By Ashley Cahif
When is a company, owned by a foreign state, immune from proceedings arising out of commercial transactions? The High Court recently considered this issue in P.T. Garuda Indonesia Ltd v Australian Competition & Consumer Commission. The case included alleged price fixing and anti-competitive arrangements under the Trade Practices Act 1974 (Cth).
What is foreign state immunity?
Under the Foreign States Immunities Act 1985 (Cth) (the FSI Act) there is a general immunity from the process of Australian courts for foreign states and separate entities of those states, unless the proceeding is a prosecution or concerns a commercial transaction.
In this case Garuda was alleged to have entered into arrangements and understandings with other airlines that were anti-competitive because they imposed surcharges on commercial freight services to customers. Garuda claimed that it was immune from proceedings under the FSI Act.
The question was whether these arrangements and understandings concerned a commercial transaction and fell outside the general immunity in the FSI Act?
Garuda's status
The Republic of Indonesia owns 95.5% of the shares of Garuda, with the remainder being owned by Indonesian Government-controlled corporations.
At first instance, Jacobsen J found that Garuda was not a separate entity of a foreign state and therefore not immune from proceedings. On appeal, the Full Federal Court held that Garuda was a separate entity of the Republic of Indonesia; however, as the matter related to a commercial transaction, the immunity did not apply. This finding was not challenged in the High Court proceedings.
Was this a commercial transaction?
Garuda argued that the exception to the immunity is limited to litigation about commercial transactions between private litigants and doesn't extend to a regulator who's not a party to the transaction and isn't seeking a private law remedy.
The High Court rejected this dichotomy between private and public law based on the terms of the FSI Act. Further, the High Court held that the definition of "commercial transaction" doesn't require the arrangement or understanding to be contractual, only that they are dealings of a commercial trading and business character.
Accordingly, the High Court unanimously held that Garuda, while being a separate entity of a foreign state, was not entitled to immunity from the ACCC proceedings for price-fixing and anti-competitive behaviour under the Trade Practices Act as this involved a commercial transaction.
What this means for agencies
This decision highlights the importance of understanding who your counterparty is. Although in this case foreign state immunity did not apply, if you are dealing with a counterparty and you don't know who owns them, you may find that you are unable to commence proceedings against them if they are owned by a foreign state.
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