Applying Foreign State Immunity for State-Owned Enterprises’ Winding-up Proceedings: Greylaag Goose v. Garuda

In the rapidly evolving global economy, Indonesia’s State-owned enterprises (SOEs) have emerged as significant commercial players, expanding their reach and operations internationally. However, as these entities entered into the commercial realm, they must consider a critical legal issue: the potential susceptibility to bankruptcy, insolvency, or winding-up proceedings if they hold property or assets in jurisdictions like Australia, a country that enacted Foreign State Immunities Act 1985 (“Immunities Act”). This raises important questions about the extent to which these SOEs can invoke the doctrine of foreign State immunity to shield themselves from such legal proceedings.

The legal doctrine of sovereign immunity, also referred to as State immunity, asserts that a State cannot be subjected to jurisdiction of foreign courts or execution of court orders, including those related to commercial activities, unless the State explicitly agrees to waive said immunity. However, the applicability of foreign State immunity surrounding SOEs has become ambiguous and difficult in certain cases, as they contain various complex legal relationships between conflicting parties that should be considered by the court.

The recent case of Greylag Goose Leasing 1410 Designated Activity Company & Anor (“Greylag Goose”) v. PT Garuda Indonesia Ltd (“Garuda”) in the High Court of Australia has brought about an intriguing question on the extent of immunity accorded to SOEs under international law, in respect to foreign court proceedings. Greylag Goose, who are aircraft lessors to Garuda, seek to wind up Garuda due to allegedly unpaid debts. The main question raised by Greylag Goose’s appeal focuses on to what extent the scope of immunity that a SOE can enjoy. The appeal focused on the immunity from the jurisdiction of an Australian court granted to a separate entity of a foreign State by Section 9 and 22 of the Immunities Act. The main issue in this appeal is whether the exception to immunity applies to a proceeding for the winding up of a separate entity of a foreign State, where that entity is a body corporate registered as a foreign company under the Corporations Act 2001.

The High Court of Australia Affirms Garuda’s Immunity: Exception Provided under Section 14 (3) in relation to Section 22 of the Immunities Act

The court found that the exception of a separate entity of a foreign State remained immune from foreign jurisdiction. One of the important considerations to be noted is that subject-matter exception as stated in the Section 14(3) of the Immunities Act: “ foreign State is not immune in a proceeding in so far as the proceeding concerns bankruptcy, insolvency or the winding up of a body corporate.”

By this formulation, the High Court distinguished between the foreign State or SOEs and its registered corporate entity. It determined the exception to immunity did not extend to the winding up proceedings of the separate corporate body. The High Court stated that the exceptions to foreign State immunity, particularly the one related to interests in trusts administered within the jurisdiction, can extend to situations involving the winding up of a body corporate due to its effect on the foreign States’ proprietary interests. Hence, the High Court dismissed the appeal.

A Feasible Exception: Should the Proceeding ‘Concern’ Commercial Transaction?

Section 11(3) of the Immunities Act defines a ‘commercial transaction’ as:

[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 and, without limiting the generality of the foregoing includes:

1. a contract for the supply of goods or services;

2. an agreement for a loan or some other transaction for or in respect of the provision of finance; and

3. a guarantee or indemnity in respect of a financial obligation; but does not include a contract of employment or a bill of exchange

According to this provision, it can be debated whether a proceeding involving a contract for the supply of goods or services not pertaining to a commercial transaction can be an exception for immunity? Other than that, can an agreement in respect of the provision of finance lack of adequate level for a commercial nature to be said as a commercial transaction?

Although it was not disputed in this stage of appeal, it was one of the main questions disputed in Garuda v. Australian Competition and Consumer Commission (ACCC) (2011). Here, the Full Federal Court took into consideration the word ‘concerns’, and held that Garuda could enjoy immunity due to its status as a separate entity of a foreign State. However, Garuda cannot be immune here as the proceeding concerned a commercial transaction.

The High Court of Australia's decision to annul the Full Federal Court's previous ruling suggests a more nuanced interpretation of the "commercial transaction" exception to foreign State immunity. The High Court emphasized that the dispute must be between the parties in a contractual relationship, or relate to the existence of their contractual relations, for the commercial transaction exception to apply. In that case, ACCC was seeking to impose a penalty on Garuda based on general law, rather than in the context of a specific commercial contract. The High Court's reasoning implies that such a proceeding, which does not directly concern a commercial transaction between the parties, would not fall under the commercial transaction exception to foreign State immunity.

This suggests that a party seeking to wind up or take legal action against a foreign SOE may not be able to claim the commercial transaction exception to foreign State immunity, unless the proceedings are directly related to a commercial contract or the contractual relationship between the parties.

Conclusion

The High Court's decision in this case has important implications for the scope of foreign State immunity in Australia, particularly as it relates to SOEs that engaged in commercial activities. The key takeaway is that unless several exceptions are hard to articulate in certain cases, foreign SOEs or controlled entities will generally be immune from bankruptcy, insolvency, or winding-up proceedings in foreign jurisdictions unless they hold or claim an interest in property within the country. As Indonesia’s SOEs continue to expand their commercial network, this decision can serve as a benchmark indicating that an SOE's insolvency cannot be pursued through foreign jurisdiction unless it fulfills specific criteria for exception.

Keyza is an undergraduate law student from Universitas Gadjah Mada (UGM). Her research focuses on private international law, international business law, tax law, and comparative law. She is currently serving as the associate editor for the Indonesian student-run journal publication, Juris Gentium Law Review (JGLR).

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