PT Garuda v ACCC [Australia, Federal Court]

• Jurisdiction: Australia Federal only
• Court: Federal Court
• Judge: Lander,Greenwood,Rares
• Judgment Date: 19 April 2011
• Date: 19 April 2011

([2011] FCAFC 52)

Australia, Federal Court

(Lander, Greenwood and Rares JJ)

PT Garuda Indonesia Ltd and Another

and

Australian Competition and Consumer Commission1

State immunity Separate entities Agency or instrumentality of government Foreign States Immunities Act 1985 (Cth) Whether Garuda Indonesia, Malaysian Airlines and Malaysian Airlines Cargo separate entities within meaning of Foreign States Immunities Act 1985 (Cth) Jurisdictional immunity Commercial acts Alleged airline cartel Whether proceedings for alleged breach of Trade Practices Act 1974 (Cth) within commercial exception in Foreign States Immunities Act 1985 (Cth) The law of Australia

Summary:2The facts: The respondent, the Australian Competition and Consumer Commission (ACCC), claimed that from October 2001 to September 2006, PT Garuda Indonesia Ltd (Garuda), Malaysian Airline Systems Bhd (MAS) and Malaysia Airlines Cargo Sdn Bhd (MAS Cargo) were engaged in a price-fixing cartel for the transport of cargo by air, in breach of Section 45 of the Trade Practices Act 1974 (Cth).3 The ACCC sought to exercise its powers under the Trade Practices Act 1974 (Cth) to obtain declaratory relief, as well as pecuniary penalties, available under Section 76 of the Act. In response, the three airlines challenged the jurisdiction of the Federal Court, asserting that they were entitled to State immunity under the Foreign States Immunities Act 1985 (Cth) (the FSI Act).

The proceedings against Garuda, MAS and MAS Cargo were heard separately in the Federal Court of Australia, with judgments in June and July 2010 respectively.4 Jacobson J heard both proceedings, determining that both

Garuda and MAS did not have foreign State immunity in respect of the ACCC's proceedings. Jacobson J found that the airlines failed to meet the criteria for a separate entity, as defined in Section 3 of the FSI Act, which would have provided a basis for State immunity.5 Section 3(1) provided in relevant part that:

Section 3(2) of the FSI Act adds to the definition of separate entity in Section 3(1):

Jacobson J held that an agency or instrumentality within the meaning of Section 3 of the FSI Act had to possess two features: it had to be subject to actual, day to day management control by the foreign State and perform governmental functions.6 He also decided, contrary to the submissions of the ACCC, that if any of the airlines had been a separate entity they would have been entitled to claim immunity from the jurisdiction of the court under Section 9 of the Act7 since the alleged cartel conduct fell outside the exception from immunity created by Section 11 of the Act8 in respect of commercial transactions and activities.

Garuda, MAS and MAS Cargo applied for leave to appeal to the Full Court of the Federal Court of Australia. The ACCC did not oppose this application, but filed a notice of contention challenging the judge's conclusion that the cartel conduct alleged was not within the meaning of a commercial transaction in Section 11(3) of the FSI Act.

Held (unanimously): Garuda, MAS and MAS Cargo were not entitled to State immunity under the FSI Act.

(1) A separate entity within the meaning of Section 3 of the FSI Act included an agency or instrumentality of a foreign State. The terms agency

and instrumentality had two separate meanings, although it was not necessary to decide the precise difference between them (paras. 30, 3441 and 1001)

(a) Jacobson J had 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. Such requirements were not contained in express or implied terms in the Act; they were not necessary to give the Act effect; and they were inconsistent with the express provision that an individual, who by definition was incapable of being owned, could be a separate entity (para. 124).

(b) Section 3(2) of the FSI Act expressly recognized that a separate entity might not be controlled at all by a single foreign State, but that it might be an agency of more than one foreign State. The correct approach was to consider on the whole of the evidence, whether the person was 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. Other circumstances, such as the State's ownership of the corporation's issued capital and the resulting control it could exercise, could also be considered but were not necessarily relevant (paras. 42 and 1258).

(2) Garuda was a separate entity under Section 3 of the FSI Act. However, the activities subject to the ACCC's proceedings fell within the exception in Section 11 of the FSI Act regarding commercial transactions, and Garuda was therefore not entitled to State immunity (paras. 16971, 212 and 2207).

(3) MAS and MAS Cargo had failed to prove that they were separate entities within the meaning of Section 3 of the FSI Act. In any event, the Full Court's findings in respect of Section 11 would also have applied to MAS and MAS Cargo, had they been considered to be separate entities (paras. 534, 17280 and 227).

The following is the text of the judgments delivered in the Court:

[396]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:

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 Pt 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 Pt 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 Pt 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:

8. A foreign State is defined in s 3 to mean:

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:

11. That subsection makes it clear that when the Foreign States Immunities Act addresses a foreign State it is not referring to a separate entity of a foreign State unless the provision in that 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 Naviera Vascongado v. Christina SSELR[1938] AC 485. The pure absolute doctrine of state immunity as Lord Wilberforce described it in Playa Larga (Owners of Cargo Lately Laden on Board) v. I Congreso del Partido (Owners)ELR[1983] 1 AC 244 at 261 has in more recent years become subject to restrictions: see Philippine Admiral (Owners) v. Wallem Shipping (Hong Kong) LtdELR[1977] AC 373 and Trendtex Trading Corporation v. Central Bank of NigeriaELR[1977] QB 529. However, the scheme of the Foreign States Immunities 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 Foreign States Immunities 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...