The recent decision of the High Court of Australia in Firebird Global Master Fund II Ltd v Republic of Nauru  HCA 43 brings the Australian approach to enforcement of foreign judgments against assets of a foreign State in Australia in line with international consensus. This is a welcome clarification of the Australian approach to the doctrine of foreign State immunity in respect of proceedings concerning underlying commercial transactions, and confirms that the Court will look to the context of any proceedings to establish whether or not a commercial transaction exists. The judgment also serves as a useful guideline for foreign States with assets in Australia against which foreign judgments may be enforced, and for commercial entities that transact with such States.
On 2 December 2015, the High Court of Australia partially dismissed an appeal by Firebird Global Master Fund II Ltd (Firebird) from a decision of the New South Wales (NSW) Court of Appeal, and held that a Japanese judgment in favour of Firebird had been properly registered against the Republic of Nauru (Nauru). Nauru was, however, found to be immune from enforcement of the judgment under the Foreign States Immunities Act 1985 (Cth) (Immunities Act) as the assets against which Firebird had sought to enforce were not commercial assets.
This decision provides welcome guidance in respect of the immunity from jurisdiction afforded to foreign States under the Immunities Act, and the exceptions to that immunity which apply when a foreign State engages in commercial activities.
The facts of this case, and the decision of the NSW Court of Appeal, were considered in our previous article.
IMMUNITY FROM JURISDICTION
The High Court held that Nauru was not immune from the jurisdiction of the Supreme Court of NSW to register the Japanese judgment by virtue of section 11(1) of the Immunities Act, which provides a general exception to foreign State immunity in respect of a proceeding which concerns a commercial transaction.
The NSW Court of Appeal had held that this exception did not apply on the basis that the proceedings concerned registration of a foreign judgment and therefore did not constitute a proceeding concerning a commercial transaction, even though the underlying subject of the foreign judgment plainly concerned a commercial transaction. The Court therefore drew a distinction between the nature of the registration proceedings and the underlying subject of the foreign judgment, whilst accepting that this approach was inconsistent with general international practice.
The High Court departed from this view, holding that the exception in section 11(1) was intended to reflect the increasing involvement of foreign States in commercial activities and the international consensus that States should not be immune from jurisdiction in such circumstances. The High Court held that the phrase “proceeding concerns a commercial transaction” extends to registration of a foreign judgment where that judgment is based on a commercial transaction.
In correctly varying the decision of the NSW Court of Appeal, the High Court looked at the wider context of the commercial transaction underpinning the foreign judgment. Their Honours considered that it is important to identify the underlying purpose of proceedings when determining if the immunity from jurisdiction in the Immunities Act applies.
The High Court's decision has therefore repositioned the Australian approach in determining what constitutes a commercial transaction for the purposes of the exception to State immunity from jurisdiction in line with the international consensus.
Further, as the High Court confirmed that the term “proceeding” refers to any application to an Australian court in its civil jurisdiction, under this broad interpretation, an application to enforce a foreign arbitral award under the International Arbitration Act 1974 (Cth) would equally be a “proceeding” for the purposes of the Immunities Act. The consequence being that the High Court’s reasoning in respect of the operation of section 11(1) of the Immunities Act would apply equally to proceedings seeking to enforce a foreign arbitral award against a foreign State in Australia.
WHY NAURU IS STILL IMMUNE
Even though the Japanese judgment was validly registered, this did not alter the outcome of the appeal. The High Court found that although Nauru was not immune from jurisdiction, it was immune from enforcement of the judgment against its property.
Under Part IV of the Immunities Act, the property of a foreign State in Australia is immune from enforcement unless, relevantly, the property is “commercial property”, defined as property “that is in use by the foreign State concerned substantially for commercial purposes.”
Firebird sought to enforce the judgment against Westpac bank accounts held by Nauru. The various accounts were held for the provision of government services and government administration. The High Court confirmed Chief Justice Bathurst's finding in the NSW Court of Appeal that this did not amount to a substantially commercial purpose, and that, accordingly, the exception to immunity from enforcement did not apply.
Although this conclusion is in line with the international approach to foreign State immunity, had the High Court not found that Nauru was immune from enforcement of the judgement, the repercussions would have been drastic for both Nauru and Australia, where flow-on effects are inevitable.
It is important to recognise that the immunity from jurisdiction afforded to foreign States has limitations, and that a foreign State will not be immune from jurisdiction in respect of proceedings which concern an underlying commercial transaction.
The High Court’s decision confirms that a foreign judgment in respect of an underlying commercial transaction may be registered in Australia and enforced against the assets of a foreign State in this jurisdiction, provided that such assets are commercial.
The decision also serves as a useful reminder to creditors seeking to enforce a foreign judgment against foreign State assets in Australia to first ensure that the assets identified are substantially commercial.