The NSW Court of Appeal has allowed Garuda Indonesia to invoke sovereign immunity to foil an insolvency proceeding brought by aircraft lessor Greylag Goose Leasing.
The Court’s decision is Greylag Goose Leasing 1410 Designated Activity Company v P.T. Garuda Indonesia Ltd [2023] NSWCA 134 (14 June 2023) (Bell CJ, Meagher JA and Kirk JA agreeing).
This decision is significant because it is the first time a Court in Australia has considered whether a claim of sovereign immunity can be invoked by a foreign State in a bankruptcy, insolvency or winding up proceeding.
Background
Greylag Goose Leasing is an aircraft lessor incorporated in Ireland. It brought a proceeding in Australia against the national airline of Indonesia, P.T. Garuda Indonesia (“Garuda”).
Specifically, Greylag Goose brought an insolvency proceeding to obtain an order that Garuda be wound up. The proceeding arose from Garuda’s failure to meet creditors’ demands for payment of two debts in the sums of US$193,003,254.55 and US$224,968,492.29, due to Greylag Goose.
P.T. Garuda Indonesia is a commercial entity, a limited liability company. The State of the Republic of Indonesia owns the majority of the shares (60.54%), and individuals, employees and others own the remaining shares [source 2022 Annual Report].
Garuda is registered as a foreign company in Australia.
Garuda is a large airline. According to its website: “Garuda Indonesia, seamlessly connects more than 90 destinations worldwide … With more than 600 daily flights. It operates 202 aircraft” [www.garuda-indonesia.com].
Garuda operates scheduled flights to Australia. It flies to Sydney, Melbourne and Perth.
Image: Garuda airways tail fin livery
The proceedings
Greylag Goose brought the proceeding in the Supreme Court of New South Wales to wind up Garuda on the grounds of insolvency. It relied upon Garuda’s failure to meet the creditors’ demands for payment as acts of insolvency.
Garuda filed a motion to set aside the Originating Process in the proceeding, seeking a declaration that the Court had no jurisdiction as Garuda was a foreign State which entitled it to protection under the Foreign States Immunities Act 1985 (Cth) (the “Immunities Act”).
The Immunities Act
The relevant provisions are:
Section 9 of the Immunities Act grants the general immunity from suit:
9 General immunity from jurisdiction
Except as provided by or under this Act, a foreign State is immune from the jurisdiction of the courts of Australia in a proceeding.
Section 22 of the Immunities Act extends the immunity to a ‘separate entity’ of a foreign State:
22 Application of Part to separate entities
… The … provisions of this Part … apply in relation to a separate entity of a foreign State as they apply in relation to the foreign State.
The definition of ‘separate entity’ is found in section 3(1) of the Immunities Act:
"separate entity", in relation to a foreign State, means a natural person (other than an Australian citizen), or a body corporate or corporation sole (other than a body corporate or corporation sole that has been established by or under a law of Australia), who or that:
-
- is an agency or instrumentality of the foreign State; and
- is not a department or organ of the executive government of the foreign State.
The parties accepted that Garuda Indonesia was a ‘separate entity’ for the purposes of the Immunities Act (as an agency of the State of Indonesia).
There are exceptions to the general immunity. Section 14(3)(a) of the Immunities Act is the exception relevant to this proceeding:
14 Ownership, possession and use of property etc
(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; or
(b) the administration of a trust, of the estate of a deceased person or of the estate of a person of unsound mind.
Greylag Goose argued for a broad interpretation of section 14(3)(a) to argue that Garuda (‘a foreign State’) was a ‘body corporate’ and therefore not immune from the jurisdiction of the court. Garuda argued for a narrow interpretation to claim immunity.
The Court of Appeal consideration
The key issue for determination by the Court of Appeal was whether 14(3)(a) of the Immunities Act removed the sovereign immunity and allowed Garuda “to be made the subject of winding up, insolvency or bankruptcy proceedings in Australia”.
Specifically, was the reference to “foreign State” in the chapeaux to s 14(3) a reference to the same person described as “body corporate” in paragraph (a)?
This extract from the Judgment Summary issued by the Court sets out the reasoning and the conclusions:
The Court held that s 14(3)(a) of the FSIA [the Immunities Act] does not make a foreign State (or a separate entity of a foreign State) susceptible to a winding up proceeding. Rather, on its proper construction, s 14(3)(a) relates to a bankruptcy, insolvency or winding up in which a foreign state has or claims an interest in property.
In reaching this conclusion, the Court adopted the reasoning of the primary judge and observed that the Australian Law Reform Commission Report, Foreign State Immunity (Report No 24, 10 October 1984) (ALRC Report), whose recommendations were wholly accepted and whose draft legislation formed the basis for the FSIA [the Immunities Act], supplied important context by reference to which the FSIA [the Immunities Act] and s 14(3) was to be interpreted. Further, the Court considered the context of the ALRC Report in light of its context in work done by the International Law Commission and its application in foreign statutes.
The Court concluded that reference to the ALRC Report reinforced the conclusion that s 14(3)(a) of the FSIA [the Immunities Act] was directed towards cases where a foreign State held, or claimed, property interests in the estate of a bankrupt, insolvent company or body corporate that was being wound up. The subsection was not intended to subject a separate entity of a foreign state to winding up proceedings in Australia. Accordingly, the Court dismissed the appeal.
The Court of Appeal therefore adopted a narrow interpretation. Even though Garuda Indonesia was a’ body corporate’ and was a ‘separate entity’ of a foreign State, when interpreted in context, s 14(3)(a) did not apply to remove immunity in insolvency proceedings against Garuda.
Comments
The proceeding had an antecedent. The proceeding was instituted in Australia by Greylag Goose Leasing after “the unsatisfactory homologated decision made at the end of the Suspension of Debt Payment Obligation (lit. Penundaan Kewajiban Pembayaran Utang/PKPU) lawsuit in the Central Jakarta Commercial Court.” (source: IDN Financials Aug 22, 2022). The decision was to approve a debt restructuring agreement by Garuda Indonesia. Greylag Goose was dissatisfied with the decision because it would result in payment of only 38% of its debt.
The decision denies an aircraft lessor the right of recovery of a debt against an airline which is an agency of a foreign State, through bankruptcy, insolvency or winding up proceedings, in Australia. A national airline cannot be subject to such proceedings.
The Court of Appeal stated that s 14(3)(a) of the Immunities Act does not prevent a foreign State from participating in a corporate insolvency where it has or claims an interest in property. It gave as examples, the recovery of property belonging to it from a corporation being wound up, participating in respect to a judicial determination of alleged voidable transactions (preferences), and being required to attend compulsory examination.