Last month the Court of Appeal upheld the decision of the High Court in the latest round of the Koppers Arch litigation. The case is important because it considers when the Court will have jurisdiction to consider Commerce Act proceedings against overseas based defendants. In this update we briefly review the Court of Appeal's decision and its implications.
BACKGROUND
The Koppers Arch litigation arose out of Commerce Commission allegations that various manufacturers and suppliers of wood treating chemicals, together with a range of individuals, entered into price fixing arrangements between 1998 and 2002.
Of the 15 original defendants, 11 either had registered offices or resided outside New Zealand. Most of the overseas defendants challenged the jurisdiction of the High Court to hear the relevant allegations. Ultimately, the High Court was only required to address the position of three overseas defendants. In 2007, the High Court found that the Court did have jurisdiction to hear and determine the Commission's claims against these three defendants. The three defendants appealed the High Court's decision to the Court of Appeal.
WHAT WAS THE ISSUE?
The law recognises that overseas parties should only become party to New Zealand litigation under the right set of circumstances. These are set out in the High Court Rules (Rules). In this case the Commission relied on the part of the Rules that allows service of New Zealand High Court proceedings on a person outside New Zealand where that person is 'a necessary or proper party to proceedings properly brought against some other person duly served.. within New Zealand'.
Among other things, a person will only meet this 'proper party' criterion if there is a good arguable case they have breached the relevant New Zealand law (in this case the Commerce Act).
Accordingly, the principal issue for the Court of Appeal in the case was 'whether the High Court Judge was right to find that there was a good arguable case that each appellant engaged in conduct which breached the [Commerce] Act'.
The case raised key questions about the reach of the Commerce Act because the Commerce Commission accepted that:
- None of the three appellants was resident or carrying on business in New Zealand at any material time;
- two out of the three appellants did not personally engage in any relevant acts in New Zealand, and neither even addressed any relevant communications to persons in New Zealand; and
- the only evidence directly linking the other appellant personally to New Zealand was that he attended one meeting in New Zealand.
WHAT DID THE COURT OF APPEAL SAY?
Among other things, the Court of Appeal said that to establish a breach of the Commerce Act, the Commission did not need to show that foreign defendants engaged in meetings in New Zealand or sent relevant communications or directions to persons in New Zealand. It was enough that:
- anti-competitive communications or directions were given to New Zealand parties while they are overseas; and
- the New Zealand parties then acted in New Zealand to give effect to the anti-competitive arrangements.
In these circumstances, the Court would regard the relevant conduct by the overseas defendants as having occurred in New Zealand and, as such, there was no need to resort to the specific provision in the Commerce Act dealing with conduct outside New Zealand (section 4(1)).
The Court defended its broad approach to the question of jurisdiction by arguing that it was consistent with basic principles and reflective of 'the realities of globalisation'.
The Court also accepted that it was open to a New Zealand Court to consider whether the overseas defendants participated (albeit from overseas) in a conspiracy to breach the Commerce Act.
Applying these principles and a range of other findings to the facts of Koppers Arch, the Court of Appeal found that an arguable case existed against all three appellants and upheld the decision of the High Court. Subject to any appeals, this leaves the Commission free to continue the substantive proceedings against the three individuals involved.
IMPLICATIONS OF THE CASE
The decision of the Court of Appeal highlights the need for an awareness of New Zealand trade practices law for all those connected with doing business in New Zealand markets, whether or not they are actually present in New Zealand or deal directly with New Zealanders in New Zealand. This is particularly the case for Australian executives. As was confirmed by the Court 'the principles that apply to the jurisdiction of the Court to hear causes of action against foreign companies have not changed, but it would be foolish to not acknowledge the reality of close business ties between Australia and New Zealand'.
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