Indonesian airline ‘flying high’: High Court confirms foreign entity immunity from winding up

Greylag Goose Leasing 1410 Designated Activity Company v P.T. Garuda Indonesia Ltd [2024] HCA 21 per Gageler CJ, Gordon, Edelman, Steward, Gleeson, Jagot, Beech-Jones JJ

Key takeaways

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

• separate entities of a foreign State are afforded the same immunity as the foreign State from winding up proceedings in Australian courts pursuant to ss 9 and 22 of the FSIA; and

• under ss 14(3)(a) and 22 of the FSIA, the reference to “foreign State” is the object of the exception from immunity, whereas the reference to “body corporate” is an entity other than the foreign State, and the winding up of that other entity is the subject matter of the exception from immunity.

Background

PT Garuda Indonesia 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) are companies incorporated in Ireland which leased aircraft to Garuda.

In August 2022, Greylag Goose applied to the Supreme Court of New South Wales to wind up Garuda, pursuant to s 583 of the Corporations Act on the basis that Garuda was unable to repay its debts under the lease of aircraft from Greylag Goose. In response, Garuda sought a declaration that the Supreme Court had no jurisdiction, as Garuda had immunity as a foreign entity under ss 9 and 22 of the FSIA.

Greylag Goose contended that Garuda, as a body corporate, was not immune since the winding up proceeding concerned a “body corporate” within the meaning of s 14(3)(a) of the FSIA:

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

                 (a) Bankruptcy, insolvency or the winding up of a body corporate;”

The primary judge dismissed the application and held that Garuda had immunity from Australian jurisdiction under ss 9 and 22 of the FSIA.

Greylag Goose appealed the decision to the New South Wales Court of Appeal, relying on the underlying “restrictive theory” prescribed in the Australian Law Reform Commission Report (ALRC Report) and the second reading speech for the Bill, of which the FSIA was a direct product.

The Court of Appeal considered the FSIA as a whole, the ALRC Report, the International Law Commission Report, and several foreign State Immunity Acts, and held that foreign entities will be immune from winding up proceedings in Australian courts unless that entity had or claimed an interest in property or a trust which fell to be administered by an Australian court. Moreover, the Court clarified that “body corporate” within the meaning of s 14(3)(a) refers to a body corporate “in and of the Commonwealth”, which does not apply to Garuda as a body corporate of Indonesia. Our recent article summarising the Court of Appeal’s decision can be accessed here, 'National airline granted foreign state immunity against a winding up application'.

Greylag Goose appealed the Court of Appeal’s decision to the High Court of Australia.

Issues

The central question on appeal before the High Court was whether the exception to the immunity in ss 14(3)(a) and 22 of the FSIA applies to a proceeding for the winding up of a separate entity of a foreign state that is a body corporate registered as a foreign company under the Corporations Act.

Findings

The majority (Chief Justice Gageler, and Justices Gleeson, Jagot and Beech-Jones) dismissed the appeal and held that the exception to immunity under s 14(3)(a) had no application to these proceedings.

The High Court clarified that s 14(3)(a) operates through s 22, which provides that exceptions to immunity under the FSIA “apply in relation to a separate entity of a foreign State as they apply to the foreign State”. Accordingly, the exception to immunity conferred under s 14(3)(a) operates through s 22 in relation to the separate entity of a foreign State. The majority reasoned that treating separate foreign entities the same as foreign States is consistent with the underlying policy of s 22 as described by the ALRC Report.

The High Court majority rejected Greylag Goose’s argument that the object of the exception from immunity and the body corporate subject to the winding up application can be one and the same. To emphasise this point, the majority deconstructed the terms within 14(3)(a) into the following, digestible points:

• the “foreign State” is the object of the exception from immunity;
• the “body corporate” is an entity other than the foreign State; and
• the winding up of that other entity is the subject-matter of the exception from immunity.^[1]

Accordingly, the majority held that Garuda was immune to winding up proceedings in an Australian court.

This decision confirms that a separate entity of a foreign State will be afforded the same immunity from Australian winding up proceedings as the foreign State. With the rise of globalisation and the increase in the presence of foreign entities as commercial actors, foreign entities should be aware that immunity will not apply in certain circumstances, particularly where the foreign entity holds an interest in property or a trust that is subject to an Australian proceeding.

 

Read our Insolvency and Restructuring Case Summaries

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