P.T. Garuda Indonesia Ltd v Australian Competition & Consumer Commission [2012] HCATrans 101 (8 May 2012)

Last Updated: 8 May 2012

[2012] HCATrans 101

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S343 of 2011

B e t w e e n -

P.T. GARUDA INDONESIA LTD ARBN 000 861 165

Appellant

and

AUSTRALIAN COMPETITION & CONSUMER COMMISSION

Respondent

FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 8 MAY 2012, AT 10.17 AM

Copyright in the High Court of Australia

MR J.T. GLEESON, SC: May it please the Court, I appear with MR C.H. WITHERS for the appellant. Mr Leeming sends his apologies. He has a professional obligation in the Federal Court that he cannot evade. (instructed by Norton White)

MR S.J. GAGELER, SC, Solicitor-General of the Commonwealth of Australia: If the Court pleases, I appear with MR T.M. HOWE, QC and MR D.J. ROCHE for the respondent. (instructed by Australian Government Solicitor)

FRENCH CJ: Yes, Mr Gleeson.

MR GLEESON: Your Honours, these proceedings have reached the stage where the appellant, P.T. Garuda Indonesia Limited, has been found now beyond challenged to be a separate entity of the Indonesian State within the Foreign States Immunities Act 1985 and as such, by reason of sections 9 and 22 working together, immune from the jurisdiction of the Federal Court in this proceeding, subject only to section 11.

FRENCH CJ: What does the concept of immunity convey in our constitutional framework?

MR GLEESON: It would mean that the jurisdiction which the Court otherwise has in the matter arising from section 76(2), being a subject matter jurisdiction, is one in answer to which a person by reason of that status is entitled to assert there is no matter.

FRENCH CJ: Of course it extends beyond federal jurisdiction to the exercise of jurisdiction by State courts?

MR GLEESON: Yes, as well. I want to come shortly to the true character of the proceedings, including their constitutional and statutory underpinnings. Just to identify that remaining question, it is essentially whether the trial judge, Justice Jacobson, in his obiter remarks concerning section 11 was correct in finding that the scope of the exception is limited to proceedings which seek to vindicate private law rights and obligations arising out of a commercial transaction. We submit he was, and that the present proceedings have at least three features which take them outside section 11 properly understood. The first feature is that the proceedings seek to inflict punishment and restraint upon what I will call for simplicity “the foreign State”.

GUMMOW J: Well, and that they are at the suit of the common law.

MR GLEESON: Yes, that was the second matter, that they are at the suit of the Commonwealth and - - -

GUMMOW J: The ACCC being relevantly the Commonwealth.

MR GLEESON: Being relevantly the Commonwealth. So it is the Executive arm of the Commonwealth which, acting under legislation given down by the Chapter 1 arm of the Commonwealth, seeks to utilise the Chapter 3 arm of the Commonwealth to inflict punishment and restraint on a foreign State. So compendiously that is the first broad matter. The second which may be more a matter of emphasis or may be more important than that is that the subject matter of this punishment and restraint is the enforcement of a norm of conduct embodied in the federal statute, which norm has three interrelated elements. The first is it is a mandatory law of the forum. The second is it has a public order character and the third is that it operates extraterritorially.

Your Honours, could I then immediately turn to flesh out the true character of these proceedings in the statutory and constitutional context? Your Honours should have a version of the Trade Practices Act 1974, as in force in July 2001, immediately prior to the earliest of the conduct, and the matters we would emphasise, by reference to the Act and the appeal book, are these. Firstly, if your Honours could go to page 5 of the appeal book? The character of punishment is found in order 3, which is an order seeking a pecuniary penalty under section 76(1) of the Act, and the ACCC, under section 77, institutes the proceeding on behalf of the Commonwealth for recovery of that penalty.

The second matter arising from page 5 is that the injunction seeks to restrain the foreign State for a long-term period, seven years, from engaging in certain conduct subject to, in particular under 2.3, an exception if the foreign State receives an authorisation under section 88. Under section 88 the ACCC has a power to grant authorisations to render lawful what would otherwise be unlawful, and as your Honours know the critical test for that authorisation under section 90(6) concerns net public benefit to Australia. So that what is sought is not only that Australia punishes relevantly Indonesia, but Australia issues an edict that Indonesia must not engage in defined conduct for seven years unless Indonesia comes to the Australian regulator and persuades it that there is a net public benefit to Australia.

The third aspect of the proceedings I wish to emphasise is that the primary subject matter arises under section 45(2)(a)(ii) and (b)(ii), and the subject matter jurisdiction would be whether the foreign State made or gave effect to an arrangement or understanding which contained a provision with the purpose or effect “of substantially lessening competition”. Under subsection (3) that is competition in a relevant market. Under section 4E, that is a market in Australia.

Your Honours will see from the application book at page 21 that the market in its most ambitious form is a worldwide market – paragraph 38 – which is asserted in paragraph 39 to be “a market in Australia within the meaning of section 4E”. There are then narrower versions of the market suggested. So that the effect of the claim is that conduct engaged in anywhere in the world which has a requisite effect on one of these markets is conduct which Australia can punish and restrain.

Could I mention the extraterritorial aspect of the proceedings? Under section 5 of the Act subsection (1) gives Part IV an extraterritorial operation where relevantly the body corporate carries on business within Australia. There is no requirement that the conduct impugned under the Act is done as part of an Australian business, it is rather a connector. If Garuda carries on business in Australia, which it accepts it does as a foreign corporation, then its conduct anywhere in the world if otherwise caught by section 45 is impugned.

In the present case it appears from the pleading that there are no allegations that the relevant conduct occurred in Australia. It appears tolerably clear that the proceedings intend to focus on conduct primarily in Indonesia or Hong Kong, for example, in respect to Indonesia, pages 30 and following of the appeal book plead certain alleged Indonesian arrangements, and the Hong Kong alleged arrangements appear from about page 43.

HEYDON J: Those paragraphs do not actually assign a place where the arrangement was made.

MR GLEESON: No. That is why I put to your Honour first the negative, there is no allegation any conduct occurred in Australia. What does appear is a series of allegations which at least invite the proposition that it is conduct in Indonesia or Hong Kong, given the context perhaps from the previous page. At page 29, paragraph 65 referred to something called “the Air Cargo Representative Board – Indonesia”. Paragraph 66, Garuda was the chair, Garuda attended the meetings and so on. So I put it no higher than the proceedings appeared to invoke section 5 and certainly do not allege conduct confined to Australia.

Could I mention two other aspects about this part of the appeal book. On page 30 your Honours will see in paragraph 70.2 that section 45A is invoked. That occurs throughout the pleading. The case being made is that this is a horizontal arrangement within section 45A which is deemed to have a purpose or effect of substantially lessening competition in an Australian market. The other matter to just note is that if your Honours go to page 34, paragraph 81, for example, the giving effect to case is framed in terms of an imposition of fuel surcharges. There is no pleading of the terms of specific contracts between Garuda and any customers. Your Honours, with that background, the - - -

GUMMOW J: What is the distinction between pecuniary penalties under section 76 of the Trade Practices Act and a so-called civil action to recover them and a criminal proceeding under sections 78 and 79, the latter not being available in Part IV? What is the force of these words “civil” and “criminal”?

MR GLEESON: The present action being defined as only being civil and not criminal, it will pick up such protections as have developed in respect to civil penalty proceedings but will not carry with it the force of the criminal law either by way of sanction or by way of duties on the prosecution and the like.

GUMMOW J: What happens if they do not pay the penalty?

MR GLEESON: Yes. If they do not pay the penalty, it will be a civil judgment of the Federal Court which, subject to the application of the Foreign State Immunity Act, could lead to sequestration of the property of Garuda in Australia – would ordinarily lead to committal of senior officers of Garuda in Australia, but that is exempted by the Act, which I will come to in just a moment. In the enforcement provisions of the Act, which commence in Part IV, the structure of the enforcement stage is – in section 30 a general immunity from enforcement is accorded in favour of a foreign State. Section 32 gives an exception “in relation to commercial property” as defined. Section 33 allows execution against “immoveable property”.

Section 34 is the section I alluded to that indicates there cannot be penalties by way of final committal. However, in our case we would have to grapple with section 35 which is that theses protections apply in an attenuated sense where one is a separate entity. To be a separate entity and get these protections under section 35(2) you need to show you would otherwise have been immune and then you have submitted to jurisdiction, and that would probably not be the present case. The effect of that would seem to be, coming back to your Honour’s question, that a judgment against the separate entity could lead to the ordinary processes of enforcement of the Federal Court.

GUMMOW J: What is the significance of this definition of “proceeding” in section 3 and to the word “prosecution”?

MR GLEESON: A deliberate decision was taken that criminal matters reflected by the words - - -

GUMMOW J: You keep using these words “criminal”.

MR GLEESON: Yes, prosecution, “a prosecution for an offence” being the words exactly used.

GUMMOW J: We have said on occasions in this Court there is not a bright line between these concepts of civil and criminal.

MR GLEESON: No, but wherever the line is drawn, what was intended was that if you were in the area of prosecution for an offence, the Act would not apply and you would be simply in the area of the common law of foreign State immunity where your claims to immunity would be at their very highest as a foreign State because of the fact that the processes of the local State were being exercised directly over you.

GUMMOW J: Do other jurisdictions with an equivalent of Part IV – starting with the United States, I suppose – do they have in their anti-trust legislation similar distinction between civil penalties and prosecutions, civil penalties recoverable by the United States and prosecutions by the United States?

MR GLEESON: Yes, traditionally the - - -

GUMMOW J: I am asking you this because I just wonder whether this Act which has, so it is said, I think, some foreign antecedents, assumes distinctions that are observed elsewhere, but not here.

MR GLEESON: Your Honour, a partial answer is that the Sherman Act traditionally was framed in terms of a criminal offence which had attached to it, particularly through the Clayton Act as well, the ability to pursue private remedies, including by way of treble damages.

GUMMOW J: That is by a private party?

MR GLEESON: That is by a private party. That is not a complete answer to your Honour’s question, and I will need to just check whether there is any mechanism for a civil penalty. I am not aware of any such mechanism under the Sherman Act or the Clayton Act or the parallel statutes in the United States.

HAYNE J: Are civil penalty proceedings, as found in the former Trade Practices Act, et cetera, a distinctly Australian invention?

MR GLEESON: I hesitate to give an unequivocal yes, your Honour. There may be, with respect, force in your Honour’s observation.

HAYNE J: I am not conscious of encountering an equivalent idea elsewhere, but that shows the limits of my reading, that is all.

FRENCH CJ: What about in the European context? There are large, I think they are called fines, imposed. I am not sure whether they are in the character of criminal proceedings.

MR GLEESON: Yes.

GUMMOW J: You may need to look further at this, I suspect.

MR GLEESON: We may. What seems to have happened historically in Australia was around the bringing in of the Trade Practices Act, a decision was made to move away from what had been the model under the Australian Industries Preservation Act following the Sherman Act of a criminal offence in the fuller sense, together with a private action of treble damages to move to making these ones civil, but with punishment attached to it, and then making corresponding modifications to the private actions that have flown from it. Under the most recent amendments to the current act the cartel provisions have now been fully criminalised again, so something of a circle has moved in that area.

GUMMOW J: With attachment to section 80 of the Constitution, I suppose?

MR GLEESON: Yes. What I would like to do - - -

FRENCH CJ: The parties are on common ground in this appeal, as I understand it from paragraph 14 of your submission, that the action in this case is a proceeding within the meaning of the Act and that you are rather focusing upon concerns and commercial transaction.

MR GLEESON: Yes, and the tenor of the submissions that we have offered - - -

GUMMOW J: That may be a concession which is unacceptable.

MR GLEESON: Which may not be – yes.

FRENCH CJ: It may be that you cannot untangle one from the other.

MR GLEESON: Yes. The tenor of the submissions that we put in writing has been to try and give a meaning to the connector within in the composite phrase “proceedings concerning a commercial transaction”.

GUMMOW J: You are really saying it is not concerned with commercial transaction because it is a quasi criminal proceeding.

MR GLEESON: Yes.

FRENCH CJ: Because of the scope of the relief.

GUMMOW J: Because of the scope of the relief.

MR GLEESON: Because of the scope of the relief and that the underpinning idea of not only section 11 but really of virtually the entirety of the exceptions was to recognise that in situations where the foreign State engages in dealings with other parties which are subject to the ordinary private law, then there will be a form of consent, as it were, imputed to the foreign State to subject itself to jurisdiction in respect to private law claims at the suit of other parties involved in the dealings. Then none of that touches the present case where the proceedings have, as the moving party the State, and have as the remedy punishment and restraint upon the foreign State.

FRENCH CJ: It is only the pursuit of the penalties that supports the characterisation of these proceedings as a penalty proceeding. The ACCC could have just sought the declaratory and injunctive relief, could it not?

MR GLEESON: Had they only sought the declaratory and injunctive relief, we submit there still would have been a problem under section 11 because of what I have called the restraint imposed by the injunction, namely, that Australia has issued an order to Indonesia for seven years not to engage in conduct - - -

FRENCH CJ: This all feeds into concerns, does it not?

MR GLEESON: Concerns. It feeds into concerns, yes, your Honour.

GUMMOW J: But the injunction is not protecting any proprietary right of anybody. It is protecting a governmental interest manifested in the statute, is it not?

MR GLEESON: It is protecting a governmental interest - - -

GUMMOW J: It is a sui generis remedy actually called an injunction to make people feel comfortable.

MR GLEESON: Yes. Under section 80 it is at the suit of the ACCC on behalf of the Commonwealth in order to vindicate a norm of public order which Australia sees fit to lay down in respect to conduct done anywhere in the world in order to protect Australian markets.

FRENCH CJ: That argument is put even on the assumption that the arrangements and understandings asserted fall within the character of commercial transactions?

MR GLEESON: Yes. There are two levels of thinking about the possible commercial transactions in this case. One level which appealed to two judges in the Federal Court that we submit is completely erroneous is to say that the proceedings concern contracts for the supply of freight services which might be made between Garuda or any other party to the alleged arrangement and individual customers or freight forwarders. We say that is remote from the proceedings. What is more in the frame is the alleged horizontal arrangement which is commercial in character. You cannot dispute that. It is allegedly about what will occur in commerce, but it is what are these proceedings seeking to vindicate in respect to that alleged arrangement which is where we have sought to argue that section 11 is not attracted.

Could we, in answer to your Honour’s questions concerning the historical origin of the pecuniary penalty and whether Australia really is on its own in that area, have the opportunity to research that, which I may not be able to do over lunch but we could do in the next day or so, in order to ensure we can give a complete answer to that question?

FRENCH CJ: Yes, Mr Gleeson.

HEYDON J: I just want to work out exactly what the heartland, as it were, of your submission is. If we leave penalty out of it and leave injunction out of it, do you say the Commission would not be able to – or, rather, if the Commission sought damages under section 87(1B) of the Act, which it can do on behalf of certain persons who consent to it doing so, does that leave Garuda with immunity?

MR GLEESON: Your Honour, that hypothesis would remove some of the critical planks that I am relying upon, but not all of them. It would remove some of the critical planks because we would no longer have punishment per se, we would no longer have the public order injunction. We would be closer to the area of private law rights.

HEYDON J: What if the individuals who were damaged did not bother about the Commission and just brought their own action? They are still relying on a public order statute.

MR GLEESON: Yes. That again has removed a further plank from our argument and is closer to the area of - - -

HEYDON J: I just want to see how much we jettison before we start swimming.

GUMMOW J: The problem is this enormous complexity of remedy under Part VI.

MR GLEESON: Yes. What I was wanting to say positively in answer to Justice Heydon was that even the section 87 remedy is highly sui juris and has a combination of public order, public law components together with possibly private law remedial consequences. One of the oddities of that section 87 – and this has been explored in a number of cases in the Federal Court in Queensland at the moment which are not yet for judgment – is what actually happens in section 87 in a two-stage process? It seems to say at stage one the Commission can try and get an injunction or an order or a declaration and then at stage two it opens up and turns that action into a compensation proceeding where it acts as a beneficial representative of persons who wish to come along.

Now, that is raising a serious number of difficulties conceptually as to how that is intended to work, but we would wish to submit that, even taking the extreme case your Honour has mentioned, a private action under section 82 by an individual for damages by reason of what is said to be a breach of Part IV – take that case as the furthest from the present – it would raise some issues as to precisely how it was framed. It may well be in that case you are closer to a specific commercial transaction, namely, a contract between Garuda and a freight forwarder, so that would bring you closer to section 11, and the fact that you are seeking a remedy of damages might bring you closer to the private law. There would, however, still be an important question whether what has been vindicated in that case is an Australian norm of conduct which it seeks to apply to persons anywhere in the world in order to protect our markets, and whether that was what was really envisaged by section 11 would be a very debateable matter.

HEYDON J: Around the time that the Trade Practices Act was enacted there were common law decisions that persons who were not parties to a contract in restraint of trade could get a declaration that a contract between two other people was in restraint of trade.

MR GLEESON: Yes.

HEYDON J: There were, perhaps, rather skimpy but there were statements that you might be able to get damages. Now, is Garuda immune in those circumstances?

MR GLEESON: In that event, we are looking at a remedy provided under the common law of the land, not through any mandatory statutory norm, and a remedy which would be within the ordinary jurisdiction of the Australian court but subject to conflict of laws questions as to whether Australian law is applied to a restraint which occurred overseas and one would be much closer to a private rights battle either between the parties to the arrangement or between persons directly affected by the arrangement and so in that case it would be a much more difficult section 11 argument we would face.

HEYDON J: Of course, if one is bound by a rule of the common law it can be just as unpleasant as being bound by a statutory law. It is the Australian state that is speaking; it is the Australian commander, the uncommanded commander who is speaking.

MR GLEESON: Yes.

FRENCH CJ: Might be arguing about the application of an implied statutory warrant if you were having a dispute with Garuda, implied by operation of, say, section 74 of the Trade Practices Act.

MR GLEESON: Yes. To the extent your Honours’ questions have focussed on the definition of proceeding itself, excluding a proceeding for an offence, we would wish to put as a general proposition that none of the exceptions in sections 11 through to 22 are designed to capture proceedings which have punishment as a character.

FRENCH CJ: So, does that involve a withdrawal of the implied concession in paragraph 14, or a qualification of it?

MR GLEESON: Yes, your Honour. Where I would like to go next, if possible, is first to Lord Wilberforce’s judgment which underpinned or explained the common law basis for the commercial transactions exception.

GUMMOW J: Is this the Philippine admiral?

MR GLEESON: No. In the Playa Larga v I Congreso del Partido [1983] AC 244 – I would like to go there first and then go to the text of section 11 and the remaining exceptions.

GUMMOW J: Now, the trouble with this is, it may not be trouble, but this is in a jurisdiction with no written constitution, no Chapter 3.

MR GLEESON: Yes.

GUMMOW J: Do we get some help from Chief Justice Marshall? Does he refer to - - -

MR GLEESON: Yes. Could I take your Honour to two places. Firstly, on page 262, the passage between letters D to E, while at a level of generality, it is of assistance in that it explains that the move to restrictive immunity arose:

from the willingness of states to enter into commercial, or other private law, transactions with individuals.

We emphasise that –

It appears to have two main foundations: (a) It is necessary in the interest of justice to individuals having such transactions with states to allow them to bring such transactions before the courts.

Then conversely, to require the State to answer such claims does not involve any significant challenge to their sovereignty or dignity. Now, if that be the central focus of the move to restrictive immunity, the concern is very much on persons either dealing with the foreign State or perhaps, to take up your Honour’s Justice Heydon’s question, directly affected by some dealing the foreign State has entered being able to exercise the ordinary recourse to the courts and it being difficult for the foreign State to have much to complain of in that circumstance.

Coming to the American context, at page 265 at letter F and following and after reference to the Tate letter, two decisions are mentioned. The first is Victory Transport in 1964 at the federal appellate level where again it was a claim by someone dealing with the foreign State against the foreign State and at the foot of that page and over the page it is said that:

The purpose of the restrictive theory of sovereign immunity is to try to accommodate the interest of individuals doing business with foreign governments in having their legal rights determined by the courts, with the interest of foreign governments in being free to perform certain political acts without undergoing the embarrassment or hindrance of defending the propriety of such acts before foreign courts.

So the interest of individuals dealing with the foreign States was emphasised. The next case mentioned is Alfred Dunhill in 1976 in the Supreme Court. That was the case arising out of the Cuban transactions in 1960 and although the - - -

FRENCH CJ: This was an act of State case.

MR GLEESON: Although it was an act of State case, in the context of that the Supreme Court engaged in a fairly lengthy discussion of foreign State immunity and the restrictive theory and it was because of what they said on foreign State immunity that the majority reached their view on act of State. What they essentially said was, if you are repudiating a commercial debt, you cannot complaint if you are called before the courts for the ordinary private law rights arising out of that transaction. At about letter E the Court said to do otherwise would:

undermine the policy supporting the restrictive view of immunity, which is to assure those engaging in commercial transactions with foreign sovereignties that their rights will be determined in the courts whenever possible.

Now, in that context Lord Wilberforce then went on to quote from Chief Justice Marshall in the Bank of United States v Planters’ Bank of Georgia (1824) and then from a subsequent discussion in Ohio v Helvering (1934). Now, part of the essential difference between the parties here is that Mr Gageler says, well, when you see these comments about if you go into the marketplace or into the field of trade you have just become an ordinary private citizen and you are subject to the law. That is what he takes from these types of passages.

We would suggest their focus was a more confined one, that when you engage in those types of ordinary consensual dealings you subject yourself to the private law which is applicable to those dealings, not that you have somehow subjected yourself to any regulatory law which a foreign State might seek to impose upon your conduct.

FRENCH CJ: What is happening here? Is it that the court is qualifying a self-imposed principle of judicial restraint in relation to foreign States? Is that how the common law is working in developing the restrictive immunity principle?

MR GLEESON: I pause slightly on restraint. The court under the absolute immunity theory was regarding it as a principle of international law which had been incorporated into domestic law, that it did not have jurisdiction over the person of the sovereign in certain matters - - -

FRENCH CJ: As a principle of customary international law incorporated into the common law.

MR GLEESON: Yes, which was then modified to be a rule with exceptions at the common law level.

GUMMOW J: How does it find its way into Article 3 in the United States? A problem Lord Wilberforce did not have to grapple with but it has exercised their minds, has it not? Do they not talk about no subject, no jurisdiction, without perhaps explaining why?

MR GLEESON: The court would retain subject matter jurisdiction in the matter by reason of the definition of the allegations. It is the in personam jurisdiction over that particular person arising by reason of the person’s status and the person’s objection to the jurisdiction of the court which is what qualifies the Article 3 result. It is an immunity which can be waived and in that sense the objection to in personam jurisdiction is one that can be given up, but if the immunity is asserted then the court’s jurisdiction does not extend to the person.

Your Honours, from there I wish to go, if I could, to the Act itself and to look at section 11 and some of the following exceptions. Just before I do that, I probably should deal with a point in Mr Gageler’s outline which concerns the true character of section 9 itself. What he intends to proffer is that this Act operates by way of what he calls a repeal of a jurisdiction conferred by the Trade Practices Act, if the circumstances of the Act are attracted. We would oppose the concept - - -

GUMMOW J: Sorry, which paragraph?

MR GLEESON: It is in paragraph 1, in the last sentence:

The Foreign State Immunities Act 1985 (Cth) (FSIA) repealed that express conferral of jurisdiction only if, and to the extent that, an implication to that effect “appears clearly and unmistakably”.

That, we submit, is an erroneous way of understanding the interrelation between the two Acts in part for the reason exposed by your Honour Justice Gummow’s question. The jurisdiction which the Trade Practices Act provides is a subject matter jurisdiction and it contains within its own limit under section 77 a definition of the court’s power to find remedies at the suit of some persons against other persons. It is not a case of this Act repealing that jurisdiction. It is a case of this Act saying that in respect to all proceedings at a federal or State level across the polity, persons who have a defined status are entitled to assert that the court cannot exercise in personam jurisdiction over them and then they can waive that if they wish.

So it is not a case of repeal and it is not a case of – as Mr Gageler says – finding implications that appear clearly and unmistakably. It is a law intended to govern all exercise of jurisdiction by courts, whether federal or State jurisdiction, across the nation. So section 9 of the Act, when expressed in those terms, has that breadth and, indeed, your Honours will see from the definition of “court” that it is broadly defined in section 3(1) to include any body exercising powers that are judicial or similar to judicial functions.

GUMMOW J: Why is this not a matter both under 76(2) and under 75(3), 75(3) being the more important because it is entrenched?

MR GLEESON: Yes, it is also 75(3), your Honour.

GUMMOW J: But Mr Gageler is saying that the matter is relevantly contracted for the purpose of 75(3), I think.

MR GLEESON: Contracted through a notion, he says, of repeal. We do not embrace the word “repeal”, but certainly contracted. Contracted we embrace that in the sense that the federal statute, the Immunities Act, operates in respect to proceedings which would otherwise be at federal or State level and in that sense is capable of contracting the matter.

HAYNE J: If there is a confinement, is not the confinement worked by confining jurisdiction over the party?

MR GLEESON: Yes. Could I then come to section 11, and the primary position we have put in the written submissions in-chief and reply is that the nature of the connection involved by the word “concerns” is a connection which picks up a proceeding vindicating private law rights and obligations arising from, in this case, a commercial transaction. That meaning of “concerns” is one which is apposite to operate through the balance of the exceptions, we would submit, your Honours. It functions equally well in respect to section 12(1) and so on. That is the first textual submission.

The second is that your Honours will see in at least two of the exceptions - section 12(2) is the first one – a deliberate decision to expand the connector. In section 12(2) the proceeding concerning employment is expanded:

to a proceeding concerning:

(a) a right or obligation conferred or imposed by a law of Australia on a person as employer or employee -

A similar expansion appears in the taxation exception which is section 20. In other words, where the Parliament intended that the proceedings could have a broader connecting reach and that there really was a desire to ensure that all obligations imposed by Australian law arising out of a particular matter were the subject of the exception, they said so, and no such language appears, we observe, within section 11.

Your Honours, the third textual submission concerns section 11(2), and these matters I am going to, I will come back to the ALRC report which bears them out as well. What this does is to provide for two exceptions to the exception in section 11(1). Can I deal with the second first? The second is that you can contract out of the commercial transaction exception back into the primary immunity, and the persons who can do that are the parties to the proceeding.

What that contemplates is that the parties have agreed in writing that in respect to an identified commercial transaction, the prima facie immunity will apply. The breadth of that exception to the exception very much tends to emphasise that section 11 is concerned with the private law rights and obligations arising out of the commercial transaction. It is not possible to contemplate with a regulatory proceeding that the ACCC is able to contract out of the Part IV Trade Practices Act claim with a prospective respondent.

FRENCH CJ: It does not cover the position of State governments, does it?

MR GLEESON: No. Coming then to the other exception, which is subparagraph (a)(i), that exception, your Honours will see from section 22, does not apply to separate entities but does apply to the foreign State at its highest level. What lies behind this is, and it is explained in the ALRC report, was that there was a concern that where - let us take the Commonwealth and a foreign State enter what is a commercial private law transaction, there will often be a range of dispute resolution mechanisms other than resort to the courts for ordinary private law remedies, and so because the transaction is at the very highest level, State to State, the prima facie rule in section 11(1) would be reversed. The mere fact that you enter a commercial transaction at the highest level does not impute a waiver of the immunity. The position is the reverse – you keep your immunity unless you, as States, agree not to have it.

What seems to have been done was to take a view that if one drops down a fraction to the separate entity, that assumption that States might have other recourse to dispute resolution mechanisms should not be the automatic rule, therefore, for this purpose, they will be treated the same as other proceedings and so they drop back down into (ii). The net effect of that is that – if I could come to the crunch of it – if the ACCC sought to bring this proceeding against an airline which was the foreign State itself, for instance, an organ of government, then it would be expressly excluded by (i).

We would say you never get to this section at all, but the oddity of their case is that if Garuda chose through the Indonesian structures to operate as a direct arm of government, it would be immune from this proceeding, but if it does it as a separate entity, it is not immune. That distinction, which necessarily would follow if their case were correct, is one that has little sense or logic to it, and is one we say is not reflected by these provisions. I mentioned - - -

HEYDON J: I am not sure that I am initially fully attracted to that argument. There is a difference between the government and, if you like, a sort of subsidiary of the government or a body over which the government has influence. There are many different forms of such creatures in Australian statutory law. Does not the granting of greater freedom – let me start again. If you are the government, there is no doubt something repugnant to traditional thinking in one government being hauled before the judicial arm of another government. It is not so repugnant if what is hauled before the judicial arm is not really the government at all but something related to the government.

MR GLEESON: I would say no to that. There is still something prima facie repugnant to a separate entity, as defined, because what a separate entity is, it is something which is still an agency or an instrumentality of the foreign State – that is under the definition – so it still has that intimate connection with the foreign State and it is being called before the courts here to be punished and restrained for its conduct. But perhaps I should at this point, given your Honour’s question, ask the Court to go to the ALRC Report No 24, which you should have, Foreign States Immunity because it directly deals with this provision. It is in paragraph 93 of the report. The second bullet point deals with “Contracting Out” which has become section 11(2)(a)(ii), and what is stated is:

It is recommended that the general approach taken by the proposed legislation should be one of allowing freedom of contract into or out of the jurisdiction. Therefore it should be stated that the commercial transaction provision applies subject to any agreement to the contrary by the parties to the transaction.

That supports, I would submit, what I have said, that the concept of this contracting out is that the types of claims we are dealing with are claims arising between parties to the transaction under private law. The next bullet point deals directly with the matter Justice Heydon raised. It is what should happen where you have dealings between governments. The report says:

States have other avenues for resolving differences amongst themselves. Even where they contract in private law form they should not be taken to be subject to Australian courts unless the contract specifically so provides.

So the concern was not that an action of punishment and restraint might be permissible provided it is against a lower tier of the foreign State but impermissible against the State at the highest level. The concern is rather this view that if there are dealings, indeed contractual dealings, between governments at the highest level, we will not impute from the dealing any agreement to submit to the jurisdiction of the court but we will leave it to those governments whether to positively submit to jurisdiction. Then the final two sentences say:

there is no reason to treat state-trading and other separate entities of foreign states as foreign states in this particular context.

The context being, whether there are other dispute mechanisms available.

CRENNAN J: Is there any consideration anywhere given to proceedings brought by a public regulatory body?

MR GLEESON: Our submission, reading the entirety of this report, is that nowhere does it contemplate in any sense that a proceeding by a public regulatory body would be one where any of the exceptions would be activated. Mr Gageler’s outline has referred to a couple of paragraphs and perhaps the most direct one in answer to your Honour’s questions would be paragraph 161, but, on analysis, he does not deal with the point. Paragraph 161 is a provision in respect to the subject of criminal proceedings and the report notes that all the recent overseas legislation - - -

GUMMOW J: We do not have 161.

HAYNE J: We do not have 161.

GUMMOW J: As usual, we are given bits and pieces.

MR GLEESON: I am sorry, your Honours.

FRENCH CJ: Paragraph 161 relates to the exclusion of criminal proceedings.

MR GLEESON: Yes. In answer to your Honour Justice Crennan’s question, that is the closest anything gets but it does not deal with this point. The critical sentence that Mr Gageler apparently relies upon is this:

Problems arising with the application of penal or regulatory legislation to foreign states cannot be resolved through the application of any general formula, but depend on the particular legislation in question.

I should wait until your Honours have got that.

GUMMOW J: Was a Professor Crawford involved in this report?

MR GLEESON: Yes.

FRENCH CJ: I notice that footnote 41 gives some explanation for the exclusion of the Australian States and the Northern Territory from the operation of section 11(2).

MR GLEESON: Was that paragraph 41, your Honour?

FRENCH CJ: Footnote 41, page 54 under paragraph 93.

MR GLEESON: Yes. So, I went only to paragraph 161 to deal in advance with what apparently is a submission to be made that that reflects some deliberate decision that penal or regulatory legislation will be - not resolved through any general formula will depend on the particular legislation, and thus it seems to be said you would need to find something in the Trade Practices Act excluding it in order to get the immunity, and that, we submit, is a misreading of both this paragraph and the whole purpose of the report.

GUMMOW J: Which paragraph are you referring to?

MR GLEESON: Paragraph 161. Indeed, what really seems to flow from 161 in the last sentence is these are matters which do not directly affect civil rights and which have to be resolved primarily between the relevant governments or agencies and the foreign States in question. It really tends to confirm that the scope of the immunity, and of the exceptions, is to deal with civil rights, what we have called private law rights, and it is really giving no encouragement to a notion that the exceptions are a means to bring penal or regulatory actions against foreign States.

HAYNE J: It seems to be proceeding from the assumption that the litigious world can be divided rigidly between civil one side and criminal the other, does it not?

MR GLEESON: Yes.

GUMMOW J: Which is not the lesson of life and experience.

MR GLEESON: No, and it may be bear upon your Honours’ questions concerning the meaning of “proceedings”, but the assumption seemed to be that - - -

HAYNE J: As to which, if you would be good enough to take account of references in my judgment in Labrador Liquor [2003] HCA 49; 216 CLR 161 at 197, to comparisons between Customs prosecutions in Australia which can lead to conviction and Customs proceedings in the United States which apparently yield monetary remedies to the United States but without conviction.

MR GLEESON: If your Honour pleases. While your Honours have the Law Reform Commission Report, it might be convenient just to mention a couple of other critical passages. The first is commencing in Chapter 3 with paragraphs 35 through to 45. There is an identification of a range of considerations which underlie the principle of immunity plus any exceptions that are to be recognised to it. Within that list of considerations, those in paragraphs 37, 38, 39 and 40, amongst others, would strongly point against the exceptions being construed to permit penal or regulatory proceedings.

By contrast, 43 does conform to the private law limitation we seek to put on the exceptions. If you are in the area where the dispute with the foreign State really has a similar character to a dispute arising between private litigants and it is otherwise appropriately within jurisdiction, then Australia is entitled to assert its view that the courts are proper bodies to deal with the dispute and related to that is 44. It would be unfair to the private litigant to be denied an avenue for redressing such case. Now, 43 and 44 are essentially picking up the theme of Lord Wilberforce and they, we submit, underpin the exceptions. The second that I wish to - - -

HAYNE J: Just before you part from that, if you then look at paragraph 48 where there are identified some difficulties with applying a single criterion – reference is made to Brownlie’s work – and in the last line under half, that author points out that distinctions of the kind there considered depend on value judgement resting on political assumptions as to the proper sphere of State activity. Now, in the context of separate entities controlled by a foreign State, pursuit of profit for that separate entity may loom rather larger than considerations of competitive markets in what for that entity are foreign jurisdictions, and one is left making value judgements of a kind about the proper sphere of State activity.

MR GLEESON: I am not sure this answers or addresses your Honour’s question, but our submission on the exceptions is that they were intended to specifically, working together, define the resolution of the various value judgments that had to be made with a deliberate decision to move away from the American model which was much more to leave it to the courts on a case by case basis to resolve the value judgment matters. Our broad submission is that you do not see anywhere in any of the exceptions scope for a value judgment to be made as to whether punishment against the foreign State, perhaps at the lesser level, is something which is appropriate for the Australian courts to do.

Your Honours see that over the page at paragraph 52 at the bottom where there is a recognition – this is halfway down – of a variety of considerations which are involved, and at the foot of that paragraph the balancing is to be done ultimately, the report says, not “by the courts on a case-by-case basis” but “by the legislature”.

The next matter I had wished to go to was Chapter 7 itself which commences at paragraph 88. This takes off from the same point that there will not be a simple distinction between private acts on the one hand and government acts on the other but, rather, there will be a series of provisions which will reflect the balance. Indeed, about the middle of that paragraph it says:

For Australian purposes the Commission takes the view that, despite these arguments, it would be better to subdivide the category of ‘commercial activity’. A series of provisions can reflect more precisely the various considerations governing whether immunity is to be withheld.

Then it goes on a little further to say for that reason broadly the UK model will be followed rather than the US or the Canadian model, and the UK Act has separate divisions governing a series of matters, Australia will add bills of exchange and then, really, in a discrete category are regarded “torts, property within the jurisdiction and admiralty matters”. Now, continuing then within the commercial transaction discussion which commences at paragraph 90, the basic principle is stated in the first sentence at a level of generality and the report notes that it is easy to state it at that level but may be difficult to apply to facts.

What is then discussed is that the UK Act, which the Court should have, the State Immunity Act 1978, in section 3(3) offered a definition of “commercial transaction” where paragraphs (a) and (b) identify objectively three types of commercial transactions and then paragraph (c) opens a more general catch-all. The report in dealing with that at paragraph 90 says:

Nor can it be argued that the provision is difficult to apply, operating as it does by simple objective criteria.

At that point it is speaking about section 3(3)(a) and (b). The report continues:

In these respects the provision satisfies the interests of private parties dealing with foreign states.

Your Honours see at footnote 11 that in particular:

the definition dealing with loans and guarantees was in fact drafted to meet the wishes of solicitors in the City of London to protect the interests of those having financial dealings with foreign states.

So that very much the approach was that “commercial transaction” would be defined in a way which - - -

GUMMOW J: Well, Herbert Smith had some trouble with Carl Zeiss in East Germany, remember, in this period?

MR GLEESON: Yes, and defined to meet those interests of private parties. That concept of protecting legitimate interests of private parties your Honours will also see over the page near the end of that paragraph 90. It is for that reason, namely, to have certainty, to protect the interests of private parties who do not know about motives, that one of the two critical changes was made in moving from the UK version to our version, and the critical change was that the rider at the end of paragraph (c) of the UK definition was not picked up in Australia.

Apart from that, our definition of “commercial transaction” is essentially a reordering of the UK definition where the generality of (c) has become the primary statement and (a) and (b) become examples which follow it. One of the things that Justice Rares held was that the UK provision was of little assistance because it was drafted very differently. We would submit that Justice Jacobson was correct and it is the forerunner in the model, save only for the specific point where a difference has emerged.

GUMMOW J: What is the relationship between the UK Act and the US provision, which was two years earlier, was it not? It was 1976, was it not, the US?

MR GLEESON: Yes, 1976. The structural relationship, your Honour?

GUMMOW J: Yes.

MR GLEESON: The US adopted a broader model which did not as specifically and precisely define each of the exceptions, leaving it more to the courts to develop on a case-by-case basis what would be the balance between and the divide between governmental and private activity, and Australia deliberately chose to move away from that model and follow the UK model.

GUMMOW J: It is presently found in Title 28 of the Code.

FRENCH CJ: Yes, 1605(a)(2), I think.

MR GLEESON: Yes, and the definition of “commercial activity” is 1603(d).

GUMMOW J: Yes, that is what I was after, actually.

MR GLEESON: The other aspect of the report I wish to go to concerned remedies, which is commencing with paragraph 136. The paragraph commences by saying:

Remedies other than Seizure of Property. So far it has been assumed that the successful plaintiff in an action against a foreign state would seek damages –

Again, the assumption appears to be ones in the realm of private law remedies arising out of the transaction between parties dealing with each other. There is then a reference to courts having granted a broader range of:

remedies such as injunctions, including interlocutory and Mareva injunctions, specific performance, and orders for the recovery of property, should be available against foreign states. There is a complete absence of discussion or decisions in civil law systems –

on whether to extend the exceptions to immunity to those remedies. The United States legislation does not deal with the point. In the UK there is a specific provision:

. . . that remedies of a personal nature like injunctions or orders for specific performance are not appropriate against States. The ultimate sanction for such orders lies in contempt. Clearly the processes for punishing contempt cannot be used against a foreign state.

So there is a specific exclusion of any of those private law equitable remedies in the UK model. The Commission then took a broader view in paragraph 137, which was that remedies of an equitable character, such as injunctions or specific performance, would not be precluded even though the only means of enforcement might be “damages in default”. And the reason they give is:

The basic principle is that, if jurisdiction is permissible, it should in the absence of special circumstances be possible to make it effective.

Now, we would submit that notwithstanding that broader view has been taken in Australia the availability of these remedies is again in a private law context, namely, that the rights arising from, for instance, the commercial transaction are not limited solely to damages but could include injunctions or specific performance. That would be consistent with the provisional view your Honour Justice Hayne took in the Nauru Case, without having to decide the matter that a beneficiary might be able to obtain the injunction to restrain a trustee engaging in a commercial transaction which was in breach of trust.

What we do not see in this section, and this does come back to your Honour Justice Crennan’s earlier question, is any suggestion that it was contemplated that public law, public order sui juris type injunctions, in order to protect the workings of the Australian market were in any way contemplated by the exceptions.

GUMMOW J: The Australian Act follows the UK Act in using your phrase “relating to a commercial transaction”. Article 1605 in the United States talks about a case which has a special meaning for them, a case:

(2) in which the action is based upon a commercial activity –

MR GLEESON: Yes.

GUMMOW J: If our Act used that language, you would be in a much immediately happy position, would you not?

MR GLEESON: Yes.

GUMMOW J: You talk about a case based upon it suggests that that is how it is pleaded, as it were.

MR GLEESON: Yes. But essentially we are arguing for a meaning of concerns which, throughout this series of exceptions, identifies a case which seeks to vindicate private law rights arising out of a relevant transaction. Your Honours, in terms of our outline, I have covered essentially the matters on pages 1 and 2.

FRENCH CJ: Incidentally, at the time that the Commission brought out its report, were those provisions in the Trade Practices Act which allowed the ACCC to recover damages for individuals and also to establish findings of fact which can be relied upon by individuals in private actions?

MR GLEESON: I will need to check that question, your Honour, if I could.

FRENCH CJ: Yes.

HAYNE J: Would section 13 of the Act have anything to say at all about such private actions? That is 13 of the Foreign States Act. I notice that the State is not immune for loss of or damage to tangible property.

MR GLEESON: Yes. We would be contending for a similar form of connection between the proceeding and that subject matter, tangible property. Intangible property is in part dealt with in section 15 where certain copyright, design and trade mark proceedings do not attract the immunity and that, we submit, is consistent with a private law focus. Interesting under subsection (2) where the alleged activity is limited to either importation or use, then there is a further limitation that the exception will only apply if there is an underlying commercial transaction.

In a similar sense, if one thinks of section 16, the underlying idea appears to be that if you have become a member of a corporation which has a relevant Australian link, then there is no offence to sovereignty if the ordinary rights arising between members are enforced by the court. The other section which hangs off commercial transaction is section 19 which is where suits on a bill of exchange will lead to immunity only where the underlying matter is a commercial transaction again. Your Honours, could I come to page 3 of our outline and then deal with two slightly broader matters of context that I have not touched on to date.

HEYDON J: What is the international law you refer to in 5(a),line 4?

MR GLEESON: That, in general, matters of punishment are local. That principle, summarily expressed, is reflected in various ways. We have given your Honours Huntington [1983] AC 150. The relevant passage commences at the foot of page 155.

GUMMOW J: A lot of water has flowed under the bridge since Huntington v Attrill.

MR GLEESON: Of course it has, your Honour, but as an underlying proposition that to take one aspect, penal judgments of foreign countries are not enforced or recognised in Australia either at common law or under the statute. Under the Foreign Judgments Act 1991 judgments for a penalty are excluded from the scope of money judgments which are capable of being enforced here. So that, in general, the concept of punishment is something that is treated as local and the notion of punishment against a foreign State would have gone to the very heart of interference with its sovereignty and dignity and if that had been the purpose of the Act, one would have expected far clearer language.

Your Honours, the second matter of context we want to note which may be of assistance is this. The Foreign Proceedings (Excess of Jurisdiction) Act was passed in Australia in 1984. Your Honours should have - - -

FRENCH CJ: This was in response to the Westinghouse litigation.

MR GLEESON: In response to the Westinghouse Case. Your Honours should have the Act, and what it demonstrates is a series of provisions designed to ensure that long arm antitrust jurisdiction exercised overseas did not cause relevant harm to persons within the proper concern of Australia. The Act starts in section 3(1) with a definition of an antitrust law and then there are a raft of measures.

Firstly, under section 7 and following, the Attorney-General can prohibit “production in a foreign court” of evidence in respect of such proceedings in appropriate circumstances, and that can lead to injunctions under section 8. Under section 9, the Attorney-General can, if appropriately satisfied, prevent the enforcement of foreign antitrust judgments. That is backed by section 10, the recovery back provision of any excess moneys paid and costs provisions in section 11. Perhaps most significantly in sections 13 and 14, in a case that is really the direct reverse of the present:

Where:

(a) under a law of a country other than Australia –

regulating trade and commerce action is taken by the government of that country or by an agency of it imposing obligations on persons carrying on business in Australia to do things in Australia, then the Attorney-General has a power, if satisfied, to “prohibit the performance” of those obligations in Australia.

Likewise under section 14, the Attorney-General can “prohibit compliance with foreign judgments” of that effect, backed up by offences in section 18. What we take from that, and we have provided your Honours with the Second Reading Speech by Mr Bowen, is that in that particular context of the Westinghouse litigation relations between Australia and the United States had dramatically deteriorated. They had been somewhat patched up by the antitrust co-operation agreement of 1982 but it was felt important to pass this Act to provide what is described as a complete arsenal of defences to be used as a last resort where conflict could not otherwise be resolved.

Now, against that background we would submit that is unlikely in the extreme that Parliament in 1985 was intending to permit Australian regulators to do the very sort of thing, not just against overseas parties, but against overseas States themselves at the highest level, which had provoked this degree of very considerable tension. Your Honours, that leaves me with two final matters, point 6 speaks for itself.

In relation to the judgments below, Justice Jacobson dealt with the subject between pages 105 and 109. We would commend that reasoning to the Court. The one matter which has advanced since his Honour’s judgment is that on page 107 when he refers at paragraph 122 to the judgment of Justice Burnton, that is the matter that has now been decided by the House of Lords in the NML Capital decision, but it is to the same effect, namely, the same distinction was being drawn that a proceeding to enforce a foreign judgment is not a proceeding in relation to a commercial transaction.

GUMMOW J: What is the citation of the Supreme Court?

HEYDON J: NML Capital Limited v Republic of Argentina [2011] UKSC 31; [2011] 3 WLR 273.

MR GLEESON: Yes, your Honour. Then the essence of his Honour’s reasoning is really found between paragraphs 127 through to 136, and I cannot add further to that at the moment. Could I deal with where we say the Full Court went wrong?

GUMMOW J: What did the Supreme Court say about this case, the Supreme Court in NML? There is a reference, is there not, to Garuda in the Federal Court somewhere there?

FRENCH CJ: It lists it as one of the decisions referred to in the judgments.

MR GLEESON: It is in paragraph 40.

GUMMOW J: Paragraph 40.

MR GLEESON: It was distinguished as not concerning an action on a foreign judgment. That is in the judgment of Lord Phillips in dissent.

GUMMOW J: Is that the only reference?

MR GLEESON: It is the only one we found, your Honour. Then could I deal with the Full Court commencing at page - - -

GUMMOW J: What is the basis of Lord Collins’ judgment in NML? He is, after all, the editor of Dicey?

MR GLEESON: Yes. The critical paragraphs are 111 to 112. Lord Collins started really with the same starting point as Justice Jacobson, that the relevant connector, in that case “relate”, could “be given a narrow or a wide answer”. If you took a very wide view, you would say the UK proceedings related not just to the question of enforcement, but perhaps to the underlying transaction, but the narrower meaning which his Lordship preferred was that the proceedings related to the enforceability of the judgment and so the types of issues that would arise in such case would be whether the foreign court had in personam jurisdiction, whether there was submission or whether the traditional grounds for enforcement or resistance to enforcement were available. His reasons for the narrower conclusion - - -

GUMMOW J: Paragraph 114.

MR GLEESON: Yes. So, viewing the matter very much at the date at which that Act was passed in 1978, would it have been envisaged that an enforcement of a foreign judgment action would be regarded as a suit relating to the commercial transaction? Answer, no. Now, the assistance which Justice Jacobson derived from the earlier cases in this line was to say it does require a fairly precise focus on what exactly is being invoked in the proceedings and that leads, we would submit, fairly readily to these critical questions of who was the moving party, what is the relief sought and is the subject matter the enforcement of a general norm of Australian conduct?

GUMMOW J: Well, section 87(1B) of the Trade Practices Act was inserted by Act No 17 of 1986, so it came later. However, the central provisions in 76, 77 and 78 were all there.

MR GLEESON: Yes. Your Honours, just finally in terms of the Full Court’s judgment at page - - -

GUMMOW J: It just does not seem that the Law Reform Commission directed its mind to this question of government instrumentalities enforcing regimes.

MR GLEESON: Yes. In line with your Honour’s questions, it seems that the assumption that a bright line, easy to be seen, between civil proceedings which were the focus of the Act and criminal proceedings which would be left to the common law, meant that one did not need to pay attention in respect to these penal or regulatory actions, but in a case where the exceptions were intended to be precise, delineated and avoid uncertainty and the like, to allow them to be the source to feed back in a raft of regulatory and penal actions we submit would depart a very long distance from the evident intention of this Act. Your Honours, at page 140 of the appeal book the discussion by Justices Lander and Greenwood is found between paragraphs 62 and 66 and they commence by saying:

It seems to us that a contract arrangement or understanding of that kind –

that is a kind addressed by section 45 –

is a commercial transaction within the meaning of s 11(3) whether it is a transaction which contravenes s 45 of the Act or otherwise.

The logic seems to be, once you, in any sense, plead in the action, the entry of an arrangement or understanding in commerce, section 11 has been triggered and it is then unnecessary to conduct any further exploration of the nature of the claims being made in the proceedings in respect to the transaction and that, we submit, gives no work to do to concerns and does it not address the question of the nature of the proceedings.

They then go on in that paragraph, and I mentioned this earlier, to invoke section 11(3)(a) and they seem to be regarding underlying freight contracts between Garuda and individual parties as somehow being the subject matter of the proceedings which we would submit is remote, but then they go back to the general point, in any event, even if you were only looking at the horizontal arrangement, that is caught by section 11(3) and, really, the whole focus that their judgment has gone off on, can we see a commercial transaction in any way invoked in the matter with no inquiry for the purpose for which it is invoked in the proceedings?

Justice Rares dealt with the matter at a greater length between pages 185 all the way through to 191. He started in 195 by envisaging what might happen under section 52 causes of action, and there is some discussion about that. Then at 196 he has gone to a conclusion that an action by a private individual for loss or damage by reason of misrepresentation would be caught by the commercial transaction exception. Well, that may or may not be, which he acknowledges in the last sentence, that that does not answer the question he has got about regulators seeking penalties. He then traverses along some - - -

GUMMOW J: Does his Honour advert to this nature of the proceeding rather than the commercial transaction?

MR GLEESON: I have to say that, unlike the other two judges, his Honour at least does address that as a matter. He has identified it at the end of 196 as - - -

GUMMOW J: Paragraph 196?

MR GLEESON: Paragraph 196, the last sentence. He has identified that it is a question that must be addressed, but what has happened is, in 198 he refers to the connector concerns and at the end of 198, says:

These meanings convey a sense that there may be a broad relationship between the exclusion and the identified subject matter of the proceeding in s 11(1).

The critical step in the argument is I am going to assume that that word allows broad relationships. Then in 199 he comes back a little the other way in the first sentence and says:

the statutory context is important for it seeks to limit the otherwise plenary immunity of the foreign State conferred by s 9. There must be a sufficient degree of connection –

and then a little further down, about line 22, he says –

Each of the excluded facts or circumstances in ss 11-21 is, itself, a broadly defined or described class. The Parliament intended the Act to remove the pre-existing uncertainty –

et cetera. So the logic seems to be, if the matter described in the exception is broadly defined, which we would dispute because they are in fact precisely and clearly defined, that tells me somehow the connector must be broad and therefore the final step in his syllogism is that means I can get regulator actions into it. In 200 he says, well, commercial transaction is defined broadly. Then he comes to section 45 in paragraph 203.

He extracts a passage from NT Power Generation that, we submit, is of no resolution resolving this case. What the Court said there about the nature of competition does not resolve any of the questions we are dealing with. What he seems to be saying is because, “Competition is quintessentially a commercial, trading or business activity”, which would be a little hard to dispute, and because the Commission’s proceedings concern conduct which is a commercial activity, that is the end of the matter, and paragraph 205 is perhaps the high point of the reasoning.

FRENCH CJ: Just go back for a moment to what you say about the concept of commercial transaction. Looking at paragraphs 24 through to 26

of the written submissions which rather seem to, at least so far as 26 is concerned, focus on the existence of a dispute, but as to the character of the transactions encompassed by the term “commercial transaction”, do you exclude the possibility of non-contractual arrangements or understandings? You say the core meaning is a contract - - -

MR GLEESON: Yes. We cannot exclude non-contractual arrangements or understandings because of the expression “like activity”. The final part of Justice Rares was on page 189. At paragraph 206 he wrongly put aside the UK Act as being obviously different and at 208, over on page 190, when he dealt with Lord Wilberforce he actually referred to a passage of Lord Wilberforce speaking of:

the restrictive theory of immunity was intended to allow foreign States to be brought before municipal courts at the suit of persons who traded with them.

Which is the essence of our case, and yet he has gone off and read some United States jurisprudence in the Saudi Arabia decision as somehow opening up an avenue for regulatory actions. Your Honours might just finally note at paragraph 210 in the last sentence the conclusion he has reached is that:

the scheme of Pt II –

that is the whole of the exceptions –

supports a construction that the Parliament was seeking to exert Australian governmental regulatory jurisdiction over foreign States in certain respects.

And at that point we - - -

GUMMOW J: You say while resisting it in the other direction.

MR GLEESON: Yes. It is extremely odd that that would be the intent. Your Honours, we otherwise rely upon the matters in Mr Leeming’s submissions.

FRENCH CJ: Thank you, Mr Gleeson. Yes, Mr Solicitor.

MR GAGELER: May I deal immediately and very briefly with the two matters of broader context that are addressed in paragraph 5 of my learned friend’s outline of oral argument? The proposition in paragraph 5(a), as explained orally, is that, in general, matters of punishment are local. That proposition as an observation in 1891 when first uttered in Huntington v Attrill may have been true enough. Its truth has subsided with time, however, as a principle of international law it is simply non-existent.

The proposition for which Huntington v Attrill is ordinarily cited and was cited, for example, in Spycatcher [1988] HCA 25; 165 CLR 30 at pages 40 to 41, is to the effect that a court of the forum does not enforce a penal law of another country against anyone. The proposition is simply not addressed to whether the court of the forum can or ought enforce a penal law of the forum against a foreign sovereign.

The proposition in paragraph 5(b) goes something like this. Because the Parliament in 1984 in enacting the Foreign Proceedings (Excess of Jurisdiction) Act took a dim view of long arm United States jurisdiction under the Sherman Act, the Parliament in 1985 in enacting the Foreign States Immunities Act cannot be taken to have been introducing or confirming or providing for long arm jurisdiction under the Trade Practices Act.

The difference, your Honours, is in the length of the arm. In the Second Reading Speech for the Bill for the 1984 Act that your Honours have been given there is a reference to the Act implementing a – or recommendations contained in a report of the Parliamentary Joint Committee on Foreign Affairs and Defence. We will provide your Honours with a copy of that over the luncheon adjournment, but the simple point is that the distinction between the long arm jurisdiction in the United States and the long arm jurisdiction provided for in section 5 of the Trade Practices Act were specifically adverted to in paragraph 5.9 within Chapter 5 of that report and that was seen to be the fundamental - - -

GUMMOW J: 5.9 of what?

MR GAGELER: Of the report of the Joint Committee on Foreign Affairs and Defence which we will provide your Honours with.

GUMMOW J: Leading to?

MR GAGELER: Leading to the enactment – leading to recommendations which were then embodied in the Foreign Proceedings (Excess of Jurisdiction) Act.

GUMMOW J: Is it referred to in Mr Bowen’s speech?

MR GAGELER: Yes, it is.

HEYDON J: Page 254.

MR GAGELER: Yes. Your Honours need not be taken to the particular passage. Your Honours, the submissions advanced orally and in writing for the appellant in effect equate the proceeding in the Federal Court by the ACCC against Garuda with a proceeding in the Federal Court by the ACCC against Indonesia. If this were a proceeding in the Federal Court by the ACCC against Indonesia, then section 11(2)(a)(i) would apply to exclude the operation of section 11(1) so as to apply the general immunity in section 9 to excise the jurisdiction, or any jurisdiction, that might otherwise be conferred on the Federal Court by section 86(1) of - - -

GUMMOW J: Explain that again, Mr Solicitor.

MR GAGELER: Yes. If this were a proceeding by the ACCC to be equated with the Commonwealth against Indonesia, then it would within the meaning of section 11(2)(a)(i) be a proceeding in which both of the parties are the Commonwealth and a foreign State. It would therefore be taken outside the scope of the exception created by section 11(1) and section 9 would apply to provide that Indonesia is immune from the jurisdiction of the Australian court.

HAYNE J: Because the extension worked by section 22 expressly excepts 11(2)(a)(i).

MR GAGELER: I have not got to that, but I was just saying what the position would be if it were Indonesia. Your Honour is right, the next point is that section 9 and section 11 are only brought into play in respect of a separate entity by section 22, and section 22 specifically excludes from the provisions that are made applicable to a separate entity section 11(2)(a)(i). The fundamental point, really the fundamental starting point in any argument must be a recognition that the parties to this proceeding are, yes, on the one hand, the ACCC as the Commonwealth, but on the other hand, Garuda as a separate entity within the meaning of that expression in section 3 of the Foreign States Immunities Act, that is, as a “body corporate”, that is, “an agency” or instrumentality of the “foreign State” but that is not “a department or organ of the executive government of a foreign State” and Garuda having the status under the Trade Practices Act, as it then was, of a foreign corporation.

Much of the argument that is presented on behalf of Garuda involves reading down the language of the Foreign States Immunities Act by inferences of choices of legislative policy that were, on a proper understanding of the Law Reform Commission Report, not made in this Act at all, that had been as at 1985 expressly made in the Trade Practices Act and that were, on a proper reading of the Foreign States Immunities Act in the light of the Law Reform Commission Report designedly left untouched by the Foreign States Immunities Act.

Can I remind your Honours of the provisions of the Trade Practices Act, most of which but not all your Honours have been referred to, and then can I go to the Foreign States Immunities Act to state the construction for which we contend and then to the Law Reform Commission - - -

GUMMOW J: Let me just try and understand this, Mr Solicitor? You are saying, let us start with the Trade Practices Act, and we find that Garuda is foreign corporation.

MR GAGELER: Yes.

GUMMOW J: What is it in any other Act that changes that situation to render Garuda not relevantly a foreign corporation upon which the Trade Practices Act operates?

MR GAGELER: Nothing at all.

GUMMOW J: You say you do not find anything in the immunity statute that changes that situation?

MR GAGELER: Well, that is what I find. What I do get to is to say that there was a specific carefully constructed regime within the Trade Practices Act to determine when and in what circumstances a foreign corporation would become subject to substantive norms of conduct provided for in that Act and when and in what circumstances such a trading corporation, having contravened such a norm of conduct, would be subject to the jurisdiction of the Federal Court, a specific and elaborate regime. The question then becomes whether and if so, to what extent a foreign corporation that is a separate entity under the Foreign States Immunities Act was excised from the jurisdiction otherwise conferred on the Federal Court by section 86 of the Trade Practices Act. That is the true question in the proceeding.

FRENCH CJ: The premise of that is that the immunity is a jurisdictional rule?

MR GAGELER: Yes, it is. That is the way in which the word “jurisdiction” has to be understood when used in an Australia statute, absent some compelling reason to read it otherwise, and it is the way in which the Supreme Court of the United States has approached the equivalent provisions in Article 28, to which your Honours have already looked in a case called Verlinden. Your Honours do not have this, but I will give you the reference, Verlinden v Central Bank of Nigeria 461 US 476.

There are some differences and there are some jurisdictional differences in the United States, but I will come to those in due course, but they read the word “jurisdiction” as meaning Article 3 jurisdiction in the same way, at least where a court is otherwise seized of federal jurisdiction, we need to read the word “jurisdiction” in the present case. It is a withdrawal of jurisdiction in respect of a proceeding against a party that is effected by section 9 of the Foreign States Immunities Act. I will not waste much time with the Trade Practices Act, but can I remind your Honours of the relevant - - -

HEYDON J: One can never waste time with its deathless prose, Mr Solicitor.

MR GAGELER: I always enjoy it, your Honour, but I was looking for affirmation. Section 4 - - -

HEYDON J: A corporation shall not in trade or commerce engage in conduct that is misleading or deceptive or likely to mislead or deceive.

MR GAGELER: That used to be section 52.

HEYDON J: Yes.

MR GAGELER: I wish it still was, your Honour.

HEYDON J: Yes. Full stop, Mr Justice Meagher used to say.

MR GAGELER: Yes.

HEYDON J: But we are not concerned with section 52.

MR GAGELER: Pardon, your Honour?

HEYDON J: What are we concerned with in the Act?

MR GAGELER: Your Honour could start with section 4 and the word “corporation” defined to mean a foreign corporation.

GUMMOW J: What year was this litigation commenced?

MR GAGELER: This litigation was commenced in 2009. It concerns conduct dating within the period back to 2001.

FRENCH CJ: That is conduct ranging from 2001 to 2005, I think.

MR GAGELER: Yes. Your Honours have a version, I think, of the Trade Practices Act that is as at 2000. I am working from reprint No 9 but I was told there were not enough copies of reprint No 9 for everyone to have one. The provisions that I am taking your Honours to were in the same form, or substantially the same form, relevantly the same form in 1985. So the word “corporation” is defined in section 4 to include a foreign corporation. The word “foreign corporation” is defined in section 4 to have its constitutional meaning, New South Wales v The Commonwealth [2006] HCA 52; 229 CLR 1 at 55, it means obviously and simply a corporation formed outside the limits of the Commonwealth. Section 4E defines “market” to mean a market in Australia. Section 5(1) relevantly expresses Part IV to:

extend to the engaging in conduct outside Australia by bodies corporate incorporated or carrying on business within Australia –

Section 45(2) then provides, in the light of those definitions, that a corporation, including a foreign corporation carrying on business within Australia, is subjected to a norm of conduct even when engaging in conduct outside Australia, that norm of conduct being, relevantly in subsection (2)(a)(ii), not to make an arrangement or arrive at an understanding containing a provision that has a purpose or likely effect of substantially lessening competition in a market in Australia and the norm of conduct imposed relevantly by subsection 2(b)(ii) is not to give effect to a provision of such an arrangement or understanding if that provision has the purpose or likely effect of substantially lessening competition again in the market in Australia.

The pleading in the present case relied, as your Honours will have noted, on both 2(a)(ii) and 2(b)(ii), there being relevantly additional commercial transactions involved in the giving effect element in 2(b)(ii). I will come to that in a moment. Section 76 then provides for the imposition of a pecuniary penalty.

FRENCH CJ: On the way to that, 45A is invoked as well I think.

MR GAGELER: On the way, 45A is invoked and that has been noted. Section 76 then provides for the imposition by the court of a pecuniary penalty on a person who has, amongst other things, contravened Part IV. Your Honours will recall that in Bass [1999] HCA 9; 198 CLR 334 at paragraph 20 and following there occurs a discussion as to the application in that context of what was then and at all relevant times for the purposes of these proceedings the definition of “person” in section 22 of the Acts Interpretation Act, a definition that includes a body politic.

If proceedings were ever sought to be brought against Indonesia, for example, for a pecuniary penalty, not only would those proceedings be excluded by section 11(2)(a)(i) from the jurisdiction of the Federal Court – that is, section 11(2)(a)(i) of the Foreign Sates Immunities Act – but there would be an issue which would need to be addressed as to whether that definition of “person” to include a body politic brought within the scope of section 76 in the first place a foreign body politic. That need not be determined for present purposes.

Similarly, if one goes to section 80, which provides for the court, in a case of a contraction of Part IV, to grant an order in the nature of an injunction, your Honours see that the power in the court is expressed as one to grant an injunction in the case of a person contravening, amongst other things, Part IV, a similar issue would arise in such a case. Section 77 is then the provision that provides for the Commission on behalf of the Commonwealth to seek a pecuniary penalty under section 76, and it is section 78 that makes clear for the purposes of usage within Commonwealth Acts that a pecuniary penalty that is sought under section 77 and imposed under section 76 lies outside the scope of the notion of criminal proceedings.

If one then goes to section 86, that is the provision that then provides for the jurisdiction of the Federal Court in any matter arising under the Act in respect of which a civil proceeding and a proceeding under section 77 for a penalty under section 76 is such a proceeding within the usage of this legislation, whether before or after the commencement of that section.

So, your Honours, that is the very clear legislative provision within the Trade Practices Act for a substantive norm of conduct to apply to a foreign corporation and then for the jurisdiction of the Federal Court to entertain a proceeding for a pecuniary penalty designated as a civil proceeding as distinct from a criminal proceeding in a case of contravention of section 45. Now, that means that if section 9 of the Foreign States Immunities Act operates on its true construction when read with section 22 to make Garuda as a separate entity immune from the jurisdiction of the courts of Australia in this proceeding, then it is operating in derogation of section 86(1) of the Trade Practices Act.

HAYNE J: Why? Section 86 gives authority to the Federal Court to decide matters of a particular kind. Why is this in derogation?

MR GAGELER: Because it includes within that kind of matter any matter in which a pecuniary penalty is sought by the Commission against a foreign corporation for breach of section 45(2) of the Trade Practices Act. To carve out a particular foreign corporation is to reduce the ambit of the jurisdiction so conferred. Not much turns on that, your Honour, as a matter of construction, save - - -

HAYNE J: Do you accept that the general proposition that the Federal Court would have jurisdiction over a defendant to the proceeding if and only if that person was served personally within the jurisdiction, that person submitted to the jurisdiction or long arm jurisdiction was engaged?

MR GAGELER: Yes.

HAYNE J: I think in that proposition the word “jurisdiction” is probably used in several different senses.

MR GAGELER: I was conscious of that, your Honour, yes.

HAYNE J: And is used, in a sense, different from the way in which section 86(1) of the TPA is to be understood as conferring authority to decide, is it not?

MR GAGELER: Well, that is the proposition that I was disputing, your Honour.

HAYNE J: The base proposition I am putting to you is that the word “jurisdiction” is apt to mislead.

MR GAGELER: It is a statutory word, your Honour, we have to give meaning.

HAYNE J: Exactly so. According to its context.

MR GAGELER: According to its context, indeed. This could be read in two ways. Section 9 could be read as conferring a substantive defence or section 9 could be read as excluding authority to decide. In our submission, and again it may ultimately not be decisive at all in the case, but, in our submission, it is properly read as an exclusion of authority to decide. There are some passages in the Law Reform Commission Report to which I will refer that support that and, as I said, the United States position is clearly enough that the jurisdiction referred to in their provisions is Article 3 jurisdiction.

HAYNE J: The relevant authority to decide is authority over that defendant, or intended defendant?

MR GAGELER: Correct. Yes, it is jurisdiction with respect to a person as distinct from jurisdiction with respect to a subject matter.

HAYNE J: Just so.

FRENCH CJ: But can a matter be defined by subject and the parties to the claim that constitutes the matter?

MR GAGELER: Yes, of course.

FRENCH CJ: I think in the cases or controversies line of judgments in the US the notion of appendant party, for example, comes up as defining the case or controversy.

MR GAGELER: Yes, and within the scheme of our own Constitution in section 75 and 76, yes.

GUMMOW J: Then does not one have to go to the Federal Court of Australia Act to find the powers that are conferred by section 59 as to service of process outside the jurisdiction?

MR GAGELER: Yes, and those provisions are affected in various ways by other provisions of the Foreign States Immunities Act to which your Honours have not been referred. Those provisions are contained within Part III dealing with service and judgments.

GUMMOW J: Part III?

MR GAGELER: Part III beginning with section 23 and following. I have not made a detailed comparison of how the two marry up, but to the extent that Part III applies, it applies so as to affect, legally, the operation of other provisions dealing with service.

GUMMOW J: Sections 23 and 24, in particular, I think.

MR GAGELER: Yes, that is right.

FRENCH CJ: The term “jurisdiction” in section 9 is not simply lifted out of Chapter 3, it has a - - -

MR GAGELER: It is not simply lifted out of Chapter 3, your Honour?

FRENCH CJ: Yes.

MR GAGELER: No, it is not. As I said, it could be read in two ways, but if it is to be read as authority to decide, and if it is addressed to a court that otherwise is conferred with federal jurisdiction, and if it says that court otherwise conferred with federal jurisdiction does not have authority to decide, the natural construction is one of a withdrawal or a detraction.

FRENCH CJ: That is its application in relation to federal courts or courts exercising federal jurisdiction, you say?

MR GAGELER: Yes, correct.

GUMMOW J: Well, it has to be read with section 19 of the Federal Court Act, does it not? It says:

The Court has such original jurisdiction as is vested in it by laws made by the Parliament.

Section 86 is one such law.

MR GAGELER: That is right. Section 86 and section 19 - - -

GUMMOW J: They are supported by section 77(1) of the Constitution.

MR GAGELER: Correct, and both of those provisions - - -

GUMMOW J: It does come out of Chapter 3.

MR GAGELER: Yes, I hope I never denied that proposition, your Honour.

GUMMOW J: All right.

MR GAGELER: Can I go - - -

FRENCH CJ: I suppose I am just wondering - - -

GUMMOW J: You will be lured away from it though.

FRENCH CJ: - - - how it works in relation to a State court, exercising State jurisdiction?

MR GAGELER: That need not - - -

FRENCH CJ: Or a tribunal, for that matter. It picks that up as well, I think.

MR GAGELER: Yes, your Honours, it may need to work – it will need to work in a different way. That is something that is addressed in the Law Reform Commission Report, at least in relation to State courts at paragraph 7, in a way that to be absolutely frank I find unconvincing. The notion appears to be, unless I am misreading it, that to rely on section 9 in a State court exercising State jurisdiction is to bring the matter in the State court immediately into federal jurisdiction, so as to extinguish that jurisdiction. That might - - -

FRENCH CJ: Then if you come into the area of exception you have a grant of federal jurisdiction, do you?

MR GAGELER: Yes, that presumably is the way that the Law Reform Commission reasoned. I should say, that is the way in which quite clearly the US Act works. The US Act of 1976 works in exactly that way.

GUMMOW J: Yes.

MR GAGELER: Precisely how section 9 applies to a State court exercising State jurisdiction really need not be addressed in the present proceeding, but in our submission, conscious that other issues, particularly Chapter 3 issues may arise, there is sufficient power in the external affairs power to exclude that State jurisdiction.

GUMMOW J: That would appear from the Central Bank of Nigeria 461 US 476 at 496 to 497 in which they say that the Foreign State Immunities Act is based on the foreign commerce power. They can then create a federal jurisdiction which is exhaustive, as it were, and that is it.

MR GAGELER: Yes. Your Honour, it is perhaps a slightly ambitious argument within our constitutional structure, but it is an argument for another day, whether it is necessary to rely upon the State court exercising – otherwise exercising federal jurisdiction so as to exclude that jurisdiction.

GUMMOW J: The point was, it was not just a law ousting State jurisdiction. It was a law creating some substantive position under federal law which is then invested in federal courts. The complaint in the Central Bank of Nigeria seems to be it was filching – a federal law was filching State jurisdiction, nothing else, and that cannot be done.

MR GAGELER: Yes. Your Honours, can I move from section 9 to section 11, save to note this about section 9. Our learned friends clearly need to rely on section 9 as immunising Garuda in this case. Section 9 is a section which, like section 11 which they say does not apply, uses the word “proceeding”. The word “proceeding” in section 9 has the same meaning as the word “proceeding” in section 11 and that meaning is the one that is given by the definition in section 3, a very wide definition that means simply “a proceeding in a court” and which excludes only, relevantly, a prosecution for an offence. Within the structure of the Trade Practices Act, quite clearly, a proceeding for a penalty under section 76 is not a prosecution for an offence.

GUMMOW J: Sorry to interrupt you, Mr Solicitor. What is the significance of section 35 in its treatment of foreign as separate entities?

MR GAGELER: That is within Part IV dealing with enforcement.

GUMMOW J: Yes. I do not understand at the moment why Garuda is said to be a foreign State within the definition.

MR GAGELER: Garuda is not a foreign State within the definition. Garuda is a separate entity.

GUMMOW J: How then is Part II ever attracted?

MR GAGELER: How is Part II attracted? Only through section 22. Section 9 and section 11 are only applied to Garuda through section 22, and I have already drawn attention to the carve-out in section 22 of section 11(2)(a)(i). Absent that carve-out, this proceeding would be excluded from the operation of section 11(1) by section 11(2)(a)(ii) and this proceeding would thereby be within the scope of the immunity conferred by section 9 which would operate, notwithstanding the general provision of section 86(1) of the Trade Practices Act and section 19 of the Federal Court of Australia Act.

So the question, and really the only question, in our submission, is whether this proceeding – and if it is a proceeding for the purposes of section 9 it must be a proceeding for the purposes of section 11 – whether this proceeding concerns a commercial transaction. So far as the words “commercial transaction” are concerned – those words are defined in section 11(3) – they are extended by paragraphs (a), (b) and (c) of that subsection, but in their primary meaning, as set out in the chapeau, they relevantly mean – just picking out sufficient words for the purposes of the present case – they pick up a trading transaction into which a foreign State, or as extended by section 22, a separate entity has entered.

The word “transaction” is not defined and according to its ordinary meaning, cannot be limited to a contract or to a transaction giving rise to legally binding obligations, but the words are also expressed in subsection (3) to extend to a trading activity in which the State or the separate entity has engaged. So commercial transaction includes entering into a trading transaction and it also includes separately and in any event engaging in a trading activity.

If one then goes to the word “concerns”, read literally, and we have addressed this in our written submissions at paragraph 13, it means simply about or in relation to. It is at least as broad as the words “based on” which is the United States language. It is little different, if at all, from “relating to” which is the language of the United Kingdom statute, but it is undoubtedly wider in an Australian legislative context from the words “arising under”. Those words, deriving from the Constitution and frequently used in Commonwealth statutes, refer to the source of a legal right or liability sought to be enforced in the proceedings.

The leading case, of course, your Honours are well aware, is LNC Industries [1983] HCA 31; 151 CLR 575. What one has here is deliberately broader language, language that undoubtedly involves a question of degree about which there may be room for evaluative judgment at the margin. But your Honours will have seen from our outline of submissions that, in our submission, it is sufficient for the purposes of the present case to say that however wide the net of concern might spread, a proceeding sufficiently concerns a commercial transaction where a claim or each claim made in the proceeding has as one of its elements the existence of the commercial transaction or the existence of a term of the commercial transaction and the identification of the source of the substantive obligation sought to be vindicated in the proceedings, whether it is common law or statute, and if statute, whether it can be characterised as public or private, are simply not the point.

Your Honours, I will after lunch take you to the Law Reform Commission to demonstrate that that plain reading of the Act was what was intended. If the Court pleases.

FRENCH CJ: Yes. We will adjourn now until 2.15 pm.

AT 12.44 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

FRENCH CJ: Yes, Mr Solicitor.

MR GAGELER: Your Honours, I was only at point 2 of the outline, but I am about to speed up. If your Honours look at section 11(1) of the Foreign States Immunities Act, the construction for which we contend is as follows. The word “proceeding” in that subsection, as in the rest of the section, as in section 9 and as elsewhere in the Act, has the constant meaning in section 3 and includes within that defined constant meaning a proceeding for a pecuniary penalty for contravention of any norm of conduct that is not designated as an offence. The word “concerns” in section 11(1), as in section 12(1) and as elsewhere in the Act, is sufficiently met where the claim or each claim in the proceeding has as one of its elements the existence of the specified subject matter.

The specified subject matter, a commercial transaction, has the meaning given by section 11(3) and encompasses within that simple literal definition a trading transaction and any trading activity, and there is no reason to give the word “transaction” a meaning that confines it to a legally binding contract. If I can then take the points in the outline slightly out of order and go to point 5 that is how this proceeding meets a description of a proceeding that concerns a commercial transaction.

FRENCH CJ: As pleaded, we are not talking about any trading transaction as between the parties to the arrangements?

MR GAGELER: Your Honour, our point, and we understand this to be the point that was accepted by both Justice Jacobson at paragraph 128 and by Justices Lander and Greenwood at paragraph 62 of their judgement, that is at pages 109 in the case of Justice Jacobson and 141 to 142 of the appeal book in the case of Justices Lander and Greenwood, that the meeting of minds involved in entering into the arrangement or understanding was itself, if not a trading transaction, then at least a trading activity, but I will come to that in a moment.

If your Honours look at the index to the pleading that you see at pages 8 and 9 of the appeal book, you see the basic structure. There is first a pleading of parties and within the pleading of parties within paragraph 2 of the pleading, Garuda is identified as a foreign corporation carrying on business in Australia. There is then an identification of markets and, although put at various levels, what is clear enough in the pleading is that what is being alleged in different ways is the existence of markets within Australia. You see that within the pleading at paragraphs 39, 40, 42 and 44.

There is still, if you are looking at the index under the heading “Market”, there is a reference to “Competitors” and it is pleaded in paragraph 45 that Garuda and other airlines are or were competitors with each other within each of those markets. Then looking again at the index, what you see first under the heading “Indonesia” and then under the heading “Hong Kong” is essentially two categories of claims which invoke two categories of commercial transaction which are pleaded as contraventions at the end of the pleading. If you take, for example, what is designated as the “May 2003 Indonesia Understanding” that is pleaded at pages 34 to 35 of the appeal book, and you see that paragraph 83 alleges that:

Garuda made an arrangement or arrived at an understanding with a number of other international airlines –

In paragraph 84, relying on the provisions of section 45A of the Trade Practices Act, it is alleged that a provision of that arrangement or understanding met the description in section 45(2)(a)(ii). If you then turn to page 75 of the appeal book there is a specific allegation then in paragraph 252.7 that “by making or arriving at” the “May 2003 Indonesia Understanding” Garuda contravened section 45(2)(a)(ii).

In our submission, the proceeding, insofar as it makes that claim and similar claims, is concerned with, because it pleads as an element of the claim, an arrangement between airlines or an understanding between airlines that is itself a trading transaction because it is a meeting of minds between traders about trade, or is at least a trading activity for essentially the same reasons, and as I said, we understand that to be the point accepted by Justice Jacobson at page 109, paragraph 128, and by Justices Lander and Greenwood at paragraph 62, pages 141 to 142. That is that characterisation of the arrangement or understanding as itself, if not a transaction, then at least a trading activity.

HAYNE J: Are you able to offer any other example of what would be encompassed by the words “or a like activity”? Obviously, they are trying to broaden it - - -

MR GAGELER: Very, very broadly.

HAYNE J: - - - but to include what?

MR GAGELER: Of course, for present purposes I need not go beyond trading activity, but an activity - - -

HAYNE J: Well, do you read it as “trading, business, professional or industrial” activity, do you? I wonder whether “or a like activity” is to be read separately from “trading, business, professional or industrial or like transaction”?

MR GAGELER: Well, that is the way I was reading it, your Honour, but in any event, “activity” must include that which precedes a transaction; that is, negotiations, advertising, et cetera.

HAYNE J: Presumably it would capture, would it not, the misrepresentation, the claim for pre-contractual misrepresentation?

MR GAGELER: Yes, even, your Honour, in our submission, it covers any representation made in trade or commerce. Put it this way, it covers the scope of what used to be section 52 of the Trade Practices Act, for example, and indeed, giving effect to a transaction, that is, the performance of an agreement or any consensual arrangement itself would fall within the compass of “like activity”, in our submission.

Your Honours, that is one category of claim. The other category of claim, if you look back at page 35 of the appeal book, is exemplified by paragraph 85 which says that:

Garuda gave effect to the provision of the May 2003 Indonesia Understanding by imposing a fuel surcharge from Indonesia-

That has to be read with the particulars given at page 82 within the letter of particulars, paragraph 3, which says that the words giving effect to be read as referring to doing that, “pursuant to fee-for-service contracts”, that is contracts for the supply of airfreight services, and that is alleged in paragraph 253.1, page 76 to be a contravention of section 45(2)(b)(ii).

So, in respect of the claims for civil penalty for contravention of section 45(2)(b)(ii) there are two categories of commercial transaction with which those claims are concerned. There is the same arrangement between the airlines with the price fixing term, and there is additionally the category of contracts for the supply of air freight services that are said to amount to giving effect to that arrangement, and that category of contracts falls precisely within the language of section 11(3)(a), that is, we are concerned there with contracts for the supply of services.

Your Honours, why all that is consistent with the basic design of the Foreign States Immunities Act I will now seek to demonstrate from the Law Reform Commission Report, if your Honours have it. I just wanted to draw your Honours’ attention to the discussion in this report of really three subject matters, overlapping subject matters. One is just the essential design of the Act, the second is the treatment of separate entities and then the third is the treatment of commercial transactions.

Dealing with the basic design, your Honours can see from the summary that appears on an unnumbered page, that if it were numbered would be xv, headed “Summary”, a heading against the left-hand margin, “Underlying Principles”, where there is a reference to a mix of policy considerations which include comity and reciprocity, and then about halfway through that paragraph it is said that:

Although these [competing] arguments support an approach based on restrictive immunity, they do not point to a single distinction between immune and non-immune cases as appropriate or necessary, whether it is a distinction between ‘private’ and ‘public’ law, or between ‘commercial’ and ‘governmental’ transactions.

That ties in with the discussion that your Honour Justice Hayne has already referred to within paragraph 48 of the body of the report that I do not go back to. If you then look at the page numbered 1 – I am sorry, if it were to be numbered, it would be 1 – in the chapter headed “Background”, paragraph 2 says that:

An initial, and important, point is that foreign state immunity is concerned exclusively with a foreign state’s personal immunity from the jurisdiction of Australian courts. It is not concerned with the substantive law to be applied to foreign states. In general when a foreign state performs act within Australia it does so subject to Australian law . . . In a number of respects foreign states or their agencies may enjoy substantive immunities from Australian law. These may be specifically provided for by treaty or otherwise, or they may result from the inapplicability of a particular law as a matter of interpretation.

Your Honours will note the footnote there referring particularly to section 22(a) of the Acts Interpretation Act. Then going to page 65, under the heading “Taxes” which translates to section 20 of the Act, it is said in the third sentence:

As has already been stressed, the question relates only to civil proceedings to recover tax due under other legislation. It will be a question of interpretation whether that legislation is intended to apply to foreign states, but this is a separate matter.

Then page 100 – I should have drawn your Honours’ attention to footnote 94 at page 65 which refers back to paragraph 2 and then forward to the paragraph I am about to take you to, page 100. Your Honours have already been taken to paragraph 161 where, in the first sentence, it is said:

All the recent overseas legislation applies only to civil proceedings; criminal matters are specifically excluded. It is recommended that the same position be taken in the Australian legislation.

The next sentence is important –

Problems arising with the application of penal or regulatory legislation to foreign states cannot be resolved to the application of any general formula, but depend on the particular legislation in question.

We see that as tying in comfortably with the theme of the earlier paragraphs that I have taken your Honours to. That is the extent to which a foreign State or a foreign separate entity is to be subjected to regulatory norms under Australian law is something that is addressed and properly addressed by the law and in the law imposing that regulatory norm. If you then turn in that light to page 131 within the notes on clauses that became translated to the explanatory memorandum, at the top of the page there is a reference to the word “proceeding” and it said:

This includes any proceeding, of whatever kind, in a court. However, it specifically excludes criminal proceedings.

And there is a reference back to paragraph 161 of the report. So far as the treatment of separate entities is concerned, if your Honours just turn a few pages to page 136, you will see the notes on Clause 22 and you will see the second paragraph of those notes which says:

In practice, it is unlikely that claims to immunity by separate entities will succeed, as most entities do not perform in Australia the sort of activities that entitle foreign States to immunity.

There is a reference to a number of paragraphs. Can I just take you to paragraph 73 which is at page 39 and draw your Honours’ attention to the last sentence of paragraph 73 which contains a statement to similar effect. Then so far as the treatment of commercial transactions is concerned, the broad intention appears from the statement within the summary at xviii, paragraph 17, second sentence:

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

Similarly within the body of the report page 51, paragraph 90 in the first sentence. While your Honours are on that page, you might note the sentence that begins at the top of the page, within paragraph 88, which in essence says there is no reason to read the various exceptions in Part II to the general immunity conferred by section 9 as being mutually exclusive. So, your Honours, that is the design of the Australian Act.

Can I show how it is broadly consistent with the position in the United States and in the United Kingdom. Your Honours have the US provisions, Title 28, Chapter 97. There is a similar structure, not identical, but a similar structure in bringing in what we call separate entities, what the Americans call agencies of foreign states, and you will see that within the definition. In section 1603, paragraph (a) defines “foreign state” to include:

an agency or instrumentality of a foreign state as defined in subsection (b) –

(b) An “agency or instrumentality of a foreign state” means any entity –

(1) which is a separate legal person, corporate or otherwise, and

(2) which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof, and

(3) which is neither a citizen or a State of the United States . . . nor created under the laws of any third country.

So a wholly owned foreign corporation comes within the definition of foreign State for the purposes of this Act. Then you see in section 1604 the general immunity from jurisdiction, which is subject to sections 1605 to 1607. Then within section 1605, paragraph (a)(2) takes outside that general immunity a case in which the action is based upon a commercial activity by the foreign State, and commercial activity is defined in section 1603, paragraph (d) to mean:

either a regular course of commercial conduct or a particular commercial transaction or act.

Then section 1606, and this is a difference from our scheme, says that:

As to any claim for relief with respect to which a foreign state is not entitled to immunity under section 1605 or 1607 of this chapter, the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances -

and then are some qualifications.

HEYDON J: I do not think we have got a copy of that.

MR GAGELER: Pardon, your Honour?

HEYDON J: We have not got a copy of 1606.

FRENCH CJ: Yes, our copy seems to run out at 1605A.

MR GAGELER: Yes.

FRENCH CJ: I think we might have been given two different versions.

MR GAGELER: The one we gave you has 1606.

FRENCH CJ: This is headed “Extent of liability”.

MR GAGELER: “Extent of liability”, yes. Your Honours, in relation to the interpretation of the commercial activity exception, the leading case is Saudi Arabia v Nelson [1993] USSC 33; 507 US 349, and you can pick up the point from the first couple of sentences of paragraph (a) of the headnote, but it is clearly enough stated at page 357, about the middle of the page, giving content to the words “based upon” after the reference to “Webster’s Third New International Dictionary” it is said:

the phrase is read most naturally to mean those elements of a claim that, if proven, would entitle a plaintiff to relief under his theory of the case.

That is applied over the page at page 358; that is, the question is, is it an element of the claim that is made? So far as the application of the exception to civil antitrust suits is concerned, they appear to have been treated from the beginning; that is, from within a year or so of this Act being enacted in 1976, as squarely within the commercial transaction exception. The leading case - - -

FRENCH CJ: These did not involve regulator actions, did they?

MR GAGELER: No, these were civil suits. The leading case is Outboard Marine Corporation v Pezetel 461 F.Supp. 384, a District Court decision which we have in the American terminology shepardized, and it is frequently cited and remains good law. Your Honours will see at page 390, left-hand column, a reference to counsel were brought under the Sherman Act, section 1 and section 2, against a corporation that was an agency of Poland. The sovereign immunity point is dealt with at page 394 under that heading and across the page to 395, and there is no particularly purple passage but by reference to the language and legislative history of the Foreign States Immunities Act it was said that an antitrust claim fell squarely within the language of the commercial activity exception.

We did look, and have given your Honours a copy of, the Restatement of the Law The Foreign Relations Law, which was last published in 1987. The commentary has been updated and we have looked at the commentary online and in respect of what I am going to take your Honours to there is nothing in the most recent online commentary that changes it. If your Honours look at page 440, the general proposition is stated that:

A state is not immune from the jurisdiction to prescribe of another state –

with a currently irrelevant exception. Within the comment of the American Law Institute on that, at page 442 it is said, paragraph g, that:

In general, United States law applies to nondiplomatic activities and interests of foreign states in the United States as they to do to activities of private persons –

Then across the page, comment h it is said:

In applying restrictive theory of immunity from adjudication and permitting certain categories of suits against foreign states, the Foreign Sovereign Immunities Acts . . . assumes that foreign states are not immune from United States jurisdiction to prescribe the substantive law –

Within the “Reporters’ Notes” over the page at page 444 the note 3 headed:

Application of United States law to foreign states and state instrumentalities.

It makes the general point:

United States laws of general applicability commonly apply to the activities of foreign states and their instrumentalities in the United States. For example:

“Securities laws” is the first, then there is “Antitrust laws” at the bottom of the next column and under that heading, without going to it in detail, if your Honours look at page 445, left-hand column, second-last sentence, the general proposition is stated that:

Companies owned by foreign governments are treated like other foreign companies for purposes of the antitrust laws.

So far as we have been able to discern, at least in civil suits, since the point was decided in Outboard Marine in 1978, it has never been doubted that a foreign corporation alleged to have committed a breach of the Sherman Act can be brought before a United States Federal Court in the usual way. So far as the United Kingdom is concerned, an issue of the present kind is unlikely to arise for a couple of reasons. One is because, for the most part, antitrust type regulation is a matter for the European community and not dealt with comprehensively within the domestic law of the United Kingdom, but also, if your Honours go to the State Immunity Act 1978 - - -

FRENCH CJ: There has been a degree of devolution, has there not, to domestic courts? I do not know whether that means there has been any action. I think it is only beginning in the 2000s.

MR GAGELER: Yes. Certainly the equivalent proceedings to the ones before this Court were brought by the European Commission in Europe and did not go anywhere near the United Kingdom courts, so far as I am aware. Section 14(2) deals in quite a different way with separate entities. Your Honours will see section 14(2) of the United Kingdom Act says that:

A separate entity is immune from the jurisdiction of the courts of the United Kingdom if, and only if –

(a) the proceedings relate to anything done by it in the exercise of sovereign authority; and

(b) the circumstances are such that a State . . . [itself] would have been so immune.

Those are cumulative requirements and the immunity is only applied to a separate entity where the separate entity is exercising sovereign authority. What that means was actually considered by the House of Lords in the Kuwait Airways Case (1995) 1 WLR 1147 where it was held that running an airline, even in accordance with a government directive, does not answer the description of doing something in the exercise of sovereign authority. You see that most clearly within the judgment or the speech of Lord Goff at page 1160 letter B. So unless a separate entity is exercising sovereign authority, it does not get to first base in the United Kingdom.

So far as the commercial transaction exception is concerned, the language in section 3 is relating to, we see no reason to draw a distinction between our word “concern” and the English expression “relating to”. Nor do we see any inconsistency between the minimum content that we ascribe to the word “concern” and the approach that has been taken in the United Kingdom to the expression “relating to”. Your Honours were taken to NML [2011] UKSC 31; [2011] 3 WLR 273 and your Honours were taken to passages which I will not traverse that make clear that the court in that case was accepting the construction that had been earlier laid down by the Court of Appeal in a case called Svenska Petroleum. That construction appears within the quote from that case at page 284 letter E:

“In our view the expression ‘relating to’ is capable of bearing a broader or narrower meaning as the context requires. Section 3 is one of a group of sections dealing with the courts’ adjudicative

jurisdiction and it is natural, therefore, to interpret the phrase in that context –

this is the important bit –

as being directed to the subject matter of the proceedings themselves rather than the source of the legal relationship which has given rise to them.

The same focus you see in the judgment of Lord Mance, paragraph 85, where there is a focus on the claim or cause of action in the case and what are the elements of that cause of action, what is it that needs to be investigated and decided in the language of Lord Mance. So, your Honours, for those reasons, the essentially literal construction of the Foreign States Immunities Act creates no tensions between that Act and the earlier provisions of the Trade Practices Act. It accords with the design of the Foreign States Immunities Act as one sees in the Law Reform Commission Report and it produces an outcome that is entirely consummate with that which applies in the United States and the United Kingdom. If the Court pleases.

FRENCH CJ: Thank you, Mr Solicitor. Yes, Mr Gleeson.

MR GLEESON: Your Honours, in reply, the first matter I wish to address is Mr Gageler’s point 1 of the written outline concerning the relationship between the immunity granted by the Act and the Trade Practices Act. Our submission is that the subject of foreign state immunity concerns a personal immunity from the jurisdiction of a court which is to be distinguished from a court’s general jurisdiction in respect of matters federal or State. That is the way the Law Reform Commission viewed it in paragraph 2 to which Mr Gageler took you. The effect of that is that when the Trade Practices Act in 1974 enunciated a standard with respect to constitutional corporations, using the full reach of that term, in our submission, it was not purporting to deal at all with the subject matter of personal immunities which might arise from one’s status as a foreign State.

From 1974, any question of foreign state immunity would have been dealt with under the common law. From 1985, it is to be dealt with under the federal Act if it is a proceeding as defined, but it remains to be dealt with under the common law in respect to proceedings outside the Act. That has a particular practical bite in respect to the criminal cartel proceedings now in the Act. On Mr Gageler’s submission, a foreign corporation will have no possibility of immunity from a criminal cartel provision even if it be within common law a relevant emanation of a foreign state.

HAYNE J: Well, this Act would not speak to such a proceeding would it?

MR GLEESON: It would not speak to it and, on his submission, that is the end of the matter. The Trade Practices Act has said all foreign corporations are subject to its command. We would submit that in a criminal case what would remain is a question whether a personal immunity from jurisdiction is recognised by the common law implementing international law and if the answer to that is yes, it is no offence to section 86 of the Trade Practices Act for a court so to behave.

HAYNE J: But whether or not there is some other form of immunity applicable in criminal proceedings, we begin, do we not, from the observation that this Act does not speak at all to criminal proceedings?

MR GLEESON: Yes, I accept that. For that reason, we dispute his concept that the 1985 Act can only operate by way of repeal, it can operate within its own field and once it is enacted, as your Honour the Chief Justice put to Mr Gageler, clearly enough, it governs proceedings in courts and tribunals, federal and State, and the grant of the immunity in section 9 is broad and general in its terms. The approach taken in paragraph 7 of the ALRC report with Mr Gageler questioned as to the utilisation of federal jurisdiction, we would submit, has more support to it than he put.

The reason it has support is that once one is in a relevant proceeding, whether otherwise in federal or State jurisdiction, where there is an arguable issue of immunity, the federal Act does cut in and bind the court or the tribunal in a number of ways. One of them, for example, is section 27 which imposes a constraint upon the court that it cannot enter default judgment unless it forms a positive satisfaction that the foreign State is not immune. Chief Justice Spigelman relied upon that provision in the Zhang litigation that we have given the reference to to say that this immunity operates without a foreign State even having to invoke it. The court is bound to abide by it if it arises on the facts of the case.

For that reason, we would submit that there is force in the proposition that in any case where the immunity is arguably available, any court or tribunal is bound to apply this federal law and therefore the proceedings are in federal jurisdiction even if the end result is I must not exercise jurisdiction any further.

FRENCH CJ: If it is proceedings before an administrative tribunal, it is not in federal jurisdiction.

MR GLEESON: Save for that issue, your Honour, yes. Now, Mr Gageler said the resolution of those questions may be unnecessary to this appeal. He did, however, hint at a proposition that because of his argument, the Court would reject our appeal because there is insufficiently clear language in section 11 to give it the limitation we contend for. That, we submit, is the wrong approach. Section 9 has granted the immunity in the clearest of terms and section 11, as an exception, can be given, we submit, the meaning we have contended for. That is the first matter I wish to address.

The second concerned the status of separate entities as opposed to the foreign State in its full glory. There was a hint of a submission that separate entities are second-class citizens under this scheme and, indeed, are second-class citizens in the United Kingdom and that, therefore, there might be a legislative intent that regulatory penal proceedings can proceed against them but not against the foreign State itself. That, we would submit, mistakes the role separate entities are given. The separate entity, by reason of section 22, has the same prima facie immunity as the foreign State itself, under section 9 and the exceptions are defined in precisely the same terms, save for the three carve-outs.

So far we have addressed one of those three carve-outs, but the three of them taken as a whole – that is, section 11(2)(a)(i), 16(1)(a) and 17(3) – your Honours will see are all of the same character. That is identifying certain cases where there is a dealing solely between foreign States or between the Commonwealth and foreign States where, as the ALRC said, there was a desire to preserve the ability for alternative dispute resolution. So that there is nothing evinced in the structure of the exceptions to create a notion that regulatory proceedings were intended to be contemplated against separate entities but not against foreign States themselves.

HAYNE J: You describe these proceedings as regulatory proceedings. What is the point of the attachment of the epithet? Assume it to be a valid attachment, an apposite attachment, what is the point that you say follows from attaching it?

MR GLEESON: That these proceedings concern not a commercial transaction, but a prohibition imposed by Australia on a species of commercial conduct and as regulatory proceedings they seek to establish the reach of that prohibition, they seek to penalise non-conformance with it in the past and they seek to restrain non-conformance with it in the future.

HAYNE J: Be it so, so what?

MR GLEESON: So what, that that proceeding - - -

HAYNE J: Because the hypothesis is, is it not, that these are proceedings as defined?

MR GLEESON: Yes. That a proceeding of that character is not one which concerns a commercial transaction within section 11 because its focus is to vindicate a prohibition imposed by Australian law in that fashion and had it been the intention to bring such proceedings within the exception, there would have needed to have been language in one of the exceptions squarely focusing upon proceedings concerning prohibitions imposed by law. I took your Honours to the only places where there is a reference in the exception to obligations imposed by Australian law and that is section 12(2) and section 20 and there is no equivalent language within section 11.

FRENCH CJ: Just coming back to that term “regulatory” that Justice Hayne was discussing with you, you exclude from the class of proceeding which concerns a commercial transaction a proceeding for relief in respect of a contravention of the Act effected by a commercial transaction?

MR GLEESON: Yes.

FRENCH CJ: Now, does it matter to you whether that proceeding is brought by a public authority or by a private party?

MR GLEESON: Our case is clearest because it is brought by a public authority, because what that discloses is that the purpose of the proceeding is to utilise the forces of one State to have declared through the courts that the conduct of another State is in breach of our law so as to lead to remedies of a public character, the public character being punishment raising issues of deterrence and injunction raising issues of restraint. That is the case at its clearest and its best.

FRENCH CJ: It is coming back to the jettisoning discussion we had with Justice Heydon.

MR GLEESON: Yes.

FRENCH CJ: An action by a private party for a declaration and perhaps injunctive relief and damages arising out of a contravention of a provision of the Act, be it Part IV or Part V, attracts the same argument so far as you are concerned?

MR GLEESON: Primarily attracts the same arguments, but it does not have the full force of the public law nature of the proceeding, because it is possible that in the action by a private party, the focus of the court will be upon a particular commercial transaction which that party entered, the terms of that transaction, there might be an order under section 87 to vary the terms of the transaction, and it is much easier to accommodate that within the possibility of the rights recognised by the dealings between those particular parties.

Your Honours, to give an example from section 52, the Court has said many times that section 52 can be regarded in one sense as a norm of conduct which opens up what we would call public order remedies under section 80, for instance, and in other cases the contravention of section 52 becomes an element of what is truly a private cause of action for damages under section 82. Now, in that second case, it is much easier to see that as falling comfortably within the sphere of rights arising between parties engaged in a dealing, but in the first case it is closer to the situation we are dealing with here.

Another example, your Honour Justice Hayne mentioned your discussion in Labrador, where your Honour referred to – [2003] HCA 49; 216 CLR 161 at paragraph 114. Your Honour referred to civil penalty proceedings under two areas of Australian law; the present area and under the relevant companies legislation as having characteristics of both civil and criminal proceedings, and noting that:

The purposes of those proceedings include purposes of deterrence, and the consequences can be large and punishing.

It would be a logic of our argument that proceedings brought by ASIC on behalf of the Commonwealth for pecuniary penalties for contraventions of the Corporations Act would not be proceedings within section 11, and that result sits quite comfortably with all of the exceptions taken as a whole because the one exception specifically dealing with corporations is section 16, and it is concerned with the rights inter se arising between members of corporations not concerned with the public order penal proceedings which might be launched under the Corporations Act.

GUMMOW J: I am still not quite sure of the sense in which this word jurisdiction has been used in the Trade Practices Act. You may get some help from Laurie v Carroll [1958] HCA 4; 98 CLR 310 at page 323 where the Court referred to what Lord Haldane had said in one case and Justice Holmes had said in another, that “The foundation of the jurisdiction” in fact is, as Justice Holmes put it, “physical power” and he said:

No doubt there may be some extension of the means of acquiring jurisdiction beyond service or appearance but the foundation –

of physical power should not be overlooked because there has to be a compulsion of submission to the decree that is made. You cannot, I think, physically compel foreign sovereigns without making war on them.

MR GLEESON: Yes, and even if their representative happens to be within the jurisdiction and you otherwise attempt the personal service, which in the case of an ordinary citizen would be the exercise of power, there are particular differences with the character and status as a foreign State or its entity so that - - -

GUMMOW J: The problem then is when we get into these entities, that sort of reasoning, the separate entity idea seems to involve some splitting off of those notions because they are just ordinary foreign corporations then.

MR GLEESON: What we would submit is that, in fact, close and separate attention has been given within Parts 2, 3 and 4 to the three different aspects of exercise of power, the first being jurisdiction in the suit, that is Part II, the second being that the service and judgments, Part III - - -

HAYNE J: Is it jurisdiction in the suit or is it conferral of an immunity, an immunity in a proceeding, that is, immunity in the sense of something that attaches to an identified personal class of persons and it is an immunity in a proceeding, a particular proceeding instituted by one party against another, and the Trade Practices Act provisions conferring jurisdiction are concerned with subject matter jurisdiction and the like, but this is, if we must use the metaphor, abstracting by way of immunity which is particularised.

MR GLEESON: Yes, I would accept that, your Honour, and within that sphere, which is Part II, my submission is that the separate entity has almost for all purposes been treated as having the complete immunity and privilege of the foreign State itself. The limitations are the minor ones I mentioned.

HAYNE J: Again might I just tease out one aspect of that. Is not section 11(2)(a) critically important in its distinguishing through section 22 between the foreign State itself and the separate entity? The bare fact that the party is a foreign State takes you outside the exception of 11(1), pitches you back into 9 and the general immunity, but the separate entity treated differently, see section 22.

MR GLEESON: Yes, and the explanation we have proffered for that, as per the paragraph in the ALRC, was this notion. If you are the foreign State per se and if the only parties to this particular proceeding concern persons of your level, that is other foreign States and/or the Commonwealth, the fact that you have engaged in what otherwise looks, smells and feels like a commercial transaction which will otherwise be, in effect, an imputed consent to the ordinary jurisdiction of the court, is deprived of that character of imputed consent.

However, if you nevertheless wish, as part of that bargain, to be subject to the jurisdiction of the court, and you may wish to or need to by force of bargaining power, then section 10 will operate because you can always agree to submit to the jurisdiction of the court, including at the time of the original transaction. So that the theory seems simply to be where the dealing is between solely foreign States at the highest level, notwithstanding the transaction is otherwise commercial, you will retain your section 9 immunity unless you specifically bargain it away.

If you are one level down, which is the separate entity, you will, in such a case, be put in the flip or reverse position where you will prima facie lose your immunity by reason of choosing, electing to deal in a commercial transaction, but you can always, to use ugly language, contract back into your immunity by an agreement in writing. You can always, through the process of agreement, place yourself in the same position that the foreign State is prima facie in. The difference has been drawn clearly enough, but the difference seems to be really at the level of imputed consent through the statute that in the case of the separate entity, if you are engaging in the commercial transaction, you must bargain for the immunity which will be available to you. If you are the foreign State, you will have it unless you bargain it away.

Now, what we draw from that is that, yes, a distinction has been drawn but in the area of freedom of contract, as the report puts it, that the freedom of contract is being respected at two different levels for two different types of entities. What is not at all apparent from that is that some different notion is being drawn, that we intend to expose separate entities to regulatory or penal proceedings, whereas we do not do that to the foreign State itself and, as I submitted in-chief, the concept of the otherwise agree in writing is one that simply does not make sense if the whole of section 11 moves beyond its true purpose which is, to put to summarily, to vindicate the obligations arising from the consensus expressed in a commercial transaction.

HAYNE J: I am not sure that is right. If you take, for example, the foreign State that issues bonds on the Australian market without a submission to jurisdiction, what happens when ASIC or somebody says there has been a touch of the misleading or deceptive? So, yes, the Act reflects the way in which commerce operates, but where do we go from there?

MR GLEESON: That the primary difference between the parties is that we seek to give a meaning to the connector in section 11 which we submit is consistent with the background common law development which is consistent with protecting rights of private parties which the ALRC was referring to, and in a circumstance where no party has identified any decision in any of the relevant jurisdictions in 1985 or since then where this type of exception invites penal proceedings.

None of the US antitrust proceedings referred to by Mr Gageler, as your Honour the Chief Justice asked him, referred to this type of proceeding. They are private suits for a remedy. In the end, it comes down to section 11 performing its particular role within a schemer of exceptions, and that being that where the foreign State or the entity has engaged in a particular commercial transaction and the proceedings seek to vindicate rights or obligations arising from that transaction in favour of other parties, then it is deemed that the offence to the dignity and sovereignty of the foreign State is not so great as to accord it immunity.

Your Honours, in terms of the note we wish to provide on the question this morning, could we have perhaps seven days for that?

FRENCH CJ: Yes, very well. If there is any response necessary, Mr Gageler, you can do likewise.

MR GLEESON: May it please the Court.

FRENCH CJ: Yes.

HEYDON J: Is there some agreement about costs, Mr Gleeson?

GUMMOW J: I am not sure it has been sought.

FRENCH CJ: I think there is an order for costs, order 204, is there not, in the appeal notice?

HEYDON J: Yes, but Mr Gageler, what if he wins?

MR GAGELER: We seek costs, your Honour.

HEYDON J: You do seek costs.

MR GAGELER: Yes.

MR GLEESON: We seek the order at page 199 in the event ....., your Honour.

FRENCH CJ: The Court will reserve its decision. The Court adjourns until 10.15 tomorrow morning.

AT 3.24 PM THE MATTER WAS ADJOURNED