Greylag Goose Leasing 1410 Designated Activity Company & Anor v P.T. Garuda Indonesia Ltd

[2024] HCATrans 013

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S135 of 2023

B e t w e e n -
GREYLAG GOOSE LEASING 1410 DESIGNATED ACTIVITY COMPANY
First Appellant
GREYLAG GOOSE LEASING 1446 DESIGNATED ACTIVITY COMPANY
Second Appellant
and
P.T. GARUDA INDONESIA LTD
Respondent

GAGELER CJ
GORDON J
EDELMAN J
STEWARD J
GLEESON J
JAGOT J
BEECH‑JONES J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 7 MARCH 2024, AT 10.00 AM

MR P.D. HERZFELD, SC: Your Honours, I appear with MS C. TRAHANAS for the appellants. (instructed by K&L Gates)

MR S.J. MAIDEN, KC: If the Court pleases, I appear with MS E.L. BEECHEY for the respondent. (instructed by Baker McKenzie)

GAGELER CJ: Thank you. Mr Herzfeld.

MR HERZFELD: Will your Honours please take up the Foreign States Immunities Act, which is in volume 1 of the authorities, and within that volume, if your Honours would turn to section 9, which is on page 20 ‑ ‑ ‑

GAGELER CJ: You do not need to give us page numbers, we have a print.

MR HERZFELD: Thank you. Your Honours will see the general immunity provided in section 9, which is:

Except as provided by or under the Act –

If your Honours then turn forward to section 22, please, your Honours will see that:

The preceding provisions –

including section 9, but subject to some immaterial exceptions itself:

apply in relation to a separate entity of a foreign State as they apply in relation to the foreign State.

“Separate entity” is defined in section 3 near the end of subsection (1). Your Honours will see that it relevantly means:

a body corporate or corporation sole –

other than certain bodies corporate, that:

is an agency or instrumentality of the foreign State –

It is common ground that the respondent falls within that description. The appellants brought proceedings in the Supreme Court of New South Wales seeking to wind up the respondent on grounds of insolvency or on the just and equitable ground in light of unpaid debts alleged to exceed US$417 million. The respondent is amenable to winding up under the Corporations Act because it is registered under that Act as a foreign company, as it is required to be by section 601CD in order to carry on business in Australia. The issue to which the winding up application gave rise is the exception to immunity in section 14. If your Honours would turn to that, please, and in particular subsection (3):

A foreign State –

So, read, separate entity of a foreign State:

is not immune in a proceeding in so far as the proceeding concerns:

(a)bankruptcy, insolvency or the winding up of a body corporate –

We submit that exception applies. The courts below held that it does not, on the basis that the insolvency or winding up to which paragraph (a) refers cannot be of “a separate entity of a foreign State”. We advance before your Honours four broad arguments as to why that is wrong, and happily, those four broad arguments coincide with the numbering of our oral outline because we have successfully avoided the first paragraph, the internet citation, being numbered “1”, and so the numbering will match up with what I am going to say.

May we start with the text of section 14(3) read in the context of the Act as a whole. We make three points about that text. First of all, if your Honours look at section 14(3)(a), it could have easily been limited by excluding from the bodies corporate to which it refers separate entities of foreign States – and it is not. So, in order for the respondent’s position to be sustained, a limitation has to be implied into the provision, which is not there. That is the first point.

GAGELER CJ: Is it not just a matter of saying, the reference to “a foreign State” and the reference to “a body corporate” are to different entities?

MR HERZFELD: One has to conclude that that is the only way the provision can operate, which is not the way that, on its face, it appears to operate. So, what your Honour has said is really just a different way of putting that one has to read a limitation of some kind into the provision.

BEECH-JONES J: Mr Herzfeld, do you accept that the bankruptcy or insolvency, leaving aside separate entity, cannot be of the foreign State?

MR HERZFELD: Assuming that the foreign State is not capable of being bankrupted or made insolvent, which would be the ordinary position, yes, we do.

BEECH-JONES J: What about the head of a foreign State? They are a person.

MR HERZFELD: Can I come back to the head of a foreign State? I will address that, and it is something that we need to deal with.

GORDON J: The answer is quite important to that question because, as I understand the operation of the Act, a head of a foreign State in their private capacity could be bankrupted, but not in their public capacity, because a distinction is drawn in section 3(3) between the head of a foreign State; private versus public. Does that not help you?

MR HERZFELD: It does. The short answer to the question is that, in theory, there are some circumstances where a head of a foreign State could, as a result of our construction, be bankrupted when they otherwise could not be, but actually in reality, for the reason your Honour has just given me as well as some others, it is not a real possibility as a result of our construction. In other words, our construction does not strip the head of a foreign State of any immunity from bankruptcy proceedings that they would otherwise have. But I will come back to that, and yes, your Honour, it does assist us.

So, the first point we make is that simply read on its – I am sorry, before I continue, I think your Honour Justice Edelman was going to raise a matter with me.

EDELMAN J: Just to say that it is not really a matter of reading words in at all, it is just a question of what the words that are there mean. One never reads or implies words into a provision. You look at the provision and work out what is the connotation of the words that are there.

MR HERZFELD: That is so, but nonetheless, depending on how far the construction strays from the ordinary meaning of the words, it is conceptually the result that one can understand that construction as being the writing in of words or the deletion of words, and so on. Our basic point is that, simply read on its terms, the provision is capable of applying, and so there has to be some reason to read the provision more narrowly. That is the first point.

The second point is to direct your Honours’ attention to the other parts of section 14. Firstly, the respondent places some emphasis on the heading to section 14. That does not assist – it is evidently a short description. It focuses, particularly, on the first two subsections. It is a short description of those, but it ends with the words, “etc”. So, the heading does not really assist.

If your Honours look at subsections (1) and (2), your Honours will see that they are expressed quite differently to subsection (3). They are expressed only about proceedings in which it is the interest of the foreign State in property that is at issue. Again, that kind of formulation could have been used in subsection (3) but was not. If subsection (3) said:

A foreign State is not immune in a proceeding in so far as the proceeding concerns –

an interest of the State in property, the subject of insolvency or winding up, that would have been clear, and it would then not have covered the kind of case that we are dealing with. But the provision could have been used – that formulation could have been used but was not, and that is the likely explanation of the “etc” in the heading.

To be clear – and I will come back to this – on a simple reading, section 14(3)(a) does apply where a foreign State or a separate entity of a foreign State claims an interest in the property of another corporation caught up in the winding up, or whether foreign State is in some other way involved in the winding up. There is nothing in the provision to exclude that operation. So, a plain reading of the provision wholly includes the operation for which the respondent contends, and in that operation there is an obvious connection between subsections (1), (2) and (3), but our point is that subsection (3) is not limited to that operation.

Thirdly, as a matter of text, may we direct your Honours to the context supplied by a couple of other provisions of the Act where expressions were used of a kind that could have been used in subsection (3). Firstly, would your Honours turn back in section 3, please, to the definition of “separate entity”. Your Honours will notice in that provision that the bodies corporate or corporation sole to which it refers have an exclusion, there is the bracketed words:

(other than a body corporate or corporation sole that has been established by or under a law of Australia) –

That kind of formulation – that is, putting a bracketed exclusion after the words “body corporate” in section 14(3)(a) – could have been used and was not. A similar feature is seen in section 16, if your Honours will turn to that, please. Your Honours will see that subsection (1) provides an immunity insofar as the proceeding concerning a foreign State membership of a body corporate. But your Honours will see that there is an exclusion in paragraph (a):

has a member that is not a foreign State or the Commonwealth –

Again, that kind of formulation could have been used in section 14(3)(a) but was not. It could have said at the end, a body corporate that is not a separate entity of a foreign State. There is nothing in the text of the Act, read as a whole, which suggests any confinement of its simple words, and in truth neither the courts below nor the respondent really points to anything in the text of the Act, read as a whole, which drives their limitation. Instead, their focus is on purpose revealed by extrinsic material. Before coming to the detail of that, our fundamental response is that which Justice Hayne gave in 1992 in the Supreme Court of Victoria when confronted with a similar argument.

May we take your Honours to his Honour’s reasoning and then seek to explain to your Honours why it has more force than simply a dictum in an unreported first‑instance decision. It is the decision in Adeang v The Nauru Phosphate Trust, which is volume 4 of the authorities, page 262. If your Honours turn over to page 1 of the print, which is page 263 of the volume, in the second full paragraph your Honours will see that it was a claim by an individual who claimed to be the beneficiary of a trust:

which is administered by the defendant, the Nauru Phosphate Royalties Trust.

Your Honours will see that it was alleged that that trustee had breached its duties. If your Honours turn over the page, the second‑last paragraph on the page records that the defendant did not enter in appearance but rather sought to:

set aside the writ . . . on the grounds –

among other things, of foreign State immunity, and then, in the last paragraph, alternatively sought a stay on forum non conveniens grounds. Over the page, in the second full paragraph, his Honour recorded that:

There has been extensive argument on questions of sovereign immunity, as well as some more abbreviated argument on the question of forum non conveniens.

His Honour:

reached the firm view . . . that Victoria is clearly an inappropriate forum . . . it is strictly unnecessary for me to express any concluded view on the questions of sovereign immunity.

But given the extensive arguments, his Honour said that:

I will deal briefly with some of the major points –

There then begins a discussion of the Foreign State Immunities Act, including about whether the defendant was a separate entity. That debate continues up until the top of page 5 of the print, which is page 267 of the authorities, and his Honour concluded that it was “arguable” the defendant was a separate entity. The next paragraph, his Honour then said, if that was so, it was entitled to the immunity. Then, in the last paragraph of the page, two exceptions were pointed to: one, being section 11 – that is the commercial transactions exception – and the other, section 14 (3)(b).

His Honour’s discussion of section 11 continues over the page, but relevantly, in the second‑last paragraph on that page, his Honour begins to deal with the section 14(3)(b) exception. Your Honours will see it relevantly extracted in the second‑last paragraph. Then, in the last paragraph, your Honours will see what the defendant’s argument was:

It says, however, that s.14(3)(b) is to be given only a limited operation.

And the limited operation, continuing over the page, was only where there was a foreign sovereign who claimed in the trust property, effectively, of another. His Honour, in the first full paragraph on page 7 of the print, said:

Reference to the Law Reform Commission Report mentioned in the second reading speech . . . may lend some support to this . . . However, in my view the section should be given effect according to its terms, and nothing in its terms suggests any limitation of the kind for which the defendant now contends.

Now, the respondent here seeks to give to paragraph (a) of that same subsection the same kind of limited reading on the basis of the same material, and we make precisely the same point as the point that Justice Hayne made and accepted in that paragraph.

I said I would explain why that has greater significance than simply a dictum in an unreported first‑instance decision, and it is this: since his Honour’s decision, the Foreign StatesImmunities Act has been amended on a number of occasions, but no amendment has been made seeking to displace what his Honour said about section 14(3)(b). Without going to them, we have supplied copies to your Honours of the substantive amendments made to the Act, firstly by the Foreign States Immunities Amendment Act 2009, and next by the Courts and Tribunals Legislation Amendment (2021 Measures No. 1) Act 2022.

Notwithstanding the name of that second Act, which makes it sound like it might just be fix‑up amendments changing gendered language, and so on, it actually was an Act that made substantive amendments to operative provisions of the Act. None of those amendments were to section 14 itself, but they were nonetheless to other substantive sections of the Act. That being so, we rely on what five judges of this Court said in Probuild, that where words of an Act have been given a judicial construction and no amendment is made to the relevant provision when other substantive amendments are made to an Act, it would be a strong thing to depart from that construction. We accept that the strength of that presumption may vary, depending on the circumstances, very much like the presumption from reenactment, or what this Court I think sometimes referred to as the Barras principle, in light of the leading English decision. But here, the presumption has real strength.

This is a short Act, it is on a technical and sensitive area which has not been the subject of many decisions, so it can be presumed that the decisions about the Act are the subject of careful scrutiny. Further, this decision, although unreported, was evidently a decision of considerable commercial importance, given the significance of the Nauru Phosphate Royalties Trust and its gradual demise over the course of the 1990s as evidenced by the firm and counsel involved in the case on its behalf in this decision.

BEECH‑JONES J: Mr Herzfeld, just so I am clear, the effect of Justice Hayne’s decision – is it to read the words “the administration of a trust” by the foreign State or the separate entity?

MR HERZFELD: It accepts that that is within the provision.

BEECH‑JONES J: I see, and then this was in circumstances where, I take it, the assets of the trust were both here and elsewhere?

MR HERZFELD: I do not myself know the answer to that question. I am assuming the answer is yes, because otherwise why there was proceedings in Victoria is unclear, and from memory the Nauru Phosphate Trust owned buildings all over the world, including, I think, in Melbourne.

GORDON J: The Nauru House.

MR HERZFELD: Nauru House. I think the answer to your Honour’s question is yes, although I am not sure if that is clear from the reasons.

BEECH‑JONES J: And the decision was that Victoria was a clearly inappropriate forum.

MR HERZFELD: Yes. That is why I accepted that what I have shown your Honours is dicta, but nonetheless it was the subject of extensive argument and then was not the subject of statutory displacement when the Act was amended.

EDELMAN J: How does that presumption, so called, operate in circumstances where the provision itself has not been amended but other provisions in the Act have been amended? Is it said that it can operate to change the meaning of a provision if, on the assumption against you, what Justice Hayne said in obiter dicta were not correct?

MR HERZFELD: Yes, in the same way that if a provision is interpreted and then reenacted in the same terms, it has the same meaning.

EDELMAN J: Except this is not a reenactment of the whole Act.

MR HERZFELD: I understand – I am working from there. That is the first position. Likewise, if there had been an amendment to another part of section 14, for example, it is a pretty good assumption that if there was a desire to change the meaning of section 14 from that which had been interpreted, that would have been done.

Similarly, if there is an amendment – take two provisions, suppose section 14 and 15 work together and there is an amendment to 15, and so it is simply accepting that when Parliament makes amendments to an Act – whether to a provision or other provisions – the Act as a whole speaks from that time. And so, in just the same way that amendments to one provision can affect the construction of another, here, amendments to one provision and the absence of amendments to the provision which has been construed indicates a parliamentary acceptance of its correctness.

EDELMAN J: I can see how that could work if the provisions being amended are dependent upon or interrelated with the provision that is not amended, but if the amendments are not dependent upon or interrelated, and if there is not, effectively, a substantive reenactment of the Act, then at the moment I cannot see how Parliament’s silence could be taken as an endorsement of a decision that, on one view, might be wrong.

MR HERZFELD: But the amendment of any individual provision means that the whole Act speaks in its amended form from that time, and so the distinction your Honour is drawing between a substantive reenactment of the whole Act and an amendment of one provision is not, with respect, a sound distinction, for the reason I have just given. But I accept that the strength of the presumption will vary.

If I were dealing with the Corporations Act – thousands of pages – and there had been a construction of section 131AB and an amendment to section 1324, that might be one category of case, but that is why I emphasised here that this is a short Act on technical matters which can be presumed to be the subject of scrutiny, and if there had been a desire to displace what his Honour said was the meaning of the words on their face, that could easily have been done, and it was not.

GAGELER CJ: Mr Herzfeld, was the decision of Justice Hayne drawn to the attention of the Court of Appeal?

MR HERZFELD: I do not know the answer. It is referred to in the primary judge’s decision. It is not referred to in the Court of Appeal’s decision, so I do not know if it was beyond being in the primary judge’s reasons; I do not know if it was drawn to the Court of Appeal’s attention. It is not mentioned in the Court of Appeal’s reasons, I do not think.

STEWARD J: Well, they must have known about it because it was referred to in the primary judgment.

MR HERZFELD: That is so.

GAGELER CJ: And is it referred to in any of the extrinsic materials for the 2009 or 2021 amendments?

MR HERZFELD: No. So, that is the first point that we make about the text. That was the first broad topic. Can I come then on to considerations of purpose and extrinsic material, and on that head may we make six points. First, at a general level, the purpose of the Act was to clarify and codify the principles applicable in Australia to foreign State immunity. That the Act is a codification is evident from the terms of section 9 itself, which provide that the immunity applies except as provided under the Act.

The fact that this is a codification immediately suggests that the construction of the exceptions should be approached, as in the case of all codes, by reference to the terms of the provisions without any assumption that they reflect the antecedent common law or international law or international practice. That is the first point. The second point is that, as your Honours have seen, the approach taken in the Act is to state a general provision in broad terms but then a series of exceptions which, taken together, very significantly cut down the general provision. So, the Act is not to be construed on the assumption that the general immunity is given the broadest possible scope and the exception is the narrowest possible scope.

The third point is that there is, it may be accepted, no simple or single criterion that fully explains all of the exceptions. Without going to it, in Firebird, your Honour Justice Gordon observed with Justice Nettle, at paragraph 217, that the exceptions reflected “a plurality of principles”, and that is evidently correct. But one overarching policy of the exceptions is that commercial or trading activities conducted by or on behalf of foreign States should not attract an immunity.

Now, there is, of course, the general exception for commercial transactions in section 11, but the exclusion of commercial transactions from the immunity is also reflected in various ways through the other exceptions, and that was a deliberate design feature of the Act. It was noted – again without going to it – in the ALRC Report at paragraph 88. So, if your Honours take up the Act, please, again ‑ ‑ ‑

GORDON J: Sorry, if one looks at – and I think this has been discussed in the authorities – what is being described as the “restrictive immunity theory”, is it right that the ALRC Report said that we are going to adopt an approach which identifies specific categories of that theory and identify them in separate provisions?

MR HERZFELD: Yes. But what the ALRC Report also said was an overarching matter was the exclusion of commercial transactions and that it was not just in the general provision in section 11 that that found expression. So, if your Honours look at the Act, section 11 is the general exclusion for commercial transactions. But there are other exceptions which, obviously, reflect to varying degrees an exception for commercial transactions or transactions likely to be of that character. So, section 12 is an example; section 15 is another example; section 16 is another example; section 17, “Arbitrations” – often commercial arbitrations; section 19, “Bills of exchange”, and section 20, taxation.

So, in that light, a significant quanta against the respondent’s approach to section 14(3)(a) is how it applies in a commercial context such as the present. It means that where, as here, a separate entity of a foreign State carries on business in Australia and is therefore required to be registered as a foreign company under the Corporations Act, it can, nonetheless, continue to trade in Australia while insolvent without the ability of any of its creditors to insist upon its winding up.

It is not an answer to that problem, to say that the exception in section 11 may also apply in such circumstances. Again, without going to it, in Firebird, at 62 to 63, the other member of the Court observed that the exceptions “overlap”. That being so, one should not read narrowly the terms of section 14(3), which deals specifically with winding up and insolvency on the basis of the more general terms of section 11.

STEWARD J: Do we know why section 11 was not pursued below?

MR HERZFELD: We do not.

STEWARD J: A choice was made.

MR HERZFELD: The procedural history was that, I think, the submissions were put on by the respondent first, which dealt with both exceptions, and the respondent made submissions that section 11 did not apply, and then a choice was made on behalf of the appellants to focus only on the exception to which I have been addressing.

STEWARD J: All right. Thank you.

MR HERZFELD: So, that is the third broad point we would make about matters of purpose. The fourth point is this: as I will show your Honours in a moment, the Court of Appeal identified the purpose of section 14(3) as being to allow domestic courts to adjudicate on all conflicting claims to property in a winding up, including claims by foreign States. Even if that is correct, that purpose is fulfilled on a plain reading of section 14(3) to precisely the same degree as if the limitation for which the respondents contend were read in.

A plain reading of the provision does not exclude from section 14(3) cases where a foreign State claims an interest to property which is the subject of winding up of some other body corporate. So, even assuming the purpose of the provision is what the respondents contend, this is not a case where one party’s construction fulfils that purpose and the other party’s does not. It is not even a case where one party’s construction fulfils the purpose better than the other party’s, because the purpose is fulfilled to precisely the same degree.

To succeed, the respondent has to do more than demonstrate that this is the purpose of section 14(3). The respondent has to demonstrate that for section 14(3) to apply on its terms would be contrary to its purposes or, to put that another way, the respondent must demonstrate that it is a purpose of the Act not to create an exception to immunity where a person seeks to wind up a body corporate that happens to be a separate entity of a foreign State. Now, in light of that ‑ ‑ ‑

BEECH-JONES J: Mr Herzfeld, would it not be an unusual thing to have a power to remove the foreign entity from existence?

MR HERZFELD: All it would be is winding it up under Corporations Act in the sense that it is registered as a foreign company. So, it would not remove it from existence in its home jurisdiction, for example; it would only remove it from existence for the purposes of Australian law and then allow the administration of its assets. That is not unusual in circumstances where the company, if it wishes to do business in Australia, is registered under the Corporations Act, and must be registered under the Corporations Act.

STEWARD J: That is the case of any foreign company that is registered here.

MR HERZFELD: That is so, and the reason one is registered is because there is a prohibition in the provision I mentioned on doing business in Australia ‑ ‑ ‑

STEWARD J: Carrying on business.

MR HERZFELD: Carrying on business unless one is registered. So, the fifth point then is – can I come to the extrinsic material upon which the Court of Appeal relied. I will do this largely through the Court of Appeal’s reasons, though I will give your Honours references to where the material may actually be found in the volumes. So, would your Honours please turn in the core appeal book to Chief Justice Bell’s reasons with which the other members of the Court agreed, and would your Honours start on core appeal book page 39.

In paragraphs 20 and 21, the Chief Justice identified the bridge or lineage between the ALRC Report and the Act, as made clear by the second reading speech and the explanatory memorandum, and we accept that. Without going to it, the ALRC Report is authorities volume 5, tab 23, page 419, the explanatory memorandum is volume 5, tab 24, page 611, and the second reading speech is volume 5, tab 26, page 652. But the relevant parts are extracted in his Honour’s reasons. May we then immediately draw attention to what his Honour extracted in paragraph 22 from the reasons of your Honour Justice Gordon and Justice Nettle in Firebird, that although the ALRC Report is significant:

it cannot displace the clear meaning of the Immunities Act –

That is really what is being attempted by the respondent here. Would your Honours please then move to paragraph 63 of the Chief Justice’s reasons. What his Honour records in paragraph 63 is that the ALRC Report had an appendix which was a draft Bill, and it was in materially the same terms as to section 14 as appears in the Act, subject to the exception which his Honour identified, which is not material for present purposes. So, the text proposed by the ALRC was relevantly identical to that which was enacted.

If your Honours turn to paragraph 64, his Honour extracted the two paragraphs in the lengthy ALRC Report dealing with this subject matter. Would your Honours notice that paragraph 116 of the ALRC Report is dealing with “Immovable Property”, and about halfway through the paragraph it refers to the exemption to immunity in proceedings concerning the foreign States’:

interest in, or its possession or use of, immovable property in Australia –

That is reflected in section 14(1), and I drew to your Honours’ attention the formulation of section 14(1). That is not relevant to 14(3). If your Honours then look at paragraph 117, deals with “Movable Property”, and it is about halfway through this paragraph that one sees:

Where a local court is administering, or supervising the administration of, property it is appropriate that it should be able to adjudicate on all the conflicting claims . . . Situations where this might arise include bankruptcy, insolvency, the winding up of companies, and the administration of trusts –

and so on. That is the kind of language one sees in 14(3). But notice immediately that, unlike this paragraph, which is dealing with movable property, section 14(3) is not limited to movable property. So, that immediately means the link between this paragraph of the ALRC Report and the provision as enacted is attenuated.

Further, would your Honours notice that in paragraph 117 of the ALRC Report nothing there is, in terms, limited to cases where a foreign State claims an interest in movable property. Rather, all that is said here is that the court:

should be able to adjudicate on all the conflicting claims to such property.

Section 14(3) construed simply as it stands achieves that purpose. If your Honours look at paragraph 65 of his Honour’s reasons, your Honours will see that the Chief Justice said:

In support of the second sentence of [117] –

If your Honours take up the ALRC Report itself now, please, which is in volume 5 of the authorities at tab 23, and turn to page 69 of the ALRC print, which is page 511 of the volume of authorities, that is where these paragraphs of the ALRC Report appear. The footnote to which his Honour was referring to as being the second sentence reference is footnote 131.

In order to unpack the legislative history to which his Honour referred, one needs to go to the explanatory memorandum or second reading speech, then to the ALRC Report, then to the footnotes of the ALRC Report, and then to the things in the footnotes of the ALRC Report. Again, your Honours will appreciate the attenuated nature of the link that has been drawn. If your Honours return to the Chief Justice’s reasons, please, your Honours will see in paragraph 65 a quote from the International Law Commission Report, without going to it, the reference for that is volume 5 of the authorities, tab 25, page 635. Your Honours will see in this quote that the ILC was referring to a draft Article 15.

Before going to that, would your Honours notice that the reference in the ILC Report was to conflicting claims by foreign States – so, for example, where the foreign State appeared as one of among several claimants – but unlike the ALRC Report, this is not only about movable property, and unlike the ALRC Report, it does not say anything about winding up or insolvency. The draft Article 15 is over the page, quoted in paragraph 66 of the Chief Justice’s reasons, and your Honours will see the relevant part is in Article 15(1), paragraph (a):

any right or interest of the State in . . . immovable property –

That is the analogue of our section 14(1). Your Honours will see (b):

any right or interest of the State in movable or immovable property arising by way of succession, gift, or bona vacantia –

That is the equivalent of our section 14(2). Paragraphs (c) and (e), which deal with deceased estates and trusts, that is the analogue of our section 14(3)(b). Paragraph (d) there is the analogue of our section 14(3)(a). But there are two critical differences. First, and most obviously, the whole of paragraph (d) – and, indeed, the whole of Article 15 – is limited to cases for determination of a right or interest of the foreign State in property. While that limitation is found in our section 14(1) and (2), it is not found in our section 14(3). That immediately suggests that our section 14(3) is different to Article 15(1)(d) here.

GAGELER CJ: I am sorry, are you presenting a textual argument, or a purposive argument? I thought you were done with the text.

MR HERZFELD: I am demonstrating – or seeking to demonstrate – why this extrinsic material does not assist in the interpretation of our section 14, because, in light of the differences in text, the purpose is quite different. Your Honour will see how this fits together in a couple of paragraphs of the Chief Justice’s reasons. The point that I am drawing attention to is that this Article 15 is relevantly in quite different form to our section 14(3).

The other difference is that, without going to it, while there was a draft article 7 extending the foreign immunity to agencies and instrumentalities of a foreign State, there was not any equivalent to a definition of “separate entity” referring to an incorporated body. So, the question of the winding up or insolvency of a foreign State‑owned body corporate just did not present itself as acutely in this draft instrument.

If your Honours then continue with the Chief Justice’s reasons, at paragraph 67 his Honour refers to what was footnoted in the sentence concerning “overseas legislation”. If your Honours go back to paragraph 64, your Honours will see that is the second‑last sentence of paragraph 117 of the ALRC Report:

Some of the overseas legislation has explicit provision denying immunity in these situations.

But would your Honours notice what the recommendation was:

It is recommended that the proposed legislation do likewise.

That is, what was recommended was that there be:

explicit provision denying immunity in these situations.

And the “situations” being referred to were:

bankruptcy, insolvency, the winding up of companies, and the administration of trusts –

et cetera. The report said nothing to the effect that the recommendation was that the exception should only be where a foreign State makes claims, and the report did not say that the immunity in the Australian legislation should be of the same scope as the foreign legislation. And so, with great respect, if your Honours then turn to paragraph 68 of the Chief Justice’s reasons, it is not right ‑ ‑ ‑

BEECH‑JONES J: Mr Herzfeld, as I read 117, it is describing bankruptcy, insolvency and winding up in particular as instances of where the:

local court is administering, or supervising the administration of property –

GLEESON J: Or adjudicating on conflicting claims.

MR HERZFELD: That is so, but none of it says that it is only where the foreign State makes claims, and further, the last sentence does not recommend that the Australian provision have the same scope as the foreign provisions. It simply says that there should be an:

explicit provision denying immunity in these situations.

And so, when your Honours come to paragraph 68 of the Chief Justice’s reasons, with great respect, his Honour was not correct to say that 117:

made plain that the legislation it proposed should achieve the same outcomes as the “overseas legislation” –

It does not support his Honour’s view in the last couple of lines that the foreign legislation is:

all directed to the same functional end to which the ALRC Report indicated its proposed s 14(3) was itself directed.

And that is apparent when one looks at the terms of the foreign legislation which his Honour set out in paragraphs 69 and 70. Your Honours will see the European Convention. Again, it is in terms limited to a case where a foreign State:

has a right or interest in the property.

Without going to it, it is at volume 5, tab 22, page 417. Similarly, the United Kingdom Act is limited in that way. It in express terms only dealing with the case where a foreign State:

has or claims an interest in the property.

Without going to it, it is at volume 5, tab 22, page 417. Similarly, the United Kingdom is limited in that way. It is, in express terms, only dealing with the case where a foreign State “has or claims an interest”. The United Kingdom Act is at volume 2, tab 9, page 89. The same point may be made about the Singapore Act and the Pakistan Act. The Singapore Act is volume 2, tab 10, page 93, and the Pakistan ordinance is volume 2, tab 12, page 98.

So, the terms of the Acts themselves deny the correctness of what his Honour said in paragraph 68. It likewise follows that what his Honour said in paragraph 71, that all of the Acts were directed – I withdraw that. What his Honour says is correct, that all of these Acts – that is, the foreign Acts – are directed towards a circumstance where a State had or claimed an interest in property.

GORDON J: Mr Herzfeld, I am a bit lost, I must say. Can I raise this with you. When I read the second reading speech for this Act, it recognised, I think – as you have taken us to by reference to the ALRC, but also other things – that there was a policy decision – I will put it at a policy level, you might put it as a purpose, mischief – that the restrictive immunity theory was to be the subject of enactment and the underlying rationale for it was, as I think they said, that where you have commercial activities carried on by a foreign State, they are not to have the benefit of the general immunity.

In particular, where foreign States create separate entities within the definition of carrying on commercial activities, they are not to be treated as if they are entitled to the immunity. One sees that when you go the execution provisions, because you are entitled to execute against the assets of a separate entity where there is no immunity, except to the extent that that separate entity is either a central bank or has another function of that kind. Is that what you are seeking to identify by reference to these materials, or am I missing something?

MR HERZFELD: The point your Honour makes, we embrace. And it was one of my earlier points, which was that having an exception for commercial transactions is more consistent with reading section 14(3)(a) on its terms because of the example I gave about a foreign entity trading while insolvent and not being able to be wound up. What I was moving on to was really a defensive point – perhaps it is offensive, in this sense – a key proposition in the Court of Appeal’s reasoning was that all of the foreign legislation is directed really only to claims by foreign States. That was the first step.

The second step was to say the ALRC Report indicates that the Australian legislation is to have the same narrow focus. The third step was that, according to the Court of Appeal, meant that it should not apply where there is a winding up of a separate entity of a foreign State. I am attacking the reasoning that says the aim of these foreign provisions is the same as the aim of the Australian provision.

GORDON J: Come away from these facts. Assume for the moment I had a claim against a separate entity in relation to commercial activities, I got a judgment of debt, and I sought to execute against that judgment debt. By reference to section 36, I am not limited because it is not suggested that there is a central bank involved. Does section 14(3), on your construction, permit me to wind up that entity, or am I prohibited, on the Court of Appeal’s construction, from doing so? In other words, when you are looking at the restrictive immunity theory and you are looking at it from the time of the institution of a proceeding through to execution against that separate entity, consistent with the restrictive immunity theory, where do I fall out?

MR HERZFELD: On our construction, there would be no inhibition on winding up, unless it is found in one of the execution provisions. I think, on the respondent’s construction, there would be an inhibition on winding up. No doubt I will be corrected if I am wrong about that.

I am sorry if I had not made clear why I was going to this material but, as your Honours will gather from the detail of the reasons in the Court of Appeal, it was really an analysis of this material which drove the limited construction which the Court of Appeal gave the provision. What I am seeking to do is to demonstrate that that is not a correct path of reasoning. The reason is that, although the foreign legislation is limited in the way that the Chief Justice identified, the Australian legislation is not, on its terms, and nothing in the ALRC Report states that the Australian provision was intended to be limited in the way that the foreign legislation is. One can see that there was such a limitation in sections 14(1) and (2) but not in section 14(3).

Finally, his Honour, the Chief Justice, in paragraph 74, your Honours will see, referred in about the middle of the paragraph – his Honour stated that:

the exception to immunity ultimately formulated in . . . s 14(3) . . . concerned “the law relating to local companies” and not foreign companies –

EDELMAN J: Which paragraph?

MR HERZFELD: Paragraph 74 of his Honour’s reasoning. About the middle of that paragraph, his Honour said:

Indeed, in Chapter 3 of the ALRC Report . . . the exception to immunity ultimately formulated in what became s 14(3) . . . concerned “the law relating to local companies” –

If your Honours take up the ALRC Report, please, in volume 5, and turn back to chapter 3, which is on page 465 of the bundle of authorities. It is page 23 of the actual report. Your Honours will see that chapter 3 was a general chapter about underlying principles, and this is one of the placers where the descriptive immunity theory – which your Honour, Justice Gordon, has asked me questions about – is discussed. The passage to which the Chief Justice was referring to, begins at paragraph 41. This is the beginning of:

Justifications for Limiting Foreign State Immunity –

One of the justifications in paragraph 42, headed:

Forum Conveniens. With respect to some matters –

mentioned there:

the local courts may be the only appropriate forum –

Now, that is a very general statement which is no doubt true. That is, that when one is dealing with the law relating to local companies, the local forum is the convenient one, but that is not a description of the purpose of section 14(3).

In fact, if your Honours look at paragraphs 43 and 44, there are broader justifications there, which would tend against any limitation of the kind which the Court of Appeal recognised in section 14(3). And so, for all of those reasons, even if one performs the archaeological exercise of excavating all of these layers of extrinsic material, one does not find support for the conclusion that section 14(3) is to be restricted more narrowly than its terms.

Can we make one final point about purpose. The respondent submits, in paragraphs 31 of its written submissions, that on its construction section 14(3) is not limited to proceedings in which a foreign State claims an interest in property the subject of bankruptcy, insolvency, or winding up. Now we, in our written submissions, have suggested that that is more theoretical than real, but assume that it is right. Assume that the respondent is right, that simply by carving out that the end of 14(3)(a), bodies corporate that are a separate entity of a foreign State, that that does not limit the provision to cases where a foreign State claims an interest in a bankruptcy or winding up. That is a problem for the respondent’s construction. It is a problem because it means that the construction is not supported by the very thing that the respondent relies upon most strongly to support it.

It means that section 14(1) and (2), which are limited in that way, are still different to section 14(3). It means, on the respondent’s construction, that section 14(3) does not do the same thing as the international provisions and does not, on this hypothesis, do what the ALRC, it is said, was aiming at. And so, if the respondent is right that on its construction section 14(3) is not limited to claims by a foreign State, there is really nothing to support the limitation for which the respondent contends.

STEWARD J: Can I ask a very basic question – I am sorry. Why does a foreign State need to have its immunity removed when it is making a claim, say, the winding up?

MR HERZFELD: It is not a basic question, it is a very good question, and it drives the respondent into very unreal circumstances.

STEWARD J: Can it not make a claim while it is immune?

MR HERZFELD: And then the suggestion is, well, the court needs to be able to order discovery against the foreign State, so the suggestion is that that is why this immunity is stripped, so that orders can be made ‑ ‑ ‑

STEWARD J: There is nothing in the extrinsic materials that says that.

MR HERZFELD: We do not think that there is, but these unreal circumstances ‑ ‑ ‑

STEWARD J: Well, I can understand why you might want to question if immunity might arise in the case of a foreign State being liable for something, but not when it is making a claim.

MR HERZFELD: Well, that is one of the problems with the respondent’s construction, that it has to point out why there is real work to do and ‑ ‑ ‑

BEECH-JONES J: But, Mr Herzfeld, a claim in a winding up is not necessarily a claim in a court proceeding, it is just a proof of debt. Then somebody might say, well, we dispute the foreign State’s proof of debt, and they have to be joined.

MR HERZFELD: And there may be a declaration about it, and to which the foreign State is a defendant. I hope I was not taken as suggesting there are no circumstances in which it can arise, but they are limited. So, for example, there probably would have been a pretty good argument that if you make a claim in an Australian winding up that you have waived any immunity in any event.

One really, on the respondent’s construction, does have to hunt around for justifications which, in our submission, one does not need to do if one simply applies the provision on its terms. That was, really, the point that we seek to make out of this long excursus about purpose, that what the respondent needs is a strong indication that to construe the provision on its terms would be contrary to its purpose, and one just does not find that in the extrinsic material upon which the Court of Appeal and the respondent relied.

GORDON J: Can I just ask one other question about the separate entity distinction from the foreign State.

MR HERZFELD: Yes.

GORDON J: Do you rely on it? The reason why I ask is that in the ALRC Report it went out of its way to separate out separate entities and to treat them separately, both in terms of execution by reference to commercial transactions. Especially at paragraph 138, where it identifies that all available property is to be the subject of execution to the extent it is involved in commercial transactions in that context.

MR HERZFELD: We do rely on it in this way that I am about to come to, and it deals with the sort of consequences of the competing constructions. One readily foreseeable consequence of the respondent’s construction that I have already mentioned is the trading while insolvent without an ability to wind up. There are two more points that I would make, and the first one picks up on the exchange I have just had with your Honour Justice Gordon.

The respondent submits there is a difficulty because if one focuses on a foreign State itself it is incapable of being wound up, and so the foreign State itself will never be the body that is the subject of 14(3)(a). But that is simply a product of the fact that this provision applies if, and only if, relevantly there is a body corporate being wound up. The fact that it does not apply when there is a foreign State involved that is not a body corporate tells one nothing how it applies if there is a body corporate.

Further, for precisely the reason your Honour Justice Gordon has raised with me, there is no oddity in section 14(3)(a) operating differently where there is a separate entity of a foreign State involved, because the ALRC Report and the Act in many places, including in express ways, draws a distinction between foreign States and separate entities. There is no problem for our construction, by virtue of the fact that 14(3)(a) operates differently if there is or is not a body corporate involved. That is the first consequentialist point.

The second is the point that I said I would come back to, which is it said that there is an unlikely result of our construction, namely that it would be possible for someone to try to bankrupt a foreign head of State when they would otherwise enjoy immunity. As a matter of language, that – at first sight – appears to be so. If your Honours look at section 3(3) of the Act, your Honours will see that:

a foreign State includes a reference to:

. . .

(b)the head of a foreign State . . . in his or her public capacity –

That means that the head of a foreign State, in their public capacity, has the immunity in section 9. The respondent says, but then there would be an exception created allowing you to bankrupt a foreign State if the appellants are right, but that is not a correct analysis. Firstly, the immunity is granted to the head of a foreign State only in their public capacity, which your Honour Justice Gordon raised with me earlier. Further, there would be no immunity in any event if the transaction giving rise to the bankruptcy is a commercial transaction, which is the overwhelmingly likely scenario.

The respondent’s hypothetical arises only where the head of a foreign State has committed an act of bankruptcy in their public capacity in something other than a commercial transaction. That is the only circumstance in which, on our construction of 14(3)(a), there would be an exception created. That is such an unlikely circumstance as not to be a useful one by which to test the competing constructions.

BEECH‑JONES J: Mr Herzfeld, sorry, are you treating 11(1) as excluding the commercial transaction?

MR HERZFELD: Yes.

BEECH‑JONES J: So, you are reading that immunity in 11(1) as extending to a proceeding to bankrupt.

MR HERZFELD: Yes.

BEECH‑JONES J: Which is the point I thought was not raised.

MR HERZFELD: It was, and I am deploying it in this context, which is to say that the hypothetical about creating the ability to bankrupt foreign States is not a real hypothetical.

BEECH‑JONES J: I see.

MR HERZFELD: It is not a real hypothetical in the sense that this Court has deprecated the use of extreme and distorting possibilities to test constructions by their consequences, precisely because they are not the kind of consequences that, at the time of enactment, people would have been thinking about. Just to give your Honours example, Australian Building and Construction Commissioner v CFMEU, at paragraph 94, applies the extreme and distorting possibility language, which has often been referred to in constitutional construction to statutory construction.

GAGELER CJ: So, you accept, implicitly in that argument, that the bankruptcy of a foreign head of State would be anomalous?

MR HERZFELD: I do not necessarily accept that, because if a foreign head of State is acting in their private capacity in a commercial transaction, for example, there is nothing which would exclude that kind of bankruptcy. In the broad way that your Honour has put it, I do not accept that, and the Act does not contemplate that as being anomalous either. Really, that is an indication of why this, apparently rhetorically powerful, example, which is deployed by the respondent on analysis, is actually not a powerful example at all.

BEECH‑JONES J: But Mr Herzfeld, the answer to what I understood the Chief Justice’s question, on your construction, at the very least, a foreign head of State who acts in a public capacity, but not in a commercial transaction, could be bankrupted.

MR HERZFELD: In circumstances where they otherwise could not be, yes.

BEECH‑JONES J: And do you accept that as anomalous?

MR HERZFELD: I do not accept it as a real possibility.

EDELMAN J: How would it happen?

MR HERZFELD: That is why I do not accept it is a real possibility, because it is difficult ‑ ‑ ‑

EDELMAN J: How, theoretically, would it happen?

MR HERZFELD: It is difficult to see how it ‑ ‑ ‑

EDELMAN J: How would you be bankrupted without a commercial transaction?

MR HERZFELD: That is why I said it is not a real possibility. This rhetorical device, which sounds like a tremendous point against us – a whole bunch of people applying to the Supreme Court and the Federal Court to bankrupt foreign heads of State – is either something which is not covered by this immunity anyway because of the lack of public capacity and the commercial transactions exception, or is dealt with by a completely different Act: the Diplomatic Privileges and Immunities Act applies to heads of State in their private capacity.

That Act operates in the various ways it operates, and we have gone into this in our written submissions, but this Act does not do the work of precluding such an action in the real world, so this is not a real example which anyone should be troubled about.

JAGOT J: Can I ask you two questions, slightly off‑topic. Section 22 does not say, for example, that in the preceding provisions “foreign State” includes “separate entity”. It is not definitional in that sense, it is quite specific in saying that:

The preceding provisions . . . apply in relation to a separate entity . . . as they apply in relation to the foreign State.

Does that not tend to undermine your argument that there is no oddity or anomaly if a provision operates differently on a separate entity than it would operate on a foreign State? Because this is suggesting it should not operate differently.

MR HERZFELD: It does not so much operate differently, it is just that a foreign State is not generally capable under Australian law of being wound up or made insolvent, but that is just because of the feature of a foreign State, it does not ‑ ‑ ‑

JAGOT J: I understand that, but there is no way that section 14(3)(a) can apply in relation to a separate entity as it applies in relation to a foreign State on your construction, it just does not work.

MR HERZFELD: It is not that it does not work, it is just that it does not have operation, but 14(3)(b) would, for example. There is no reason why a foreign State could not be the trustee of a trust, and 14(3)(b) would operate, on our construction, perfectly in the same way whether the foreign State or a separate entity is the trustee. Your Honour should not, with respect, get too much work out of the concluding words of section 22 because there may be all sorts of examples where, in practice, the provisions do not operate in the same way.

So, take another example: section 12, concerning contracts of employment. There will often be employment done not by the foreign State itself but by a separate entity of a foreign State. It could operate in the same way, but often, in practice, it will not. Similarly, in 14(3)(b), one would think normally, with the administration of a trust, the trustee will not be the foreign State itself, but it could be. So, your Honour should not look for identicality in the way that these provisions in practice operate.

JAGOT J: Okay.

MR HERZFELD: I think your Honour had a second question.

JAGOT J: I did have a second question, which is back in 14(3) Justice Hammerschlag, the primary judge, made a point that if you read – put in separate entity instead of “foreign State” and then read on, you end up with a clause that refers to the separate entity as a separate entity in a chapeau, and then a body corporate in (a).

He made a simple linguistic point that that is a very strange way to include the separate entity within a body corporate. Even of itself, that does not sit comfortably as a matter of construction, that the separate entity was intended to be within the “a body corporate”. That this comes to your question about needing to read in words, namely “a body corporate” not being a separate entity. He was making the point that, linguistically, the sheer difference, and “a body corporate”, speaks against you.

MR HERZFELD: But that is a consequence of the provision applying generally. So, take an example of a separate entity that is not a body corporate, and the reason it is there is because one might be dealing with the separate entity which, in that example, has claims in a winding up. The provision has to be capable of applying whether there is a separate entity that is a body corporate or not.

That is why the general terms are used: “a” is there used as any body corporate – any body corporate that happens to be relevantly affected by this section. But there would not have been a linguistic way of overcoming the purported awkwardness. If one had said the body corporate, that would make no sense because, as written, there is no other body corporate mentioned in the section. The use of general language means that it operates perfectly well whether there is a body corporate or not; it operates perfectly well whether the separate entity is a body corporate or not. But where the separate entity is a body corporate, the provision simply applies on its terms.

JAGOT J: I understand. His point really was that it is not so much reading in, it is just, on the use of the language, to get to your construction you would have to read in “of a body corporate” including a separate entity.

MR HERZFELD: Well, I do not accept that because there is no need to say anything more inclusive than ‑ ‑ ‑

JAGOT J: No, I understand your argument.

MR HERZFELD: ‑ ‑ ‑ “a body corporate”.

JAGOT J: Yes. I understand that.

MR HERZFELD: “A” there meaning, as it often does, any.

GLEESON J: Mr Herzfeld, just back on section 22, what is the effect of the carve‑out for paragraph 16(1)(a)?

MR HERZFELD: It seems to operate such that if you are dealing with a separate entity of a foreign State the limited exception from immunity for membership of bodies corporate does not apply to that separate entity. I am not sure, as I stand here, that I can tell your Honour why that has been done. There probably is an answer, I just do not know what it is.

GORDON J: Thank you.

MR HERZFELD: I will see if we can do better than that answer, but that is the best I can do at the moment. Can I then deal with one final topic. We have addressed in writing why the Court of Appeal’s invocation of the presumption against extraterritoriality or the localising principle in section 21 of the Acts Interpretation Act did not assist. The respondent has not really sought to defend that reasoning of the Court of Appeal, and we are content to rely on our written submissions in relation to it, but for the reasons there the respondent is not assisted by the application of either the common law principle or the Acts Interpretation Act provision.

Those are the oral submissions we would seek to make in addition to our written submissions.

GAGELER CJ: Thank you, Mr Herzfeld. At this stage, the Court will take its morning adjournment.

AT 11.14 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.29 AM:

MR HERZFELD: Just before my friend commences, can I correct something I said and give your Honour Justice Gleeson the answer to the question that you asked. I said that the effect of section 22 was to displace

the whole of 16(1). That is not right. It simply displaces 16(1)(a). So, in the case of separate entity, 16(1) applies but the requirement in paragraph (a) does not need to be met – and the reason for that was explained in the ALRC Report, at paragraph 110. Thank you, your Honours.

GAGELER CJ: Thank you. Mr Maiden.

MR MAIDEN: Your Honours, the effect sought by the appellants in advancing the construction they propose would be, in our submission, extraordinary because it would expose a foreign State, and its separate entities, to being wound up by, and wound up under the supervision of, an Australian court. We ask, hypothetically, could it really be the case that the statute contemplates that a judicial registrar of the Federal Court or, say, an associate justice of the Supreme Court of Victoria, could order the winding up of a foreign company which is a government instrumentality of a foreign State.

EDELMAN J: Is there any way to deregister a registered foreign company, other than by winding up?

MR MAIDEN: Can I take that on notice, your Honour? But can I use that as a reason to point out it is not the registration of the foreign company which triggers the availability of the local winding up. Remedy?

EDELMAN J: Yes.

MR MAIDEN: A Part 5.7 body, which is susceptible to winding up under section 568, includes not only foreign bodies corporate registered in Australia, but those carrying on business in Australia without being registered. I will come back and answer the question about deregistration – but, to avoid the winding up sanction, it would involve not only deregistration but also the cessation of local trade. The Court, I am afraid, will have to forgive me; we do not come armed with these with these authorities, but there is a line of authority that deals with the question of whether or not an entity that has engaged in local trade but has ceased is, therefore, outside the scope of that winding up provision. My recollection is that the thrust of that authority is that the mere cessation of trade is not enough to remove that jurisdictional hook to wind up a foreign company.

To return to the question about the contemplation of the statute and to finish off the question, could it really be that the statute contemplates that the internal management of that foreign government instrumentality is displaced by the order of an Australian court and therefore its conduct falls to be scrutinised by the judicial processes of the Australian courts at the instigation of a private Australian liquidator, albeit an officer of that court? That is the necessary consequence of the construction advanced by our friends. We say that it has never been so contemplated. None of the text, the context or the purpose of the legislation justifies such an outcome.

EDELMAN J: What is said against you is that the alternative consequence is that one could have foreign commercial entities trading while insolvent.

MR MAIDEN: That is said against us. The answer to that is twofold. First, not extending the exception in the way that our friends suggest would not prevent the winding up of that foreign company, it would merely prevent the winding up in an Australian court. There is plethora of case law on the windings‑up of companies in their home jurisdictions with effects on their trading activities here. It is a separate question – a detailed, separate question – about what effect in Australia that foreign winding up would have and what avenues would be open to the local company in the foreign jurisdiction and in the Australian jurisdiction as a result of winding up the foreign company in its home jurisdiction, which would be an appropriate action. That is the first answer.

The second answer is nothing in the construction that we propound would prevent a local commercial creditor from pursuing the foreign company in the local courts to enforce the local debt. All that would be shut out is the ability to utilise the Australian courts to wind up this foreign government entity. There is nothing controversial in so foreclosing.

STEWARD J: Would there be anything wrong with a separate entity deciding to enter into a voluntary winding up in this country which was registered as a foreign company under the Corporations Act?

MR MAIDEN: There would not be anything wrong with that because – I mean, the swiftest answer to that is that would be a waiver of the immunity.

STEWARD J: Yes, I see. So, there is nothing necessarily inherently wrong with a separate entity, subject to the machinery of a winding up under our Corporations Act?

MR MAIDEN: Nothing inherently wrong, no. One might hypothesise that happening if, for example, there were a winding up of the entity in its home jurisdiction, there might be procedural advantages to bringing a collateral winding up in parallel under the Australian law.

STEWARD J: So, your real point is that it is being wound up against its will, which you think is the problem, and having the liquidator come in and seize its assets and take control of the business against its will?

MR MAIDEN: Yes.

STEWARD J: I see.

MR MAIDEN: Importantly, with the power to interrogate its past activities – the past management activities.

GORDON J: But you would permit seizure of assets by a sheriff.

MR MAIDEN: The construction that we propound would not exclude seizure of assets by the sheriff if the exceptions for execution were otherwise enlivened, for example, as against the commercial property. That is right.

EDELMAN J: So, if you are in the section 32 exception, how does it work where, let us suppose, the company, or the entity, is insolvent and there are multiple commercial creditors that are all seeking to execute in relation to their debts over limited property? Is it first in time under section 32?

MR MAIDEN: Well, section 32 obviously would not dictate the outcome of the competition between creditors in those circumstances, but there would be nothing to stop that race to the court insofar as individual execution is concerned. The way to stop that would be to pursue the company in its home jurisdiction under its home laws. Excuse me a moment, your Honours.

GORDON J: So, can we just play that out. I know I will be taking you out of order, Mr Maiden.

MR MAIDEN: No, not at all.

GORDON J: The acceptance that you could have a proceeding – a judgment, debt, execution – against commercial property consistent with sections 35 and 30 – that is the property of a separate entity is not immune from execution except where it is a central bank or the monetary authority, which is what it, read with section 30, I think, achieves – would limit the extent to which you can execute to just those measures.

MR MAIDEN: Yes, it would, and there is good reason for that because – and I will come to this at more length and develop it – but the reason, Justice Gordon, is because the whole purpose of statutory immunity is to protect States against exposing the governmental acts of other States to the local State’s own governmental apparatus. That is recognised by the blanket immunity that is created by section 9. The limited exceptions have to be read in light of that blanket immunity and by reference to their own purposes.

Now, the commercial transactions purpose which underpins section 11, as you have heard, but also underpins these execution provisions, exists to recognise that it is appropriate that where a foreign State chooses to enter the commercial arena, it exposes its activities and assets, insofar as it has entered that commercial arena, to the same judicial processes which are available to any other participant in commerce.

That, as was recognised pithily by Lord Wilberforce in the Playa Largo Case – which is picked up in the PT Garuda Case – does not interfere with the sovereign character of the State whose activities and assets are impugned. There is no trespass there into that fundamental operation. But when one proposes an Act which changes the status of a foreign State or a separate entity of a foreign State, displaces the internal management, exposes the management to the scrutiny of the Australian judicial system, one does begin to trespass into that fundamental governmental area. That justifies that the bright line between winding up insolvency, bankruptcy on the one hand, and all of the inter partes litigation and execution mechanisms that your Honours have been putting to me on the other.

GORDON J: There is one argument, I think, possibly against that, and that is the bright line, at least in relation to heads of foreign State, draws a distinction between private and public capacity. So, it is recognising that one can have, in effect, different kinds of activities undertaken by the heads of a foreign State and separate entities, which is why the commercial exclusion is the focus of both the execution, but also sections 11 and following. So, the bright line might not be as bright as you propound.

MR MAIDEN: Well, there are two things I need to say in response to that. The first is that the commercial transactions rationale – and again, I will develop this in a moment – does not underpin all of the exceptions that follow section 11. It is the specific basis for the purpose of section 11, but the following sections have their own purposes which need to be considered separately. Again, I will develop that in a moment.

Why is the bright line as we say it is? Because it is nonsensical to extend that line between private and public purposes through the whole range of transactions that a person can engage in, and past the threshold of bankruptcy. One cannot be bankrupted in one’s private or public capacity. You are either bankrupt or you are not; you are either entitled to travel overseas without restriction or you are not; you are either entitled to take up credit without disclosing your financial status or you are not.

GLEESON J: But the circumstances in which the court would have the jurisdiction to make a sequestration order mean that bankruptcy is highly unlikely to apply to a foreign sovereign. They would have to be ordinarily resident, would they not, or carrying on business in Australia?

MR MAIDEN: Those are the two of the criteria, and they are the most frequent criteria. What your Honour says is correct, insofar as it reflects the vast majority of bankruptcy applications. But, with respect, that does not mean that all or every foreseeable instance of bankruptcy relates to a commercial transaction. Leaving aside the issue of discretion for a moment, the sole question at issue when a court is considering whether to make a sequestration order is, of course, is the defendant solvent or not? And that question of solvency might be entirely unrelated to anything commercial.

STEWARD J: Do you accept that the aircraft leases here are commercial transactions for the purpose of section ‑ ‑ ‑

MR MAIDEN: Yes – I beg your pardon, I should have let your Honour finish the question.

STEWARD J: No, that is all right.

MR MAIDEN: The question of whether they are commercial transactions for the purpose of section 11 has never been raised for determination.

STEWARD J: I am just asking you, do you accept that they are commercial transactions?

MR MAIDEN: They are commercial transactions in the common meaning ‑ ‑ ‑

STEWARD J: For the purposes of section 11, though?

MR MAIDEN: We do not make a concession that section 11 would apply in this proceeding.

STEWARD J: Is there a short‑form answer why you would not meet the definition in section 11(3)?

MR MAIDEN: Because no proceeding that would otherwise satisfy that section has been commenced. This is a proceeding for winding up, nothing more. There has been no attempt in this country to enforce rights under that transaction – under either of those transactions.

STEWARD J: That is a fairly narrow answer.

MR MAIDEN: Well, it is a narrow answer, your Honour ‑ ‑ ‑

STEWARD J: But I do not want to distract you though.

MR MAIDEN: ‑ ‑ ‑ but it is an importantly narrow one, because the appellants do not seek to test the reach of the section 11 exception. They did not raise it below and say, perhaps analogously to the last time that PT Garuda was in this court on this Act, the section applies by looking through the winding up at the underlying source. They do not say that in this case as the ACCC did. They simply say, this is a winding up proceeding, and therefore section 14 applies.

There would be distinct grounds on which a respondent to a winding up proceeding, confronted with a section 11 exception argument, might resist it. Foremost among them, but not necessarily exclusively, that point that I just raised with Justice Gleeson. The fundamental question on the winding up application is: is the company insolvent or not?

EDELMAN J: Insolvency is the inability to pay debts as and when they fall due. Can you give me an example, even in theory, of where a company or an entity would be insolvent but other than by reference to any commercial transaction? Or when anyone would seek to wind up a company other than by reference to any commercial transaction which, by definition, would be related to an inability to pay debts as and when they fall due?

MR MAIDEN: Yes. The second question is answered by references to the cases where, for example, not‑for‑profit religious or charitable organisations are subject to irreconcilable schisms between their various managers, and you have a just or equitable winding up to try and resolve the deadlock.

BEECH‑JONES J: Mr Maiden, Mr Herzfeld sought to bring in section 11 as, effectively, a responsive point. Are you submitting, or are you not going there, as to whether a proceeding to wind up based on a commercial transaction is not a proceeding concerning a commercial transaction in section 11(1)? Is that where we get to, or do you say we do not get there?

MR MAIDEN: We do not get there, your Honour. We do not descend to that. That was not raised before the primary judge or on appeal, and it is not raised before this Court. It is a complicated question, as demonstrated by the arguments that were dealt with in the PT Garuda v ACCC decision.

GAGELER CJ: Which brings us back to section 14, I think.

MR MAIDEN: Yes, your Honours. We propose to deal with the legislative history, which feeds into, secondly, the purpose, and there is some overlap there, then discuss briefly the text, the structure and finally the consequences. Excuse me.

Can I just take this opportunity to address two questions. Justice Edelman, a foreign company can be deregistered under section 601CL of the Act in circumstances including cessation of business. Justice Gleeson, a person can be bankrupted simply by reason of physical presence in Australia, it does not need to be ordinarily resident or carrying on business.

Moving then to the legislative history. We start with the history because the history supplies the information that gives the words of the paragraph in question the context that is necessary for them to take their meaning, and the structure of section 14 as a whole only makes sense when considered against that history. The relevant history, as your Honours know, is condensed in the ALRC Report, which is well‑travelled ground in this Court.

For our purposes, the report is useful for two main purposes. First, the Commission’s recommendations were adopted by the Parliament in enacting the statute, and the relevant drafting – that is, the drafting at least of section 14 – was adopted by the Parliament almost verbatim from the Commission’s draft.

Secondly, the Commission’s report describes in detail the purpose for it making those recommendations; the recommendations that were taken up by the Parliament. It does that by reference to the then‑existing law. I labour that point a little because our friends point to the intent of this Act to codify the then‑existing common law and say that that purpose of codification means that one does not approach the interpretation by reference to preconceptions drawn from the pre‑existing common law.

That is displaced in this case because of the reliance on the pre‑existing law and the antecedent statues, which the ALRC had in making the recommendations which were ultimately adopted by the Parliament. So, we can look to the common law and those antecedents to inform our consideration of the purposes. We start with the proposition that State immunity is derived from and justified by what the ALRC referred to as the “sovereign equality of states”.

If I could ask you to take up the ALRC Report, which is tab 23 in volume 5, and we begin with paragraph 37, which is at joint book 465:

The original justification for immunity, and one which still carries weight in relation to acknowledged areas within the authority of other states, is the notion of the sovereign equality of states. In the absence of special factors, one does not exercise jurisdiction over equals –

It will be immediately apparent why we dwell on that concept of not exercising jurisdiction over equals when we are pointing out the need for the bright line distinction between the inter partes disputes on the one hand and the existential questions and management displacement questions raised by winding up and bankruptcy on the other. That language of “sovereign equality of states” is picked up in the second reading speech, and I will just direct your Honour to page 652, at tab 26 of the joint book.

Some support is also found in the PT Garuda High Court decision, which is at tab 15 in volume 3. We find in the judgment – at joint book page 233, paragraph 6 – a quotation from Lord Wilberforce’s reasons in Playa Largo.

BEECH-JONES J: What paragraph?

MR MAIDEN: This is paragraph 6 of PT Garuda (2012) 247 CLR 240.

BEECH-JONES J: Thank you.

MR MAIDEN: Their Honours are giving some common law background. The reason that I take you to that passage is because that is the passage from Lord Wilberforce’s judgment which is commonly referred to when discussing this concept of restrictive immunity. The submission that we will make, we will develop, is that this restrictive immunity concept talks about what we now call the commercial transactions exception. The justification there is twofold: it is necessary to allow individuals who do business with States to bring the States before the courts; and, secondly, doing that – to take that final sentence from the quote from Lord Wilberforce:

is, in accepted phrases, neither a threat to the dignity of that state, nor any interference with its sovereign functions.

So that is harking back to the fundamental reason for the sovereign immunity in the first place. Now, at common law that immunity extended to the sovereign’s property.

There is a long paragraph in the ALRC Report at joint book 449, paragraph 10, which sets out the absolute immunity rule, the earlier common law rule, which envisaged more limited exceptions and goes on then, over the page at page 450, which is page 8 of the ALRC Report, to develop what some of those exceptions were. Relevantly, for present purposes, we find at the bottom of page 8 of the ALRC Report, at joint book 450, the “more important” of these exceptions, including where there is:

a foreign state interested in a trust or similar fund –

and where the foreign State is subject to:

an action to determine title to immoveable property –

Your Honours will see at footnote 29 there, which is the footnote to the proposition concerning trusts and similar funds, reference to case law and this phrase:

Similar considerations applied to the administration of estates in England, to interests in property as bona vacantia, and to the winding up of companies –

and the ALRC Report cites Re Russian Bank. Re Russian Bank (1933) 1 Ch 745 is important because it is the pre‑ALRC case which deals specifically a winding up scenario. It was decided in 1933. You find it at tab 21, in volume 4. At pages 406 to 408, we find the relevant passages – that is 406 to 408 of the joint book, 768 of the Chancery Report. This was a situation where creditors of a Russian bank which traded in London but had ceased to trade some 15 years after the Russian Revolution, sought the winding up of the bank.

The bank resisted the winding up on grounds which included the fact that the Government of Russia, by operation of the laws that had expropriated all of the banking property, would have a claim to the assets of the London branch if it were wound up, alleging that that would mean the case would come within the general rule that the court has no jurisdiction to entertain a proceeding against a foreign sovereign nor one in which the property of the foreign sovereign was involved.

That argument is explained at pages 768 to 769 of the report. At the bottom of page 769, we find the relevant passage. I will just read this text to your Honours – it is the last four lines:

I am bound to hold that the circumstance that a foreign Government is or may be interested in a trust or other like fund is no reason why the Court should decline jurisdiction.

Then I will ask your Honours just to read on the following long sentence that ends on page 770. So, Russian Bank acknowledges that what was then known as – what we referred to as the concept of absolute immunity, extended to protect foreign entities’ claims to property but was subject to an exception when those foreign governments might have a claim on property otherwise being administered as a fund within the jurisdiction of the English courts.

I am then going to fast‑forward the history to the 1970s, when we see the development of the legislation. That is also the point where your Honours will have noticed a lot of English cases emerging, particularly concerning shipping, which played a part in the considerations of the Law Reform Commission. I dwell on that because I need to take up, briefly, this concept of restrictive immunity. Restrictive immunity is a concept that was referred to by the Law Reform Commission at paragraph 11, that is at joint volume 451. I will not read that, your Honours. You will see, and you will have seen reflected in our written submissions, that this concept in, the words of the Commission:

came to a head in the 1970s with –

with what they described as:

a series of cases which effectively changed the common law.

And these cases developed as a result of the increasing frequency with which governments engaged in commerce. The restrictive immunity concept itself, though, really describes the evolution of what we now know under the Australian Act as the commercial transactions exception. It is that restrictive immunity which grew out of those commercial transactions which is what is properly referred to using that label.

It is used – and I am just taking up, Justice Gordon, something that you put to Mr Herzfeld – in the second reading speech in that context. In the second reading speech we find, at joint book 652, behind tab 26, at the bottom of the right‑hand column, the Attorney‑General saying that:

The main argument for the restrictive theory of foreign state immunity is that commercial or trading activities·conducted by or on behalf of foreign governments should not attract the special jurisdictional immunity enjoyed by foreign states.

That is the justification for that commercial transaction exception which is, in reality, what was referred to use in that label “restrictive immunity”. It is not – and I am about to develop this in a moment – the argument that underpins every one of what became the exceptions in Part II to the Foreign States Immunities Act. Coming back from that tangent ‑ ‑ ‑

EDELMAN J: That really requires you to quarantine section 14 from section 11.

MR MAIDEN: Yes, and we say that is not only required, but deliberate.

EDELMAN J: But you want us to do that without telling us what section 11(1) means. If the scope of section 11(1), for example, included in the notion of a “proceeding” a winding up proceeding, then 14 could not be quarantined from 11. It seems to be the elephant in the room that is not being addressed in the submissions.

MR MAIDEN: Allow me to address it now. What your Honours will see when I take you through, in greater detail, the ALRC Report, and particular passages in the ALRC Report, is recognition that the restrictive immunity theory demonstrates the need for the commercial transactions exception, and that by looking at the way that other States had enacted legislation and the common law, the Law Reform Commission noticed that there were a series of distinct – principally, but not exclusively – commercial scenarios where other exceptions were justified.

The Law Reform Commission is careful to say – and this is picked up in the authorities, and is common ground – that each of those exceptions exists for its own purpose, is separate from the other exceptions, and needs to be considered disjunctively. That goes halfway to answering your Honour’s question. That is why we treat them separately and why you will see, we say, the purpose for section 14 is different to the purpose of section 11.

That difference in purpose does not mean that the two subsections have to be considered separately. They are in the same Part of the same Act; they are directed toward addressing the same legal problem. The way that they operate has to be read together, but what we say is that section 11 is the general commercial transactions exception which applies to proceedings brought which concern commercial transactions. That is a very close rephrase of subparagraph (1). Proceeding insofar as it concerns a commercial transaction.

That is not to say that a winding up proceeding, a bankruptcy proceeding or an insolvency proceeding which satisfies section 14 as properly read, regardless of its connection to any commercial transaction – if I can put it that highly – would necessarily fall within the ambit of section 11. If we were here to have an argument about whether or not this winding up proceeding fell within the section 11 exclusion, we would be saying even if your Honours were to accept that it would otherwise fall within the commercial transactions exception, the fact that it is specifically dealt with by section 14 takes it outside the operation of that section.

When you read section 14 properly, section 14 is designed to exclude winding up transactions that are brought against a foreign State or its separate entities. That is a long‑winded way of saying the two sections do have to work together, and they have to be read consistently, but that is not to say that their purposes are the same, because their purposes are very different, for good reason.

EDELMAN J: So, you would then be arguing that – in an abstract claim that is said to be brought within section 11(1), based on a foreign entity’s commercial transaction that leads to alleged insolvency, you would say, then, that section 14, because of its specific purpose, covers the field in relation to winding up, even for that specific commercial transaction.

MR MAIDEN: Yes.

EDELMAN J: That is the way you say the two provisions work together?

MR MAIDEN: Yes.

EDELMAN J: I understand.

MR MAIDEN: We do not need to go that far, of course.

EDELMAN J: Yes.

MR MAIDEN: Because nobody has claimed the section 11 exception applies to us, but yes, your Honour.

EDELMAN J: I appreciate that. As a matter of construction, though, that is the way you say they work?

MR MAIDEN: Yes, we do.

EDELMAN J: I understand.

STEWARD J: Mr Maiden, you do not need to go to it now, but will you be addressing paragraph 88 of the Law Reform Commission report on this issue?

MR MAIDEN: Yes, I will.

STEWARD J: Thank you.

MR MAIDEN: Now, the ALRC considered relevant foreign statutes which contained an exception to allow courts in:

administering, or supervising the administration of, property . . . to adjudicate on all the conflicting claims to such property.

Mr Herzfeld has addressed you on that fact. The statutes in question are in the joint book, and I do not propose to take your Honours through each of them. We acknowledge that each of those foreign provisions, the statutory provisions, contained an express reference to property. But what is important to observe is that the other instrument that was considered in conjunction with those statutes is the report of the International Law Commission and the statutory model attached to that report. I would like to take your Honours to that, because the ILC report ‑ ‑ ‑

GAGELER CJ: Where do we find that?

MR MAIDEN: I beg your pardon. It is at page 635 of the joint book, it is under tab ‑ ‑ ‑

EDELMAN J: Tab 25.

MR MAIDEN: ‑ ‑ ‑ tab 25, thank you. The first thing to notice about the ILC report starts at page 646. One of the materials that was before the ILC report was a report by the Special Rapporteur, and the Special Rapporteur had submitted a draft article, draft article 15. You will see at paragraph 92 of the ILC report, on page 646, the Commission summarises that by saying that the draft article concerned:

ownership, possession and use of property –

And you will see at footnote 57 the text. Relevantly, draft article 15, paragraph 1, subparagraph (c) removes immunity in the proceedings concerning:

the distribution of assets in connection with the estates of deceased persons or persons of unsound mind or insolvency, the winding up of companies or the administration of trusts, in which a State has or claims a right or interest in any property –

So, the Special Rapporteur’s draft followed a similar model to that found in the United Kingdom, the Singapore and Pakistani legislation.

STEWARD J: Does that help you, though?

MR MAIDEN: I am coming to how it does help us, because that is what was provided to the ILC by the Special Rapporteur.

STEWARD J: Because I think ‑ ‑ ‑

MR MAIDEN: Where we come to is that ‑ ‑ ‑

STEWARD J: ‑ ‑ ‑ your opponent’s point is that that language does not appear, that same language does not appear in 14.

MR MAIDEN: That is their point.

STEWARD J: Yes.

MR MAIDEN: What your Honour will find, because I am about to show you, is that the Article actually proposed by the ILC itself did not contain that language. So, if I take you to page 649, Article 15 as it emerged from the Commission, we find paragraph 1, subparagraph (d) refers only to:

any right or interest of the State –

that is the State claiming immunity, and these words are important:

in the administration or property of a company in the event of its dissolution or winding up –

So, the language of the claiming State making a claim to a right or interest is removed. It is only ‑ ‑ ‑

STEWARD J: I think he would make the same point again, would he not?

MR MAIDEN: He would, but it is explained ‑ the way that that operates is explained by the explanatory material on the following page, at 650, and we take your Honours to paragraph numbered (7), which begins at the bottom of the first column. The reason for inclusion is:

to cover the situation in many countries, especially in the common‑law systems, where the court exercises some supervisory jurisdiction or other functions with regard to the administration of –

an insolvent estate. This is reading from the final sentence of that paragraph:

The exercise of such supervisory jurisdiction is purely incidental, as the proceeding may in part involve the determination or ascertainment of rights or interests of all the interested parties, including, if any, those of a foreign State.

So, it is picked up to include – the language that is adopted by the ILC is language that provides for a situation where the foreign State might have some interest in the administration of the property but might not necessarily have a claim to the property. That is an important distinction, and it builds on the context that the ALRC was then considering.

The point to be drawn from the antecedent statutes and from the ILC draft is that the ALRC looked at those statutes and that draft and synthesised from them a purpose for the exceptions which became section 14 of the Act and recommended that legislation be enacted to fulfill that purpose. I am going to take your Honours in a moment to what that purpose was, and how it is derived from that synthesis and how it differs slightly but importantly from the words of those instruments.

Two paragraphs of the report, as your Honours have already heard, led directly to section 14. Respectively, those paragraphs deal with immovable and movable property. Mr Herzfeld has taken you to these already, but they are of crucial importance, and I need to take you to them again in some detail. Again, the ALRC Report is tab 23, and the two paragraphs are at 511.

GAGELER CJ: The bottom line here is you just say that the purpose was not to go wider than what had become the international standard.

MR MAIDEN: Yes. Yes, but the purposes are articulated with some specificity in these two paragraphs. So, we start with the immovable property exception at paragraph 116. I would ask your Honours to read the entire paragraph.

GAGELER CJ: You asked to read the whole of 116?

MR MAIDEN: Just the whole of 116 at this stage, please.

GAGELER CJ: Well, you can take it as read.

MR MAIDEN: Thank you. We draw particular attention to the sentence immediately after footnote 125, and then the sentence beginning after footnote 128, which contains the recommendation insofar as immovable property is concerned. What I would ask your Honours to notice there, is that the immovable property exception is directed specifically to the situation where the foreign State claims an interest in local property, or where the foreign State is otherwise involved in the resolution of questions regarding title to that property. That is distinguished from the approach to movable property, which your Honours will find at paragraph 117. The second sentence to that paragraph is important:

Where a local court is administering, or supervising the administration of, property it is appropriate that it should be able to adjudicate on all the conflicting claims to such property. Situations where this might arise include bankruptcy, insolvency, the winding up of companies, and the administration of trusts, of estates of deceased persons or of estates of persons of unsound mind. Some of the overseas legislation has explicit provision denying immunity in these situations. It is recommended that the proposed legislation do likewise.

Things to recognise from that passage are these: first, they reflect a long‑recognised exception; second, they are directed not to where claims to property are directly made. Distinguish that from the sentence following footnote 128, but where the local court is administering or supervising – let us call it the fund – the State should be able to adjudicate on all conflicting claims to that fund. That is the purpose identified. Note the form of expression of the situations that are identified there. The form of expression and the order in which they were expressed is what became subsection 3 of section 14.

Again, we contrast the words in paragraph 116, which refer in the recommendation to the foreign State’s interest in or its possession or use of immovable property in Australia and obligations arising out of its interest, possession, and use. Those qualifications are not found in the recommendation for movable property. Of course, we find that recommendation in the draft legislation, which is at page 557 of the joint book, and ultimately in the form of words it was adopted in section 14, subject to the substitution in the final form of the legislation of the words insofar as.

The objective of the FSIA is to set out in clear accessible form the law relating to sovereign immunity. That is found in the second reading speech, and it is common ground. What we point out is that nowhere in the cases that arose prior to this Act – nowhere in the foreign statutory antecedents, nowhere in the ALRC Report, nowhere in the parliamentary material – is there an expression of an intention to create a new qualification to immunity which would allow local insolvency proceedings to be brought against a foreign State.

As the primary judge and the Court of Appeal pointed out, if that were intended, one would have expected to see it in no uncertain terms. That is the journey through the history, and it demonstrates that there is no historical footing on which you find an interpretation that allows what we say is such a significant field of operation.

Before I leave the history, though, allow me, briefly, to deal with the Adeang Case. First, we would observe two things about the Adeang Case itself. The obiter finding in his Honour’s judgment went no higher than to find that the argument relied on by our learned friends was, to use his Honour’s words, “strongly arguable”. We find at the top of page 267 – so Adeang is at tab 16:

it is certainly arguable that the defendant is, within the terms of the Foreign States Immunities Act 1985, an agency of the Republic of Nauru.

If it is a separate entity – that is, if that argument is correct – then it is entitled to the benefit of the Immunities Act, and then again, across the page at 268:

If the defendant is properly characterised as a separate entity –

Which it only reached the height of argumentation. And then, at page 270, top of the page again, his Honour writes:

In my view, it is strongly arguable that either or both of s. 11 and s. 14 take away any immunity otherwise given by s. 9. However, as I have said, I do not think it necessary to form any concluded view –

BEECH-JONES J: Mr Maiden, can you just help me with this, because I may have got this wrong. In looking at this case, if you look at section 14(3), as I understand your argument, it reduces to the proposition in (3)(a) that the body corporate is not the foreign State; they are separate to one another.

MR MAIDEN: Yes, your Honour.

BEECH-JONES J: And then, when we look at 14(3)(b), do you also say that the estate of a deceased person or the person of an unsound mind, that person could not be any conception of a foreign State?

MR MAIDEN: That is a question we have not had to turn our minds to.

BEECH-JONES J: All right. Just looking at Adeang, the actual argument – or Justice Hayne’s rejection of an argument – was it directed to who the person is, or was directed to who was administering the trust referred to in (3)(b)?

GLEESON J: Or was that issue not really teased out?

MR MAIDEN: I cannot recall, your Honour, but I will give your Honour an answer before I take my seat.

BEECH-JONES J: All right. Thank you.

MR MAIDEN: The second observation that we make is that the action in Adeang was for in personam relief against a trustee for breach of trust. It was not relief of the status‑changing nature of a bankruptcy or winding up proceeding. They are matters – as I have already articulated – of a very different character, and any finding regarding the operation of the administration of a trust under (3)(b) would have to be considered in light of that significant distinction, such that one cannot simply pick up the reading in Adeang and say – even if it had the force of ratio – the reasoning in Adeang applies by analogy to a winding up application.

Insofar as the attempt to use the Parliament’s later consideration of the Acts to elevate the status of Adeang, we make these responses. First, Adeang was an interlocutory decision, ultimately decided on forum non conveniens grounds. It was not a decision directly raising, or resolving, questions of foreign State immunity, save to the extent that the immunity was an argument ultimately not determinative.

Secondly, if the Parliament were looking at Adeang, then for the reasons that I have just traversed, it would not have been looking at Adeang for the purpose of determining the ongoing suitability of section 14(3)(a), as it then stood, because (a) is of a significantly different character to the paragraph that was reviewed in Adeang.

Three, the amendments in both amending statutes were not directed to any relevant part of the statute. It cannot be taken to have come to the attention of the Parliament in considering those parts of the statute that were amended in the deliberations of the Parliament on those amendments. There is nothing in the objective material to suggest that it did.

If the propositions advanced by our learned friends about the effects that Adeang should have on the interpretation of the statute following those two amendments are correct, it would follow that every amendment to a statute would need to indicate how every judicial consideration of that statute had treated the statute since the last round of amendments. Our friends’ argument that says there is a spectrum of statutes and statutory situations – which means that in some circumstances it would and in some it would not – is no answer to that. It would leave that unacceptably arguable, at the very least. That is all we need to say about Adeang.

I want to move now, if I could, to the question of purpose. It is common ground that the scheme of the Act is to provide for a broad immunity in section 9 and to make specific provisions for disjunctive classes of exception. As I have said, each exception is driven by its own particular purpose, and the ALRC’s method in identifying those purposes can be seen in three extracts. I am coming here, Justice Steward, rapidly towards paragraph 88.

STEWARD J: Thank you.

MR MAIDEN: We begin with paragraph 52, which is at tab 23, page 470. In this paragraph, the Commission was dealing with the question of potential legislative solutions to the question of sovereign immunity and identifies two possible approaches, one which, in effect, maintains the distinction that had emerged in the evolution of this restrictive immunity doctrine, distinguishing between acts of the State and commercial acts. That is the first approach. It is a broader‑brush approach.

The second approach which is headed here “Multiple Criteria for Restrictions of Immunity” which the Commission identified as having been approached in the United Kingdom Act – “adopted in the United Kingdom Act and its counterparts” – is to fashion specific rules for each category or class of case that had arisen in practice and, in determining whether or not each category justified the creation of an exception, looking a certain considerations.

Your Honours see following footnote 25 a list of considerations, on either hand, in favour of and opposed to, the grant of immunity or an exception. We see there recognition that factors against an exception include notions of comity and respect for other sovereignties. After identifying those competing considerations, the Commission says, four lines from the bottom of that passage:

The question is whether the balancing of these various considerations is best performed by the courts on a case‑by‑case basis or by the legislature.

Which is then addressed in the following chapter. That balance is important, because it explains why property informs the purpose for the operation of 14(3)(a), but does not define the way that 14(3)(a) operates. I will return to that in a minute.

The second passage we find at paragraph 65, on page 477. There, after footnote 5, we see the adoption of the general immunity and defined exceptions approach, and specific acknowledgement that:

The exceptions should be designed so as to reflect not a single governmental/commercial dichotomy but rather the full range of considerations outlined in chapter 3. Those are the considerations outlined in Chapter 3.

Those were the considerations I have just taken your Honours to. Then we turn to paragraph 88 on page 492, which opens, chapter 7, “Immunity From Jurisdiction”. This sets out the choice of approaches and describes how the Canadian and United States legislation deals with the concept phrased “commercial activity” as a single category under a single provision, and then says – following footnote 3:

For Australian purposes the Commission takes the view that, despite these arguments, it would be better to subdivide the category of ‘commercial activity’.

Eight lines from the bottom, the Commission records that:

the subdivisions of commercial activity used in the State Immunity Act 1978 (UK) provide a more suitable model than the United States and Canadian Acts.

It goes on to summarise separate provisions covering various types of commercial transaction that are ‑ ‑ ‑

GORDON J: Commercial activity, I think, is that not what it is addressing?

MR MAIDEN: Yes:

The United Kingdom Act has separate provisions covering commercial transactions, contracts of employment, industrial and intellectual property –

et cetera. That is the “commercial activity”. Then, the final sentence on that page:

Despite differing treatment of commercial activity, all the overseas models contain distinct provisions dealing with torts, property within the jurisdiction and admiralty matters. It is recommended that the proposed Australian legislation contain provisions for each of those categories. The drafting of the various provisions should make it clear that, unless specifically stated otherwise, they are to be read disjunctively.

That is why we say it is important to be careful to distinguish between which of the exceptions one is looking at before contemplating what the purpose is that the words that we are attempting to construe reflect.

STEWARD J: But does the next sentence support what you said earlier about quarantining:

a tort which fails to come within the tort exception to immunity –

might be subject to the:

commercial transaction exception –

MR MAIDEN: No, it supports it, your Honour, because it says – it may be that a tort claim would fall within the commercial transactions exception. We need to consider separately whether it would fall within the tort claim and whether it would fall within the commercial transactions exception. We do that by reference to the respective purposes of those two exceptions, and if it satisfies both, well and good.

STEWARD J: But, in any event, there is no case being made here under section 11?

MR MAIDEN: That is correct.

STEWARD J: Yes, I see.

MR MAIDEN: Paragraph 90 deals with the first of those exceptions, commercial transactions, and recites that principle:

when a foreign state acts in a ‘commercial’ matter within the ordinary jurisdiction of local courts it should be subject to that jurisdiction.

As I have taken your Honours to already – made clear by the pithy statement by Lord Wilberforce – this reflects the common law, which accepted that to subject a foreign State to litigation arising from a commercial matter, a commercial transaction:

does not involve a challenge to or inquiry into any act of sovereignty or governmental act –

And is:

neither a threat to the dignity of that state, nor any interference with its sovereign functions.

BEECH‑JONES J: What paragraph was that, Mr Maiden?

MR MAIDEN: That is picking up from the language used by Lord Wilberforce, which is quoted in PT Garuda at paragraph 6. It is the underlying rationale for what is now the commercial transactions exception. It is not, in our submission, the underlying rationale for the section 14 exception – that has a different purpose.

STEWARD J: Even though paragraph 88 says we are going to:

subdivide the category of “commercial activity”.

MR MAIDEN: Yes. It subdivides the category of commercial activity into, inter alia, commercial transactions and, for example, property, torts, admiralty. What we are now dealing with, section 14, is the Australian property exception.

The applicants attempt to apply the commercial transactions principle to the interpretation of section 14(3)(a), but bankruptcy liquidation and winding up do not always involve commercial transactions. They most frequently do, but they do not always, and we must approach the interpretation of the section to respond to the full scope of its operation, not merely to that scope which we most frequently observe it taking. Your Honours saw the purpose for the property exception articulated in those two large slabs from the ALRC Report that I tortured you with earlier.

EDELMAN J: Just for a minute – you say they do not always involve a commercial transaction.

MR MAIDEN: Yes.

EDELMAN J: Would you also go so far as to say they do not always concern a commercial transaction?

MR MAIDEN: Yes, we would. For example, winding up on a just and equitable ground, which can have an infinite variety of sources.

EDELMAN J: Although I think, as I put to you earlier, if you are winding it up it is because there is a debt – it is because there is a debt that cannot be met. That is the argument of insolvency.

MR MAIDEN: That is winding up for purposes of insolvency.

EDELMAN J: Yes.

MR MAIDEN: But the winding up ‑ ‑ ‑

EDELMAN J: On just and equitable ‑ ‑ ‑

MR MAIDEN: ‑ ‑ ‑ exception in section 14(3)(a) is not confined to winding up in insolvency.

EDELMAN J: So, it is reading bankruptcy, insolvency and winding up of the body corporate as three separate grounds.

MR MAIDEN: Yes. It is also possible, for example, for foreign central banks and other instrumentalities to borrow funds, for example, by issuing bonds for purely governmental purposes. But the starker answer to your question is that there are entirely, unarguably, non‑commercial reasons that might give rise both to a winding up and a bankruptcy.

GAGELER CJ: Mr Maiden, I think we are at paragraph 12 of your outline at this stage.

MR MAIDEN: Yes.

GAGELER CJ: How much longer will the balance of your submissions be?

MR MAIDEN: I think I may be another hour, your Honours.

GAGELER CJ: And reply, Mr Herzfeld?

MR HERZFELD: No more than five minutes.

GAGELER CJ: We will take the luncheon adjournment.

AT 12.44 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

GAGELER CJ: Yes, Mr Maiden.

MR MAIDEN: Thank you, your Honours. I need to trouble your Honours just one more time with the ALRC Report, for the purpose of clarifying something that I said before lunch. Can I ask you to go back to paragraph 88, at page 492, behind tab 23.

I am only going to return to this for about three minutes, but it is important in light of the central aspect that purpose plays in the proper construction of the section. Can I ask you to turn your attention to the middle of that paragraph, the sentence which begins right at the end of the line:

For Australian purposes the Commission takes the view that, despite these arguments, it would be better to subdivide the category of ‘commercial activity’.

That is the first point to note. The second point comes five lines later, where the Commission writes:

it is felt that the subdivisions of commercial activity used in the State Immunity Act 1978 (UK) provide a more suitable model than the United States and Canadian Acts.

GAGELER CJ: Mr Maiden, you did take us to these exact sentences.

MR MAIDEN: I did. I am sorry, your Honour, I know I am labouring it, and I am about to finish. The point is there is then a recitation of what we say are subdivisions of commercial activity, and your Honour will recall I discussed the difference between commercial activity and commercial transactions, and I fear I have got something wrong, which I am trying to correct. I apologise for labouring it. The subdivisions of commercial activity are those set out in the following sentence. Following that, there is a sentence which begins:

Despite differing treatment of commercial activity, all the overseas models contain distinct provisions dealing with torts, property within the jurisdiction and admiralty matters.

Those are not, in our submission, what the Commission refers to as subdivisions of commercial activity, and that is important because the argument that the purpose which sits below the commercial transactions exception might relate also to other exceptions needs to be seen in light of that – not just in light of that, but then in light of how the ALRC treats those things in the remainder of Chapter 7, because it sets out each of those headings in order.

We start with commercial transactions. It is the same order as they follow in those sentences: Commercial transactions on 493; employment contracts on 497; et cetera, all the way through to, at page 506, “Other ‘Commercial’ and Related Matters”, where the ALRC deals with membership of bodies corporate, bills of exchange and taxes. That rounds out those commercial activity subdivisions.

And then, having finally dealt with what the ALRC heads “Other ‘Commercial’ and Related Matters”, it deals with the individual purposes behind what it calls, in paragraph 88, the “distinct provisions”: torts – relevantly, for our current purposes – property within the jurisdiction, and admiralty matters has a chapter of its own.

So, the purpose for the property exception in section 14, then, is that articulated by the Law Reform Commission in section 117 and not the broader purpose that sits behind the commercial transactions exception. What, then, are the boundaries of the reading of the section 14 exception which are compelled by that purpose? The purpose identified by the ALRC does not require the operation of paragraph (a) – to be confined only to circumstances where the foreign State has or may have a claim to property in the relevant insolvent administration.

That is what distinguishes our section from those in the UK and other antecedents. The ability to adjudicate on all claims in an insolvency may require a foreign State to be impleaded so that claims to the insolvent’s property by others can be adjudicated completely and effectively. So, the foreign State does not need to have a claim in order for there to be utility to it being bound in an insolvency of another entity.

This also answers Justice Steward’s question from this morning about why relief is needed from the immunity if a claim is to be made by the foreign State. It is also required to bind the foreign State to, for example, the moratoria on actions against the insolvent entity and recoveries against the insolvent entity to which creditors are subject in order to give effect to the equitable distribution of property which is at the heart of insolvency.

The best illustration of that is the case of Rafidain. I am not going to read from Rafidain, but your Honours will find it at tab 20. There, there was an Iraqi bank in the hands of provisional liquidators in the United Kingdom. The Republic of Iraq sought payment of funds that it held on deposit. The provisional liquidators were obliged under the United Kingdom legislation to hold the funds subject to the determination of the winding up application against the bank, and the Government of Iraq through its embassy sought to rely on the sovereign immunity to stand outside that process and demand the release of its funds.

The Vice‑Chancellor applied the exception found in the United Kingdom statute and refused the release of the funds. The Republic of Iraq sought to rely on the immunity to sidestep the insolvency process and obtain access to the funds, and that was denied. That is how far the reading needs to be confined.

Our friends say that allowing a foreign State or separate entity to be wound up fulfils the purpose identified by paragraph 117 of the ALRC Report. They say that we need to show some purpose that the exception ought go no further – that is, it ought be confined only so far as to the circumstances in which the foreign State needs to be bound in order to enable the adjudication of claims to property. They say if the exception also allows the foreign State to be exposed to winding up proceedings, that satisfies the purpose. But to take that further step of exposing the foreign State or its separate entities to a winding up proceeding is unnecessary to achieve the purpose, it goes beyond what is necessary to achieve the purpose and directly impinges on the sovereignty which is at the heart of the section 9 exception.

Analysing the purpose shows that in order to achieve the balance which is referred to by the ALRC Report one needs to read down the section only so far as to allow the State or separate entity to be impleaded to the extent necessary to enable the effective administration of the local liquidation of some other entity. The ALRC did not contemplate going so far as to allow the State or the separate entity to be wound up. It did not contemplate that, and neither did any of the antecedent materials on which it relied.

There is a significant difference, which I have articulated this morning. Exposing the foreign State to the cost and/or inconvenience of litigation that might arise as a result of the administration of a local insolvency is one thing. Exposing the foreign State or its separate entity to the supplanting of its management and the alteration of its status is an entirely different concept, and risks interfering with sovereign or governmental activity at least insofar as it involves the potential scrutiny of the operations of that instrumentality of the foreign State by an organ of the Australian State, being the Australian court. Those are the submissions on purpose.

EDELMAN J: But the altering of its status can be done, I thought you accepted, under section 601CL. It can be deregistered upon cessation of business. In fact, it must be deregistered on cessation of business.

MR MAIDEN: Yes, but that deregistration is simply the making of a record in the Australian corporate register about ‑ ‑ ‑

EDELMAN J: But that alters the status.

MR MAIDEN: ‑ ‑ ‑ the local activity of this foreign company. That does not alter the status of the foreign company; it does not supplant the rights of its management to manage it internally, does not expose it to investigations by a liquidator or to the scrutiny of a court looking into its internal operations.

The structure that is adopted by the Act for the entirety of section 14 is consistent with the purpose. Section 14(3)(a) is sandwiched between subsections (1) and (2) on the one hand, each of which expressly deals with property, and paragraph (3)(b) on the other, which deals with trust property and estate property. There is a reason why (3)(a) falls between those two groups of sections which deal with property, and that is because (3)(a) is directed to enable the effective adjudication of matters regarding property.

Turning then to text, there is no plain meaning of section 14(3)(a). The chapeau refers to a foreign State, but no foreign State is referred to in paragraph (a). Bankruptcy, insolvency and winding up do not exist in a vacuum. They are not independent concepts; each of them needs a subject to have any meaning. Paragraph (a) does not identify the subject of the relevant bankruptcy or the relevant insolvency, it only goes so far in identifying the subject of the winding up, as to use the indefinite article “a” before “body corporate”. All that does, in our submission, is begs the question.

The subject must therefore take its meaning from the structure, the purpose and the context. It is a bankruptcy, insolvency, a winding up of some entity other than the foreign State or its separate entity in which the participation of the foreign State or separate entity may be necessary. If the Parliament had meant to bring the foreign State or its separate entities within the scope of paragraph (a), it could easily have done so with express language. For the avoidance of doubt, the respondent does not press its submissions regarding the presumption against extraterritorial operation.

I would like to address for a moment the prospect of bankrupting the head of a foreign State. If our friends’ construction is correct, then the prospect of a foreign head of State or minister being exposed to an Australian bankruptcy is real. It makes little sense to suggest that the public capacity limitation found in the definition of “foreign State” renders that prospect impossible or immaterial because, as I said earlier today, a bankruptcy order affects a person without regard to capacity. If a person is bankrupted, all of the restrictions inherent in the status of the bankruptcy apply regardless of the purpose for which the bankruptcy was initiated.

If the Act contemplated the prospect of a bankruptcy operating only in a public capacity, it would need to have contained a complex set of machinery to distinguish between how that could operate and how – only in a private capacity. It would have to contain machinery that would explain how a private capacity bankruptcy could operate in parallel to the unrestricted exercise of rights in a public capacity. It does not do that, it does not attempt to do that. The mere fact that that might be necessary, and the complexity inherent in that concept, demonstrate the fact that the construction our friends contend for is unlikely.

Indeed, our friends are careful not to exclude, altogether, the possibility that a head of State might be rendered bankrupt in an Australian court if their contention is correct. They say it would be anomalous, but it cannot be excluded. It is not so far‑fetched as one might think. For example, a claim for damages arising from a defamation case, arising in the context of a political speech, might cause the bankruptcy of a head of foreign State in an entirely public setting.

It is also no answer to call in aid the commercial transaction exception, for the reasons that I have articulated this morning. Analysing section 11(1), by reference to a bankruptcy proceeding, begs its own question: does a proceeding to bankrupt a foreign head of State relate to a commercial transaction merely because the standing of the person making the application might, ultimately, have derived from a commercial transaction? For a different reason, it is no answer to call in aid the protection provided by the Diplomatic Privileges Act. The protection provided by that Act is of limited scope and it performs a different function for a different purpose. It does not obviate the danger that would be created by the appellants’ construction.

In winding up, the appellants’ construction of the section attributes to the legislature an unlikely intention to expose foreign States to bankruptcy or winding up, and that intention goes far beyond what is necessary to satisfy the clearly‑expressed purpose that was demonstrated by the ALRC. It poses – to borrow the words of Lord Wilberforce – a threat to the dignity of that State and interference with its sovereign functions.

In contrast, it is not surprising to see the potential consequence that our friends fall back on – the potential that creditors dealing with a foreign State, or its separate entity, even in circumstances different to this – even in circumstances where the relationship might have been entirely commercial, which it is not suggested the relationship in the present case is – it is not surprising that creditors in that situation might not be able to wind that entity up in an Australian court. That would be entirely consistent with longstanding common law principles. It would not prevent the creditor commencing Australian civil proceedings outside the insolvency jurisdiction, if the section 11 applied, and it would not prevent them pursuing insolvency proceedings in the foreign jurisdiction – the home jurisdiction of the foreign State or separate entity.

Unless your Honours have any further questions, those are our submissions.

GAGELER CJ: Thank you. Mr Herzfeld, do you still have your five minutes in reply?

MR HERZFELD: Yes, there are three points in reply. In 1947, Felix Frankfurter warned against an approach to statutory interpretation that only when the legislative history is doubtful do you go to the statute. It is remarkable how much time Mr Maiden has spent before your Honours construing the extrinsic material, how long it took for him to come to the statutory text, how little engagement with the statutory text there has been, and how feeble is the respondent’s attempt to justify their construction of that text. It contains no words of limitation, it is strikingly different in section 14(3) to subsections (1) and (2), and also the international examples.

In fact, the difference drives the respondent to accept that section 14(3) is not limited in the same way as subsections (1) and (2) or the international examples. But if that is so, the foundation for the respondent’s submission collapses. Once it is accepted that 14(3) contemplates that a foreign State can be impleaded – to use their language – there is no reason that a separate entity of a foreign State should be immune from winding up.

That takes me to the second point. The operation of 14(3) for which we contend is relevant if and only if there is already jurisdiction to wind up the separate entity. That will be so if and only if the separate entity has chosen to submit itself to the Corporations Act regime by choosing to carry on business in Australia. It is only for those entities for which there is a change of status – to use the respondent’s language – and further, it is a change of status only under Australian law. It will not affect the status that that entity has under its home jurisdiction’s law.

The respondent accepts that if a separate entity chooses to carry on business in Australia, trades while insolvent, does not pay a judgment debt, enforcement by winding up will be impossible. It is no real answer then – rather, it has no real answer, then, when there is a deficiency of assets to satisfy claims, because then there is no machinery to deal with what happens to the competing claims. That is one of the purposes of the winding up regime.

It is also an answer to say blithely, well, Australian creditors can go to the home jurisdiction, because one can readily foresee how a home jurisdiction might immunise one of its own entities from any effective recovery in a foreign State, even assuming we are not dealing with a judgment debt which is not enforceable in a foreign State. It is notorious,

for example, that Indonesia does not accept any registration of foreign judgments.

Nor is section 11 an answer. The respondent asserts, in fact, that it does not apply at all in winding up proceedings, and if that is correct then, plainly, section 11 is not an answer to the problem that we pose for Australian creditors. Even if section 11 is capable of applying, as your Honours have seen, the exceptions to section 9 are to be applied disjunctively, and so one should not favour a narrow construction of section 14(3) in light of the general terms of section 11.

The third and final reply point is this: your Honours are not assisted in determining whether the purpose of section 14(3) is not to create any wider exception, by general notions of sovereign equality, by cases from the 1930s at a time that absolute immunity was the theory that applied. Your Honours are not assisted by general observations about balancing interests, because the question here is where does our uniquely‑worded statute strike the balance?

The ALRC Report did not accept that it was in the same way as the international equivalents, and the respondent does not suggest that it is either. Strikingly, paragraph 116 of the ALRC Report recommended in terms, following the general trend of international legislation, and that is not the wording of paragraph 117, and it is not what the respondents now submit to your Honours. Once the respondent accepts that section 14(3) is different and unique, there is no reason it should be given a construction any more confined than its terms.

Those are the reply submissions.

GAGELER CJ: Thank you, Mr Herzfeld. The Court will consider its decision in this matter and will adjourn until 10.00 am on Wednesday 13 March.

AT 2.40 PM THE MATTER WAS ADJOURNED

[2024] HCATrans 13

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