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
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?
The Republic of Indonesia owns 95.5% of the shares of Garuda,
with the remainder being owned by Indonesian Government-controlled
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
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
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The TPP could have a significant positive impact on the investment and financial services of Australia and Singapore.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).