High Court confirms immunity from winding-up proceedings for foreign state-owned entities under FSIA

In a landmark decision, the High Court of Australia held that foreign state-owned corporations are immune from winding-up proceedings in Australian courts under the Foreign States Immunities Act 1985 (Cth) (FSIA). The decision in Greylag Goose Leasing 1410 DAC v P.T. Garuda Indonesia Ltd [2024] HCA 21 is the first time the High Court has addressed the interaction between foreign state immunity and corporate insolvency under Australian law.

Background

P.T. Garuda Indonesia Ltd (Garuda), the national airline of Indonesia, is a company incorporated in the Republic of Indonesia and registered as a foreign company in Australia. Greylag Goose Leasing 1410 and 1446 DAC (together, Greylag) are Irish-incorporated special purpose leasing vehicles ultimately owned by Avenue Capital Group. In 2022, Greylag commenced proceedings in the Supreme Court of New South Wales under Part 5.7 of the Corporations Act, seeking to wind up Garuda on the basis of alleged insolvency. Greylag claimed Garuda had failed to satisfy statutory demands in respect of unpaid aircraft lease debts totalling more than US$430 million.

Garuda applied to set aside the proceedings, invoking foreign state immunity under ss 9 and 22 of theFSIA. Greylag, in response, relied on the exception to immunity in s 14(3)(a), which provides that a foreign State is not immune in a proceeding “in so far as the proceeding concerns … the winding up of a body corporate.”

Legal Issue

The key question before the Court was whether s 14(3)(a) of the FSIA applies to proceedings to wind
up a separate entity of a foreign State, specifically, whether Garuda, as a corporate body owned and
controlled by the Republic of Indonesia, could be the subject of such proceedings in Australia.

Majority Judgment

By a 5:2 majority, the High Court dismissed the appeal.

The majority held that the phrase “the winding up of a body corporate” in s 14(3)(a), when read in conjunction with s 22, does not encompass proceedings to wind up a separate entity of a foreign State such as Garuda. Rather, the exception in s 14(3)(a) applies only to proceedings in which a foreign State (or its separate entity) holds a proprietary interest in another corporate body that is itself being wound up.

In reaching this conclusion, the Court emphasised the need to interpret the FSIA purposively and in light of its legislative history. Their Honours drew on the 1984 Australian Law Reform CommissionReport on Foreign State Immunity, which clarified that the FSIA was intended to codify a restrictive theory of sovereign immunity: permitting jurisdiction only in limited and clearly specified circumstances.

The majority rejected the textual argument advanced by Greylag, stating that the purpose and structure of the FSIA made clear that a foreign State (or its separate entity) could not be the subject of insolvency or winding-up proceedings merely by virtue of being a “body corporate.”

Dissenting Judgment

In dissent, Gordon and Steward JJ held that s 14(3)(a) should be construed as permitting winding-up proceedings to be brought directly against a separate entity of a foreign State. Their Honours warned that to interpret the FSIA otherwise would leave creditors of state-owned enterprises with inadequate avenues for enforcement and subject them to the uncertainties of foreign legal systems.

Their Honours considered that Garuda, by registering as a foreign company under Australian law, had submitted to the framework of the Corporations Act, including its insolvency provisions.

Commercial Transactions Exception – Potential Alternative

The Court noted that Greylag had not pursued an alternative argument under s 11 of the FSIA, which removes immunity in proceedings concerning “commercial transactions” entered into by a foreign State or its separate entities.

Although the Court did not express a conclusive view, it suggested that the commercial nature of Garuda’s aircraft leasing arrangements might have brought the proceedings within s 11, had the argument been advanced.

Key Takeaways

• Immunity from winding-up proceedings: The FSIA confers immunity from bankruptcy, insolvency, and winding-up proceedings on foreign States and their “separate entities”, including state-owned commercial corporations.
• Scope of s 14(3)(a) is limited: Section 14(3)(a) does not permit proceedings to wind up a foreign State or its separate entity. It applies only where such entities have an interest in another body corporate that is the subject of winding-up proceedings.
• Interpretative approach: The majority reaffirmed that statutory interpretation under the FSIA requires attention to legislative context, purpose, and international law principles, rather than purely textual or grammatical analysis.

Conclusion

In short, Greylag v Garuda makes clear that when it comes to winding up foreign state-owned enterprises in Australia, sovereign immunity remains a firm legal barrier that creditors can’t easily overcome without navigating the narrow pathways carved out by statutory exceptions.