PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission

Background 6 As ordered, the penalties were due to be paid on or before 27 June 2019. On 17 June 2019, the Commission's solicitor, the Australian Government Solicitor (the AGS), wrote to Garuda's solicitors, Norton White, informing them of the account into which the penalties were to be paid. Payment was not made by the due date. Consequently, the AGS wrote to Norton White on 1 July 2019 drawing attention to the non-payment and seeking, in effect, an explanation. 7 On 3 July 2019, Norton White responded, saying that the AGS's letter had been forwarded to Garuda in Indonesia. After further correspondence from the AGS, Norton White informed the AGS that those with responsibility for processing the payment of the penalties understood that Garuda was required to inform the Indonesian Ministry for State Enterprises of the pecuniary penalty order and to "await the direction of the Ministry". Norton White said: This situation arises because Garuda, as the national carrier for Indonesia, is subject to control by the Indonesian government and its position under Indonesian law. The penalty has become a matter of significance to Garuda and also the Indonesian Government, to the extent that the issue of the Court's orders has been raised at the highest inter-government level. 8 The Commission understood this response as indicating that Garuda's failure was not due to any incapacity or inability to pay but, rather, a decision not to comply with the Court's pecuniary penalty order. On 10 July 2019, the AGS informed Norton White of this understanding, saying: In our view the position concerning breach of the Court's order needs to be regularised as soon as possible, either by complying with the order or seeking to have the order stayed. We note that we do not accept and could not submit that the basis for non-compliance set out in your letter could properly ground a stay application. We consider these issues have already been decided adversely to your client, including by the High Court. We think the way forward is to list the matter as soon as possible so that you can inform the Court of the position your client has adopted and to seek such order or variation as your client considers might be appropriate. … 9 Garuda took issue with the fact that its failure to pay the penalties involved a decision not to comply with the Court's order. On the same day, Norton White wrote to the AGS stating that if the Commonwealth or the Commission intended to take a step in respect of the enforcement of the pecuniary penalty order, then this should be done by formal application. Norton White also foreshadowed that Garuda might make an application to stay the pecuniary penalty order pending its appeal. They said, however, that Garuda was not then in a position to make such an application. 10 On 12 July 2019, the primary proceeding was re-listed before the primary judge, Perram J, for case management of a number of matters, at the Commission's request. One issue that was raised was Garuda's failure to comply with the pecuniary penalty order and whether Garuda intended to apply for a stay of that order. At that hearing, Garuda maintained that it was not in a position to apply for a stay. Moreover, Garuda's counsel presaged that its case might not be one: …where a stay will be at all appropriate, but where the questions will be how far this Court's writs run and what the effect is, so that - and I don't put it that the effect of the law or what's happening in Jakarta at the moment is such that this corporation can't make a payment, but it may be. Now, if it is, then this Court's order won't have any effect of authorising the making of the payment, but there may be very significant issues that arise on an enforcement context. 11 Later in the case management hearing, the primary judge raised the question whether the appeal should be stayed pending payment of the penalties that had been ordered. Garuda resisted that suggestion. In doing so, it alluded to the basis on which it now resists the present application. 12 As matters transpired, the primary judge made a number of orders that day, including an order that the time for compliance with the pecuniary penalty order be extended to 4.00 pm on 9 August 2019. 13 On 19 July 2019, the AGS wrote to Norton White in connection with the preparation of Part B of the Appeal Book index. There was a dispute about the inclusion of certain documents in the draft index that had been prepared. The AGS suggested that the settling of the draft index be adjourned to a date after 9 August 2019, on the basis that: … should your client neither pay the penalty ordered nor seek … and obtain a stay of the order to pay the penalty by that date, then the ACCC will, inter-alia, seek orders for the stay of your client's appeal. It is only if neither event occurs that there will be a need to resolve the issues your present draft raises. 14 On 8 August 2019, Garuda filed an interlocutory application seeking an order to stay the pecuniary penalty order. The evidence in support of the application included an affidavit by Fuad Rizal, Garuda's Director of Finance and Risk Management. This affidavit gave a brief, high-level summary of Garuda's financial position. The primary judge described the affidavit as "very thin". 15 After noting that, as at 30 June 2019, Garuda had debts (short-term loans, long-term loans, financial lease obligations, and bond obligations) of US$1.7 bn, on a consolidated basis, and that in 2014, 2017 and 2018 Garuda had made substantial losses, Mr Rizal said: 5. Each month Garuda incurs costs for essential supplies of approximately US$173 million. These costs are for the maintenance and overhaul costs, for lease payments due on aircraft and for the supply of fuel. The amount of US$173 million payable to vendors each month does not include ticketing, sales and promotion costs, user charges and station costs as well as general and administration costs. 6. Currently Garuda is on average one to two month(s) behind in the payments to all vendors with the amount of approximately US$480 million overdue, mostly for essential supplies. The fact that Garuda is overdue on average by one to two month(s) in the payment for essential supplies places the company at risk that suppliers will refuse to continue to supply essential goods & services or that in the case of aircraft leases the lessors will terminate and attempt to repossess the aircraft. Garuda is negotiating with the vendors to bring the overdue amounts up to date as soon as possible and to ensure that there is no interruption to the supply of essential goods & services. 7. Garuda cannot afford to pay the penalty of AU$19 million immediately. It is financially incapable of making this payment as it would seriously interfere with the attempts to bring the payments for the essential supplies up to date. 8. If Garuda is unable to obtain a stay of execution for the payment of penalty, Garuda will not be able to make payment on the required deadline (9 August 2019). 9. I am advised by Mark Mackrell, the solicitor for Garuda, and believe that this appeal will be listed for hearing in the February 2020 sittings of the Court. I expect Garuda will remain unable to pay the penalty of A$19 million in the period up to February 2020. Garuda proposes to seek the Court's leave on the hearing of the appeal to adduce evidence on its financial position at that date. 10. The only assets which the Appellant (the Australian registered arm of Garuda) holds are those which are essential for the continuance of Garuda's airline service into and out of Australia. Garuda has no assets in Australia other than those held by the Appellant. 16 Garuda's application came before the primary judge on the afternoon of 9 August 2019, the date to which compliance with the pecuniary penalty order had been extended. The primary judge expressed considerable concern about Garuda's financial position, as expressed through Mr Rizal. His Honour contemplated that Garuda was, in fact, asking for a stay of the pecuniary penalty order in circumstances where it appeared to be trading whilst insolvent. Counsel resisted that suggestion, arguing that Garuda was seeking a stay in the "corporate circumstances" disclosed in Mr Rizal's affidavit. In putting the matter that way, counsel made clear that he was not saying that Garuda was not insolvent because the Indonesian Government stood behind it, although he did embrace the proposition that Garuda was an emanation of the Republic of Indonesia. As counsel put it: We are government-controlled, but with a significant private sector equity holding. And so, effectively, being run by the government as if we were private. 17 After commenting on the paucity of the evidence before him, the primary judge asked whether Garuda wanted an opportunity to put further evidence before the Court in support of its application. That invitation was not accepted. However, Garuda did seek a stay of the pecuniary penalty order for 21 days should the primary judge not be persuaded that a longer stay be granted. 18 It is important to note that Garuda's application for a stay was made in this appeal. The primary judge disposed of the matter by standing over Garuda's interlocutory application generally and, in the primary proceeding, extending the time for compliance with the pecuniary penalty order to 5.00 pm on 23 August 2019. In his reasons (PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission (Penalty Stay Application) [2019] FCA 1317), the primary judge said: 4 Garuda's application was supported by an affidavit of Mr Fuad Rizal, who is its Director of Finance and Risk Management. That affidavit was sworn on 7 August 2019. There are some ancillary matters I should note. The affidavit of Mr Rizal is, on any view, an extraordinary document. It is couched at a level of generality which, having regard to the seriousness of the situation that Garuda currently confronts (which I would rate as extremely serious), is striking in its lack of detail. For a significant entity, and particularly a significant state-owned entity such as Garuda, to put this kind of material before this Court is not something I have encountered before. 5 Over the next 14 days which have been provided, Garuda may think it appropriate to renew its application for a stay. If that application is to have any prospects of success, it will need to be accompanied by an affidavit which does a good deal more than what Mr Rizal's affidavit presently does. For example, apart from its generality, another deficiency in Mr Rizal's affidavit is the absence of any explanation as to why it is that the $19 million cannot be funded by the Republic of Indonesia which, as Garuda has consistently pointed out when it suits it, stands behind Garuda. Then there is the question of why Garuda waited until the last day for payment before seeking a stay when the fact that that moment was coming must have been known for several months. 6 Garuda's application for a stay raises so many unusual questions that one can only hope that if the application is renewed (in the event that the penalty is not paid), these matters receive the most serious attention within Garuda. In that regard, it is not evident to me from the way the application has been conducted - and I do not mean in saying this any criticism of counsel or his instructing solicitors - that the seriousness of the situation which currently exists has been grasped by the people who are providing their instructions. I will say no more about that. 19 As matters presently stand, Garuda has neither paid the penalties nor renewed its application for a stay.

Garuda 29 Garuda submits that the Court's jurisdiction has been regularly invoked and that it has a prima facie right to have that jurisdiction exercised. It submits that the Court has a duty to exercise that jurisdiction absent an established ground for staying the proceeding. It submits that, while the Court has a general power to control its own proceedings, and that that power extends to granting a stay of the proceedings, there needs to be a proper basis for ordering the stay. The power is not, as it were, at large. 30 Garuda also submits that the Commission must anchor its application in some appropriate source of power. 31 In this connection, Garuda submits that s 23 of the Act (which provides, amongst other things, that the Court has power to make orders of such kinds, including interlocutory orders, as it thinks appropriate) is not a source of power on which the Commission can rely because it is concerned only with the power of the Court in the exercise of its original jurisdiction, whether that jurisdiction is exercised by a single Judge or a Full Court: Trade Practices Commission v Manfal Pty Limited (1990) 27 FCR 284 at 287. 32 Garuda submits that s 25 itself is not a source of power because it is concerned only with regulating the Court's power in the exercise of its appellate jurisdiction, in particular whether the Court's power is to be exercised by a Full Court only, a single Judge only, or either a Full Court or a single Judge. 33 Garuda submits that the powers which the Court has in exercising its appellate jurisdiction are found in s 28 of the Act. However, these are of no assistance to the Commission's application. Section 28(1)(b) (which provides that the Court may exercise its appellate jurisdiction by giving such judgment or making, or refusing to make, such order as in all the circumstances it thinks fit) is concerned only with the exercise of appellate jurisdiction, not a refusal to exercise that jurisdiction. 34 In oral submissions, Garuda submitted that the only power that the Commission can rely on is that found in s 31 of the Act - the power to punish contempt. Garuda submitted that s 31 provides all the powers of self-protection that a superior court has when its orders have not been complied with. According to Garuda, this is the source of power on which the Commission must rely and provides the gateway through which it must proceed in this application. However, given the Commission's position as now expressed in oral submissions (see [26] above), Garuda submits that the Commission's application for a stay must fail at the outset. 35 In oral submissions, Garuda also submitted that, even if it is not necessary for the Commission to pass through s 31 of the Act (Stokes (by a tutor) v McCourt [2013] NSWSC 1014 (Stokes) at [44]), its application must necessarily be based on a finding of contempt in order to deny Garuda's right to be heard on appeal. Thus, there must be a finding of contempt and such a finding must be based on evidence before the Court. 36 Relatedly, Garuda argues that r 42.12 of the Federal Court Rules 2011 (Cth) applies even though the allegation of contempt is not made in formal proceedings to punish the contempt under s 31 of the Act: An application alleging that a contempt has been committed must be accompanied by: (a) a statement of charge, in accordance with Form 137, specifying the contempt with sufficient particularity to allow the person charged to answer the charge; and (b) the affidavits on which the person making the charge intends to rely to prove the charge. 37 Garuda submits that the chapeau to this rule is in general terms, which makes it applicable to the present interlocutory application as it would be if formal proceedings to punish contempt had been commenced by the Commission. In short, any application where contempt is alleged must be supported by a statement of charge. Garuda submits that the Commission has not complied with that requirement. It submits that it is entitled to be told by the Commission whether it (the Commission) is relying on Garuda's capacity or ability to pay the pecuniary penalties as a reason for imposing the stay it seeks. Garuda says, therefore, that another reason why the Court should not find contempt is that Garuda has not been given clear notice that its ability to meet the pecuniary penalty order has been put in play in this application. Not having been put on notice, Garuda says that it has elected not to go into evidence on that question. 38 Garuda submits that, in any event, the evidence which the Commission has adduced to support its application is insufficient to enable a finding of contempt to be made. It is an essential element of a contempt constituted by failure to pay a penalty that the acts or omissions constituting that failure are deliberate and voluntary. Consequently, it is essential to a finding of contempt that Garuda had both the legal and practical capacity to make a payment which it failed to make. Garuda submits that the Commission carries the burden of proof on that question and that the standard of proof is beyond reasonable doubt. It submits that the Commission has failed to allege or to prove Garuda's legal or practical capacity to make the payment it has not made. Therefore, there can be no finding of contempt: Australian Competition and Consumer Commission v World Netsafe Pty Limited [2003] FCA 159; 127 FCR 542 (Netsafe) at [51] - [52]; Siminton v Australian Prudential Regulation Authority (No 3) [2008] FCAFC 89; 168 FCR 140 at [25] - [26]; [30] - [32]; [41]. 39 In this connection, Garuda points to the fact that it is a foreign registered company under s 601CD of the Corporations Act 2001 (Cth) (the Corporations Act). Sections 124 (powers and capacities of the company) and 129 (presumptions when dealing with the company) of the Corporations Act do not apply to it. It is an agency or instrumentality of the Republic of Indonesia and, hence, a "separate entity" within the meaning of s 3(1) of the Foreign States Immunities Act 1985 (Cth): PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission [2011] FCAFC 52; 192 FCR 393. In that case, Rares J (with whom Lander and Greenwood JJ agreed at [49]) said (at [169] - [171]): 169 Here, however, it is difficult to see what other purpose Indonesia could have had in incorporating, directly owning 95.5% of, and investing in Garuda, unless it wanted such an airline to conduct the very enterprise it did, and continues to, conduct. Indonesia was the shareholder of almost all of Garuda's issued capital. Two perseros owned the balance, but there was no evidence as to whether those two perseros were wholly or majority State owned. Even if 49% of each of the two minority perseros was owned by third parties, about 98% of Garuda would be owned by Indonesia. All the shareholders in both Garuda and its two minority perseros were governed by Law No 19, including their purpose and objective as a BUMN under Art 2(1)(c) of "benefit[ing] the public by providing high-quality and satisfactory … services fulfilling the needs of the people". 170 Indonesia had ultimate control over the boards of directors and commissioners because of its beneficial ownership of all, or almost all, the shares in Garuda. It is a State owned airline, established on a corporate model, under Law No 19 for State owned companies: cf SGH 210 CLR at 70-71 [23]-[26], 73 [32]; NRMA 55 FCR at 472E-478G. Even though Indonesia did not claim immunity through its Ambassador or a Minister, the compelling inference on the whole of the evidence is that Garuda is an agency or instrumentality of that State. Garuda is the means by which Indonesia carried on the business of an airline. That is the end or purpose for which Indonesia used Garuda: cf State Bank 174 CLR at 231-232. 171 It follows that Garuda was and, at all the times in which its conduct is complained of by the Commission, has been a separate entity of Indonesia. 40 In oral submissions, Garuda's counsel described it as a limited purpose, public entity controlled by the Indonesian Government and submitted that there is a real question whether, under Indonesian law, the Indonesian Government could properly authorise payment of moneys which would compromise Garuda's purpose or ability of benefiting the Indonesian public by providing "high-quality and satisfactory services justifying the needs of the people". Garuda submits that this question - which goes to its legal capacity to comply with the pecuniary penalty order - has not been explored in this application by the Commission. Further, there is no evidence before the Court to suggest that, up to 23 August 2019 (the date to which compliance with the pecuniary penalty order was extended), Garuda had the practical capacity to comply with the pecuniary penalty order. Garuda submits that the fact that the Commission has not taken steps to enforce the pecuniary penalty order reveals the Commission's understanding of Garuda's capacity to comply. 41 As to the question of discretion (assuming that contempt has been established) Garuda submits that the discretion to grant a stay of the appeal should be exercised in its favour with primary reference to the fact that the appeal is against the order in respect of which Garuda is said to be in contempt; there has been no open defiance of the authority of the Court by Garuda and no indication by Garuda that its non-payment is due to anything other than incapacity (practical and legal); and the Commission has the benefit of a money order and has taken no step, other than the current application, to enforce that order. 42 Garuda submits that it is not sufficient to ground a stay of the appeal that some "tidying up" of the kind suggested by the Commission is required, namely payment of the pecuniary penalties or Garuda making a successful stay application of the pecuniary penalty order. Garuda submits that the administration of justice is served by ensuring that it, as a party who has been ordered to make a substantial payment, does not wilfully fail to make that payment. However, that important fact has not been established. Beyond that, there is no interest of justice to be served. Garuda submits that punishing it for mere non-payment of the pecuniary penalties would not be a proper exercise of the Court's power to stay proceedings and that any punishment in that regard should be sought in the context of contempt proceedings properly instituted under s 31 of the Act. 43 As to the exercise of the power under s 25(2B)(ab) of the Act, Garuda submits that the word "pending" does not have the temporal significance which the Commission attributes to it. Rather, it means "remaining undecided, awaiting decision". When s 25(2B)(ab) speaks of an interlocutory order pending the determination of the appeal, it refers to an order that can be made while awaiting the decision in the appeal. The order that the Commission asks the Court to make is not such an order: it is not an order awaiting the determination of the appeal, it is an order stopping the appeal. The denouement of this argument is that the Court, as presently constituted by a single Judge exercising the appellate jurisdiction of the Court, cannot make the order that the Commission seeks; this can only be done by a Full Court under s 25(1) of the Act.

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