Greylag Goose Leasing 1410 Designated Activity Company v P.T. Garuda Indonesia Ltd

In a decision that appears to be the first of its kind, the NSW Court of Appeal has found that a national airline should be afforded foreign State immunity against a winding up application.

Key points:

• The NSW Court of Appeal has found that a State-owned or controlled entity such as a national airline has foreign State immunity against winding up proceedings commenced against it.
• As such, State-owned or controlled entities cannot be wound up even if they are in default of payment obligations.
• According to the Court’s reasoning, there is nothing to suggest that the legislature intended, by the Foreign States Immunities Act 1985 (Cth), to make a foreign State and its separate entities susceptible to winding up or bankruptcy proceedings against them in Australian courts, which would have involved a radical departure from the prevailing position.
• The exception to foreign state immunity in section 14(3) of the Act is a limited exception which means that interests in property owned by State-owned entities can be affected by insolvency proceedings.

Background

In a notable decision which appears to be the first of its kind in relation to winding up applications and foreign state immunity, the NSW Court of Appeal confirmed that foreign state immunity extends to a national airline of a foreign State under the Foreign States Immunities Act 1985 (Cth) (FSIA) in Greylag Goose Leasing 1410 Designated Activity Company v P.T. Garuda Indonesia Ltd [2023] NSWCA 134.

PT Garuda Limited (Garuda) is the national airline of Indonesia. Greylag Goose Leasing 1410 Designated Activity Company and Greylag Goose Leasing 1446 Designated Activity Company (Greylag Goose) are companies incorporated in Ireland which leased aircraft to Garuda.

Greylag Goose applied to wind up Garuda under s 583 of the Corporations Act 2001 (Cth) (Corporations Act) in the Supreme Court of NSW on the basis that Garuda failed to meet creditors’ demands for payments of various debts relating to aircraft leases. Garuda resisted the winding up application by seeking a declaration that the Court had no jurisdiction over it as Garuda had immunity as a foreign State under s 9 of the FSIA. Garuda claimed that it was an “agency or instrumentality” of a foreign State and therefore was entitled to immunity as a “separate entity” of a foreign State under the FSIA.

Greylag Goose argued that Garuda could not rely on foreign State immunity because the proceedings fell within the exception under s 14(3)(a) of the FSIA which provided that a “foreign State is not immune in a proceedings as the proceeding concerns…bankruptcy, insolvency or the winding up of a body corporate”.

At first instance, the Supreme Court of NSW held that Garuda was immune from the winding up proceedings. The Court acknowledged that the literal construction of s 14(3)(a) favoured Greylag Goose but held that that construction should not be adopted for the following reasons summarised below:

• the term ‘body corporate’ referred to at the end of the s 14(3)(a) refers to the “bankruptcy, insolvency or the winding up” of an entity that is not the foreign State;
• s 14 as a whole relates to proceedings in which a foreign State has an interest in property in Australia. The effect of s 14(3) is that, in these circumstances, that it is only the foreign State’s interests and liabilities in property that are not immune from bankruptcy, insolvency and winding up proceedings;
• if the legislative intention of the FSIA was to submit foreign States or State-owned entities to winding up by Australian courts, the legislative intention would be made clear; and
• If Greylag Goose’s construction of s 14(3)(a) were to prevail, it would have the effect of removing immunity of natural persons such as the head of a foreign State so that they could be subject to bankruptcy proceedings in Australia.

NSW Court of Appeal decision

Greylag Goose appealed to the Court of Appeal, challenging the primary judge’s construction of s 14(3). Among other things, Greylag Goose contended that the purpose of the FSIA was to broaden the ambit of the exception to foreign State immunity and in that regard, broad exceptions from immunity already existed in relation to commercial transactions, taxation, personal injury and employment.

The Court of Appeal dismissed the appeal and agreed with the primary judge’s reasoning.

In doing so, the Court of Appeal found that the proper construction of s 14(3)(a) relates to a bankruptcy, insolvency or winding up in which a foreign State has or claims an interest. The Court of Appeal noted that Greylag Goose’s submissions suffered from a focus on the text of s 14(3)(a) without regard to s 14 as a whole, which concerned a variety of proceedings involving property including potential claims against property.

The Court of Appeal also made extensive references to the Australian Law Reform Commission’s Report concerning Foreign State Immunity (Report No 24, 10 October 1984) (ALRC Report), the International Law Commission Report (ILC Report) and foreign legislation from the UK, Singapore and Pakistan to inform the context of the FSIA and the Court’s interpretation of the FSIA. The Court of Appeal found that the ALRC Report, ILC Report and other foreign legislation demonstrated that s 14(3) was directed at exempting a foreign State’s or its separate entities’ interests and property from immunity. That is, if a foreign State has a claim or interest in property, it does not preclude a court from exercising its jurisdiction in the winding up or administration of companies.    

In particular, Bell CJ observed that if the ALRC Report, which contributed to the development of the FSIA, had intended to consider and recommend what his Honour deemed as “quite a radical legislative initiative” in making a foreign State be susceptible to winding up proceedings, the ALRC Report would have considered the merits of such legislative initiative in detail (which is did not).

In a global economy where State-owned entities are common commercial actors, this decision is significant as it clarifies that foreign entities that are State-owned or controlled are immune from proceedings in Australia in bankruptcy, insolvency and winding up proceedings. The decision is also a reminder that the immunity does not extend to all involvement in bankruptcy, winding up and insolvency proceedings - property held by the State entity in Australia could still be affected by bankruptcy, winding up and insolvency proceedings.