Exporting jurisdiction (2): more on the liability of foreign parents under the Commerce Act

​First published in NZ Lawyer, 19 October 2012.

On 31 August, the Court of Appeal held in Commerce Commission v Visy Board Pty Limited [2012] NZCA 383 that the New Zealand Courts should accept jurisdiction in proceedings against Visy, an Australian company, alleging breaches of the Commerce Act 1986 (Act).

The judgment follows hard on the heels of the Court's decision in Kuehne + Nagel International AG v Commerce Commission [2012] NZCA 221 (31 May 2012) (the subject of the issue 187, 29 June 2012 edition of this column), where jurisdiction was found to exist on the basis that the conduct of a New Zealand subsidiary could be attributed to a Swiss holding company under section 90(2). Visy extends the reach of the Act further.

Background

In 2007, Visy admitted in proceedings brought by the Australian Competition and Consumer Commission in the Federal Court of Australia that it had breached the Trade Practices Act 1974 by colluding with its principal competitor, Amcor, in relation to the supply of corrugated fibreboard packaging (CFP). They had reached an overarching understanding to share markets and fix prices, as well as a number of customer-specific understandings. Pecuniary penalties of A$36 million were imposed on Visy.

The Commerce Commission (Commission) brought proceedings against Visy in the High Court, alleging that it had also breached the Act in New Zealand. It claimed that the over-arching understanding extended to trans-Tasman customers operating in New Zealand, and that Visy and Amcor had also given effect to eight further price-fixing understandings relating to major customers with operations in New Zealand.

The Commission served its proceedings on Visy in Australia. Visy protested the jurisdiction of the New Zealand Courts, and the Commission's application to set aside that protest was largely dismissed by Justice Heath. Both Visy and the Commission challenged the decision.

The decision of the Court of Appeal

The Court of Appeal allowed the Commission's appeal, dismissed Visy's cross-appeal, and remitted the matter to the High Court for further case management. Relevantly, it identified three situations in which the New Zealand Courts might acquire jurisdiction over foreign defendants:

• where the relevant conduct occurred in New Zealand (rule 6.29 of the High Court Rules and section 90(2)(a) of the Act);

• where the conduct of a person in New Zealand can be attributed to a foreign body corporate (section 90(2)(b) of the Act);

• where a person resident or carrying on business in New Zealand engaged in conduct overseas which affected a market in New Zealand (section 4(1) of the Act).

Jurisdiction was found to exist here principally on the first and third bases.

Conduct in New Zealand (rule 6.29 of the High Court Rules)

The Court of Appeal applied the two-stage test to rule 6.29 identified in Kuehne + Nagel. That required the Commission to establish a good arguable case that the relevant acts or omissions occurred in New Zealand, and that there was a serious question to be tried on the merits. Visy conceded that the second limb was satisfied.

Here, there was sufficient evidence, given the preliminary nature of the jurisdictional inquiry, that the overarching understanding between Visy and Amcor had extended to New Zealand. That understanding did not underpin the whole of the New Zealand market, but trans-Tasman and major customers had been "plainly affected" by the understanding (at [47]).

There was also evidence that Visy itself – rather than its local subsidiary – had engaged in conduct in New Zealand in relation to four customer-specific understandings (relating to Goodman Fielder, Mainland, apple boxes and Fonterra). The relevant conduct consisted of Visy staff visiting customer premises, participating in presentations to customers, assisting with the submission of tenders (sometimes as part of a trans-Tasman RFP process), and sending emails and making telephone calls to staff employed by Visy's New Zealand subsidiary. Although none of this conduct itself involved collusion with Amcor, it was sufficient to ground jurisdiction that the conduct related to customers or bids that were the subject of the price-fixing arrangements made in Australia.

Conduct outside New Zealand (section 4)

Under section 4(1), the Act extends to conduct outside New Zealand by any person who is resident or carrying on business in New Zealand, but only to the extent that such conduct affects a market in New Zealand.

Jurisdiction was found to exist for all eight customer-specific understandings (those listed above plus Coca-Cola, Inghams, PPCS/Richmond and Huhtamaki). The Court of Appeal considered a number of factors before concluding that Visy itself was carrying on business in New Zealand, despite being an Australian company and despite the existence of a separate New Zealand company. Those factors were:

• Visy presented itself to customers as a single trans-Tasman operation, with the New Zealand business effectively run as a division rather than a stand-alone business;

• Visy was keenly involved in the New Zealand operations;

• Visy dealt direct with customers with New Zealand needs, particularly large trans-Tasman customers;

• customers regarded Visy as a single supplier;

• Visy staff frequently visited the New Zealand subsidiary;

• there was regular communication between Visy and its New Zealand subsidiary (by phone and email), and between Visy and its customers;

• Visy often acted on behalf of its New Zealand subsidiary.

The Court of Appeal concluded that the second limb of section 4(1) – which requires that the relevant conduct "affects" a market in New Zealand – did not require the Commission to show that the collusion had a "demonstrable effect" on such a market (at [31]-[33]). It was sufficient that it "related to" such a market, in that it impacted on or was likely to impact on competition. That test was clearly made out here. The cartel conduct "plainly related to, was concerned with, and was directed towards" a CFP market in New Zealand (at [121]). Section 4(1) thus provided an alternative route to jurisdiction.

Given the close interest that they usually take in the running of their New Zealand subsidiaries, in light of this judgment it seems likely that many Australian parent companies will find themselves subject to the jurisdiction of the New Zealand Courts under both rule 6.29 and section 4(1) of the Act, even where there is a separate New Zealand company and the price-fixing conduct itself did not occur here. The Court's findings are consistent with a continuing trend towards setting a low bar at the jurisdictional stage in circumstances where New Zealand customers are affected by the conduct of parties resident overseas, notwithstanding the Supreme Court's more cautious approach in Poynter v Commerce Commission ([2010] 3 NZLR 300).