On September 1, 2023, China’s top legislature, the Standing Committee of the National People’s Congress (NPCSC), adopted the Foreign State Immunity Law (Law) [外国国家豁免法], which will take effect on January 1, 2024. The Law marks a historic change in China’s stance on foreign state immunity—a doctrine that shields states and their property from the jurisdiction of foreign courts—and brings China’s practice in line with international norms. In short, starting next year, foreign states will be subject to suit in China in certain circumstances as provided in the Law in which they currently enjoy immunity. Below, we for the most part offer only a straightforward summary of the Law, without attempting any critical or comparative analysis. For that, we recommend instead Prof. William Dodge’s two–part analysis of the Law’s December 2022 draft at Transnational Litigation Blog, which we drew on for our summary. Our English translation of the Law is available here and a chart comparing the Law’s two public versions here.
China’s Changed Stance on Foreign State Immunity
There are two approaches to foreign state immunity: absolute and restrictive. Under the former, states enjoy absolute immunity from suit in foreign courts, whereas under the (now prevailing) restrictive approach, states lose that immunity when they are sued for non-sovereign acts, such as commercial transactions.
Until recently, China had long adhered to the absolute theory. Its policy on state immunity was at the heart of the dispute in Democratic Republic of the Congo v. FG Hemisphere Assocs., an action by an American company to enforce arbitral awards against the Central African state in Hong Kong. The litigation culminated in the NPCSC’s fourth interpretation of the Hong Kong Basic Law in August 2011. An explanatory document for the interpretation set forth China’s position as follows:
China adheres to [absolute] state immunity, an important legal principle that maintains the normal development of relations between states—that is, our courts have no jurisdiction over, nor in practice have they ever handled, any case naming a foreign state as a defendant or against the property of a foreign state; at the same time, China does not accept the jurisdiction of foreign courts over cases in which China is a defendant or against our state property. . . . China’s position on state immunity is embodied in our government’s official external statements and practices, and is a legal fact widely known to the international community. . . . It should be noted that, on September 14, 2005, China signed the United Nations Convention on Jurisdictional Immunities of States and Their Property, which, while granting immunities from jurisdiction and enforcement to foreign states and their property, provides for several exceptions to state immunity . . . . But the Convention has not entered into force, nor has the NPCSC ratified it, so presently China still follows the rules and policies on state immunity to which it has always adhered.
Why did China change its stance a decade later, then? In explaining the Law to lawmakers last December, the Ministry of Foreign Affairs (which led its drafting) cited the fact that the vast majority of countries had switched to the restrictive theory “against the backdrop of economic globalization.” “As China’s external exchanges continue to widen, the Belt and Road Initiative continues to gain influence, and economic cooperation between Chinese enterprises and citizens and foreign states becomes more and more frequent,” it continued, it is necessary, in light of “the common international practice,” to grant Chinese courts jurisdiction over suits based on foreign states’ non-sovereign acts.
Scope of “Foreign States”
Article 2 defines “foreign states” as (1) foreign sovereign states, (2) their agencies or subdivisions, as well as (3) “organizations or individuals who are authorized by foreign sovereign states to exercise sovereign authority and who engage in activities on the basis of such authorization.” The Ministry of Foreign Affairs is authorized to submit to courts binding certificates on whether the foreign state involved in a particular case is a “foreign sovereign state” within that definition (art. 19).
While “foreign states” as defined (specifically, the third group) would cover some foreign officials, the Law later clarifies that it does not affect the immunities of diplomats, consular officials, and personnel of special missions, among others, under domestic law and applicable treaties (art. 20, para. 1).
Nor is it intended to affect the immunities of heads of state, heads of government, foreign ministers, and “other officials of comparable status” under domestic law, applicable treaties, and customary international law (CIL) (art. 20, para. 2). CIL was added in the Law’s final version as a ground for head of state immunity, because some departments and experts pointed out during the legislative process that such immunity was not yet codified in treaties. This change would also appear to afford former heads of state, heads of government, and foreign ministers “conduct-based immunity” that is also available under CIL—immunity for acts taken in an official capacity while they are in office. But it seems lower-level officials not “of comparable status” would not be able to invoke conduct-based immunity.
Immunity from Suit
Article 3 lays down the general rule that foreign states and their property are immune from suit in Chinese courts, subject to the seven categories of exceptions below.
(1) Waiver. Foreign states may waive their immunity from suit expressly or implicitly. A foreign state may expressly consent to the jurisdiction of Chinese courts by treaty, contract, written submission to the court or to the PRC through diplomat channels, or other means (art. 4). A foreign state is also deemed to have waived its immunity when it files suit as a plaintiff, answers a suit on the merits or files a counterclaim as a defendant, or participates as a thirty party (art. 5, para. 1, items 1–3). In addition, when a foreign state participates as a plaintiff or thirty party, it also impliedly waives its immunity to any counterclaim “arising from the same legal relationship or facts” as the original suit or claim (id. item 4).
The Law also clarifies, however, that a foreign state does not lose immunity merely by answering a lawsuit just to assert immunity, by having its representatives testify in a Chinese court, or by choosing Chinese law to govern a particular matter or a particular case (art. 6).
(2) Commercial activities. Foreign states are not immune from suits arising from commercial activities that “took place” in PRC territory, or “have had a direct effect” in PRC territory even though they took place elsewhere (art. 7, para. 1). The Law defines “commercial activities” as “acts of a commercial nature that do not constitute an exercise of sovereign authority,” including transactions of goods or services, investments, and loans (id. para. 2). And it directs Chinese courts to undertake an overall consideration of both the nature and purpose of an act to determine if it is a commercial activity (id.).
(3) Employment contracts. Article 8 creates a general exception to immunity for disputes over any employment contract between a foreign state and an individual that is wholly or partly performed in PRC territory, except in these four circumstances:
- the employee was recruited to perform “specific functions in the foreign state’s exercise of sovereign authority”;
- the employee enjoys diplomatic immunity, consular immunity, or other relevant immunity;
- the employee, when filing suit, was a national of the foreign state and has no habitual residence in the PRC; or
- the foreign state and China have agreed otherwise in writing.
(4) Torts. A foreign state is not immune from monetary claims over personal injury or death, or property damage, that is “caused by the relevant act of the foreign state in PRC territory” (art. 9). By adding “relevant act” in the Law’s final text, the legislature appears to require only that the tortious act occur in PRC territory for the exception to apply, regardless of where the injury occurs.
(5) Property. Article 10 creates an exception to immunity from suits involving real property in China; interests in property arising from gifts, bequests, or inheritance; or interests in trust property, bankruptcy estates, or corporate assets in liquidation.
(6) Intellectual property. A foreign state is not immune from claims involving its interests in intellectual property protected by Chinese law or alleged infringement by the foreign state in PRC territory of intellectual property rights protected by Chinese law (art. 11).
(7) Arbitration. Finally, article 12 provides that a foreign state that has agreed in writing to arbitrate disputes is not immune from suit over the validity of arbitration agreements; the recognition or enforcement of arbitral awards; the annulment of arbitral awards; or other arbitration matters subject to judicial review under other statutes. The arbitration exception is limited to disputes arising from commercial activities and investment disputes under investment treaties (id.).
Immunity from Judicial Compulsory Measures
In addition to a foreign state’s general immunity from suit in Chinese courts, the Law affirms that a foreign state’s property is also generally immune from “judicial compulsory measures”—a term that, while not defined by the Law, refers to pre-judgment measures to preserve assets and post-judgment measures to enforce a court ruling (art. 13, para. 2). Immunity from judicial compulsory measures “is separate from and generally broader than” immunity from suit. Indeed, the Law makes clear that a waiver of immunity from the jurisdiction of Chinese courts is not to be deemed a waiver of immunity from judicial compulsory measures (id. para. 2).
The general rule that a foreign state’s property is immune from judicial compulsory measures similarly has a few exceptions (art. 14). It does not apply—
- when the foreign state has expressly waived such immunity in writing (treaty, contract, or otherwise);
- when the foreign state has “allocated or earmarked” property for enforcement; or
- when compulsory measures are taken against foreign state property that is located in PRC territory, used for commercial activities, and “connected to” the litigation, to enforce an effective “verdict” [判决] or “judgment” [裁定] of a Chinese court.
The Law’s final version added “裁定” (which are generally procedural rulings, whereas “判决” are generally rulings on the merits) to the third exception so that such court decisions may be enforced against foreign state property as well. The legislature made this change presumably to allow foreign judgments against foreign states to be enforced in China, as the Civil Procedure Law [民事诉讼法] specifies “裁定” as the form for court decisions recognizing and enforcing foreign judgments.
In addition, the Law identifies six types of property that is not deemed used for “commercial activities” under the third exception, including property of diplomatic missions, property of a military character, and assets of central banks or equivalent institutions (art. 15). In a catch-all provision, the Law further authorizes Chinese courts to consider other property not as being used for commercial activity (id.).
Procedural Matters
China’s ordinary civil procedure rules apply in cases against foreign states and their property, subject to the special rules the Law sets forth on service of process and default judgment (art. 16).
Service of process. Article 17 provides that a foreign state may be served by the means prescribed by treaties that apply to both China and the foreign state, or by other means accepted by the foreign state and not prohibited by Chinese law (art. 17, para. 1). If neither is possible, then service may be made by transmitting a diplomatic note (id. para. 2). Once served with a complaint, a foreign state has three months to file an answer (id. para. 4), as opposed to 15 days for other civil defendants. And once it has answered a lawsuit on the merits, the foreign state may not thereafter object to improper service (id. para. 5).
Default judgment. If a foreign state does not enter an appearance within the period specified by the court, then the court must on its own initiative determine whether the foreign state is immune from its jurisdiction (art. 18, para. 1). If not, the court may enter a default judgment, but no earlier than six months after the foreign state has been served (id.). The default judgment must be served on the foreign state in the same manner as other litigation documents, and the foreign state has six months within which to appeal (art. 18, paras. 2–3).
Reciprocity Clause
Article 21 provides: “Where foreign states accord the PRC and its property narrower immunity than is provided by this Law, the PRC will apply the principle of reciprocity.” The Law’s December 2022 draft would give Chinese courts discretion to decide whether to apply the reciprocity principle, but the final version (by deleting the word “may”) appears to make its application mandatory. Thus, this clause would require Chinese courts to apply any exception to immunity in a foreign state’s law that has no counterpart in China’s new law—for instance, the terrorism exceptions under U.S. law—in a suit against that foreign state.
Implications for Hong Kong & Macao
In its 2011 interpretation of the Hong Kong Basic Law in the case against the Democratic Republic of the Congo, the NPCSC decided that, under two provisions of the Basic Law, “[t]he Central People’s Government has the power to determine the rules or policies on state immunity to be applied in [Hong Kong],” and that Hong Kong, including its courts, “is under a duty to apply or give effect to the rules of policies on state immunity that the Central People’s Government has determined” and must not depart from them or adopt inconsistent rules or policies.
Though the interpretation did not address parallel provisions in the Macao Basic Law, its conclusions should apply mutatis mutandis to Macao—that is, Macao and its courts, too, are bound by the rules or policies on state immunity adopted by the central government.
According to an official with the NPCSC Legislative Affairs Commission, the Foreign State Immunity Law “embodies the rules and policies that the Central People’s Government has determined,” so the two special administrative regions (SARs) have a duty to follow suit and switch to the restrictive approach. It thus appears that the Law would effectively bind the two SARs without being formally added to the lists of national laws that apply to them.
Still, the NPCSC may opt for the formal route by adding the Law to Annex III to the two cities’ respective basic laws, and there is precedent for doing so. In 2005, at the Hong Kong government’s request, the NPCSC passed a law immunizing the property of foreign central banks (and equivalent institutions) from judicial compulsory measures in China, along with a waiver exception and a reciprocity clause. It then formally applied the law to Hong Kong and Macao through the Annex III mechanisms. (By the way, all provisions of the 2005 law now appear in the Foreign State Immunity Law, so it would be interesting to see whether the NPCSC will repeal the former before the latter goes into effect.)
Comments & Pingbacks