By Jack Wass, Stout Street Chambers
Introduction
The New Zealand courts have no inherent jurisdiction over foreign defendants; a plaintiff must first serve the proceedings on the defendant in accordance with the High Court Rules. But it may be difficult or impossible to serve the defendant, particularly where they are obstructive or hard to locate. If a plaintiff requires urgent intervention from the Court, to freeze assets or to prevent the defendant committing harmful conduct, the court has the power to make an order “without notice” – in other words, before the defendant is served.
How can these principles be reconciled where the plaintiff seeks urgent interim relief against a foreign defendant?
The Commerce Commission has received hundreds of complaints about the online ticket agency Viagogo. It brought proceedings alleging that Viagogo violates the Fair Trading Act 1986. Viagogo is a company incorporated in Switzerland, operating through a website in New Zealand but with no physical presence here. The Commerce Commission sought an interim injunction preventing Viagogo from making certain misleading representations while the substantive case proceeds.
Viagogo has not yet been served, and it will apparently take six months to serve it through consular channels in Switzerland. It is aware of the proceedings, however, and sent a lawyer to the hearing. The interim injunction hearing thus proceeded on a “Pickwick basis”, which means that the defendant is permitted to make submissions even though formally it has not been served.
In a judgment released on 18 February 2019 (Commerce Commission v Viagogo AG [2019] NZHC 187), Courtney J held that the High Court had no jurisdiction to make an interim injunction. Even if the Fair Trading Act 1986 applied to Viagogo, the Court’s jurisdiction over a foreign defendant depends on service. The Court could not make any orders against Viagogo until it had been formally served in Switzerland. If the circumstances were truly urgent, the plaintiff could request permission for “substituted service” through alternative means (which would often be email). Otherwise the Court had no jurisdiction.
The practical implications of this approach are obvious, and the case gives rise to a number of interesting questions:
(1) Why is the Commission required to serve the proceedings through consular channels in Switzerland?
(2) It is right that the Court cannot grant interim relief without notice against foreign defendants?
(3) Can this problem be avoided by ordering substituted service?
Service of proceedings in Switzerland
A layperson may find it incredible that it would take six months to serve documents on Viagogo. The reason is that service is a formal process – an exercise of sovereignty – that must be completed in compliance with the law of the place where the defendant is located.
Under the High Court Rules, proceedings are usually served by “personal service”, where the documents are physically handed to the defendant in the manner familiar from television shows. Where the defendant is a company, the plaintiff could ordinarily serve them by leaving the documents at their registered office or even a branch. However it is also possible to serve a foreign defendant through any method of service that is permitted by the law of the place of service, or through official channels.
Rule 6.32(4) makes it clear, however, that service will be invalid if it is “effected contrary to the law of the country where service is effected.” Unlike New Zealand, many European countries regard service as an official act that cannot be completed by private lawyers or process servers. Valid service can only be effected through certain official channels.
Switzerland is such a country. Where there is no international agreement in place (and in this case there is not, because New Zealand has not ratified the Hague Service Convention 1965), then a plaintiff can only serve proceedings through consular channels (see Federal Office of Justice International Judicial Assistance in Civil Matters, 11 (https://www.rhf.admin.ch/dam/data/rhf/zivilrecht/wegleitungen/wegleitung-zivilsachen-e.pdf)). It is illegal to serve documents within Switzerland by any other means, including by post, under Article 271 of the Swiss Criminal Code.
It is presumably for this reason that the Commission conceded that Viagogo could only be served through consular channels.
One alternative should be kept in mind. A plaintiff is not restricted to suing a multinational company at its place of incorporation, but may also serve the proceedings on a branch office in a third country. This is because a company is regarded as being “present” wherever it has a fixed place of business. Where the third country has less restrictive rules about service of process, it may be much easier to serve the defendant in this way.
Can the Court grant interim relief without notice against foreign defendants?
The question of whether the New Zealand courts have jurisdiction to grant interim injunctions against foreign defendants before service is vexed.
This issue arises most often in the context of freezing orders (formerly known as Mareva injunctions), where the plaintiff wishes to freeze assets to prevent them being dissipated before judgment. The New Zealand courts often grant freezing orders without notice against foreign defendants, as do the English courts, although according to the approach adopted in Viagogo they have no jurisdiction to do so.
I discussed this issue in a blog post published in September 2018 (https://blogs.otago.ac.nz/conflicts/2018/09/29/does-the-court-have-jurisdiction-to-grant-interim-relief-without-notice-against-foreign-defendants/). In Discovery Geo Corporation v STP Energy Pte Ltd [2013] 3 NZLR 122, Kós J doubted whether the Court had any jurisdiction to grant an interim injunction until the defendant had been served, and the position appears to be the same in Australia (ANZ Grindlays Bank plc v Fattah (1991) 4 WAR 296.
A different approach was taken by the High Court in Equipment Finance Ltd v C Keeton Ltd (1999) 13 PRNZ 319. The Court found that it was sufficient for the plaintiff to establish ‘interim jurisdiction’ against non-resident defendants that they could properly be named as parties to the substantive action and the applicant would have the right to serve them outside the jurisdiction in due course, and there is a good arguable case that New Zealand will be the appropriate forum. While the defendants retain the right to object to jurisdiction on the usual grounds, this does not deprive the court of the ability to grant interim relief in the meantime.
On these authorities there is a direct clash between pragmatism and principle. The service rules recognise that the New Zealand courts have no inherent jurisdiction to regulate the conduct of overseas defendants; to join a foreign defendant to proceedings is an extraterritorial exercise of sovereignty that should not be permitted without express statutory authority. On the other hand, the Equipment Finance approach recognises that it may not be possible to serve a foreign defendant in time, particularly where the circumstances are urgent, and protects the defendant’s position by requiring the plaintiff to demonstrate that it has a good arguable case that service out of the jurisdiction will be permitted in due course, and that New Zealand will be the appropriate forum (see for a useful discussion Tim Stephens and Sarah Armstrong Injunctions and Other Relief (NZLS Seminar, October/November 2018) at 50).
In the absence of legislative reform, this remains an issue that justifies the consideration of the Court of Appeal. At the moment the only judgment from that Court is Advanced Cardiovasvular Systems Inc v Universal Specialties Ltd [1997] 1 NZLR 186, which involved a very different situation – an application for summary judgment, not an interim measure. The question must be analysed in the specific context of urgent interlocutory relief, particularly where prior notice to the defendant may compromise the effectiveness of the Court’s order.
Can the Court avoid this problem by ordering substituted service?
Rule 6.8 of the High Court Rules provides that if reasonable efforts have been made to serve a document by a method permitted under the Rules, the Court may direct that the document be brought to the attention of the defendant by other means, and be treated as being served. This mechanism is frequently used in the domestic context where the defendant is deliberately evading service; defendants will commonly be served by email or social networking site.
Substituted service will be no comfort to a plaintiff who wishes to obtain an order before the defendant is warned about the application, but could it be used in a case like Viagogo?
In Exportrade Corp v Irie Blue New Zealand Ltd (2013) 21 PRNZ 680, the Court of Appeal confirmed that substituted service was available on foreign defendants. The plaintiff would still need to show that the usual grounds for service were made out (either service without leave under Rule 6.27 or service with leave under Rule 6.28). It was not entirely clear from the Court’s judgment whether such service would be treated as service in New Zealand or outside New Zealand. This was clarified in 2017, when clause (2) was added to Rule 6.18:
(2) If a direction is given under subclause (1)(a) in respect of a document, the document must be treated as having been served at the place—
(a) at which the document is likely to have come to the attention of the person to be served; or
(b) where that person was or is likely to have been on the happening of the event or the expiry of the time specified under subclause (1)(a)(ii).
The Rules Committee explained that this amendment was not intended to affect the conditions for service out of the jurisdiction under Rules 6.27 and 6.28, but to clarify where the defendant is treated as having been served (Circular 105 of 2015). It means that a foreign company will almost always be treated as having been served in its place of incorporation or place of business.
English cases have suggested that substituted service may be used in the context of without notice applications. In Cecil v Bayat [2011] 1 WLR 3086 at [68] the Court of Appeal assumed that the courts had the power to grant an injunction without notice, and implied that substituted service may be appropriate to enable the injunction to be promptly served on the defendant (see also BVC v EWF [2018] EWHC 2674 (Admin) where substituted service was directed against a defendant in Switzerland).
It is doubtful whether substituted service should be used in this way as a matter of principle. The purpose of the rule is to enable the Court to deal with defendants who are evading service or cannot be located by any of the usual methods; it is not a means of avoiding jurisdictional rules. New Zealand law recognises that service should not be effected contrary to foreign law out of respect for the territorial sovereignty of the foreign state, and it is not appropriate to use substituted service to circumvent those rules. The UK Supreme Court has confirmed that substituted service cannot be ordered in a manner contrary to the law of the country where service will take place (Abela v Baadarani [2013] 1 WLR 2043).
The amendment to the High Court Rules makes this clear. Substituted service on a Swiss corporation who has no employees in New Zealand will be treated as having taken place in Switzerland. Since Swiss law prohibits service by any means other than consular channels, any form of substituted service would be invalid. It follows that substituted service is not an available solution to the problem created by Viagogo.
