Closer Enforcement Relations

By Simon Ladd, Senior Associate | Monday 10 March 2008

First published in NZLawyer, 7 March 2008.

The pecuniary penalty and offence provisions of the Commerce Act 1986 are penal laws which at common law the courts of foreign countries do not enforce. A Trans-Tasman Working Group has recommended fundamental changes to the current position in New Zealand and Australia and a Trans-Tasman Proceedings Bill is expected to be introduced later this year.

In Attorney-General of New Zealand v Ortiz [1984] AC 1, 20 – a case brought by the New Zealand Government to prevent the sale of a Maori carving by a Mr Ortiz in order to raise money to ransom his kidnapped daughter – Lord Denning stated "No one has ever doubted that our courts will not entertain a suit brought by a foreign sovereign, directly or indirectly, to enforce the penal or revenue laws of that foreign state. We do not sit to collect taxes for another country or to inflict punishments for it."

The Commerce Commission's power to seek pecuniary penalties under sections 80 and 83 of the Commerce Act 1986 (the Act) – for breaches of the restrictive trade practices and business acquisition provisions of the Act – are penal laws which the courts of other countries will not enforce. The Commission's power to seek criminal fines under the offence provisions of section 103 of the Act, such as for refusing to a comply with a section 98 notice requiring the provision of documents or for attempting to deceive or knowingly misleading the Commission, is also an example of punishment which the courts of other countries will not inflict.

As a result of the common law rule discussed in Ortiz, the Commission can serve penalty proceedings on defendants resident outside New Zealand (if the jurisdiction requirements of High Court Rules 219 or 220 are met), and pursue those proceedings to judgment with or without the involvement of the overseas defendants. However, any resulting civil penalties cannot be enforced outside New Zealand. Unless the overseas defendants have assets within New Zealand, they can thumb their anti-competitive noses at the Commission. So, for example, in the Commission's recent cartel proceedings against Koppers Arch and others, the Court noted the enforcement difficulties facing the Commission against individual defendants resident in Australia and accepted that the agreement of those defendants to pay penalties despite the Commission's enforcement difficulties was a mitigating factor in determining the amount of the penalties (see Commerce Commission v Koppers Arch Wood Protection (NZ) Limited, High Court, Auckland, CIV2005-404-2080, 4 October 2006, Williams J, at paragraphs [45] and [65]).

In the case of criminal proceedings, the Commission is not able to serve the proceedings on a person or company outside New Zealand or proceed with a trial in the defendant's absence, and any fine obtained (assuming service and the defendant's presence for the trial) is not enforceable overseas. While individuals who commit serious crimes can be extradited to New Zealand, offences under the Commerce Act do not meet the requirements of the Extradition Act 1999.

However, since 2003, a Trans-Tasman Working Group has been reviewing existing arrangements for trans-Tasman court proceedings and regulatory enforcement, including "whether there are any barriers to taking enforcement proceedings against a person based in one country who breaches the other's regulatory regimes".

In December 2006, the Working Group published its report, Trans-Tasman Court Proceedings and Regulatory Enforcement, recommending fundamental changes in New Zealand and Australia, including the abolition of the common law rule that courts will not enforce the penal laws of a foreign state for certain regulatory matters. The key features of the proposed regime for regulatory enforcement are:

• Civil pecuniary penalty orders (such as under sections 80 and 83 of the Act) made in one country should be enforceable in the other as a civil judgment under the proposed trans-Tasman regime. Either country can choose to exclude particular penalty regimes in the other country from enforcement.
  
  
• Fines imposed in one country for criminal offences under certain regulatory regimes (such as under section 103 of the Act) should be enforceable in the other, in the same way as civil judgment debts. Only fines for offences under a regulatory regime that affects the effectiveness, integrity and efficiency of trans-Tasman markets and in which both countries have a strong mutual interest should be included. The list of legislation recommended for inclusion includes the Commerce Act, Fair Trading Act 1986, Companies Act 1993, Securities Act 1978, Securities Markets Act 1988, Takeovers Act 1993, and Credit Contracts and Consumer Finance Act 2003, and the equivalent Australian legislation.
  
  
• The range of final judgments that can be recognised and enforced by the courts of both countries should be broadened to include those requiring a person to do, or not do, something, e.g., injunctions and orders for specific performance. So, an injunction obtained by the Australian Competition and Consumer Commission against a New Zealand company could be enforced against that company in New Zealand.
  
  
• Appropriate Australian and New Zealand courts should be given statutory authority to grant interim relief in support of proceedings in the other country's courts. Thus, the Commission could seek an interim injunction in an Australian Court to restrain alleged breaches of the Act pending trial in New Zealand.

The Working Group's Report does not address the issue of service of criminal proceedings overseas, which it leaves for a future project looking at trans-Tasman co-operation in criminal matters.

The New Zealand and Australian Governments accepted the recommendations of the Working Group in May last year and are now negotiating a treaty to give effect to the recommendations. The Ministry of Justice's latest advice is that a Trans-Tasman Proceedings Bill will be introduced in the second half of this year, following the Parliamentary Treaty Examination Process.

A copy of the Report can be found at: www.justice.govt.nz.

Simon Ladd is a litigation senior associate at Bell Gully specialising in competition law. With thanks to Anna Holland and Sophie McDonald for research assistance.