Key Takeaway
Foreign state immunity is a long standing protection, recognised by Courts in common law jurisdictions, that foreign governments and their "separate entities" will not be subject to court processes of foreign courts unless they choose to submit to those courts. The principle sets boundaries between foreign states and domestic judicial powers.
That original principle evolved away from "absolute" immunity, to one now limited by recognised exceptions ("restrictive immunity"). In Australia these exceptions are now set by the Foreign States Immunities Act 1985 (Cth) (FSIA).
An exception to that general protection for foreign governments and their separate entities in the FSIA relating to "a proceeding in so far as the proceeding concerns … bankruptcy, insolvency or the winding up of a body corporate" has now been held not to cover an application to wind a company up that is a separate entity of a foreign State. Instead, the purpose of that exception is to ensure when a winding up has been started all creditors or other stakeholders in it are treated in a similar manner in any court proceedings about the liquidation.
In More Detail
In the wake of financial difficulties during 2020 for airlines during the COVID-19 pandemic, in 2021 Garuda underwent a restructuring process under Indonesian law known as a Penundaan Kewajiban Pembayaran Utang or PKPU. The resulting Composition Plan, approved by creditors and the Indonesian courts in 2022, sought to return the airline to good financial health.
Two Irish companies (Greylag Goose Leasing), lessors of aircraft to Garuda, were creditors during the PKPU. Dissatisfied with the result of the PKPU they sought in Australia to bring winding up proceedings against Gardua through an application in the NSW Supreme Court. Garuda responded by asserting the court lacked jurisdiction, and it was entitled to assert foreign state immunity. Garuda said, and Greylag Goose Leasing accepted, that Garuda was relevantly a separate entity of the Republic of Indonesia.
Based primarily on a textual analysis of the FSIA provision, the primary judge accepted Garuda's arguments, saying this exception to foreign state immunity did not extend to allowing an Australian court to appoint liquidators to a foreign state's separate entity. The NSW Court of Appeal agreed, and added to that reasoning by reference to the history and purpose of this exception in the FSIA.
The High Court has now confirmed the decisions of the lower courts.
The majority of the judges accepted arguments that emphasised the context and purpose of the provision was to ensure that a court could adjudicate on all claims brought before it in an insolvency or winding up.
Baker McKenzie acted for Garuda in these proceedings.
