Vulture fund case unsettles Hong
Kong By Kent Ewing
HONG
KONG - A long-argued, little-recognized and
less-understood case that has landed in this
city's Court of Final Appeal could change the way
the world does business here. It could also create
a constitutional crisis pitting Hong Kong's
common-law legal system, guaranteed independence
under the 1997 handover from British to Chinese
rule, against Beijing's foreign policy and
investment interests.
The post-handover
track record indicates that, once again, Hong
Kong's autonomy is likely to be the loser. The
only question is: how much will be lost?
The parties in the case are the Democratic
Republic of the Congo, a US "vulture" fund run by
FG Hemisphere Associates and state-owned China
Railway Group. The point of contention is a
Congolese debt of more than
US$100 million that dates back over 20 years.
FG Hemisphere purchased that debt after
Congo defaulted in the 1980s on payment to a
Yugoslav company that had been contracted to build
a hydroelectric plant in the troubled central
African nation. It has chosen Hong Kong as one of
the cities in which to pursue its case because
China Railway - which in 2008 entered into a
multi-billion dollar deal with the Congolese
government to build railways, highways, hospitals,
airports, universities and public housing in the
country - is a Hong Kong-listed company whose
assets are fair game in the city's courts.
The China Railway-Congo deal, typical of
Beijing's aggressive push for resources in Africa,
traded badly needed, Chinese-built infrastructure
to Congo for generous rights for Chinese companies
to mine the country's vast cobalt and copper
reserves. Congo and its neighbor, Zambia, in which
China is also heavily invested, possess 10% of the
world's copper, and Congo alone holds a third of
the world's cobalt deposits.
Congo makes
no attempt to deny its debt to FG Hemisphere but,
as a government, claims “absolute immunity” from
prosecution. Total immunity is the legal standard
on the mainland for commercial ventures undertaken
by governments, but Hong Kong's constitution,
called the Basic Law, is unclear on the question.
In 2008, Hong Kong's Court of First Instance ruled
in Congo's favor, but the Court of Appeal
overturned that verdict last February.
FG
Hemisphere specializes in purchasing the debt of
impoverished nations at bargain prices and then
pursuing payment in courts around the world, as it
has done in the Congo case. In Hong Kong, it is
claiming a share of the $350 million in entry fees
that China Railway owes for mining rights in
Congo, the third-largest country in Africa.
As debtor nations go, it's hard to match
Congo, formerly Zaire, which was lorded over by
the corrupt dictator Mobutu Sese Seko, commonly
known as Mobutu, from 1971 to 1997 before
descending into chaos and civil war. Today bloody
conflict continues in the eastern part of the
country, which remains among the poorest and most
indebted nations in the world - the perfect target
for a vulture fund.
FG Hemisphere, in its
efforts to win enforcement of two arbitration
awards granted by the International Chamber of
Commerce, has also sued Congo in the United
States, Canada, Australia, South Africa and in the
Jersey Islands. All have allowed the company to
pursue its claims; in Jersey, the company has won
a $108.3 million judgment that is now under
appeal.
No matter which way the final
ruling goes in Hong Kong, legal scholars and the
city's business class are worried about the
result. If the court does not grant absolute
immunity to Congo, it may be seen as interference
in China's foreign affairs, which Article 13 of
the Basic Law is clear about prohibiting, and
prompt another dispiriting reinterpretation of a
Court of Final Appeal ruling by the Standing
Committee of the National People's Congress,
China's parliament. This, in turn, would deliver
another blow to the "one country, two systems"
formula that is supposed to guarantee Hong Kong's
autonomy and judicial independence for at least 50
years after the handover.
In 1999, the
Standing Committee, at the request of Hong Kong's
then chief executive Tung Chee-hwa, overturned a
court decision that would have given hundreds of
thousands of mainland Chinese the immediate right
to reside in Hong Kong because at least one of
their parents lived here. In 2004, the Standing
Committee struck again, this time without any
overt prompting from the Hong Kong government, to
rule out fully democratic elections for chief
executive in 2007 and for the Legislative Council,
the city's legislature, in 2008.
Lawyers
for Congo and China Railway, arguing that the
present case clearly impinges upon China's foreign
policy, have asked the court's five judges to
abjure a ruling and refer it to the Standing
Committee. Moreover, China's foreign ministry has
filed three letters with the court stating, in the
main, that the case constitutes interference in
China's foreign affairs.
Hong Kong's
Secretary for Justice Wong Yan-lung has also
intervened, with his representative, Benjamin Yu,
arguing that Hong Kong's one country, two systems
formula does not apply in this case.
"One
looks at this concept of state immunity as to
whether this can be a case where you have one
state but two immunities," Yu told the court. "You
can't have that. One state, one immunity."
If this argument ultimately wins out,
Congo and Beijing will clearly be pleased. But it
could also be bad for business in Hong Kong. If
the court grants absolute immunity to Congo, or
refers the case to the Standing Committee for the
same result, companies will be wary of entering
into contracts in the city with government-backed
commercial enterprises. On the other hand, if the
court denies Congo's claim of immunity and that
ruling is left to stand by the central government,
Hong Kong could become known as a city for
debt-chasing, discouraging state-run enterprises
from doing business here.
Either way, Hong
Kong could be the loser. No wonder, then, that the
Basic Law chose to remain mum on the subject. No
wonder also why many in Hong Kong wish this case
had never landed here and would simply go way.
The hearing continues.
Kent
Ewing is a Hong Kong-based teacher and writer.
He can be reached at kewing@netvigator.com
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