1 Introduction
There is no domestic law or regulation in the People’s Republic of China (the prc or China)1 which specifically applies to or regulates international financial institutions2 (ifis) or their establishment.
- (i)
The constitutional documents of the ifi in question and the related relevant international treaty(ies) to which the prc has acceded, in particular, how these documents describe such ifi’s legal status and whether these documents confer legal capacity on it; and - (ii)The general principles of law in the prc.
2 Key Threshold Issues
The following section provides an overview and addresses each of the key threshold issues.
2.1 Overview
- (i)Procedural law aspect in the context of civil proceedings: The legal classification of parties to civil proceedings in the prc is primarily determined pursuant to the prc’s procedural law.
- (ii)Substantive law aspect in the context of capacity issues for civil rights and obligations: The legal capacity of parties to civil proceedings in the prc is determined pursuant to the prc’s substantive law, where such law applies.
- (i)A prc court will first determine whether an ifi (which has a claim to immunity from legal process) has waived its immunity, such that the court may exercise jurisdiction over it;
- (ii)If a prc court determines that it has jurisdiction over an ifi, it will proceed to assess whether, as a matter of prc procedural law, the ifi can be a party to civil proceedings in the prc; and
- (iii)The prc court will then assess whether, as a matter of prc substantive law, the ifi has legal capacity to enter into the relevant contract and perform its obligations under such contract.
The following sections examine each of these three threshold issues.
2.2
The following section will provide an overview of state immunity under prc law before discussing the immunity of ifis. We then explore the determination of a prc court’s jurisdiction over an ifi.
2.2.1 Overview of State Immunity under prc Law
There is no special immunity law in the prc, but the legal stance can be inferred from other prc laws and representations made by the Central People’s Government (the cpg) in foreign courts and in notices to Hong Kong, China.
The cpg applies an ‘absolute’ foreign state immunity rule to the prc, whereby both China and other foreign states are immune from being sued, and state assets are immune from court orders, in the prc, unless the immunity is waived.3
“Absolute immunity” refers to a form of legal immunity for a foreign state or international organization that confers total immunity from criminal prosecution and lawsuits so long as they are acting within the scope of their duties. Absolute immunity contrasts with “qualified immunity”. The United Nations Convention on Jurisdictional Immunities of States and their Properties (2004 ny Convention) was adopted by the General Assembly of the United Nations in New York on 2 December 2004. The 2004 ny Convention holds a position of qualified immunity according to which a state cannot invoke immunity from the jurisdiction of the court of other states arising out of commercial transactions and certain other activities. The 2004 ny Convention is yet to come into force in the prc. China signed the 2004 ny Convention on 14 September 2005 but has not ratified it. Therefore, it has no effect in China in respect of international law or practice.
In foreign courts, the cpg has consistently argued for absolute immunity of states. In 1986, the us Court of Appeals for the Eleventh Circuit heard the cpg’s declaration of its adherence to the doctrine of absolute immunity in the case of Russell Jackson et al. v People’s Republic of China,4 where the us plaintiffs had sued the cpg for payments on bonds issued in 1911. However, the cpg prefers extrajudicial and diplomatic means in asserting its absolutist position. For example, during the us case of Morris v. People’s Republic of China, the Chinese Embassy in Washington, D.C. sent a memorandum to the us Department of State, reaffirming the prc’s position on absolute immunity but the memorandum was not reviewed by the court nor referred to in the judgment.5
2.2.2 Immunity of ifis
In many states, the national constitution determines the status of international law in the domestic legal system. The Chinese Constitution, however, is silent about international law.9 Nevertheless, the general principles of prc civil law stipulate that, if any international treaty, concluded or acceded to by the prc, contains provisions differing from those of the civil laws of the prc, the provisions of the international treaty shall apply, unless the provisions are such on which the prc has announced reservations. Therefore, as a matter of prc law, prc courts will generally respect the privileges and immunities enjoyed by ifis pursuant to the international treaty(ies) to which China has acceded.
- (i)“[O]nly where the international organization or foreign country clearly indicates its waiver of jurisdictional immunity in civil cases can the prc courts exercise jurisdiction over them.”;10 and
- (ii)[T]he prc people’s court shall not seal, seize or freeze “properties immune from being sealed up, distrained or frozen, as prescribed in a treaty, agreement, or other document having the nature of a treaty or agreement, which is concluded in the name of the prc, the prc government or a governmental department of the prc with a foreign country or ifi in accordance with the Law of the
People’s Republic of China on the Procedures for Conclusion of Treaties”.11
Therefore, where the international treaty(ies) of an ifi (to which China has acceded) confers immunity on it, the ifi is absolutely immune from the jurisdiction of the prc courts, and the enforcement of court orders. A prc court can only exercise jurisdiction over the ifi where the ifi has clearly indicated its waiver of jurisdictional immunity in the relevant civil proceedings. The specific waiver of immunity by an ifi is necessary even where the ifi is itself a plaintiff, initiating a court proceeding in the prc.
As a matter of judicial practice in the prc, a court generally respects and gives effect to the waiver of immunity expressly made by an ifi.12
2.2.3 Determining a prc Court’s Jurisdiction over an ifi
To strictly enforce the provisions of the Civil Procedure Law of the People’s Republic of China and the relevant international conventions that China has acceded to and ensure the correct acceptance of civil cases involving
privileges and immunities, this court has decided to establish a reporting system for cases involving privilege and immunity accepted by the people’s courts, and a notice is hereby issued as follows: For a civil case filed with the people’s court where the defendant or third party is any of the following subjects that enjoys privilege or immunity in China, before deciding to accept it, the people’s court shall submit it to the higher people’s court with jurisdiction for examination; the higher people’s court agreeing on the acceptance shall submit its examination opinions to the Supreme People’s Court. Before the Supreme People’s Court responds, no acceptance shall be made.
The spc Notice lists various “subjects that enjoy privilege or immunity in China” and includes foreign countries, any representative body in China of an organization within the United Nations system and any other subject enjoying privilege or immunity in China (such as ifis, as explained above).
Therefore, before a prc court decides to accept a civil case involving a party entitled to privileges and immunities (such as an ifi), it must file an application for review with the higher court.
Generally speaking, prc courts are divided into four levels in accordance with the descending order of powers, i.e. the spc, higher people’s courts, intermediate people’s courts and primary people’s courts (the latter three levels are collectively referred to herein as the “lower courts”). The spc Notice requires lower courts to refer any case involving an ifi defendant or third party to higher-level courts in order to be able to accept the case, but not in order to reject it. Therefore, before a lower court can accept a case involving an ifi, the primary people’s court must refer the case to the higher people’s court. Similarly, before the relevant higher people’s court wishes to accept the case, it must file an application for approval with the spc. The relevant prc courts may not accept such a case unless and until the spc grants its approval.13
According to other spc guidance, the judicial committee of the higher court must discuss the issue before it is reported to the spc.14 In a prc court case involving a lawsuit filed by a prc citizen, against the International Committee of the Red Cross Regional Representative Office in East Asia (icrc), relating
2.3 Legal Classification of ifis: ifis as a Party to Civil Proceedings in the prc
Where an ifi (which has a claim to immunity) has waived its immunities, and upon acceptance of a civil case involving the ifi by the prc court pursuant to the spc reporting procedure described above, the prc court will proceed to determine the ifi’s legal classification during the civil proceedings, in accordance with the Civil Procedure Law of the prc (prc Civil Procedure Law).15
2.3.1 Legal Classification of Parties to Civil Proceedings under prc Law
Under the prc Civil Procedure Law, parties to civil proceedings in the prc are categorised into the following types:16 (i) prc citizens;17 (ii) legal persons18 and (iii) other organizations19 (Other Organizations).
2.3.2 Legal Classification of an ifi under prc Law
A prc court is likely to recognise that an ifi can be a party to civil proceedings in the prc (and can therefore exercise jurisdiction over it) for the two reasons set out below.
According to international practice, the legal personality21 of the International Fund for Compensation for Oil Pollution Damage, being an international organization, can be determined in accordance with the relevant international treaty or domestic laws […] an international organization that has the characteristics of Other Organizations under prc law can, pursuant to Article 4822 of the prc Civil Procedure Law, be a party to civil proceedings in the prc.23
Civil actions instituted against foreigners, foreign organizations or international organizations that enjoy diplomatic privileges and immunities shall be handled in accordance with the relevant laws of the People’s Republic of China and the relevant international treaties concluded or acceded to by the People’s Republic of China.25
2.4 Determining the Legal Capacity of ifis
The prc courts assess the legal capacity of an ifi by determining, firstly, the applicable law to assess the ifi’s legal capacity and, second, the legal capacity of the ifi under such applicable law. Under prc law, the capacity of a person generally refers to the legal ability of the person to enter into a legally binding contract.
2.4.1 Applicable Law to Determine the Legal Capacity of ifis
In identifying the applicable law that should be used to determine an ifi’s legal capacity, a prc court would first consider whether a “foreign element” is involved.
- (i)at least one of the parties is a foreign citizen, foreign legal person or stateless person;
- (ii)the subject matter of the contract is located outside of the prc (for example, if the contract concerns land or goods outside the prc);
- (iii)the legal factor that led to the establishment of, any change in, or termination of, the contract occurs outside of the prc (for example, where a sale and purchase agreement provides for delivery of goods outside of the prc);
- (iv)the habitual residence of any of the parties is outside the prc; or
- (v)there are any other circumstances which may deem the contract as having a foreign element.26
For instance, an isda Master Agreement27 and Transfer Annex28 entered into by an ifi is generally considered to involve a “foreign element” enabling a prc court to apply the Foreign Relationships Application Law29, and the judicial interpretation thereof, for determination of the ifi’s legal capacity.
2.4.2 Determining the Legal Capacity of ifis
Pursuant to the spc Response to Foreign Relationships Application Law30 the prc courts are required to apply and respect international treaty(ies) which have been concluded or acceded to by China to determine, amongst other things, the legal capacity of the ifi. And in respect of an ifi (such as the Asian Infrastructure Investment Bank), the prc courts will determine the ifi’s capacity in accordance with the provisions of the international treaty(ies) concluded or acceded to by China (unless the provisions are such, on which
3 The Asian Infrastructure Investment Bank (aiib)
As an international organization established pursuant to an international multilateral treaty (being the Articles of Agreement which were opened for signature on 29 June 2015 and entered into force on 25 December 2015 (aiib Articles)) to which the prc is a signatory, the analysis above regarding ifis also applies mutatis mutandis to aiib.
3.1 No Specific Domestic Law Regulating aiib
There is no domestic law or regulation in the prc which specifically applies to aiib or its establishment. As such, a prc court would assess the legal classification and legal capacity of aiib under prc law by reference to the international treaties of aiib to which China has acceded to (including the aiib Articles and the headquarters agreement concluded on 16 January 2016 between aiib and the Government of the prc (the Headquarters Agreement)) and the general principles of prc law.
3.2 Privileges and Immunities of aiib and Jurisdiction of prc Courts over aiib
We note the aiib Articles specifically provide as follows:31
Article 46 Immunity from Judicial Proceedings
- 1.[aiib] shall enjoy immunity from every form of legal process, except (emphasis added) in cases arising out of or in connection with the exercise of its powers to raise funds, through borrowings or other means, to guarantee obligations, or to buy and sell or underwrite the sale of securities (emphasis added), in which cases actions may be brought against [aiib] only in a court of competent jurisdiction (emphasis added) in the territory of a country in which [aiib] has an office, or has appointed an agent for the purpose of accepting service (emphasis added) or notice of process, or has issued or guaranteed securities.
- 2.
Notwithstanding the provisions of paragraph 1 of this Article, no action shall be brought against [aiib] by any member, or by any agency or instrumentality of a member, or by any entity or person directly or indirectly acting for or deriving claims from a member or from any agency or instrumentality of a member. Members shall have recourse to such special procedures for the settlement of controversies between [aiib] and its members as may be prescribed in this Agreement, in the by-laws and regulations of [aiib], or in the contracts entered into with [aiib]. - 3.Property and assets of [aiib] shall, wheresoever located and by whomsoever held, be immune from all forms of seizure, attachment or execution before the delivery of final judgment against [aiib].
Article 47 Immunity of Assets and Archives
- 1.Property and assets of [aiib], wheresoever located and by whomsoever held, shall be immune from search, requisition, confiscation, expropriation or any other form of taking or foreclosure by executive or legislative action.
- 2.The archives of [aiib], and, in general, all documents belonging to it, or held by it, shall be inviolable, wheresoever located and by whomsoever held.
The Headquarters Agreement further provides as follows:32
Article 4 Immunity from Judicial Proceedings
- 1.[aiib] shall enjoy immunity from every form of legal process, except that the immunity of [aiib] shall not apply (emphasis added):
- (a)to the extent that Bank shall have expressly waived (emphasis added) any such immunity in any particular case or in any written document;
- (b)in respect of a civil action arising out of or in connection with its powers to raise funds, through borrowings or other means, to guarantee obligations, or to buy and sell or underwrite the sale of securities;
- (c)
in respect of the enforcement of an arbitration award made against [aiib] as a result of an express submission to arbitration (emphasis added) by or on behalf of [aiib]; - (d)in respect of a civil action brought by a third party for damages arising from an accident in the People’s Republic of China caused by a vehicle belonging to [aiib] or operated on its behalf; or
- (e)in respect of any counter-claim directly connected with court proceedings initiated by [aiib].
- 2.Notwithstanding the provisions of paragraph 1 of this Article, no action shall be brought against [aiib] by the Government, or by any agency or instrumentality of the Government, or by any entity or person directly or indirectly acting for or deriving claims from the Government or from any agency or instrumentality of the Government. The Government shall have recourse to such special procedures for the settlement of controversies between [aiib] and its members as may be prescribed in the Articles of Agreement of [aiib], in the by-Laws and regulations of [aiib] or in contracts entered into with [aiib].
- 3.The property and assets of [aiib], wheresoever located and by whomsoever held, shall be immune from all forms of restraint, seizure, attachment or execution except upon the delivery of final judgment against [aiib].
Therefore, the aiib Articles and Headquarters Agreement confer on aiib qualified immunity. Hence, aiib will not enjoy immunity in those cases that are specified as exceptions (for example, those arising out of or in connection with the exercise of its powers to raise funds, through borrowings or other means, to guarantee obligations, or to buy and sell or underwrite the sale of securities). As set out above, since the prc adopts the principle of absolute immunity, a prc court will only accept jurisdiction over aiib in respect of these exceptions, where it has expressly waived immunity.
Article 52 Waivers
- 1.[aiib] at its discretion may waive any of the privileges, immunities and exemptions conferred under this Chapter in any case or instance, in such manner and upon such conditions as it may determine to be appropriate in the best interests of [aiib].
3.3
Assuming that aiib’s privileges and immunities do not bar a prc court from exercising its jurisdiction over aiib, a prc court will give effect to the aiib Articles and Headquarters Agreement and recognise aiib’s legal capacity to enter into a contract from a prc law perspective. We believe a prc court is likely to conclude that a contract entered by aiib will have a foreign element from a prc law perspective (given that aiib is an ifi whose members comprise primarily sovereign states) and will therefore apply the Foreign Relationships Application Law, and relevant judicial interpretation, to determine aiib’s legal capacity.
Pursuant to the relevant laws, (i) international treaty(ies) which have been concluded or acceded to by China to determine, amongst other things, the legal capacity of an ifi will be applied and respected; and (ii) the ifi’s capacity will be determined in accordance with the provisions of the international treaty(ies) concluded or acceded to by China (unless the provisions are such, on which the prc has announced reservations), which usually means the constitutional documents of the ifi, i.e., the international treaty that establishes the ifi.
Therefore, the prc courts will determine aiib’s legal capacity on the basis of the aiib Articles and the Headquarters Agreement, as the international treaties to which China is a party, which confer on aiib, amongst other things, “full juridical personality” and “full legal capacity” to contract; acquire and dispose of, immovable and movable property; institute and respond to legal proceedings; and take such other action as may be necessary or useful for its purpose, activities and functions.33
4 Conclusion
Provided an ifi has clearly waived its immunity, a prc court is likely to agree to exercise jurisdiction over such ifi. Thereafter, in determining the legal capacity of the ifi, and provided there is a foreign element involved, a prc court would determine the legal capacity of the ifi by reference to the provisions of the international treaty/ies, which China has concluded or acceded to, taking into account, for example, how these documents describe the ifi’s legal status and whether such documents confer legal capacity on it.
Minny Siu (a partner in the King & Wood Mallesons Hong Kong, China, office, minny.siu@hk.kwm.com) specializes in derivatives, structured products, financial regulatory and Fin Tech and is qualified to advise on matters under Hong Kong and English law.
James Guan (a partner in the King & Wood Mallesons Shanghai office, guanfeng@cn.kwm.com) specializes in cross-border litigation and arbitration, especially cases pertaining to finance, asset management, equity, insurance, product liability and commercial contracts.
For the purposes of this chapter, references to prc or China excludes Hong Kong, China, as well as Macau Special Administrative Region and Taiwan.
For the purposes of this chapter, ifi refers to any intergovernmental organization (i.e., an organization established by treaty, whose members comprise primarily sovereign states), constituted under public international law, of which China is a member (such as aiib).
For the purposes of this chapter, we exclude Chinese State-Owned Enterprises (which require a separate analysis).
794 F.2d 1490, 1494 (11th Cir. 1986).
478 F. Supp. 2d 561 (s.d.n.y. 2007).
[2009] 1 hklrd 410; [2010] 2 hklrd 66; (2011) 14 hkcfar 95.
[2009] 1 hklrd 410.
(2011) 14 hkcfar 95 [46] – [47].
Cai 2016, 269.
Responses to a reporter’s questions on the “Interpretations of the Supreme People’s Court on Several Issues Concerning Application of the Law of the People’s Republic of China on Choice of Law for Foreign-Related Civil Relationships (I)” issued by the Fourth Chamber of the People’s Supreme Court issued by the spc on 6 January 2013.
Provisions of the Supreme People’s Court for the People’s Courts to Seal up, Distrain and Freeze Properties in Civil Enforcement (2020 Amendment) issued by the spc on 29 December 2020.
(2014) 三中民终字第06823号. In this prc court case involving a lawsuit filed by a prc citizen against the International Committee of the Red Cross Regional Representative Office in East Asia (icrc) relating to a lease contract (icrc Case) available at
This practice is known as the “spc reporting system”.
This is illustrated in a reply by the spc’s in a 2009 case, the Reply of the Supreme People’s Court to the Request for Instructions on Issues concerning Immunities in the Case of Disputes over a House Lease Contract between Li Xiaobo and the Regional Delegation for East Asia of the International Committee of the Red Cross.
Article 51 of the Civil Procedure Law of the People’s Republic of China (2021 Amendment).
Article 51 of the prc Civil Procedure Law.
Referred to as ‘自然人’ or ‘公民’ in Chinese.
Referred to as ‘法人’ in Chinese. A legal person is defined as “an organization that has the capacity for civil rights and the capacity for civil conduct, which independently enjoys civil rights and assumes civil obligations” in accordance with prc law.
Referred to as ‘其他组织’ in Chinese.
Article 52 of the Civil Procedure Law Interpretation.
It is referred to as ‘法律人格’ in Chinese.
The prc Civil Procedure Law was amended in 2021, with Article 48 of the previous version renumbered as Article 51 under the 2021 amended version.
(2010) 浙辖终字第136号.
Article 268 of the prc Civil Procedure Law.
Ibid.
Article 1 of the Interpretation (I) of the spc on Several Issues concerning the Application of the prc Law on Application of Laws for Foreign Related Civil Relationships (2020 Amendment) issued by the spc on 29 December 2020.
The standard form agreement published by the International Swaps and Derivatives Association, Inc. (isda), which is used to document over-the-counter (otc) derivatives trades.
The title transfer collateral arrangements in connection with an isda Master Agreement, governed by English law, under annexed terms, in the form of an isda Credit Support Annex (Transfer Annex).
Law of the prc on the Laws Applicable to Foreign-Related Civil Relations issued by the Standing Committee of the National People’s Congress (npcsc) on 28 October 2010.
Responses to reporter’s questions on the “Interpretations of the Supreme People’s Court on Several Issues Concerning Application of the Law of the People’s Republic of China on Choice of Law for Foreign-Related Civil Relationships (I)” issued by the Fourth Chamber of the People’s Supreme Court issued by the spc on 6 January 2013.
Article 46 and 47 of the aiib Articles.
Article 4 of the Headquarters Agreement.
Article 45 of the aiib Articles and Article 3 of the Headquarters Agreement.
Asian Infrastructure Investment Bank, ‘Articles of Agreement of the Asian Infrastructure Investment Bank’ (effective since 25 December 2015).
Asian Infrastructure Investment Bank, ‘Headquarters Agreement Between the Government of the People’s Republic of China and the Asian Infrastructure Investment Bank’ (effective since 16 January 2016).
Cai C, ‘International Law in Chinese Courts during the Rise of China’ (2016) 110 Am J Int’l L 269.
Democratic Republic of the Congo v fg Hemisphere Associates llc (No 1) (2011) 14 hkcfar 95 [46] – [47].
fg Hemisphere Associates llc v Democratic Republic of the Congo [2009] 1 hklrd 410.
fg Hemisphere Associates llc v Democratic Republic of the Congo [2010] 2 hklrd 66.
International Swaps and Derivatives Association, Inc, ‘1992 isda Master Agreement’.
International Swaps and Derivatives Association, Inc, ‘2002 isda Master Agreement’.
Jackson v. People’s Republic of China 794 F.2d 1490 (11th Cir. 1986).
Morris v. People’s Republic of China 478 F. Supp. 2d 561 (s.d.n.y. 2007).
The National People’s Congress of the People’s Republic of China, ‘Civil Procedure Law of the People’s Republic of China’ (2021 Amendment) (issued on 24 December 2021, effective from 1 January 2022) <http://www.ssf.gov.cn/portal/rootfiles/2022/01/07/1643159469539952-1643159469560439.pdf > accessed 12 September 2022.
The Supreme People’s Court of the People’s Republic of China, ‘Interpretation (I) of the Supreme People’s Court on Several Issues concerning the Application of the PRC Law on Application of Laws for Foreign Related Civil Relationships (2020 Amendment)’ (issued on 29 December 2020, effective from 1 January 2021) <http://gongbao.court.gov.cn/Details/cd2e8428c4de894455038e760c6472.html> accessed 12 September 2022.
上诉人三星重工业株式会社、三星物产株式会社因与1992年国××油××金船舶污染损害追偿纠纷一案. (2010) 浙辖终字第136号.
朱珠劳动争议二审民事裁定书 (2014) 三中民终字第06823号.