A recent High Court of Australia decision considers the unique circumstances in which a foreign State is entitled to relief from a foreign judgment made against it. A foreign judgment made against a State is capable of being registered and enforced in Australia, but before an applicant is entitled to get its hands on State assets the Court will scrutinise how the State uses those assets to determine whether relief can be granted on the basis that they are immune from execution.

On 2 December 2015 the High Court of Australia dismissed an appeal by Firebird Global Master Fund II Ltd (Firebird).  Firebird unsuccessfully argued that a foreign judgment against the Republic of Nauru (Nauru) should not have been set aside on the basis of State immunity.

Despite the fact that the registration of a foreign judgment against a State would ordinarily be immune from jurisdiction of the courts of Australia, the High Court held that in this instance the commercial transaction exception applied to restrict Nauru's immunity.  This meant that Firebird was able to register its judgment.

However that was a pyrrhic victory for Firebird because Nauru was found to be immune when it came to execution of the judgment; Nauru's assets were not deemed to fall within the commercial property exception to the general immunity against enforcement.

The decision provides some clarity on the interaction between the Foreign States Immunities Act 1985 (Cth) (Immunities Act), which provides immunity to foreign States and their assets from proceedings in Australian courts, and the Foreign Judgments Act 1991 (Cth) (Foreign Judgments Act), which provides for the registration and setting aside of foreign judgments.  More broadly it highlights the need to consider the ability and utility of enforcing judgments against foreign States in Australia.

Background

Nauru is the world's smallest island nation located in the Central Pacific. It does not have a central bank and holds a large proportion of its money in Westpac bank accounts in Australia.

Firebird obtained an order from the Supreme Court of New South Wales that a judgment of the Tokyo District Court for 1.3 billion yen (plus interest), found to be due to Firebird under a guarantee by Nauru, should be registered under the Foreign Judgments Act. The effect of registration of the foreign judgment was to make it enforceable as a judgment of the Supreme Court.

The summons for registration was served late on Nauru and the period within which Nauru could make an application to have the registration set aside expired. The judgment was registered by Firebird and it obtained a garnishee order over Nauru's Westpac bank accounts, which required Westpac to pay the full amount of the judgment debt within 14 days.

Nauru sought to rely on section 38 of the Immunities Act to set aside both the registration of the foreign judgment and the garnishee order. This is permitted where a court is satisfied that a judgment made in a proceeding with respect to a foreign State is inconsistent with an immunity conferred by or under the Immunities Act. The Act does not expressly deal with proceedings for registration of foreign judgments.

The Supreme Court granted orders to set aside both the registered judgment and garnishee order. Firebird's appeal to the Court of Appeal was dismissed, and this was upheld in the High Court.

Reasons for dismissal

The High Court's judgment dealt with five issues.

  1. The scope of the general immunity provision

The Court had to first consider whether a proceeding for the registration of a foreign judgment fell within the scope of the general immunity at section 9 of the Immunities Act.  It provides a general immunity for foreign States from the jurisdiction of the courts of Australia in a proceeding.

The Court held that the term "proceeding" should be given its widest meaning and operates to give immunity from all proceedings brought against a foreign State, subject only to the exceptions.

Firebird's registration of its foreign judgment against Nauru fell within the ambit of the general immunity conferred by section 9 and it was therefore necessary to consider whether any exceptions to that immunity applied.

  1. Commercial transaction exception to the general immunity provision

The Immunities Act provides a number of exceptions to the general principle that a foreign State is entitled to immunity. One of them is if the proceeding concerns a commercial transaction (section 11).

Here, the High Court was satisfied, that the commercial transaction exception applied  i.e.  Nauru was not immune from the jurisdiction of Australia because the proceedings "concern[ed] a commercial transaction".  Whilst the proceedings prima facie simply concerned the registration of a foreign judgment, the High Court took a broader approach and looked at the commercial transaction upon which the foreign judgment was based, rather than simply the registration of the Japanese judgment in isolation.

  1. Implied repeal to resolve inconsistencies

The Court was asked to consider the purported inconsistency between section 38 of the Immunities Act (to have the registration proceedings set aside) and the requirement of the Foreign Judgments Act (that a judgment be registered).

Firebird submitted that pursuant to the doctrine of implied repeal, the Foreign Judgments Act must be taken to have repealed those inconsistent provisions in the Immunities Act.

This submission was dismissed by the High Court.  It described the rationale of the Immunities Act as dealing with the "special and discrete topic" of foreign State immunity in Australia. A "later general statute" was therefore not intended to derogate from the Immunities Act provisions.

Further, the High Court was able to reconcile the two sets of provisions by reading down the Foreign Judgments Act to only apply in circumstances where a defendant is amenable to the jurisdiction of the courts exercising jurisdiction under the Act.

  1. Requirements for service

Service on Nauru was effected after the order for registration was made.

Nauru contended that section 27 of the Immunities Act expressly prohibits the entry of a judgment against a foreign State where the proof of service requirements of Part III of the Act have not been complied with.  However, French CJ and Kiefel J held that section 27(1) requires proof of service in accordance with Part III only in circumstances where a judgment in default of appearance is entered against a foreign State, and not in ex parte proceedings.  Section 27 was not applicable in this instance.

  1. Relief from enforcement

Finally and because it concluded that Nauru was not immune from Firebird registering its foreign judgment, the Court looked at whether Firebird could enforce that judgment.

It considered whether Nauru's Westpac bank accounts were subject to the immunity from enforcement provisions in the Immunities Act on the basis that they fell within the "commercial property" exception in section 32(1).

Property is deemed to be commercial property when it is "in use" by the foreign State for substantially commercial purposes (section 32(3)).

Crucially the High Court found that the Westpac accounts did not fall within the exception in section 32(3). It determined that "what might otherwise be thought to be a commercial enterprise is in fact no more than the provision of essential services to those resident in a foreign State by its government."

French CJ and Kiefel J considered Bathurst CJ's reasoning in the Court of Appeal, who had held that the funds within the accounts were not used for substantially commercial purposes; they were used for the purpose of government administration and the provision of government services. The Court considered the size and geographical location of Nauru, and the fact that the Westpac accounts are effectively Nauru's source of revenue as it has no central bank.

It also looked at what Nauru's various bank accounts were used for. The "fuel account" existed because the Nauru government trades fuel as it would not be commercially viable for a business to do so. The "utilities account" was used to fund the provision of water and electricity to the population and the "loan account"provided loans to small businesses on a non-profit basis.

Conclusion

To the relief of its population, Nauru is not required to pay its money held in Australia to Firebird, despite the High Court's determination that the Supreme Court had jurisdiction to register the foreign judgment.

Although Nauru was ultimately found to be immune from execution of the judgment, this case highlights the exposure foreign States' face when participating in commercial transactions whilst holding assets in Australia.

Parties transacting with a foreign State need to be aware that the Immunities Act affords significant protection and relief for foreign States with assets in Australia.

Before entering a transaction with, and certainly before taking any enforcement action against, a foreign State, prospective applicants would be wise to consider their prospects of successfully pursuing the foreign State should the need ever arise and, relatedly, whether any of the exceptions to State immunity are likely to apply in relation to either registration of a foreign judgment or enforcement of the same.