News
Overseas defendants stay in Commission's line of sight
First published in Competition Matters, NZLawyer, 3 April 2008.
The Court of Appeal's ruling in the long running Koppers Arch Commerce Act litigation represents a significant victory for the Commerce Commission in confirming the territorial reach of the Act to overseas defendants.
On 18 March 2009, the Court of Appeal (Harris & Ors v Commerce Commission [2009] NZCA 84) upheld the 2007 decision of Justice Hugh Williams when it found that the Commerce Act can apply to persons who are alleged to have entered into arrangements or understandings offshore that are directed at New Zealand markets even where those persons:
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are not resident or carrying on business in New Zealand; and
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have not personally engaged in any conduct in New Zealand or sent communications to New Zealand.
The appellants are three individuals who reside overseas. The Commission alleges they were involved in reaching understandings in two New Zealand markets for wood preservatives and that those understandings constituted breaches of the Act. Some parties have already admitted liability and had financial penalties imposed.
The appellants lodged protests to jurisdiction in the High Court, arguing that the Act did not apply to them as overseas defendants, as well as denying involvement in the conduct alleged. The appellants pointed to section 4(1) of the Act, which provides:
This Act extends to the engaging in conduct outside New Zealand by any person resident or carrying on business in New Zealand to the extent that such conduct affects a market in New Zealand.
The appellants argued that the coverage of the Act was "pushed out" to overseas conduct only in the circumstances specified in section 4. The Court rejected this argument. As the Act does not address the situation of a person not resident or carrying on business in New Zealand, the Court had to consider the position of such persons as a matter of statutory interpretation, keeping in mind the policy and purposes of the Act.
Three factors were decisive.
Actual conduct in New Zealand not required
First, the appellants argued that some conduct in New Zealand should be required for the Act to apply. As the Commission had accepted the appellants had not personally engaged in any relevant dealings in New Zealand (except the alleged attendance at one meeting in New Zealand by one of the appellants) that requirement was not met. The Court rejected this. While accepting that a case is likely to be stronger if an overseas person has acted personally in New Zealand (by, for example, sending relevant communications to New Zealand or attending relevant meetings in New Zealand), the Court found such personal action was not a pre-requisite to liability.
[I]t is sufficient that the communications or directions in furtherance of the anti-competitive arrangement were given to New Zealand actors while they were overseas. If the New Zealand actors then acted in New Zealand to give effect to the anti-competitive arrangement, they can properly be regarded as having acted at the direction of, or on behalf of, the overseas residents in that respect. The overseas residents will be regarded as having committed conduct in New Zealand, and s4(1) will be irrelevant.
Anti-competitive behaviour and conspiracy
Second, the Commission sought to draw an analogy between the anti-competitive understandings alleged and the criminal concept of conspiracy. The Court agreed this was an appropriate analogy to assist in interpreting the intended territorial scope of the Act. At common law, the principles of territoriality around conspiracy are wide so that, for example, a conspiracy formed abroad to do an illegal act in, say, England could be prosecuted in England even though no overt act had occurred in England to further the conspiracy.
The Court found this analysis and reasoning useful in understanding the important policy considerations of the Commerce Act. As the concept of conspiracy is incorporated into the Act, the Court considered that was an indication that Parliament intended the Act to have extraterritorial application in circumstances beyond those referred to in section 4.
Increased globalisation
Third, an apparently influential factor in the Court's decision is its frequent reference to the effects of increased globalisation. The Court considered its approach "reflects the realities of globalisation" and that "legal analysis must reflect the reality of increased globalisation, and this is a particularly powerful factor in a case such as the present".
Taking these factors together, the Court found that the Act can apply to the appellants and a full trial on the Commission's allegations against them could now proceed.
In reaching this conclusion, the Court has extended the territorial reach of the Act. An entity cannot insulate itself from liability in New Zealand by entering into an anti-competitive arrangement overseas directed at a New Zealand market, take care not to hold meetings in, or to even send communications to, New Zealand about the arrangements and then implement the arrangement in New Zealand through local entities.
Although the decision is positive for the Commission, the Court notes that while there is jurisdiction under the Act in these circumstances "[t]he Commission may face practical problems in seeking to hold such entities to account". This may be so, but the Commission has already shown itself to be a litigant who is not afraid of long and difficult battles.
