Australian Competition and Consumer Commission v P.T. Garuda Indonesia Ltd [2010] FCA 551

P.T. Garuda Indonesia (Garuda) is one of a number of international airlines currently the subject of a suite of proceedings brought by the Australian Competition and Consumer Commission (ACCC) in the Federal Court against the airlines alleging that they entered into, and gave effect to, price fixing arrangements/understandings in relation to the charges they levied for freight services.

Earlier this year, Garuda sought, by way of a pre trial application, to bring these proceedings to an early conclusion on the basis of an entitlement to immunity from the jurisdiction of the Court under sections 9 and 22 of the Foreign States Immunities Act 1985 (Cth) (FSIA).

Key points for consideration

  • it was alleged that the conduct fell foul of price fixing and competition provisions of the Trade Practices Act 1974
  • fundamental to this case was whether:
    • Garuda was entitled to the immunity conferred by section 9 of the FSIA on the basis that it is a “separate entity”
    • the immunity (if conferred by section 9) was ousted by the engagement of the exception in section 11.

Outcome

While Justice Jacobson accepted that the alleged arrangements/understandings between the airlines might be construed as “commercial transactions”, the claims which constitute the subject matter of the ACCC’s proceeding do not arise out of the “transactions” between Garuda and the other airlines but rather from the alleged anti competitive effect of the transactions.

The legislation

It was alleged that Garuda’s conduct fell foul of section 45A (the former price fixing provision) of the Trade Practices Act 1974 (Cth) (TPA) and contravenes sections 45(2)(a)(ii) and 45(2)(b)(ii) on the basis that the alleged arrangements/understandings had the purpose or were likely to have the effect of substantially lessening competition.

The Federal Court has recently provided some guidance as to the degree of control required to be exercised by a foreign State government over an entity (in this case, an international airline) so as to enable the entity to take advantage of the immunity offered under the Foreign States Immunities Act 1985 (Cth).

Section 9 of the FSIA confers immunity on “foreign States” subject to the exceptions enumerated in the Act.

Section 22 of the FSIA operates to extend the application of this immunity to so called “separate entities” which are defined for the purposes of the FSIA as follows:

“separate entity, in relation to a foreign State, means a natural person (other than an Australian citizen), or a body corporate or corporation sole (other than a body corporate or corporation sole that has been established by or under a law of Australia), who or that: (a) is an agency or instrumentality of the foreign State; and (b) is not a department or organ of the executive government of the foreign State.”

Of relevance, section 11 of the FSIA contains an exception to the immunity offered by section 9 where the proceeding, sought to be avoided by the foreign State, “concerns a commercial transaction”.

Two key questions

The decision of his Honour Justice Jacobson to dismiss Garuda’s application turned upon two key questions, namely:

whether Garuda was entitled to the immunity conferred by section 9 of the FSIA on the basis that it is a “separate entity”

whether the immunity (if conferred by section 9) was ousted by the engagement of the exception in section 11.

The consideration

In considering whether Garuda constituted a “separate entity” for the purposes of the FSIA, Justice Jacobson made some important observations as to the indicia necessary define a person/entity as “an agency or instrumentality of a foreign State”. In his Honour’s view, it is not sufficient that there be foreign State ownership or control of the person/entity. Rather, it is necessary that the “separate entity” “be an agency or instrumentality which performs many of the functions of a department or organ of the foreign State, although organised separately from it”1 and that it “is empowered to, and in fact serves, a particular government purpose”2.

Justice Jacobson did not consider it open to him on the evidence before him to find that the Republic of Indonesia exercised actual control (that is, real or tangible day-to-day management3) over Garuda’s business and operations. Having found that Garuda had not satisfied the “control test”, his Honour regarded the question whether Garuda performed “governmental functions” as redundant (although he dealt with it briefly finding that Garuda similarly failed to establish that it was carrying out functions of a public character).

Although Justice Jacobson noted, in light of his finding on the threshold question whether Garuda was entitled to immunity, that it was similarly unnecessary to determine whether the commercial transaction exception in section 11 was enlivened, he nevertheless addressed the question briefly in his reasons. This was the first occasion on which section 11 of the FSIA had fallen for consideration by the Court. His Honour therefore referred to United Kingdom authorities regarding corresponding legislation concluding that the task for him was to:

“characterise the proceeding brought by the ACCC against Garuda and then ask whether the proceeding concerns, or relates to a commercial transaction. That is to say, what is the subject matter of the proceeding and does it arise out of a commercial transaction as defined in s 11(3) of the Act?”4

While Justice Jacobson accepted that the alleged arrangements/understandings between the airlines might be construed as “commercial transactions”, the claims which constitute the subject matter of the ACCC’s proceeding do not arise out of the “transactions” between Garuda and the other airlines but rather from the alleged anti competitive effect of the transactions.