Australian Competition and Consumer Commission v P.T. Garuda Indonesia Ltd [2010] FCA 551

FEDERAL COURT OF AUSTRALIA

Citation:		Australian Competition and Consumer Commission v P.T. Garuda Indonesia Ltd [2010] FCA 551

Parties:		AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v P.T. GARUDA INDONESIA LTD ARBN 000 861 165

File number(s):		NSD 955 of 2009

Judge:		JACOBSON J

Date of judgment:		2 June 2010

Catchwords:		PRACTICE AND PROCEDURE – Foreign States Immunities Act 1985 (Cth) - whether respondent immune from jurisdiction of the Court in proceeding brought against it by the applicant - statutory test for separate entity - whether commercial transaction exception to immunity applies – characterisation of the proceedings brought by the applicant against the respondent

Legislation:		Foreign States Immunities Act 1985 (Cth) Trade Practices Act 1974 (Cth) s 45 Acts Interpretation Act 1901 (Cth) s 15AA State Immunity Act 1978 (UK) Evidence Act 1995 (Cth) s 136

Cases cited:		CIC Insurance v Bankstown Football Club Ltd (1997) 187 CLR 384 followed Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 followed The Schooner Exchange v McFadden 7 Cranch 116 (1812) referred to Trendtex Trading Corp v Central Bank of Nigeria [1977] QB 529 discussed Re Anti-Cancer Council of Victoria; Ex parte State Public Services Federation (1992) 175 CLR 442 cited Adeang v The Nauru Phosphate Royalties Trust (unreported, Sup Ct, Vic, Hayne J, 6571 of 1992, 8 July 1992) followed Mellenger v New Brunswick Development Corporation [1971] 1 WLR 604 discussed Alcom Limited v Republic of Columbia [1984] AC 580 Australian Federation of Islamic Councils Inc v Westpac Banking Corporation (1988) 17 NSWLR 623 referred to Thor Shipping A/S v The Ship “Al Duhail” (2008) 173 FLR 524 referred to Svenska Petroleum Exploration AB v Government of the Republic of Lithuania (No 2) [2007] QB 886 followed Holland v Lampen-Wolfe [2000] 1 WLR 1573 followed AIC Limited v Federal Government of Nigeria [2003] EWHC 1357 (QB) followed

Date of hearing:	9 March 2010

Date of last submissions:	9 March 2010

Place:	Sydney

Division:	GENERAL DIVISION

Category:	Catchwords

Number of paragraphs:	138

Counsel for the Applicant:	T Howe QC with C Moore and D Roche

Solicitor for the Applicant:	Australian Government Solicitor

Counsel for the Respondent:	MJ Leeming SC with CH Withers

Solicitor for the Respondent:	Norton White

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 955 of 2009

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Applicant

AND:	P.T. GARUDA INDONESIA LTD ARBN 000 861 165 Respondent

JUDGE:	JACOBSON J
DATE OF ORDER:	2 June 2010
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The Respondent’s notice of motion be dismissed with costs.

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 955 of 2009

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Applicant

AND:	P.T. GARUDA INDONESIA LTD ARBN 000 861 165 Respondent

JUDGE:	JACOBSON J
DATE:	2 june 2010
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Introduction

1 P.T. Garuda Indonesia Ltd (“Garuda”) is a persero, or State owned enterprise, under Indonesian law. The Republic of Indonesia owns more than 95% of the issued capital of Garuda and four of the five members of the Board of Commissioners are, or were at the relevant time, senior officials of the Indonesian Government.

2 Garuda claims to be an agency or instrumentality of the Republic of Indonesia and to be entitled to the immunity conferred by ss 9 and 22 of the Foreign States Immunities Act 1985 (Cth) (“the Act”) from the jurisdiction of the Court in a proceeding brought against it by the Australian Competition and Consumer Commission (“the ACCC”).

3 The substantive proceeding alleges that Garuda, and a number of other international airlines entered into, and gave effect to, certain price fixing arrangements or understandings to which s 45A of the Trade Practices Act 1974 (Cth) (“Trade Practices Act”)applied, and which are said to contravene ss 45(2)(a)(ii) and 45(2)(b)(ii) of the Trade Practices Act. The arrangements or understandings cover the period from October 2001 to September 2006 and are described at length in the Statement of Claim. The ACCC seeks relief against Garuda including pecuniary penalties under s 76 of the Trade Practices Act.

4 Garuda seeks to set aside the process of the Court under s 38 of the Act. Two questions arise on Garuda’s motion. The first may be described as a threshold question. It is whether Garuda is entitled to the general immunity conferred by s 9 of the Act. That section confers, subject to certain exceptions, immunity on a foreign State from the jurisdiction of the courts of Australia in a proceeding. Garuda is not a foreign State but it claims to be a “separate entity” and therefore entitled under s 22 of the Act to the immunity of a separate entity of a foreign State, as it applies to the foreign State.

5 This question turns on the definition of “separate entity” in s 3(1) of the Act and, in particular, whether Garuda is an agency or instrumentality of the Republic of Indonesia. Senior counsel for Garuda, Mr Leeming SC, submits that it is sufficient to satisfy the definition that the Republic of Indonesia owns and controls Garuda. Senior counsel for the ACCC, Mr Howe QC, resists that proposition. He submits that, in order to satisfy the definition, it is necessary for Garuda to demonstrate a further element, namely that Garuda performs governmental functions.

6 The second question only arises if Garuda is a separate entity. It is whether the immunity conferred by s 9 of the Act is removed by the exception stated in s 11. That section provides that a foreign State is not immune in a proceeding insofar as the proceeding concerns a commercial transaction. There is a definition of commercial transaction in s 11(3) which I will set out later. It is sufficient to say, by way of introduction, that Mr Leeming relies on textual considerations, and the structure of the Act, to support a submission that the “commercial transaction” exception is a narrow one.

7 In particular, Mr Leeming submits that in the present case the proceeding does not concern a commercial transaction; rather, it concerns what are said to be illegal price fixing arrangements made in contravention of the provisions of Part IV of the Trade Practices Act.

8 Clearly enough, both of the questions which arise on Garuda’s application to set aside the process turn largely on the proper construction and application of the Act. In determining those questions, it is necessary to look closely at the Report of the Australian Law Reform Commission (“ALRC”) which led to the adoption of the Act. The Report is “Report 24, Foreign State Immunity (1984)”. It is also necessary to look at the Explanatory Memorandum to the Foreign States Immunities Bill 1985 (Cth).

The Legislation

9 Section 3(1) of the Act contains definitions which apply subject to the expression of any contrary intention.

10 “Foreign State” is defined to mean a country, the territory of which is outside Australia, being a country that is an independent sovereign State or a separate territory (whether or not it is self-governing) that is not part of an independent sovereign State.

11 “Proceeding” means, relevantly, a proceeding in a court but does not include a prosecution for an offence.

12 The definition of “separate entity” is as follows:

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.

13 Section 3(2) provides relevantly that for the purposes of the definition of separate entity, a body corporate that is an agency of more than one foreign State is taken to be an agency of each of the foreign States.

14 Section 3(3) provides that unless the contrary intention appears, a reference to a foreign State includes a reference to various emanations of a State including a province or self-governing territory as well as the head of a foreign State. Importantly, for present purposes, s 3(3)(c) provides that a reference to a foreign State includes a reference to the executive government “including a department or organ of the executive government”. The subsection concludes by stating that, unless the contrary intention appears, a reference to a foreign State does not include a reference to a separate entity. However, this subsection does not apply to the present case because a contrary intention is expressed in s 22.

15 Part II of the Act is entitled “Immunity from jurisdiction”. It contains a “general immunity” in s 9 and a series of exceptions to the general immunity in ss 10 to 21.

16 Section 9 provides:

Except as provided by or under this Act, a foreign State is immune from the jurisdiction of the courts of Australia in a proceeding.

17 The first of the exceptions to the general immunity is stated in s 10. It provides that a foreign State is not immune in a proceeding in which it has submitted to the jurisdiction. As Mr Leeming pointed out, s 10 (and s 17 which deals with arbitrations and s 18 which deals with actions in rem) are the only stated exceptions which are not expressed in terms that exclude immunity “in a proceeding in so far as the proceeding concerns” a particular subject.

18 Section 11 is the critical exception in the present case. It states:

(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.

19 Although the definition of commercial transaction does not include a bill of exchange, there is a specific exception from foreign State immunity in relation to those instruments. This is found in s 19. The effect of that section is that a foreign State is not immune in a proceeding in so far as the proceeding concerns a bill of exchange drawn by a foreign State in connection with a transaction or event, where the foreign State would not be immune in a proceeding concerning that transaction or event.

20 Section 22 of the Act deals with the application of Part II to separate entities. The effect of the section is to extend to separate entities the immunities conferred on foreign States, save for the special immunities which apply to proceedings between States.

The ALRC Report

21 As the Explanatory Memorandum to the Foreign States Immunities Bill 1985 (Cth) pointed out at p 2, the Bill was based upon the ALRC Report No 24 which contained a thorough review of developments in the law, both nationally and internationally.

22 The ALRC Report also included, as appendix A, a draft Foreign States Immunities Bill 1984 (Cth) in terms which closely resemble the language of the Bill that was adopted by Parliament. The draft Bill included explanatory notes on the interpretation of clauses.

23 Senior Counsel for the parties were in “furious agreement” that I could have regard to the ALRC Report in construing the Act. That is of course consistent with the modern view of statutory construction stated in CIC Insurance v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408 and Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 (“Project Blue Sky”) at [69] – [71] and the provisions of s 15AA of the Acts Interpretation Act 1901 (Cth).

24 Here there is a direct and close relationship between the ALRC Report and the Act in the form in which it was adopted. This suggests that the ALRC Report and the ALRC’s draft Bill, including the notes to the Bill, may be given special weight as a guide to construction.

25 Chapter 2 of the ALRC Report contains a detailed discussion of the origins, and the then current law, of foreign State immunity. The discussion commences with the seminal decision of Chief Justice Marshall speaking for the United States Supreme Court in The Schooner Exchange v McFadden 7 Cranch 116 (1812). It traces the development of the common law in England from the 19^th century, to the statement of the “absolute immunity” rule which ultimately gave way to a “restrictive immunity” principle.

26 The restrictive immunity principle was developed in England, in particular under the influence of Lord Denning in a series of cases which culminated in his judgment (as one of the majority judgments) in Trendtex Trading Corp v Central Bank of Nigeria [1977] QB 529 (“Trendtex”). As the ALRC notes, those judgments effectively changed the common law: see Ch 2 [11].

27 In Chapter 3 the ALRC considers the adequacy of the rules of foreign State immunity as they then stood, and the need for an expression of the rules in legislation. The ALRC observes that the rule which would probably apply under the common law involves a single categorical distinction between transactions depending on their classification as “sovereign or governmental” on the one hand, or as “commercial or other private law transactions” on the other. This is said to reflect the distinction between acta iure imperii, namely transactions of a sovereign or governmental character, which are immune, and acta iure gestionis, which are not.

28 However, the ALRC goes on to say that there are difficulties with the application of this distinction because there is no international consensus on the proper scope of governmental activities, citing Brownlie I, Principles of Public International Law (3^rd ed, Clarendon Press, 1979) at pp 330-331.

29 The ALRC’s approach to the legislation is stated in Chapter 5. It states at [65] that the proposed Australian legislation should provide that a foreign State is immune except as provided in the legislation and that:

(t)he 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.

30 The reason for the extension of foreign State immunity to separate entities is explained in [71]. To deny immunity to an entity merely because it has a legal personality separate from the State would be unacceptable to Australia and to other States if the rule were to be applied reciprocally. The difficulty in defining entities entitled to the protection is explained as partly factual, that is to say, what is the requisite degree of association with the State.

31 The fundamental difficulty in defining those entities is, however, as the ALRC observes at [71], reflected in the difficulty experienced in the common law, of distinguishing between acts done under sovereign authority and those which are not. Reference is then made to the position in England under s 14 of the State Immunity Act 1978 (UK). That section extends the immunity to separate entities in respect of acts done in the exercise of “sovereign authority”. But as the ALRC observes, this has meaning only to the extent that the expression “sovereign authority” can be given precise content.

32 The next paragraph of the Report, [72], is critical. It contains a recommendation that the Australian legislation follow the basic approach of the State Immunity Act 1978 (UK)in defining separate entities. However, it recommends that the expression “sovereign authority” be replaced by the expression “agency of a foreign State”. The paragraph continues as follows:

… it is recommended that the expression ‘sovereign authority’ be replaced by the expression ‘agency of a foreign state’. 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. (Emphasis added)

33 The ALRC’s note to the definition of a “separate entity” in the draft Bill is 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. Australian examples might include the Law Reform Commission, CSIRO, OTC, the Export Finance and Insurance Corporation or the Australian Meat and Live-stock Corporation.

34 The ALRC deals with the commercial transactions exception in [90]. It observes that the basic principle upon which the exception rests is that when a foreign State acts in a commercial matter within the ordinary jurisdiction of a local court it should be subject to that jurisdiction. This is, as the ALRC states, the central argument behind the shift from absolute immunity to restrictive immunity which occurred in common law countries during the last century. The effect of the ALRC’s recommendation is that Australia follow the substance of the State Immunity Act 1978 (UK) definition of commercial transaction. That is an objective test which avoids an enquiry into the State’s motive for entering into the transaction.

The Explanatory Memorandum

35 The Explanatory Memorandum to the Foreign States Immunities Bill 1985 (Cth) says on p 2 that the purpose of the Bill is to set out in clear and accessible form the law relating to the jurisdiction of Australian courts over foreign States, their agencies and instrumentalities.

36 As I said earlier, the Explanatory Memorandum acknowledges that the Bill is based upon the recommendations of the ALRC Report. The Explanatory Memorandum’s notes on the clauses to the Bill draw heavily on the ALRC’s draft Bill and the notes to it. The note in the Explanatory Memorandum to the definition of “separate entity” is in the same terms as the ALRC’s note which I set out at [33] above.

37 The Explanatory Memorandum’s note to clause 9, which became s 9 of the Act, is that as a general rule a foreign State is to be immune from the jurisdiction of the Australian courts. The note continues by saying that this is subject to various exceptions listed in clauses 10 - 21.

38 The note to clause 22, which deals with the application of State immunity to separate entities includes the following statement:

In practice, it is unlikely that claims to immunity by separate entities will succeed, as most entities do not perform in Australia the sort of activities that entitle foreign States to immunity.

Garuda’s Evidence

39 Garuda relied on three affidavits in support of its application. The first was of an Indonesian lawyer, Mr Bono Daru Adji. Most of his affidavit was not read. Only two substantive paragraphs were pressed. Those paragraphs introduced into evidence the Deed of Establishment of Garuda and its Articles of Association, as well as stating the names of four of the five members of the Board of Commissioners of Garuda.

40 The office held by each of the four Commissioners is also stated. Three are senior governmental officials in Indonesian Governmental Departments or Ministries. One is a former official.

41 The second affidavit was that of Mr Simon Andrew Butt, a Senior Lecturer in Indonesian Law at the University of Sydney. This was the principal affidavit on which Garuda relied.

42 Mr Butt’s evidence draws on his review of Indonesian Law No. 19 of 2003 on State owned enterprises, his consideration of the penjelasan or “elucidations” of the Law, which are similar to Explanatory Memoranda, and his review of certain documents, namely Garuda’s Articles of Association and shareholders register.

43 State owned enterprises are known in Indonesia by the acronym BUMN. There are two different types. The first is a persero. The second is a perum. The differences between them are that the capital of a persero is divided into shares whereas the capital of a perum is not; also, a persero may be majority or wholly owned by the State but a perum must be wholly owned.

44 Garuda’s share register shows that the Republic of Indonesia owns approximately 95.5% of the issued capital. Garuda is therefore a BUMN persero.

45 A BUMN persero is defined in Article 1 of Law 19 as a State owned enterprise taking the form of a limited liability company, the capital of which is divided into shares, all or at least 51% of which are owned by the Republic of Indonesia, having the primary objective of pursuing profit.

46 The definition of BUMN perum includes the objective of benefit to the public through the provision of high-quality goods or services whilst simultaneously pursuing profit on the basis of corporate governance principles.

47 The objective of BUMN are stated in Article 2 of Law 19. They apply to both pesero and perum and include contribution to the national economy, pursuit of profit and benefit to the public by providing high quality goods and services.

48 In dealing with the objectives of BUMN persero, the elucidation to Article 2 states that although the objectives are to pursue profits, in certain circumstances a persero can be entrusted with the special task of performing public services.

49 Public service obligations of a BUMN are also referred to in Article 66 which provides that the Government can entrust to a BUMN the special task of performing a function benefiting the public.

50 The Elucidation to Article 66 includes the following:

Although BUMN are established with the purpose and objective of pursuing profit, this does not preclude, for pressing matters, the BUMN being entrusted with a special task by the government. If the task is, according to financial studies, not feasible, then the government must provide compensation for all costs the BUMN incurs, including expected margins.

51 Mr Butt’s affidavit also deals with the extent of ministerial control of a persero as provided in Law No. 19. He explains that it is for the relevant Minister to propose the establishment of a persero and that the Minister acts as a shareholder at general meetings where the persero is majority owned by the State.

52 The Minister is permitted to delegate power to another person to represent him or her at a general meeting of shareholders, but the delegate must obtain the prior approval of the Minister to make a decision on particular issues raised at the meeting. These issues include capital increases, amendments to the Articles, plans to use profits, investments and funding.

53 Directors and Commissioners of a persero are to be appointed and dismissed by the General Meeting of Shareholders. Provision is made for the Minister to retain power to stipulate conditions and procedures for the appointment and dismissal of directors and commissioners.

54 The third affidavit relied on by Garuda was that of its Corporate Secretary, Mr Dovy Brilliant Hanoto.

55 Mr Hanoto’s affidavit merely annexes a number of resolutions amending Garuda’s Articles of Association and other corporate records. The documents were admitted subject to an order under s 136 of the Evidence Act 1995 (Cth) that they be limited to the Articles and records referred to in written submissions.

Is Garuda a Separate Entity?

56 The definition of “separate entity” in s 3(1) of the Act makes 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.

57 What the definition does say in express terms is, relevantly, that a separate entity is a body corporate that is an agency or instrumentality of the foreign State and not a department or organ of the executive government of that State. This then raises as the essential question of construction, whether Garuda is an agency or instrumentality of the Republic of Indonesia.

58 Mr Leeming relied on the fact that the definition makes no reference to the need for the separate entity to perform governmental functions. He submitted that to impose this as a requirement would be to put a gloss on the meaning of the term based on common law concepts which have been replaced by the express language of the Act.

59 He relied in particular on the proposition that the modern approach to foreign State immunity, which is reflected in the Act and the ALRC Report, is to remove the common law distinction between sovereign or governmental acts and private law transactions, and to replace them with the broad immunity stated in s 9, but subject to the exceptions stated in ss 10 – 21.

60 I accept of course that the meaning of the relevant provisions must be interpreted by reference to the language considered as a whole commencing with an examination of the context: Project Blue Sky at [69].

61 But I do not accept that upon its proper construction the definition of a separate entity is confined to a corporation that is owned or controlled by the government. Nor do I consider that the requirement that the separate entity perform governmental functions puts a gloss on the language.

62 Rather, it seems to me that when the language is considered as a whole and in its full context, the requirements of ownership and control are insufficient of themselves to give meaning to “an agency or instrumentality of the State” as it appears in the definition of “separate entity”.

63 I do not consider that the requirement that the agency perform government functions is merely to reintroduce a common law concept which has no place in the statutory scheme. Rather, it seems to me that the language of the definition in s 3(1) and the structure of Part II indicate that an agency or instrumentality of the State is one which is subject to the necessary degree of control and which performs governmental functions. There are three principal reasons for this.

64 First, there is no escape from the proposition that the definition of the term “separate entity” directs attention to a particular form of entity. It must be an agency or instrumentality of a foreign State and it must also be an entity which is not a department or organ of the executive government of the foreign State.

65 A department or organ of a foreign State is treated differently from a separate entity. That appears from s 3(3)(c) which provides, relevantly, that a reference in the Act to a foreign State includes a reference to the executive government of a foreign State, including a department or organ of the government of a foreign State.

66 Thus, a department or organ of the foreign State is entitled to the general immunity conferred by s 9, subject to the exceptions stated in ss 10 - 21, but without the limitations referred to in s 22. What follows from this is that if a proceeding concerned a commercial transaction between the Commonwealth and a department of a foreign State, the department would be entitled to the immunity conferred by s 9 of the Act: see s 11(2)(a)(i).

67 By contrast, if the proceeding concerned a commercial transaction between the Commonwealth and a separate entity of the foreign State, the effect of s 22 of the Act would be that the separate entity would not be entitled to immunity.

68 This analysis of the text of the Act demonstrates that the immunity from proceedings which is conferred on a separate entity is not as wide as that which is conferred on a foreign State, or on a department or organ of a foreign State. In particular, a separate entity does not receive the protection of the special provisions which apply to transactions between States: see ss 11(2)(a)(i), 16(1)(a), 17(3) and 22.

69 Nevertheless, the definition of a separate entity, with its focus upon an agency or instrumentality, not being a department or organ of the foreign State, when read in the light of the scheme contained in Part II, suggests that a separate entity is to be an agency or instrumentality which performs many of the functions of a department or organ of the foreign State, although organised separately from it.

70 This is borne out by the discussion in the ALRC Report. As the ALRC said at [71], States structure their machinery of government in a wide variety of ways, but immunity is not to be denied simply because the entity has legal personality separate from the State. The ALRC also said at [72] that the definition of separate entity would comprise an agency of a foreign State which is not a department or organ of the State because the degree of government control is not sufficiently close. It directed attention to the degree of control and the nature of the functions performed.

71 What seems to me to follow from this is that the term “agency or instrumentality” has much the same meaning as it does in popular usage. It is not merely a corporation which is owned or controlled by the State. Rather it is an expression which directs attention to the purpose which the agency or instrumentality serves. It will be an agency or instrumentality if it is subject to the requisite degree of control and is empowered to, and in fact serves, a particular government purpose: Re Anti-Cancer Council of Victoria; Ex parte State Public Services Federation (1992) 175 CLR 442 (“Anti-Cancer Council”) at 448.

72 It is true that the Anti-Cancer Council case considered the meaning of State instrumentality in an entirely different legislative context. But in my view, for the reasons referred to above, an examination of the expression “separate entity” when viewed in its full context in the Act, shows that it has the same meaning as that stated by their Honours.

73 There is simply nothing in the structure of Part II of the Act to suggest that the definition of separate entity applies to any government owned or controlled corporation. To do so would be to give no meaning to the words, an agency or instrumentality of a foreign State which is not a department or organ of the State. That would be contrary to the basic principle of construction that a court construing a statutory provision must strive to give meaning to every word of it: Project Blue Sky at [71].

74 Second, it is clear from what the ALRC said in its Report at [71] – [72] that the concept of an agency of a foreign State was intended to embrace something more than an entity which is subject to State control.

75 What the ALRC sought to do was to apply the principle of State immunity to entities which perform some part of the machinery of government, even though they have a legal personality separate from the State. Those entities have two features. The first is a sufficient degree of State control. The second is the performance of governmental functions.

76 It is the second of those features which is difficult to define. The ALRC recognised this. It said that what is required is a test which distinguishes those entities that are entitled to immunity from those which are not. It acknowledged that there is no simple test capable of doing this. It criticised the provisions of s 14 of the State Immunity Act 1978 (UK) because that section grants immunity to a separate entity where the proceeding relates to anything done in the exercise of sovereign authority. It pointed out that this merely restates the difficulty, with which the common law grappled, of defining the ambit of sovereign functions.

77 The ALRC sought to overcome this difficulty by replacing the expression “sovereign authority” with the expression “agency of a foreign State”. But it does not follow from this that the ALRC abandoned the requirement that the separate entity perform functions of a type that are part of the machinery of government. In my view, this is clear from what the ALRC said at [72] about the type of agencies which would be comprised in the concept. It specifically pointed to the relevance of the exercise of “governmental functions” and stated its expectation that the court would consider this when determining whether an entity is an agency of a foreign State.

78 There is force in Mr Leeming’s submission that it is difficult to distinguish between what is a governmental function and what is not. But this merely reflects the difficulty experienced by the common law and under the United Kingdom legislation in determining the ambit of sovereign authority.

79 The short answer to Mr Leeming’s submission is that the Act replaces one difficult concept, namely sovereign authority, with another. By conferring immunity on an agency or instrumentality of the State, the Act imported the requirement that the agency must perform governmental functions.

80 It is true, as Mr Leeming emphasised, that the structure of the Act is to confer general immunity under s 9, subject to the detailed and carefully crafted exceptions contained in the remaining sections in Part II. In light of this, it may have been open to the draftsperson to define “separate entity” more narrowly because the focus of the claim for immunity is now on whether the entity performs the types of private law acts reflected in the various exceptions, most notably the commercial transactions exception in s 11.

81 Thus, it would perhaps have been open to the draftsperson to confer general immunity on a State owned corporation. The immunity would then be removed if one of the exceptions contained in ss 10 to 21 were engaged. But, for the reasons set out above, in my view that is not what Parliament did. Instead, it conferred immunity only on a particular type of entity, namely an agency or instrumentality which is not a department or organ of the State. I do not consider that a corporation which is owned, even as to 100%, by a foreign State, but which performs non-governmental functions is encapsulated within the concept of an agency or instrumentality as it appears in the definition in s 3(1).

82 Third, there is judicial endorsement for the proposition that the expression “agency or instrumentality of a foreign State” comprises the two elements to which I have referred: Adeang v The Nauru Phosphate Royalties Trust (unreported, Sup Ct, Vic, Hayne J, 6571 of 1992, 8 July 1992). The statement is obiter but it is persuasive authority for the view that an agency or instrumentality of the State is one that is subject to the requisite degree of control by the foreign State and which performs governmental functions.

83 In Adeang, the plaintiff sought to restrain Nauru Phosphate Royalties Trust (“the Trust”) from advancing moneys to the Republic of Nauru and other entities. The Trust administered funds derived from phosphate mining by the Republic. The case was determined on the ground of forum non conveniens but his Honour observed that there was extensive argument on the question of sovereign immunity.

84 In considering whether the Trust was a separate entity, Hayne J observed, in relation to the Act (at p 4):

The question presented by the statute is one which does invite consideration of the degree of control that can be exerted by the executive government of the foreign state over the entity in question, and of the nature of the functions that are performed by that entity. But that question arises because the question is one of characterisation of whether the entity is an ‘agency of a foreign state’ or ‘an instrumentality of the foreign state’.

85 His Honour went on to say (at p 5) that the Trust was subject to considerable control by the Republic of Nauru and that some of the funds which the Trust administered could be classified as funds of a public character:

… and the administration of them might be seen as in the nature of the performance of governmental functions.

Is Garuda Controlled by the Republic of Indonesia?

86 It is clear that the Republic of Indonesia has the power to control Garuda. It owns 95.5% of the issued shares, with the remaining 4.5% being owned by two perseros or State owned enterprises. Also, senior officials of the executive government comprise a majority of the Board of Commissioners.

87 However, the evidence in this application was silent as to how the day-to-day management of Garuda is conducted. I therefore have no evidence that the Republic of Indonesia exercises actual control over Garuda’s business and operations.

88 It seems to me that even if it be correct that foreign State ownership and control of a corporation is sufficient to satisfy the statutory test of a separate entity, what is required is actual control. This seems to me to follow from what I said earlier about the structure of Part II of the Act and the rationale for extending immunity to separate entities. They are treated as analogous, in most respects, to government departments, though organised with separate legal personality. I do not see how a corporation that is not subject to a real or tangible level of day-to-day management control could satisfy that test.

89 It follows in my opinion that even if ownership and control of a corporation is sufficient to meet the statutory test of a separate entity, the evidence in this application does not satisfy the test.

Is Garuda Performing Governmental Functions?

90 I do not need to answer the question of whether Garuda performs governmental functions because I have come to the view that the control test is not satisfied. Nevertheless, I will deal with this question briefly.

91 It is true that the ambit of governmental functions may be difficult to define. But the authorities point to the need for the performance of functions of a public character in order to satisfy the governmental functions test.

92 Thus, in Adeang at p 5, Hayne J took into account the fact that the Trust was administering funds of a public character in coming to the view that its administration of them might be seen as in the nature of the performance of governmental functions.

93 Some guidance may also be obtained from Lord Denning’s remarks in Trendtex at p 560. He was there discussing the test for whether a body was entitled to foreign state immunity under the doctrine of absolute immunity. He said he would look to see whether the organisation was under government control and exercised governmental functions, giving as an example, his earlier remarks in Mellenger v New Brunswick Development Corporation [1971] 1 WLR 604 (“Mellenger”).

94 In Mellenger, immunity was extended to a corporation that promoted the industrial development of New Brunswick. Lord Denning said in that case at p 609 that it was entitled to immunity because it carried out that function in the same way as a government department.

95 It is true that Mellenger, and Lord Denning’s remarks about it in Trendtex dealt with the question of whether the corporation was an alter ego or organ of the government. But what he said about it in Trendtex suggests that governmental functions have a public character and depend upon their characterisation as part of the machinery of government.

96 Mr Leeming submitted that even if there is an additional requirement of governmental functions, Garuda satisfies the test. He pointed to the notes to the ALRC’s draft Bill, and the identical note in the Explanatory Memorandum. In particular, Mr Leeming relied on the examples given in the note of the type of State owned corporation which might be included within the concept of a separate entity. The examples include the Overseas Telecommunications Commission (“OTC”). Mr Leeming submitted that, in light of this, Garuda may be seen as exercising governmental functions when it transports people and goods around the Archipelago of Indonesia and internationally, just as the OTC used to transport electrons and signals outside Australia in the field of telecommunications.

97 I do not consider that the example fastened upon by Mr Leeming is a sufficient basis for a finding that Garuda exercises governmental functions. There are three reasons for this.

98 First, I do not consider that the mere conduct of a commercial airline is sufficient to constitute the performance of functions of a public character.

99 Second, even if the operation of an airline is capable of amounting to a governmental function, there is no evidence that demonstrates whether any governmental function or task has been entrusted to Garuda.

100 In this regard, Mr Butt’s evidence shows that under Indonesian law a BUMN persero may be required by the executive government to engage in specific tasks for the benefit of the public. However, there was no evidence that the Indonesian Government imposed such a requirement on Garuda.

101 Indeed, the evidence relied upon by Garuda says nothing about the way in which the airline operates. I accept Mr Howe’s submission that the evidence is directed to the theoretical framework within which Garuda operates without addressing, at all, how in fact it does operate. The same gap in the evidence of governmental control is evident in relation to the conduct of the operations of the airline. Accordingly, there is no evidentiary framework to support a finding that Garuda is, or was, exercising governmental functions.

102 I reject Mr Leeming’s submission that the performance of governmental functions is established by the fact that four of the five members of the Board of Commissioners of Garuda are senior members of the Executive Government of Indonesia. As I said above, this addresses the theoretical framework but it says nothing about the way in which the airline operates or the performance of governmental functions.

103 Third, the use of the example of the OTC is not a sufficient springboard for a submission that an airline exercises governmental functions. The other examples referred to by the ALRC, namely the Law Reform Commission and the other bodies, may all be seen as carrying out functions of a public character. It seems likely that in 1984, when the Report was presented, the ALRC considered that OTC, as it was then run and operated, exercised the necessary level of public functions.

104 Accordingly, I find that Garuda was not, at the relevant time, carrying on governmental functions.

The Commercial Transaction Exception

105 Since I have come to the view that Garuda is not a separate entity, it is unnecessary for me to decide whether the commercial transaction exception to the general immunity conferred by s 9 (and s 22) is engaged. Nevertheless, I will deal briefly with that question.

106 The commercial transaction exception is stated in s 11 of the Act. Although there are some textual differences between the language of that section and the language of s 3 of the State Immunity Act 1978 (UK), it is evident that the Australian provision is based on the United Kingdom model. This is in accordance with the ALRC recommendation at [90] of the Report.

107 Lady Fox QC, in her text The Law of State Immunity (2^nd ed, Oxford University Press, 2008) at p 271 describes s 3 of the United Kingdom Act as the “core provision” which gives effect to the restrictive doctrine of foreign State immunity.

108 That provision, as well as s 11 of the Act, should be seen, as Lord Diplock said in Alcom Limited v Republic of Columbia [1984] AC 580 at 600, as part of a comprehensive set of exceptions. The statutory scheme is to restate the general principle of absolute immunity which is then subject to a detailed set of wide-ranging exceptions.

109 Mr Leeming submitted that the text of s 11 suggests a narrower exception than is expressed in the corresponding provision of the United Kingdom legislation. This is said to flow, at least in part, from the words “in so far as the proceeding concerns” in s 11 of the Act, when contrasted with s 3(1)(a) of the State Immunity Act 1978 (UK)which excludes immunity “as respects proceedings relating to a commercial transaction”.

110 I do not think that anything turns on this distinction, at least for the purposes of the present proceeding. Both of the parties accepted that there are no Australian authorities which have construed the provisions of s 11 of the Act. The argument proceeded on the basis of the principles to be gleaned from the English authorities.

111 The learned authors (Davies M, Bell AS, Brereton PLG) of Nygh’s Conflict of Laws in Australia (8^th ed, LexisNexis Butterworths, 2010), refer to the commercial transaction exception at [10.18]ff. They accept that the test is an objective one but they cite no Australian authority on the construction of the section. The only Australian authority to which they refer, Australian Federation of Islamic Councils Inc v Westpac Banking Corporation (1988) 17 NSWLR 623 does not deal with the construction of s 11.

112 Dowsett J referred to the legislative history of the Act in Thor Shipping A/S v The Ship “Al Duhail” (2008) 173 FLR 524 at [52] but he did not address the construction of s 11 which did not arise in that case.

113 Whilst there are slight textual differences between the definition of “commercial transaction” in s 11(3) of the Act and the corresponding provision in s 3(3) of the State Immunity Act 1978 (UK), in my view, again, nothing turns on this for the purposes of the present case.

114 What is at issue here is whether the proceeding brought by the ACCC “concerns” a commercial transaction. In my view, it is plain that the word “concerns” is a word of connection. It looks to the relationship between two subjects. The ordinary meaning of “concerning” (and “concerns”) is given in Little W, Fowler HW, Coulson J, Onions CT The Shorter Oxford English Dictionary (3^rd ed, Clarendon Press, Oxford, 1973) as “regarding, touching, in reference or relation to”. The Macquarie Dictionary (Macquarie Library Pty Ltd, 1982) definition is to the same effect.

115 I do not see any relevant difference between that meaning and the term “relating to”. Clearly enough, the meaning of “concerns” or “relating to” must be considered in its statutory context. The Court of Appeal of England recently observed, when construing the expression “relating to” in s 3(1) of the State Immunity Act 1978 (UK) that it is an expression which is capable of bearing a broader or narrower meaning as the context requires: Svenska Petroleum Exploration AB v Government of the Republic of Lithuania (No 2) [2007] QB 886 (“Svenska”) at 931 [137].

116 In my view, the same may be said of the word “concerns” in s 11 of the Act. It is one of a series of sections which employ the same language of relationship between the proceeding and its subject matter so as to provide a detailed list of exceptions to the general immunity conferred by s 9.

117 This is illustrated by the observations made by Lord Millett in Holland v Lampen-Wolfe [2000] 1 WLR 1573 (“Holland”), a decision of the House of Lords.

118 Lord Millett’s remarks about the proper construction of s 3(1)(a) of the United Kingdom Act were obiter, but he pointed out that the issue of the application of that subsection was fully argued. It seems to me that his Lordship’s views are therefore strongly persuasive.

119 Holland concerned an allegedly defamatory memorandum written by an education services director at a United States military base in England about the plaintiff’s conduct as an instructor in courses provided by her in an educational program carried out at the base. The plaintiff, a United States citizen, taught at the military base in her capacity as a professor at a United States university which provided educational services to the military under a contract between the university and the United States Government.

120 Lord Millett, at p 1587, considered that the contract between the university and the United States was a contract for the supply of services and therefore a commercial transaction within the meaning of s 3(3) of the State Immunity Act 1978 (UK). However, he did not consider that the commercial transaction exception to foreign State immunity in s 3(1)(a) applied because the proceeding did not relate to that contract. He said, at 1587 that:

They (the proceedings) are not about the contract, but about the memorandum.

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).

122 A similar approach to construction is to be found in the decision of Burnton J in AIC Limited v Federal Government of Nigeria [2003] EWHC 1357 (QB) (“AIC”). There, a question arose as to whether an application to register a foreign judgment where the underlying cause of action arose out of a commercial transaction was an application involving proceedings “in relation to” the transaction within the meaning of s 3 of the State Immunity Act 1978 (UK).

123 Burnton J was of the view in AIC at [24] that the proceeding did not relate to the transaction on which the judgment was based. This was because the issues that arise on such an application relate to the regularity of the judgment, not to whether it was correct on questions of fact or law. He went on to say at [27] – [28] that this conclusion was consistent with Lord Millett’s remarks in Holland; see also Svenska at [135].

124 The Court of Appeal in Svenska held at [137] that AIC was correctly decided. They said:

Section 3 is one of a group of sections dealing with the courts’ adjudicative jurisdiction and it is natural, therefore, to interpret the phrase in that context as being directed to the subject matter of the proceedings themselves rather than the source of the legal relationship which has given rise to them.

125 The principle which arises out of the three English decisions to which I have referred requires me to characterise the proceeding brought by the ACCC against Garuda and then 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?

126 It seems to me that the proceeding against Garuda is to be characterised as a claim for a pecuniary penalty brought under s 76 of the Trade Practices Act for an alleged contravention by Garuda of the provisions of s 45(2)(a)(ii) and s 45(2)(b)(ii) of Part IV of the Trade Practices Act.

127 This may be seen from an examination of the lengthy Statement of Claim which alleges that Garuda and other international airlines entered into a large number of arrangements or understandings which had the proscribed effect on competition because they were price-fixing arrangements. It is the anti-competitive conduct which is the subject matter of the claim.

128 The arrangements or understandings between the airlines may be seen as commercial transactions because they constituted arrangements or alleged arrangements, between those parties for the price at which air freight services were to be supplied to customers.

129 However, the claims which form the subject matter of the proceeding do not arise out of the transactions between Garuda and the other airlines but from the alleged anti-competitive effect of the transactions. The claims therefore arise independently of the transactions in much the same way as the claim in HollandollH was independent of the contract for services between the university and the United States.

130 This approach to the construction and effect of s 11 seems to me to be consistent with the evident statutory purpose which is revealed in particular by the definition of “commercial transaction” in s 11(3). The words “commercial trading, business, professional or industrial or like transaction” are descriptive words which “embrace the widest conception of private law or commercial acts”: Fox(2008)at p 274.

131 The three examples set out in sub-paragraphs (a), (b) and (c) of the definition do not limit the generality or wide ambit of the descriptive words. They contain examples of commercial transactions commonly entered into between parties.

132 The extension of the definition of commercial transaction to include a “like activity” may enlarge the scope of the exception so as to include claims in tort or, proceedings which concern a commercial relationship akin to, but falling short of a contract; see Holland at p 1587; Fox(2008)at p 274. But this again emphasises the private law or commercial nature of the exception with its focus upon claims by a local party against the separate entity.

133 It follows in my view that the purpose of s 11, as revealed by its language, is to satisfy the interests of private parties dealing with foreign States, so as to enable local parties to bring legal proceedings against foreign States for a wide range of claims arising out of transactions entered into between them.

134 This approach is supported by the observations of the ALRC at [90] of the Report. The ALRC when commenting upon the criteria for a commercial transaction said expressly that:

(i)n these respects the provision satisfies the interests of private parties dealing with foreign states.

135 It seems to me that s 11 therefore gives effect to what Lord Denning said in Trendtex at p 558. His Lordship said that if a government department goes into the market place of the world and buys boots or cement, it should be subject to all the rules of the market place. It seems to me that what is intended by this is that the private party should be able to bring a wide range of claims, not restricted to enforcing the contract or claiming damages under it.

136 But it does not mean that a regulator is to be permitted to subject a foreign State, or a separate entity, to a proceeding within the jurisdiction to claim a civil penalty for an alleged breach of the competition laws in Part IV of the Trade Practices Act arising from the entering into, or implementation of, an anti-competitive agreement.

137 Accordingly, if Garuda is a separate entity, the proceeding does not concern a commercial transaction within the meaning of s 11 of the Act. But for my view that Garuda is not a separate entity, I would have concluded that it is entitled to the immunity conferred by s 9.

Conclusion and Orders

138 Garuda fails on the motion and in my opinion costs should follow the event. Accordingly, the motion must be dismissed with costs.

I certify that the preceding one hundred and thirty-eight (138) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.

Associate:

Dated: 1 June 2010

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