Firebird Global Master Fund II Ltd v Republic of Nauru [2015] HCA 43

Can foreign state immunity prevent proceedings to register in Australia a foreign judgment? Not if that judgment would fall within the commercial transaction exception to immunity, the High Court has now told us; though immunity from execution will still be a hurdle.

1. The capacity to enforce an agreement is central to the interests of any commercial entity. Where a party has assets in different jurisdictions, that creates a further hurdle to recovery. The Foreign Judgments Act 1991 (FJA) provides some recourse, by allowing for the registration in Australia of some overseas domestic judgments. (The potential scope of remedies connected with prospective registration of foreign judgments was demonstrated recently in PT Bayan Resources TBK v BCBC Singapore Pte Ltd [2015] HCA 36; 89 ALJR 975.) But where a nation State is one of the parties to the transaction, how does the Foreign States Immunities Act 1985 (FSI Act) affect proceedings to register and execute a foreign judgment? That was the question confronting the High Court in Firebird Global Master Fund II Ltd v Republic of Nauru [2015] HCA 43.

Facts

2. Firebird sought to register in Australia a judgment it had obtained in the Tokyo District Court against the Republic of Nauru (Nauru). Nauru had acted as guarantor for bonds purchased by Firebird. However, the Nauruan government’s monies were largely held in Australian bank accounts, as Nauru does not have a central bank of its own. Firebird therefore applied to the NSW Supreme Court for registration of the Tokyo judgment under the FJA. The application was granted ex parte by a judicial registrar, without consideration of foreign state immunity. Firebird subsequently sought and obtained garnishee orders (also ex parte) over Nauruan bank accounts, to enforce the judgment.

3. Nauru applied to have the registration and garnishee orders set aside, claiming that: (i) proceedings to register a judgment constituted an invocation of “the jurisdiction of the courts of Australia in a proceeding” within the meaning of s 9 of the FSI Act and Nauru was entitled to immunity from the jurisdiction; (ii) the proceedings had not been served in accordance with the FSI Act and were incompetent; and (iii) the garnishee orders constituted a “process … for the satisfaction or enforcement of a judgment” against the “property of a foreign state”, from which Nauru was immune from execution under s 30 of the FSI Act.

4. Young AJA at first instance set aside the orders, finding that Nauru enjoyed immunity from jurisdiction and had not been properly served. That decision was upheld by the Court of Appeal (Bathurst CJ, Beazley P and Basten JA), which also found that the Nauruan property was immune from execution. On appeal, the High Court held that the immunity from jurisdiction did not apply because proceedings to register a judgment “concerned a commercial transaction” and therefore fell within an exception to immunity in s 11 of the FSI Act; and that the service provisions of the FSI Act did not need to be followed. However, the High Court upheld the Court of Appeal’s finding that Nauru’s property was immune from execution. Immunity from jurisdiction

5. The Court rejected an argument from Firebird that an application to register a judgment is not a “proceeding” within s 9 of the FSI Act: [34]-[49] (French CJ and Kiefel J, Gageler J agreeing); [184]-[185] (Nettle and Gordon JJ). In particular, the exercise of jurisdiction by a court, to grant new, enforceable rights to Firebird against the property of Nauru, meant that registration was properly a “proceeding”: [42]. The Court also rejected an argument that the FJA, as a later Act, had impliedly repealed the FSI Act to the extent of any inconsistency: [85]-[88]; [210].

6. The principal question for the Court as to jurisdictional immunity was, do proceedings to register a foreign judgment take on the character of the judgment sought to be registered (in this case a commercial bond transaction)? Or are the registration proceedings distinct, taking on their own character unrelated to the underlying judgment? If the former, the commercial exception to immunity in s 11 of the FSI Act would apply; if the latter, it would not.

7. The Court considered in some detail NML Capital Ltd v Republic of Argentina [2011] 2 AC 495, where the UK Supreme Court had divided as to whether registration of a foreign judgment was “related to” the underlying commercial transaction and was thus outside the immunity conferred by the State Immunity Act 1978 (UK). The High Court also considered an International Court of Justice decision, Jurisdictional Immunities of the State (Germany v Italy; Greece Intervening) [2012] ICJ Rep 99, which had considered the point from a customary international law perspective.

8. Nettle and Gordon JJ held that if one applied the plain and ordinary meaning of the phrase “concerns a commercial transaction” in s 11 of the FSI Act, a proceeding to register a foreign judgment based on a commercial transaction would be one that “concerns” the commercial transaction: [186]. This was so even if the proceeding might also be described as concerning the registration of a judgment: [187]. French CJ and Kiefel J (Gageler J agreeing) similarly held that s 11(1) should be interpreted broadly, consistently with the broad interpretation of “proceeding” in s 9, and that the exception to immunity applied: [80]. Nauru had argued that this interpretation would render other exceptions to immunities otiose – in particular the exception for enforcement of arbitral awards (s 17). This argument was rejected. Nettle and Gordon JJ held that there was no significant overlap between the various, more specific exceptions; nor did they detract from a broader interpretation of the general exception in s 11: [191]-[199]; see also French CJ and Kiefel J to similar effect at [59]-[68].

9. So far as the UK position went, French CJ and Kiefel J noted that the context of the FSI Act differed from the provision considered in NML Capital. Aside from the language, the FSI Act was drafted at a time when the common law had moved to a restricted concept of foreign state immunity: [71] and [76]. Their Honours were also influenced by the incongruity of an Australian court’s jurisdiction depending on the nature of the proceedings before it (ie a dispute over a transaction vs. registration of a judgment), rather than the nature of the original transaction: [78]. Further, their Honours noted that the ICJ considered the correct approach to be for the registering court to ask itself whether, if it had been seized of the original dispute, it would have been obliged to accord immunity: [79].

Service

10. French CJ and Kiefel J held that the strict service procedures in the FSI Act were only necessary where judgment would be entered in default of appearance: [92]. This was not relevant under the ex parte procedures of the FJA. Further, given that it is possible to seek to set aside registration on the basis of immunity, there was no need to imply a requirement of service to ensure the State had a chance to invoke immunity: [96]. Nettle and Gordon JJ held to similar effect: [215]-[216]; Gageler J dissented: [133]-[148].

Immunity from execution

11. The FSI Act provides also for a general immunity from the enforcement of judgments against a State’s property (s 30). That immunity is removed in limited circumstances; relevantly in this case, “commercial property” of the State is not immune (s 32(1)). “Commercial property” is defined as property “in use … substantially for commercial purposes” (s 32(3)(a)). Property that is vacant or not in use is also deemed to be in use for commercial purposes unless the court is satisfied to the contrary (s 32(3)(b)). In this case, argument centred upon money in Nauru’s bank accounts. Of particular interest was money being used to buy fuel and to subsidise an airline flying to Nauru.

12. French CJ and Kiefel J (Gageler J agreeing) held that all of the accounts were “in use” except for a term deposit account ([106]-[107]).  The words “in use” were used to distinguish accounts where monies were idle or set aside: [107]. No formal act need accompany the setting aside: [110].

13.    In discerning whether property was in use “for commercial purposes”, French CJ and Kiefel J accepted that the form of the use – whether a business or commercial transaction or otherwise – is not the end of the analysis. Determining purpose requires examination of the reasons, objectively, why the property is in use: [114]-[115]. The particular circumstances of the State are also relevant; what might be a commercial purpose for one State will not necessarily be so for another: [122] (French CJ and Kiefel J); see also [223] (Nettle and Gordon JJ).

14.    French CJ and Kiefel J accepted the findings of Bathurst CJ on this issue. Having regard to the particular circumstances of Nauru, the monies in the bank accounts were being used to provide governmental or essential services to the people of Nauru, including the fuel purchases (undertaken to provide fuel to Nauruan residents, as no private entity would do it) and the airline leasing (undertaken in the absence of a private carrier operating to and from the island). Further, there was no reason to doubt Nauru’s evidence that monies in a term deposit, though not in use, were set aside for government purposes: [119]-[127]. Nettle and Gordon JJ came to the same conclusions: [226]-[255].

Conclusion

15. The decision in Firebird demonstrates the difficulties inherent in trying to enforce a foreign judgment against a foreign State. However, the Court has at least made it possible. On Nauru’s argument, a foreign State would always be immune from proceedings to register a foreign judgment, regardless of whether that judgment related to a commercial transaction. On one view, this would mean a partial return to an absolute foreign State immunity. As a result of the High Court’s decision, however, registration of judgments flowing from commercial disputes has been made possible. Whether enforcement of that judgment can follow will then depend on whether State property in the jurisdiction can be classified as “in use” for “commercial purposes”.