The Commercial Exceptions to Foreign State Immunity

AuthorClaudia Carr,Michael Douglas
DOI10.22145/flr.45.3.4
Publication Date01 September 2017
Date01 September 2017
SubjectArticle
/tmp/tmp-17I7ENjO5l5FX6/input THE COMMERCIAL EXCEPTIONS TO FOREIGN STATE
IMMUNITY
Michael Douglas* and Claudia Carr**
ABSTRACT
The Foreign States Immunities Act 1985 (Cth) provides that foreign states are immune to
the jurisdiction of Australian courts, and that their property is immune from execution.
Those immunities are subject to important ‘commercial exceptions’. First, foreign states
are not immune in Australian proceedings insofar as they concern a ‘commercial
transaction’. Second, foreign states are not immune from execution in respect of
‘commercial property’. The distinction between the commercial and the non-commercial
may be difficult to pin down. With reference to recent case law, including the High
Court’s decision in Firebird Global Master Fund II Ltd v Republic of Nauru (2015) 258 CLR
31, this article aims to articulate the scope of the commercial exceptions. It is argued that
the scope of the commercial transaction exception is uncertain, and depends on courts’
approach to the task of characterisation. It is also argued that the commercial property
exception is undesirably narrow, and will present a recurring impediment to the
vindication of private rights.
I INTRODUCTION
Private entities considering doing business with nation states should be wary of the
general principle that foreign states are immune to the jurisdiction of domestic courts.
This foreign state immunity exists at the intersection of public international law and
private international law:1 it is a doctrine of international law which is incorporated into
Australian domestic law by the Foreign States Immunities Act 1985 (Cth) (‘Immunities
Act’).2 The general principle is not absolute. Under the Immunities Act, a foreign state is
not immune in a proceeding insofar as the proceeding concerns a commercial
transaction. 3 Further, foreign states are not immune from execution in respect of

*
Lecturer, The University of Sydney Law School.
**
Paralegal, Herbert Smith Freehills and Honours student, Curtin Law School.
1
Hazel Fox and Philippa Webb, The Law of State Immunity (Oxford University Press, 3rd ed,
2013) 1; cf Burkhard Hess, ‘The International Law Commission’s Draft Convention on the
Jurisdictional Immunities of States and Their Property’ (1993) 4 European Journal of
International Law 269, 271.
2
Immunities Act s 9.
3
Immunities Act s 11(1).

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Federal Law Review
Volume 45
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commercial property. 4 In an environment where sovereign states often engage in
commercial dealings with private individuals, these ‘commercial exceptions’ are
important. It would be unfair for:
a sovereign to assume the character of a trader, when it is for his benefit; and when he
incurs obligations to a private subject to throw off … his disguise, and appear as a
sovereign, claiming for his own benefit, and to the injury of a private person, all the
attributes of his character …5
The distinction between the commercial and the non-commercial may be difficult to pin
down. With reference to recent case law, this article aims to articulate the scope of the
commercial exceptions. This is an examination of judicial characterisation.
The term ‘characterisation’ is often encountered in private international law, where
it refers to the process of classifying the core issue in dispute for the purpose of
identifying the appropriate choice of law rule.6 In that context, characterisation has been
described as a means by which courts can manipulate the selection of applicable law,
and so also the ultimate outcome, in cross-border cases.7 The concept is not peculiar to
choice of law analyses. 8 In a recent article, Chief Justice Allsop described
characterisation as the evaluative process courts engage in when construing the terms
of contracts; when interpreting statutes; and when attributing meaning to rules. 9
Professor Gummow once wrote that legal issues are characterised, and that there is
‘leeway for judicial selection of the field upon which those issues will be determined’.10
The scope of the commercial exceptions turns on the way that courts characterise
subject matter as ‘commercial’ or otherwise. In borderline cases, there will be some
leeway for courts to frame the characteristics of the proceedings as they choose. This
does not mean that the commercial exceptions are unworkable.11 We argue that the risk
of the erosion of the commercial exceptions and a corresponding expansion of foreign
state immunity should not be realised if Australian courts take a purposive approach to
statutory interpretation, recalling the rationale of the departure from absolute immunity
towards the more restrictive immunity expressed in the statute.

4
Ibid s 32(1).
5
The Chakieh (1873) LR 4 A 7 E 59, 100 (Sir Robert Phillimore), quoted in James Crawford, ‘Basic
Principles of Foreign State Immunity: An Assessment of the Need for Australian Legislation’
(Research Paper No 3, Australian Law Reform Commission, July 1983) 28.
6
See The Ship ‘Sam Hawk’ v Reiter Petroleum Inc (2016) 335 ALR 578, 621–3 [180]–[186] (Allsop
CJ and Edelman J); Macmillan Inc v Bishopgate Investment Trust PLC (No 3) [1996] 1 WLR 387;
see also Christopher Forsyth, ‘Characterisation Revisited: An Essay in the Theory and
Practice of the English Conflict of Laws’ (1998) 114 Law Quarterly Review 141.
7
See P B Carter, ‘The Private International Law (Miscellaneous Provisions) Act 1995’ (1996) 112 Law
Quarterly Review 190, 193.
8
Symeon C Symeonides, Choice of Law (Oxford University Press, 2016) 65.
9
James Allsop, ‘Characterisation: Its Place in Contractual Analysis and Related Enquiries’
(2017) 91 Australian Law Journal 471.
10 William Gummow, ‘The Selection of the Major Premise’ (2013) 2 Cambridge Journal of
International and Comparative Law 47, 59.
11 Christoph Schreuer, State Immunity: Some Recent Developments (Grotius Publications, 1988) 41,
cited in Fox and Webb, above n 1, 412.

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The Commercial Exceptions to Foreign State Immunity
447
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However, recently, in Firebird Global Master Fund II Ltd v Republic of Nauru,12 the High
Court attributed the commercial property exception a relatively narrow meaning. This
is significant for the operation of the Immunities Act as a whole. Although a foreign state
might be subject to the jurisdiction of Australian courts under the commercial
transaction exception, immunity from execution could undermine the value of the
exercise of that jurisdiction, frustrating the vindication of individual rights.13
We begin by describing the evolution of foreign state immunity at common law, and
then provide an overview of the Australian Immunities Act. The following two sections
look at each of the commercial exceptions in detail, reviewing the Australian case law in
order to illustrate how courts characterise subject matter in light of the Immunities Act.
The Australian statute is different to comparable legislation in countries like the United
Kingdom, the United States and Canada, and so we focus on the Australian
jurisprudence. Before concluding, we explore whether a change in judicial approach or
statutory amendment could address the erosion of the commercial property exception.
II THE EVOLUTION OF STATE IMMUNITY
Historically, a sovereign state was absolutely immune to the jurisdiction of a court of
another sovereign state.14 The absolute doctrine was said to be an extension of the
sovereign equality of states under international law:15 legal persons of equal standing
cannot have their disputes settled in the courts of one of them.16 In Trendtex Trading
Corporation v Central Bank of Nigeria, Lord Denning explained that the doctrine of
absolute immunity was adopted at a time when the functions of the state were more
limited than they are today.17 Traditionally, the state would be responsible for the
maintenance of law and order, the conduct of foreign affairs, and the defence of the
country. Today, private actors also engage in those activities, while nation states engage
in activities that were once solely engaged in by private actors.18
As the functions of the state changed, so too did the law on foreign state immunity.19
Courts and commentators around the world moved away from the absolute doctrine

12 (2015) 258 CLR 31 (‘Firebird’).
13 Richard Garnett, ‘Should Foreign State Immunity be Abolished?’ (1999) 20 Australian Year
Book of International Law 175, 175, discussing Hersch Lauterpacht, ‘The Problem of
Jurisdictional Immunities of Foreign States’ (1951) 28 British Yearbook of International Law 220,
247.
14 Compania Naviera Vascongado v SS Cristina (The Cristina) [1938] AC 485, 490 (Lord Atkin); The
Porto Alexandre [1920] P 30; The Parlement Belge (1880) 5 PD 97; cf Lauterpacht, above n 13.
15 See, eg, Charter of the United Nations art 2(1); Australian Law Reform Commission, Foreign
State Immunity, Report No 24 (1984) 23 [37]. On the other hand, State immunity goes against
the grain of the sovereignty principle—another well-established part of international law—
which provides that States have exclusive competence over matters occurring within their
territory: see Garnett, above n 13, 177.
16 Or ‘par in parem non habet jurisdictionem’: Crawford, above n 5, 23.
17 [1977] 1 QB 529, 555 (Lord Denning) (‘...

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