Tnb Fuel Services Sdn Bhd v China National Coal Group Corporation

Judgment Date08 June 2017
Year2017
Judgement NumberHCCT23/2015
Subject MatterConstruction and Arbitration Proceedings
CourtHigh Court (Hong Kong)
HCCT23A/2015 TNB FUEL SERVICES SDN BHD v. CHINA NATIONAL COAL GROUP CORPORATION

HCCT 23/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 23 OF 2015

______________

IN THE MATTER of Section 2GG and Section 42 of the Arbitration Ordinance Cap 341
and
IN THE MATTER of Arbitration in Malaysia between TNB Fuel Services SDN BHD (the “Applicant”) and China National Coal Group Corporation (the “Respondent”)
and
IN THE MATTER of an application by TNB Fuel Services SDN BHD under the Rules of the High Court Cap 4A O73 R10 and R7

______________

BETWEEN
TNB FUEL SERVICES SDN BHD Applicant
and
CHINA NATIONAL COAL GROUP CORPORATION Respondent
and
SECRETARY FOR JUSTICE Intervener

______________

Before: Hon Mimmie Chan J in Chambers (Open to Public)

Dates of Hearing: 21, 22, 24, 29 & 30 March 2017

Date of Decision: 8 June 2017

_____________

D E C I S I O N

_____________


Background

1. On 17 December 2014, an arbitral award (“Award”) was made against the Respondent, China National Coal Group Corporation, whereby it was ordered to pay a sum of US$5,274,023.11 to a Malaysian private company, the Applicant in these proceedings, by way of damages for the Respondent’s breach of its contract made with the Applicant. On 10 June 2015, this court granted leave to the Applicant to enforce the Award in the same manner as a Hong Kong judgment, and to enter judgment in terms of the Award pursuing to s 2GG of the Arbitration Ordinance, Cap 341. The Respondent applied in August 2015 to set aside the order granting leave, which application was discharged by this Court on 3 March 2016.

2. By way of enforcement of the Award, the Applicant obtained a charging order nisi in April 2016 in respect of the Respondent’s 1,999,998 shares (“Shares”) in a Hong Kong company, China Coal Hong Kong Limited (“HK Co”). The Respondent opposes the Applicant’s application that the order nisi should be made absolute, on the ground (raised for the first time in the enforcement proceedings) that the Respondent is an entity of the PRC Central People’s Government (“CPG”) and is entitled to assert Crown immunity against execution of the Shares, such that this court lacks jurisdiction to make the charging order absolute.

3. It is not disputed that the Respondent is a wholly state-owned enterprise, the sole shareholder or investor of which is the State-owned Assets Supervision and Administration Commission (“SASAC”) of the State Council of the CPG. What is disputed is whether the Respondent is able to assert Crown immunity from execution, by virtue of its being (as the Respondent alleges) part of the CPG, the domestic sovereign government of the HKSAR, which question is in turn determined by whether or not the Respondent is subject to the control of the CPG.

4. In The Hua Tian Long (No 2) [2010] 3 HKLRD 611, Stone J summarized the doctrine of Crown immunity as applicable to Hong Kong after 1997. The parties are in agreement that the principles relevant to the determination of whether the Respondent is entitled to the immunity it claims in this case are set out in the decision of The Hua Tian Long (No 2) (“HTL”). The judgment in HTL sets out the historical development and explains the concepts of sovereign immunity and Crown immunity, and I will not repeat them here, save to extract and set out the passages which are more pertinent to this case, as follows:

“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…

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…

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…

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’…

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….

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 PRC.

83. I do not accept that with the enactment of (the Crown Proceedings Ordinance (Cap 300) (“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.

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 Ms Cheng puts it, the ‘Colonial Crown’.” (Emphases added)

5. On the basis of the evidential material before the court in HTL, it was held, as a matter of fact, by the court (see paragraph 114 of the judgment) that the defendants in that case were not a separate legal entity, but formed a part of the Ministry of Communications (Guangzhou Salvage Bureau), which was itself part of the Ministry of Communications, and entitled to assert Crown immunity.

6. The Applicant and the Respondent in this case are in apparent agreement that whether the Respondent can invoke Crown immunity depends on whether or not the Respondent can be said to be subject to the control of the CPG. The Applicant pointed out that on the question of control, the court in HTL has highlighted that “the salient question to be asked is whether the corporation in question is able to exercise independent powers of its own” (paragraph 52 of the judgment).

7. In August 2016, the Respondent had invited the Secretary for Justice (“SJ”) to intervene in these proceedings, on the basis that the issue of Crown immunity in respect of the relationship of the CPG and the courts in Hong Kong is “of very crucial constitutional importance”, and that in view of the substantial public interests raised, the SJ should intervene to render the necessary assistance to the court. The SJ notified the court in January 2017 of its intention to intervene, and following directions from the court to the parties and the Respondent’s confirmation that Crown immunity remained a live issue, the SJ applied formally on 17 January 2017 for leave to be joined as Intervenor in these proceedings.

8. On 19 January 2017, the SJ was granted leave to intervene. Detailed submissions and expert evidence have since been served by the SJ, to assist the court in its consideration and determination of the issues raised in this case. Expert evidence on PRC law has also been served by the Applicant and the Respondent.

9. Whether the Respondent is able to assert Crown immunity under the common law is a question of Hong Kong law, but it appears to be common ground that the question of whether the Respondent is controlled by the CPG (the determining “control test” and the modern benchmark for the attribution of Crown immunity) is a matter of PRC law (Krajina v The Tass Agency & Anr [1949] 2 All ER 274 and Baccus SRL v Servico Nacional Del Trigo [1957] 1 QB 438).

The assertion of Crown immunity

10. It must be the case that the Respondent bears the onus of establishing its assertion made before this court, that it is entitled to Crown immunity against execution of the Shares.

11. On behalf of the SJ, Ms Cheng SC submits that any assertion of Crown immunity must come from “the Crown”, and in this case, it must come from the CPG as the highest executive body as defined in Articles 85 and 86 of the Chinese Constitution.

12. In the case of HTL, Stone J already observed in his judgment that it is unsatisfactory for the court to “referee” a significant Crown immunity argument upon the basis 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...

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