19 January, 2016
In Firebird Global Master Fund II Ltd v Republic of Nauru [2015] HCA 43 the High Court of Australia (High Court) considered the issue of state immunity in the context of an enforcement of a foreign judgment in Australia against a foreign state, the Republic of Nauru (Nauru). The High Court held that Nauru was not immune from an application to register a foreign judgment against it in Australia because the judgment concerned a "commercial transaction"; namely, the guarantee of bonds. However, Nauru's bank accounts in Australia were immune from being garnished because the purpose for which the accounts were in use, or for which the monies in them were set aside, was governmental as opposed to commercial.
The High Court's decision serves as a useful reminder for judgment creditors of a foreign state intending to register and enforce the judgment in Australia to ensure that the foreign state's assets in Australia are used substantially for commercial purposes, or else they run the risk of not being able to enforce the judgment.
Background: State Immunity
The Immunities Act 1985 (Cth) (the Act) is the sole basis for foreign state immunity in Australia. Section 9 of the Act provides foreign states with immunity against suit – that is, immunity from the jurisdiction of the courts of Australia in a proceeding. However, pursuant to section 11 of the Act, the immunity against suit does not apply where the proceeding concerns a "commercial transaction". This includes a contract for the supply of goods or services (but not an employment contract), an agreement for a loan, and a guarantee or
indemnity in respect of a financial obligation.
A second immunity is provided for in section 30 of the Act, which gives a foreign state immunity from execution of a judgment, order or arbitration award against its property in Australia. Pursuant to section 32 of the Act, the immunity does not apply where the property of the foreign state is both "in use" and concerned substantially for commercial, as opposed to governmental, purposes. Where this is the case, the foreign state's property will be available for the execution of a judgment, order or arbitration award in Australia.
Facts
Firebird Global Master Fund II Ltd (Firebird) held Japanese bearer bonds which were guaranteed by Nauru. After the issuer of the bonds defaulted, Firebird obtained judgment against Nauru in the Tokyo District Court for ¥1.3 billion plus interest (Japan Judgment). Firebird sought to register and enforce the Japan Judgment in the Supreme Court of New South Wales (Supreme Court). The reason for this is that Nauru does not have a central bank and holds a large proportion of its money in accounts with Westpac Banking Corporation, the second-largest bank in Australia. Upon the registration of the Japan Judgment by the Supreme Court, Firebird obtained a garnishee order against Westpac to attach to the bank accounts of Nauru for the amount due under the Japan Judgment.
Nauru applied to the Supreme Court to set aside the registration of the Japan Judgment and the garnishee order. The Supreme Court held that Nauru was entitled to immunity against suit in respect of Firebird's application to register the Japan Judgment and set aside the registration and the garnishee order. Firebird appealed to the Court of Appeal, but the appeal was dismissed. Firebird then appealed to the High Court.
Decision
Immunity against suit in respect of Firebird's application to register the Japan Judgment
The High Court unanimously held that Nauru was not entitled to immunity against suit in relation to Firebird's application to register the Japan Judgment. Although Nauru's immunity against suit extended to Firebird's application to register the Japan Judgment, the exception to that immunity contained in section 11 of the Act applied because the Japan Judgment itself concerned a "commercial transaction"; namely, the guarantee of bonds. The High Court ordered that the Supreme Court's original order setting aside the registration of the Japan Judgment be set aside.
Immunity from execution against Nauru's bank accounts
The High Court unanimously held that Nauru was immune from execution against the bank accounts because the purpose for which the accounts were in use, or for which the monies in them were set aside, was governmental and not commercial.
The funds in the disputed bank accounts were used for a number of purposes including providing government loans to Nauru Airlines, a wholly owned government corporation, for the procurement and maintenance of its aircraft; paying compensation to landowners for the leasing of land on the island to conduct phosphate mining operations; and purchasing fuel to supply the island's residents and businesses located on the island.
The High Court considered that the particular circumstances of Nauru were relevant in deciding whether or not the accounts were used for commercial purposes. The fact that Nauru is remote from other countries, is of a small geographical size and has a small population is relevant because it explains why the government of Nauru itself provides a wider range of services. Further, the fact that the accounts were effectively Nauru's only source of revenue meant that they were more likely to be for government purposes.
Comment
The High Court's decision confirms that a party that has obtained a foreign judgment against a foreign state based on a commercial transaction (for example, a judgment in relation to a breach of contract for the supply of goods or services) may register that judgment in Australia for the purpose of enforcing the judgment, and the foreign state will not be immune from this process of registration.
However, judgment creditors need to ensure that the foreign state's assets in Australia are concerned substantially for commercial purposes or else there is a risk that they will not be available to satisfy the judgment. Judgment creditors should carefully analyse the foreign State's assets to determine whether the activities for which the property is used are ordinary aspects of the governmental functions of the sovereign state; if they are, the foreign state may be immune from execution of the judgment against those assets. In undertaking this analysis, creditors should also bear in mind the individual circumstances of the foreign state.
For further information, please contact:
Matthew Mulcahy, Bird & Bird
matthew.mulcahy@twobirds.com
