INTRALINE RESOURCES SDN BHD v. THE OWNERS OF THE SHIP OR VESSEL "HUA TIAN LONG"

INDEX TO JUDGMENT

--------------------------

J U D G M E N T

--------------------------

Nature of this application

1.  This is application involves the claimed immunity from suit of an entity of the Central People’s Government – and hence the contention that this court has no jurisdiction over one of the vessels owned by that entity.

2.  By summons dated 21 October 2009 the defendants in these proceedings, which on the writ in rem are named as “The Owners of the Ship or Vessel “HUA TIAN LONG”, but which now have been identified as the Guangzhou Salvage Bureau, have applied for a stay and/or dismissal of this action on the ground that, in the words of the application, “the Defendant enjoys, and has not waived, the sovereign and/or crown immunity and hence this Honourable Court has no jurisdiction over the Defendant”.

3.  This is a case which has been in existence before the Hong Kong court since the issue on 15 May 2008 of the Admiralty action in rem against ‘The ship or vessel “HUA TIAN LONG” of the People’s Republic of China flag” resulting in the arrest a few days later of that vessel in Hong Kong harbour. How, then, has the present situation arisen?

The factual background

4.  The principal facts leading to this case are essentially undisputed. This action arises out of an alleged breach of contract on the part of the defendant owners of the “HUA TIAN LONG” which vessel, say the plaintiff, failed to honour its commitment under a Memorandum of Agreement entered into by the plaintiff with the Guangdong Salvage Bureau (‘GZS’) to make available this vessel – which is the largest floating derrick crane-barge based in Asia – to work on offshore Malaysian and Vietnamese projects (‘the Newfield’ and ‘Talisman’ projects) for the installation of pipelines and oil platforms.

5.  Consequent upon the non-appearance of the “HUA TIAN LONG” – which, it transpires, in the period in question was under charter to China National Overseas Oil Company, which refused to release the vessel for the plaintiff’s use – the plaintiff says that it was unable properly to complete the Newfield and Talisman projects, which it had been awarded on 16 January 2007, and hence it now claims damages against defendant owners in the sum of some hundreds of millions of US dollars for fraudulent misrepresentation and/or breach of contract.

6.  On 21 April 2008 the plaintiff invoked the Admiralty jurisdiction of the High Court. The writ was nailed to the mast, and the bailiff arrested the “HUA TIN LONG” in Hong Kong waters, this massive lifting barge earlier having been sent from its Guangzhou base to Hong Kong to raise from the sea bed a Ukrainian tug which some weeks earlier had been in collision with a container vessel in the outer reaches of the harbour, and had sunk with tragic loss of life.

7.  By order dated 30 April 2008 Reyes J dismissed the defendants’ application for setting aside the writ and this action, and for the release of the vessel from arrest.

8.  In the skeleton argument of counsel for owners which was placed before Reyes J at this hearing to set aside the arrest, the following appears at paragraph 3 thereof, under the heading ‘Sovereign Immunity’:

“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.”

9.  Some five weeks later, on 9 May 2008, GZS ultimately secured the release of the “HUA TIAN LONG” by arranging bail bonds to be posted on its behalf by China Merchants’ Bank; in the event, the application for bail bond(s) was hotly disputed at hearings both before this court and in the Court of Appeal.

10.  At first instance the Order of 9 May 2008 was for the provision of bail in the sum of US$65 million, which sum, consequent upon the admission of fresh evidence, was varied by the Court of Appeal to the sum of US$122,412.000: see [2008] 4 HKLR 719 (1^st instance) and [2008] 4 HKLR 745 (CA).

11.  Having furnished bail and thus securing the release of the vessel by Order of Reyes J on 4 June 2008, the defendants now seek an order granting immunity from suit – hence the present application commanding this judgment.

Chronology of the proceedings to-date

12.  Whilst a full and highly detailed chronology of this litigation to-date has been supplied to the court during the course of this hearing, it may be worth sketching in the principal procedural landmarks, since this information is germane to legal argument as to the sustainability of this application in the context of waiver and submission to the jurisdiction.

13.  Subsequent to the issue of the writ in rem on 21 April 2008, and the failure of the application to set aside the writ, the defendants acknowledged service of the writ on 2 May 2008. Thereafter followed the decision, and subsequent appeal, as to the amount of bail to be posted, the writ was amended on 15 May, and on 22 May 2008 a Statement of Claim was filed; some idea of the scale of the case can be gleaned from the figures claimed: the sum claimed in damages variously is pleaded at US$190 million in wasted costs/expenditure, US$96 million in damages for fraudulent representation, and a like sum in damages for breach of contract.

14.  On 31 July 2008 a Defence and Counterclaim was filed ‑ the sum of almost US$38 million is claimed in damages for wrongful arrest ‑ and on 16 September 2008 a Reply and Defence to Counterclaim was filed; Further and Better Particulars of the Statement of Claim were sought on 3 November 2008.

15.  Discovery by list took place between the parties over the period 13 February 2009 to 6 October 2009.

16.  On 12 May 2009 a Case Management summons was issued, resulting in orders from Reyes J on 7 July (as to case management) and on 11 September 2009 (as to service of witness statements), and on 26 May 2009 the plaintiff gave notice of payment into court of security for costs in the sum of HK$5,812,800; provision for further security for costs was made by order of this court dated 1 February 2009.

17.  Exchange of witness statements of fact and on quantum took place on 2 October 2009, and on 6 October 2009 a notice was issued seeking to set down the case for trial.

18.  After due consultation with the court and counsel, trial dates were fixed for a 20 day hearing commencing on 5 July 2010 and concluding on 30 July 2010, but these dates clearly now are in jeopardy given the issuance of the defendants’ ‘immunity summons’ on 21 October 2009; it appears tolerably clear that whatever this court’s decision upon the present application, either side will embark upon the appellate chain in circumstances in which very large sums of money are claimed, in addition to the practical significance and legal importance of the point which is central to this debate.

Evidence at the hearing of this application

19.  For the plaintiff affirmation evidence was filed by Ms Hui Kit Yu, who swore two affirmations, and Mr Lin Feng.

20.  Ms Hui is a trainee solicitor of M/s Holman Fenwick & Willan, which firm acts for the plaintiff, who provides evidence of the factual background, identifying the defendants and their business activities, and commenting upon various other aspects of this case, including that of waiver and the issue of submission to the jurisdiction; Dr Lin Feng is a Professor at the City University School of Law, and gave evidence to the court qua expert on Chinese law in the context of the claimed immunity from suit.

21.  For the defendants primary evidence was provided by Mr Fu Shi Qun, who swore five affirmations in support of the application.

22.  Mr Fu is an officer of the defendant, GZS, who has been with that entity since 1980 – he says that he is the Manager of its Business Administration Office. His evidence was filed in support of the defendant’s immunity application, and he says in terms (at paragraph 3 of his 1^st affirmation) that he is “authorized to, and instructed by the Ministry of Communications, Guangzhou Salvage Bureau of the Central Government of the PRC … and to provide the Court with evidence in support of the Defendant’s entitlement to Crown Immunity.”

23.  In addition, an expert Chinese law legal opinion, entitled ‘The Legal Nature of Guangzhou Salvage’, was adduced on behalf of the defendants by Professor Lin Yuan-min by affirmation dated 11 November 2009.

24.  Both experts on Chinese law, Dr Lin Feng, for the plaintiff, and Professor YM Lin, for the defendants, were cross-examined by the parties’ respective leading counsel, Mr Charles Sussex SC for the plaintiff and Miss Teresa Cheng SC on behalf of the defendants.

This application: the argument

25.  Counsel on each side have provided signal assistance to the court in the form of extensive skeleton arguments, both opening and closing, and further in supplemental written submissions and wide-ranging lists of authorities: in addition to the 8 bundles of source documents, the lists of the defendants/applicants alone contain no less than 110 authorities comprising case law, academic and legislative and other evidential material, and that of the plaintiff/respondent some 41 additional authorities/sources, testimony to the scholarship which this application has produced on either side of the adversarial fence.

26.  In terms of the primary argument relating to immunity from suit, the debate encompassed three specific areas: sovereign immunity, ‘mutated’ (or ‘modified’) sovereign immunity, and crown immunity; in addition, Miss Cheng SC for the defendants invoked an additional ground based upon a particular construction of the Crown Proceedings Ordinance, Cap 300. I take each of these aspects in turn.

(i)  Sovereign immunity

27.  The concept of ‘sovereign immunity’ in public international law reflects the maxim par in parem non habetimperium (‘equals have no authority over one another’), and is underpinned by the concepts of comity, equality, independence and dignity of individual states. Thus no state can intervene in the affairs of another state by claiming jurisdiction over that state: see, for example, Brownlie, Principles of PublicInternational Law, (7^th ed.), at 324-326; Oppenheim’s InternationalLaw (9^th ed.), Vol 1, Part 1, at paras 109, 342-342.

28.  In post-war years the ‘classic’ doctrine of absolute sovereign immunity has been modified to reflect the division between acts of third party states whereby a state could not lawfully be impleaded in the courts of this jurisdiction in relation to acts in its sovereign capacity (acta jure imperii), but wherein such immunity from suit did not prevail in respect of those acts of a foreign state of a private law or commercial character (acta jure gestionis): see for example Trendtex Trading Corp vCentral Bank of Nigeria [1977] 1 QB 529, at 555A-557B, per Lord Denning MR, I Congreso del Partido [1983] 1 AC 244, at 262A-263D, per Lord Wilberforce, and, for a Hong Kong decision on the point, wherein a foreign state was impleaded by the arrest of one of its trading vessels, and wherein the act in issue was classified as ‘juregestionis’, see the case of The Philippine Admiral [1977] AC 373, a Privy Council decision on appeal from Hong Kong, wherein their Lordships adopted the ‘restrictive’ approach in relation to actions in rem. Very recently, also, in the Hong Kong Court of Appeal in FG Hemisphere Associates LLC vDemocratic Republic of The Congo & ors, unrep., Judgment dated 10 February 2010, in a wide-ranging and scholarly judgment Stock JA took the opportunity to review the development of the case law relating to absolute immunity and the encroachment of the so-called ‘restrictive doctrine’, and to relate these twin concepts to the current Hong Kong position post-1997.

29.  For present purposes, however, there is no need further to embark upon the ‘pure’ sovereign immunity analysis. Although Miss Cheng SC opened on the issue and initially maintained the viability of the point, by the end of the hearing it was accepted by leading counsel that the concept has no application in the instant case, given that there is here no question of the impleading of a foreign sovereign state.

30.  To the contrary, the fact situation is that it is alleged that the “HUA TIAN LONG” was owned by the Guangdong Salvage Bureau, a state-owned enterprise established on 4 October 1989, and, consequent upon a 2003 reform, now is owned by the Guangzhou Salvage Bureau of the Ministry of Communication, and thus ultimately by the Ministry of Communication of the PRC.

31.  Hence, the situation with which this court now is faced is the arrest of a vessel ultimately owned by the Central People’s Government of the PRC, which after 1 July 1997 exercises sovereign power over the Special Administrative Region of Hong Kong, so that this case involves the purported impleading of Hong Kong’s own sovereign under the ‘one country, two systems’ principle, and not that of a foreign state.

32.  For the purpose of the present argument, however, this does not mean that all notions of ‘sovereign immunity’ are rendered redundant, given that Miss Cheng SC for the defendant has argued in the alternative that this case is classifiable within the rubric of that which she chose to term ‘mutated sovereign immunity’; in the discussion following I hope I may be forgiven if I do not adopt that inelegant term and substitute therefor the adjective ‘modified’.

(ii)  ‘Modified’ sovereign immunity

33.  I am in two minds as to whether this head should be regarded simply as a sub-division of the ‘crown immunity’ argument, upon which this judgment subsequently concentrates, as opposed to Miss Cheng’s categorization as a separate sub-head of sovereign immunity. However, I do not think that classification per se greatly matters, since in any event I do not favour the substance of this argument.

34.  The proposition as to ‘modified’ sovereign immunity appears to emanate from a line of Canadian cases, wherein the Canadian provincial courts were considering the proposition as to whether sovereign immunity could be applied between different jurisdictions within the same state, namely the sovereign state of Canada.

35.  As Mr Sussex has pointed out, the idea that a province could rely on sovereign immunity to resist the jurisdiction of the courts of another province appears to have originated in the English Court of Appeal case of Mellenger v New Brunswick Development Corp., [1971] 2 All ER 593, a case in which the defendant corporation objected to service upon it in England on the ground that it was an arm of the government of New Brunswick, and thus entitled to ‘sovereign immunity’ in England, although it is unclear why this should have been the case; the reasoning of the court (see Lord Denning MR, op cit., at 595-596) appears to have been based on the fact that the Canadian constitution recognized the independence and autonomy of each provincial government under the Crown, and thus that the province of New Brunswick was a sovereign state in its own right and entitled, if it so wished, to claim sovereign immunity.

36.  However, whatever may be the position when a province claims sovereign immunity outside Canada, it is not easy to understand why this principle should be applied inter-provincially within Canada, albeit in reliance on Mellenger a series of Canadian cases have concluded that one province may utilize sovereign immunity to resist the jurisdiction of the courts of another province: see for example Western Surety Co v Elk ValleyLogging Ltd (1985), 23 DLR (4^th) 464 [BCSC]; Phillips (Guardian ad litem) v Beary (1994), 29 CPC (3d) 258 [BCSC]; Bouchard v JLLe Saux Ltee, (1984), 45 OR (2d) 792.

37.  On the other hand, there are cases to the opposite effect: see for example Weir v Lohr (1967) 65 DLR (2d) 717, wherein Tritschler CJ in the Manitoba Queen’s Bench observed (at 723) that “in Manitoba the Province of Saskatchewan is not to be regarded as a foreign state. Her Majesty in the right of the Province of Saskatchewan is not a foreign Sovereign in her Majesty’s Court of Queen’s Bench for Manitoba.”

38.  In my judgment the latter clearly is the better view, which coincides with that expressed by Hunter JA in the Alberta Court of Appeal in the case of Athabasca Chipewyan First Nation v Canada (Minister of Indian Affairs and Northern Development et al) [2001] ABCA 112, a case involving a dispute between a British Columbia Hydro Electric Company and the native Athabasca Chipewyan, who were claiming that a dam constructed on the Peace River – which flowed from British Columbia into northern Alberta’s Peace Athabasca Delta – by British Columbia Hydro had altered the natural flow of the Peace River and deleteriously had affected the ecosystem of the Delta: hence the claim by the indigenous Chipewyan for a declaration, injunction and damages against, inter alia, the Queen in right of the Province of British Columbia and British Columbia Hydro.

39.  The issue on the appeal was whether the defendants could be sued in the Alberta Court of Queen’s Bench, with the court deciding that whereas British Columbia Hydro was amenable to suit, the Queen in right of British Columbia definitely was not.

40.  In the course of its decision the court specifically considered the Western Surety Co line of cases, drawing a firm distinction between sovereign or state immunity and crown immunity, and concluded that sovereign immunity had no application inter-provincially. In his judgment Hunter JA aptly observed (op cit., at para 45):

“Sovereign or state immunity is a concept distinct from Crown immunity.  According to S.A. Williams & A.L.C. de Mestral, An Introduction to International Law, 2^nd ed. (Toronto: Butterworths, 1987), at 137, it “prevents a foreign state or its head from being impleaded in the domestic courts of another state without its consent.”  A foreign state may submit to the jurisdiction of a court but compulsion cannot be used to achieve this result.  The rationale for sovereign immunity is that, since states are equal, one cannot exercise jurisdiction over another.  It will be immediately apparent that, while sovereign and Crown immunity are distinct concepts, there is a strong resemblance between them…”

and further (op cit., at para 55):

“In my view, the use of the Mellenger principle in an interprovincial context is misplaced.  To the extent that the rationale underlying sovereign immunity has any importance in a federal state, that function is already fulfilled by Crown immunity.  The fact that some Canadian courts confuse the two concepts suggests that they play the same role.”

41.  I respectfully agree with and adopt this reasoning, which in the Hong Kong context is reinforced by the terms of the provisions of the Basic Law of the HKSAR, and the implementation of the ‘one country, two systems’ principle.

42.   Article 1 of the Basic Law makes it clear that the HKSAR is “an inalienable part” of the PRC, Article 7 that the land and natural resources within the Hong Kong SAR “shall be State property”, whilst Article 12 reads:

“The Hong Kong Special Administrative Region shall be a local administrative region of the People’s Republic of China, which shall enjoy a high degree of autonomy and come directly under the Central People’s Government.”

43.  Hence, in the context of the relationship between the PRC and Hong Kong, the concept of ‘sovereign immunity’ as generally understood is a logical misnomer. Doctrinally such immunity fundamentally is 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.

44.  It follows, therefore, that in my view the primary issue in this case, at least in relation to the concept of immunity from suit, focuses upon the application of principles of ‘crown immunity’.

(iii)  Crown immunity

(a)  The concept

45.  Whilst sovereign immunity is based on the notional equality of states, ‘crown immunity’ originated from the concept of the inequality of the ruling and the ruled, as represented by the maxim “the sovereign can do no wrong”; thus the Crown is not bound by statute unless expressly named or by necessary implication, and at common law the Crown enjoys immunity from being sued in its own courts: see Halsbury’s Laws, 4^th ed., Vol 8, at 598; Halsbury’sLaws, 2006 Reissue, Vol 5(1) at para 90.0262. See also, for example, the discussion of the Court of Appeal of the Supreme Court of New South Wales on the historical immunity of the Crown in RESI Corp v Sinclair [2002] NSWCA 123.

46.  In English law before 1948 Crown immunity was not confined to liability in tort but extended to all other aspects of civil liability: see A.W. Bradley & K.D. Ewing, Constitutional andAdministrative Law, 12^th ed., at 845; see also, for example, the case of Gilleghan v Minister of Health [1932] 1 Ch 86, wherein the Minister of Health was sued for breach of contract for an act done by him as a servant of the Crown; in striking out the statement of claim and dismissing the action Farwell J held that such action did not lie, and that the only remedy was against the Crown by petition as of right.

47.  Equally, crown immunity was not confined to immunity from suit, but extended also to immunity from execution, which is the result of the principle that the Crown is immune from the processes of its courts and thus the courts could not make an order against the Crown: see Canadian National Railway Company (Garnishee) v JJCroteau [1925] SCR 384, a case in the Canadian Supreme Court, wherein Duff J observed (at 388) that “the real difficulty in attaching monies payable by the Crown to a third person lies in the inability of the courts to make an order against the Crown.”

48.  Two jurisprudential developments materially affected the ‘classical’ concept of crown immunity.

49.  First, the meaning of ‘Crown’ extended from the person of the King/sovereign to a body corporate established by the executive arm of the Crown: see Mellenger v New Brunswick [1971] 2 All ER 593, wherein the English Court recognized the defendant corporation as part of the government of New Brunswick.

50.  Second, and consequential upon this extension of meaning, the issue arose as to how to define whether a body corporate was or was not part of ‘the Crown’.

51.  Two distinct tests evolved: the ‘functional test’, as in Bradken Consolidated v Broken HillProprietary Co Ltd (1979) 53 ALJR 452, wherein the High Court of Australia held that the Railways Commissioner of Queensland was an emanation of the Crown because it was recognized in Australia that the conduct/operation of railways was a state function; and the ‘control test’, as for example in Townsville Hospitals Board v Council of the City of Townsville (1982) 56 AJLR 789, wherein the Chief Justice of Australia observed:

“…whether the functions in question are traditionally or peculiarly governmental is likely to be increasingly unhelpful in deciding whether the body formed to carry out these functions enjoys the privileges and immunities of the Crown…The answer to the question must in the end depend upon the intention to be derived from the statute under which the body in question is constituted.”

In this context see also the extensive discussion of the issue in Chadee v Norway House First Nation (1996) 113 Man. R. (2d) 110, wherein the Manitoba Court of Appeal analysed the ‘functional’ and ‘control’ tests, noting that:

“…Courts have struggled in determining the extent to which public corporations or unincorporated bodies created by government possess the attributes of the Crown for the purpose of suing or being sued, or for the purposes of claiming an immunity or power which is exercisable by the Crown…”

before itself applying the ‘control test’, and concluding that the defendant, Norway House First Nation, was not acting as agent for the Crown in employing the plaintiff as director of education or in terminating his employment, and thus that the defence based upon the power of the Crown to dismiss at its pleasure must fail.

52.  For my part, I agree with the contention that when assessing whether a corporation can be said to be part of the Crown at common law, the material consideration is the control which the Crown has over that corporation, albeit the objects and function of that corporation also go into the evaluative ‘mix’. In terms of ‘control’, I further agree that the salient question to be asked is whether the corporation in question is able to exercise independent powers of its own; as a consequence, as Mr Sussex SC submitted during this hearing, no doubt it would be possible for a corporation to enjoy immunity for one purpose and not for another.

53.  In terms of crown immunity at common law, the other major inroad has been its substantial curtailment by statutory intervention. Thus, in England the Crown Proceedings Act 1947 conferred statutory rights on individuals to enable the bringing of personal claims in contract against the Crown.

(b)  The Hong Kong position

54.  Given Hong Kong’s particular constitutional history, the position of Crown immunity under Hong Kong law must be considered both pre- and post-July 1, 1997.

Pre-1 July 1997

55.  So far as the position prior to the handover is concerned, Miss Cheng SC helpfully has produced a detailed overview, noting that absent statutory intervention Hong Kong followed common law principles; she usefully has traced the evolution of the statutory right to sue the Crown as first provided for by the Code of Civil Procedure(Ordinance No 13 of 1873), which laid down that:

“All claims against the Government of the Colony of the same nature as claims within the provisions of ‘The Petitions of Right Act 1860’ may, with the consent of the Governor, be preferred in the Supreme Court in a suit instituted by the claimant as plaintiff against ‘The Attorney General’ as defendant”.

56.  Thereafter, other Civil Procedure Ordinances altered this statutory right, and subsequently were replaced by the first editions of the Rules of the Supreme Court; thus sections 479 and 480 of the Code of Civil Procedure (Ordinance No 3 of 1901) became Order XIX, Rules 2 and 3 respectively.

57.  Under this regime, a claim could be made against the Crown subject to the consent of the Governor; clearly, also, the “Crown” in this context referred only to “the Government of the Colony”, and not to the English Crown.

58.  As Miss Cheng SC points out, in terms of Crown immunity the old statutory (and discretionary) regime subsequently was repealed following the enactment of the Crown Proceedings Ordinance, Cap. 300, (‘CPO’), which substantially mirrored the 1947 English legislation, and which came into force with effect from 1 November 1957. Section 3 of the CPO, under the title ‘Right to sue the Crown’, reads:

“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.”

59.  Miss Cheng accepts, and with respect clearly she is right so to do, that whilst ‘the Crown’ was not defined under the CPO, the term as used under the CPO referred only to the Crown in right of the then Colony of Hong Kong, and not to the British Crown.

After 1 July 1997

60.  It is at this juncture that the parties to this application cease to be in agreement. It is also at this juncture that the argument becomes a little more complex.

61.  In short, the plaintiff’s position is that the common law concept of ‘Crown immunity’ did not form part of the common law of Hong Kong immediately prior to the handover, and thus, by reason of Article 18 and Article 8 of the Basic Law, did not represent the common law “previously in force” in Hong Kong.

62.  Article 18 reads:

“The laws in force in the Hong Kong Special Administrative Region shall be this Law, the laws previously in force in Hong Kong as provided for in Article 8 of this Law, and the laws enacted by the legislature of the Region”

whilst Article 8 provides:

“The laws previously in force in Hong Kong, that is, the common law, rules of equity, ordinances, subordinate legislation and customary law shall be maintained, except for any that contravene this Law, and subject to any amendment by the legislature of the Hong Kong Special Administrative Region.”

63.  Thus, maintained Mr Sussex, the “short answer” to this entire application is that the common law concept of ‘crown immunity/privilege’ did not represent the common law in force in Hong Kong at the time of the handover to the PRC, given that the common law had been modified and amended, at least since 1 November 1957, by the CPO, the long title of which states that its purpose was “To amend the law relating to the civil liabilities and rights of the Crown and to civil proceedings by and against the Crown…”

64.  Furthermore, he argued, even if, contrary to his primary position, any aspect of the common law relating to ‘crown immunity’ could be demonstrated to have survived notwithstanding enactment in Hong Kong of the CPO, such common law privilege would not apply to the CPG, given that by virtue of sections 2A(3) and (4) and of paragraph 2 of Schedule 8 of the Interpretation and General Clauses Ordinance, Cap. 1, the word ‘crown’ as employed in the common law concept of “crown immunity” must be construed as a reference solely to the Government of the HKSAR, and thus by necessary inference did not encompass the CPG.

65.  In order to buttress his argument Mr Sussex further drew the attention of the court to Article 19 of the Basic Law, which lays down that the courts of Hong Kong should have jurisdiction over all cases in the SAR, save that the restrictions on their jurisdiction imposed by the legal system and principles previously in force were to be maintained, and that, more particularly, Article 19 also provided that “the courts of the HKSAR shall have no jurisdiction over acts of state such as defence and foreign affairs”, and that a certificate from the Chief Executive concerning acts of state should be binding on the courts whenever such specific issues arose in the adjudication of cases.

66.  The inevitable inference was that, save as aforesaid, in cases not involving such ‘acts of state’, the courts of Hong Kong have jurisdiction over the CPG.

67.  Miss Cheng SC disagreed with this analysis.

68.  Her position was two-fold: first, that as a matter of constitutional arrangement, the ‘crown immunity’ of the Central People’s Government (‘CPG’) cannot be taken away by domestic legislation of the Hong Kong SAR (in the sense, I assume, of application of the provisions of the CPO); and second, and in the alternative, as a matter of construction of the CPO, the term “the Crown” does not cover the CPG.

69.  As to the first proposition, she noted that the Hong Kong SAR is established under Article 31 of the PRC Constitution as a “local administrative region” of the PRC enjoying a high degree of autonomy under the direct control of the CPG [Articles 2 and 12 of the Basic Law], and that Article 81 of the Basic Law in turn established the judiciary of Hong Kong; therefore, she said, the Courts of the HKSAR are also courts of the PRC, albeit enjoying power of final adjudication within the SAR, save for the final power of interpretation of the Basic Law, and that by drawing an analogy from the common law principle of “the king can do no wrong and cannot be sued in his own courts”, the CPG – being in effect the ‘Crown’ of the PRC – cannot be sued in the courts of the HKSAR.

70.  Alternatively, she argued that, whilst no amendment had been made to the CPO,it was clear that the term “the Crown” under the CPO no longer could be construed as a reference to the Crown in ‘the Colony of Hong Kong’, and referred the court to Schedule 8 of the Interpretation and General Clauses Ordinance, Cap 1 (as added by the Hong Kong Reunification Ordinance, Cap 2601,) which provided that:

“1.  Any reference in any provision to Her Majesty, the Crown, the British Government or the Secretary of State (or to similar names, terms or expressions) where the content of the provision  –

(a)  relates to title to land in the Hong Kong Special Administrative Region;

(b)  involves affairs for which the Central People’s Government of the People’s Republic of China has responsibility;

(c)  involves the relationship between the Central Authorities and the Hong Kong Special Administrative Region,

shall be construed as a reference to the Central People’s Government or other competent authorities of the People’s Republic of China.

2.  Any reference in any provision to Her Majesty, the Crown, the British Government or the Secretary of State (or to similar names, terms and expressions) in contexts other than those specified in section 1 shall be construed as a reference to the Government of the Hong Kong Special Administrative Region.”

71.  Subparagraphs 1(a) and (c) were not engaged in the present situation, said Miss Cheng, and at first blush it was unclear to that which paragraph 1(b) referred. However, Article 1 of Annex 3 of the of the “Decision of the Standing Committee of the National People’s Congress on Treatment of the Laws Previously in Force in Hong Kong in accordance with Article 160 of the Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China”, which bound the Hong Kong courts, had resulted in the addition of Schedule 8 of the IGCO, and in the circumstances she submitted that subparagraph 1(b) of Schedule 8 must be confined to the affairs for which the CPG had responsibility under the Basic Law, namely the foreign affairs and the defence of Hong Kong: see Articles 13 and 14 of the Basic Law.

72.  Accordingly, since the present case had nothing to do with foreign affairs or the defence of the HKSAR, it fell outwith subparagraph 1(b), and thus, for present purposes, “the Crown” under the CPO must refer only to the Government of the HKSAR, and not to the CPG: see paragraph 2 of Schedule 8 of the IGCO, also Hong Kong Civil Procedure 2010, Vol 1, at M/N 77/0/2.

73.  In this latter interpretation, I apprehend, Miss Cheng had reached the like conclusion as Mr Sussex, albeit to facilitate a different argument.

74.  So far as Miss Cheng was concerned, any invitation to construe the CPO in a way which justified the Hong Kong courts invoking jurisdiction over the CPG was unconstitutional and must be rejected; whilst as to the Article 19 argument, should Mr Sussex be correct, Miss Cheng observed, it would follow that in terms of matters falling outwith “acts of state”, the CPG could invoke neither Crown immunity nor sovereign immunity, a result which would place the CPG in an inferior position even to foreign sovereigns, which (subject to recognized exceptions and waivers) at least would be in a position to plead sovereign immunity.

75.  At bottom, the fundamental difference between the parties on the hotly disputed issue of Crown immunity after 1 July 1997 appeared to boil down to whether there remained any common law doctrine of ‘crown immunity’ subsisting in Hong Kong immediately prior to the handover of sovereignty to the People’s Republic of China.

76.  The plaintiff’s position remained that no such common law Crown immunity subsisted which could survive the handover and the enactment of the Basic Law; the defendant’s argument, to the contrary, was that by reason of the survival of the common law doctrine the CPG could not be impleaded in the Hong Kong courts in circumstances such as those prevailing in the instant case.

77.  At the conclusion of the oral hearing of this application, Miss Cheng requested, and obtained, leave of the court to enable the parties to put in supplemental written submissions on the point.

78.  I have read and reflected upon these additional submissions, which speak for themselves and which, with respect to the considerable extra effort involved, I am not sure add substantially to the detailed arguments initially adumbrated by either side. Nor do I wish to burden this judgment with further extensive narrative recitation.

79.  For the plaintiff, Mr Sussex stressed the significance of Article 19 of the Basic Law, which, as he put it, “provides for a self‑contained and comprehensive regime as to when and in what circumstances the Central People’s Government would be immune from jurisdiction in the Hong Kong courts”; his submission was that the CPG would only be immune from jurisdiction as to acts of state, thereby, he suggested, mirroring section 9 of the CPO which preserved the prerogative powers of the Hong Kong Government. He also observed that the present case cannot fall within the scope of the term ‘act of state’, as defined in Article 19, given its undisputed nature as a pure commercial transaction, namely the putative chartering of the derrick-barge “HUA TIAN LONG”.

80.  A recurrent theme in Miss Cheng’s written response to the plaintiff’s supplemental submissions understandably lay in its emphasis on the new constitutional order, and the fact that the Hong Kong SAR, being a local administrative region directly under the CPG, the new ‘Crown’, cannot implead the CPG in the absence of the express consent of the CPG. Her case essentially was that the common law principle that the domestic court had no jurisdiction over the institution that created it, and that in substance nothing had changed, notwithstanding Hong Kong’s new ‘sovereign’, which no longer was the British Crown but the PRC, acting through the CPG.

81.  Miss Cheng maintained that the British Crown had enjoyed ‘crown immunity’ prior to the handover to the CPG, and that obviously crown immunity represented an attribute of the British Crown’s sovereignty over her colonies, so that unless expressly abrogated by statute ‑ which by virtue of the Royal Instructions was outwith the powers of a colonial legislature ‑ such ‘crown immunity’ had continued, and that the CPO was relevant solely to actions against the colonial government. Accordingly, as she put it, “whichever way one looks at the issue of crown immunity, the Hong Kong SAR courts have no jurisdiction over the sovereign”.

Decision on the ‘Crown immunity’ debate

82.  In my view Miss Cheng is correct in her arguments, notwithstanding the forensic skill which Mr Sussex brought to bear in his analysis.

83.  I do not accept that with the enactment of the CPO in Hong Kong in 1957 that, at a stroke, the concept of ‘crown immunity’ ‑ by which I mean the immunity of the British Crown in the Hong Kong courts ‑ no longer formed part of the common law. To the contrary, in my view ‘crown immunity’ properly so-called at all times remained an attribute of the British Crown’s sovereignty over her colonies, among which numbered Hong Kong prior to 1 July 1997, and the establishment of the new constitutional order did not alter this position. Constitutionally one ‘sovereign’ was replaced by another, and I see nothing in the Basic Law, which today forms Hong Kong’s constitution, to gainsay that proposition.

84.  I am buttressed in this instinctive view by the opinion of Chan CJHC (as he then was) in HKSAR v Ma Wai KwanDavid & ors [1997] HKLRD 761 (CA) ‑ a case to which Miss Cheng drew the court’s attention in her subsequent supplemental written submissions ‑ who considered that even in colonial times the Hong Kong courts lacked the legal basis to challenge acts of the British Crown; the learned Chief Judge noted (at 780):

“I would accept the arguments…that regional courts have no jurisdiction to query the validity of any legislation or acts passed by the sovereign.  There is simply no legal basis to do so.  It would be difficult to imagine that the Hong Kong courts could, while still under British rule, challenge the validity of an act of Parliament passed in UK or an act of the Queen in Council which had effect on Hong Kong…”

85.  This appears also to be the view taken by Mr Benny Tai in his article “The Jurisdiction of the Courts of the Hong Kong Special Administrative Region”, Law Lectures for Practitioners 1998, wherein he observed (at 83-84) that the CPO did not authorize proceedings against the Crown under that Ordinance “otherwise than in her capacity as the Crown in Hong Kong”, and that therefore:

“…the courts of Hong Kong had jurisdiction to receive cases against the acts of the sovereign if they were acts of the Crown acting in her capacity as the executive authority of Hong Kong but not in any other capacities.  If the act was committed by the Crown in her capacity as the executive authority of the United Kingdom, the courts of Hong Kong would have no jurisdiction to receive a case though the party might initiate a proceeding against the Crown in the United Kingdom in the English Courts under the Crown Proceedings Act.”

86.  It seems to me that the key to unravelling the present argument lies in the fact that prior to the handover as a matter of constitutional structure effectively there were two ‘Crowns’ in Hong Kong – Her Majesty’s government in the then colony and Her Majesty’s government in the United Kingdom ‑ and that whilst the CPO enabled proceedings to be brought against the government of Hong Kong, it had no effect on, and did not remove, the concept of the ‘crown immunity’ of the Queen in the UK. Or, as the editors of Halsbury’s Laws of England, 4^th ed. Reissue, Vol. 6, para 817 express the position, “Her Majesty’s government in a colony is to be regarded as distinct from Her Majesty’s government in the United Kingdom.”

87.  It follows from the foregoing that I do not accept the plaintiff’s proposition that after enactment of the CPO, the British Crown enjoyed sovereign, but not crown, immunity – albeit now, in the courts of the Hong Kong Special Administrative Region, the plea of sovereign immunity is, of course, available to the British Crown.

88.  The short point is that in my view ‘crown immunity’ in its true sense never was removed by the CPO, that as a concept imported from customary international law it continued to exist at common law unaffected by the CPO until the handover to the new sovereign power, the PRC, which in turn must enjoy the like crown immunity hitherto accorded to the British Crown, as opposed to, as Miss Cheng puts it, the ‘Colonial Crown’.

89.  Nor do I consider that the four authorities to which reference is made in the plaintiff’s supplemental submissions – namely Duff Development v Government of Kelantan [1924] AD 797, Statham vStatham [1912] P 92, Sayce v Ameer Ruler of Bahawalpur [1952] 2 QB 390, and Sultan of Johore v Abubakar Tunku Aris Bendahar [1952] AC 318 ‑ to be of assistance; clearly they are distinguishable on their facts, being concerned only with whether sovereign immunity would lie, and shed no light on the manner in which the courts of a colonial/protected territory would treat the ultimate sovereign power.

90.  If the foregoing be correct, as I consider that it is, effectively that is the end of the doctrinal element of the ‘immunity debate’. In my view ‘crown immunity’ subsists and thus now can be invoked as a matter of Hong Kong law. I so hold.

(iv)  The defendants’ ‘additional ground’

91.  In addition to the main grounds relating to immunity relied on by the defendants, Miss Cheng was keen to stress that which she termed ‘an additional ground’, which was the submission that the “HUA TIAN LONG” should be regarded as a ship of ‘Her Majesty’, and thus, pursuant to the provisions of section 25 of the CPO and/or section 12E of the High Court Ordinance, Cap 4, fell outwith the jurisdiction of this court.

92.  Miss Cheng noted that the defendants earlier had taken out an application to set aside the warrant of arrest of the vessel, and that on 30 April 2008 this application had been dismissed by Reyes J. However, she also noted that this application had been mounted solely on the basis of section 12A(2)(h) of the High Court Ordinance, Cap 4.

93.  Section 25 of the CPO provides that:

“Nothing in this Ordinance shall authorize proceedings in rem in respect of any claim against the Crown, or the arrest, detention or sale of any ships or aircraft belonging to Her Majesty or the Government, or of any cargo or other property belonging to the Crown, or give to any person any lien on any such ship, aircraft, cargo or other property.”

Similarly, sections 12E(2)(c)  and (4) of Cap. 4 respectively provide:

“(2)  Nothing in sections 12A to 12D shall –

(c)  authorize proceedings in rem in respect of any claim against the Crown, or the arrest, detention or sale of any of Her Majesty’s ships or Her Majesty’s aircraft or Her Majesty’s hovercraft, or, subject to any regulations made by the Governor, of any ship, aircraft, hovercraft, cargo or other property belonging to the Crown or the Government of Hong Kong…

(4)  In this section –

“Her Majesty’s ships”(女皇陛下的船舶) and “Her Majesty’s aircraft (女皇陛下的航空器) have the meanings given by section 38(2) of the Crown Proceedings Act 1947 (1947c.44U.K.)”

94.  Miss Cheng observes that these provisions have not been changed since the handover, and she suggests that the term “Her Majesty”, which clearly is a reference to the British Crown, now should be construed to mean the PRC, and by extension the CPG. Whilst in respect of the meaning of a ‘ship’, it is beyond question that the “HUA TIAN LONG” is a ‘ship’ as defined either under section 12E(1) of the HCO, or under section 742 of the English Merchant Shipping Act 1894. Accordingly, she concluded, the “HUA TIAN LONG” should be regarded as “Her Majesty’s ship”, and as a consequence falls outside the jurisdiction of this court.

95.  In light of this court’s earlier conclusion on the primary ‘Crown immunity’ argument, there is no need finally to decide this issue, and for present purposes I do not do so.

96.  However, had it been necessary to do so I would not have favoured such an interpretative approach and I would not have upheld this contention.

97.  It seems to me, with respect to the determination of Miss Cheng to press the point in the guise of her ‘supplemental submission’, that to construe the term “Her Majesty” to mean “the Central People’s Government of the PRC” would be to stretch to breaking point the principles of statutory interpretation. In this context, Mr Sussex further referred the court to Schedule 8 of the IGCO, Cap 2, which specifies that references to “Her Majesty” should mean the Government of Hong Kong save in circumstances relating to title to land, foreign affairs and defence, and the relationship between the PRC and the HKSAR, and that Miss Cheng’s argument was, in truth, a “non-starter”. I would agree with this view.

Application of principle to fact: the status of the defendants

98.  The basic argument is thus: the plaintiff says that GZS, the owner of the “HUA TIAN LONG”, is a separate legal entity undertaking commercial activities independent from the PRC government, and thus, from the perspective of ‘crown immunity’, clearly is not part of such ‘crown’.

99.  To the contrary: the defendants maintain that GZS is part of the governmental entity known as ‘Guangzhou Salvage Bureau of the Ministry of Communications’, that GZS possesses the attributes of an entity of the PRC, and that this being the case, ‘crown immunity’ precludes the impleading of GZS in this suit.

100.  That GZS undertakes commercial activities naturally associated with the operations of a massive floating derrick-barge is and cannot be in doubt; indeed, the factual witness of the plaintiff, Ms Hui Kit Yu, has deposed to the numerous types of commercial activities thus undertaken, of which the intended participation of this vessel in the plaintiff’s offshore oil ‘Newfield’ and ‘Talisman’projects constitutes but one example.

101.  Ms Hui also deposes to the fact that, according to her understanding, there are two separate registration documents for GZS and for the other entity known as GZS of MOC, and that the plaintiff’s case is that GZS and GZS of MOC are two separate entities: GZS is an ‘enterprise legal person’ and the commercial arm of GZS of MOC, which is an ‘institutional legal person’.

102.  Mr Fu Shi Qun, the factual witness of GZS, alleged in his affirmation evidence that GZS of MOC exercised extensive control over GZS, but in subsequent evidence asserted that GZS of MOC in fact was one and the same as GZS, although he accepted that GZS also would carry out work commissioned by private clients. In particular, Mr Fu’s 1^st affirmation dated 21 October 2009 and his 3^rd affirmation dated 15 January 2010 deposed to facts in relation to the control exercised by MOC over the defendants.

103.  In addition, the affirmation evidence of Mr Fu exhibited certain ‘statements’ from the Ministry of Communications of the PRC concerning the ‘relevant situation of the Guangdong Salvage Bureau’ ‑ see, for example, the Statement dated 19 October 2009, exhibited at “FSQ 8” to Mr Fu’s 1^st affirmation of 21 October 2009, which is sufficient to provide the ‘flavour’ of this evidence; it reads thus:

“We hereby make the following statement about the relevant situations of  Guangzhow Salvage Bureau of the Ministry of Communications (Guangzhou Salvage Bureau):

1.  Guangzhou Salvage Bureau of the Ministry of Communications (Guangzhou Salvage Bureau) is a public institution directly affiliated to the leadership and management of the Ministry of Communications of the People’s Republic of China.

2.  The assets of Guangzhou Salvage Bureau of the Ministry of Communications (Guangzhou Salvage Bureau) is wholly invested by the state, which comes under the category of state-owned (public) assets of the public institution at the central government level and shall be properly managed in accordance with “Provisional Measures concerning the Management of the State-owned Assets of the Public Institutions”, “Provisional Measures concerning the Management of the Assets of the Public Institutions at the Central Government Level” and other relevant provisions.

3.  Guangzhou Salvage Bureau of the Ministry of Communications (Guangzhou Salvage Bureau) shall be liable for executing the eight obligations and duties conferred by the central government:

(1)  Implementing the guidelines, policies and regulations formulated by the state and the Ministry of Communications concerning marine salvages;

(2)  Undertaking the marine rescues and salvages related to the special political, military and disaster relief tasks designated by the State;

(3)  Fulfilling the relevant international conventions;

(4)  Salvaging shipwrecks and sunken objects, removing obstacles in the public waters and waterways and ports;

(5)  Undertaking the responsibility for rescuing and salvaging watercrafts, facilities and properties not involving the rescue of human lives;

(6)  The emergency removal of the sunken ships with fuels or oil deposited in the ships or vessels so as to prevent the marine environment pollution;

(7)  Undertaking the marine emergency towage and lighterage and special marine transportations;

(8)  Fulfilling the assignments or tasks entrusted by the competent departments of state.

Date:  October 19, 2009

Seal:  The Ministry of Communications of the People’s  Republic of China”

104.  In similar vein, on 28 January 2010 the Ministry of Transportation of the PRC issued what was entitled a “Supplemental declaration concerning the circumstances of the Ministry of Transportation Guangzhou Salvage Bureau (Guangzhou Salvage Bureau)” (at “FSQ-12 to the 4^th Affirmation of Mr Fu sworn on 29 January 2010), the burden of which was that the salvage facilities and equipment of the Guangzhou Salvage Bureau, including the “HUA TIAN LONG”, “are state-owned assets” which form part of the state maritime transport safety supervisory and salvage and rescue system, and that according to the relevant Provisional Regulations and Provisional Measures the Guangdong Salvage Bureau “only has the rights to possess and to use the state-owned assets and that the Guangdong Salvage Bureau “must apply to the Ministry of Transportation and the Ministry of Finance for approval for the use and disposal of the state-owned assets.”

105.  With regard to the expert evidence which was before the court, the essential gist of the plaintiff’s expert, Dr Lin Feng, who is a City University academic, is that GZS and GZS of the MOC are different legal entities with different registration documents, that GZS is an ‘enterprise legal person’, and that GZS as an ‘institutional legal person’ only can perform public objects such as rescue and public interest salvage. On the other hand, GZS was set up as a separate enterprise with its own business licence to perform commercial salvage for profit, and essentially was the independent business arm of the organization to which it belonged, and would exercise its own independent business operation and management authority, albeit the staff of GZS and GZS of MOC may on occasion wear two hats.

106.  To the contrary, the expert for the defendants, Professor YM Lin, gave evidence that there was no difference between GZS and GZS of MOC, which latter was an organizational institution, and that whilst GZS of MOC indeed was registered as a corporation, its dual status as a corporation and as an organizational institution did not change its basic identity as an organizational institution.

107.  I do not wish to be unfair, and indeed it seemed to me that the two experts tried their best, but inevitably (as in my experience often is the case with expert evidence) it was not difficult to detect in their respective cross‑examination responses an acute awareness of the potential significance/ramification of their evidence in terms of the fundamental issue before the court.

108.  It is also appropriate to record that Miss Cheng for the defendants attacked the competence in this area of Dr Lin Feng, who had never practiced PRC law and had not passed the PRC Bar Examination nor was a member of the All China Lawyers Association, and whose sole connection with the subject-matter appeared to be his research as a faculty member of the City University, research areas which focused only on PRC administrative law and environmental law; in fact Dr Lin fairly accepted that PRC economic law and company law did not form his areas of particular academic interest. Miss Cheng further pointed out that Dr Lin had prepared his report at short notice; in fact he had written his draft on a trip with only limited references available, and this, leading counsel surmised, perhaps explained why Dr Lin had had to withdraw certain paragraphs from his report because at the time of writing he was not aware of the fact that the particular law he had relied on no longer was in force.

109.  On balance, it is fair to say that this court was underwhelmed with the expert evidence presented to it, but in so far as such evidence goes into the evidential ‘mix’, in the circumstances I am inclined to place greater weight upon, and prefer, the evidence of the defendants’ expert.

110.  It seems clear that the primary issue of fact requiring resolution for the purpose of the determination of this case is whether GZS constitutes a separate and independent legal entity and further whether, in Miss Cheng’s words, it forms “a part of the Crown of the PRC” so that ‘crown immunity’ is attracted?

111.  In this connection a surfeit of detail has been presented to the court, and Miss Cheng has gone to considerable lengths in her closing written submissions to set out the detailed history of the background and manner in which GZS came into being, commencing with its initial registration with the State Administration of Industry and Commerce. Her emphatic submission is that GZS is not a separate legal entity independent of the MOC as the plaintiff alleges.

112.  She points out that GZS has no shareholder and that all along it has been under the control of the MOC (or MOCRS, which is a department of the Guangzhou Maritime Rescue and Salvage Bureau which supervises and manages GZS business activities), that (as Professor YM Lin had pointed out), GZS was not set up by the State-owned Assets Supervision Committee (‘SASAC’), which is the body representing the state as investor in state-owned enterprises, which enterprises enjoy powers of independent management and freedom from interference, with ownership of its assets and the capacity independently to assume civil liabilities; to the contrary GZS merely has the right to possess and to use such assets as are allocated to it, with nil paid-up capital and no right to dispose of such assets, so that all vessels under the ‘GZS banner’ form part of the State’s salvage and rescue team, and that it has no ability to assume independent civil liabilities.

113.  From an analysis of its basic constitutional set-up, and in light of the expert evidence of Professor YM Lin, Miss Cheng submitted, it appeared clear that the term ‘MOCGS’ and ‘GZS’ refer to the same entity, that ‘MOCGS’ was established by the State as a ‘Shiye Danwei’ (institutional organization), and that at all times it was under the control of the Ministry of Communications or ‘MOC’; thus, she argued, on the basis of the evidence before the court GZS did not exist independently and was not an ‘SOE’, and was merely another name of ‘MOCGS’ as shown on its Business Registration. So far as the latter was concerned, she said, given that MOCGS lacked all the essential features of an SOE, on 6 May 1989 MOC and SAIC had issued a joint directive (‘the Registration Directive’) which had instructed the regional SAIC’s to issue business licences to respective regional salvage bureaux, which included MOCGS, but that notwithstanding this exceptional grant of a business licence, the legal nature of MOCGS as a ‘Shiye Danwei’ had remained the same and under the direct control of the Ministry of Communication.

114.  I am prepared to accept this argument, and the evidence of Professor YM Lin on this point, and so do, and whilst the accumulated evidence is not easy in terms of sorting out the precise organisational structure, I hold as a matter of fact that on the basis of the evidential material which now is before the court, the defendants in this case are not a separate legal entity, and form part of MOCGS, which itself is part of the MOC.

115.  If this be correct, as it believe that it is, and if it be accepted, as I do, that the CPG is the metaphorical ‘Crown’ of the PRC, and that the MOC is part of the CPG, then it must follow that MOC is responsible for discharging the tasks and responsibilities delegated to it by the CPG (vide Article 89 of the Constitution), and that one of the tasks and responsibilities of the MOC is discharging the State’s function of marine rescue and salvage – which function, pursuant to reforms of February 2003, thereafter was split into ‘marine rescue’ and ‘marine salvage’ systems.

116.  As to the concept of ‘control’, in her submissions Miss Cheng has provided an extensive list of indiciae of such ‘control’. In terms of operational control Mr Fu’s 3^rd affirmation explains the two modes of operation of MOCGS, namely operations commissioned by MOC, of which the mobilization of “HUA TIAN LONG” to Hong Kong to salvage the sunken Ukrainian tug NEFTAGAZ-67 was but one example of this first category; and second, operations commissioned by private clients, for which second type of operation it is provided that MOCGS shall report in writing relating to all production and activity the value of which exceeds RMB 3 million. In terms of such ‘private’ ventures, the court has been told that the objective of participation in ‘commercial’ operations is to generate revenue in order to supplement the funding shortfall of MOCGS, and in this connection it has been pointed out that the stamp of the finance department as shown on the registration records of GZS is confirmatory of the fact that the finance of GZS is controlled by MOCGS.

117.  In this context Miss Cheng makes the point that the value of the contract in the present dispute between plaintiffs and defendants far exceeds RMB 3 million, and given that the place of performance of the contract was overseas, MOCGS duly had reported this to MOCRS and had applied for the requisite approval prior to the conclusion of any binding agreement.

118.  Accordingly, if, as I believe to be the case, the concept of ‘control’ represents the modern benchmark for the attribution of Crown immunity, it must follow that the control exercised by MOC over MOCGS/GZS is prima facie confirmatory of the attribution of Crown immunity as now claimed by the plaintiffs for this body. I so hold.

119.  In turn this conclusion begs the question of whether the fact that, in terms of the current dispute with the plaintiffs over the non‑participation of the “HUA TIAN LONG” in its offshore projects, such prospective participation undisguisedly was ‘commercial’ in nature and thus whether this should affect the attribution of Crown immunity, by analogy with the bifurcation of ‘sovereign immunity’ into acts ‘jure imperii’ and acts ‘jure gestionis’?

120.  Miss Cheng’s short answer to this is that the fact that the defendants have engaged (or, more accurately, in the instant case allegedly were expected to engage) in the plaintiff’s commercial activity “is neither here nor there”. She says that the PRC does not recognize the so-called ‘restrictive doctrine’ of sovereign immunity, and that in this regard the courts of the HKSAR should follow this practice, and that there is no reason why any such doctrine should have a place in the context of ‘Crown immunity’. In this regard she repeated her argument that the defendants, being part of the ‘Crown’ of the PRC, enjoy crown immunity at common law, unless such immunity has been removed by statute or has been waived.

121.  The opposing argument, which it is fair to say was incidentally alluded to by Mr Sussex, is that conceptually it is possible for a corporation to enjoy immunity for one purpose and not for another – and thus, I apprehend, there is no reason why a like distinction between acts ‘imperii’ and ‘gestionis’ cannot be maintained in this context – and further, that if Crown immunity in its ‘absolute’ form is now to be held applicable in this case, of necessity this is a classic example of the ‘law of unintended consequences’: if, said Mr Sussex, this application had come before the court prior to 1 July 1997, it would have been summarily dismissed whether on the basis of the State Immunity Act 1978 (which then applied to Hong Kong by Order in Council) or on the basis of the principle in The “Philippine Admiral” [1977] AC 373, wherein the defendants would have had no right to invoke sovereign immunity because the plaintiff’s claim is founded upon a transaction indisputably commercial in nature. Thus, he asked rhetorically, can it really be the case that the resumption of the exercise of sovereignty over Hong Kong now brings with it a consequence which is the precise opposite of what would have happened before the 1997 handover? Mr Sussex suggested that it would be surprising if this had been the intention of those who drafted the Basic Law and the transitional provisions of Hong Kong statutes.

122.  There is no authority on the point, and I confess that in the context of ‘crown immunity’ there exists a temptation to invoke the parallel course as now clearly has developed within the ‘sovereign immunity’ doctrine.

123.  Nor do I consider that Ms Cheng is correct in her submission that the Hong Kong court should as a matter of principle follow the example of the Chinese counterparts in not recognizing the ‘imperii/gestionis’ distinction. Within our constitutional structure Article 19 of the Basic Law stipulates that the courts of Hong Kong are free to act independently (“vested with independent judicial power”), and in the recent decision of the Hong Kong Court of Appeal in FGHemisphere Associates LLC v Democratic Republic of Congo, CACV 373 of 2008/CACV 43 of 2009, Judgment dated 10 February 2010 the Court, albeit by a majority, favoured the restrictive over the absolute immunity approach within the context of a ‘pure’ sovereign immunity argument.

124.  However, in terms of the ‘crown immunity’ doctrine I do not consider that analogy with the ‘sovereign immunity approach’ necessarily is apt. The Hong Kong SAR, being a local administrative region directly under the CPG, has no power to make any law binding on the CPG, and notwithstanding the inherent attractiveness of an approach which accords immunity only to functional ‘acts of state’ properly so-called, it seems to me that the very nature of the Crown immunity doctrine precludes such a development. In this connection, I note the dissenting judgment of Yeung JA in FG Hemisphere Associates, opcit., at para 224 et seq, when the learned judge noted that “the absolute immunity doctrine, adopted by the PRC as part of its international obligation, applies to the Hong Kong SAR” ; although the majority of the court (Stock VP and Yuen JA) did not agree with this view within the ‘sovereign immunity’ context, it seems to me, with respect, that this observation usefully encapsulates the appropriate approach when considering the alternative issue of ‘crown immunity’.

125.  Hence, I hold that GZS, the defendant owners of the derrick‑barge “HUA TIAN LONG”, is entitled to assert crown immunity.

126.  If this conclusion be correct, the only relevant question remaining for discussion in this application is that of waiver and/or submission to the jurisdiction.

Waiver

127.  The plaintiff’s position is that even if, which is denied, a plea of crown immunity otherwise were to be sustainable ‑ which is disputed ‑ nevertheless in the circumstances of this case the defendants have waived the right so to invoke such immunity and/or have submitted to the jurisdiction of the Hong Kong court.

128.  There appears to be no difference between the parties as to applicable principle; in his initial skeleton argument Mr Sussex SC has made it clear that the plaintiff agrees with the GZS position at Appendix B of Miss Cheng’s detailed opening to the effect that the same principles governing the waiver of sovereign immunity should govern the question of waiver of crown immunity.

129.  Miss Cheng expressly accepts that a state may waive its right to crown immunity from suit and/or execution, but makes the point that a waiver cannot be inferred from the mere fact that the State has taken any steps in the proceedings if it can be shown that, at the time of taking such steps, it was ignorant of its right so to claim immunity.

130.  The doctrinal starting point is accepted by both sides as being the statement of principle in Dicey, Morris & Collins’ The Conflict of Laws, 14^th ed., Vol 1, at para 10-028 wherein the learned authors state:

“At common law, sovereign immunity could be waived by or on behalf of the foreign state, but waiver had to have taken place at the time the court was asked to exercise jurisdiction and could not be constituted by, or inferred from, a prior contract to submit to the jurisdiction of the court or to arbitration…In addition, a State will be deemed to have submitted if it has instituted the proceedings; or if it has intervened or taken any steps in the proceedings, unless the intervention has been taken (a) for the purpose only of claiming immunity or asserting an interest in property in circumstances such that the State would be entitled to immunity if the proceedings had been brought against it, or (b ) in ignorance of facts entitling it to immunity (if those facts could not reasonably have been ascertained) and immunity is claimed as soon as reasonably practicable…” (emphasis added)

131.  Clearly therefore waiver is a fact-sensitive issue, and in this regard this judgment has referred in some detail to the procedural history of this case (supra, at para 12 et seq.)

132.  For the plaintiff Mr Sussex maintains that there can be no real doubt on this issue, which, he says, must be resolved in the plaintiff’s favour. He submits that in the present case, by taking out a Counterclaim and by taking an active part throughout the course of these proceedings until the issuance of the ‘immunity summons’, it follows that GZS must be deemed to have waived immunity and to have submitted to this court’s jurisdiction. In this connection he referred to Article 9(3) of the United Nations Conventionon Jurisdictional Immunities of States and Their Property which states that “a State making a counterclaim in a proceeding instituted against it before a court of another State cannot invoke immunity from the jurisdiction of the court in respect of the principal claim.”

133.  The validity of the assertion by the defendants as to their actions not having amounted to the legal doctrine of waiver will depend on the knowledge of entitlement to claim sovereign immunity; in particular the 3^rd affirmation of Mr Fu Shi Qun (at paragraph 11 et seq) avers that MOCGS “was not aware of the availability of state immunity and/or crown immunity defences [and] therefore MOCGS was not able to raise such defences at the time…”, and again (at para 13) Mr Fu refers to Ms Hui’s 1^st affirmation wherein reference was made to previous Hong Kong cases in which MOCGS was named as a defendant and observes that “I would like to make it clear that in defending those cases, our legal teams had not advised us of the availability of the defences of state immunity and/or crown immunity”. In fact, Mr Fu goes on to say (at paragraph 15) that the possibility of raising defences of state immunity and/or crown immunity “was brought to our attention after a decision before the Hong Kong court” in FG Hemisphere, op cit., HCMP 928/2008 (the first instance proceeding before Reyes J), and that this was “the first occasion where MOCGS was made aware of the availability of such defences.”

134.  Thereafter, affirms Mr Fu, MOCGS gathered evidence for further legal advice, and on 7 July 2009 its legal representative informed Reyes J at the Case Management Conference that MOCGS would plead these defences; he continues: “MOCGS then sought and obtained the approval from the Ministry of Communications and took out the present summons on 21 October 2009”.

135.  In argument reliance was placed by Miss Cheng SC on dicta in the case of Baccus SRL v Servicio Nacional del Trigo [1957] 1 QB 438, per Jenkins LJ at 469-471, and per Parker LJ at 473-474, in support of the proposition that there can be no waiver of immunity and submission to the jurisdiction in ignorance of rights, Parker LJ observing follows:

“…the only remaining question is that of waiver.  Like Jenkins LJ, I confess that at first impression it seemed to me remarkable if the true view was that the State of Spain had not submitted to the jurisdiction.  Not only was there an unconditional appearance entered on the instructions of the head of this body, Senor Cavero, himself a senior civil servant, but again on his instructions security for costs was asked for and obtained; and it was not until the writ had been served for some 18 months that any steps were taken to stay the proceedings.  I am satisfied, however, as the result of Mr Kerr’s argument and the cases to which he has referred, that there can be no submission in such a case as this unless it is made by a person with knowledge of the right to be waived, with knowledge of the effect of our law of procedure, and with the authority of the foreign sovereign.”

136.  Thus, says Miss Cheng, the burden of establishing waiver, which indisputably lies on the plaintiff as the party so alleging, cannot be seen to have been discharged given the evidence of Mr Fu on the issue of knowledge, that ‘crown immunity’ is a creature of the common law with apparently no equivalent under PRC law ‑ she noted that there appears to be no case-law whatever on this issue in Hong Kong jurisprudence ‑ and thus the defendants had taken steps in these proceedings absent a full grasp of their legal rights; moreover, she maintained, if in the present case the defendants were held to be prima facie entitled to enjoy crown immunity (which as the result of this judgment now is the case) in order to constitute a valid waiver, such must have come from the MOC, which is a component of the State Council, and that in the present case there is no evidence that MOC had authorized such waiver.

137.  For the plaintiff Mr Sussex firmly disagreed with this contention. In all the circumstances, he suggested, waiver and/or a submission to the jurisdiction clearly could be discerned, and that effect should be given thereto.

138.  The detailed procedural history of the matter spoke for itself, he said. Moreover, the contention that GZS only learned of its right to raise both Crown and sovereign immunity only after December 2008, when the judgment of Reyes J in FG Hemisphere Associates LLC vDemocratic Republic of the Congo [2009] 1 HKLRD 410 was handed down was not a statement which should, or indeed could, be taken at face value. Because by its own skeleton submissions filed on 30 April 2008 the issue of the right of GZS to assert sovereign immunity expressly had been ‘flagged up’, and on behalf of his client he did not accept the contention that this meant that GZS knew only of its right to claim sovereign immunity and not crown immunity.

139.  Further and in any event, said Mr Sussex, even if (which was not accepted) GZS, and through it its controlling entity, did not know of its right to assert crown immunity until December 2008 ‑ as now was claimed ‑ there was no reasonable explanation as to why the issue was not raised immediately, as opposed to not taking out the present summons until 21 October 2009, whilst at the same time actively participating in these proceedings, including in particular by the filing of a Counterclaim on 31 July 2008.

140.  Mr Sussex accepted that a distinction must be drawn between a submission to the jurisdiction and a submission to execution, and that the law in this area remains unsettled. Nevertheless he suggested that there also must be placed into the factual matrix the posting of a bail bond by GZS in order to free the vessel from arrest. In this connection he fairly drew the attention of the court to the observation of Hobhouse J in The “Anna H” [1995] 1 Lloyd’s Rep 11, at 22, to the effect that “there are problems about treating the provisions of bail, without more, as precluding the ship-owner from thereafter exercising his right to challenge the jurisdiction of the court”, but highlighted the use of the phrase “without more”, and submitted that the combined effect of the conduct of GZS in arranging the posting of the bail bonds, together with accepting the court’s jurisdiction to adjudicate this dispute, could only be taken to mean that GZS no longer challenged the court’s jurisdiction to order how the bail bonds are to be dealt with, thereby amounting to a submission to execution on the part of GZS.

Decision on waiver/submission to the jurisdiction

141.  In my judgment the conduct of GZS to-date amounts to a submission to the jurisdiction of the Hong Kong court and a waiver of its right to claim immunity against jurisdiction.

142.  The issue of whether a party had knowledge of his rights is a matter of fact to be assessed by the court, and such assessment does not lie to be made on a wholly subjective basis. In Peyman v Lanjani [1985] Ch 467 Stephenson LJ observed (at 488):

“…like the judge I reject the argument [that the test is subjective].  Waiver or election is always a question of intention to be decided on the evidence as a question of fact (unless determined by a statute like the Sale of Goods Act 1979).  In fact and in law men’s intentions must be judged by their actions, and a man’s acts may convey to any reasonable person standing in the shoes of the other party to a contract, as clearly as any words, an intention to repudiate or affirm the contract…”

143.  I also agree with the comments of Chung J in Star GloryInvestment Ltd v Kai Tuo (HK) Technology Co Ltd, unrep., HCA 3523 of 2002, Judgment dated 13 August 2005, wherein the judge was considering the approach of a court towards assessing evidence, and noted that the objective tests for assessment of such credibility are the inherent plausibility/implausibility of the evidence under scrutiny, together with whether such evidence is contradicted in a material way by other indisputed/indisputable evidence, and if this be the case, whether that witness had a motive for giving the testimony he gave: “For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest…”

144.  In the present instance, in evaluating the reliability of the evidence of Mr Fu on the crucial issue of knowledge, I have been much impressed by the fact that the skeleton submission filed on 30 April 2008 by Mr Wright, then counsel for the defendants, in support of the application to set aside the arrest of the “HUA TIAN LONG” it was expressly made clear (vide the precise quotation at paragraph 8 herein) that GZS reserved the right subsequently “to seek to invoke any principle of sovereign immunity”.

145.  This was months prior to the handing down by Reyes J of his judgment in FG Hemisphere, op cit., and plainly contradicts the evidence of Mr Fu to the effect that GZS first learned of its right to raise sovereign and crown immunity when the first instance judgment of Reyes J was handed down.

146.  Faced with this obvious difficulty, Miss Cheng gamely argued that Mr Wright had only ‘flagged up’ the issue of sovereign (as opposed to crown) immunity, and at the highest this indicates that the defendant were at most solely aware of the possibility of sovereign immunity.

147.  With due respect, in the procedural circumstances of this case this submission is a difficult one to make and in my view fails to withstand serious scrutiny. Leaving aside the fact that, at the outset of this application at least, Miss Cheng was running sovereign immunity (subsequently abandoned in its ‘pure’ form), and ‘modified/mutated sovereign immunity (subsequently persisted with on behalf of the defendants), I agree with the submission of Mr Sussex that the distinction sought to be made is artificial in real terms and, as he put it, is “plainly implausible”.

148.  It seems tolerably clear that at least from 30 April 2008 GZS was aware of the possibility of claiming certain immunity at law, and thus, through its affiliation with the MOC, this knowledge was present at a higher echelon within the CPG, and at bottom I am unconvinced by the efforts now employed to drive a wedge between ‘sovereign immunity’ on the one hand and ‘crown immunity’ on the other for the purpose of claiming immunity, and thus obtaining a stay or dismissal of these proceedings.

149.  Nor with respect, given the history of this matter, am I able to accept at face value that the subsequent short ‘Supplemental declaration’ dated 2 February 2010 on the part of the Ministry of Transportation of the PRC – wherein it is directed that GZS do “exercise the right to sovereign immunity/crown immunity” and that prior thereto the Ministry of Transportation did not know about the provision in Hong Kong concerning these two immunities – can be treated as conclusive on the issue. I have no evidence as to the authorship of this ‘Supplemental declaration’ and the circumstances whereby such a belated promulgation came to be made, and in light of the factual matrix of this case, it is tolerably clear, on a balance of probability, that not only must there have been an appropriate degree of knowledge within the relevant governmental echelons/officials to the effect that it was possible to claim immunity at law under the Hong Kong legal system, but that, at least until the present application was filed, the decision self-evidently had been made to fight this case on the merits ‑ including, of course, the filing of a Counterclaim for losses incurred whilst the “HUA TIAN LONG” was under arrest in Hong Kong harbour and subject to the writ of the Hong Kong court.

150.  Accordingly for my part I do not accept the contention that at the time of Mr Wright’s express reservation in his skeleton argument that GZS solely was concerned solely with ‘sovereign immunity’; rather, I take the view that the mention in that context to ‘sovereign immunity’ was no more than a shorthand reference to a prospective assertion of immunity from suit, and is not to be strictly construed as restricted to ‘sovereign immunity’ perse, which is the suggestion made by Miss Cheng, who was not involved in the case at that earlier stage, and now was having to do her best with the material available to her. Nor, with respect, am I convinced by her ingenious post-facto argument that it was only when the ‘absolutist’ approach was argued in FG Hemisphere Associates, op cit., that “the defendants started reconsidering the position”; as Mr Sussex also pointed out, it is not easy to understand why now it should be said that GZS only became of its right to both Crown and sovereign immunity following the first instance decision in FG Hemisphere Associates, given that this latter case solely concerned sovereign, and not crown, immunity.

151.  I also accept the plaintiff’s submission that in any event, even if GZS (and through it its superior governmental agencies) had not appreciated its right to assert Crown immunity until December 2008, there remains no reasonable explanation as to why the point was not raised at or around that time, as opposed to formally taking out the present summons almost a year later, on 21 October 2009, whilst simultaneously actively participating in these proceedings, including the filing of a Counterclaim on 31 July 2008.

152.  At the end of the day I take the view that the stark chronology of events speaks volumes. In my judgment GZS must have been aware of its rights as to the possibility of a claim for immunity ‑ of either kind ‑ since 30 April 2008, and that by its subsequent conduct has waived any immunity entitlement and has submitted to the jurisdiction of the Hong Kong court. I so hold.

153.  In fact, having reviewed the detailed history of these proceedings, and the procedural developments therein, the court reluctantly is driven to the conclusion that the present application for dismissal and/or stay of these proceedings is in part at least motivated by a desire to delay the trial of this action, which had been set down for a 20 day hearing in July 2010 before this court; whilst the application for dismissal/stay ultimately has been unsuccessful, the fact remains that the inevitable utilization of the appellate process will achieve precisely that result.

Summary

154.  In summary, therefore, argument in this case has resulted in the following result upon the three major issues as were debated before the court in this application:

(i)  The defendants’ claim to sovereign immunity and ‘modified’ sovereign immunity is rejected;

(ii)  The defendants’ claim to invoke ‘crown immunity’ in respect of the “HUA TIAN LONG” is upheld;

(iii)  The plaintiff’s claim as to the waiver of such crown immunity and/or submission to the jurisdiction on the part of the defendants is upheld.

Order

155.  It follows from the foregoing that the Order of the court upon this application is as follows:

(i)  The defendants’ application by summons dated 21 October 2009 is dismissed;

(ii)  There is to be an order nisi that the costs of and incidental to the application be to the plaintiff, such costs to be taxed if not agreed.

Finally

156.  Whilst the point was not taken during argument, and in fact finds no place in this judgment, this court feels constrained to say that it is unsatisfactory to be required to referee a significant ‘crown immunity’ argument ‑ including deciding upon contrary assertions as to status/ knowledge ‑ upon the basis, inter alia, of adversarial ‘expert’ evidence, and for such immunity to be claimed by the appropriate state agency of the CPG simply through the vehicle of the evidence of an employee/officer of the defendants, GZS, which was the procedure adopted in this case via the extensive affirmation evidence of Mr Fu Shi Qun, who in his five affirmations deposed both to the source of his authority (vide paragraph 12 above) and to factual matters relevant to the invocation of crown immunity by the defendants.

157.  In short, in an important constitutional area involving the assertion of ‘crown immunity’ attaching to an entity of the CPG, I respectfully question the utility and appropriateness of deciding the question through the normal adversarial system of litigation, with immunity claims in the instant litigation being made on a hearsay basis by and through an employee of the defendant owners. It seems to me that as a matter of practice the issue of ‘crown immunity’, containing within it the necessity to decide the constitutional status of the entity involved, is more suitable for the adoption of the ‘certification protocol’ analogous to that which for decades has been established in claims for sovereign immunity, wherein a certificate of status issued by the foreign sovereign, if not conclusive on the issue of status, nevertheless carries great weight (as Tucker LJ observed in Krajina v The TassAgency, [1949] 2 All ER 274, at 281: “I think probably it is the best evidence that can be procured”), subject always to appropriate collateral legal argument arising in and depending upon the particular circumstances of each case.

158.  This aspect has been graphically highlighted in the present case, wherein the issue of the precise status of an entity of the CPG has been extensively debated, and thereafter decided solely upon the basis of the evidence chosen by the parties to be placed before the court. In my view the appropriate procedure to be adopted in reaching the fundamental decision as to such status is a matter which would repay Executive consideration; in this context the court has not overlooked the fact that Article 19 of the Basic Law provides for a similar form of certification, albeit in this instance solely within the specified areas of defence and foreign affairs, over which the courts of the HKSAR are expressed to have no jurisdiction.

Date of Hearing: 19 May 2008

Date of Decision: 19 May 2008

Date of Reasons for Decision: 19 May 2008

Date of Handing Down Reasons for Decision: 20 May 2008

Date of Judgment:  9 May 2008

Date of Handing Down Reasons for Judgment: 14 May 2008