In brief

  • Since 2008, the Australian Competition and Consumer Commission (ACCC) has been pursuing a number of airlines, including PT Garuda Indonesia Ltd (Garuda) in relation to alleged price fixing and anti-competitive conduct relating to surcharges applied to the carriage of air freight.
  • Garuda (as well as Malaysian Airlines) contended that they were immune from the ACCC proceedings under the Foreign States Immunities Act 1985 (Cth) (FSI Act). These claims for immunity were unsuccessful before the Federal Court in 2010 and on appeal to the Full Federal Court in 2011. Only Garuda sought leave to appeal to the High Court and this was granted in October 2011.
  • On 7 September 2012, the High Court unanimously dismissed the appeal by Garuda and held that the airline had no claim to immunity under the FSI Act (Garuda case)1.
  • The High Court found that the ACCC proceedings against Garuda concerned a commercial transaction and therefore, the airline was not entitled to the immunity that it would otherwise be entitled to under the FSI Act as an agency or instrumentality of the Republic of Indonesia.

Background

Since 2008, the ACCC have pursued a number of airlines in relation to their involvement in alleged price fixing and anti-competitive arrangements relating to surcharges applied to the carriage of air freight in breach of section 45 of the Trade Practices Act 1974 (Cth)2.

To date, the ACCC have settled proceedings against Qantas, British Airways, Cargolux, Martinair, KLM, Air France, Japan Airlines, Korean Airlines and Malaysian Airlines and pecuniary penalties totalling $58 million have been imposed.

The trial for proceedings against Air New Zealand, Thai Airways, Emirates, Cathay Pacific and Singapore Airlines is due to commence in the Federal Court in Sydney in October.

Following the High Court’s dismissal of Garuda’s claim for foreign State immunity, the ACCC has indicated that ‘Garuda will not be joined to the main proceedings commencing in October, however the ACCC will act to get separate proceedings against Garuda before the court as soon as possible.’3

The FSI Act

The FSI Act creates a general immunity for foreign States from the jurisdiction of Australian courts in a proceeding. The immunity does not extend to proceedings involving a prosecution for an offence.

This immunity is extended to separate entities of the foreign State. A separate entity is defined as a foreign citizen or foreign corporation which is an agency or instrumentality (but not a department or organ of the executive government) of a foreign State.

The general immunity is subject to a number of exceptions, including the commercial transaction exception that was the key consideration in Garuda case.

Section 11(1) provides that the general immunity will not apply ‘in so far as the proceeding concerns a commercial transaction’.

Section 11(3) elaborates on the meaning of ‘commercial transaction’. This was the key provision considered by the High Court and is set out in full:

In this section, commercial transaction means a commercial, trading, business, professional or industrial or like transaction into which the foreign State has entered or a like activity in which the State has engaged and, without limiting the generality of the foregoing, includes:

  1. a contract for the supply of goods or services,
  2. an agreement for a loan or some other transaction for or in respect of the provision of finance, and
  3. a guarantee or indemnity in respect of a financial obligation, but does not include a contract of employment or a bill of exchange.

In addition, there are exceptions to the general immunity including proceedings concerning certain employment contracts, death or personal injury to a person, loss or damage to tangible property, interests in property and interest in intangible property rights.

The proceedings against Garuda

The ACCC proceedings against Garuda commenced on 2 September 2009.

In the Federal Court, Justice Jacobson decided that Garuda was not a separate entity of a foreign State and therefore not immune from the ACCC proceedings4.

Subsequently, Garuda sought leave to appeal to the Full Federal Court. Leave was granted. Malaysian Airlines also sought leave to appeal in relation to their unsuccessful claim for foreign State immunity. The appeals were heard together5.

The Full Federal Court found that, while Garuda was a separate entity of the Republic of Indonesia, it was not entitled to immunity as the ACCC case against the airline related to a commercial transaction.

A fuller discussion of these cases is available in an earlier article.6

The commercial transaction exception

The key issue considered by the High Court was whether the proceedings against Garuda concerned a commercial transaction. It was not disputed by the ACCC that Garuda was a ‘separate entity’ of the Republic of Indonesia.

Two judgments were delivered. Both concluded that the commercial transaction exception was applicable and therefore, Garuda was not entitled to immunity.

However, Justice Heydon went further than the rest of the court and reasoned that the ACCC proceeding related to a commercial transaction that involved a contract for the supply of services.

Joint judgment

Chief Justice French and Justices Gummow, Hayne and Crennan found that Garuda’s submission that the ACCC’s proceeding did not seek to vindicate any ‘private law right’ in respect of any freight contract and therefore, did not concern a commercial transaction was incorrect.

This finding was based on section 11(3) of the FSI Act (as set out above) including the words ‘without limiting the generality of the foregoing’.

A number of commercial transactions are set out in 11(3) – such as, a contract for the supply of goods or services, an agreement for the provision of finance and a guarantee or indemnity in respect of a financial obligation.

However, the court found that the definition of commercial transaction in the FSI Act does not require that the proceedings be in relation to an activity that would be characterised as contractual.

The arrangements and understandings which the ACCC alleged were dealings of a commercial, trading and business character, and related to the conduct of a commercial airline providing freight services in Australia.

Justice Heydon 

Justice Heydon made a similar finding to that contained in the joint judgment. His Honour noted that the opening words of section 11(3) were not limited to contracts and non-contractual arrangements or understandings were capable of being a commercial transaction.

In contrast to the joint judgment, however, Justice Heydon also found that the ACCC’s proceedings related to a commercial transaction that involved a contract for the supply of services.

His Honour reasoned that it is sufficient to satisfy the description of a proceeding concerning a contract for the supply of services if an element of a claim made in the relevant proceeding depends on the existence of a term in a commercial contract.

The ACCC case hinged on the existence of pricing terms in the air freight services contracts between Garuda and its customers.

Conclusion

The High Court’s decision in Garuda case clarifies the application of the commercial transaction exception to the general immunity available to foreign States and separate entities of those countries in proceedings in Australia.

In particular, it confirms that civil proceedings brought by the ACCC for alleged price fixing and anti-competitive arrangements fall within the commercial transaction exception to the general immunity conferred by the FSI Act.