18 July, 2017
In TNB Fuel Services Sdn Bnd v China National Coal Group Corporation [2017] HKCFI 1016, the Hong Kong Court addressed Crown immunity for the first time since Hua Tian Long (No 2) [2010] HKCFI 361. The case provides guidelines on the test used to examine if and when a SOE will be able to assert Crown immunity before the Hong Kong Court.
The facts
TNB Fuel Services Sdn Bnd (“TNB”), a Malaysian company, won an arbitral award against China National Coal Group Corporation (“CNCG”), a SOE, which was ordered to pay US$5.3 million by way of damages for breach of contract. To enforce the award, TNB obtained a charging order over CNCG’s almost 2 million shares in a Hong Kong company. CNCG opposed the application on the ground that CNCG is part of the PRC Central People’s Government (“CPG”) and therefore entitled to assert Crown immunity. This would mean that the Hong Kong Court lacked jurisdiction to make a charging order absolute or otherwise make an order in execution. The Court rejected the claim and granted a permanent charging order over the shares.
Assertion of Crown Immunity
Crown immunity is a common law doctrine based on the principle that the Crown enjoys immunity from being sued in its own courts. In The Hua Tian Long (No 2) [2010], it was established that Crown immunity continued to exist at common law in Hong Kong, through the PRC as the new sovereign entitled to enjoy the immunity. Any assertion of Crown immunity must come from the ‘Crown’, which in Hong Kong now means the CPG.
CNCG had the onus of establishing its entitlement to Crown immunity against execution of the shares. The Court found no evidence that the CPG authorised CNCG to assert Crown immunity. In particular, evidence was given that Hong Kong’s Secretary of Justice intervened on CNCG’s invitation. The letter put in evidence stated that CNCG was an independent legal entity, with no special status or interests superior to any other enterprises, and that as an SOE, the CNCG was not considered as part of the CPG, nor is was CNCG deemed as performing functions on behalf of CPG when carrying out commercial activities.
Control by CPG
The Court also considered the assertion of Crown immunity by reference to the laws of the country of incorporation of the company and the common law control test.
Law of incorporation
The laws of the country of incorporation of the company establish whether the entity, is treated as an agent or instrumentality of the Crown. As a matter of fact under PRC Law, it was held that CNCG is not part of the CPG. CNCG has a separate corporate entity under PRC Company and Assets Law, and CNCG enjoys rights to possess, use, profit from and dispose of its property, operational autonomy, and is able to exercise independent powers of its own which are safeguarded by law.
Common law control test
The common law control test operates on a case- by-case basis, which looks for the nature and degree of control exercised by the crown. In addition, an enjoyment of independent discretion in a company’s operation has consistently been held to be a powerful indicator of a company’s independence from the Crown. It is apparent from PRC Assets law and from the Articles of CNCG, that CNCG is able to use, profit from and dispose of property and to use its annual profits and common reserves to cover its own losses and expand its business.
Accordingly, it was held that CNCG’s business and operational autonomy are enshrined in and guaranteed under the applicable PRC law and therefore CNCG is not entitled to invoke Crown immunity.
Comparison with The Hua Tian Long (No 2)
The Court examined and highlighted the differences between CNCG in the present case and the SOE in The Hua Tian Long (No 2) (GZC). These were significant, and are set out in the table below. When considering whether a particular entity is entitled to assert Crown immunity in Hong Kong, we suggest this table be used as instructive of the various factors that the Court will consider.
|
GZC CNCG |
|
Public institution performing public duties/objects Private company (SOE), performing private duties/objects |
|
At all times under the control of PRC Ministry of Not controlled by the CPG or any other PRC Communications Ministry |
|
Not separate legal entity Independent legal entity by law |
|
No shareholders or paid-up capital Has shareholder and paid-up capital |
|
Mere right to possess such assets as allocated to it Can dispose of assets in any manner it choses by the CPG |
No right to dispose of assets |
|
No ability to assume independent civil liabilities Can assume independent civil liability |
Conclusion
This is the first time that the Hong Kong Court has addressed Crown immunity since The Hua Tian Long (No 2) in 2010. The decision provides guidelines for the use of the control test to examine the circumstances under which a PRC state entity will be able to assert Crown immunity in Hong Kong. The following five factors were considered, and will be of relevance in future cases:
- independent control enjoyed by an entity;
- control exercised by the ‘Crown’ as an investor in the entity;
- separate legal personality of the entity;
- power of the ‘Crown’ to appoint or remove senior officers of the entity; and
- the financial autonomy of the entity.
The case, which demonstrates the continued independence of the Hong Kong judiciary, also suggests that when SOEs seek to assert Crown immunity in Hong Kong, they may not always be able to count on the support of the CPG.
For further information, please contact:
Malcolm Kemp, Partner, Stephenson Harwood
malcolm.kemp@shlegal.com
