5.2 Interference with sovereign rights of other States
359 Air NZ and Garuda joined in a submission that Pt IV of the TPA should be construed so as to avoid unreasonable interferences with the sovereign authority of other nations. In this case, so the argument ran, to permit the terms of Pt IV to apply to conduct in Hong Kong, Singapore and Indonesia in circumstances where that conduct was either required or permitted by the laws of those places involved an interpretation of the TPA which displayed a lack of legislative deference to the sovereign authority of other nations. Such a construction was to be avoided, if at all possible.
360 There are two issues here; first, did the law of the foreign places involved permit or require the alleged conduct; secondly, does the principle exist? As to the first issue, I conclude below in Chapter 6 that neither the law of Hong Kong nor the directions of its government required airlines to collude on the setting of fuel or insurance surcharges. I reach the same conclusion in Chapter 7 about the law and administrative requirements of Indonesia. It was not suggested that the law or administrative practices of Singapore required the airlines to agree surcharges amongst themselves.
361 On the other hand, the law of Hong Kong did not at any of the relevant times forbid price fixing arrangements and the law of Singapore did not do so until 1 January 2006 when the relevant parts of the Competition Act (Singapore, cap 50B, 2004) came into force. Although there was a competition law in force in Indonesia at all relevant times, it was not proved in this case that the conduct alleged against Garuda contravened that law. In those circumstances, I proceed on the basis that the law of all three jurisdictions neither required nor forbade the alleged conduct.
362 As to the second issue (does the principle exist?), it therefore arises in a context in which the alleged interference with sovereign rights consists of an Australian law operating extraterritorially to render unlawful conduct within a foreign state which is not required by the local law of that state but not forbidden by it either. The airlines' submission about this involves a different principle of statutory interpretation to the presumption that legislation does not operate extraterritorially. Indeed, it takes as its point of departure in almost all cases the fact that the impugned domestic legislation does operate extraterritorially. The airlines' focus instead is on what that extraterritorially operative domestic legislation requires in foreign places and how what it so requires intersects with the local legal systems into which it has intruded.
363 In Hartford Fire Insurance Co v California 509 US 764 (1993) the Supreme Court considered, inter alia, whether the Sherman Act applied to conduct by re-insurers in the London market in allegedly conspiring to force primary insurers to change the terms of their standard domestic commercial general liabilities policies in the United States. The proceedings were summarily dismissed by the District Court of the Northern District of California ('the District Court') and this was partially reversed by the Court of Appeals for the Ninth Circuit. One of the questions before the Supreme Court was whether notions of international comity required the District Court to decline the exercise of jurisdiction. There were two forms of the argument. One was that the Sherman Act would not be interpreted so as to extend to the regulation of the London reinsurance market; the other, that even though the Sherman Act might extend that far, the Court should nevertheless decline to exercise the jurisdiction it otherwise had.
364 The majority concluded that no question of comity arose because there was no conflict between the Sherman Act and British law. Souter J delivered the Court's opinion on this issue (with whom Rehnquist CJ, White, Blackmun and Stevens JJ joined). Citing (at 799) the Restatement (Third) of Foreign Relations Law ('the Restatement (Third)') s 403 Comment e, his Honour concluded '[n]o conflict exists, for these purposes "where a person subject to regulation by two states can comply with the laws of both." (footnote omitted)'. Since the London reinsurers did not argue that British law required them to act in some fashion prohibited by the Sherman Act his Honour was unable to discern any conflict to which the principle invoked could attach.
365 On this issue, however, Scalia J (with whom O'Connor, Kennedy and Thomas JJ relevantly agreed) dissented. Having identified that statutes are not generally construed as applying extraterritorially his Honour went on to say at 814 - 815:
But if the presumption against extraterritoriality has been overcome or is otherwise inapplicable, a second cannon of statutory construction becomes relevant: "[A]n act of congress ought never to be construed to violate the law of nations if any other possible construction remains." Murray v. Schooner Charming Betsy, 2 Cranch 64, 118 (1804) (Marshall, C.J.). This cannon is "wholly independent" of the presumption against extraterritoriality. [EEOC v. Arabian American Oil Co., 499 U.S. 244, 264 (1991) (Marshall, J., dissenting)] It is relevant to determining the substantive reach of a statute because "the law of nations," or customary international law, includes limitations on a nation's exercise of its jurisdiction to prescribe. See Restatement (Third) ss 401-416. Though it clearly has constitutional authority to do so, Congress is generally presumed not to have exceeded those customary international-law limits on jurisdiction to prescribe.
Consistent with that presumption, this and other courts have frequently recognized that, even where the presumption against extraterritoriality does not apply, statutes should not be interpreted to regulate foreign persons or conduct if that regulation would conflict with principles of international law…
[full citation added]
366 His Honour identified the principle as being illustrated in several cases concerned with conflict of laws but also on the broader basis which had been explained by Learned Hand J in United States v Aluminium Co. of America, 148 F.2d 416, 443 (CA2 1945) that 'we are not to read general words, such as those in [the Sherman] Act without regard to the limitations customarily observed by nations upon the exercise of their powers; limitations which generally correspond to those fixed by the "Conflict of Laws."' (square brackets in original).
367 Having then referred to a subsequent line of cases dealing with international comity and the Sherman Act, Scalia J then continued (at 817):
The "comity" they refer to is not the comity of courts, whereby judges decline to exercise jurisdiction over matters more appropriately adjudged elsewhere, but rather what might be termed "prescriptive comity": the respect sovereign nations afford each other by limiting the reach of their laws. That comity is exercised by legislatures when they enact laws, and courts assume it has been exercised when they come to interpreting the scope of laws their legislatures have enacted. It is a traditional component of choice-of-law theory. See J. Story, Commentaries on the Conflict of Laws s 38 (1834) (distinguishing between the "comity of the courts" and the "comity of nations," and defining the latter as "the true foundation and extent of the obligation of the laws of one nation within the territories of another"). Comity in this sense includes the choice-of-law principles that, "in the absence of contrary congressional direction," are assumed to be incorporated into our substantive laws having extraterritorial reach.
368 This required a consideration of what it was precisely that comity necessitated. Relying again on the Restatement (Third) his Honour concluded (at 818):
… a nation having some "basis" for jurisdiction to prescribe law should nonetheless refrain from exercising that jurisdiction "with respect to a person or activity having connections with another state when the exercise of such jurisdiction is unreasonable."
369 What then did reasonableness require? Scalia J continued (at 818-819):
The "reasonableness" inquiry turns on a number of factors including, but not limited to: "the extent to which the activity takes place within the territory [of the regulating state]," id., s 403(2)(a); "the connections, such as nationality, residence, or economic activity, between the regulating state and the person principally responsible for the activity to be regulated," id., s 403(2)(b); "the character of the activity to be regulated, the importance of regulation to the regulating state, the extent to which other states regulate such activities, and the degree to which desirability of such regulation is generally accepted," id., s 403(2)(c); "the extent to which another state may have an interest in regulating the activity," id., s 403(2)(g); and "the likelihood of conflict with regulation by another state," id., s 403(2)(h). Rarely would these factors point more clearly against application of United States law.
370 Having referred to the extensive British legislative regulation of the London re-insurance market his Honour then concluded (at 819):
Considering these factors, I think it unimaginable that an assertion of legislative jurisdiction by the United States would be considered reasonable, and therefore it is inappropriate to assume, in the absence of statutory indication to the contrary, that Congress has made such an assertion.
371 Despite being in dissent in Hartford Scalia J's exposition of the relevant principle of statutory interpretation was endorsed by the entire Court in F Hoffman-La Roche Limited v Empagran S.A. 542 US 155 (2004). In that case Breyer J (in whose judgment Rehnquist CJ, Stevens, Kennedy, Souter and Ginsburg JJ joined and with whose judgment Scalia and Thomas JJ concurred) said this (at 164):
… this Court ordinarily construes ambiguous statutes to avoid unreasonable interference with the sovereign authority of other nations. See, e.g., McCulloch v Sociedad Nacional de Marineros de Honunduras, 372 U.S. 10, 20-22 (1963) (application of National Labor Relations Act to foreign-flag vessels); Romero v. International Terminal Operating Co., 358 U.S. 354, 382-383 (1959) (application of Jones Act in maritime case); Lauritzen v. Larsen, 345 U.S. 571, 578 (1953) (same). This rule of construction reflects principles of customary international law--law that (we must assume) Congress ordinarily seeks to follow. See Restatement (Third) of Foreign Relations Law of the United States ss 403(1), 403(2) (1986) (hereinafter Restatement) (limiting the unreasonable exercise of prescriptive jurisdiction with respect to a person or activity having connections with another State); Murray v. Schooner Charming Betsy, 2 Cranch 64, 118 (1804) ("[A]n Act of congress ought never to be construed to violate the law of nations if any other possible construction remains"); Hartford Fire Ins. Co. v. California, 509 U.S. 764, 817 (1993) (SCALIA, J., dissenting) (identifying rule of construction as derived from the principle of " 'prescriptive comity' " ).
372 The terms of Scalia J's concurrence are also relevant (at 176):
I concur in the judgment of the Court because the language of the statute is readily susceptible of the interpretation the Court provides and because only that interpretation is consistent with the principle that statutes should be read in accord with the customary deference to the application of foreign countries' laws within their own territories.
373 Air NZ submitted that these two decisions established the principle of statutory interpretation upon which it relied. The Commission in answer submitted that it was doubtful the principle existed in Australian law. The Commission did not submit (as to me appears to be the case) that the majority judgment in Hartford requires the rejection of the airlines' argument on the basis that there was no conflict between the Australian and the local laws: see 799 (supra, [364]).
374 Leaving that to one side, the situation in the United States is not perhaps as clear as Air NZ's submissions suggest: see, for example, Spector v Norwegian Cruise Ship Line Ltd 545 U.S. 119, 158 (2005) where Scalia J appears to have altered his approach in Hartford; Pasquantino v United States 544 U.S. 394 (2005) (where the Court seemingly had no difficulty applying a US wire-fraud statute to persons smuggling liquor into Canada); Morrison v National Australia Bank Ltd 561 U.S. 247 (2010). Since none of these materials were the subject of submission I shall say no more of them.
375 Instead, I will confine my attention to Hartford and Empagran. An analysis of these two decisions reveals that the suggested United States principle is an outcrop or corollary of the principle that statutes are interpreted, where possible, in a way which is consistent with customary international law or relevant treaty obligations.
376 The interesting aspect of the two decisions is, I think, the invocation of a principle of customary international law that one State should refrain from exercising jurisdiction extraterritorially over persons subject to regulation in another State unless that exercise is in some way reasonable. The source of this principle is, perhaps, obscure. Indeed, only Scalia J discussed the issue in any detail in Hartford (at 818):
In sum, the practice of using international law to limit the extraterritorial reach of statutes is firmly established in our jurisprudence. In proceeding to apply that practice to the present cases, I shall rely on the Restatement (Third) for the relevant principles of international law. Its standards appear fairly supported in the decisions of this Court construing international choice-of-law principles (Lauritzen, Romero, and McCulloch) and in the decisions of other federal courts, especially Timberlane. Whether the Restatement precisely reflects international law in every detail matters little here, as I believe this litigation would be resolved the same way under virtually any conceivable test that takes account of foreign regulatory interests.
377 The parts of the Restatement (Third) referred to by Scalia J are in the section entitled 'Jurisdiction and Judgments' and the parts of that section referred to are in Chapter One which deals with the jurisdiction of States to make laws. Section 402 says:
s 402. Bases of Jurisdiction to Prescribe
Subject to s 403, a state has jurisdiction to prescribe law with respect to:
(1) (a) conduct that, wholly or in substantial part, takes place within its territory;
(b) the status of persons, or interests in things, present within its territory;
(c) conduct outside its territory that has or is intended to have substantial effect within its territory;
(2) the activities, interests, status, or relations of its nationals outside as well as within its territory; and
(3) certain conduct outside its territory by persons not its nationals that is directed against the security of the state or against the limited class of other state interests.
378 This is a statement about the content of public international law. Broadly it is consistent with the views expressed by Professor Crawford in Chapter 21 of Brownlie's Principles of Public International Law; that is, jurisdiction is generally territorial or by nationality. Pausing there, it is plain that the TPA relies on a territorial nexus. Section 4E limits the markets to which Pt IV applies to those which are 'in Australia' and s 5(1) makes plain that only the extraterritorial conduct of bodies corporate incorporated in or conducting business in Australia is covered by the legislation.
379 More interesting is the limitation which is said by the Restatement (Third) to exist on this principle. Section 403(1) provides:
s 403. Limitations on Jurisdiction to Prescribe
(1) Even when one of the bases for jurisdiction under s 402 is present, a state may not exercise jurisdiction to prescribe law with respect to a person or activity having connections with another state when the exercise of such jurisdiction is unreasonable.
380 I am far from certain that this is a correct restatement of the content of customary international law, and, despite the robustness with which Scalia J expressed the view that it was, I am not sure that his Honour's statement is, with respect, correct either. However, for now I am content to assume that the statement is correct. If so, there is no reason that the similar principle of statutory interpretation in Australian law that one should construe legislation, if possible, so as to avoid putting Australia in breach of its international obligations, does not lead to the same result. Every statute is 'to be so interpreted and applied as far as its language admits as not to be inconsistent with the comity of nations or with established rules of international law': see Jumbunna Coal Mine NL v Victorian Coal Miners' Association (1908) 6 CLR 309, 363; Chu Kheng Lim v Minister of State for Immigration, Local Government and Ethnic Affairs (1992) 176 CLR 1, 38; Minister for Immigration and Ethnic Affairs v Teoh (1995) 183 CLR 273, 287. If there is a principle of international law that proscribes the exercise by a State of extraterritorial legislative competence in circumstances where, although there is present a territorial or nationality based nexus, nevertheless the extent of the legislative interference with the affairs of another State is unreasonable, then that principle would lead to conclusions largely in line with the dissent in Hartford.
381 Brownlie's suggests that there are at least five ways extraterritorial jurisdiction is attracted (or can be, - the difference is sometimes elusive): a territorial connexion, nationality, passive personality, the protection principle and the effects doctrine. Without lingering on this excessively, there is nothing in this which resembles s 403 of the Restatement (Third).
382 The difficulty, so it seems to me, is that the principle of international law identified by s 403 of the Restatement (Third) (that only reasonable interferences in the affairs of other States are justified) appears to be contrary to the leading authorities in public international law. In SS 'Lotus' (France v Turkey) (Judgment) [1927] PCIJ (ser A) No 10 the Permanent Court accepted that once a nexus to the relevant State was established the power of regulation was untrammelled. Although that case has been much discussed over the years none of those discussions have suggested the limitation referred to by Scalia J: see, for example, The Fisheries Case (United Kingdom v Norway) (Judgment) [1951] ICJ Rep 116; Case Concerning the Arrest Warrant of 11 April 2000 (Democratic Republic of Congo v Belgium) (Judgment) [2002] ICJ Rep 3.
383 There is no trace in Brownlie's of such a reasonableness requirement for the exercise of legislative jurisdiction once a legislative nexus such as territory or nationality, is established. If such a principle, in fact, existed there might well be difficulties created in otherwise mundane areas. States frequently expose their nationals to taxation obligations arising out of events in foreign jurisdictions. If the principle referred to by Scalia J actually existed then the whole problem of double taxation would be unlikely to exist. The fact that there exists such a widespread range of double taxation treaties based on the OECD Model is quite inconsistent with the proposition inherent in Scalia J's statement that such acts of extraterritorial taxation could only be lawful in international law where they were reasonable. Further, the application of a reasonableness standard in such a context would most likely be unworkable. What metric could be used to determine whether an extraterritorially imposed tax was unreasonably imposed?
384 So too, the very existence of the United States' 'effects doctrine' in antitrust litigation and the extensive way it has been used by United States courts themselves to interfere directly in the affairs of other States (see, for example, in relation to Australia the Ranger Uranium Litigation: Re Uranium Antitrust Litigation, 480 F Supp 1138, 1149 (9th Cir, 1979) and Re Uranium Antitrust Litigation 617 F 2d 1248 (7th Cir, 1980)) strongly shows that there is absent the kind of widespread acceptance of the supposed norm which would be necessary in order to identify a rule of customary international law. The decision in Hartford in a sense makes the point. In that case, the United States exercised legislative jurisdiction over the London re-insurance market (despite Scalia J's dissent). Whatever else Hartford shows it must show that the rule of customary international law invoked by Scalia J does not exist as a matter of states practice. Others have reached the same conclusion: see Deborah Senz and Hilary Charlesworth, 'Building Blocks: Australia's response to foreign extraterritorial legislation' (2001) 2 Melbourne Journal of International Law 69. ('Since the interest-balancing approach has been rejected by a significant proportion of US trading partners in the antitrust context, the reasonableness doctrine is unlikely to evolve into a generally accepted rule of international law' (at 83)).
385 It follows that the domestic principle of statutory interpretation which suggests that laws should be interpreted so as to avoid putting the Commonwealth in breach of customary international law cannot have the effect that Pt IV of the TPA should not be interpreted so as to authorise unreasonable interferences with the sovereign rights of other nations where a territorial nexus is established with the Commonwealth. No such principle of customary international law exists. To the extent that Scalia J's dissent in Hartford suggests to the contrary it is, with great respect to that eminent jurist, plainly wrong.
386 To summarise: two principles of statutory interpretation are involved. The first is that legislation is not to be interpreted as having extraterritorial effect unless this is made clear. In this case, s 5(1) of the TPA makes clear that Pt IV does apply extraterritorially to Australian companies or companies conducting business in Australia. A second principle of statutory interpretation requires legislation to be read, if possible, so as not to put the Commonwealth in breach of customary international law or some treaty obligation. At the level of customary international law, Australia is fully entitled to regulate extraterritorial affairs so long as there is a proper nexus. The fact that the TPA only applies to extraterritorial conduct of corporations carrying on business or incorporated in Australia and only with respect to markets in Australia more than satisfies the territorial nexus requirements of customary international law. There is no principle of customary international law which makes unlawful the regulation of extraterritorial affairs involving persons with a proper nexus to a State just because that regulation is superimposed on another State's domestic legislation. Insofar as treaty obligations are concerned, even assuming that the imposition of Pt IV liability on Garuda involves Australia in a breach of Art 6(2) of the Australia-Indonesia ASA (which for reasons given later it does not) there is no textual mechanism by which s 51(1) of the TPA can be read down to exclude that outcome.
387 Had I concluded that the markets in question were markets in Australia within the meaning of s 4E, I would not have felt constrained by the fact that the conduct alleged was not unlawful in Hong Kong, Singapore or Indonesia to seek to narrow the construction I gave that expression. In any event, as in Hartford, I have concluded that none of the legal systems involved required the airlines to collude on surcharges so no inconsistency with foreign law arises.