Hua Tian Long

DMC/SandT/10/18

Hong Kong

The “Hua Tian Long”

Update at 28 November 2010: The Defendant, Guangzhou Salvage Bureau, appealed against the first instance decision reported below, contending that it had not delayed in claiming crown immunity and had not thereby waived its right to rely on it. On the first day of the appeal hearing on 24 November 2010, the Court of Appeal expressed its concern on the continued availability of crown immunity as a defence after Hong Kong’s return to China in 1997. Despite objection from the Defendant that this was no longer an issue between the parties, the Court of Appeal adjourned the hearing for the parties to reconsider their position.

Hong Kong SAR Court of First Instance: Stone J in Chambers: HCAJ No. 59/2008: 23 April 2010

http://www.hklii.org/hk/jud/eng/hkcfi/2010/HCAJ000059_2008-70707.html

Charles Sussex SC and Christopher Chain, instructed by Holman Fenwick & Willan, for the Plaintiff, Intraline Resources

Teresa Cheng SC and Adrian Lai, instructed by DLA Piper Hong Kong, for the Defendant shipowner

BREACH OF CONTRACT: DEFENDANT SHIPOWNER’S FAILURE TO PROVIDE VESSEL: CHINESE GOVERNMENT DEPARTMENT AS SHIPOWNER: CLAIM FOR SOVEREIGN IMMUNITY AND CROWN IMMUNITY: WAIVER AND SUBMISSION TO JURISDICTION

Summary

The Court of First Instance held that although the Crown Proceedings Ordinance allowed the Hong Kong government to be sued in Hong Kong courts, it did not remove the crown immunity of the British government before 1997. After Hong Kong’s handover in 1997, the Central People’s Government of China replaced the British government in exercising sovereignty over Hong Kong, and could similarly claim “crown” immunity in the Hong Kong courts. On the facts, although the Defendant shipowner could claim “crown immunity” as it was directly under the control of the Chinese government and formed part of the “crown”, it had nevertheless waived its right to do so by failing to claim immunity as soon as reasonably practicable.

This note has been contributed by Ken TC Lee, LLB(Hons), PCLL (University of Hong Kong), BCL (Oxon), an international contributor to this website.

Background

The derrick-barge in question, “Hua Tian Long” (“the Vessel”), was owned by the Defendant, Guangzhou Salvage Bureau (“the GZS”) of the Ministry of Communications of the PRC.

The Plaintiff, Intraline Resources Sdn Bhd (“Intraline”), and the GZS entered into a Memorandum of Agreement that the latter would make available the Vessel for installing pipelines and oil platforms in certain offshore projects. However, Intraline alleged that the GZS failed to provide the Vessel, and initiated the present action against the GZS for breach of contract and/or fraudulent misrepresentation.

When the Vessel entered Hong Kong waters in April 2008, Intralink invoked the admiralty jurisdiction of the High Court to arrest the Vessel. GZS tried, but failed, to obtain the release of the Vessel through court proceedings. Of particular note is that in those proceedings, the then-counsel for GZS stated in his skeleton argument that:

“GZS is a Bureau of the Ministry of Communications. For the purpose of the present application, GZS will not seek to invoke any principle of Sovereign Immunity. However, GZS reserve the right to do so at a future stage.”

GZS ultimately obtained the release of the Vessel by arranging a bail bond. In the meantime, it acknowledged service of the writ, and filed a Defence and Counterclaim, suing for damages for wrongful arrest. Discovery took place, and witness statements were exchanged. Dates for trial had also been set. At this point, GZS sought an order granting immunity from suit, which was the subject matter of the present proceedings.

The main issues before the Court were: (i) whether GZS was entitled to claim sovereign immunity and/or crown immunity; and (ii) whether it had waived the right to claim such immunity and/or had submitted to the jurisdiction of the Hong Kong court.

The Crown Proceedings Ordinance (Chapter 300 of the Laws of Hong Kong; “CPO”) is based on the English Crown Proceedings Act 1947. Section 3 provides that:

“Where any person has a claim against the Crown after the commencement of this Ordinance and, if this Ordinance had not been passed, the claim might have been enforced, subject to the consent of the Governor, under the Rules of the Supreme Court, or might have been enforced by the proceedings provided by any statute ceasing to have effect in the Colony by virtue of this Ordinance, the claim may be enforced as of right, and without the consent of the Governor, by proceedings taken against the Crown for that purpose in accordance with the provisions of the Ordinance.”

Judgment

Stone J dismissed the Defendant’s claim for sovereign immunity and crown immunity.

The Court firstly noted that sovereign immunity did not apply in the present case because it was not dealing with the impleading of a foreign sovereign state. The Vessel was owned by the GZS of the Ministry of Communications, a government department under the CPG. Hence, the situation with which the court was faced was the arrest of a vessel ultimately owned by the Central People’s Government (CPG) of the PRC, which after 1 July 1997 exercised sovereign power over the Special Administrative Region of Hong Kong. Thus the case involved the purported impleading of Hong Kong’s own sovereign under the ‘one country, two systems’ principle, and not that of a foreign state.

Similarly, the Court also rejected the GZS’s claim for a “modified” version of sovereign immunity. The GZS tried to rely on a series of Canadian cases which held that a province can claim sovereign immunity in a different jurisdiction within the same state. However, Stone J noted that Article 12 of the Basic Law (which is the constitution of Hong Kong) provided that the Hong Kong SAR is a local administrative region that comes “directly under the Central People’s Government”. It has no power to make any law binding on the CPG. Doctrinally, such immunity is fundamentally premised upon considerations of comity and mutual respect for the dignity of foreign sovereign states, and should not apply in any form within the same state. Therefore, even “modified” sovereign immunity could have no application here.

With respect to the claim for crown immunity, the Court first noted the traditional common law position that the Crown enjoys immunity from being sued in its own courts and from the levy of execution. The meaning of “Crown” also extends to a body corporate established by the executive arm of the Crown. In assessing whether a body corporate qualifies as part of “the Crown”, the applicable test is to be derived from cases like Townsville Hospitals Board v Council of the City of Townsville (1982) 56 AJLR 789 (High Court of Australia). The material consideration is the control which the Crown has over that corporation, or whether that corporation is able to exercise independent power of its own; although the objects and function of that corporation also go into the evaluative “mix”.

The Court rejected Intralink’s argument that the common law position on “crown immunity” was changed by the CPO. Before 1997, there were two “Crowns” in Hong Kong – Her Majesty’s government in the then colony and Her Majesty’s government in the United Kingdom. The “crown”, albeit not defined in the CPO, referred to the former only. The CPO allowed proceedings to be brought against the government of Hong Kong, but it did not remove the “crown immunity” of the Her Majesty’s government in the UK. This is analogous to the principle that Hong Kong courts could not challenge acts of the British Crown before 1997. With the replacement of the British sovereign with the Chinese sovereign after Hong Kong’s handover in 1997, the CPG can claim “crown immunity”.

Stone J then considered the expert evidence before the Court, and held that the GZS was not a state-owned enterprise but formed part of the Ministry of Communications. It was under the Ministry’s control. Although the GZS performed operations commissioned by private clients, the aim was to generate revenue to supplement the funding shortfall for operations commissioned by the Ministry of Communications. If, as the judge believed to be the case, the concept of ‘control’ represents the modern benchmark for the attribution of Crown immunity, it had to follow that the control exercised by MOC over the GZS was prima facie confirmatory of the attribution of Crown immunity for this body. Hence the judge held that the GZS, the defendant owners of the derrick barge “HUA TIAN LONG”, was entitled to assert crown immunity.

However, the Court held that, on the facts of the case, the GZS had waived the right to invoke crown immunity and had submitted the jurisdiction of the Hong Kong court.

As a matter of principle, the law governing waiver of crown immunity should be the same as that for sovereign immunity. A state would be regarded as having waived the right to claim crown immunity if it had taken any steps in the proceedings, knowing that it was entitled to immunity, but had failed to claim immunity as soon as reasonably practicable. Whether a party had knowledge of its right to immunity was to be assessed objectively (Peyman v Lanjani [1985] Ch 4867), and its evidence would be compared against contradictory evidence to determine its credibility.

On the facts, the Court rejected evidence from the GZS that it was not aware of its entitlement to claim crown immunity. It noted that the GZS’s former counsel wrote in the skeleton submission for a previous interlocutory application that the GZS reserved the right “to seek to invoke any principle of sovereign immunity”. Although the reference was to “sovereign immunity”, Stone J considered it as a shorthand reference to a prospective assertion of immunity from suit. Further, on balance of probability, there must have been “an appropriate degree” of knowledge on the part of senior ranking officials in the CPG that the GZS could claim certain immunity under Hong Kong law.

In any event, there was no reasonable explanation as to why the GZS did not raise the defence of immunity earlier. The present application seemed to have been partly motivated by a desire to delay the impending trial.

Comment

This is the first case in Hong Kong considering the “crown immunity” of the PRC government with respect to private law claims in Hong Kong courts.