New Zealand: Exporting jurisdiction: liability of foreign parents under the Commerce Act

Last Updated: 7 July 2012

By Simon Ladd, Partner and Andy Glenie, Senior Associate

In late May, the Court of Appeal held in Kuehne + Nagel International AG v Commerce Commission [2012] NZCA 221 that the New Zealand Courts should accept jurisdiction in proceedings against Kuehne + Nagel International AG (KNI), a Swiss company, alleging breaches of the Commerce Act 1986 (the Act). KNI had not engaged in any conduct in New Zealand itself (indeed, it submitted that it was a mere holding company).

The judgment is notable for the Court's approach to attribution of the conduct of the local subsidiary Kuehne + Nagel Ltd (KNNZ) to KNI, and the Court's reliance on a plea agreement that KNI had entered into with the US Department of Justice (DoJ) for evidential purposes.

Background

KNI is incorporated in Switzerland. The Court noted that it provides freight forwarding services worldwide through a network of local subsidiaries (together comprising the KN Group). KNNZ was one such subsidiary.

In 2010, the Commerce Commission (Commission) filed proceedings against KNI and others. There were no proceedings against the local company, KNNZ. The Commission alleged that KNI and others had breached sections 27(1) and 27(2) of the Act by engaging in price fixing in the New Zealand freight forwarding industry. The Commission served the proceeding on KNI in Switzerland without leave of the High Court, under HCR 6.29. KNI protested the jurisdiction of the New Zealand Courts.

The High Court upheld KNI's protest in respect of the alleged breaches of section 27(1), because there had been no "entry into" an anti-competitive agreement in New Zealand and KNI did not "carry on business" in New Zealand. However, Venning J dismissed KNI's protest in respect of the section 27(2) claims for "giving effect" to anti-competitive agreements reached overseas. Two key questions arose under HCR 6.29. On the first, the Court found that the Commission had established a good arguable case that the conduct of KNNZ in giving effect to the relevant agreements could be attributed to KNI. On the second, more factual question the Court considered the evidence that the Commission had built up in relation to the allegations and concluded that there were serious issues to be tried. It therefore found that it had jurisdiction in relation to the section 27(2) claims. KNI appealed the finding of jurisdiction for the section 27(2) claims.

The decision of the Court of Appeal

The Court of Appeal dismissed KNI's appeal. The most interesting aspect of its decision is its consideration of attribution under section 90(2) of the Act. The Commission argued that the relevant acts were those of KNNZ in giving effect to the price fixing agreements; KNNZ had engaged in that conduct on behalf of KNI so the conduct could be attributed to KNI under section 90(2). That section provides:

90 Conduct by servants or agents
(2) Any conduct engaged in on behalf of a body corporate—

  1. by a director, servant, or agent of the body corporate, acting within the scope of his actual or apparent authority; or
  2. by any other person at the direction or with the consent or agreement (whether express or implied) of a director, servant, or agent of the body corporate, given within the scope of the actual or apparent authority of the director, servant or agent—shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate.

The Court accepted that section 90(2) was an "enlarging provision" which could make a corporation liable for the conduct of others where it would not be otherwise (including at common law). The scope of section 90(2) was not limited to agency concepts, and it was not necessary to show that the relevant conduct had been for the benefit of the parent company (although that could be a relevant factor). Ultimately however, the Court considered that the outcome of the case turned not on the proper interpretation of section 90(2) but on an evaluation of the facts. It concluded that the evidence showed, at least to the standard necessary in a challenge to jurisdiction, that KNNZ had clearly acted as the representative of KNI in the New Zealand freight forwarding market, at the direction of KNI, and for its benefit.

Although the Court accepted that formal admissions could only be fully binding in the case in which they were made, it regarded as "highly instructive in an evidentiary sense" a plea agreement which KNI had entered into with the DoJ, the full detail of which had only emerged after the High Court hearing. In that agreement, KNI pleaded guilty to counts of conspiracy to suppress competition in the United States. It made various admissions, relevantly including that it had "through its subsidiaries, provided international air freight forwarding services". Those admissions conflicted with KNI's submission that it was a holding company and had not itself engaged in freight forwarding markets. The Court of Appeal expressed considerable surprise that KNI was now seeking to disavow the clear admissions it had made in the plea agreement as to the operation of the KN Group. It found that KNI had failed by "a wide margin" to demonstrate that the High Court had been wrong on the point.

Consistency with Poynter

At first glance, the outcome in this case might be thought inconsistent with Poynter v Commerce Commission [2010] 3 NZLR 300 (SC). There, Mr Poynter – who, like KNI, was not resident or carrying on business in New Zealand and had engaged in no conduct in New Zealand – successfully protested the jurisdiction of the New Zealand Courts in connection with a timber preservatives cartel. However, in that case, section 90 could not be used to attribute to Mr Poynter as an employee the conduct of his New Zealand colleagues; whatever conduct of others had occurred in New Zealand was not on his behalf, but on behalf of his employer. As the Court of Appeal noted, that was not the position in Kuehne + Nagel. Here, section 90(2) was clearly capable of attaching liability to KNI. The relevant acts had been committed in New Zealand by KNNZ and were simply being attributed to KNI. There was no risk of the Act being given extra-territorial effect.

The decision is significant, offering the Commission and antitrust plaintiffs a means of pursuing overseas parents for the conduct of local subsidiaries in giving effect through New Zealand subsidiaries to anti-competitive agreements entered into offshore.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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