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- Unreported Judgment
- Appeal Determined - Special Leave Refused (HCA)
 QCA 129
SUPREME COURT OF QUEENSLAND
Court of Appeal
General Civil Appeal
28 May 2013
7 March 2013
Holmes and White JJA and Atkinson J
PRIVATE INTERNATIONAL LAW – GENERAL PRINCIPLES – FOREIGN STATES AND SOVEREIGNS – IMMUNITY – GENERALLY – where s 9 of the Foreign States Immunities Act 1985 (Cth) gives foreign states immunity from the jurisdiction of Australian courts – where s 11 of the Act creates an exception to that immunity for proceedings in respect of commercial transactions – where proceedings in respect of scholarships and grants are excluded from the s 11 exception – where the appellant, which administered a college, pleaded that the respondents had promised to pay for the education of the children of Saudi scholarship recipients at the college – where the appellant also pleaded that the respondents had agreed to make a payment in consideration of the appellant's forbearance to sue – whether the proceeding in respect of the alleged breaches of those promises to pay was a proceeding in respect of commercial transactions – whether the proceeding in respect of the alleged breaches of those promises to pay was a proceeding in respect of a scholarship or grant
Foreign States Immunities Act 1985 (Cth), s 9, s 11
Australian Federation of Islamic Councils Inc v Westpac Banking Corporation (1988) 17 NSWLR 623, considered
K Wilson SC for the appellant
Mitry Lawyers, with Richardson and Lyons, for the appellant
 HOLMES JA: The appellant brought an action against the respondents claiming damages for breach of contract. The proceeding was dismissed for want of jurisdiction, the learned judge at first instance holding that the respondents were immune from the court’s jurisdiction by virtue of s 9 of the Foreign States Immunities Act 1985. The appellant appeals that order, contending that his Honour erred in making the findings on which it was based, while the respondents have filed a notice of contention seeking to uphold the judgment on a different ground.
The Foreign States Immunities Act
 The second respondent was, according to the statement of claim, deputy Minister of the first respondent’s Ministry of Higher Education. There was no dispute here (or below) that each of the respondents fell within the definition of “foreign state” in the Foreign States Immunities Act. The Act starts from a premise of general immunity; s 9 provides:
“Except as provided by or under this Act, a foreign State is immune from the jurisdiction of the courts of Australia in a proceeding.”
Section 11 sets out and defines one of the exceptions contemplated by s 9, with a limitation on that exception:
(1)A foreign State is not immune in a proceeding in so far as the proceeding concerns a commercial transaction.
(2)Subsection (1) does not apply:
(a)if all the parties to the proceeding:
(i)are foreign States or are the Commonwealth and one or more foreign States; or
(ii)have otherwise agreed in writing; or
(b)in so far as the proceeding concerns a payment in respect of a grant, a scholarship, a pension or a payment of a like kind.
(3)In this section, commercial transaction means a commercial, trading, business, professional or industrial or like transaction into which the foreign State has entered or a like activity in which the State has engaged and, without limiting the generality of the foregoing, includes:
(a)a contract for the supply of goods or services;
(b)an agreement for a loan or some other transaction for or in respect of the provision of finance; and
(c)a guarantee or indemnity in respect of a financial obligation; but does not include a contract of employment or a bill of exchange.”
 The appellant’s statement of claim pleaded that it administered a college which educated school children of Muslim faith, including the children of recipients of Saudi scholarships. It had made two agreements with the first respondent, the second through the agency of the second respondent. In relation to the first agreement, the statement of claim alleged as follows:
“9.The Ministry provides assurances to educational institutions in Australia and to the Commonwealth and State Governments that the scholarship department of the Ministry will, inter alia, meet the costs of educating the children of Saudi Scholarship Recipients studying in Australia.
10.Between 2006 and the present, the Ministry provided assurances to:
b.the Australian Government;
c.the Queensland Government;
that the costs of educating the children of Saudi Scholarship Recipients who were studying at the College and who were not Australian citizens would be met by the First Defendant. As a result of those assurances to the Plaintiff the college continued to provide educational services to the children of Saudi Scholarship Recipients.
11.The Plaintiff, in consideration of the promises of the First Defendant as set out in paragraphs 9 and 10, provided educational services to the children of Saudi Scholarship Recipients in reliance on the promise that the First Defendant would pay for those educational services.
12.The matters set out in paragraphs 9 and 11 constituted an agreement between the Plaintiff and the First Defendant (“First Agreement”).”
 The pleading went on to allege that in 2009, the college discovered that it had been receiving government funding for the children of Saudi scholarship recipients in error, because they were not Australian citizens; and, in consequence, that it owed a very substantial debt to the Australian Government. The appellant pleaded that it had made requests for payment to the first respondent and received assurances that the latter would reimburse the college for the costs of educating the children in accordance with the first agreement; but it had never done so.
 The second agreement was allegedly made at a meeting on 15 August 2011. In respect of it, this was pleaded:
“19.At the meeting referred to in paragraph 18, an agreement was reached between the Plaintiff’s delegation and the Second Defendant (“Second Agreement”). Pursuant to this, and in consideration of the forebearance [sic] of the Plaintiff from:
a.suing the First Defendant;
b.making public the issue of non-payment;
either of which courses could have caused embarrassment and affected the international standing and reputation of the First Defendant and the integrity of its overseas scholarship programmes, the Second Defendant agreed on 15 August 2011 that the outstanding amount of $2,140,361.68 owed to the Plaintiff would be repaid by the First Defendant and the Second Defendant.”
The decision at first instance
 Before the learned primary judge, the respondents argued that the immunity conferred by s 9 of the Foreign States Immunities Act had not been displaced by s 11, because neither pleaded agreement constituted a commercial transaction within the meaning of s 11(1); or, alternatively, that the subsection did not apply because the proceeding in respect of both agreements “concern[ed] a payment in respect of a grant, a scholarship... or a payment of a like kind” so as to fall within the exception in s 11(2)(b).
 The primary judge found it unnecessary to reach a conclusion as to whether either or both of the agreements pleaded were commercial transactions, because, he concluded, the proceeding did concern a payment of the type described in s 11(2)(b). His Honour relied, in particular, on the description in Re Leitch (deceased) of a scholarship as
“the grant of an emolument, normally in a sum of money, to a scholar selected on merit or upon some other rational criterion”.
As to the first agreement, the allegation was that the first respondent had accepted responsibility to pay money for the education of the children of Saudi scholarship recipients. In his Honour’s view, a payment of that nature would amount to a scholarship or a payment of a like kind. The payment allegedly to be made under a second agreement, if not strictly a scholarship, would be a “payment of a like kind”. Having found that whether or not the alleged agreements were commercial transactions, s 11(1) did not apply to remove the respondents’ immunity, his Honour dismissed the proceeding for want of jurisdiction.
The scholarship exception
 The appellant argued that the promised payments were not caught by the exception in s 11(2)(b) of the Act. The Australian Law Reform Commission Report which had led to the enactment of the Foreign States Immunities Act formed part of the context in which the Act was to be construed. The report recommended that the (proposed) legislation ensure that scholarships and subsidies were not caught by the commercial transaction exception, explaining that
“[t]o allow matters such as grants, pension rights, scholarships, and so forth to be litigated locally might very well be offensive to many foreign states (and indeed, to Australia, were recipients abroad of such payments from an Australian government able to sue Australia over such matters in foreign courts).”
It was evident from that passage, the appellant argued, that the sorts of payments to be excluded from the ambit of the commercial transaction exception were payments which manifested foreign government policy or legislation. The primary judge’s construction of s 11(2)(b) was too wide.
 For the respondents, it was argued that the assurance of a foreign government to a school that it would meet the education fees of its nationals was a grant to or scholarship for those children, because it amounted to aid granted to them. Reliance was placed on the Macquarie Dictionary definitions of “scholarship” as, inter alia,
“the sum of money or other aid granted to a scholar... a foundation to provide financial assistance to students”;
and of “grant” as
“that which is granted, as a privilege or right, a sum of money, as for a student’s maintenance”.
Alternatively, the assurance of funding for education could be regarded as an additional benefit to the adult scholarship holders: their children would have their education paid for. If the proceeding in respect of the first alleged agreement concerned a scholarship or grant, the proceeding concerning the second alleged agreement, being in respect of the obligations of the first, would similarly fall within the exception.
 I am, with respect, unable to agree with the primary judge’s conclusion that the proceeding concerned payments in respect of a scholarship or like payments. That conclusion amounted to finding that to pay the appellant for providing educational services to the children would be to make a payment in respect of a scholarship because it carried with it a benefit to the children and their parents. Indeed, counsel for the respondents argued that any agreement to pay for a service provided as part of the benefits of a scholarship would fall within the subsection; whatever the nature of the service and whether or not the service provider was aware of the existence of the scholarship. That seems an extraordinary result, and not one, in my view, which reflects a proper reading of the provision or the legislative intent.
 The Australian Law Reform Commission report’s recommended guiding principle was that
“when a foreign state acts in a ‘commercial’ matter within the ordinary jurisdiction of local courts it should be subject to that jurisdiction”.
Scholarships and subsidies were, in turn, to be the exception to that exception from immunity. The extract from the report to which the appellant referred indicates that the object of the scholarship exception was to avoid litigation between foreign States conferring benefits and the recipients of those benefits. It was not concerned with commercial arrangements between foreign States and those contracted to provide the benefits in question. It is one thing to say, as the ALRC report did, that it might be an affront to a foreign State to permit the recipient of benefits conferred by that State to litigate against it in an Australian court; it is quite another to say that an individual who has been contracted to supply goods or services derived from those benefits cannot be permitted to enforce his contractual rights.
 This proceeding, accepting for the moment the appellant’s theory of the agreements, did not concern a payment in respect of a scholarship or grant but a payment in respect of provision of a service. It was incidental that the education provided was a benefit to scholarship holders, but the proceeding did not concern that benefit. The decision in Leitch does not indicate any different result. In Leitch, “scholarship” was described as “the grant of an emolument… to a scholar selected... upon some... rational criterion”; it was not suggested that a payment to an educational institution for delivery of education to a scholar would amount, in the hands of the institution, to a scholarship.
The “commercial transactions” exception to immunity
 It is necessary, then, to go back a step to consider the application of s 11(1) of the Act, because the respondents’ notice of contention advanced as its ground that the alleged agreements were not “commercial transactions” within the meaning of s 11(3). As to that, the appellant argued that the s 11 exception was a wide one; as Rares J pointed out in PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission, s 11(3) extended beyond transactions to
“..activities [which] comprehend the circumstances that surround not only the formation of an actual contract of a commercial, trading, business, professional industrial or like kind, but also activities of that kind that may or may not result in entry into a contract”.
And the exception in s 11(1) was not for a commercial transaction; it excepted a proceeding from immunity insofar as it concerned a commercial transaction.
 The respondent pitched its argument at three levels. Firstly, the pleading was not of anything which satisfied the description of a commercial transaction. The pleading of the first agreement, at its highest, referred to assurances that the first respondent’s Ministry of Higher Education would meet the cost of educating children of scholarship recipients, without any suggestion of a request to the appellant to provide those services by way of consideration. The vagueness of the appellant’s case, as pleaded, led to the conclusion that it lacked the character of a commercial transaction.
 The second agreement, as pleaded, concerned a policy decision to avoid embarrassment in which there was no commercial element. It did not fall within any of the examples set out in s 11(3)(a)-(c), and the mere fact that there was a promise to pay money would not make the transaction commercial. In words taken from the judgment of Dodds-Streeton J in Wells Fargo Bank Northwest National Association v Victoria Aircraft Leasing Ltd & Ors, the second agreement was
“substantially, essentially or predominantly of a political, diplomatic, governmental... or like character... not a ‘commercial transaction’...”.
It was necessary, as the court did, in Victoria Aircraft Leasing Ltd v United States (the Wells Fargo case on appeal) to characterise the transaction as a whole. In this case, although aspects of the transaction might be regarded as falling within s 11(3), the purpose of the pleaded second agreement was to secure political or governmental objectives.
 Secondly, there was a body of evidence which had been admitted at the hearing showing that there was in fact no agreement to pay for educational services. It consisted of an affidavit by the respondent’s solicitor annexing correspondence between the appellant and others, including the Ambassador of the first respondent. In letters to the latter, assistance was sought in respect of the amount the college was required to repay to the Australian Government, but the correspondence did not suggest any agreement between the parties. In a letter to the federal Department of Education seeking help, the chairman of the appellant referred to seeking “to recoup funds from the Saudi Arabian Embassy”; but, he continued,
“[because it was] essentially a ‘no fault claim’ which is reliant on goodwill, a positive Saudi Government response is looking less than likely.”
That material was admitted at first instance over objection that it was hearsay, the primary judge ruling that, because the relief sought was not final, it was admissible under r 430(2) of the Uniform Civil Procedure Rules.
 The respondents argued the primary judge was correct in ruling that the application was for interlocutory relief; for that contention, they relied on Ex parte Britt, Hare v Mt Isa Mines Ltd & Ors and Gallagher v Boylan. But in any case, they submitted, there was no appeal against that ruling, so there could be no question of whether the material was properly before the primary judge. The appellant pointed out, however, that since the appeal was against the primary judge’s finding that the proceedings involved a scholarship, it was unnecessary for it to challenge the ruling that the affidavit evidence was admissible. It was only the notice of contention which made that material relevant, and the appellant’s reply submissions had clearly put its admissibility in issue.
 Thirdly, in respect of the test to be applied, the respondents submitted that it was sufficient to enliven the immunity that there was an arguable case for its existence, and more specifically that it was arguable that there was no commercial transaction between the appellant and the respondents. It would destroy the effect of the statutory immunity to require the State claiming it to disprove the existence of a commercial transaction. For that proposition, the respondents relied on Juan Ysmael & Co Inc v Government of the Republic of Indonesia, Australian Federation of Islamic Councils Inc v Westpac Banking Corporation, and Zhang v Zemin.
 Both Juan Ysmael and Australian Federation of Islamic Councils concerned whether foreign States had an interest in property the subject of the proceedings, and both cases were decided under the common law. In Juan Ysmael, the Indonesian Government moved to set aside the writ and subsequent proceedings in an action in rem against a steamship of which it claimed ownership, on the ground that the effect of the writ was to implead a foreign Sovereign State. The House of Lords observed that where a foreign Sovereign State claimed an interest in the property to which an action related, and thus to be indirectly impleaded,
“a difficult question arises as to how far the foreign sovereign government must go in establishing its right to the interest claimed. Plainly if the foreign government is required as a condition of obtaining immunity to prove its title to the property in question the immunity ceases to be of any practical effect.”
It was not, however, sufficient for the foreign government merely to assert its right. While it was not bound in order to obtain immunity to prove its title to the claimed interest,
“it must produce evidence to satisfy the court that its claim is not merely illusory, nor founded on a title manifestly defective. The court must be satisfied that conflicting rights have to be decided in relation to the foreign government’s claim. When the court reaches that point it must decline to decide the rights and must stay the action, but it ought not to stay the action before that point is reached.”
 In Australian Federation of Islamic Councils Inc v Westpac Banking Corporation, the claim for immunity was more indirectly made. Westpac, the defendant, sought a declaration that the ambassador of the Kingdom of Saudi Arabia was a necessary party, and since he was immune from jurisdiction, the court could not hear the proceeding. The plaintiff Council held a term deposit in its name with the bank, the funds in which came from the Kingdom of Saudi Arabia. Officers of the plaintiff Federation and the ambassador completed the deposit document, which provided that they would give instructions on the deposit’s maturity. Cole J found that the ambassador was affected by the proceedings, because the central question was whether he was entitled to retain control over the disposition of the funds in the deposit. He accepted Westpac’s contention that the ambassador was acting in his official capacity in conducting the transactions with Westpac and the Council. Even if that were wrong, Cole J went on to say, there was “clearly a triable issue” as to whether immunity attached, the issue being the characterisation of the transaction and its relationship to the ambassador’s official functions. He continued,
“It is established that a foreign government (or its Ambassador) claiming an interest in property is not bound as a condition of obtaining immunity to prove its title to the interest claimed.”
His Honour cited the passage from Juan Ysmael to the effect that, upon the court’s reaching satisfaction that conflicting rights had to be decided in relation to a foreign government’s claim, it should decline to decide them and should instead stay the action.
 Finally in this regard, counsel for the respondents cited Zhang v Zemin, one of the issues in which was whether it was incumbent on a court to decide the issue of immunity where no party had raised it. Spigelman CJ quoted what Cole J had said on the point in Australian Federation of Islamic Councils Inc:
“[A]s the question of immunity goes to jurisdiction of the court, once matters are established by any party indicating an absence of jurisdiction, it [is incumbent] upon the court to stay the proceedings of its own motion.”
The respondents relied on the reference to matters “indicating an absence of jurisdiction” as supporting the argument that it was sufficient that the material indicated that the exception was not made out, rather than its being necessary to establish that it was not.
 I doubt that Spigelman CJ intended, by adopting Cole J’s position that immunity did not depend on its invocation by a party, to endorse any particular test as to the level of proof required. Nor do I think that recourse to Juan Ysmael and Australian Federation of Islamic Councils is useful as a guide to application of the statutory provision. What s 11 requires, for present purposes, is that the appellant establish that its proceeding concerns a commercial transaction or transactions; to the extent that the proceeding does concern such transactions the immunity will be displaced.
 My tentative view is that the primary judge here correctly characterised the relief sought as interlocutory relief: it went not to any determination of the issues as between the parties, but to whether the court had jurisdiction to deal with the matter. If that be so, the affidavit and its exhibits were available to be considered in conjunction with the pleadings in determining whether the proceeding concerned commercial transactions. But while that evidence cast some doubt on the existence of the alleged first agreement, and would be relevant on a summary judgment application, it did not alter the character of the pleaded agreement or the character of the proceedings. And although there is a question as to whether the pleading was adequate to support the relief it claimed, that is not the issue for the purposes of s 9. The focus must be on whether the proceeding concerned commercial transactions, not whether the terms of the transactions pleaded were such as to give rise to enforceable rights.
 In I Congreso del Partido, Lord Wilberforce (in a passage quoted by the High Court in PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission) explained the commercial transaction exception:
“The relevant exception, or limitation, which has been engrafted upon the principle of immunity of states, under the so called ‘restrictive theory,’ arises from the willingness of states to enter into commercial, or other private law, transactions with individuals. It appears to have two main foundations: (a) It is necessary in the interest of justice to individuals having such transactions with states to allow them to bring such transactions before the courts. (b) To require a state to answer a claim based upon such transactions does not involve a challenge to or inquiry into any act of sovereignty or governmental act of that state. It is, in accepted phrases, neither a threat to the dignity of that state, nor any interference with its sovereign functions.”
 It seems to me consistent with that analysis to take the approach that the section deals with the nature of the transaction which is the subject matter of the proceeding, rather than whether that transaction can be proved. It involves no challenge to the sovereignty or dignity of a foreign State to require it to answer a claim arising from an alleged commercial transaction, and, if it can show that the pleading is deficient or that the claim has no basis in fact, to bring the appropriate application for striking out or judgment.
 As to the first agreement, the effect of the pleading was that the first respondent’s agent assured the appellant that the first respondent would meet the costs of educating children at its college and that, in reliance on that promise, the appellant provided the services. That was an allegation that the first respondent had entered a commercial transaction. The second agreement, as alleged, was that the second respondent agreed that it and the first respondent would pay an amount owed to the appellant. The consideration for the payment was said to be forbearance from suit and forbearance from making the failure to pay public,
“either of which courses could have caused embarrassment and affected the international standing and reputation of the first defendant and the integrity of its overseas scholarship programs”.
It is not at all clear that the reference to the prospective adverse effects of litigation and publicity were intended to identify actual motives communicated by the respondents, as opposed to being, in a manifestation of the appellant’s rather eccentric pleading style, its own assertion as to why it was a good idea for the respondents to settle. However that may be, the pleaded incentives for resolution do not, in my view, convert an essentially commercial agreement to pay a debt into a political or governmental arrangement. The facts of this case bear no resemblance to those of Wells Fargo.
 My conclusion is that the proceeding concerned commercial transactions, so that the respondents were not immune from this court’s jurisdiction. Accordingly, I would:
1. Allow the appeal.
2. Set aside the orders made below dismissing the proceeding for want of jurisdiction and ordering the appellant to pay the respondents’ costs of and incidental to the proceeding and of the respondents’ application which was filed on 25 May 2012.
3. Substitute orders that the respondents’ application of 25 May 2012 be dismissed and that the respondents pay the costs of that application and of this appeal.
 WHITE JA: I have read and agree with the reasons of Holmes JA and the orders which she proposes. Her Honour has indicated that her “tentative view” is that the relief sought is interlocutory. I am not so confident since, should the immunity from suit claim have been upheld it would have disposed of any litigation about the subject matter of the dispute in these courts. It is, however, unnecessary to reach even a tentative view on this matter because the affidavit evidence does not alter the character of the agreement advanced by the appellant.
 ATKINSON J: I agree with the reasons of Holmes JA and the orders she proposes.
 The second respondent by virtue of the extended definition of “foreign state” in s 3(3) of the Act.
  VR 204.
 At 206.
 Foreign State Immunity, Report No. 24 (1984).
 At 55 .
 Macquarie Dictionary 5th Edition 2009 at 1475.
 At 727.
 Australian Law Reform Commission Report, Foreign State Immunity, Report No. 24, 1984 at xviii  and at 51 .
 (2011) 192 FCR 393.
 At 437.
  VSC 262.
 At .
 (2005) 12 VR 340 at 346.
  1 Qd R 221.
  QCA 328.
  QCA 159.
  AC 72.
 (1988) 17 NSWLR 623.
 (2010) 79 NSWLR 513.
 At 87.
 At 89-90.
 At 630.
 (2010) 79 NSWLR 513.
 Per Cole J at 633 cited in Zhang v Zemin at 524.
  1 AC 244.
 (2012) 290 ALR 681.
 At 262.
 At .
- Published Case Name:
Australian International Islamic College Board Inc IA 30976 v Kingdom of Saudi Arabia & Anor
- Shortened Case Name:
Australian International Islamic College Board Inc IA 30976 v Kingdom of Saudi Arabia
- Reported Citation:
 QCA 129
Holmes JA, White JA, Atkinson J
28 May 2013
- Selected for Reporting:
|Event||Citation or File||Date||Notes|
|Primary Judgment|| QSC 259||10 Sep 2012||The defendant was a "foreign state". The plaintiff sued for recovery of expenses in relation to the education of certain children. Declared that the proceeding had not, for want of jurisdiction, been properly started by reason of the Foreign States Immunities Act 1985 (Cth): Martin J.|
|Appeal Determined (QCA)|| QCA 129  2 Qd R 1||28 May 2013||The transaction was a "commercial transaction" and the respondent was not immune from suit. Appeal allowed: Holmes and White JJA and Atkinson J.|
|Special Leave Refused (HCA)||File Number: B33/2013  HCASL 37||06 Mar 2014||Special leave refused: Kiefel and Keane JJ.|