First published in NZ Lawyer 10 February 2012, Issue 177.
Commerce Commission v Deutsche Bahn AG & Ors (High Court,
Auckland, CIV-2010-404-005479, 12 October 2011, Justice Venning) represents the
latest challenge by an overseas defendant to the jurisdiction of New Zealand
courts over alleged anti-competitive conduct occurring overseas.
The judgment concerned a protest to the jurisdiction by Swiss freight
forwarder Kuehne + Nagel International AG (Kuehne + Nagel) in
proceedings brought by the Commerce Commission (the Commission)
under the Commerce Act 1986 (the Act). The Commission alleged
that Kuehne + Nagel entered into and gave effect to seven cartel agreements in
breach of section 27(1) and (2) of the Act:
WRS 2001 agreement – an agreement to pass on security surcharges
imposed on freight forwarders by airlines;
United Kingdom NES agreement, Italian SAF agreement, (United States) Air
AMS agreement, (Canadian) ACI agreement and Swiss SFA agreement –
agreements to impose a surcharge to recover costs related to additional
security measures required by the relevant national authorities; and
Chinese CAF agreement – an agreement to insulate freight forwarders
from the impact of the revaluation of the Chinese currency by the People's Bank
As the proceedings were served out of New Zealand without leave and Kuehne +
Nagel protested jurisdiction under rule 5.49 of the High Court Rules, the Court
had discretion whether to assume jurisdiction under rule 6.29(1). Under that
rule, the Commission was required to show a good arguable case – a sufficiently
plausible foundation but less than a prima facie case – that an act to which the
claim relates was done in New Zealand, or that any loss or damage to which the
claim relates was sustained in New Zealand. If the Commission could satisfy that
threshold test, then the Court must consider whether to assume jurisdiction, in
particular whether there is a serious issue to be tried on the merits, whether
New Zealand is the appropriate forum for the trial, and any other relevant
circumstances supporting an assumption of jurisdiction.
The Court began by noting that rule 6.29 requires separate consideration of
each cause of action.
The s 27(1) allegations – "Entering into..."
In relation to the allegations that Kuehne + Nagel entered into the cartel
agreements, its protest to jurisdiction was upheld. The "immediate difficulty"
for the Commission with its claims under section 27(1) was that all of the
agreements in issue were entered into outside New Zealand. As a result, section
4(1) of the Act applied:
This Act extends to engaging in conduct outside New Zealand by any person
only where that person is resident or carrying on business in New Zealand and to
the extent that such conduct affects a market in New Zealand.
The Court applied the Supreme Court's approach in Poynter v
Commerce Commission  3 NZLR 300 that "To the extent that the Act
is not explicitly extended to conduct outside New Zealand by s 4, it does not
apply." The fundamental issue was therefore whether it could be said that Kuehne
+ Nagel, a Swiss company, carries on business in New Zealand.
The Court referred to Bomac Laboratories Ltd v F Hoffman-La
Roche Ltd (2002) 7 NZBLC 103,627 where Harrison J similarly was faced with
an overseas defendant alleged to have engaged in contravening conduct in New
Zealand. In determining whether it could be said that the overseas defendants
were carrying on business in New Zealand through their local subsidiaries,
Harrison J noted that two avenues might support such a finding: agency or
piercing the corporate veil.
However, in this case, the weight of evidence showed that the New Zealand
subsidiary, Kuehne + Nagel Limited (Kuehne + Nagel NZ),
operated as a separate legal entity from Kuehne + Nagel International AG and did
not suggest an agency relationship, so the Court concluded that Kuehne + Nagel
did not carry on business in New Zealand either directly or via its wholly owned
New Zealand subsidiary. Nor was there any basis (for example, that corporate
structures were a sham) to lift the corporate veil. The Commission therefore
could not establish that entry into the alleged agreements came within the
jurisdictional limits in section 4 of the Act. Consequently, the Court declined
The s 27(2) allegations – "Giving effect to..."
Notwithstanding its conclusion that it did not have jurisdiction over the
"entry into" causes of action, the Court then considered the more difficult
question of whether Kuehne + Nagel had given effect to the provisions of the
various agreements in New Zealand.
The Court again considered Bomac where Harrison J accepted that,
while the international defendants could not be said to be carrying on business
in New Zealand through their New Zealand subsidiaries, there was a parallel
agency relationship pursuant to which the international defendants used their
New Zealand subsidiaries to give effect to agreements settled overseas but
designed to affect, inter alia, the New Zealand market.
In the present case, the Commission similarly sought to attribute conduct in
New Zealand (such that the section 4 requirements would not apply) to the
international defendants. That argument rested on section 90(2)(b) of the Act,
which provides for attribution of the conduct of a person "at the direction of
or with the consent or agreement (whether express or implied) of a director,
servant or agent of the body corporate ... " to the body corporate. The
Commission was therefore required to establish a good arguable case that Kuehne
+ Nagel NZ gave effect to the proscribed agreements on behalf of Kuehne + Nagel
at the direction or with the consent or agreement of an agent of Kuehne + Nagel.
Kuehne + Nagel's protest to jurisdiction was rejected for five of the seven
alleged cartel agreements. The High Court accepted that the implementation of
overseas agreements in New Zealand by Kuehne + Nagel via Kuehne + Nagel NZ was,
in principle, arguable. There was a sufficient factual basis for the
Commission's allegations that the cartel agreements were given effect to in New
Zealand by Kuehne + Nagel NZ at the direction, or with the consent or agreement
of, an agent of Kuehne + Nagel. The picture painted by the evidence was of
agreements entered into by the group internationally being implemented in New
Zealand through direction from overseas regional offices and the head office in
Switzerland. The Court also considered that the nature of the freight forwarding
industry, where at least three quarters of freight is paid for at destination
(i.e., in most cases a number of members within the Kuehne + Nagel group were
required to be involved to implement the agreements) was a relevant factor.
However, Kuehne + Nagel's protest in respect of the two remaining agreements
was upheld because there was insufficient evidence that the agreements were in
fact implemented in New Zealand.
This nuanced judgment represents a further evolution of the Court's approach
to jurisdiction under the Act and High Court Rules – and further confirmation
that overseas defendants will not avoid the jurisdiction of the New Zealand
Courts simply because they are operating outside New Zealand's territorial
boundaries. Leave to appeal the decision has been granted.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.