National airline granted foreign state immunity against a winding up application

Articles Written by Pravin Aathreya (Partner), Lucy Charleston (Law Clerk)
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Case Name & Citation

Greylag Goose Leasing 1410 Designated Activity Company v P.T. Garuda Indonesia Ltd [2023] NSWCA 134 per Bell CJ, Meagher JA, Kirk JA

Hyperlink

https://jade.io/article/1033363?at.hl=Greylag+Goose+Leasing+1410+ Designated+Activity+Co+v+PT+Garuda+Indonesia+Ltd

Date of Judgment

14 June 2023

Issues

Winding up application; foreign State immunity; statutory construction

 

The New South Wales Court of Appeal has confirmed that foreign state immunity extends to a national airline subject to a winding up application. The Court held that there is nothing in the Foreign State Immunities Act 1985 (Cth) (FSIA) to suggest that Parliament intended to render a foreign State and its separate entities vulnerable to bankruptcy, insolvency or winding up proceedings in Australia. The Court held that:

  • the reference to a ‘body corporate’ in s 14(3)(a) of the FSIA should be understood as referring to a body corporate “in and of the Commonwealth”; and
  • On its proper construction, s 14(3)(a) relates to a bankruptcy, insolvency or winding up proceeding in which a foreign State has or claims an interest in property with which the relevant proceeding is concerned.

Background and primary judge decision

PT Garuda Limited (Garuda) is Indonesia’s national airline and a foreign company registered under Div 2 of Pt 5B.2 of the Corporations Act 2001 (Cth) (Corporations Act). Greylag Goose Leasing 1410 Designated Activity Company and Greylag Goose Leasing 1446 Designated Activity Company (together, Greylag Goose) are companies incorporated in Ireland who leased aircraft to Garuda.

On 15 August 2022, Greylag Goose applied to wind up Garuda under s 583 of the Corporations Act on the basis that Garuda was unable to meet its payment obligations. On 22 September 2022, Garuda sought a declaration that the Court had no jurisdiction over it by reason of the immunity from jurisdiction for separate entities of foreign states arising under s 9 of the FSIA.

Greylag Goose contended that Garuda was not immune as the winding up proceedings concerned a “body corporate” within the meaning of the following exception to foreign state immunity set out in s 14(3)(a) of the FSIA:

 “A foreign State is not immune in a proceeding in so far as the proceeding concerns:

  1. Bankruptcy, insolvency or the winding up of a body corporate;”

The primary judge held that the literal construction advanced by Greylag Goose was inappropriate, and Garuda was consequently immune from the winding up proceedings. The Court’s reasoning comprised the following limbs:

  • The words of 14(3) refer to the object of the immunity (being the foreign State or foreign State-owned entity), whereas the “body corporate” referred to in s 14(3)(a) is not the object of the immunity but someone different, namely, the body corporate the subject of the winding up proceeding;
  • A practical reading of the provision stipulates that Garuda has no immunity in winding up proceedings against a body corporate;
  • If the legislature had intended to expose a foreign State or foreign State-owned entity to winding up by an Australian court, the legislature would have said so;
  • A logical consequence of Greylag Goose’s construction would be the removal of immunity of natural persons falling within the definition of “foreign State” (such as the head of a foreign State), thereby making them subject to bankruptcy proceedings in Australia, resulting in an unjustified different treatment of natural persons compared with bodies corporate.

Greylag Goose appealed the decision to the NSW Court of Appeal. A key argument underpinning the appeal was that the FSIA’s purpose was to give effect to the restrictive theory of foreign state immunity, a concept referred to in the Australian Law Reform Commission Report (ALRC Report) and the second reading speech for the Bill that became the FSIA. In support of this argument, Greylag Goose contended that the FSIA created a series of broad exceptions to immunity, extending from commercial transaction to employment, personal injury and taxation, thereby demonstrating the FSIA’s intention to derogate from absolute immunity for foreign states by indicating a broad and literal construction of the exception to immunity in s 14(3)(a) of the FSIA.

The NSW Court of Appeal’s decision

The Court of Appeal found that the purpose of s 14(3)(a) of the FSIA can be identified by examining the legislation as a whole, including the nature and context of the statute’s enactment, which in turn included secondary materials such as the ALRC Report, of which the FSIA was a direct product.  

The Court of Appeal observed ALRC Report ‘makes plain’ that the legislative reforms recommended by that report for partial implementation of a restrictive theory of foreign state immunity were in no way intended to subject a foreign body corporate having the benefits of foreign State immunity to winding up proceedings in Australia. The Court considered the ALRC Report, the International Law Commission Report, and several foreign State Immunity Acts, and found that unless a foreign State had or claimed an interest in property in Australia that fell to be administered in a local court, foreign State entities will be immune from winding up applications in Australian courts.

Additionally, the Court held that the reference to a ‘body corporate’ in s 14(3)(a) refers to a body corporate “in and of the Commonwealth”, which means that the section cannot refer to Garuda as a body corporate of Indonesia.

The Court ultimately held that s 14(3)(a) does not subject a foreign State (or separate entity of a foreign State) to a winding up proceeding, and that on its proper construction, that section relates to a bankruptcy, insolvency or winding up in which a foreign State has or claims an interest in property with which the relevant proceeding is concerned. Garuda was therefore immune from the winding up proceedings.

Consequently, the Court of Appeal dismissed the appeal.

This decision clarifies that foreign entities that are State-owned or controlled will be immune from bankruptcy, insolvency or winding up proceedings in Australia, except for those entities who hold or claim an interest in property in Australia. As State-owned entities increasingly become commercial actors in this global economy, they should know they might be susceptible to bankruptcy, insolvency or winding up proceedings if they hold or claim an interest in property in Australia.

 

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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