FEDERAL COURT OF AUSTRALIA
PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission [2011] FCAFC 52
IN THE FEDERAL COURT OF AUSTRALIA | |
PT GARUDA INDONESIA LTD (ARBN 000 861 165) Applicant | |
AND: | AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Respondent |
LANDER, GREENWOOD AND RARES JJ | |
DATE OF ORDER: | |
WHERE MADE: | adelaide (videolink to sydney) |
THE COURT ORDERS THAT:
1. Leave to appeal is granted to the applicant and the appeal be treated as having been instituted in accordance with the draft notice of appeal.
2. The appeal be dismissed.
3. The applicant pay the respondent’s costs of the application for leave to appeal and the appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA | |
NEW SOUTH WALES DISTRICT REGISTRY | |
GENERAL DIVISION | NSD 943 of 2010 |
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA |
BETWEEN: | MALAYSIAN AIRLINE SYSTEM BERHAD (ARBN 000 996 903) First Applicant MALAYSIA AIRLINES CARGO SDN BHD Second Applicant |
AND: | AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Respondent |
JUDGES: | LANDER, GREENWOOD AND RARES JJ |
DATE OF ORDER: | 19 april 2011 |
WHERE MADE: | ADELAIDE (VIDEOLINK TO SYDNEY) |
THE COURT ORDERS THAT:
1. Leave to appeal is granted to the applicant and the appeal be treated as having been instituted in accordance with the draft notice of appeal.
2. The appeal be dismissed.
3. The applicants pay the respondent’s costs of the application for leave to appeal and the appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.
NEW SOUTH WALES DISTRICT REGISTRY | |
GENERAL DIVISION | NSD 667 of 2010 |
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA |
BETWEEN: | PT GARUDA INDONESIA LTD (ARBN 000 861 165) Applicant
|
AND: | AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Respondent
|
NSD 943 of 2010
BETWEEN: | MALAYSIAN AIRLINE SYSTEM BERHAD (ARBN 000 996 903) First Applicant
MAlAYSIA AIRLINES CARGO SDN BHA Second Applicant |
AND: | AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Respondent
|
JUDGES: | LANDER, GREENWOOD AND RARES jj |
DATE: | 19 april 2011 |
PLACE: | adelaide (videolink to sydney) |
REASONS FOR JUDGMENT
LANDER and GREENWOOD JJ:
1 We have had the advantage of reading in draft the reasons of Rares J with which we substantially agree and, of course, therefore agree with the orders proposed by his Honour that in respect of both applications:
(a) leave to appeal should be granted; and
(b) the appeal should be dismissed.
2 Although we are of the opinion that these appeals should be dismissed because we respectfully differ from the primary judge, we should shortly state our reasons for doing so.
3 As Rares J has shown the primary judge found that an agency or instrumentality within the meaning of s 3 of the Foreign States Immunities Act 1985 (Cth) must have two features: first, be subject to “actual, day-to-day management control” by the foreign State; and secondly, perform “governmental functions”.
4 The purpose of the Foreign States Immunities Act is identified in s 9 of the Foreign States Immunities Act which, subject to the exceptions contained in the Foreign States Immunities Act itself, is to grant foreign States immunity from the jurisdiction of the courts of Australia in a proceeding. “[P]roceeding is defined in s 3 to mean:
... a proceeding in a court but does not include a prosecution for an offence or an appeal or other proceeding in the nature of an appeal in relation to such a prosecution.
5 The grant of immunity is in relation to the civil side of the jurisdiction of the courts of Australia because proceeding does not include a prosecution for an offence. A number of Commonwealth Acts provide for the imposition of pecuniary penalties where a contravention of the Act is established. Section 76 of the Trade Practices Act 1974 (Cth) is an instance of legislation of that kind in that it provides for the provision of a pecuniary penalty for a contravention of Part IV of the Trade Practices Act, which part includes s 45 which proscribes contracts, arrangements or understandings that restrict dealings or affect competition. A contravention of s 45 may attract a pecuniary penalty. However, no criminal proceedings lie against a person for a contravention of Part IV of the Trade Practices Act: s 78 of the Trade Practices Act. A proceeding brought by the respondent against a party seeking the imposition of a pecuniary penalty is a civil proceeding. A civil proceeding for the imposition of a pecuniary penalty is therefore a proceeding to which the Foreign States Immunities Act might apply.
6 The scheme of the Foreign States Immunities Act is demonstrated by reference to Part II of the Foreign States Immunities Act which contains s 9 which gives a foreign State immunity from the jurisdiction of the courts of Australia in a proceeding.
7 Section 9 provides:
9 General immunity from jurisdiction
Except as provided by or under this Act, a foreign State is immune from the jurisdiction of the courts of Australia in a proceeding.
8 A “foreign State” is defined in s 3 to mean:
... a country the territory of which is outside Australia, being a country that is:
(a) an independent sovereign state; or
(b) a separate territory (whether or not it is self-governing) that is not part of an independent sovereign state.
9 The definition only recognises a country that is an independent foreign State or a country that is a separate territory that is not part of an independent foreign State.
10 Section 3(3) also refers to foreign States. It provides:
(3) Unless the contrary intention appears, a reference in this Act to a foreign State includes a reference to:
(a) a province, state, self-governing territory or other political subdivision (by whatever name known) of a foreign State;
(b) the head of a foreign State, or of a political subdivision of a foreign State, in his or her public capacity; and
(c) the executive government or part of the executive government of a foreign State or of a political subdivision of a foreign State, including a department or organ of the executive government of a foreign State or subdivision;
but does not include a reference to a separate entity of a foreign State.
11 That subsection makes it clear that when the Act addresses a foreign State it is not referring to a separate entity of a foreign State unless the provision in the Act expresses a contrary intention.
12 The immunity which is addressed in s 9 is the immunity existing at common law that an independent sovereign State may not be directly or indirectly proceeded against in the courts without its consent: Compania Vaiera Vascongada v Steamship Cristina [1938] AC 485. The “pure absolute doctrine of state immunity” as Lord Wilberforce described it in Playa Largo (Owners of Cargo lateley laden on Board) v I Congreso del Partido (Owners) (I Congreso del Partido) (1983) 1 AC 244 at 261 has in more recent years become subject to restrictions: see Philippine Admiral v Wallem Shipping [1977] AC 373 and Trendtex Trading Corporation v Central Bank of Nigeria [1977] QB 529. However, the scheme of the Act is such that s 9 states in absolute terms, subject to the point already made about a prosecution for an offence, the sovereign State’s immunity in the courts of Australia.
13 Section 9 itself however recognises that the Act provides for exceptions to the recognition of absolute immunity.
14 Where the exception applies, the foreign State is not entitled to immunity from the jurisdiction of the courts of Australia in a proceeding of the kind defined in s 3. Before identifying the exceptions it should be noted that some of the exceptions contain exclusions which means that the exceptions do not apply in the circumstances of the exclusion. When a section provides for both an exception and an exclusion to the exception, the foreign State will enjoy immunity from jurisdiction to the extent of the circumstances mentioned in the exclusion.
15 The exceptions to the absolute grant of immunity are:
(a) where the foreign State submits to the jurisdiction of the court or waives its immunity: s 10;
(b) where the proceeding concerns a commercial transaction as defined in s 11(3): s 11;
(c) where the proceeding concerns the employment of a person under a contract of employment where the foreign State was a party to the contract and was the employer: s 12;
(d) where the proceeding concerns a death of or personal injury to a person or a loss or damage to tangible property in Australia: s 13;
(e) where the proceeding concerns an interest of a foreign State in the possession or use by the foreign State of immovable property in Australia or an obligation of the foreign State that arises out of its interest in or possession or use of immovable property: s 14(f);
(f) where the proceeding concerns an interest of the foreign State in property that arose by way of gift or succession: s 14(2);
(g) where the proceeding concerns bankruptcy, insolvency or the winding up of a body corporate or the administration of a trust or the estate of a deceased person or of a person of unsound mind: s 14(7);
(h) where the proceeding concerns the ownership of a copyright or the registration or protection in Australia of an invention, a design or trade mark where the infringer is alleged to be the foreign State or the proceeding concerns the use in Australia of a trade name or business name: s 15;
(i) where the proceeding concerns a foreign State’s membership or right to membership of a body corporate or an unincorporated body or partnership that is incorporated or has been established under the laws of Australia or is controlled from, or has a principal place of business in Australia where one of the members is not a foreign State or the Commonwealth and the proceeding arises between the foreign State and the body or other members of the body, or between the foreign State and one or more of the partners: s 16;
(j) where a foreign State is a party to an agreement to submit a dispute to arbitration the immunity does not extend to a proceeding for the exercise of the supervisory jurisdiction of a court in respect of that arbitration: s 17(1);
(k) where the foreign State is a party to an agreement to submit a dispute to arbitration then subject to any inconsistent provision in the agreement the immunity does not extend to a proceeding concerning the recognition as binding for any purpose or for the enforcement of an award: s 17(2);
(l) where the proceeding is an action in rem against a ship concerning a claim in connection with the ship if, at the time when the cause of action arose, the ship was in use for commercial purposes: s 18;
(m) where a bill of exchange has been drawn, made, issued or indorsed by a foreign State and the foreign State would not be immune in a proceeding insofar as the proceeding concerns the transaction or event: s 19;
(n) where the proceeding concerns an obligation imposed upon the foreign State by or under a provision of a law of Australia with respect to taxation: s 20;and
(o) where the proceeding is a related proceeding that arises out of and relates to any of the proceedings in ss 10 to 20: s 21.
16 Many of the exceptions have subsections which provide exclusions; viz s 11(2), s 12(3), s 12(4), s 12(5), s 12(6), s 15(2) and s 17(3). Only two of those are relevant in a consideration of these proceedings: subpar 11(2)(a)(i) and subs 17(3).
17 On the face of it, s 9 and ss 10 to 21 only apply to foreign States which, because of s 3(3) unless there be a contrary intention in the Act, does not include a separate entity of the foreign State.
18 However, s 22 of the Act provides:
22 Application of Part to separate entities
The preceding provisions of this Part (other than subparagraph 11(2)(a)(i), paragraph 16(1)(a) and subsection 17(3)) apply in relation to a separate entity of a foreign State as they apply in relation to the foreign State.
19 Importantly, because s 9 is included in the same Part, the provisions in ss 9 to 21, except those identified in s 22, apply in relation to a separate entity of a foreign State as they apply in relation to the foreign State.
20 Section 11(2)(a)(i) and s 17(3) are two of the exclusions to the exceptions to which we have referred. Section 16(1)(a) is part of the body of the exception in that section.
21 Two of the exclusions to two exceptions do not apply to a separate entity of a foreign State which has the result that in those two cases a separate entity does not enjoy the immunity that a foreign State enjoys. In the case of s 11(2)(a), a foreign State does enjoy an immunity from the jurisdiction of the courts of Australia in a proceeding if the proceeding concerns a commercial transaction and all of the parties to the proceeding are foreign States or foreign States and the Commonwealth. However, because of the provision of s 22 a separate entity will not enjoy that immunity if it is a party to a proceeding of the kind mentioned in s 11(2)(a). The effect of s 17(3) is to preserve a foreign State’s claim for immunity in a proceeding concerning an arbitration where the only parties are the foreign State and the Commonwealth or an organisation of foreign States and the Commonwealth, and other foreign States. Because of the provisions of s 22, if the contracting party is a separate entity and the Commonwealth or an organisation which includes a separate entity or the Commonwealth and a separate entity, the separate entity does not enjoy the like immunity that a foreign State enjoys.
22 However, in the case of s 16(1)(a), a separate entity, unlike a foreign State, would be immune in a proceeding concerning its membership of body corporate, unincorporated body or a partnership incorporated or controlled in Australia that has a member that is not the separate entity or the Commonwealth in a proceeding between the separate entity and the members or parties as the case may be.
23 “[S]eparate entity” is defined in s 3:
separate entity, in relation to a foreign State, means a natural person (other than an Australian citizen), or a body corporate or corporation sole (other than a body corporate or corporation sole that has been established by or under a law of Australia), who or that:
(a) is an agency or instrumentality of the foreign State; and
(b) is not a department or organ of the executive government of the foreign State.
24 It is further defined in s 3(2):
(2) For the purposes of the definition of separate entity in subsection (1), a natural person who is, or a body corporate or a corporation sole that is, an agency of more than one foreign State shall be taken to be a separate entity of each of the foreign States.
25 For ease of reference we shall refer to a body corporate or a corporation sole simply as a corporation.
26 The definition of separate entity provides the following information. First, a separate entity is not a foreign State. Secondly, a separate entity may be a natural person other than an Australian citizen. Thirdly, a separate entity may be a corporation other than a corporation that has been established by or under a law of Australia. Fourthly, a separate entity may be a natural person or a corporation that is an agency of more than one foreign State and in that case shall be taken to be a separate entity of each of the foreign States. Fifthly, a natural person or a corporation is a separate entity if the natural person or corporation is an agency or instrumentality of the foreign State and, as well, is not a department or organ of the executive government of that foreign State.
27 Those propositions show that the purpose of the Act is to extend immunity to persons who are not Australian citizens or corporations not established under Australian law who have the character in paragraphs (a) and (b) of the definition. They must not be departments or organs of the executive government of the foreign State but they must be an agency or instrumentality of the foreign State.
28 An agency or instrumentality of the foreign State could be a department or organ of the executive government of the foreign State but if the agency or instrumentality has that character then it is not a separate entity for the purposes of the Act. However, the Act clearly contemplates that there are agencies or instrumentalities of the foreign State which are not departments or organs of the executive government of the foreign State.
29 Moreover, because of the provisions of s 3(2) of the Act, a separate entity may include a natural person or a corporation that is an agency of more than one foreign State and in that case should be taken to be a separate entity of each of the foreign States. Because s 3(2) only refers to “an agency” it must be assumed that Parliament did not contemplate that an instrumentality could be an instrumentality of more than one foreign State. That characteristic has been reserved to “an agency”.
30 An agency must be something other than an instrumentality. That follows for two reasons. First, the Act refers to both in the same context which leads to the conclusion there is something to distinguish the two bodies. The general rule is that in construing a statutory provision all words should be given a meaning. No word should be considered superfluous: The Commonwealth v Baume (1905) 2 CLR 405 per Griffith CJ at 414; Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355. McHugh, Gummow, Kirby and Hayne JJ said at 382:
Furthermore, a court construing a statutory provision must strive to give meaning to every word of the provision.
31 The general rule is subject to the qualification that if there is good reason to the contrary it may be presumed that a word or phrase adds nothing: Chu Khenghim v The Minister for Immigration (1992) 176 CLR 1 per Mason CJ at 12-13. The second reason to which we now turn provides independent support for the application of the general principle.
32 Section 3(2) assumes that an agency might be an agency of more than one foreign State but does not make the same assumption in relation to an instrumentality. Section 3(2) treats an agency and instrumentality as having at least that different characteristic.
33 Justice Ligertwood recognised that an instrumentality (a term not known to English law but derived from American decisions) differed from a servant or agent of the Crown in Electricity Trust of South Australia v Linterns Ltd [1950] SASR 133 at 139 where he referred to the decisions of the High Court in the Municipal Employees Case (1919) 26 CLR 508 and said the members of that Court had given the word “instrumentality” the same generic meaning, being an organ of government. He said:
The case is useful in that it indicates that a State instrumentality need not necessarily be a servant or agent of the Crown.
34 Justice Rares has suggested that the words “agency” and “instrumentality” are “largely synonymous” and he has referred to the Macquarie and Oxford English dictionaries.
35 With respect to his Honour, we do not think, at least for the purposes of this Act for the reasons we have given, that the words can be treated as largely synonymous. We think the Foreign States Immunities Act assumes an agency and an instrumentality to be different creations. In considering whether a person or corporation is a separate entity, the definition first requires a determination as to whether that person or corporation is an agency or instrumentality of the State.
36 We think the difference is in their constitution. An instrumentality is a body created by the State as an instrumentality for the purpose of performing a function for the State. Clearly, because of the definition of separate entity, the State can create a natural person as an instrumentality. We think the definition does assume that a natural person can be an instrumentality because it speaks of a natural person or a [corporation] “who or that: ...”. However, that does not deny the proposition that the State creates the natural person or the corporation as the instrumentality of the State. An instrumentality of the State cannot be created by an organ other than the State. A natural person or a corporation cannot create an instrumentality and certainly not an instrumentality of the State.
37 An instrumentality is created by the State for the purpose of carrying out functions on behalf of the State and is not available to carry out any functions for any other State, person or corporation. An instrumentality is an instrumentality of the State which creates it and can not be the instrumentality of any other State, person or corporation. So much is recognised by s 3(2) which does not recognise the possibility of an instrumentality being an instrumentality of more than one foreign State.
38 An instrumentality is not necessarily an agency of the State because it may be invested by the State with powers which allow it to function separately and apart from the State and indeed outside of any direct control of the State or its executive.
39 An agency may have the same characteristics as an instrumentality, but not necessarily so. An agency of the State, in our opinion, does not necessarily have to have been created by the State itself. It may be, but need not be. A natural person or a corporation may create a body which may be adopted by the State as an agency. A natural person or corporation becomes an agency of the State upon creation if the State itself creates it as such. If it is otherwise created, it becomes an agency of the State when the State adopts the person or corporation as an agency of the State. The State might adopt the person or corporation exclusively or it might create a shared agency with some other State, person or corporation. The difference between an agency or instrumentality is recognised in s 3(2).
40 A State may appoint a natural person or corporation as an agency or agent. The relationship between the State and the appointed agency may be contractual. An agency of a foreign State in the context of this definition and in the context of the Foreign States Immunities Act as a whole must be an agency of the foreign State for the purpose of carrying out the foreign State’s purposes.
41 The purpose of an instrumentality is to serve the State’s purposes: Electricity Trust of South Australia v Linterns Ltd [1950] SASR 133 at 139-140; Re Anti-Cancer Council of Victoria; Ex parte State Public Services Federation (1992) 175 CLR 442 at 448. Whether a person or corporation is an agency or an instrumentality, they must both have the same purpose which is, whilst not being departments or organs of the executive government of the foreign State, to serve some governmental purpose which may be commercial in nature. For an instrumentality its sole purpose must be to perform functions on behalf of the State. For an agency its purpose must be to perform within the terms of its agency functions on behalf of the State which has created the agency.
42 The most relevant factor in determining whether a natural person or a corporation is an agency or instrumentality is whether that body is carrying out the foreign State’s functions or purposes.
43 Ordinarily, if the natural person or the corporation is not then it is unlikely that the natural person or corporation will be an agency or instrumentality of the foreign State.
44 Ownership cannot be determinative of the question whether a person or corporation is an agency or instrumentality of a foreign State. A natural person will not have an owner. Australian law does not countenance ownership of a person. An instrumentality will usually be created by legislation. It may have “an owner”. In many cases it will not have “an owner” but will simply be a creation of statute. An agency may or may not be owned by the State. If it is then it is more likely to be found to be an agency of the State. But if it is not owned by the State that is not determinative of the question whether the person or corporation is an agency of the State. The agency might exist as a result of a contractual relationship between the State and the person or corporation. It follows that ownership cannot be the sole criteria in determining whether a natural person or a corporation is an agency or instrumentality of a foreign State.
45 Nor does the Act contemplate that a natural person or a corporation must be controlled by a foreign State to be an agency or instrumentality of the State. For the reasons already given, an instrumentality need not be controlled by the State even if the executive of the State has the right to appoint the directors of the organisation. An agency may or may not be controlled by the State but the absence of control would not necessarily mean that the person or corporation is not an agency of the State. Section 3(2) contemplates that a person or corporation may be a separate entity where it is the agency of more than one foreign State. Where a natural person or corporation is an agency of that kind it would be difficult for each of the foreign States to exercise control at the same time.
46 Like Rares J, we do not, with respect, agree with the primary judge that the test whether a natural person or a corporation of the kind referred to in the definition is to be determined by reference to whether the foreign State has the day-to-day management control of the agency or instrumentality. We think, as we have said, such a holding is inconsistent with s 3(2), which contemplates that a separate entity may be the agency of more than one foreign State and, indeed, numerous foreign States, not all of which presumably would have the actual day-to-day control of that foreign entity.
47 Ownership and control will be important in determining whether a natural person or a corporation is an agency or instrumentality of a foreign State. However neither, in our opinion, can be determinative factors.
48 We agree with Rares J that it will be a matter of fact in each case to determine whether a natural person or corporation is an agency or instrumentality of a foreign State and in determining that question regard will have to be had to ownership, control, the functions which the natural person or corporation perform, the foreign State’s purposes in supporting the natural person or corporation and the manner in which the natural person or corporation conducts itself or its business.
49 We agree, for the reasons given by Rares J, that PT Garuda Indonesia Ltd (Garuda) was a separate entity. We also agree with Rares J that Malaysian Airline Systems Berhard (MAS) failed to establish that it was an agency or instrumentality at the relevant time or at the time of the institution of the proceedings.
50 We therefore disagree with the primary judge’s conclusion in relation to Garuda but agree with his conclusion in relation to MAS.
51 It is therefore not strictly necessary to consider whether MAS was entitled to any immunity having regard to s 11 of the Act because MAS was not at the relevant times an agency or instrumentality of a foreign State and not therefore entitled to the extended immunity given by s 22 to a separate entity.
52 It is, however, necessary to consider that question in relation to Garuda because Garuda was a foreign entity for the purpose of the definition at the relevant time. Garuda was therefore entitled to say that it was entitled to the immunity given by s 9. The question with respect to Garuda was whether the immunity was lost because the proceeding concerned a commercial transaction: s 11.
53 If we are wrong and MAS was at the relevant time a separate entity, the opinion which follows would also apply to it.
54 We agree with Rares J’s conclusion that s 11(1) does apply and that, as a consequence, neither Garuda nor MAS are entitled to immunity from the jurisdiction of the Court even if MAS, like Garuda, is a separate entity.
55 As we have previously explained, s 9 provides a grant of immunity to a foreign State or a separate entity from the jurisdiction of the courts of Australia in a proceeding. Sections 10 to 21 except from that general grant a proceeding which concerns the separate matters contained in those various sections.
56 Section 11 is the relevant exception in relation to both airlines and it provides:
11 Commercial transactions
(1) A foreign State is not immune in a proceeding in so far as the proceeding concerns a commercial transaction.
(2) Subsection (1) does not apply:
(a) if all the parties to the proceeding:
(i) are foreign States or are the Commonwealth and one or more foreign States; or
(ii) have otherwise agreed in writing; or
(b) in so far as the proceeding concerns a payment in respect of a grant, a scholarship, a pension or a payment of a like kind.
(3) In this section, commercial transaction means a commercial, trading, business, professional or industrial or like transaction into which the foreign State has entered or a like activity in which the State has engaged and, without limiting the generality of the foregoing, includes:
(a) a contract for the supply of goods or services;
(b) an agreement for a loan or some other transaction for or in respect of the provision of finance; and
(c) a guarantee or indemnity in respect of a financial obligation; but does not include a contract of employment or a bill of exchange.
57 We have already addressed s 11(2)(a)(i) which does not apply to a separate entity: s 22. No more needs to be said about that subparagraph.
58 Garuda and MAS (if it were a separate entity) will not be entitled to claim the immunity given by s 9 if the proceeding concerns a commercial transaction as defined in s 11(3). The question is whether the proceeding brought by the respondent, an independent regulator, concerns a commercial transaction.
59 The proceedings for which immunity is claimed were commenced by the respondent in respect of Garuda on 2 September 2009 and in respect of MAS on 9 April 2010. The respondent claims that both Garuda and MAS were parties to various price fixing, market sharing and other anti-competitive cartels with other airlines which had had the effect of increasing the price of air cargo on various routes in and out of Australia. The respondent alleges that the conduct contravenes s 45 of the Trade Practices Act and has sought injunctions restraining both Garuda and MAS from engaging in the cartel conduct, declaratory relief that both Garuda and MAS have contravened s 45 of the Trade Practices Act, and for the imposition of civil penalties under s 76 of the Trade Practices Act in respect of the proved contraventions.
60 The contravention which the respondent alleges is a contravention of s 45 of the Trade Practices Act. The relief which is sought is in respect of that contravention.
61 Shortly put, s 45 makes it unlawful for a corporation to make a contract or arrangement or arrive at an understanding, a provision of which would be likely to have the effect of substantially lessening competition, or to give effect to such a provision.
62 It seems to us that a contract arrangement or understanding of that kind is a commercial transaction within the meaning of s 11(3) whether it is a transaction which contravenes s 45 of the Act or otherwise. If it is established by the respondent that Garuda or MAS made a contract or an arrangement or arrived at an understanding of the kind that increased the price of air cargo carried on various routes, any contract or arrangement would be an activity in which the foreign entity has entered for the supply of goods and services and would clearly come within s 11(3)(a). Even if the respondent only establishes that Garuda and MAS arrived at an understanding with other airlines to the same effect, in our opinion, that understanding would be caught by s 11(3). True it is, it would not be a contract for the supply of goods or services as provided for in s 11(3)(a) but it would be a transaction of the kind mentioned in the body of s 11(3) which is not limited by the paragraphs in that subsection. The paragraphs in s 11(3) do not limit the types of transactions to which s 11(3) apply. A commercial transaction is not limited to a contract or agreement, although paragraphs (a) and (b) apply to a particular contract or a particular agreement. Section 11(3) otherwise refers to commercial transactions being commercial, trading, business, professional or industrial transactions.
63 It would be curious if the effect of s 11 is to except from the general claim for immunity a lawful transaction for the provisions of services but provides an immunity for a contract, arrangement or understanding which is unlawful.
64 In our opinion, the conduct complained of by the Australian Competition and Consumer Commission is conduct which concerns a commercial transaction and in those circumstances the immunity claimed by Garuda and MAS could not be upheld even if we are wrong about our opinion that MAS is not a foreign entity.
65 As Rares J has shown, the primary judge followed the obiter dicta remarks of Lord Millett in Holland v Lampen-Woolfe (2000) 1 WLR 1573 at 1587. In that case, the plaintiff brought proceedings for defamation against a fellow employee of the United States government who had published a memorandum about the plaintiff’s conduct as an instructor. The relevant United Kingdom Act was in similar form to the Foreign States Immunities Act providing an absolute grant of immunity and their exceptions take in Part II of the Foreign States Immunities Act. The exception is the immunity was “as respects proceedings relating to (a) a commercial transaction entered into by the State”. Lord Millett was of the opinion that although the plaintiff’s employment contract was a commercial contract for the purpose of the UK Act, proceedings for defamation “do not relate to that contract”: at 1587. He said, “They are not about the contract but the memorandum”: at 1587. With respect, that proposition is undoubtedly right but the decision does not support the conclusion reached by the primary judge that the proceeding with which this Court is concerned does not concern a commercial transaction but concerns the anti-competitive effect of that transaction.
66 The proceeding which has generated the claims for immunity are for a contravention of s 45 of the Trade Practices Act for making a contract or arrangement or arriving at an understanding which is proscribed by s 45 of the Trade Practices Act. A contravention is not established unless the contract arrangement or understanding substantially lessens competition. However, the contract arrangement or understanding has to be examined and analysed to determine if that be so. The proceeding concerns a commercial transaction.
67 We agree generally with Rares J’s reasons but in these short reasons we have explained why we have come to the same conclusion as his Honour.
68 We agree with the orders proposed by Rares J as to the costs of the applications for leave to appeal and the appeals.
I certify that the preceding sixty-eight (68) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Lander and Greenwood. |
Associate:
IN THE FEDERAL COURT OF AUSTRALIA | |
NEW SOUTH WALES DISTRICT REGISTRY | |
GENERAL DIVISION | NSD 667 of 2010 |
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA |
BETWEEN: | PT GARUDA INDONESIA LTD (ARBN 000 861 165) Applicant
|
AND: | AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Respondent
|
NSD 943 of 2010
BETWEEN: | PT GARUDA INDONESIA LTD (ARBN 000 861 165) Applicant
MAlAYSIA AIRLINES CARGO SDN BHA Second Applicant |
AND: | AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Respondent
|
JUDGES: | LANDER, GREENWOOD AND RARES JJ |
DATE: | 19 APRIL 2011 |
PLACE: | adelaide (videolink to sydney) |
REASONS FOR JUDGMENT
RARES J:
69 Three airlines, PT Garuda Indonesia Ltd (Garuda), Malaysian Airline System Berhad (MAS) and, its wholly owned subsidiary Malaysian Airlines Cargo Sdn Bhd (MAS Cargo), have each applied for leave to appeal from decisions of the primary judge that none of them is entitled to immunity from the jurisdiction of the Court under the Foreign States Immunities Act 1985 (Cth): Australian Competition and Consumer Commission v PT Garuda Indonesia Ltd (2010) 269 ALR 98; Australian Competition and Consumer Commission v Malaysian Airline System Berhad (2010) 271 ALR 91.
70 The Australian Competition and Consumer Commission (the Commission) had filed separate applications and first, statements of claim, against Garuda on 2 September 2009 and, secondly, against both MAS and MAS Cargo on 9 April 2010. The Commission alleged that each airline was party to various price fixing, market sharing and other anti-competitive cartels with other airlines that had increased the price of air cargo carried on various routes, including into and out of Australia. The Commission alleged that the cartel conduct contravened s 45 of the Trade Practices Act 1974 (Cth). It sought orders under that Act including injunctions restraining each airline from engaging in the cartel conduct, declaratory relief reflecting findings of contraventions of s 45 and the imposition of civil pecuniary penalties under s 76 of the Act in respect of those contraventions.
71 The primary judge held that none of the airlines was a separate entity of a foreign State within the meaning of s 3(1) of the Foreign States Immunities Act. His Honour also decided, contrary to the argument of the Commission, that if any of the airlines had been a separate entity, then it would have been entitled to claim immunity from the jurisdiction of the Court under s 9 of that Act. This was because he concluded that the cartel conduct was outside the exception from immunity created by s 11 of the Act in respect of commercial transactions and activities.
72 The Commission did not oppose the grant of leave to appeal but filed a notice of contention challenging the primary judge’s conclusion that the cartel conduct alleged was not within the meaning of a “commercial transaction” in s 11(3) of the Foreign States Immunities Act, and, as such, was not protected by any immunity. None of the parties supported the test that the primary judge applied for determining whether each airline was a separate entity, namely that the foreign State not only owned it, but exercised actual control. The decision of the primary judge was thus attended by sufficient doubt and, if the airlines were correct that they were entitled to immunity, they would suffer substantial injustice: Bienstein v Bienstein (2003) 195 ALR 225 at 231 [29] per McHugh, Kirby and Callinan JJ. Moreover, the issues of statutory construction raised by the parties also justify the grant of leave to appeal.
The Statutory Scheme
73 The Foreign States Immunities Act was enacted to implement the recommendations of the Australian Law Reform Commission in its report: Foreign States Immunity (ALRC 24). The Act gave effect to a number of restrictions on the immunity of foreign States from the jurisdiction of Australian courts. The scheme of the Act created a general immunity (in s 9), from which exceptions were created in categories of proceedings identified in Pt II of the Act. It is necessary to set out some of the provisions extensively below in order to explain later in these reasons how they should be construed.
74 A number of key terms were defined in s 3(1). A foreign State relevantly meant a country that is an independent foreign State. A proceeding meant a proceeding in court other than a criminal prosecution or appeal in relation to such a prosecution. An important definition was:
“separate entity, in relation to a foreign State, means a natural person (other than an Australian citizen), or a body corporate or corporation sole (other than a body corporate or corporation sole that has been established by or under a law of Australia), who or that:
(a) is an agency or instrumentality of the foreign State; and
(b) is not a department or organ of the executive government of the foreign State.” (emphasis added)
75 The Act provided in s 3(2) that for the purposes of the definition of separate entity, a natural person who is, or a body corporate or corporation sole that is, an agency of more than one foreign State, should be taken to be a separate entity of each of the foreign States. Next, s 3(3) provided that unless the contrary intention appeared, a reference in the Act to a foreign State did not include a reference to a separate entity of a foreign State. However, this last qualification had a very limited effect for the purposes of Pt II of the Act, because of the operation of s 22. By force of s 22, all of the provisions of Pt II of the Act, apart from ss 11(2)(a)(i), 16(1)(a) and 17(3), applied in relation to a separate entity of a foreign state as they applied in relation to a foreign State.
76 Part II of the Act commenced with the general provision in s 9 that except as provided by or under the Act, a foreign State was immune from the jurisdiction of the courts of Australia in a proceeding. Next, s 10 provided that a foreign State was not immune where it had submitted to the jurisdiction in accordance with that section. Critically, s 11 was as follows:
“11 Commercial transactions
(1) A foreign State is not immune in a proceeding in so far as the proceeding concerns a commercial transaction.
(2) Subsection (1) does not apply:
(a) if all the parties to the proceeding:
(i) are foreign States or are the Commonwealth and one or more foreign States; or
(ii) have otherwise agreed in writing; or
(b) in so far as the proceeding concerns a payment in respect of a grant, a scholarship, a pension or a payment of a like kind.
(3) In this section, commercial transaction means a commercial, trading, business, professional or industrial or like transaction into which the foreign State has entered or a like activity in which the State has engaged and, without limiting the generality of the foregoing, includes:
(a) a contract for the supply of goods or services;
(b) an agreement for a loan or some other transaction for or in respect of the provision of finance; and
(c) a guarantee or indemnity in respect of a financial obligation; but does not include a contract of employment or a bill of exchange.” (emphasis added)
77 As mentioned above, only s 11(2)(a)(i) did not apply to a separate entity. The following provisions in Pt II created a number of other exceptions. A foreign State was not immune in a proceeding in so far as it concerned:
certain contracts of employment of a person that were made in Australia or were to be wholly or partly performed here (s 12);
the death or personal injury of a person or loss or damage to tangible property caused by an act or omission that occurred in Australia (s 13);
an interest of the State in, or the possession or use by it of, immovable property in Australia or an obligation that it had arising out of an interest, possession or use of property of that kind (s 14(1));
an interest of the State in property that arose by way of gift made in Australia or by succession (s 14(2));
bankruptcy, insolvency, or winding up of a body corporate or the administration of a trust or the estate of a deceased person or a person of unsound mind (s 14(3));
ownership of copyright, registration or protection in Australia of an invention, trade mark or design or the alleged infringement by the foreign State in Australia of copyright, a patent, registered trade mark or design, or the use in Australia of a trade or business name (s 15(1)). However, the exemption from immunity in s 15(1) did not apply in relation to the importation into, or use in, Australia of property otherwise than in the course, or for the purposes, of a commercial transaction as defined in s 11(3) (s 15(2));
certain disputes in relation to a body corporate, incorporated body or partnership incorporated or formed in or controlled from Australia of which the foreign State is or was a member (s 16);
an arbitration agreement where the foreign State was a party (s 17);
an action in rem against a ship concerning a claim in connection with the ship that, at the time the cause of action arose, was in use for a commercial purpose (including (as provided in s 3(5)) a trading business, professional or industrial purpose) (s 18(1)). There were also extensions to permit actions in rem against a sister ship also in use for commercial purposes (s 18(2)), as well as against cargo that was, at the time the cause of action arose, a commercial cargo (s 18(3)). The in rem exemptions were conditional on the ship or cargo being commercial property as defined in s 32(3) (i.e. relevantly, property that was not diplomatic or military, and was in use by the foreign State substantially for commercial purposes (s 18(5)). However, the in rem exemption did not permit the arrest, detention or sale of a ship or cargo (s 18(4)).
a bill of exchange drawn, made, issued or endorsed by the foreign State in connection with a transaction or event in respect of which the State would not have been immune (s 19);
taxes prescribed under regulations made pursuant to the Act (s 20);
a related proceeding (including appeals) arising out of or that relates to another proceeding in so far as the foreign State is not immune in the latter (s 21).
78 The final provision in Pt II of the Act, s 22, provides:
“22 Application of Part to separate entities
The preceding provisions of this Part (other than subparagraph 11(2)(a)(i), paragraph 16(1)(a) and subsection 17(3)) apply in relation to a separate entity of a foreign State as they apply in relation to the foreign State.”
Thus, s 22 had the effect of removing immunity from separate entities in the same respects as the balance of Pt II of the Foreign States Immunities Act had done for foreign States, except in three respects that were not relevant to the issues in these proceedings.
79 Next, Pt III of the Act made provision for service of initiating process on foreign States and separate entities, and for obtaining and enforcing default judgments in certain situations. Part IV of the Act dealt with the extent to which courts could enforce judgments and orders against a foreign State or separate entity. Except as provided in Pt IV, the property of a foreign State was not subject to any process or order of a court to satisfy a judgment, order, arbitration award or, in Admiralty proceedings for the arrest, detention or sale of the property (s 30). However, a foreign State could waive that immunity in accordance with s 31. Additionally, by force of s 32(1), the general immunity in s 30 did not apply to commercial property (as defined in s 32(3) as explained above). Likewise, enforcement proceedings could be taken against property to which s 14 applied (s 33). Importantly, s 35 provided:
“35 Application of Part to separate entities
(1) This Part applies in relation to a separate entity of a foreign State that is the central bank or monetary authority of the foreign State as it applies in relation to the foreign State.
(2) Subject to subsection (1), this Part applies in relation to a separate entity of the foreign State as it applies in relation to the foreign State if, in the proceeding concerned:
(a) the separate entity would, apart from the operation of section 10, have been immune from the jurisdiction; and
(b) it has submitted to the jurisdiction.”
80 Finally, Pt V of the Act dealt with a number of miscellaneous matters. An agreement made by a foreign State and applicable to a separate entity of that State, has effect as if the entity were a party to the agreement (s 37). The Minister for Foreign Affairs had power to certify (as the case required) that for the purposes of the Act a specified country or person is or was on a specified day, a foreign State or the head of, or the government or part of the government of a foreign State or former foreign State (s 40). And, the head of a foreign State’s diplomatic mission in Australia can give an evidentiary certificate that specifies property is property in which that State, or a separate entity of that State, has an interest or which is the possession, or under the control, of the State or such an entity (s 41).
Issues
81 The substantial issues raised by these appeals are:
What is the test for ascertaining whether a person is (including a body corporate) a “separate entity”;
Is Garuda a separate entity?
Is MAS a separate entity?
Do the proceedings concern “a commercial transaction”?
The primary judge’s construction of “separate entity”
82 The primary judge noted that the definition of “separate entity” in s 3(1) of the Act made “… no mention of the requirement of ownership or control of the corporation. Nor does it mention any need for the entity to carry out governmental functions”. His Honour concluded that, first, the definition of “separate entity” required the government of the foreign State to own and control a corporation. But, secondly, he held that definition required the corporation to perform governmental functions. Thirdly, as noted above, his Honour found that the foreign State’s government also must exercise “a real or tangible level of day-to-day management control” of a corporation in order for it to be found to be a “separate entity”.
83 The primary judge explained that he had arrived at these conclusions for three principal reasons. First, he held that the Act, particularly in s 3(3), treated a department or organ of a foreign State, as well as the State’s executive government, as the State itself. He reasoned that the area of immunity conferred on a separate entity was narrower than for the foreign State, its departments, organs and executive government. He said that the scheme of Pt II of the Act provided that a separate entity was an agency or instrumentality that performed many of the functions of a department or organ of the foreign State, though organised separately from it. His Honour drew support for this conclusion from observations in ALRC 24 at [71]-[72] that directed attention to the degree of control and the nature of the functions performed.
84 Secondly, he found that the expression “agency or instrumentality” had much the same meaning as in popular usage. He held that usage was the same as the High Court had explained, albeit it in a different legislative context, in Re Anti-Cancer Council of Victoria; Ex parte State Public Services Federation (1992) 175 CLR 442 at 448. He concluded that a body would be an agency or instrumentality if it were subject to the requisite degree of control and was both empowered to and, in fact, served or performed a particular governmental purpose.
85 Thirdly, his Honour recognised that, as the ALRC had also said, the criterion of performance of a governmental function was difficult to define. But he concluded that because the Act conferred immunity on an agency or instrumentality of a foreign State, the entity had to perform governmental functions. He drew support for this from some observations made, in obiter dicta, by Hayne J in the Supreme Court of Victoria in Adeang v The Nauru Phosphate Royalties Trust (unreported VSC No 6571 of 1992; 8 July 1992 at pp 4-5).
“Separate entity” – The submissions on appeal
86 Garuda argued that his Honour’s requirement that the separate entity perform government functions was contrary to the legislative purpose evinced by the Act. This was because, it contended, the Act removed the common law distinction between acta iure imperii (a State’s acts of sovereignty) and acta iure gestionis (a State’s “private law” or business transactions) (cf: ALRC 24 at [8]). It contended that the imposition of such a requirement would create uncertainty. Garuda argued that the primary judge also erred by imposing more extensive limitations on the scope of the immunity conferred on separate entities in Pt II of the Act than were provided for in the Act itself. It contended that the reasoning, in a very different context, in Anti-Cancer Council 175 CLR 442 and Adeang (unreported SCV 8 July 1992) did not justify the primary judge’s approach.
87 Next, Garuda contended that because all its issued shares were beneficially owned directly by the Republic of Indonesia as to 95.5%, and indirectly through a State owned limited liability enterprise, known as BUMN persero, as to the balance of 4.5%, Indonesia owned and controlled it. Indeed, Garuda argued that it was sufficient for a person to be both owned and controlled by the foreign State to satisfy the definition of “separate entity” for the purposes of s 3(1) of the Act.
88 Garuda contended that Indonesia’s ability, as the beneficial owner of all of its shares, amounted to control of any shareholders’ meeting and the power to appoint and remove directors. This argument adopted a suggestion as to the operation of the undefined term “separate entity” in s 14 of the State Immunity Act 1978 (UK) in Dicey & Morris: The Conflict of Laws (13th ed) ed Lawrence Collins (Sweet & Maxwell London, 2000) at [10-008]. Garuda’s argument relied on the foreign State’s ability to use the shareholders’ voting power as a determinative test. Garuda contended that the primary judge erred by extending the degree of control to require that the foreign State exercise actual day-to-day control of the entity’s conduct of its affairs.
89 MAS adopted Garuda’s arguments but it also advanced its own alternative contentions, partly to accommodate the consequences of its different ownership structure. MAS was a publicly listed company on the Malaysian Stock Exchange and the government of Malaysia only held a controlling majority of its issued shares.
90 MAS argued that an instrumentality, in the definition of “separate entity” in s 3(1) of the Act, was a person that was legally empowered to perform and did perform any function whatever for the foreign State. It contended that the person need not be a servant or agent of the State. MAS relied on the reasoning of Ligertwood J in Electricity Trust (SA) v Linterns Ltd [1950] SASR 133 at 139-140 and its approval in Anti-Cancer Council 175 CLR at 448. MAS also argued that any agency or instrumentality referred to in the definition of “separate entity” would be a body corporate with a legal personality separate from that of the foreign State. It contended that it was not necessary for the foreign State to control a separate entity for the latter to be entitled to the State’s immunity under Pt II of the Act.
91 MAS argued that s 35(1) of the Act recognised that a central bank, such as the Reserve Bank of Australia, was capable of being a separate entity but had a sufficient degree of independence from the executive government of a foreign State so as not to be controlled by that State at a day-to-day level in the sense that the primary judge had required.
92 Next, MAS argued that the appropriate test to determine whether a person was an instrumentality of a foreign State was to enquire whether it served a purpose or end of that State. MAS departed from Garuda’s argument at this point. MAS contended that a person would be an instrumentality of a foreign State if it performed government functions or served a purpose or end of the State.
93 The Commission argued that the primary judge had been correct, first, to decide that a separate entity had to be subject to a sufficient degree of control by the foreign State and, secondly, to perform a government function. It contended that the State had to exercise “some level of actual control”, even though it recognised that ALRC 24 at [72]-[73] had eschewed using the criterion of day-to-day control as the decisive characteristic of a separate entity. The Commission argued that the primary judge should not be understood to have required that the foreign State micro-manage or exercise control on a daily basis.
94 The Commission argued that extrinsic materials supported the approach taken by the primary judge. Those materials were ALRC 24 at [72], the explanatory memorandum for the Bill that became the Act and the second reading speech of the Minister introducing that Bill. It contended that his Honour had correctly applied Anti-Cancer Council 175 CLR 442 in construing the meaning of the terms “an agency or instrumentality” in the definition of “separate entity”. The Commission submitted that the primary judge’s construction was consistent with the recent development of the English common law doctrine of restrictive immunity, in cases such as Trendtex Trading Corporation v Central Bank of Nigeria [1977] QB 529 at 560C per Lord Denning MR, that had been favoured by the ALRC in ALRC 24. The Commission emphasised that Lord Denning MR had said there that the Court should consider whether the organisation was under government control and exercised government functions.
95 Next, the Commission argued that ALRC 24 at [72] had stated that:
“… it is expected that a court would consider whether the entity is exercising governmental functions on behalf of the foreign State.”
It contended that although the ALRC had acknowledged the difficulties inherent in the application of a government functions test (in ALRC 24 at [71]), it considered that such a test was preferable to an alternative approach.
Consideration
96 The task of statutory construction must begin with a consideration of the text of the provision or provisions being construed: Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 at 46-47 [47] per Hayne, Heydon, Crennan and Kiefel JJ. Their Honours observed that if the meaning of the text was clear, considerations of history and extrinsic materials could not displace that meaning. This was because the intention of the legislature was most surely to be found in the words it chose to use. However, as they noted, the meanings of the text may require consideration of the context, which includes the general purpose and policy of a provision and, in particular, any mischief that it seeks to remedy: Alcan 289 CLR at 47 [47]; see too Tran v Commonwealth (2010) 187 FCR 54 at 71-72 [66]-[69] per Rares J.
97 First, the definition of “separate entity” in s 3(1) is notable because it applies expressly to a natural person as well as a corporation: cp Grunfeld v United States of America [1968] 3 NSWR 36 where Street J held that at common law an army major could contract for a foreign State. No Australian law permits a natural person to be owned. Thus, ownership cannot be a determinative criterion of whether a person (being an individual or corporation) is a separate entity. However, that does not exclude consideration of ownership as relevant to the characterisation of a corporation as a separate entity.
98 Secondly, the definition distinguishes the role of a separate entity, as an agency or instrumentality of the foreign State, from its being a department or organ of the State’s executive government. This suggests that the Parliament was conscious that the executive government’s control of a separate entity would not be as immediate or direct as would be the case with a department or organ of State.
99 Thirdly, different foreign States will have differing internal structures and employ differing means to create the relationship between each State and a person that is contemplated by the expression “an agency or instrumentality of the foreign State”. “Agency” and “instrumentality” are ordinary English words. The section has employed those words, as alternatives, to express a connection to the foreign State denoted by the possessive pronoun “of”.
100 The words “agency” and “instrumentality” are largely synonymous. The Macquarie Dictionary defines “agency” as including:
“3. … the office of agent; the business of an agent entrusted with the concerns of another … 5. a mode of exerting power; a means of producing effects; instrumentality”
It defines “instrumentality” to include the meanings:
“… 2 the fact or function of serving some purpose. 3. a means or agency.”
The Oxford English Dictionary defines “agency” as including:
“… 2. working as a means to an end; instrumentality, intermediation; 3. action of instrumentality embodied or personified as concrete existence; 4. Comm [in commercial usage] the office or function of an agent or factor. 5. An establishment for the purpose of doing business for another, usually at a distance.”
It defines “instrumentality” as:
“1. the quality or condition of being instrumental; the fact or function of serving or being used for the accomplishment of some purpose or end; agency. 2. with pl[ural]. That which serves or is employed for some purpose or end; a means, an agency.”
101 The natural and ordinary meanings of both “agency” and “instrumentality” involve there being a relationship between two persons or two events or an event and a result, or a person and a purpose or result. However, those natural and ordinary meanings do not prescribe any particular incidents or purpose of the relationship described by the words beyond the context in which the words are used. Since writing these reasons I have had the advantage of considering the judgment of Lander and Greenwood JJ where they conclude that “agency” and “instrumentality” in s 3(1) express distinct concepts. Since the Parliament has used two words, and not one, that must be so. However, it is not necessary to decide for the purposes of these proceedings what precise difference is conveyed by each of these words.
102 In Australia, the Commonwealth and the States can be referred to as organisations or institutions of government in accordance with the conceptions of ordinary life within the context of the Constitution: Deputy Commissioner of Taxation v State Bank of New South Wales (1992) 174 CLR 219 at 230-231. There, Mason CJ, Brennan, Deane, Dawson, Toohey Gaudron and McHugh JJ said that Constitutional references to one of those bodies politic were wide enough to denote a corporation that is an agency or instrumentality of that body. They said:
“The activities of government are carried on not only through the departments of government but also through corporations which are agencies or instrumentalities of government. Such activities have, since the nineteenth century, included the supply on commercial terms of certain types of goods and services by government owned and controlled instrumentalities with independent corporate personalities. Railways are a notable example.”
103 Their Honours held that the Parliament had power to set up a corporation to carry out any of the executive functions of government on the footing that it is an agency or instrumentality of government: State Bank 174 CLR at 232.
104 Of course, foreign States may have wider or narrower powers to carry out their functions or to achieve their purposes. This is why the definition of “separate entity” in the Foreign States Immunities Act should be construed in its natural and ordinary meaning having regard to the factual context in which there is a claim that a particular person is such an entity of a foreign State. The definition requires a consideration of that person’s relationship with that State having regard, where relevant, to any evidence of the law of the foreign State that throws light on the nature of the relationship for this purpose. There is a similar, but distinct, focus in the domestic Australian Constitutional scenario where an issue of Crown immunity is raised: ACCC v Baxter Health Care Pty Ltd (2007) 232 CLR 1 at 35-36 [60]-[64] per Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ. These domestic usages provide some context for considering whether a person is an agency or instrumentality of the foreign State, and so, a “separate entity”, in the circumstances. However, domestic analogies cannot control whether, for the purposes of the Foreign States Immunities Act, a person should be found to be a separate entity of a foreign State: cf Trendtex [1977] QB 559; Adeang (SCV 8 July 1992) per Hayne J at 4.
105 The literal, or natural and ordinary, meaning of “an agency or instrumentality of a foreign State” in the definition of “separate entity”, is qualified by the exclusion, in the same definition, that prevents that expression referring to a department or organ of the State’s executive government. The person that is the agency or instrumentality must be separate and distinct from that executive government while at the same time he, she or it performs some role that the foreign State has chosen for that person. Part II of the Act identifies a wide range of roles and activities in Australia that may involve foreign States and their separate entities that do not enjoy the general immunity from proceedings provided for in s 9. Those roles and activities include the foreign State or a separate entity having an interest in, or possession of, or using immovable property in Australia (s 14(1)), owning, or infringing the rights of others in respect of, intellectual property here (s 15) and being a member of a corporation or partnership incorporated or formed here (s 16).
106 Thus, for example, if a foreign State were a shareholder holding partly paid shares for investment purposes in an Australian corporation that had begun to be wound up, s 16(1) would preclude it claiming immunity from liability to pay calls made by the liquidator to pay the outstanding amount due to the corporation in respect of those shares. If a separate entity held the shares on the same basis for the foreign State, it too would not be immune by dint of s 16(1). In addition, s 11 opens a wide area in which foreign States and their separate entities have no immunity. Therefore, the purpose fulfilled, or the activity pursued, by an agency or instrumentality of a foreign State can range over a wide field.
107 The evident purpose of the Foreign States Immunities Act was to replace the common law of sovereign immunity with a considered regime of immunities, and exclusions from immunity, in respect of the subject-matters covered by that Act. The construction of the Act should be approached without introducing unstated pre-conceptions derived from the common law rules that it replaced. In ASIC v DB Management Pty Ltd (2000) 199 CLR 321 at 338 [34]-[35] Gleeson CJ, Gaudron, Gummow, Hayne and Callinan JJ said:
“34 In Project Blue Sky Inc v Australian Broadcasting Authority ((1998) 194 CLR 355 at 384 per McHugh, Gummow, Kirby and Hayne JJ), after pointing out that the duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have, the majority said:
“Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning of the provision. But not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning.”
35 It may be added that, if a party contends that a provision, by reason of such considerations, should not be given its literal meaning, then such a contention may lack force unless accompanied by some plausible formulation of an alternative legal meaning.”
108 The literal meaning of “an agency or instrumentality of the foreign State” is that the person is acting for, or being used by, the State as its means to achieve some purpose or end of that State. It is possible to appoint a person as an agent to act in only one dealing or transaction, and even then for only a very short time. An individual might be appointed by a foreign State to travel to Australia from a third country to buy land or to sign a contract. In such a case, the Court would need to consider whether in doing so, the individual was a separate entity by having regard to all the circumstances. Thus, in order to determine whether a person is a separate entity, within the meaning of s 3(1) of the Act, a Court will need to examine the whole relationship between the person and the foreign State in respect of the facts, matters or circumstances for which a claim to that status is made.
Extrinsic materials concerning the construction of “separate entity”
109 All the parties referred to parts of ALRC 24, the Explanatory Memorandum and the Minister’s second reading speech as providing support for their respective positions. This extrinsic material can be used to assist in ascertaining the meaning of a provision in an Act pursuant to s 15AB(1) of the Acts Interpretation Act 1901 (Cth). The Court can consider such material to confirm that the meaning of the provision is the ordinary meaning conveyed by the text (s 15AB(1)(a)). It can also be used to determine its meaning where it is ambiguous or obscure or, secondly, the ordinary meaning, taking into account its context in the Act and the purpose or object underlying the Act, leads to a result that is manifestly absurd or is unreasonable (s 15AB(1)(b)). The parties also referred to a number of common law authorities.
110 The ALRC explained its basic approach and key definitions in its summary at the commencement of ALRC 24. It said that since the proposed legislation significantly restricted the immunities of foreign states, “… defining the foreign state becomes less important.” At the same time, the ALRC noted that immunity “should also be extended, though on a more restrictive basis, to a ‘separate entity’” (ALRC 24 at p xvi [3], [5]). The ALRC reviewed the then current common law position and recent statutory changes in a variety of jurisdictions, including the United Kingdom. It concluded that there were good reasons for restricting immunity of foreign states within proper limits (ALRC 24 at [45]). The ALRC remarked on the need to alter the then common law rules because in some respects they were unsatisfactory or too narrow. It pointed to the absence of international consensus about the scope of “governmental” or “sovereign” acts (ALRC 24 at [58]).
111 The ALRC adopted an approach to the drafting of its Bill, that became the Act, similar to that in the 1978 United Kingdom Act (ALRC 24 at [65]). The ALRC explained:
“Accordingly the proposed Australian legislation should provide that a foreign state is immune except as provided in the legislation. The exceptions should be designed so as to reflect not a single governmental/commercial dichotomy but rather the full range of considerations outlined in Chapter 3. The content and formulation of these exceptions will be dealt with in Chapter 7.”
112 The ALRC discussed the position of agencies, instrumentalities and other separate entities and the definitions of state organs and separate entities in ALRC 24 at [71]-[72]. It noted that there was no simple test capable of determining which persons were entitled to immunity and which were not. The ALRC recognised that the treatment of separate entities in the United Kingdom legislation was also unsatisfactory because it “merely restates the difficulty and leaves it for the courts to resolve” (ALRC 24 at [71]). The report discussed departing from the United Kingdom model stating (ALRC 24 at [72]-[73]):
“72. As to the second category it is recommended that the expression ‘sovereign authority’ be replaced by the expression ‘agency of a foreign state’ (cf State Immunity Act 1982) (Canada) s 2). This will comprise all agencies of the foreign state which are not departments or organs of the state because the degree of government control is insufficiently close. There will be no formal requirement that the agency show that it is exercising ‘sovereign authority’, although it should clearly be relevant that the entity is exercising what are on any view governmental functions (eg immigration control). It is not intended that ‘agency’ be interpreted as requiring a precise relationship of principal and agent in the technical common law sense. Rather it is expected that a court would consider whether the entity is exercising governmental functions on behalf of the foreign state. However there is no justification for extending immunity to separate entities which are corporations established under Australian law or who (in the case of natural persons) are Australian citizens. These should be specifically excluded from the definition of ‘separate entity’.
73 The Distinction Between Foreign States and Separate Entities. Following the United Kingdom approach it is recommended that entities in the first category be assimilated to the foreign state for all purposes. Those in the second category, separate entities, would be less privileged in a number of ways, which will be spelt out at various points later in this Report (see para 89, 138, 152). In assessing these recommendations on agencies and separate entities, it should be noted that the significance of the problem of which bodies are entitled to foreign state immunity has been considerably reduced by the move to restrictive immunity. When absolute immunity was the rule, a decision that the body was entitled to foreign state immunity was determinative of the litigation. Under restrictive immunity such a decision merely leads to the further question whether, had the disputed act been done by the foreign state itself, immunity would have been available. Under the restrictive rule which applies at common law and which is recommended in this Report, the activities of agencies and separate entities will seldom be of a kind which are immune when performed by the state itself.” (emphasis added)
113 The emphasised passages above provide some support for the literal meaning. The ALRC did not appear to suggest a prescriptive or determinative set of criteria to determine whether a person is a separate entity. Indeed, the just emphasised passages from its report suggest that the ALRC conceived that a court would have regard to all of the evidence and arrive at a factual conclusion whether or not the person was a separate entity. Hence, the report referred to matters, such as whether the person was exercising “governmental functions as relevant to the court’s consideration” (ALRC 24 at [72]). The ALRC was also mindful that its proposal for restricted immunity (as is now provided in Pt II of the Act) would have the practical consequence that separate entities would rarely find refuge in the recognition of immunity for the kinds of activity, even of a governmental character, from which Pt II had withdrawn that immunity.
114 The Explanatory Memorandum for the Bill was circulated in the House of Representatives by the Deputy Prime Minister and Attorney-General, the Hon Lionel Bowen MP. It was in the same form as drafted by the ALRC as part of the ALRC 24. The Explanatory Memorandum discussed the definition of “separate entity” as follows:
“‘separate entity’: A separate entity of a foreign State is a person or body corporate (not being an Australian national or corporation) acting as an agency or instrumentality of the foreign State. It may include State-owned corporations where these act as agencies for the State. Australian examples might include the Law Reform Commission, CSIRO, OTC, the Export Finance and Insurance Corporation or the Australian Meat and Live-stock Corporation. Sub-cl (3) provides that an entity which acts as an agency or instrumentality of more than one State is to be treated as a separate entity of each of them. References: Report, para 72-4; Can s 2; cf SIA, s 14.”
115 In moving the second reading of the Bill, the Attorney-General said (Hansard, House of Representatives, 21 August 1985, p 142):
“The proposed legislation will deal also with the immunities of ‘separate entities’ such as state trading corporations or investment commissions that are agencies or instrumentalities of the foreign state but have a separate legal existence. ‘Separate entities’ are given, in most respects, the same immunity as the state. In practice, this means that entities with exclusively commercial functions – the majority of those involved in dealings with Australia – will lack immunity.” (emphasis added)
116 These extrinsic materials do not cast any doubt that the literal construction of “separate entity” reflects the intention of the Parliament.
117 During the half century preceding the preparation of ALRC 24, the treatment of sovereign immunity in public international law had been transformed from a doctrine of absolute immunity to one of restrictive immunity. By 1952 the United States of America had changed its policy towards the grant of immunity to foreign governments in the Tate letter, written by Jack Tate, the State Department’s acting legal adviser to Philip Pearlman, the acting Attorney-General: see the historical discussion by Lord Wilberforce in Playa Larga (Owners of Cargo Lately Laden on Board) v I Congreso del Partido (Owners) (“I Congreso del Partido”) [1983] 1 AC 244 at 261B. Lords Diplock, Edmund-Davies, Keith of Kinkel and Bridge of Harwich agreed with his speech on the principles. Lord Wilberforce explained that this development had arisen from the willingness of states to enter into commercial, or other private law, transactions with individuals (i.e. non-state parties). He said that the restrictive doctrine had two main foundations; first, it was necessary in the interests of justice to permit individuals who had transactions with a state to bring proceedings arising out of the transactions in the courts; secondly, such proceedings would not involve any challenge to, or inquiry into, any act of sovereignty or governmental act of that state. Lord Wilberforce explained that such proceedings posed no threat to the dignity of the foreign state nor did they interfere with its sovereign functions: I Congreso [1983] 1 AC at 262C-E.
118 Lord Wilberforce described the judgment of Lord Denning MR in Trendtex [1977] QB 529 as a “landmark authority”. He said that the value of Lord Denning’s decision lay in the reasoning that if the act in question was of a commercial nature, the fact that it was done for governmental or political reasons did not attract sovereign immunity: I Congreso [1983] 1 AC at 261G-261A. Lord Wilberforce recognised that, under the restrictive theory the activities of states could not always be compartmentalised into trading and governmental activities and that where the two overlapped the court would have to attribute one or other characterisation. This process required the court first to characterise the activity into which the state entered. If it appeared to have commercial or private nature, then the state would have to prove that the act complained of was outside that sphere, and within that of sovereign action ([1983] 1 AC at 264E-265B). When his Lordship was considering the facts in one of the appeals before the House of Lords, he described the instructions given by the Republic of Cuba, as owner, to the operator of a cargo ship as being instructions that may well not have been given by anyone but a state, and he continued ([1983] 1 AC at 268H-269B):
“… it is almost certainly the case that there was no commercial reason for the decision. But these consequences follow inevitably from the entry of states into the trading field. If immunity were to be granted the moment that any decision taken by the trading state were shown to be not commercially, but politically, inspired, the "restrictive" theory would almost cease to have any content and trading relations as to state-owned ships would become impossible. It is precisely to protect private traders against politically inspired breaches, or wrongs, that the restrictive theory allows states to be brought before a municipal court. It may be too stark to say of a state "once a trader always a trader": but, in order to withdraw its action from the sphere of acts done jure gestionis, a state must be able to point to some act clearly done jure imperii.” (emphasis added)
119 His Lordship’s analysis demonstrates that the common law doctrine of restrictive immunity had come to concern itself principally with affording sovereign immunity in cases of apparently commercial or private acts or activities only where the state or state actor could show clearly that the conduct complained of was, in fact, the assertion of an act of state or sovereignty. Such an act was distinct from activity that was open to any person (individual or corporation) however unlikely it may be such a person would have engaged in it.
120 While the ALRC had regard to this development of the common law, it crafted a careful scheme in Pt II of its Bill that became the Act that removed the immunity entirely if proceedings in Australia concerned acts, activities or matters within the exceptions in ss 10-22. As the Attorney-General’s second reading speech made clear, in practice, separate entities involved in pursuing commercial functions will lack immunity (Hansard, House of Representatives, 21 August 1985, p 142). Thus, any effect of the extension of immunity to a wider class of separate entities by the Act is likely to be of little moment because of the width of the exceptions provided in Pt II of the Act: see too Nygh’s Conflict of Laws in Australia (8th ed) ed: M Davies, AS Bell and PLG Brereton at [10.08].
121 In Anti-Cancer Council 175 CLR at 448 Mason CJ, Brennan and Gaudron JJ discussed the meaning of the expression “State instrumentality” in the rules of an organisation of employees registered under the Industrial Relations Act 1988 (Cth). They said that that expression had much the same meaning in popular usage as in a legal context and continued:
“That meaning directs attention to the purpose or end served, so that a body is a State instrumentality if it is empowered to and does, in fact, serve some State government purpose (Electricity Trust (SA) v Linterns Ltd [1950] SASR 133 at pp 139-140 per Ligertwood J, cited with approval in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at p 133 per Barwick CJ. See also Federated Municipal and Shire Council Employees’ Union of Australia v Melbourne Corporation (“the Municipal Employees’ Case”) (1919) 26 CLR 508 at pp 530-531 per Isaacs and Rich JJ). And that is so even if it is neither a servant nor an agent of the State (The Municipal Employees’ Case. See also Launceston Corporation v The Hydro-Electric Commission (1959) 100 CLR 654 at pp 662-663 per Dixon CJ, Fullagar, Menzies and Windeyer JJ).”
122 They held that the Anti-Cancer Council was not a State instrumentality within the meaning of the rules despite its having been established under an Act of the Victorian Parliament and receiving a small percentage of its annual income from the Government of Victoria. The State Act required hospitals and others to send to the Council reports of cases of cancer, but imposed no obligations on the Council with respect to the reports. Their Honours characterised the requirement imposed on the hospitals and others to send reports to the Council as directed to “… facilitating the Council’s other activities and not as the source of a function to be performed for and on behalf of the State” (175 CLR at 448).
123 In Electricity Trust [1950] SASR at 139-140 Ligertwood J found the Trust had independent powers and was not subject to the control of the Governor-in-Council or any Minister of State. However, after considering a dictionary definition of “instrumentality”, he held that the Trust was an instrumentality or an agency of the Crown “… because it serves the purpose of the Crown in managing Crown assets in the interests of the public”.
Conclusions on construction of “separate entity”
124 It follows from the preceding discussion that the primary judge erred in construing the definition of “separate entity” as containing requirements that the foreign State own and control a corporation to the point where it exerted a real or tangible level of day-to-day management control over it. Those requirements are not contained in express or implied terms in the Act. They are not necessary to give the Act effect. They are inconsistent with the express provision that an individual, who cannot be owned, can be a separate entity. They assimilate the position of a corporation to an organ of the foreign State, contrary to the exclusion of such a body in the express words of the definition.
125 Additionally, s 3(2) expressly recognises that a separate entity may not be controlled at all by a single foreign State. It provides that where a person is an agency of more than one foreign State it “… shall be taken to be a separate entity of each of the foreign States”. Thus, where such a person can act by a majority vote of its constituent foreign States, it is taken by force of s 3(2) to be acting as a separate entity of each State, even in respect of a particular State that dissented in the vote on the action for which immunity of the entity is being considered. The deeming in s 3(2) operates regardless of the exercise of, or capacity to, control the separate entity by the foreign State in particular circumstances.
126 It would be contrary to the express terms of s 3(2) to hold that because a person was a separate entity of more than one foreign State, none of which had power to exercise day-to-day control over its management, that it was not a separate entity. His Honour was wrong to use the criterion of day-to-day control as determinative. And, although ordinarily, foreign States that act through a single separate entity may each have a particular governmental purpose informing its participation, it will not necessarily be the case that the participation of all the other States will be actuated the same purpose or that all of them will even have a predominantly governmental purpose for participating.
127 Usually, it will be relevant to consider whether the foreign State owns all or part of any corporation’s issued capital either directly or beneficially. It will also be relevant, usually, to consider the extent to which any such ownership interest confers power on the State to control aspects of the corporation’s affairs, such as by being able to control the results of any resolutions at general meetings or to take any role in the management of the corporation’s business: cf Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 472E-478G per Black CJ, von Doussa and Cooper JJ and SGH Ltd v Federal Commissioner of Taxation (2002) 210 CLR 51 at 70-71 [23]-[26], 73 [32] per Gleeson CJ, Gaudron, McHugh and Hayne JJ and Adeang (SCV 8 July 1992) at 4-5 per Hayne J and the authorities there discussed. However, these particular considerations are not exhaustive and, in some cases, may not be of any, or any great, relevance.
128 A person can be a separate entity for a one-off transaction, act or activity. The correct approach is to consider, on the whole of the evidence, whether the person is acting for, or being used by, the foreign State as its means to achieve some purpose or end of that State in the relevant circumstances.
Is Garuda a separate entity? - the primary judge’s findings
129 The primary judge referred to Garuda’s unchallenged affidavit evidence by three deponents. He found that three of the five members of Garuda’s board of commissioners were senior officials in Indonesian governmental departments or ministries while a fourth was a former such official. His Honour said that Garuda relied principally on the affidavit of Simon Butt, a senior lecturer in Indonesian law at the University of Sydney. He reviewed Indonesian Law No 19 of 2003 (Law No 19) on State owned enterprises, penjelasam (an elucidation) being the equivalent of the explanatory memorandum for that law, together with Garuda’s articles of association and register of shareholders. Mr Butt explained that a BUMN persero was a State owned enterprise (as signified by the acronym BUMN) with a capital divided by shares (as signified by the word “persero”). A “persero” may be majority or wholly owned by the State. The other form of State owned enterprise is known as a “perum” which has no share capital and must be wholly owned by the State.
130 The primary judge found that 95.5% of Garuda’s issued capital was owned directly by the Republic of Indonesia and thus he held it was a BUMN persero. He found that Arts 1 and 2 of the Law No 19 defined a BUMN persero as:
a State owned enterprise;
taking the form of a limited liability company whose capital was divided into shares all or at least 51% of which are owned by the State;
having the primary objective of pursuing profit; its other objectives can include contributing to the national economy and benefiting to the public by providing high quality goods and services.
131 His Honour found that Art 2 of Law No 19 also provided that in certain circumstances a BUMN persero can be entrusted with a special task of performing public services, a subject also provided for in Art 66. The penjehasam for Art 66 stated that if a BUMN was entrusted by the government with a special task, that financial studies showed it could not carry out consistently with its objective of pursuing a profit, the government had to reimburse the BUMN all costs it incurred and compensate it for its expected (but unearned) margins.
132 The primary judge found that under Law No 19 the relevant Minister:
had power to propose that a persero be established;
acted as a shareholder at general meetings of shareholders where the persero was majority owned by the State;
could delegate his or her powers to a person to represent the Minister at a general meeting of shareholders. The delegate required the prior approval of the Minister to make decisions on prescribed matters, including increases in capital, amendments to the articles, plans to use profits, investments and funding;
could stipulate conditions and procedures for appointment and removal of directors and commissioners. (Under Law No 19, the general meeting of a persero appointed and dismissed its directors and commissions).
133 As noted above, the primary judge concluded that Garuda had not satisfied his test of day to day control by the Indonesian Government. In obiter dicta he also held that, first, the mere conduct of a commercial airline was not sufficient to constitute the performance of functions of a public character. Secondly, he determined that even if that were capable of amounting to a government function, there was no evidence that demonstrated whether any governmental function or task had been entrusted to Garuda. He found that the most Garuda’s evidence showed was that in theory Garuda could operate on the wishes of the government of Indonesia. For example, Garuda had relied on the fact that four of the five members of its board of Commissioners were senior members of the executive government of Indonesia as making good its argument that the airline performed governmental functions. However, his Honour observed that Garuda’s evidence was not directed to establishing how, in fact, Garuda operated but remained at a theoretical level.
134 Thirdly, the primary judge rejected Garuda’s argument that it was a state owned corporation fulfilling a role in Indonesia analogous or comparable to that of the then Australian Overseas Telecommunications Commission to which both the ALRC and the Explanatory Memorandum (ALRC 24 at Appendix A at p 131: Explanatory Memorandum re cl 3(2)) had referred in giving an example of a separate entity acting as agent for the State. His Honour said that it was likely in 1984 that the ALRC considered that its examples, such as the Overseas Telecommunications Commission, as they were then run and operated, all exercised “the necessary level of public functions”.
Garuda’s submissions
135 Garuda argued that the primary judge failed to have regard to the provisions in its articles that, it contended, demonstrated the means by which Indonesia controlled it. It submitted that Art 3 outlined the purposes and objectives of Garuda were to carry on business as an air carrier and to optimise the utilisation of its resources so as to achieve profits and increase the company’s value.
136 Garuda referred to provisions in its articles dealing with its issued capital (Arts 4, 8), including Art 4(2) as at 7 August 2008 that identified the shareholders as Indonesia (holding 95.5%) of the issued shares and two perseros holding the balance, and the roles of the directors, commissioners and shareholders (Arts 10, 11, 14, 15, 26). Garuda also argued that its Articles provided that the Commissioners were responsible for supervising management policy, and the conduct of the management in general. It noted that the board required written approval of the Commissioners to enter into some financial transactions involving loans, some financial transactions and joint ventures. It referred to the provisions applying to the distribution of profits, including the requirement that all net profits, after providing for possible loans, be distributed to the shareholders unless otherwise determined in a general meeting.
137 Garuda also argued that the Minister had significant control over the establishment and running of a BUMN persero including power to appoint and dismiss directors and commissioners. Garuda contended that it followed that the above indicia demonstrated that the Republic of Indonesia exercised complete control over its activities, relying on what Bowen CJ had said to this effect in Re Application of News Corp Ltd (1987) 15 FCR 227 at 242. Garuda also contended that its articles and the purposes and objectives they contained demonstrated that it performed governmental functions. It also emphasised that it remained a BUMN persero and was thus regarded by Indonesia itself as fulfilling government functions.
138 Garuda also argued that because Indonesia is a disparate collection of islands, it served a recognised government function of providing a means for the country’s people to communicate, trade and travel using its air carriage services. It contended that the Court should infer that this was the, or a, significant purpose of the Indonesian government in owning and operating its own airline. Garuda submitted that this was why it should be found to be an agency or instrumentality of Indonesia.
Is MAS a separate entity? – The primary judge’s findings
139 MAS relied on two affidavits before his Honour; one by Ms Shahjanaz Kamaruddi, its company secretary, and the other by Mr Germal Singh Khera Pertap Singh, its general manager, government and industry relations. The primary judge distilled the evidence led by MAS into six main categories, namely:
the shareholding in MAS;
the existence of a “special share” in MAS and the powers attached to it;
directorships of MAS and its shareholders;
the designations of MAS as a Government Linked Company and its shareholders as Government Linked Investment Companies (also known as a “GLC” and “GLIC” respectively);
numerous examples of government “involvement” in the conduct of MAS’s business, described as “vignettes” by the Commission’s counsel;
MAS’s tax free status in Malaysia.
140 From about 1966 to 1971 the Governments of Malaysia and Singapore jointly owned a company that carried on business domestically and internationally as Malaysia-Singapore Airlines. In about 1971, the governments decided to split the assets of that company and to operate separately Malaysia Airlines and Singapore Airlines. When MAS was incorporated on 3 March 1971 its sole shareholder was the Minister of Finance of Malaysia (the Minister). The Minister had been incorporated as a corporation sole under s 39 of the Minister of Finance (Incorporation) Act 1957. The current Minister is also the Prime Minister of Malaysia.
141 In 1985 MAS was listed on the Kuala Lumpur Stock Exchange (now known as Bursa Malaysia) and since then the Minister has always held, directly or indirectly, not less than 55% of the issued shares in MAS. During the last decade the Minister has beneficially held between about 60% and 80% of MAS’s issued capital, indeed, since 2003, at least 80%. The exact holding has varied, presumably through small sales and purchases.
142 By 2003 the Minister had ceased to hold any shares in MAS in his own name. Instead, he has held his interest in MAS principally through three Government Linked Investment Companies, namely Khazanah Nasional Berhat (“KNB”), Penerbangan Malaysia Berhad (“PMB”) and the Employees Provident Fund (“EPF”).
143 All the issued shares in KNB are owned by the Minister in compliance with the requirement to this effect in its articles of association. Its current directors include the Minister (i.e. the Prime Minister), the Deputy Finance Minister and the Minister in the Prime Minister’s Department. KNB, in turn, owns all the shares in PMB. The current directors of PMB include the Deputy Secretary-General of the Ministry of Finance, the chief financial officer of and an executive director of KNB. EPF was a corporation established by the Employees Provident Fund Act 1991 for the purposes of managing an eponymously named fund into which contributions are paid by employees and their employers. Under its Act, directors of EPF are appointed by the responsible Minister to hold office for such terms as he or she determines. That Minister may also give the board of EPF directions of a general nature, not inconsistent with the Act, as to the exercise of its functions and powers, and EPF must give effect to these. The responsible Minister also appoints persons, one of whom must be a representative of the Ministry of Finance, to the EPF’s Investment Panel. The Panel is responsible for matters pertaining to investments of the Fund and it is subject to directions issued to the EPF and approved by the responsible Minister.
144 The articles of MAS create one special share. It must be held by the Minister or another Minister or representative of the government of Malaysia. The special share entitles the holder to:
appoint or nominate three government appointed directors and to nominate one of them as chairman;
receive notice of, attend and speak at, general meetings of MAS but the special share does not carry any right to vote;
decide whether to consent to any proposed disposition of assets worth more than 25% of MAS’s net assets, or to any other acquisition, takeover, amalgamation, merger or change of operations that, due to its significance, is required by the Bursa Malaysia to be approved of by MAS in general meeting.
145 MAS currently has a board of ten directors. These include the chairman and two others appointed by the Minister, a retired civil servant from the State of Sabah and the chief executive officer of an agency of the State of Sarawak. Although MAS’s articles do not require the States of Sabah and Sarawak to be represented on its board, since 1986 directors representing each of them have been on the board.
146 Article 154 is in the familiar form that the business of the company is to be managed by the directors. MAS’s articles also provide that:
they apply equally to the government appointed directors;
questions at directors’ meetings are to be decided by majority, each director having one vote and, in the case of an equality of votes, the chairman having a casting vote.
147 His Honour found that since September 2001 MAS, in common with other international airlines, had faced a series of challenges affecting its commercial viability. This led to a number of financial initiatives, including the Malaysian government providing assistance. In 2002 the Malaysian Government embarked on its Widespread Asset Unbundling Scheme. That scheme comprehended a reconstruction of MAS involving the sale to, and lease back from, PMB of 73 aircraft. The aircraft were valued at RM5.109 billion. As part of this reconstruction MAS transferred RM7 billion of its liabilities to PMB. The primary judge found that on completion of the reconstruction, PMB became the designated government holding company of MAS.
148 The primary judge found that both PMB and its parent which wholly owned it, KNB, were Government Linked Investment Companies. In May 2004, the Malaysian Prime Minister made the transformation of government linked companies a national priority. The purpose of the transformation process was to reorganise government linked companies over 10 years so that they would be able to compete efficiently with their private sector competitors and generate greater returns for the State. MAS was a government linked company.
149 In January 2005, the Malaysian government established the Putrajaya Committee on GLC (i.e. Government Linked Companies) High Performance. That committee comprised five government linked investment corporations including KNB and EPF. The primary judge referred to the Putrajaya Committee’s definition of government linked companies as “… companies that have a primary commercial objective and in which the Malaysian Government has a direct controlling stake”. That definition comprehended not only the government’s ownership share but also its ability to appoint board members, senior management and to make major decisions such as entering into contracts, strategy, restructuring, financing, acquisitions and divestments for the company either directly or through a government linked investment company shareholder. The latter class of company was defined as one that first allocated some or all of its funds to investments in government linked companies, secondly was under the influence of the Malaysian government in appointing or approving board its members and senior management who reported directly to that government and, thirdly, to which the government might provide funds for operations, guaranteeing capital and some income placed by unit holders. His Honour noted that in another document entitled “Initiative 3, Government-Linked Investment Company, Monitoring and Management Framework”, the role of government linked investment companies was described as:
being professional shareholders that played a critical role in guiding and influencing government linked companies; and
governing government linked companies by using a range of influence levers, principally voting at annual or extraordinary general meetings and using any influence from their representatives on the boards.
150 The Government Linked Company Transformation Program was described as led by the Government but as fully observing the rights and governance of shareholders and other stakeholders. His Honour also described the business turnaround plan that MAS’s managing director announced to staff and certain external stakeholders in late February 2006. The plan described MAS as “a largely state-controlled airline”. The managing director noted that MAS was constrained by the government from freely changing destinations, routes and pricing on domestic services and that it did not feel able to act freely in respect of international services. He observed that serving the market, as MAS did, “certainly meets the national interest, but it does not necessarily fulfil our commercial interests”. The managing director expressed the hope that the government and MAS would establish a workable mechanism to ensure that both the former’s social objectives and the airline’s commercial ones were catered for, guided by the transformation program. The plan noted that with government consent, MAS would increase its domestic prices, for the first time in 13 years, in 2006. The plan identified the government as one of its seven named stakeholders saying that: “MAS will continue to carry the flag for Malaysia”.
151 The primary judge described the interactions between MAS and the government in relation to management decisions. MAS’s managing director and its general manager, government and industry relations, had regular meetings with the Minister for Transport to brief him and keep him informed of developments at MAS. The managing director also met, from time to time, with the Prime Minister who was also the Minister for Finance, Chairman of KNB and the Head of the Economic Council.
152 His Honour found that for many years MAS’s managing director, or his delegate, had attended a weekly post-cabinet meeting with the Minister for Transport, other senior persons in that department and the heads of other Malaysian agencies that reported to it. Those meetings involved discussions about operational and policy matters concerning MAS including whether MAS should fly, or continue to fly, on particular routes, ticketing and reservation issues, in-flight food, aircraft purchases and leasing arrangements, aircraft maintenance, fare prices on domestic routes, revenue and profit and loss. In addition, his Honour found that MAS’s managing director’s delegate attended weekly pre-Cabinet meetings with the Minister for Transport, from time to time, usually to assist the Minister in finalising Cabinet briefing papers in relation to MAS. However, MAS only attended the pre-Cabinet meetings if a particular issue relating to it were likely to be discussed at the following Cabinet meeting. In addition, MAS submitted to the Ministry of Transport an annual budget business operating plan. If the Government did not approve of any part of that plan, it raised the issue in the weekly post-Cabinet meetings or in correspondence, such as when, in 2006, MAS proposed to reduce the weekly number of flights between Kuala Lumpur and London.
153 On 24 April 2006, the managing director wrote to the government stating that in accordance with its business turnaround plan, MAS proposed to terminate flying on a number of unprofitable international routes. In the letter, after referring to previous discussions, he said that “… should the Government for strategic or other reasons require [MAS] to continue operating any of these services …” the government had suggested that it would provide financial compensation. The routes included Kuala Lumpur to New York and Los Angeles.
154 Following this letter, at post-Cabinet meetings the managing director’s delegate was told that Cabinet wanted MAS to continue to fly on the New York and Los Angeles routes to see if MAS could improve returns from those services. MAS continued to press the Minister to allow it to cease flying those routes because of the heavy losses it was sustaining. At a post-Cabinet meeting, chaired by the Minister for Transport held on 11 October 2006, MAS was told that Cabinet wanted it to reconsider its position. Thereafter, MAS continued to operate the New York and Los Angeles routes while making regular presentations and providing financial data to the Government in support of its requests to be allowed to cease those services. Finally, in July 2009, in a post-Cabinet meeting, MAS was told that the Government approved it ceasing to fly to one of those two destinations. Only then did MAS cease flying to New York, but it continued its services to Los Angeles.
155 His Honour also found that MAS’s board minutes recorded discussions that reflected MAS’s communications with the government about its business. These included statements that:
the government had decided that MAS should not implement particular pricing strategies;
MAS should seek guidance from the Prime Minister, Deputy Prime Minister, Minister for Transport and the Second Finance Minister on which option MAS should take for obtaining delivery of new Airbus A380 aircraft;
the EPF had requested that its chairman be nominated as a director of MAS. The MAS board decided to consult KNB because of the government linked companies transformation program requirement that the number of board members should not exceed 10.
156 In addition, MAS’s 2005 annual report discussed the issue of its domestic route rationalisation saying that “… as the national flag carrier, [MAS] has a social responsibility to the people of Malaysia”. That report stated that the Government had maintained the ticket price on some domestic routes without allowing MAS to increase prices in line with inflation and rising costs. It stated that “… of the 118 domestic routes flown in 2005, only 4 were profitable”.
157 In early July 2008, the Malaysian government entered into an agreement with MASwings, a wholly owned subsidiary of MAS. That provided for MASwings to conduct rural air services on non-economic routes to remote and sparsely populated areas in Sabah and Serawak using government funding to enable the operation to be established. MAS referred to its assumption of these routes in its 2008 annual report as an aspect of its social responsibility, as the national carrier, to provide such services through MASwings to remote and isolated locations and states.
158 The primary judge also referred to the statement of corporate governance in MAS’s 2008 annual report that emphasised the fiduciary duties and responsibilities of its directors, including their “first and foremost” responsibility for determining MAS’s long term direction, business objectives and strategies. His Honour also found that in December 2006, the Ministry of Finance had granted MAS an exemption from income tax from all sources up to 2015.
Separate entity – MAS’s submissions
159 MAS argued, that the primary judge should have found that the Malaysian government controlled it. First, it contended that the government through its control of KNB, PNB and EFP could use its voting power at a general meeting to appoint all the remaining directors, in addition to the three whom the special share entitled the Minister or other government representative to appoint. Secondly, the special share gave the government control over any major decision that MAS might make. MAS argued that these characteristics showed that it was no ordinary company run for the benefit of private citizens. MAS pointed to the fact that KNB described itself as “the investment holding arm of the Government of Malaysia” and that its main objective was “to promote economic growth and make strategic investments on behalf of the Government which would contribute to nation building”. KNB stated that it was:
“… the key agency mandated to drive shareholder value creation, efficiency gains and enhance corporate governance in companies controlled by the government commonly known as Government Linked Companies.” (emphasis added)
160 Thirdly, MAS submitted that the evidence of interactions between it and the government demonstrated that the government used MAS for its ends and controlled it. MAS argued that the government was able to tell it to continue to fly on unprofitable routes. It relied on the fact that its operations were discussed at weekly post-Cabinet meetings including day-to-day matters, such as in-flight food, ticketing and reservations. It contended that the Cabinet decided to allow MAS to cease flying to one, not both, of New York and Los Angeles. MAS referred to evidence that the government instructed it to order an Airbus A330-200, as a private jet, as part of a larger order or aircraft for MAS’s operational needs. The purpose was to allow the government to benefit from a considerable discount that MAS would receive, although the government would pay what was due to the vendor for that jet.
161 MAS relied on the totality of the evidence as demonstrating that the government controlled it through its voting power, special share rights and its detailed examination of MAS’s operations particularly in the weekly post-Cabinet meetings.
Separate entity – The Commission’s arguments
162 The Commission argued that the airlines had sought to prove that they were agencies or instrumentalities of foreign States by inference. It submitted that the evidence led by each airline was striking for the absence of any direct evidence given by any person on behalf of the governments of Indonesia or Malaysia that either of those governments regarded the airline as one of its agencies or instrumentalities. In particular, the Commission submitted that one might expect a Minister, Ambassador or High Commissioner to give direct evidence asserting that the airline was an agency or instrumentality of Indonesia or Malaysia. Nor did any of the airlines give an explanation for the absence of such evidence. The Commission argued that the inference should be drawn that the evidence of a senior official of those governments would not have assisted Garuda’s or MAS’s cases that each was a separate entity: Jones v Dunkel (1959) 101 CLR 298. The Commission also argued that none of the directors of the airlines had given evidence to support their cases.
163 The Commission argued that there was no direct evidence that any of the airlines performed any particular government function. Rather, it contended, as the primary judge found, that the airlines relied on vignettes of particular but disparate examples. The Commission argued that the primary judge correctly concluded that none of the airlines had proved that the respective governments exercised any actual control over it or that it performed governmental functions.
164 The Commission emphasised that there was a distinction between an investment and a separate entity. It contended that mere ownership of a majority or all of a company’s shares, and the right of control that conferred on the shareholder, did not, of itself, convert the separate personality of the company into its being an agency or instrumentality of the shareholder. And, the Commission argued, the concerns of a shareholder as to the way in which its investment pursued its business and operations, once again, did not, of itself, make the investment an agency or instrumentality of the shareholder. The Commission argued that the identity of a shareholder was not a factor that affected the characterisation of its relationship to its investment.
165 The Commission submitted that the mere power of the government, as a shareholder, to control the airline should not result in a finding that the airline was a separate entity. This was because each airline had its own board of directors that operated as a conventional corporate board. It also argued that if mere power to control were sufficient to make the airline a separate entity, every wholly or majority government owned entity would be a separate entity for the purposes of the definition in the Foreign States Immunities Act. It said that this was not what the Parliament had intended.
The airlines submissions in reply
166 The airlines argued that their governments’ shareholdings in them were not merely passive investments. Garuda referred to the presence of a majority of senior bureaucrats on its board of commissioners. MAS pointed again to the interactions between it and the Malaysian government. In addition, Garuda argued that it was not incorporated under the ordinary companies legislation, but under Law 19 which was specific for majority or wholly owned State corporations. MAS argued that it was intended to make profits for Malaysia and, indeed, the transformation program for government linked companies was directed to this end.
Is Garuda or MAS a separate entity? – Consideration
167 The fact that a government acquires a majority or entire shareholding in a company simply as an investment cannot, of itself, entail the result that the company is not a separate entity for the purposes of the Foreign States Immunity Act. First, s 16 of the Act, in general, removes immunity in so far as a proceeding concerns a foreign State’s membership of a body corporate incorporated in, or controlled from, or having its principal place of business in, Australia (although there are some, presently irrelevant, exceptions). Thus, where the foreign State makes an investment in such an Australian company, it is not immune from proceedings in so far as the proceedings concern that membership, or rights and obligations relating to that membership. Likewise, s 14(1) removes immunity from the foreign State in so far as the proceeding concerns an interest of the State in immovable property in Australia, as well as the use or possession of that property. Again, the mere holding by a foreign State of an interest in real property, such as for investment, makes it amenable to the jurisdiction of Australian courts. In other words, the Act has removed the general immunity conferred on foreign States by s 9 in respect of proceedings concerning property, such as land or shares in companies that the State holds with a sufficient connection to Australia.
168 But for the operation of these exceptions in Pt II of the Act, a foreign State would be immune from the jurisdiction of Australian courts in respect of such investments. However, that does not mean that because a foreign State invests in a company, acquiring majority or sole ownership, the company becomes an agency or instrumentality of the State, even if its proprietary interest may make the State immune from proceedings in respect of it. The holding of an investment usually has the purpose of earning a return or achieving some other end or goal of the investor. But, such a purpose or end does not, by itself, make the investment vehicle an agency or instrumentality of the investor. The investor may be content to allow a company it has acquired to continue to conduct its previous business to earn a return on the investment. The investor may make suggestions to the company’s management and appoint directors to it, yet regard the company as pursing its own ends, as opposed to those of the investor.
Garuda’s position
169 Here, however, it is difficult to see what other purpose Indonesia could have had in incorporating, directly owning 95.5% of, and investing in Garuda, unless it wanted such an airline to conduct the very enterprise it did, and continues to, conduct. Indonesia was the shareholder of almost all of Garuda’s issued capital. Two perseros owned the balance, but there was no evidence as to whether those two perseros were wholly or majority State owned. Even if 49% of each of the two minority perseros was owned by third parties, about 98% of Garuda would be owned by Indonesia. All the shareholders in both Garuda and its two minority perseros were governed by Law No 19, including their purpose and objective as a BUMN under Art 2(1)(c) of “benefit[ing] the public by providing high-quality and satisfactory … services fulfilling the needs of the people”.
170 Indonesia had ultimate control over the boards of directors and commissioners because of its beneficial ownership of all, or almost all, the shares in Garuda. It is a State owned airline, established on a corporate model, under Law No 19 for State owned companies: cf SGH 210 CLR at 70-71 [23]-[26], 73 [32]; NRMA 55 FCR at 472E-478G. Even though Indonesia did not claim immunity through its Ambassador or a Minister, the compelling inference on the whole of the evidence is that Garuda is an agency or instrumentality of that State. Garuda is the means by which Indonesia carried on the business of an airline. That is the end or purpose for which Indonesia used Garuda: cf State Bank 174 CLR at 231-232.
171 It follows that Garuda was and, at all the times in which its conduct is complained of by the Commission, has been a separate entity of Indonesia.
MAS’s position
172 The position of MAS is different from Garuda. First, MAS is a public listed company on Bursa Malaysia, albeit that Malaysia has at all times complained of by the Commission, held a majority of its shares. Malaysia was and remains capable of using its voting power and rights attached to the special share to control MAS. Secondly, MAS is not solely accountable to Malaysia. Rather, it has third party shareholders.
173 The evidence of extensive interactions that MAS’s management has had with Malaysia’s government suggest that the government exercised considerable influence in the management of MAS. The weekly post-Cabinet and other high level meetings between the government and MAS’s senior management give rise to the inference that MAS did not act independently against the wishes or requirements of Malaysia’s government. However, that is not necessarily equivalent to MAS being an agency or instrumentality of the government, given the existence of the minority shareholders and the listing of those shares.
174 It is not unusual in the commercial world for majority shareholders to exert direct influence on the management of companies in which they hold a controlling stake. But that fact, of itself, does not make the company an agent of the majority shareholder, even though it has control of the company’s management. Here, the evidence led by MAS was not from its managing director or any other director. Rather, it led evidence from two subordinate, albeit relatively senior, executives. There was no evidence given by a senior representative of the government of Malaysia, such as its High Commissioner or a Minister, or the managing or any director of MAS about the precise relationship between them either during the period of the cartel conduct complained of, or now. Nor was there direct evidence from such persons about the purpose or end of Malaysia of its investment in MAS and how that is, or has been, affected by the presence of the minority shareholders.
175 It is possible for a foreign State not to be the sole owner of a separate entity, as s 3(2) of the Foreign States Immunities Act recognises. However, when the other owners are not foreign States but investors who acquired and can sell their shares in a public company on a stock exchange, clear evidence is needed before a court can conclude that the company is, despite its independent shareholders, an agency or instrumentality of a foreign State.
176 The fact that the management of MAS generally followed the wishes of the government, including through the weekly post-Cabinet meetings, can be explained as a recognition that through its control of voting and the special share, the government could remove the board and install other directors and, through them, management personnel, who may be more inclined to act in accordance with the government’s wishes. That is a commonplace with companies that have a majority shareholder. But this power and influence does not make the partly owned company an agent of its majority shareholder, even though the company’s management conforms with the majority shareholder’s wishes, or requirements.
177 Before it can make a finding that MAS is a separate entity the Court must be reasonably satisfied of that fact: s 140 of the Evidence Act 1995 (Cth). Such a finding should not be made on inexact proofs, indefinite testimony or indirect inferences: Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 per Dixon J; cf Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466 at 479-482 [29]-[38] per Weinberg, Bennett and Rares JJ; Morley v Australian Securities and Investments Commission [2010] NSWCA 331 at [732]-[739] per Spigelman CJ, Beazley and Giles JJA.
178 MAS failed to show that it is or was a separate entity at the times of the conduct complained of, or the institution of the proceedings. The evidence of the Malaysian government’s control of, and interaction with MAS, in the context of the existence of its external shareholders and public listing, was consistent with MAS co-operating with its majority shareholder and government for the long term interests of MAS’s members as a whole, as it was consistent with it merely acting for, or being used by, Malaysia as that State’s means to achieve some purpose or end of its own. Co-operation by one person that advances another’s objectives, while consistent with agency, is not itself sufficient to establish that the first person is acting for and on behalf, or as the instrument, of the other in the relevant respect. A driver co-operates with other road users and a police officer who signals the driver to act in a particular way. No-one would infer that a driver, who obeys the laws applicable and co-operates with the signals given by the officer, was the agent or instrument of the State or the officer. Of course, the relationship between MAS and the Malaysian State is far more complex than this simple example. Similar considerations arise in considering whether a person acts as, on the one hand, an employee or an agent or, on the other hand, as a contractor, of another: cf: Hollis v Vabu Pty Ltd (2001) 207 CLR 21. However, the Court should be slow to draw the inference that a public listed company, with a significant minority of external shareholders, is simply an agency or instrumentality of a foreign State because the State has, and uses, its influence and voting power to persuade the company to follow particular courses of action or to do certain acts.
179 There was no evidence from the managing director of MAS or any relevant Minister who had the responsibility for the relationship between MAS and Malaysia about that topic. There are other possible reasons why MAS, for example, acted consistently with the Government’s wishes that it fly certain unprofitable routes. After all, Malaysia did not only have power over MAS as a shareholder, it could pass laws through its parliament, and the executive could make regulations, that could affect MAS if it did not co-operate with the government’s wishes: cf I Congress del Partido [1983] 1 AC at 268H-269B.
180 MAS’s evidence failed reasonably to satisfy the test that it was acting for, or being used by, Malaysia as its means to achieve some purpose or end of that State. It follows that MAS did not establish that it was or is a separate entity of Malaysia.
Separate entity – Other issues
181 The Commission also argued that MAS’s evidence concentrated on events much earlier than 2010 when the proceedings against it had commenced. The airlines retorted that the primary judge had not been asked to consider the issue of the relevant time the person claiming to be a separate entity needed to address in order to claim immunity; i.e. whether it had the status at the time of the events complained of in the proceedings or at the time when the jurisdiction of the court was asserted. MAS also argued that the Commission should not be permitted to rely on this argument because it had not filed a notice of contention raising it.
182 The findings above make it unnecessary to decide the question raised by the Commission as to the time when the separate entity must prove it was or is immune. Obviously, by force of s 9 the foreign State is made immune at the time the proceedings are brought. However, ss 37, 40 and 41 contemplate that the character of a foreign State, separate entity or individual at a particular, earlier, time can be significant. The Act may apply to confer immunity because, say, an individual was the head of State when the conduct complained of was done and so had immunity then, even though when the proceedings began he or she no longer held that office. It is not appropriate to consider this issue on appeal when it was not in issue below and further evidence may have been led had it been.
The primary judge’s construction of “commercial transaction”
183 Because he held that Garuda and MAS were not separate entities, the primary judge recognised that he need not decide whether the Commission could rely on the exception created by s 11 for commercial transactions. Nonetheless, his Honour dealt with that question. He considered the Commission’s allegations that each of the airlines had made arrangements or arrived at understandings with other airlines to fix prices for air cargo by imposing a fuel surcharge for certain flights in contravention of s 45 of the Trade Practices Act and that each of Garuda, MAS and MAS Cargo had given effect to one or more of those arrangements or understandings (the cartel conduct).
184 His Honour concluded that the alleged cartel conduct was not a commercial transaction within the meaning of s 11(3) of the Foreign States Immunities Act and that accordingly, if Garuda, MAS or MAS Cargo had been a separate entity, it or they would have been entitled to immunity under ss 9 and 22. The Commission challenged that conclusion in its notices of contention in each appeal.
185 The primary judge approached the construction of s 11, in the absence of Australian authorities, on the basis of the parties’ arguments that the principles were to be gleaned from English decisions on the differently worded s 3 of the State Immunity Act 1978 (UK). That section provided:
“3. Commercial transactions and contracts to be performed in United Kingdom.—
(1) A State is not immune as respects proceedings relating to—
(a) a commercial transaction entered into by the State; or
(b) an obligation of the State which by virtue of a contract (whether a commercial transaction or not) falls to be performed wholly or partly in the United Kingdom.
(2) This section does not apply if the parties to the dispute are States or have otherwise agreed in writing; and subsection (1)(b) above does not apply if the contract (not being a commercial transaction) was made in the territory of the State concerned and the obligation in question is governed by its administrative law.
(3) In this section “commercial transaction” means—
(a) any contract for the supply of goods or services;
(b) any loan or other transaction for the provision of finance and any guarantee or indemnity in respect of any such transaction or of any other financial obligation; and
(c) any other transaction or activity (whether of a commercial, industrial, financial, professional or other similar character) into which a State enters or in which it engages otherwise than in the exercise of sovereign authority;
but neither paragraph of subsection (1) above applies to a contract of employment between a State and an individual.”
186 The primary judge considered that there was no relevant difference in the meaning of “concerns” in s 11(1) of the Australian Act and “relating to” in s 3(1) of the United Kingdom Act. He then applied what Lord Millett had said, obiter dicta, in Holland v Lampen-Wolfe [2000] 1 WLR 1573 at 1587 about the scope of the exception in s 3 of the United Kingdom Act. In that case the United States of America had entered into a contract with an American university to provide educational courses for its military personnel at United States bases in Europe and Asia. Dr Holland, a citizen of the United States, alleged that she had been defamed by a civilian employee of the United States’ Department of Defense, Mr Lampen-Wolfe, who was also a United States citizen, in a memorandum he had written about her teaching work under the contract at a base in England. The whole of the House of Lords held that the proceedings related to the armed forces of the United States while present in the United Kingdom and that the common law applied by force of s 16(2) of the State Immunity Act, under which the United States was entitled to immunity: Holland [2000] 1 WLR at 1576B-C, 1577B-C per Lord Hope of Craighead, 1578D-E per Lord Cooke of Thorndon, 1579C-D, 1581A-C per Lord Clyde, 1581F per Lord Hobhouse of Woodborough and 1585G, 1587D per Lord Millett.
187 However, Lord Millett also said that the commercial transaction exception in s 3(1)(a) of the United Kingdom Act did not exclude the immunity of the defendant acting on behalf of the United States. This was because, as the primary judge noted, Lord Millett characterised the proceedings as not being about the contract but about the allegedly defamatory memorandum: Holland [2000] 1 WLR at 1587F-G (GJ 120). His Honour said (GJ 121):
“Lord Millett went on to say in the same paragraph that the fact that the memorandum complained about the quality of the services supplied under the contract meant that the memorandum related to the contract:
“(b)ut it does not follow that the proceedings relate to the contract, which is what section 3(1)(a) requires. In my opinion the words ‘proceedings relating to’ a transaction refer to claims arising out of the transaction, usually contractual claims, and not tortious claims arising independently of the transaction but in the course of its performance.” (emphasis in original)”
188 The primary judge drew from Holland [2000] 1 WLR 1573, and two other English and Welsh decisions (AIL Limited v Federal Government of Nigeria [2003] EWHC 1357 (QB) at [24], [27]-[28] per Stanley Burnton J and Svenska Petroleum Exploration AB v Government of Lithuania (No 2) [2007] QB 886 at 930 [135], 931 [137] per Sir Anthony Clarke MR, Scott Baker and Moore-Bick LJJ) a principle that the court, first, should characterise the subject matter of the proceedings and, secondly:
“… ask whether the proceeding concerns, or relates to, a commercial transaction. That is to say, what is the subject matter of the proceeding and does it arise out of a commercial transaction as defined in s 11(3) of the Act?”
189 The primary judge characterised the proceedings as a claim by the Commission for a pecuniary penalty under s 76 of the Trade Practices Act against each airline for alleged contraventions of ss 45(2)(a)(ii) and (b)(ii). He held that the effect of the anti-competitive cartel conduct, constituted by the alleged arrangements or understandings between the airlines, was the subject matter of the Commission’s claims. His Honour was prepared to accept that the cartel conduct itself could be seen as amounting to commercial transactions, because they constituted arrangements between the airlines for the price at which air freight services would be supplied to customers. But, he considered that the claims that were the subject matter of the proceedings did not arise out of those transactions but from their anti-competitive effect. He said that the latter arose independently of the transactions in much the same way as the claim for defamation arose independently of the contract in Holland [2000] 1 WLR 1573.
190 His Honour observed that the expression “like activity” in s 11(3) of the Australian Act might:
“… enlarge the scope of the exception to include claims in tort, or proceedings which concern a commercial relationship akin to, but falling short of a contract: see Holland [2000] 1 WLR at 1587 Lady Fox QC: The Law of State Immunity (2nd ed Oxford University Press 2008) at [274]. But this again emphasises the private law or commercial nature of the exception with its focus upon claims by the local party against the separate entity.”
191 His Honour concluded that the exception created by s 11 did not permit a regulator to subject a foreign State or its separate entity to a proceeding within Australia for an alleged breach of the competition laws in Pt IV of the Trade Practices Act arising from entry into, or giving effect to, an anti-competitive arrangement or understanding.
The airlines’ submissions on s 11
192 Garuda and MAS contended that the primary judge had correctly construed s 11. Garuda argued that “concerns”, as used in s 11(1), was a word of connection, but was narrower than other connective expressions such as “relates to” or “in respect of”. Garuda argued that the three examples of contracts in s 11(3) were central to and informed the meaning of “commercial transaction”. It accepted that the definition’s use of “like activities” extended to cases where there was a dispute as to whether a contract had been made. But, it contended that this did not detract from the essentially commercial nature of conduct that fell within the terms of the definition.
193 Garuda argued that a central feature of the concept of “commercial transaction” as used in s 11 was that it enabled the foreign State or separate entity, as a party to a contract, to be sued here by another party to the contract. However, it argued that while the exception provided in s 11 might be slightly broader than claims in contract, it could not extend to civil penalty proceedings. It submitted that such proceedings were quasi-criminal and well outside those contemplated in ALRC 24. Garuda urged that his Honour correctly followed the approach taken by the English and Welsh courts.
194 Additionally, to the contentions of Garuda, MAS argued that the use of the word “transaction” in s 11 denoted a dealing or relationship between the parties to any proceeding for which it made an exception to the general immunity in s 9. It argued that the purpose of this exception was to enable persons who had dealings with foreign States or separate entities to have their rights determined in the courts.
Consideration – s 11
195 Often parties negotiate with each other or their agents before entering into a contract. The negotiations can occur between those who control the actual parties to what will become the contract well before those parties are identified or incorporated. Representations can be made during the course of negotiations that induce one party or its controller to act in a way that he, she or it would not have if the representations had not been made. Quite apart from the application of statutory provisions such as s 52 of the Trade Practices Act, the common law and equity have each provided legal consequences for certain pre-contractual dealings between parties. Thus, a fraudulent representation that induces one party to enter into a contract creates for the injured party, among others, a common law right to damages in an action in tort for deceit (e.g. Gould v Vaggelas (1984) 157 CLR 215), an equitable right to rescind the contract and recover the price and any losses, subject to being able to provide to the offending party restitutio in integrum, i.e. substantially what the innocent party received (Alati v Kruger (1955) 94 CLR 216) and a common law right to sue for breach of a warranty reflecting the representation in the contract (Alati 94 CLR at 222 per Dixon CJ, Webb, Kitto and Taylor JJ). These are everyday features of trade and commerce. Moreover, some of these causes of action are available to, and against, persons who are third parties to the contract as Gould v Vaggelas 157 CLR 215 demonstrates.
196 Ordinarily, provided a sufficient connection is shown, proceedings alleging a common law, equitable and statutory cause of action under Australian law brought against a foreign State (including a separate entity) by a person who has suffered loss or damage by reason of a pre-contractual representation that caused him, her or it to act so as to enter into a contract or to incur a detriment because someone else did (e.g. by guaranteeing or obtaining finance for the contracting party (as s 11(3)(b) and (c) contemplate)) are likely to fall within the exception to immunity created in s 11(1) “… in so far as the proceeding concerns a commercial transaction”. However, this does not answer the present question, namely, whether a regulator can bring proceedings for civil penalties and injunctive relief based on civil contraventions of s 45 arising from the alleged cartel conduct.
197 The construction of the expression “in so far as the proceeding concerns” in s 11 is likely to affect the construction of the same expression throughout Pt II of the Foreign States Immunities Act. The New Fowler’s Modern English Usage (Rev 3rd ed: ed: RW Birchfield; Clarendon Press, Oxford 1998) describes “in so far as” as a complex subordinator that usually means “to the extent that”. The Oxford English Dictionary gives the expression “in so far” the meanings “in such measure or degree (as); to such extent (that)” (“in” preposition sense 39). It gives the verb “concern” the meanings “relate to; be about; affect or involve”. And the Macquarie Dictionary gives a sense for “so far as” as meaning “to such a degree or extent”.
198 The connecting expression “in so far as the proceeding concerns” in s 11(1), and also in ss 12-21, creates a relationship between the exclusion, in the proceeding, of the immunity that precedes it and the factor or circumstance that follows it. The literal, or natural and ordinary meanings of that connecting expression are: to the extent that the proceeding involves, or is about or connected with. These meanings convey a sense that there may be a broad relationship between the exclusion and the identified subject matter of the proceeding in s 11(1).
199 However, the statutory context is important for it seeks to limit the otherwise plenary immunity of the foreign State conferred by s 9. There must be a sufficient degree of connection between the excluded fact or circumstance in each of ss 11-21 and the proceeding to justify the conclusion, in any given case, that the Parliament intended that the immunity would not apply there. Each of the excluded facts or circumstances in ss 11-21 is, itself, a broadly defined or described class. The Parliament intended the Act to remove the pre-existing uncertainty in international law and the common law, as to the operation of the doctrine of sovereign immunity by recognising that unless one or more of the precise and comprehensive exceptions in ss 11-21 applied, the foreign State was entitled to the plenary immunity conferred on it by s 9: cf Zhang v Zemin [2010] NSWCA 255 at [136] per Spigelman CJ with whom McClellan CJ at CL agreed at [174], [157]-[162] per Allsop P.
200 The definition of “commercial transaction” in s 11(3) does not simply comprehend transactions. It contains words of extension that considerably broaden its operation. This follows from the section’s use of the words “or a like activity in which the State has engaged and, without limiting the generality of the foregoing …”. The literal meaning of the classes of transactions and “like activity” to which s 11(3) refers is wide and general.
201 The defined term “commercial transaction” encompasses commercial, trading, business, professional, industrial or like activity, because s 11(3) says so in terms. These activities comprehend the circumstances that surround not only the formation of an actual contract of a commercial, trading, business, professional industrial or like kind, but also activities of that kind that may or may not result in entry into a contract. For example, advertising its goods or services is a commercial activity that the foreign State may engage in order to seek customers with whom it seeks to enter into commercial transactions. The literal meaning of s 11 does not exclude foreign States from proceedings that involve the general protection of consumers from misleading or deceptive advertising of its goods or services that it seeks to purvey to consumers. Nor does the literal meaning exclude the ordinary everyday activity of merchants and traders of inducing customers to enter into a contract.
202 There is no textual indication in s 11, or in the Act as a whole, to suggest that if a foreign State published a false advertisement for the sale of an airline ticket, the Commission, or any other person, could not bring a proceeding under s 80 of the Trade Practices Act for an injunction to prevent any further advertising of that falsehood. The purpose of s 11 in removing immunity is to subject the foreign State to the jurisdiction of the courts in respect of not only commercial and like contracts, but also activities of the kind referred to in s 11(3) that are sufficiently connected to those contracts.
203 The prohibitions in s 45(2)(a)(ii) and (b)(ii) of the Trade Practices Act, relevantly, strike at arrangements or understandings that have the purpose, or have or are likely to have the effect, of substantially lessening competition. Competition is quintessentially a commercial, trading or business activity. Competition is an activity that occurs in a market involving trading, commercial or business dealings. In NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90 at 140-141 [138] McHugh A-CJ, Gummow, Callinan and Heydon JJ explained the nature of competition as follows:
“‘Competition by its very nature is deliberate and ruthless. Competitors jockey for sales, the more effective competitors injuring the less effective by taking sales away.’ (Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177 at 191 per Mason CJ and Wilson J. See also Boral Besser Masonry Ltd v Australian Competition and Consumer Commission (2003) 215 CLR 374 at 429 [160] per Gaudron, Gummow and Hayne JJ.) Competition is also dynamic. It tends to create conditions of constant turbulence. It generates instability. These circumstances trigger the emulation and striving which produce competitive benefits.”
204 The activity the subject of the Commission’s proceedings concerned alleged anti-competitive cartel behaviour. The Commission alleged that this conduct was an activity in which each airline had engaged. Ordinarily, competitors in a market for goods and services engage in commercial, trading or business activities in that market. Their activities involve the purchase and sale of those goods or services. Those activities are directed at capturing a potential customer or supplier, potentially at the expense of one or more of its competitors. The Commission claimed that the alleged cartel conduct was commercial, trading or business activity because it was calculated to fix prices that the airlines could and did charge for air freight services at a level higher than would be likely to have achieved in a market that was not distorted by the cartel’s activities. It alleged that by engaging in this activity each airline was acting as a private trader, seeking benefit from the cartel.
205 The exception provided in s 11(1) is not for a commercial transaction, as that expression is defined in s 11(3). Rather, the subject-matter of the exception from immunity is the proceeding “in so far as [it] … concerns a commercial transaction”. The airlines were carrying on business, offering for sale and selling air freight services. The proceedings concerned the allegation that the cartel conduct was an activity that affected the ordinary market price setting mechanisms. That allegation concerned what was inherently an activity of a commercial, trading or business kind.
206 The definition of “commercial transaction” in s 11(3) of the Foreign States Immunities Act stands alone. It must be construed in accordance with the principles of statutory construction discussed above. It was not appropriate for the primary judge to approach that task, albeit with the apparent encouragement of the parties, by having regard to the construction given to the differently worded United Kingdom Act by that country’s courts. The definition of “commercial transaction” in s 11(3) is obviously different to that in s 3(3) of the United Kingdom Act. Each of those definitions operates in a different statute with its own distinct wording and context.
207 Section 11 operates as an exception to the general immunity conferred in s 9. A statutory exception from a general protection should be construed in a way that will promote the purpose or object underlying the Act: s 15AA of the Acts Interpretation Act. The Foreign States Immunities Act reflects the intention of the Parliament to give effect to the doctrine of restrictive immunity. The drafting technique in Pt II is to express the exceptions in ss 11-21 by removing the immunity “… in a proceeding in so far as the proceeding concerns …” a subject-matter. The first branch of the definition of the subject-matter in s 11 of a commercial transaction is a transaction into which the foreign State has entered: i.e. it is a party to contract or dealing. But the second branch involves an expansion of the subject-matter to “like activity in which the State has engaged”.
208 The class of activity included by the second branch of the definition must go beyond an actual transaction and would include steps leading to, or taken with the purpose, of bringing a transaction into being. Thus, representations made by the State, in order to induce another to enter into a transaction, fall within the literal meaning of the second branch of the definition. Indeed, as Lord Wilberforce so cogently explained in I Congreso del Partido [1983] 1 AC at 268H-269B, the restrictive theory of immunity was intended to allow foreign States to be brought before municipal courts at the suit of persons who traded with them. And, more recently, Saudi Arabia v Nelson 507 US 349 (1993) at 361 Souter J, giving the opinion of the majority of the Supreme Court of the United States, said:
“… a foreign State engages in commercial activity for the purposes of the restrictive theory only where it acts ‘in the manner of a private player within’ the market.”
209 Earlier, in I Congreso del Partido [1983] 1 AC at 266F-G Lord Wilberforce had cited, with approval and his own added emphasis, the following significant expositions of the common law approach in judgments of the Supreme Court of the United States:
“In Bank of the United States v. Planters' Bank of Georgia (1824) 9 Wheat. 904, 907 Marshall C.J. said:
‘It is, we think, a sound principle, that when a government becomes a partner in any trading company, it divests itself, so far as concerns the transactions of that company, of its sovereign character, and takes that of a private citizen.’
And in Ohio v. Helvering (1934) 292 U.S. 360, 369 the court said:
‘When a state enters the market place seeking customers it divests itself of its quasi sovereignty pro tanto, and takes on the character of a trader.’ (my emphasis in each case).”
210 The force of the airlines’ argument and the primary judge’s reasoning is that it is odd to think that s 11 of the Act removed a foreign State’s immunity in Australian courts from regulatory proceedings brought by Australian governments or their agencies. However, the structure of Pt II does not support such a construction. Rather, Pt II is premised on excluding the immunity of foreign States at the suit of domestic Australian governments in respect of such matters as the State’s interest in immovable property as well as rates and taxes and laws regulating the use of real property (ss 14 and 20), the use of intellectual property (s 15), and actions in rem where the ship is in use for commercial purposes (s 18). Thus, the scheme of Pt II supports a construction that the Parliament was seeking to exert Australian governmental regulatory jurisdiction over foreign States in certain respects.
211 Proceedings brought to recover a pecuniary penalty under s 76 of the Trade Practices Act are civil, not criminal, although they attract certain privileges, such as the privilege against exposure to penalties as explained in CEPU 162 FCR at 477-479 [19]-[28]. Thus, each of the present proceedings is within the meaning of “proceedings” in s 3(1) of the Foreign States Immunity Act because it is not a prosecution for an offence. Accordingly, a proceeding to recover a civil penalty under s 76 of the Trade Practices Act falls within the ambit of Pt II of the Foreign States Immunity Act.
212 There is no reason discernible in the Act to read down the broad meaning of the exclusion of immunity provided by s 11. The Commission can bring proceedings against a foreign State and its separate entities if the proceedings concern contraventions of Pt IV of the Trade Practices Act in connection with activities of the kind pleaded here. That is because the allegations concern commercial or like activity of a person acting “in the manner of a private player within the market”: Saudi Arabia v Nelson 507 US at 361.
Extrinsic materials concerning the construction of “commercial transactions”
213 In drafting Pt II of the Act, the ALRC was conscious that there was no satisfactory test that used a single criterion to distinguish between proceedings in which a foreign State should be immune or not from domestic jurisdiction. The ALRC referred to the “notion of ‘trading’ or ‘commercial activity’ as one amongst a number of exceptions to immunity”. The ALRC said that the concept of trade and commerce was reasonably coherent in itself but it was not useful as the sole criterion for characterising State activities as immune or not: ALRC 24 at [48]. The ALRC explained that it intended the categories in Pt II of the Act to be read in a non-exclusive manner, stating (ALRC 24 at [88]):
“The drafting of the various provisions should make it clear that, unless specifically stated otherwise, they are to be read disjunctively. There is no reason to prevent, for example, a tort which fails to come within the tort exception to immunity being brought under, say, the commercial transaction exception provided the facts permit.”
214 The ALRC recommended that Australia follow the substance of s 3 of the United Kingdom legislation in crafting the commercial transaction exclusion by creating an objective or formal test (ALRC 24 at [90], [92]). However, it also recommended some substantive changes to that formulation in what became s 11 so as to improve it. The changes included removing the phrase “exercise of sovereign authority” from the United Kingdom definition of commercial transaction (ALRC 24 at [92]). The basic principle identified by the ALRC was that (ALRC 24 at [90]):
“… when a foreign state acts in a ‘commercial’ matter within the ordinary jurisdiction of local courts it should be subject to that jurisdiction.”
215 The ALRC conceived that scope of the commercial transaction exclusion was very broad. It said (ALRC 24 at [110]):
“In practice in many of the disputes which might arise concerning participation by a foreign state in a body corporate, an unincorporated association or a partnership the foreign state would not be immune by virtue of the commercial transaction provision recommended above. But it is recommended that there be a separate provision dealing with these matters to ensure that all the relevant matters are covered, to provide greater precision, and to avoid overworking the language of the commercial transaction provision.” (footnote omitted)
216 In contrast, the ALRC recommended that there be a separate exclusion for bills of exchange drawn, made, issued or endorsed by a foreign State in connection with a non-immune transaction or event. This recommendation was given effect in s 19, which used the unqualified expression “transaction or event” without referring to commercial transactions. The ALRC explained that this exclusion should operate independently of, and separately from, the commercial transaction exclusion. This policy choice is reflected in s 11(3)(c): ALRC 24 at [111]. The ALRC also recommended that a foreign State not be immune in certain in rem proceedings brought against a ship in use for commercial purposes (ALRC 24 at [139]). This was reflected in s 18. Although the Admiralty Act 1988 (Cth) had not yet been enacted, in rem proceedings could then be brought where persons had certain maritime claims, including maritime liens for damage caused by a ship: see generally Civil Admiralty Jurisdiction: Australian Law Reform Commission (ALRC 33) esp Ch 4; Harmer v Bell (“The Bold Buccleugh”) (1852) 7 Moo. PC 267 at 284-285 [13 ER 884 at 890-891]; The Totlen [1946] P 135 esp at 145-147 per Scott LJ; cf: Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45. Once again, the potential scope of operation of the exclusion in s 18 of the Foreign States Immunities Act was wider than maritime claims arising from contracts or other transactions of a commercial nature.
217 In his second reading speech, the Attorney-General said (Hansard, House of Representatives, 21 August 1985 at 141-142):
“The main argument for the restrictive theory of foreign state immunity is that commercial or trading activities conducted by or on behalf of foreign governments should not attract the special jurisdictional immunity enjoyed by foreign states. Australia's increasing involvement in international trading and financial activities, including the involvement of foreign state agencies in investment and banking or other trading or financial activities in Australia, make the subject of increasing importance to Australia.”
He then explained the exception in s 11 as follows:
“Commercial transactions will not be immune. This includes all contracts for the supply of goods or services or for loans or guarantees. This will bring Australian law into line with the law of other major financial centres such as New York, London and Singapore. It is an essential step if Australia is to develop as an international banking centre conducting sovereign risk lending.”
218 A broad reading of the exclusion created by s 11 is conformable with both the restrictive theory and constructions of similar provisions by the ultimate courts of appeal of the United Kingdom in I Congreso del Partido [1983] 1 AC 144, the United States in Saudi Arabia v Nelson 507 US 349 and, very recently, Canada in Kuwait Airways Corporation v Republic of Iraq [2010] 2 SCR 571 at [29]-[30]. In delivering the judgment of the Supreme Court of Canada, Le Bel J observed that in both United States and English law, the court focuses on analysing the nature of an act for the purpose of characterising whether the foreign State is entitled to immunity in respect of it: Kuwait Airways 2010 SCC 40 at [30]. He noted that this approach had also been applied in an earlier Canadian Supreme Court decision: Re Canada Labor Code [1992] 2 SCR 50 at 73-74 (Kuwait Airways [2010] 2 SCR 571 at [31]-[32]). There, La Forest J had made clear that the Canadian commercial activity exception required the court to consider the entire context including both the nature of the relevant act as well as its purpose. Le Bel J said that this approach was consistent with that of the House of Lords in the related decision of Kuwait Airways Corp v Iraqi Airways Co [1995] 1 WLR 1147 at 1163A-H; [1995] 3 All ER 694. In the English case, Lord Goff of Chieveley had explained that the act of seizure and removal of Kuwait Airways’ planes from Kuwait in August 1990 had been an exercise of governmental power by Iraq in pursuance of its policy by which it had just invaded Kuwait. However, Lord Goff found that Iraqi Airways’ later retention and use of those aircraft were commercial acts in the operation of its airline business: see too Kuwait Airways [2010] 2 SCR 571 at [35].
219 In Holland [2000] 1 WLR at 1587, Lord Millett held that while the allegedly defamatory memorandum related to a commercial transaction (namely a non-immune contract), the defamation proceedings did not relate to that contract. Rather, those proceedings related to an independent claim in tort. Lord Millett also doubted that the writing and publication of the memorandum constituted an “activity” of an official character in which the United States engaged, through Mr Lampen-Wolfe, so as to bring the proceedings within s 3(3)(c) of the State Immunity Act: Holland [2000] 1 WLR at 1587F-H. The result and obiter comments in Holland [2000] 1 WLR 1573 are unexceptionable. The restrictive theory of State immunity is concerned, relevantly, to assimilate, as much as possible, the position of a foreign State to that of any other person who engages in commercial or like dealings, or associated activity, with others. As Lord Millett observed the publication complained of was made by the defendant personally and it was unlikely that the United States could have been held to be vicariously liable for publication of an internal memorandum. However, that situation is not of assistance in characterising the connection between the proceedings brought by the Commission against the airlines for the purposes of s 11 of the Foreign States Immunities Act.
Conclusion – Construction of “commercial transaction”
220 The definition of “commercial transaction” in s 11(3) of the Foreign States Immunities Act should be given its natural and ordinary meaning. So too should the expression “in so far as the proceeding concerns a commercial transaction” in s 11(1) be given such a construction. The express terms of s 11(3) contemplate that a State will engage in commercial, trading, business, professional, industrial or like activity short of entering into an actual transaction of that kind.
221 As a matter of common experience, transactions of a commercial, trading, business, professional, industrial or like kind do not always just happen. Obviously, the purchase of a ticket from a machine or an article at a supermarket check-out are instances where no antecedent negotiation between vendor and purchaser can take place. But, even in these cases, advertising in the media or on the internet or in the sale premises can convey representations or information about the ticket or article that affects the state of mind of the purchaser.
222 Participants in the markets contemplated in s 11(3) will not always confine themselves to direct negotiations to create, or seek to create, their contractual relations. Nor will those persons, in seeking customers or third parties, with whom to enter into contracts, confine their dealings or activities to persons with whom they ultimately succeed in entering into a contract. Merchants, traders, business and commercial men and women, professionals and those involved in industry engage in everyday activities with a view to entering into transactions that, for one reason or another, do not later eventuate. Nonetheless, such activities concern commercial transactions within the meaning of s 11. They are ordinary features of daily life. A merchant will fix and publish standard trading terms and conditions for the sale of his, her or its goods. The merchant does so in order both to facilitate the entry into contracts for such sales and to advertise his, her or its willingness to enter into such contracts on those terms. Prima facie, a proceeding that alleged, for example, that the merchant had engaged in conduct that was misleading or deceptive or likely to mislead or deceive by offering those standard terms and, thus, had contravened s 52 of the Trade Practices Act in respect of, not only those persons who had purchased goods on those terms but also, persons who may be considering or may in future consider making such purchases, would be a proceeding “concern[ing] a commercial transaction”.
223 The common law of contract has evolved to consist of a blend of technical rules and requirements, infused with a sense of commercial practicality. Once parties engage in commercial relations, the common law has striven to develop a realistic legal framework to uphold and enforce bargains. Lord Wilberforce in New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd (The Eurymedon) [1975] AC 154 at 167-168 explained in his seminal opinion for the majority of the Judicial Committee of the Privy Council, that a bill of lading issued by a shipowner or carrier to a consignor of goods could bring the consignor or consignee into contractual relations with a stevedore who discharged the goods. That result could occur even though the identities of the stevedore and the consignee or owner of the goods at the port of discharge may not have been known to either or both of the shipowner and the consignor or owner of the goods at the time of issue of the bill of lading.
224 Lord Wilberforce recognised the theoretical obstacles that his conclusion had to overcome. But, he explained that the clause in the bill of lading that excluded liability of any stevedore with whom the shipowner, as agent, authorised by the terms of the bill, on behalf of the consignor, consignee or owner of the goods, arranged to discharge the goods would make whoever was the cargo owner a party to a contract with the stevedore. Lord Wilberforce said that once the stevedore performed services to discharge the goods, it provided sufficient consideration to create a contract with the cargo owner on the terms contained in the clause in the bill of lading: The Eurymedon [1975] AC at 167H-168B.
225 Earlier, his Lordship explained how the common law strove to achieve a legal outcome that reflected commercial reality, saying ([1975)] AC at 167C-E):
“It is only the precise analysis of this complex of relations into the classical offer and acceptance, with identifiable consideration, that seems to present difficulty, but this same difficulty exists in many situations of daily life, e.g., sales at auction; supermarket purchases; boarding an omnibus; purchasing a train ticket; tenders for the supply of goods; offers of rewards; acceptance by post; warranties of authority by agents; manufacturers' guarantees; gratuitous bailments; bankers' commercial credits. These are all examples which show that English law, having committed itself to a rather technical and schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration.”
226 This approach overcame the apparent common law requirement of privity in a commercial context. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 192-193 [79] Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ endorsed Lord Bingham’s description of this technique as “a deft and commercially inspired response to technical English rules of contract, particularly those governing privity and consideration” (cf: Homburg Houtinport BV v Agrosin Private Ltd [2004] 1 AC 715 at 744).
227 In the present cases, the Commission has alleged that each airline provided and offered to provide its cargo freight services at prices that had been arrived at by the airline giving effect to an antecedent arrangement or understanding with other airline members of a price fixing cartel. By giving the effect to such a practice the conduct of the airlines could be capable (if proved) of being characterised as similar to advertising or offering a standard term, namely that each airline would charge a particular fuel surcharge that the cartel had decided upon, in providing cargo freight services to consumers. Such alleged conduct was part and parcel of the airline’s ordinary commercial transactions with consumers. But the alleged conduct was also an activity of a commercial or trading kind, namely anti-competitive behaviour, designed to increase or maximise the cartel participant’s profits at the expense of the other participants in the market. It follows that the alleged conduct, if proved, would very much be a commercial transaction within s 11.
Conclusion
228 For these reasons, which are different from those of the primary judge, Garuda’s, MAS’s and MAS Cargo’s claim to immunity from the jurisdiction of the Court fails. Leave to appeal should be granted, but the appeals should be dismissed. It follows that, as the Commission has succeeded on its notices of contention in each appeal, it is entitled to its costs of the applications for leave to appeal and the appeals.
I certify that the preceding one hundred and sixty (160) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. |
Associate:
Dated: 19 April 2011
