Is the Control Test Satisfied?
128 Consistent with the approach I took in Garuda, the first question which I have to answer in order to determine whether MAS is a "separate entity" is, does it satisfy the control test. A power of control is not sufficient. What is required is that the foreign State exercises actual, day-to-day management control: see Garuda at [88].
129 It is clear in my view that as at the relevant date in April 2010, the Government of Malaysia had a power to exercise control over MAS. The Government's power was not direct, because it did not hold shares in MAS directly. Rather, it had the power to control MAS indirectly, through its ownership of all of the shares in PMB's parent company, KNB and its direct power of control over EPFB, these three companies holding the shares in MAS in 2010.
130 The same power of control existed in the period from 2003 to 2006. The position was different, at least so far as a power to control existed in 2002 through MOF's direct shareholding in MAS, coupled with the Government's powers exercisable through its control of KWAP and EPFB.
131 In a different statutory context from the present, a person who is in a position to exercise control of a company may be treated as though the person were in control: see Re Application of The News Corp Limited (1987) 15 FCR 227 ("News Corp") at 242-244 per Bowen CJ.
132 But in my view, the concept of control in the context of statutes which deal with matters such as broadcasting and television does not inform the present question, which is the degree of control necessary for a corporation to be an agency or instrumentality of a foreign State.
133 Indeed, the authorities to which Mr Wood referred seem to me to support the proposition that what is required is actual control, in a real and practical sense.
134 Thus, in State Bank of New South Wales v Commonwealth Savings Bank of Australia (1986) 161 CLR 639, there were a number of factors in combination which supported the conclusion that the State Bank was a State for the purposes of s 75(iii) of the Constitution. The power of the Governor to appoint six of the seven members of the Board was only one of those factors. The discussion of that factor in the judgment of the Court at 650-651 is to be seen in that light.
135 Also in State Government Insurance Corporation v Government Insurance Office (New South Wales) (1991) 101 ALR 259, the observations of French J (as his Honour then was) at 308 about the position of two subsidiary companies, focuses upon their control by the Government Insurance Office ("GIO") of New South Wales, as a State instrumentality, which was in turn subject to ultimate Ministerial direction. It was the control of the subsidiaries by the board of the GIO of NSW, which was itself an instrumentality of the Crown, that gave rise to the argument, which his Honour regarded as a respectable one, that the subsidiaries were themselves instrumentalities of the Crown.
136 In my view, the necessary degree of control did not exist in the present case, either as at April 2010, or during the period from 2002 to 2006 for a number of reasons.
137 First, as I have said, although the Government had a power of control over MAS through its ability to exercise control at a general meeting, that is not sufficient to satisfy the test which I have stated.
138 MAS is a listed public company whose shares are quoted on the Bursa Malaysia. The proposition that the Government's indirect power (never in fact exercised) to exercise the degree of control required to establish that MAS is an agency or instrumentality of the State is one that I cannot accept.
139 Second, this conclusion is not affected by the existence of the Special Share held by MOF. Rather, the existence of the Special Share, and the rights attached to it, reinforce the view that the Government does not, and did not at any of the possible relevant dates, control MAS.
140 What the Special Share does is to give the MOF a position of influence in the day-to-day control and management of the business of MAS. It does so through the right to appoint three directors to the Board, one of whom is to be the Chairman.
141 Plainly, the power to appoint three directors to a Board of ten does not give actual control. The power to appoint the directors has been exercised but at all relevant times the three nominees of the MOF have comprised a minority in number of the Board.
142 The matters over which MOF has a power of veto (see [67] above) do not concern day-to-day control. They relate to large transactions such as takeovers, which may affect the nature of the business conducted by MAS.
143 Third, the Articles of Association provide for the business of MAS to be managed by the directors but the evidence indicates that the Government nominees constitute a minority of the Board. In particular, there is no evidence to suggest that the Government controls the composition of the Board or that it is accustomed to act in accordance with the Government's directions.
144 Nor is there anything in any of the various programs to which I have referred, or in the extracts from Board minutes, that supports an inference that the management of MAS is under government control.
145 The overall impact of the evidence is that the Government has a considerable degree of influence over the operations of MAS. The Government has provided much needed financial support and sees the success of MAS as an essential plank in the development of the economy. There is a substantial degree of cooperation, consultation and engagement between MAS and the Government in the carrying out of MAS's business. This is no doubt explained by the Government's investment in the airline.
146 I accept that influences from the highest level of Government are a relevant consideration in the present exercise. I also accept that the subtleties of high level influence should not be underestimated. But ultimately the documentary material makes it plain that the Board is independent of the Government and is an autonomous entity, not under government control.
147 This is best illustrated in the Statement of Corporate Governance in MAS's 2008 Report to which I referred above. The Board is responsible for determining MAS's direction, business objectives and strategy. The Board reviews and considers government initiatives consistently with the fiduciary duties of the directors to the company.
148 It is true, as Mr Wood submitted, that nominee directors, may be expected to act generally in the interests of the body that appointed them. But here the Government has only three nominees and it is not to be inferred that the directors would act in the interests of their nominator even if they were of the view that their acts were not in the best interests of the company: News Corp at 244-245, citing Re Broadcasting Station 2GB Pty Limited [1964-65] NSWR 1648 at 1663 per Jacobs J.
149 Fourth, the observations which I have made about the directors apply equally to the status of MAS as a GLC, and to the designation of PMB, KNB and EPFB as GLICs, as well as to the large number of vignettes, or examples, of government involvement.
150 The status of each of the abovementioned entities is part of what Mr Howe called the overarching framework in which government-linked entities conduct business in Malaysia and overseas. The status does not of itself determine the ultimate question of whether there is a sufficient degree of control to make the entity an agency or instrumentality of the Government of Malaysia.
151 In any event, the evidence establishes that the company or companies which had shareholding control of MAS in April 2010, and from 2003 to 2006, were GLICs. The definition of a GLIC provides in express terms that the status is defined by the influence of the Government. It is true that the definition contemplates that the Board members and senior management will report directly to the Government. But this reinforces the notion of influence, rather than control.
152 The position is no different in 2002, if that should be a relevant date. MOF held approximately 29% of the shares in MAS and, to the extent that government-linked shareholding took it over 50%, that was achieved through the shares held by two GLICs, KWAP and EPFB.
153 The vignettes, including the extracts from the Board minutes do not show government control. They indicate, as I have already said, government influence and cooperation, but they do not give rise to a necessary inference of government control of MAS.
154 Fifth, tax free status cannot of itself give rise to an inference of government control. There may be many reasons why tax free status is granted. Much more would be required to establish the inference relied upon by MAS.
155 Sixth, as Mr Howe submitted, there is no evidence from a State official of the exertion of actual control.
156 The authorities do not suggest that evidence from such a person is a necessary pre-requisite to a claim of foreign State immunity but they show that evidence of this type will play a significant, but not conclusive, role in determining the question: see Aziz v Yemen [2005] ICR 1391 at 1403-1405 per Pill LJ; Trendtex Trading Corporation v Central Bank of Nigeria [1977] QB 529 ("Trendtex") at 560.
157 Finally, I should add that the Government's involvement in MAS's decision on the maintenance of flights to New York and Los Angeles is not indicative of government control. No doubt, the Government exercised its influence on that matter in the interests of the Malaysian public but ultimately the decision was one that was taken by MAS for its own commercial considerations.