New Zealand: High Court Confirms Reach Of New Zealand Commerce Act

Last Updated: 23 April 2007
Article by Iain Thain and Mark Williamson

In the recent case Commerce Commission v Koppers Arch Wood Protection (NZ) Limited and others the New Zealand High Court set aside protests to jurisdiction by three individual overseas defendants in the long running Commerce Commission investigation into cartel behaviour by suppliers of wood preservative chemicals.

Although the decision only considers matters of jurisdiction, the case is of interest because the Commerce Commission was successful despite conceding that the relevant foreign defendants were neither resident nor personally carrying on business in New Zealand.

In summary, the Court held that foreign defendants are proper parties to New Zealand litigation under the Commerce Act, provided the service and other High Court Rules are observed. This is in spite of the fact that the foreign defendants may not be resident in or carrying on business in New Zealand. Though any penalties imposed on the parties may ultimately be proved to be unenforceable, the Court felt that, as a matter of policy, it may actually be in the interest of the defendants to participate in that litigation to lessen or avoid the risk of findings being made which affect their personal or commercial reputations.

The relevant defendants, executive officers of the companies’ overseas offices, were foreign citizens resident now in Australia, USA and France. The issue concerned the ambit and operation of the New Zealand High Court Rules. Under Rule 219(h), the High Court has jurisdiction over defendants overseas where any person outside of New Zealand is a necessary or proper party to a proceeding properly brought against some other person duly served or to be served within New Zealand.

In reaching its decision the High Court confirmed the approach to be used in assessing whether individuals are ‘necessary or proper’ parties to a claim. It must be established that:

  • There is a substantial or serious legal issue for trial.
  • There is a credible or plausible factual basis for arguing the legal issue.

Accordingly, the issue for the Court in this case was whether each foreign defendant was either a party to the cartel, was an accessory to it, or was part of a conspiracy to contravene the Commerce Act.

Were the foreign defendants party to the alleged conduct?

Importantly for executives based overseas, the Court said that the Commerce Act applies to overseas defendants where only part of the anti-competitive conduct takes place within New Zealand, or where communications to New Zealand from outside the country are received and acted on within this country. A person also engages in contravening conduct under the Act in New Zealand if they act through an agent who carries the contravening conduct into effect in this country. This is the case even where the agent is unaware of the anti-competitive motivation behind the conduct.

Applying these principles, the Court held that there was an arguable case against all three defendants for being involved as parties to the cartel and that each was thus a necessary or proper party to the Commission’s claim.

Were the executives accessories to the relevant conduct?

The High Court also considered the knowledge required for an overseas executive to be liable as an accessory to anti-competitive conduct. To establish a good arguable case for accessory liability, it must be shown that the defendant deliberately did or refrained from some act to assist or encourage, or participate in, the breaches by the corporate defendants or their employees. This must be done with intention and knowledge of the contravening facts (though not necessarily knowledge that those actions constituted a specific breach of the Act). It must also be shown that the relevant executives’ actions were in New Zealand or were communicated to New Zealand, and that the executives knew:

  • The actions would be acted on and carried into effect in this country by another company employee.
  • The relevant employee was knowingly acting in contravention of the Act or knew, broadly, that their actions may be contravening the Act.

Alternatively, a good arguable case could be shown if the foreign defendant, having a legal duty to ensure contravening conduct did not occur, and broadly knowing the other employee’s actions contravened the Act, had the ability to stop them engaging in contravening conduct in New Zealand and deliberately refrained from doing so.

Applying these principles to the facts, the High Court found that the accessory tests were met for all three defendants.

Conspiracy

Finally, in the case of conspiracy, the foreign defendant need only know what they are alleged to have agreed to, in other words, to have had an intention to be party to an agreement to commit the contravention in New Zealand to which the conspiracy is directed. This applies even if the relevant New Zealand employees are not aware of the contravention.

Once again, applying this test to the facts, the court found a good arguable case existed against all three executives.

The case is being appealed and we will keep you posted.

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

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