Home / News / Foreign state immunity trumps winding up application

Foreign state immunity trumps winding up application

Emma Beechey recently appeared in the Supreme Court of New South Wales successfully establishing that PT Garuda Indonesia Limited, the national airline of Indonesia, has the benefit of foreign state immunity (also known as sovereign immunity), defeating a winding up application brought against Garuda as a foreign company registered in Australia.

The decision appears to be a world first on the interface between foreign state immunity and winding up applications.

Two Irish companies, Greylag Goose Leasing 1410 Designated Activity Company and Greylag Goose Leasing 1446 Designated Activity Company (together Greylag), applied to have Garuda wound up under s 583 of the Corporations Act 2001 (Cth) as a foreign company registered in Australia. Garuda responded by bringing an application claiming foreign state immunity under the Foreign States Immunities Act 1985 (Cth) (FSIA) in respect of the winding up application on the basis that Garuda is an “agency or instrumentality” of a foreign State, entitling it to immunity as a “separate entity” of a foreign State as defined in the FSIA.

Prior to the hearing, Greylag conceded that Garuda is a “separate entity” of the Republic of Indonesia. Although Greylag relied in its winding up application on demands for payment of asserted debts relating to leases of commercial aircraft, Greylag expressly declined to argue that the “commercial transactions” exception applied to the winding up application, or that Garuda had submitted to the jurisdiction of the Court by reason of the aircraft leasing arrangements. It relied instead on s 14(3)(a) of the Act which provides, under the heading “Ownership, possession and use of property etc”:

A 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 …

The Supreme Court (Hammerschlag J) found that Garuda was entitled to foreign state immunity despite the exception in s 14(3)(a).

Justice Hammerschlag agreed with Garuda’s submission that the ‘body corporate’ referred to at the end of the sub-section is not the same entity as the ‘foreign State’ referred to at the beginning of the provision.

His Honour found that, had the legislature intended to suscept foreign States or separate entities to a winding up by Australian courts, it would clearly have said so. His Honour also observed that Greylag’s construction would also have removed the immunity of natural persons who fall within the definition of foreign State (such as the head of a foreign State) so that they could be bankrupted in Australia. His Honour considered that this added force to a construction that the bankruptcy, insolvency or winding up in question is not that of the foreign State or separate entity itself.

His Honour briefly referred to the explanatory materials to the FSIA and to the precepts of private international law to which the parties had referred. With his classic brevity, his Honour observed:

None of the above-mentioned material to which I was referred makes reference expressly or by implication to the type of operation for which Greylag Goose contends. Perhaps that is its only relevance for present purposes.

Given that this is the first decision worldwide to consider this issue, and the use of similar language in other jurisdictions, the case may have wider relevance beyond Australia.

Separately, Garuda has successfully undertaken a restructuring process under the Indonesia PKPU law and is currently implementing its Composition Plan.

Emma Beechey was instructed by Baker McKenzie.

Greylag was represented by Alec Leopold SC and Christine Trahanas, instructed by K&L Gates.

Back to all

Latest News

View all news

Get our news and cases straight to your inbox.

You can unsubscribe anytime. By signing up you agree to our Terms & Condition and Privacy Policy.