to the relevant legal regulations of our country, a state-owned enterprise is an independent legal entity, which carries out activities of production and operation on its own, independently assumes legal liabilities, and there is no special legal person status or legal interests superior to other enterprises……Therefore, save for extremely extraordinary circumstances where the conduct was performed on behalf of the state via appropriate authorization, etc., the state-owned enterprises of our country when carrying out commercial activities shall not be deemed as a part of the Central Government, and shall not be deemed as a body performing functions on behalf of the Central Government.”
The court found that CNCGC constitutes a legal entity independent from the Central People’s Government, dismissed its assertion of immunity, and granted a preservation order against CNCGC’s property in Hong Kong16.
China insists that foreign sovereign states shall enjoy absolute immunity until the Foreign State Immunity Statute of China comes into force. There are six notable aspects under this new law:
1. The new law establishes the fundamental principle that a foreign state and its property shall enjoy immunity from adjudication and execution in Chinese courts.
Article 3 provides that “unless otherwise stipulated in the present Law, foreign states and their property shall enjoy immunity from the jurisdiction of the courts of the People's Republic of China.” Article 13 provides that “the property of a foreign state shall enjoy immunity from judicial compulsory measures in a court of the People's Republic of China.”
2. The new law expressly provides the scope of its application, namely that only foreign sovereign states, state organs or component parts of foreign sovereign states and organisations or individuals authorised by a foreign sovereign state to exercise sovereign power and carry out activities based on such authorisation, can raise the state immunity defence17.
However, what constitutes “state organs” or “component parts” of a foreign state raises questions of legal interpretation in the future.
3. This is the first time that China has enumerated the circumstances whereby Chinese courts can exercise jurisdiction over disputes involving a foreign state and its property.
These circumstances include:
1) “By consent”: a foreign state explicitly accepts the jurisdiction of a Chinese court by international treaties, written agreements, written documents submitted to the Chinese court handling the case, or written documents submitted to China through diplomatic channels or otherwise; or other manners of explicitly accepting the jurisdiction of a Chinese court18.
2) “Commercial activity”: where a foreign state conducts commercial activities with an organisation or individual of any other state including the PRC, and such commercial activities take place within the territory of the PRC or take place outside the territory of the PRC but have a direct impact within the territory of the PRC, the foreign state shall not enjoy immunity from lawsuits arising from such commercial activities19.
3) “Employment contract”: a foreign state does not enjoy immunity from the jurisdiction of a Chinese court over lawsuits arising from a labor contract entered into by a foreign state for labor or services provided by an individual which are wholly or partially performed within the territory of the PRC20.
4) “Compensation for torts”: a foreign state shall not enjoy immunity for a compensation lawsuit arising from personal injury, death or the loss of movable or immovable property caused by the act of a foreign state within the territory of the PRC21.
5) “Intellectual property”: a foreign state shall not enjoy immunity from lawsuits concerning intellectual property matters, such as determining the ownership of and relevant rights and interests of the foreign state's intellectual property protected by Chinese law, and the ownership of the intellectual property and relevant rights and interests protected by Chinese law that the foreign state infringes upon22.
6) “Arbitration”: if a foreign state has entered into a commercial agreement with its counter party, no matter if it is an organisation or an individual, and the commercial agreement contains an arbitration agreement allowing either party to refer the dispute arising from the commercial agreement to be resolved by arbitration, or the foreign state has entered into an investment treaty with another nation under which it is agreed to refer the dispute with the investors of the other nation to be resolved by arbitration, the foreign state shall not enjoy immunity when Chinese courts are asked to determine the validity of an arbitration agreement, recognise and enforce an arbitral award, set aside an arbitral award and review other arbitration-related matters prescribed by law to be reviewed by Chinese courts23.
In addition to the adjudication immunity, the Foreign State Immunity Statute of China addresses several exceptional circumstances in relation to the execution immunity, including:
1) the foreign state expressly waives immunity from judicial compulsory measures by international treaty, written agreement or written document submitted to the Chinese courts;
2) the property of a foreign state has been allocated or specially designated by the foreign state for the enforcement of judicial compulsory measures; or
3) judicial compulsory measures are taken against the property of a foreign state located within the territory of the PRC used in commercial activities and relating to litigation for the purpose of enforcing an effective judgment of the Chinese court24.
It should be noted that under Article 14, “judicial compulsory measures” could broadly be interpreted to include pre-judgment interim measures, e.g. property preservation orders, or post-judgment enforcement measures, even though the law provision in itself does not expressly make such distinctions.
4. The new law sets forth procedural rules for cases involving foreign states. For example, Article 17 provides that court documents can be served upon a foreign state in the ways provided in international treaties concluded or jointly acceded to by the foreign state and China or any other way accepted by the foreign state and not prohibited by Chinese law.
In another example, Article 18 sets forth the default judgment procedures:
1) The period for making a default judgment: six months after the date of the service of court documents upon the foreign state;
2) The service of documents: in accordance with the provisions of Article 17;
3) The period of appeal: six months from the date of service of the judgment.
5. The new law confers the PRC Ministry of Foreign Affairs with two main roles in handling cases of foreign state immunity, namely:
issuing certification documents regarding certain factual issues relating to the act of a foreign state to a Chinese court;
presenting opinions on issues involving foreign affairs and other significant national interests to a Chinese court25.
6. The internationally recognised principle of reciprocity is adopted under the new law. Article 21 provides that where the immunity treatment granted by a foreign state to China and its property is lower than that provided for in the Law, China will apply the principle of reciprocity.
Article 21, however, does not provide more specific rules for the application of reciprocity, nor does it clarify whether the Chinese court would have any discretion to determine whether to apply such a principle.
The adoption of the Foreign State Immunity Statute of China is a major step for China in safeguarding its national sovereignty and security. It may fill gaps in foreign state immunity issues and accelerate the improvement of the foreign-related legal system in the PRC. It also signals that state immunity issues in China would be determined by Chinese courts rather than the Ministry of Foreign Affairs .
The new statute in itself is silent on whether it would apply to the Hong Kong and Macao SARs. However, since foreign affairs are administered by the central government of China, it is implied that the foreign state immunity rules in Hong Kong and Macao may have to be aligned with the position now reflected in the new law.
It will be interesting to see how lawsuits are brought against foreign states in Chinese courts in the future, and how Chinese courts will exercise judicial discretion in such cases in light of the Foreign State Immunity Statute.
1.Brownlie’s Principles of Public International Law, James Crawford, 8th ed., p.488.
2.The Foreign Sovereign Immunities Act of 1976 is a United States law, codified at Title 28, §§ 1330, 1332, 1391(f), 1441(d), and 1602–1611 of the United States Code. The UK has its codified State Immunity Act 1978.
3.The People’s Republic of China refers to Chinese mainland, the Hong Kong SAR, the Macao SAR and Taiwan region.
4. International Civil Litigation in United States Courts, fifth edition, Gary B. Born, on page 232-234.
7.Jackson v. The People’s Republic of China, 550 F.Supp.869 (1982).
8.Jackson v. The People’s Republic of China, 794 F.2d 1490 (1986).
9.Jackson v. The People’s Republic of China, 596 F.Supp.386 (1984).
10. Jackson v. The People’s Republic of China, 794 F.2d 1490 (1986).
11.Jackson v. The People’s Republic of China, 596 F.Supp.386 (1984).
12.Jackson v. The People’s Republic of China, 794 F.2d 1490 (1986).
14.CACV 373/2008 & CACV 43/2009。
15.FACV Nos 5, 6 & 7 of 2010.
17.Article 2 of the Foreign State Immunity Statute of China.
18.Article 4 of the Foreign State Immunity Statute of China.
19.Article 7 of the Foreign State Immunity Statute of China. Article 7 further defines “commercial activities” as “transactions of goods or services, investments, loans, and other activities of a commercial nature other than those in the exercise of sovereign power.”
20.Article 8 of the Foreign State Immunity Statute of China.
21.Article 9 of the Foreign State Immunity Statute of China.
22.Article 11 of the Foreign State Immunity Statute of China.
23.Article 12 of the Foreign State Immunity Statute of China.
24.Article 14 of the Foreign State Immunity Statute of China.
25.Article 19 of the Foreign State Immunity Statute of China.