Wells Fargo Bank Northwest National Association v Victoria Aircraft Leasing Limited and Ors [2004] VSC 262 - VSC 2004 case summary — Zoe

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Wells Fargo Bank Northwest National Association v Victoria Aircraft Leasing Limited and Ors [2004] VSC 262

[2004] VSC 262

Supreme Court of Victoria|2004-07-28|Before: DODDS-STREETON J.

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At a glance

Source facts

Court

Supreme Court of Victoria

Decision date

2004-07-28

Before

DODDS-STREETON J.

Source

Original judgment source is linked above.

Judgment (206 paragraphs)

[1]

[2004] VSC 262

[2]

FOREIGN IMMUNITY - Plaintiff as security trustee of mortgagee bank (an agency of the United States of America) seeks to exercise remedies in relation to aircraft owned and operated by the first and second defendants, agencies of the third defendant, the Republic of Nauru - The defendants, by defence and counterclaim, allege an agreement or arrangement between the United States and Nauru pursuant to which the United States represented that in return for Nauru's co-operation with a specified agenda, it would provide Nauru with funds or intervene to prevent mortgagee from exercising its strict legal rights in relation to aircraft ("the Transaction") - Whether third party notice (containing the Transaction allegations) served by defendants on the United States liable to be set aside on ground that the United States is immune from jurisdiction pursuant to s.9 of Foreign States Immunity Act 1985 (Cth) ("the Act") - Whether immunity lost pursuant to the "commercial transaction" exception in s.11(1) of the Act - Transaction not a commercial transaction; predominantly a political, governmental or diplomatic transaction. Transaction to be considered as a whole - the incorporation of a merely subsidiary commercial element including a "provision of finance" within terms of s.11(3)(b) (whether or not it is "commercial") did not render the Transaction a "commercial transaction" - If Transaction otherwise a "commercial transaction" within terms of s.11(1), immunity restored pursuant to s.11(2)(a)(i) of the Act, as the literal terms of that provision (when modified to accord with its purpose)preserve immunity where all parties to the transaction are foreign states.

[123]

"The distinction between the jurisdiction of national courts to decide, and to authorise the execution of remedies for the enforcement of, claims made against foreign states arising out of the exercise of jus imperii and those arising out of transactions entered into in the exercise of jus gestionis obtained growing recognition in European countries as sovereign states began increasingly to engage, either directly or through separate entities that were emanations of the executive government of the state, in commercial and trading transactions with private citizens of other states. Under what came to be termed the `restrictive' theory of sovereign immunity the jurisdiction of national courts was exercised over foreign states in claims against them that arose out of commercial or trading transactions into which they had entered with private individuals. The United States of America had clung longer than several European states to the `absolute' theory of sovereign immunity, under which its courts declined to entertain any claims against foreign states even where these arose out of commercial or trading transactions. Following a change of policy by the executive branch of government this practice was abandoned in 1952 by the United States courts which then adopted the `restrictive' theory; and the matter has since 1976 been regulated in the United States by an Act of Congress, the Foreign Sovereign Immunities Act. In England the jurisdiction of its courts of justice over claims against foreign sovereign states was governed by the common law. Although the courts' refusal to exercise jurisdiction over foreign sovereigns was originally attributed in the eighteenth century to the acceptance of the law of nations as part of the common law of England, the English courts during the twentieth century were slow to recognise and give effect to the change that had been taking place in public international law over the last 50 years, whereby, among the great majority of trading nations, the restrictive theory of sovereign immunity had replaced the absolute theory. That recognition first occurred in a judgment of the Privy Council in Philippine Admiral (owners) v Wallem Shipping (Hong Kong) Ltd, The Philippine Admiral [1976] 1 All ER 78, [1977 AC 373 delivered in November 1975, though this in its terms was limited to actions in rem. It was the seminal judgment of Lord Denning MR in Trendtex Trading Corp v Central Bank of Nigeria [1977] 1 All ER 881, [1977] 1 QB 529 that marked the definitive absorption by the common law of the restrictive theory of sovereign immunity."

[132]

"The Basic Principle. The basic principle upon which the commercial transaction exception to immunity rests is that when a foreign state acts in a `commercial' matter within the ordinary jurisdiction of local courts it should be subject to that jurisdiction. This is of course the central argument behind the shift from absolute to restrictive immunity during the last century. Notoriously, the principle is easy to state at this high level of generality but often difficult to apply to particular facts in a way that would command general assent. Legislation which explicitly distinguishes the nature of the foreign state's act from its motive or purpose in performing the act cannot be regarded as a suitable model for Australia, in view of the incoherence of any nature/purpose dichotomy. Paragraphs (a) and (b) of s.3(3) of the English Act avoid this dichotomy in defining `commercial transaction'. Referring as it does to any loan, any contract for goods etc, it is difficult to argue that the provision is limited in its removal of immunity for those transactions. Nor can it be argued that the provision is difficult to apply, operating as it does by simple objective criteria. In these respects the provision satisfies the interests of private parties dealing with foreign states. The more difficult question is whether such a provision is acceptable to foreign states. The English Court of Appeal has recently emphasised that these paragraphs of the Act make no allowance for considering the state's motive in entering into the commercial transaction, or even whether the specified transactions were entered into `in the exercise of sovereign authority'. As a result a foreign consul's assistance to a distressed national would be a `commercial transaction', where the assistance took the form of a loan to the individual or a purchase of an air ticket to enable the person to return home. Purchases of military equipment would also be commercial transactions. But some countries have expressed concern that under this sort of approach such things as open market purchases of foodstuffs to avert domestic famine and public borrowings for public purposes would also be denied immunity. The International Law Commission's present draft definition of `commercial contract' closely follows the wording of the State Immunity Act 1978 (UK), s.3(3). However the Special Rapporteur to the Commission has noted the disquiet of a number of states, and the Commission has sought to develop a test which pays greater regard to the motive or ultimate purpose that the foreign state seeks to achieve by entering into the transaction. The choice for Australia is whether to adhere to the `objective' or formal test or to attempt a more elaborate model which gives a degree of weight to the foreign state's motive. it is recommended that Australia follow the substance of the United Kingdom model. It is clear, easy to apply and has been followed in a number of countries. To attempt to take into account the motive of the foreign state would lead to uncertainty, thereby disadvantaging the private party dealing with the foreign state. It is difficult to justify putting the private party to the trouble of finding out, for example, why the foreign state wants to buy its foodstuffs, or whether there is a famine in the foreign state with which it is dealing."