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The Commercial Exceptions to Foreign State Immunity

Published online by Cambridge University Press:  01 January 2025

Michael Douglas and
Claudia Carr
Michael Douglas
Affiliation:
The University of Sydney Law School
Claudia Carr
Affiliation:
Herbert Smith Freehills and Honours student, Curtin Law School
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Abstract

The Foreign States Immunities Act 1985 (Cth) provides that foreign states are immune to the jurisdiction of Australian courts, and that their property is immune from execution. Those immunities are subject to important ‘commercial exceptions’. First, foreign states are not immune in Australian proceedings insofar as they concern a ‘commercial transaction’. Second, foreign states are not immune from execution in respect of ‘commercial property’. The distinction between the commercial and the non-commercial may be difficult to pin down. With reference to recent case law, including the High Court's decision in Firebird Global Master Fund II Ltd v Republic of Nauru (2015) 258 CLR 31, this article aims to articulate the scope of the commercial exceptions. It is argued that the scope of the commercial transaction exception is uncertain, and depends on courts’ approach to the task of characterisation. It is also argued that the commercial property exception is undesirably narrow, and will present a recurring impediment to the vindication of private rights.

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Article
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Federal Law Review , Volume 45 , Issue 3 , September 2017, pp. 445 - 468
Copyright
Copyright © 2017 The Australian National University

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References

1 Hazel, Fox and Philippa, Webb, The Law of State Immunity (Oxford University Press, 3rd ed, 2013) 1Google Scholar; cf Burkhard, Hess, ‘The International Law Commission's Draft Convention on the Jurisdictional Immunities of States and Their Property’ (1993) 4 European Journal of International Law 269, 271Google Scholar.

2 Immunities Act s 9.

3 Immunities Act s 11(1).

4 Ibid s 32(1).

5 The Chakieh (1873) LR 4 A 7 E 59, 100 (Sir Robert Phillimore), quoted in James Crawford, ‘Basic Principles of Foreign State Immunity: An Assessment of the Need for Australian Legislation’ (Research Paper No 3, Australian Law Reform Commission, July 1983) 28.

6 See The Ship ‘Sam Hawk’ v Reiter Petroleum Inc (2016) 335 ALR 578, 621–3 [180]–[186] (Allsop CJ and Edelman J); Macmillan Inc v Bishopgate Investment Trust PLC (No 3) [1996] 1 WLR 387; see also Christopher, Forsyth, ‘Characterisation Revisited: An Essay in the Theory and Practice of the English Conflict of Laws’ (1998) 114 Law Quarterly Review 141Google Scholar.

7 See P B, Carter, ‘The Private International Law (Miscellaneous Provisions) Act 1995’ (1996) 112 Law Quarterly Review 190, 193Google Scholar.

8 Symeon, C Symeonides, Choice of Law (Oxford University Press, 2016) 65Google Scholar.

9 James, Allsop, ‘Characterisation: Its Place in Contractual Analysis and Related Enquiries’ (2017) 91 Australian Law Journal 471Google Scholar.

10 William, Gummow, ‘The Selection of the Major Premise’ (2013) 2 Cambridge Journal of International and Comparative Law 47, 59Google Scholar.

11 Christoph, Schreuer, State Immunity: Some Recent Developments (Grotius Publications, 1988) 41Google Scholar, cited in Fox and Webb, above n 1, 412.

12 (2015) 258 CLR 31 (‘Firebird’).

13 Richard, Garnett, ‘Should Foreign State Immunity be Abolished?’ (1999) 20 Australian Year Book of International Law 175, 175Google Scholar, discussing Hersch, Lauterpacht, ‘The Problem of Jurisdictional Immunities of Foreign States’ (1951) 28 British Yearbook of International Law 220, 247Google Scholar.

14 Compania Naviera Vascongado v SS Cristina (The Cristina) [1938] AC 485, 490 (Lord Atkin); The Porto Alexandre [1920] P 30; The Parlement Belge (1880) 5 PD 97; cf Lauterpacht, above n 13.

15 See, eg, Charter of the United Nations art 2(1); Australian Law Reform Commission, Foreign State Immunity, Report No 24 (1984) 23 [37]. On the other hand, State immunity goes against the grain of the sovereignty principle—another well-established part of international law—which provides that States have exclusive competence over matters occurring within their territory: see Garnett, above n 13, 177.

16 Or ‘par in parem non habet jurisdictionem’: Crawford, above n 5, 23.

17 [1977] 1 QB 529, 555 (Lord Denning) (‘Trendtex’).

18 Caitlin, McCormick, ‘The Commercial Activity Exception to Foreign State Immunity and the Act of State Doctrine’ (1984) 16 Law and Policy in International Business 477, 477Google Scholar; John, Quiggin, ‘The Future of Government: Mixed Economy or Minimal State?’ (1999) 58(4) Australian Journal of Public Administration 39, 51Google Scholar.

19 Trendtex [1977] 1 QB 529, 555 (Lord Denning).

20 The Philippine Admiral (1976) 2 WLR 214, 228A (Lord Cross); Australian Law Reform Commission, Foreign State Immunity, Report No 24 (1984) 9–14 [11]–[16].

21 Fox and Webb, above n 1, 395.

22 The Philippine Admiral (1976) 2 WLR 214; Trendtex [1977] 1 QB 529; Owners of Cargo Lately-Laden on Board Playa Larga v Owners of I Congreso del Partido [1983] 1 AC 244 (‘I Congreso del Partido’).

23 ALRC, above n 15.

24 Foreign Sovereign Immunities Act, 28 USC (1976).

25 State Immunity Act 1978 (UK) c 33.

26 ALRC, above n 15, xvi, 33.

27 Explanatory Memorandum, Foreign States Immunities Bill 1985 (Cth) 2.

28 Immunities Act s 10.

29 Ibid s 9.

30 Ibid pt IV.

31 Ibid s 30.

32 Explanatory Memorandum, Foreign States Immunities Bill 1985 (Cth) 2.

32a Immunities Act s 3(1).

33 Ibid s 22.

34 Ibid s 3(1); see also PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission (2012) 247 CLR 240, 246 [12] (French CJ, Gummow, Hayne and Crennan JJ) (‘PT Garuda’).

35 See James, Crawford, ‘Australian Legislation on Foreign State Immunity’ in International Law as an Open System—Selected Essays (Cameron May, 2002) 453, 454Google Scholar.

36 See PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission (2011) 192 FCR 393, 398–9 [15] (Lander and Greenwood JJ).

37 Immunities Act s 12(1); see also pt II.

38 Ibid s 11(1).

39 ALRC, above n 15, 51 [90]. The Immunities Act is based on the ALRC's recommendations: Explanatory Memorandum, Foreign States Immunities Bill 1985 (Cth) 2.

40 Immunities Act s 32(1).

41 Fox and Webb, above n 1, 4.

42 [1983] 1 AC 244, 262 (Lord Wilberforce).

43 The statute displaces the previous common law: Firebird Global Master Fund II Ltd v Republic of Nauru (2014) 289 FLR 373, 388 [78] (Young AJA); see also Barnes v Ministry of Defence (United Kingdom) (1997) 14 NSWCCR 450.

44 Immunities Act s 11(3).

45 Ibid s 32(3).

46 Ibid s 11(3).

47 Ibid s 11(3)(a).

48 (2004) 185 FLR 48 (‘Wells Fargo’).

49 Ibid 57 [42] (Dodds-Streeton J).

50 Ibid 71 [108].

51 See Victoria Aircraft Leasing Ltd v United States (2005) 12 VR 340, 345 [15] (Buchanan JA).

52 Wells Fargo (2004) 185 FLR 48, 71 [109].

53 Ibid 71 [110].

54 Ibid 71 [111].

55 Allsop, above n 9, 471.

56 Cf Attorney-General (NSW) v Perpetual Trustee Co (Ltd) (1940) 63 CLR 209, 226–7 (Dixon and Evatt JJ), cited in Allsop, above n 9, 472.

57 Wells Fargo Bank Northwest, National Assoc v Victoria Aircraft Leasing Ltd (No 2) [2004] VSC 341.

58 (2005) 12 VR 340, 347 [29] (Buchanan JA, Callaway JA and Williams AJA agreeing) (‘Victoria Aircraft Leasing’).

59 Ibid 346–7 [26].

60 Ibid 346 [24].

61 Ibid 342–3 [4].

62 See also Australian International Islamic College Board Inc v Kingdom of Saudi Arabia [2014] 2 Qd R 1, 6 [15] (Holmes JA).

63 Richard, Garnett, ‘Foreign States in Australian Courts’ (2005) 29(3) Melbourne University Law Review 704, 710Google Scholar.

64 James, Crawford, ‘International Law and Foreign Sovereigns: Distinguishing Immune Transactions’ (1983) 54(1) British Yearbook of International Law 75, 90Google Scholar.

65 (2016) 311 FLR 93 (‘Bannon’).

66 Ibid 97 [15].

67 (2004) 185 FLR 48, 71 [106]–[109].

68 Bannon (2016) 311 FLR 93, 99 [19].

69 Ibid [20]. We note that the Court overlooked the disjunctive nature of the definition in s 11(3) of the Immunities Act: ‘commercial transaction means a commercial, trading, business, professional or industrial or like transaction into which the foreign State has entered or a like activity in which the State has engaged’ (emphasis added). The second part of the definition does not require the State to ‘enter into’ a transaction. Cf the PT Garuda litigation, discussed below, where the High Court held that ‘commercial activity’ did not need to be contractual in nature: PT Garuda (2012) 247 CLR 240, 254 [42] (French CJ, Gummow, Hayne and Crennan JJ).

70 Bannon (2016) 311 FLR 93, 99 [21].

71 [2012] QSC 259.

72 Australian International Islamic College Board Inc v Kingdom of Saudi Arabia [2014] 2 Qd R 1, 9 [26] (Holmes JA).

73 Ibid 10 [26] (Holmes JA).

74 [1983] 1 AC 244.

75 Ibid 264, quoted in Firebird (2015) 258 CLR 31, 80 [172] (Nettle and Gordon JJ).

76 Gummow, above n 10, 48.

77 PT Garuda (2012) 247 CLR 240.

78 Australian Competition and Consumer Commission v PT Garuda Indonesia Ltd (2010) 269 ALR 98.

79 Ibid 111 [105].

80 Ibid 113–4 [126], [129].

81 PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission (2011) 192 FCR 393, 430 [170]–[171] (Rares J).

82 Ibid 405–6 [64]–[66] (Lander and Greenwood JJ), 442–3 [220]–[227] (Rares J).

83 Ibid 437 [200], see also 439 [212] (Rares J).

84 Ibid 437 [201], 442 [222] (Rares J).

85 Ibid 438 [205] (Rares J).

86 Ibid 405 [62]–[63].

87 PT Garuda (2012) 247 CLR 240, 241–2.

88 Ibid 254 [40]–[41] (French CJ, Gummow, Hayne and Crennan JJ), 262 [66] (Heydon J).

89 Ibid 254 [42] (French CJ, Gummow, Hayne and Crennan JJ).

90 Ibid 253 [38] (French CJ, Gummow, Hayne and Crennan JJ), quoting Leon Fink Holdings Pty Ltd v Australian Film Commission (1979) 141 CLR 672, 679 (Mason J).

91 PT Garuda (2012) 247 CLR 240, 263 [72] (Heydon J).

92 Dickinson makes the point that a foreign State's participation in commercial litigation in a foreign Court is unlikely to satisfy the UK-equivalent of s 11 of the Immunities Act. We agree that the Australian commercial transaction exception should not capture that scenario. See Andrew, Dickinson, ‘State immunity and foreign judgments in the United Kingdom—the vulture swoops’ (2011) 4 Lloyd's Maritime and Commercial Law Quarterly 581, 583Google Scholar n 19; cf Kuwait Airways Corp v Iraqi Airways Co and Republic of Iraq [2008] EWHC 2039, [7] (David Steel J).

93 Foreign Judgments Regulations 1992 (Cth) Schedule, Item 16; Code of Civil Procedure (Japan) Article 118; see also Chief Justice J J Spigelman, ‘Judicial Exchange Between Australia and Japan’ (Speech delivered at the Australian Network for Japanese Law Conference, University of New South Wales, 28 February 2006) 7 <https://sydney.edu.au/law/anjel/documents/ResearchPublications/Spigelman2006.pdf>.

94 Immunities Act ss 11, 32.

95 Firebird Global Master Fund II Ltd v Republic of Nauru (2014) 289 FLR 373, 392 [125], [127], [129], 394 [147] (Young AJA).

96 Ibid 386 [61]–[62], 387 [68], [70]–[71], 394 [146] (Young AJA).

97 Firebird Global Master Fund II Ltd v Republic of Nauru (2014) 89 NSWLR 477, 495 [69].

98 Ibid 495 [70].

99 Ibid 495–6 [71]–[79].

100 Ibid 513 [210].

101 Ibid 532 [297].

102 [2011] 2 AC 495 (‘NML Capital’).

103 NML Capital Ltd v Republic of Argentina [2009] QB 579.

104 NML Capital [2011] 2 AC 495.

105 State Immunity Act 1978 (UK) s 3(1)(a).

106 NML Capital [2011] 2 AC 495, 532 [85].

107 Ibid 539 [114] (Lord Collins and Lord Walker agreeing); cf the position in Australia, where service outside the jurisdiction was possible at the time of the ALRC's report: Firebird (2015) 258 CLR 31, 58 [76] (French CJ and Kiefel J).

108 NML Capital Ltd [2011] 2 AC 495, 510–11 [26].

109 Ibid 511 [26].

110 [2011] 2 AC 495, cited in PT Garuda (2012) 247 CLR 240, 251 [33] (French CJ, Gummow, Hayne and Crennan JJ).

111 Firebird (2015) 258 CLR 31, 85–6 [186] (Nettle and Gordon JJ).

112 Ibid 51 [49] (French CJ and Kiefel J), 71 [135] (Gageler J), 85 [184]–[185] (Nettle and Gordon JJ).

113 Ibid 69 [128] (French CJ and Kiefel J), 69 [131] (Gageler J agreeing), 91–3 [206]–[209] (Nettle and Gordon JJ).

114 Ibid 53–4 [58] (French CJ and Kiefel J), 69 [131] (Gageler J agreeing), 86–7 [186] (Nettle and Gordon JJ).

115 Ibid [81] (French CJ and Kiefel J), 69 [131] (Gageler J agreeing), 86 [187]–[188] (Nettle and Gordon JJ).

116 Ibid 55 [62], 57 [71] (French CJ and Kiefel J), 69 [131] (Gageler J agreeing).

117 Ibid 59 [80] (French CJ and Kiefel J), 69 [131] (Gageler J agreeing).

118 Ibid 85–6 [186] (Nettle and Gordon JJ).

119 Ibid 86 [187] (Nettle and Gordon JJ).

120 Ibid 86 [188] (Nettle and Gordon JJ).

121 Ibid 86–92 [190]–[207] (Nettle and Gordon JJ).

122 Immunities Act s 32(1).

123 ALRC, above n 15, 75 [124].

124 Thus, at first instance, Young AJA held that the English cases were distinguishable: Firebird Global Master Fund II Ltd v Republic of Nauru and Others (2014) 289 FLR 373, 389–90 [97].

125 Cf Alcom Ltd v Republic of Columbia [1983] 3 WLR 906.

126 ALRC, above n 15, 76 [125]; see Firebird (2015) 258 CLR 31, 97 [222] (Nettle and Gordon JJ).

127 See Firebird (2015) 258 CLR 31, 64–5 [104] (French CJ and Kiefel J),

128 On immunity from execution, see Denham Constructions Pty Ltd v Islamic Republic of Pakistan (No 4) [2016] ACTSC 288; Ministry of Foreign Affairs of the Republic of Italy v Simeone [2016] QDC 160.

129 Firebird Global Master Fund II Ltd v Republic of Nauru (2014) 289 FLR 373, 390 [101].

130 See, eg, Firebird (2015) 258 CLR 31, 101 [224] (Nettle and Gordon JJ).

131 Firebird Global Master Fund II Ltd v Republic of Nauru (2014) 89 NSWLR 477, 505 [167].

132 Ibid 499–505 [94]–[163] (Bathurst CJ).

133 Firebird Global Master Fund II Ltd v Republic of Nauru (2014) 289 FLR 373, 388 [80].

134 Ibid 388 [75], [79], [81], 389 [91]–[93], [95]–[96], 390 [101]–[102] (Young AJA).

135 A period of one month for some of the accounts.

136 Firebird Global Master Fund II Ltd v Republic of Nauru (2014) 89 NSWLR 477, 506 [171].

137 Ibid 506 [172].

138 See Firebird (2015) 258 CLR 31, 99 [228] (Nettle and Gordon JJ).

139 Firebird Global Master Fund II Ltd v Republic of Nauru (2014) 89 NSWLR 477, 506 [172].

140 Ibid 507–8 [176]–[178].

141 Ibid 512 [206].

142 Ibid 512 [205].

143 Ibid 537 [316]–[317].

144 See Firebird (2015) 258 CLR 31, 66 [111] (French CJ and Kiefel J).

145 Ibid 98–9 [225] (Nettle and Gordon JJ).

146 Ibid 69 [131] (Gageler J agreeing).

147 Firebird (2015) 258 CLR 31, 65 [107].

148 Ibid.

149 Ibid 66 [110] (French CJ and Kiefel J).

150 ALRC, above n 15, 76 [125].

151 Firebird (2015) 258 CLR 31, 67–9 [117]–[127] (French CJ and Kiefel J).

152 Ibid 66–7 [113]–[116] (French CJ and Kiefel J).

153 Ibid 67 [119] (French CJ and Kiefel J).

154 Ibid 97 [223], citing Carrato v United States (1982) 141 DLR (3d) 456 (Steele J).

155 Ibid 98 [224].

156 ALRC, above n 15, 51 [90].

157 PT Garuda (2012) 247 CLR 240, 263 [72] (Heydon J).

158 Cf s 11(3)(a).

159 Wells Fargo (2004) 185 FLR 48, 71 [108] (Dodds-Streeton J).

160 Crawford, above n 64, 90.

161 Firebird (2015) 258 CLR 31, 95–6 [218] (Nettle and Gordon JJ).

162 Lauterpacht, above n 13, 225.

163 ALRC, above n 15, 51 [90].

164 State Immunity Act 1978 (UK) s 3(3)(b) (emphasis added).

165 ALRC, above n 15, 52 [90].

166 [1993] 1 VR 251, 253.

167 Cf Trendtex [1977] 1 QB 529, 558 (Lord Denning); see Reid v Republic of Nauru [1993] 1 VR 251, 253.

168 [1983] 1 AC 244, 272.

169 Which included an agreement of sorts, in relation to the provision of finance and the role of a guarantor.

170 Cf Australian International Islamic College Board Inc v Kingdom of Saudi Arabia [2014] 2 Qd R 1.

171 Fox and Webb, above 1, 411.

172 Crawford, above n 64, 76.

173 (2015) 258 CLR 31, [248] (Nettle and Gordon JJ).

174 Katherine, Reece Thomas, ‘Enforcing Against State Assets: The Case for Restricting Private Creditor Enforcement and How Judges in England Have Used “Context” when Applying the “Commercial Purposes” Test’ (2015) 2 Journal of International and Comparative Law 115, 122–3Google Scholar, citing Republic of Argentina v Weltover Inc., 504 US 607, 614 (1992).

175 Firebird Global Master Fund II Ltd v Republic of Nauru (2014) 89 NSWLR 477, 505 [167].

176 Ibid 505 [164].

177 Firebird (2015) 258 CLR 31, 65 [107] (French CJ and Kiefel J), 106–7 [255] (Nettle and Gordon JJ).

178 Ibid 106 [252].

179 Ibid 106 [253] (Nettle and Gordon JJ).

180 Ibid 65 [107] (French CJ and Kiefel J).

181 ALRC, above n 15, 78 [127].

182 Ibid 78 [127].

183 Ibid 73 [122].

184 See, eg, Lauterpacht, above n 13.