LAWFUEL – The Legal Newswire – By Jenny Cooper, Senior Associate | Wednesday 20 June 2007
An abridged version of this article was first published in NBR, 15 June 2007.
New proposals to extend Australian Commonwealth rules for court proceedings to New Zealand will increase the risk for New Zealand individuals and businesses of being sued in Australia, and vice versa.
New Zealanders may also find themselves at the end of significant fines imposed under Australian law and enforceable in New Zealand – much steeper than fines handed down for similar offences under the equivalent New Zealand laws.
Outline of proposals
The Australian and New Zealand governments have just announced (25 May 2007) that they have agreed to proposals by a trans-Tasman working group to reform current arrangements for serving of legal proceedings and enforcement of judgments between the two countries. The proposals form part of a wider government agenda for the trans-Tasman harmonisation of regulatory frameworks to create a “single economic market” between Australia and New Zealand.
In summary, the changes proposed are:
a new regime for the cross-border service of proceedings between Australia and New Zealand based on the Australian Service and Execution of Process Act 1992 (Cth), (known as SEPA), which governs the service of proceedings between states in Australia;
new rules making a greater range of judgments of New Zealand and Australian courts and tribunals enforceable across the Tasman, including civil and criminal fines and penalties and non-monetary judgments such as injunctions; and
a number of miscellaneous measures relating to the harmonisation of jurisdictional rules, extension of the availability of trans-Tasman subpoenas, and court appearances by video link or telephone.
Increased burden on defendants and risk of conflicting judgments
While the aim of reducing litigation costs for businesses and individuals who operate across the Tasman is a worthy one, the adopted proposals are more likely to have the opposite effect through increasing the scope for jurisdictional disputes. They also overlook important issues of fairness and the need to avoid the risk of competing judgments.
The main problems raised by the proposal to replace the current service rules with the SEPA model are:
The proposals contain insufficient safeguards to protect defendants. A plaintiff will not have to establish any particular connection between the proceedings and the place where they have been commenced to be allowed to serve a defendant in the other country. This has cost implications for defendants who will bear the burden of demonstrating to the court that the proceedings should be brought in another jurisdiction.
The lack of any restrictions on where proceedings may be filed will encourage forum shopping, whereby litigants compete to file in the most favourable jurisdiction (or that which is most inconvenient to the other side). This will increase the amount of time and money spent in jurisdictional disputes. Another risk is that large companies may seek to consolidate their debt recovery processes in one jurisdiction, on the basis that it will not be worthwhile for small debtors to make a challenge.
The SEPA rules were developed to deal with service issues in Australia and are not suitable in an international situation. There is a difference between an Australian court exercising automatic jurisdiction over a person who is resident in another state within Australia and doing so over a person who is resident in New Zealand. Whether an Australian resident is sued in their home state or another state, they are still being sued in their own country and may still have recourse to the overarching jurisdiction of the Australian federal laws and courts. In contrast, while Australia and New Zealand have very close ties, they are separate countries with separate judicial, legislative and administrative structures.
The fact that Australia and New Zealand have entirely separate judicial systems creates the practical problem that there is no trans-Tasman court to resolve any conflicts that may arise between competing judgments of the Australian and New Zealand courts. While this situation may be rare, it will create a serious issue under the new proposals as both Australian and New Zealand judgments will be entitled to automatic enforcement in both countries. The goal of harmonisation may also be undermined by the Australian and New Zealand courts taking different approaches to the interpretation and application of the new rules. There is nothing in the proposals to address these issues.
While a number of the proposed reforms, (such as those dealing with appearances by telephone or video link), are welcome and will help to reduce costs for trans-Tasman litigants, these could be implemented relatively simply without the need to replace the existing framework for the service of proceedings.
Higher fines for business
A separate effect of the proposed reforms is that New Zealand businesses and individuals who operate in trans-Tasman or Australian markets will be exposed to the risk of fines and penalties imposed by the Australian courts following prosecutions by Australian regulators. Currently, fines imposed in Australia cannot be enforced in New Zealand. This is in accordance with the internationally accepted rule that the courts of one country will not enforce the penal or public laws of another.
While the close relationship between Australia and New Zealand may justify removing the protection of this rule, New Zealand businesses and individuals need to be aware that, once the proposals are put into effect, they will be directly exposed to Australian regulatory enforcement, including higher fines and penalties from across the Tasman. For example, the maximum fines under the Australian Trade Practices Act for misleading and deceptive conduct are $A$1.1 million for companies or A$220,000 for individuals, compared with NZ$200,000 for companies and NZ$60,000 for individuals under New Zealand’s Fair Trading Act.
At what cost?
Although improving the ease of service of proceedings and enforcement of judgments between Australia and New Zealand might intuitively appear a positive step, rather than reducing the costs of conducting business across the Tasman, the current proposals risk significantly increasing them. New Zealand businesses and individuals will be exposed to an increased risk of being inappropriately sued in Australia, and to the significantly higher fines imposed by Australian commercial legislation.
The problems with these proposals reinforce the need for New Zealand policymakers to scrutinise individual proposals for trans-Tasman harmonisation carefully. In particular, there is a worrying tendency for New Zealand to simply adopt Australian rules in the belief that all harmonisation is good, without sufficient consideration of whether those rules are in fact suitable for New Zealand. Instead of starting from the assumption that harmonisation with Australia is the best way forward on every issue, we should look for solutions in each case that are likely to achieve the best results for New Zealand’s economy and legal system.
For further information please contact Jenny Cooper.