China’s new Foreign State Immunity Law – from absolute immunity to restrictive immunity

The People’s Republic of China (PRC)* has recently passed the much-anticipated Foreign State Immunity Law (FSIL [1]), which will take effect on 1 January 2024, and will move the PRC from the doctrine of absolute immunity to restrictive immunity.

The FSIL introduces, for the first time in the PRC’s history, key statutory exemptions from the immunity enjoyed by foreign states in PRC civil proceedings:

Commercial activities exemption — foreign sovereign states and organisations exercising sovereign powers on their behalf will no longer be immune from being sued in PRC courts when they engage in “commercial activities”.
Property for commercial use — property located in the PRC that are being used for “commercial activities” and are related to a PRC judgment will no longer be immune from judicial enforcement in the PRC.
Other important exemptions to foreign state immunity relating to PRC civil proceedings involving employment, tort and property (including intellectual property). [2]

The FSIL only deals with foreign (i.e., non-PRC) state immunity issues and therefore does not address the immunity of the PRC or PRC state-owned enterprises. Under long-standing judicial and diplomatic policies of the PRC, the Central People’s Government of the PRC (CPG) has adopted absolute immunity in the PRC and maintains that it enjoys absolute immunity in overseas judicial proceedings involving the CPG.

This article provides a high-level overview of key aspects of the FSIL and some of its practical implications, and re-examines the sovereign immunity regime in the PRC and the Hong Kong Special Administrative Region of the PRC (Hong Kong), including the concept of crown immunity in Hong Kong.

FSIL flowchart and English translation: A flowchart summary of the FSIL is set out at the end of this article. We have also prepared an English translation of the FSIL, which you may obtain by contacting the authors of this article.

1. Back to the basics on foreign state immunity, crown immunity, absolute immunity and restrictive immunity

Foreign state immunity

Foreign state immunity concerns questions of:

whether a foreign state can be sued in the courts of another state (immunity from suit); and
whether a foreign state’s property can be subject to judicial enforcement in that other state (immunity from enforcement).

Therefore, from the perspective of the PRC, foreign state immunity concerns whether a foreign (i.e., non-PRC) state can be sued in PRC courts and whether its property in the PRC can be subject to PRC judicial enforcement.

Prior to the enactment of the FSIL, there was no PRC legislation dealing specifically with foreign state immunity. There was also no PRC legislation dealing specifically with the immunity enjoyed by the CPG before PRC courts. Despite the absence of specific legislation, the PRC legal position on sovereign immunity can be inferred from other PRC laws and statements made by the CPG, including in a 2011 interpretation made by the Standing Committee of the National People’s Congress (NPCSC) of the Basic Law of Hong Kong.

Absolute immunity

Before the FSIL, the PRC applied the doctrine of “absolute” sovereign immunity, which means that foreign states enjoyed absolute immunity from suit and from enforcement before the PRC courts, regardless of the nature of the activity undertaken by or on behalf of the sovereign. The doctrine of absolute sovereign immunity is based on the sovereign equality of states and the principle of non-interference in other states' affairs. In practice, this means that no matter what a foreign state or its agents do, they generally cannot be sued in another country's courts. As a result of the doctrine of absolute immunity, plaintiffs were generally unable to successfully sue foreign states in PRC courts.

Absolute immunity has largely been abandoned in most jurisdictions, including the US and the UK.

Restrictive immunity

In contrast to absolute immunity, restrictive immunity is the more modern and widely accepted doctrine of sovereign immunity. Under this doctrine, a sovereign state is immune from the jurisdiction of another state's courts only with respect to its sovereign activities (acta jure imperii) but not with respect to its commercial activities (acta jure gestionis). This concept recognizes that in the modern global economy, sovereign states and their agents often engage in commercial activities similar to those undertaken by private companies and individuals, and they should be accountable for these actions in the same way as private legal persons.

The global transition from absolute to restrictive immunity occurred during the 20^th century, notably with the passage of the Foreign Sovereign Immunities Act in 1976 in the US and the UK State Immunity Act in 1978. And now, with the enactment of the FSIL (which will take effect from 1 January 2024), the PRC has also transitioned from absolute to restrictive immunity as far as foreign states are concerned. As we shall see, there are a number of thematic, conceptual and structural similarities between the FSIL and the UK State Immunity Act.

Domestic sovereign immunity and crown immunity

In contrast to foreign state immunity, as used in this article, the term “domestic sovereign immunity” concerns the question of whether a sovereign state can be sued in its own courts. In common law jurisdictions such as Hong Kong and the UK, the equivalent concept is “crown immunity”. It is called “crown” immunity because the “crown” historically symbolised the sovereign. Crown immunity is based on the traditional principle that “a sovereign can do no wrong” and should therefore be immune from proceedings in its own courts.

However, crown immunity does not exempt government departments and agencies from legal accountability. In common law jurisdictions, government departments and agencies can generally be sued under administrative law for actions taken on behalf of the Crown. In addition, servants of the Crown can be held personally liable for their actions in certain circumstances.

2. Scope of application of the FSIL

The FSIL deals with the immunity of a foreign state and its property from the civil lawsuits in PRC courts and from PRC judicial enforcement.

Article 2 of the FSIL defines a “foreign state” as including:

a foreign sovereign state;
a state institution or a constituent part of a foreign sovereign state; and
an organisation or individual authorised by a foreign sovereign state to exercise sovereign powers on its behalf.

The keyword here is “foreign” (which means non-PRC). The FSIL does not deal with the immunity of the PRC (which is not a foreign sovereign state) under PRC law. Therefore, the current position that the CPG enjoys “absolute” sovereign immunity before the PRC courts is unaffected by the FSIL. Under the PRC Administrative Litigation Law,[3] administrative agencies of the PRC and their employees can be subject to administrative lawsuits before PRC courts.

Does the FSIL capture a foreign state-owned company?

A key question is whether a company that is established, owned or controlled by a foreign state falls within the third prong of the “foreign state” definition under the FSIL. On a literal reading of the FSIL, the answer to this question depends on whether the company is authorised to exercise sovereign powers on behalf the foreign state. Sovereign powers (relating to the functions undertaken by sovereign states and governments) should be distinguished from non-sovereign powers that can be exercised by private companies and individuals, although the dividing line is not always crystal clear.

Does the FSIL capture international organisations and multilateral organisations?

The definition of “foreign state” does not appear to cover international organisations and international financial institutions such as the World Bank, the International Monetary Fund, the Asia Infrastructure Investment Bank and the New Development Bank. Therefore, the extent to which these international organisations and institutions enjoy immunity from suit and enforcement in the PRC and their immunity status might continue to be determined by reference to existing PRC legal principles and cases.

Does the FSIL affect privileges and immunities under other PRC laws, international agreements and customs?

Importantly, Article 20 of the FSIL clarifies that it shall not affect the privileges and immunities enjoyed by the following persons in accordance with other PRC laws, international agreements that the PRC has concluded or to which it is a party and international customs:

the head of a foreign state, the head of a foreign government, the foreign minister or other officials with equivalent status;
foreign diplomatic missions, consular missions and special missions;
permanent delegations to international organisations;
delegations to international conferences; and
related personnel of the foregoing institutions.

3. General rule on foreign state immunity

In terms of immunity from suit, Article 3 of the FSIL sets out the general rule that a foreign state and its property enjoy immunity from the jurisdiction of the PRC courts. The exceptions to this general rule are set out in Articles 4 to 12 of the FSIL.

Article 13 of the FSIL sets out the general rule that the property of a foreign state enjoys immunity from judicial enforcement by the PRC courts. Article 13 goes on to clarify that a foreign state’s submission to the jurisdiction of the PRC courts shall not be regarded as a waiver of immunity from judicial enforcement. The exceptions to this general rule are set out in Articles 14 and 15 of the FSIL.

4. Key exemptions to foreign state immunity

Next, we consider some key exceptions to immunity from suit and immunity from enforcement enjoyed by a foreign state under the FSIL.

Waiver of immunity and other ways of submitting to the jurisdiction of the PRC courts

Article 4 of the FSIL provides that a foreign state shall not enjoy immunity from suit where the foreign state has expressly submitted to the jurisdiction of the PRC courts by any of the methods specified in that article, including by written agreement. However, Article 6 of the FSIL clarifies that merely agreeing for a contract or transaction to be governed by PRC law shall not amount to submitting to the jurisdiction of the PRC courts. Article 14 of the FSIL provides that a foreign state can also expressly waive its immunity from enforcement in a written agreement. As a practical matter, these provisions of the FSIL underscore the importance of drafting and negotiating carefully-crafted waiver of immunity clauses in contracts entered into with foreign states.

According to Article 5 of the FSIL, a foreign state is deemed to have submitted to the jurisdiction of the PRC courts in respect of a particular matter if it brings proceedings as a plaintiff in a PRC court or files a defence or counterclaim in PRC court proceedings (other than a defence asserting foreign state immunity).

Exemptions for commercial activities and related commercial property

Articles 7, 12, 14 and 15 of the FSIL set out the circumstances in which immunity from suit and immunity from enforcement will not apply to commercial activities undertaken by a foreign state.

In terms of immunity from suit, Article 7 of the FSIL provides that where a foreign state conducts commercial activity with an organisation or individual of another state (including the PRC) and such commercial activity either:

takes place in the territory or the PRC; or
takes place outside the PRC but has a direct impact in the territory of the PRC,

then the foreign state shall not enjoy immunity from suit in any PRC court proceedings arising from such commercial activity.

Article 12 of the FSIL applies to a situation where a dispute arising from a commercial activity between a foreign state and an organisation or individual of another state (including the PRC) has been submitted to arbitration in accordance with a written agreement. In that situation, Article 12 provides that the foreign state shall not enjoy immunity from the jurisdiction of the PRC courts relating to judicial review of the following matters:

the validity of the arbitration agreement;
recognition and enforcement of the arbitral award; and
revocation of the arbitral award.

This provision is broadly similar to Article 9 of the UK State Immunity Act.

Article 14(3) of the FSIL provides that immunity from enforcement shall not apply where an effective judgment or ruling of a PRC court is being enforced against property of a foreign state that meets each of the following requirements:

it is used for commercial activities;
it is related to the PRC court proceedings giving rise to the judgment or ruling; and
it is located in the territory of the PRC.

Article 15 of the FSIL lists categories of property that shall not be regarded as being used for commercial activities including, without limitation:

property of diplomatic missions;
property of a military nature or used for military purposes;
property of a foreign central bank;
property with scientific, cultural or historical value; and
other property which, in the view of a PRC court, is not regarded as being used for commercial activities.

The key concept connecting all these provisions is “commercial activity”. The FSIL broadly defines “commercial activity” as activity relating to goods or services transactions, investment, lending and other commercial acts which are unrelated to the exercise of sovereign power. The definition of “commercial activity” in the FSIL is quite similar to the definition of “commercial transaction” in the UK State Immunity Act. [4]

The FSIL also directs the PRC courts to fully consider the nature and purpose of an activity when determining whether it constitutes “commercial activity”. Considering both the nature and the purpose of an activity is important because the nature of an activity (e.g., purchasing supplies) may appear to be commercial in nature but its purpose (e.g., to respond to a public health crisis) may be directly related to the exercise of sovereign power. It remains to be seen how PRC courts will apply the “commercial activity” definition in practice.

A practical implication of the commercial activity exemption is that foreign states that engage in commercial activities in the PRC (or that engage in commercial activities outside the PRC which have direct impact in the PRC) will be exposed to much a higher risk of being successfully sued in the PRC courts and having their related property in the PRC being subject to PRC judicial enforcement.

Other key exemptions to foreign state immunity

Article 8 of the FSIL provides that, subject to certain exceptions, immunity from suit shall not apply in respect of a contract concluded by a foreign state to obtain labour or services provided by an individual performed in whole or in part of the territory of the PRC. This provision is broadly similar to Article 4 of the UK State Immunity Act.

Article 9 of the FSIL provides that a foreign state shall not enjoy immunity from suit for any death, personal injury, damage to or loss of property caused by the foreign state in the territory of the PRC. This provision is broadly similar to Article 5 of the UK State Immunity Act.

Article 10 of the FSIL provides that a foreign state shall not enjoy immunity from suit relating to certain moveable or immovable property-related matters in the PRC. This provision is broadly similar to Article 6 of the UK State Immunity Act.

Article 11 of the FSIL provides that a foreign state shall not enjoy immunity from suit relating to certain intellectual property-related matters in the PRC. This provision is broadly similar to Article 7 of the UK State Immunity Act.

A practical implication of these exemptions is that a foreign state may be subject to a range of employment, tort, property and intellectual property related disputes in the PRC following the enactment of the FSIL. Going forward, a foreign state may need to revisit its litigation strategy in relation to PRC civil lawsuits and judicial enforcement.

5. Civil procedural rules that apply to PRC civil cases involving foreign states

The FSIL generally does not contain many procedural rules on civil cases involving foreign states and their property, although Articles 17 and 18 of the FSIL set out detailed service of process rules in respect of foreign states.

Article 16 of the FSIL provides that where the FSIL itself does not set out the adjudication or enforcement procedures for civil cases involving a foreign state and its property, the civil procedure laws and other relevant laws of the PRC apply. The PRC Civil Procedure Law has correspondingly been amended to provide in Article 305 that the FSIL applies to civil actions involving foreign states and where the FSIL is silent on a particular matter, the PRC Civil Procedure Law applies.

6. Role of the PRC Ministry of Foreign Affairs

The PRC Ministry of Foreign Affairs (MFA) will play an important role in the foreign state immunity framework established by the FSIL. According to Article 19 of the FSIL, PRC courts must accept certificates issued by the MFA as to factual matters such as whether a person falls within the definition of “foreign state” as well as other important issues concerning foreign affairs and the PRC’s national interest. The extent to which the MFA will involve itself in PRC civil cases concerning foreign states remains to be seen.

7. The principle of reciprocity

Article 21 of the FSIL provides that where the level of immunity conferred by a foreign state on the PRC and its property is less favourable to the PRC than what is provided to the foreign state under the FSIL, the PRC shall apply the principle of reciprocity.

The foreign state immunity framework under the FSIL appears to operate under the principle of reciprocity such that the level of immunity conferred by the PRC on a foreign state may be reciprocally reduced where the foreign state provides a less favourable level of immunity to the PRC.

8. The foreign state immunity position in Hong Kong

Hong Kong, as a Special Administrative Region of the PRC, is constitutionally required to apply the foreign state immunity principles of the PRC.

The NPCSC, at the request of the Hong Kong Court of Final Appeal in the case of The Democratic Republic of the Congo and others v FG Hemisphere Associates LLC (Congo Case), issued an interpretation of Articles 13 and 19 of the Basic Law of Hong Kong on 26 August 2011. In its interpretation, the NPCSC decided that: “the Hong Kong Special Administrative Region, including the courts of the Hong Kong Special Administrative Region, is under a duty to apply or give effect to the rules or polices on state immunity that the Central People’s Government has determined, and must not depart from the abovementioned rules or polices nor adopt a rule that is inconsistent with the abovementioned rules or polices.”

Hong Kong courts have been adopting the doctrine of absolute immunity for foreign states pursuant to the position under PRC law before the FSIL. With the enactment of the FSIL, Hong Kong courts will be constitutionally bound to apply or give effect to the PRC’s legal principles and policies on foreign state immunity, as reflected in the FSIL. What this means for foreign states with operations and commercial activities in Hong Kong is that, after the FSIL comes into effect on 1 January 2024, foreign states (and their property located in Hong Kong) will no longer enjoy absolute immunity in civil lawsuits and judicial enforcement actions in Hong Kong.

Crown immunity in Hong Kong

We need to distinguish foreign state immunity from crown immunity. As a matter of Hong Kong law, the Congo Case, the NPCSC interpretation and the state immunity rules set out in the FSIL only apply to foreign (i.e., non-PRC) states. From Hong Kong’s perspective, the PRC is not a foreign state, and it is therefore not subject to foreign state immunity principles.

Instead, the CPG is entitled to crown immunity in Hong Kong courts. In the Hong Kong case of Hua Tian Long, it was held that the CPG constitutes the “Crown” for the purposes of the Crown Proceedings Ordinance (Cap. 300 of the Laws of Hong Kong) and as a matter of Hong Kong common law. Therefore, the CPG is the Crown in relation to Hong Kong and the principle of crown immunity continues to apply in Hong Kong. A detailed consideration of the scope of application of crown immunity in Hong Kong is beyond the scope of this article.

9. FSIL flowchart

The following flowchart provides a high-level visual summary of key aspects of the FSIL. Click on the image for a high resolution PDF version of the flowchart.