Securities Commission v Midavia Rail Investments BVBA HC Auckland CIV 2004-485-2174
[2005] NZHC 1210
•28 September 2005
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2004-485-2174
UNDER The Securities Markets Act, s 18A
IN THE MATTER OF share trading in Tranz Rail Holdings
Limited now Toll New Zealand Limited
BETWEEN SECURITIES COMMISSION Plaintiff
AND MIDAVIA RAIL INVESTMENTS BVBA First Defendant
ANDBERKSHIRE FUND III, A LIMITED PARTNERSHIP
Second Defendant
ANDM J BEARD (DISCONTINUED) Third Defendant
ANDM A L BLOOMER (DISCONTINUED) Fourth Defendant
ANDC FERENBACH Fifth Defendant
ANDD M RICHWHITE Sixth Defendant
Hearing: 4, 5, 18 and 19 July 2005
Counsel:Douglas J White QC and Jason McHerron for plaintiff Alan Galbraith QC, Roger Partridge and David Cooper for 1st and 6th defendants (on 4 and 5 July 2005)
Alan Galbraith QC and Jenny Cooper for 1st and 6th defendants
(on 18 and 19 July 2005)Miriam Dean QC, Michael Morrison and Jane Anderson for 2nd and 5th defendants (on 4 and 5 July 2005)
David A R Williams QC, Miriam Dean QC and Campbell McLachlan for 2nd and 5th defendants (on 18 and 19 July 2005)
Judgment: 28 September 2005
JUDGMENT OF WILLIAMS J
SECURITIES COMMISSION V MIDAVIA RAIL INVESTMENTS BVBA And Ors HC AK CIV 2004-485-
2174 [28 September 2005]
This judgment was delivered by
Hon. Justice Williams on
Wednesday, 28 September 2005 at 3:00pm pursuant to r 540(4) of the High Court Rules
……………………………..
Registrar/Deputy Registrar
Date: ……………………...
Solicitors:
Crown Law (Jason McHerron) P O Box 2858 The Terrace, Wellington, for plaintiff
Email: jaso[email protected]
Bell Gully (Jenny Cooper) P O Box 4199 Auckland, for 1st and 6th defendants
Email: jenny[email protected] Email: roge[email protected] Email: [email protected]
Lowndes Jordan (Michael H Morrison) PO Box 5966 Auckland, for 2nd and 5th defendants
Email: [email protected]
Copy for:
Douglas White QC, P O Box 5335 Wellington.
Email: [email protected]
Robert A Dobson QC, PO Box 5339 Wellington
Email: [email protected]
Alan R Galbraith QC, PO Box 4338 Auckland
Email: [email protected]
DAR Williams QC, PO Box 405 Auckland
Email: david[email protected]
Miriam R Dean QC, PO Box 4111 Auckland
Email: [email protected]
Tanusha Iyengar/Samuel Taylor-Alexander, Commercial List, High Court Auckland
Campbell McLachlan, c/- Victoria University, Wellington
TABLE OF CONTENTS
Part 1
Paragraph
(a) Introduction and issues [1] (b) Statutory provisions [5]
Part 2
(a) Submissions, authorities and preliminary discussion
re R418 questions [16]
(b) Further discussion:
(i) General [84] (ii) Question 1: Whose cause of action? [90] (iii) Questions 2 and 3:
Statutory elements of cause of action [105] (iv) Reasonable discoverability [109]
Part 3: Berkenshire/Ferenbach protest to jurisdiction
(a) Background and issues [131] (b)
Ex parte application for leave to serve overseas
[133]
(c)
Rules 219-220
[137]
(d)
Preliminary points
[138]
(e)
Parties’ positions: Cockburn v Kinzie Industries Inc,
Kuwait Asia Bank EC v National Mutual Life Nominees
Re Harrods (Buenos Aires) Ltd[149]
(f)
Submissions and discussion on substantive points
[158]
(g)
Discussion and decision
[181]
Part 4: Result [191]
Part 1:
(a) Introduction and Issues
[1] Broadly put, in this claim the Securities Commission alleges against all defendants insider trading or tipping in the shares of Tranz Rail Holdings Ltd within the meaning of the Securities Markets Act 19881. Before and during the period in which the defendants are said to have breached their obligations under the Act by selling shares, Midavia, the first defendant, was a substantial security holder in Tranz Rail, the third defendant, Mr Beard (who has settled with the Commission), was
Tranz Rail’s managing director and Chief Executive Officer, Mr Bloomer, the fourth defendant (who has also settled with the Commission), was Tranz Rail’s Chief Financial Officer and Executive Manager, Mr Ferenbach, the fifth defendant, was managing director and corporate representative of Berkshire Fund III, the second defendant, and its representative on the board of Tranz Rail, and Mr Richwhite, the sixth defendant, was a director of both Tranz Rail and Midavia and Midavia’s representative on the Tranz Rail board.
[2] The inside information about Tranz Rail which each of the defendants is alleged to have had is set out at some length in the original claim as is its asserted materiality to the price of Tranz Rail’s shares. The claim alleges that, in breach of their obligations under the Act, all defendants other than Mr Richwhite sold Tranz Rail shares over the period 8 February 2002-24 May 2002. Against all those defendants, the Commission asserts they traded whilst in possession of inside information concerning Tranz Rail which, if publicly available, would have resulted in the price of its shares being lower than that at which they sold. They thus avoided losses on their shares. The Commission seeks relief by way of a declaration that each of those defendants is liable as an insider to pay compensation of up to 40% of the proceeds received from the sale of their shares plus pecuniary penalties in an amount considered appropriate by the Court.
1 All references in this judgment to the “Act” are to the Securities Markets Act 1988 unless specified otherwise.
[3] Separate causes of action are brought against Messrs Ferenbach and Richwhite for tipping Berkshire and Midavia respectively, thus enabling them to avoid losses on their share sales. Similar relief is sought.
[4] This judgment deals with four substantial issues :
a) determination of the following agreed questions under R 418 as preliminary matters of law:
1. Whether, for the purposes of s4(5) of the Limitation Act
19502, when the Commission commences an action for pecuniary penalties pursuant to the provision of sections
18A and 18B of the Act, it is the Commission’s own cause of action, or is the cause of action of the public issuer, the shares of which have been the subject of the trading to which the action relates; and
2. what factors must exist before a cause of action under section 7 or section 9 of the Act has accrued for the purposes of s 4(5); and
3. whether reasonable discoverability applies to the cause of action for pecuniary penalties.
b)Protests to jurisdiction by Berkshire/Ferenbach, partly based on the limitation matter raised in the R 418 questions but more particularly based on the granting, under R 220, of leave to serve them outside New Zealand.
(b) Statutory provisions
[5] Bearing in mind the R 418 questions focus only on the claim for pecuniary penalties, the limitation period for those questions is s 4(5) which relevantly reads :
2 All references in this judgment to “s 4(5)” are references to the Limitation Act 1950 s 4(5).
4 Limitation of actions of contract and tort, and certain other actions
(5)An action to recover any penalty or forfeiture, or sum by way of penalty or forfeiture, recoverable by virtue of any enactment shall not be brought after the expiration of 2 years from the date on which the cause of action accrued:
[6] The trading in Tranz Rail shares which is now in issue in this claim occurred on 8 February 2002 (Midavia) and 12 February 2002 (Berkshire/Ferenbach). This claim was not commenced until 13 October 2004. Contrasting those dates shows that, unless reasonable discoverability applies to the action for pecuniary penalties, that claim was brought outside the time bar in s 4(5).
[7] Turning to the form of the Act, the claim for insider trading is based on s 7(2)(c) and asserts the defendants against whom those claims are brought were in possession at the time of the share sales of “inside information”. That, in terms of s 2(1), was information not publicly available which would, or be likely to, affect materially the price of the public issuer’s securities if publicly available. Having sold securities, such persons can be liable to buyers, sellers and the public issuer for the amount of gains made or losses avoided by the insider in those trades plus amounts considered by the Court to be appropriate pecuniary penalties. Section 7(4) limits the amount of those penalties to the greater of the consideration for the securities or thrice the gains made or losses avoided.
[8] Advising or encouraging people to buy or sell the public issuer’s securities is described by s 9 as tipping and makes an insider of a public issuer with inside information liable to the public issuer and the others mentioned for gains made or losses avoided by buyers or sellers and pecuniary penalties with the latter capped at the greater of the combined consideration for the securities or, again, thrice the gains made or losses avoided.
[9] Section 15 prescribes the method of calculating losses or gains in relation to shares and s 16 requires the Court, when determining pecuniary penalties, to have regard to all relevant matters including the nature and extent of the insider’s dealing, the extent of the gains made or losses avoided by the insider or others, the nature and
extent of any previous liability of the insider and the relationship of the parties to the transaction giving rise to the insider’s liability.
[10] Under s 17 a holder or previous holder of securities in the public issuer who considers the public issuer may have a cause of action against an insider may require the issuer to obtain an opinion from a barrister or solicitor approved by the Commission as to whether the public issuer has such a claim. The shareholder gives prior notice to the Commission and the opinion cannot be ordered without its approval but s 17(1A) requires the Commission to give approval if satisfied the opinionist is independent and there is a serious issue to be determined as to the existence of the cause of action. Once obtaining the opinion has been approved and notified to the public issuer, the issuer is required to provide the opinionist with all relevant information. After considering the information, representations made by the complainant and public issuer and other relevant matters, the opinionist advises the public issuer whether it has a cause of action against the insider (s 17(3)). Copies of the opinion go to the Commission and all security holders present or holding securities at the relevant time (s 17(4).
[11] Sections 18, 18A and 18B bear on the R 418 questions. They relevantly read:
18 Shareholders may exercise public issuer’s right of action
(1) The right of action of a public issuer against an insider may, with the leave of the Court, be exercised by —
(a) A holder of securities of the public issuer; or
(b)A person who was a holder of securities of the public issuer at the time the securities in the public issuer, or any other public issuer, were sold or purchased.
(2)The Court shall give leave to bring an action unless it is satisfied that —
(a)The public issuer does not have an arguable case against the insider; or
(b) There is good reason for not bringing the action.
(3)In any case where a proceeding has been commenced by a public issuer against an insider —
(a) A holder of securities of the public issuer; or
(b)A person who was a holder of securities of the public issuer at the time the securities in the public issuer, or other public issuer, were bought or sold —
may, with the leave of the Court, take over the conduct of the proceeding.
(4)The Court shall give leave to take over the conduct of a proceeding unless it is satisfied that —
(a)The public issuer is conducting the proceeding in a proper manner; or
(b) There is good reason for not continuing the proceeding.
(5)The public issuer shall pay the costs of a person to whom leave is given under this section in bringing or continuing a proceeding against an insider irrespective of the result, and, if costs are awarded against that person, shall also pay those costs.
(6)The Court may make an order requiring the public issuer or the directors to provide information or assistance in relation to a proceeding brought or taken over under this section.
18A Commission may exercise public issuer’s right of action
(1)The Commission may exercise a public issuer's right of action against an insider in accordance with section 18B if it considers that it is in the public interest to do so.
(2)In conducting proceedings under this section, the Commission must act in the public interest, but (subject to that duty) may take into account the interests of the public issuer.
18BRequirements for Commission exercising public issuer’s right of action
(1) The Commission may commence proceedings under section 18A
without the leave of the Court only if—
(a)the public issuer or another person has not yet commenced proceedings in exercise of that right of action; and
(b)the Commission gives written notice of its intention to bring proceedings to the public issuer; and
(c)within 10 working days of the Commission giving that notice, the public issuer does not—
(i)commence proceedings in exercise of that right of action; or
(ii) give written notice to the Commission that it objects to the Commission bringing the proceedings or controlling the conduct of the proceedings.
(2) The Commission may, with the leave of the Court,—
(a)commence proceedings under section 18A if the public issuer objects under subsection (1)(c)(ii); or
(b)take over proceedings under section 18A if proceedings have been commenced by the public issuer or another person in exercise of that right of action.
(3) The Court must give leave if it is satisfied that it is in the public interest for—
(a) the proceedings to be brought or continued; and
(b)the Commission, rather than the public issuer or other person, to control the conduct of the proceedings.
The Commission decided to exercise what s 18A calls Tranz Rail’s cause of action against the defendants and filed this proceeding considering it was in the public interest so to do. It gave Tranz Rail the notice required by s 18B on 28 September
2004 and received a letter from Tranz Rail dated 7 October advising it had no objection to the Commission commencing the claim.
[12] The Court has wide powers to give directions in relation to proceedings brought or taken over under ss 18 and 18B, including granting the Commission interim relief (s 18D) and debarring public issuers or other persons from settling, compromising or discontinuing such proceedings without Court approval (s 18E).
[13] Of the other provisions of the Act, it is at this stage pertinent only to note that Part 3 gives the Commission wide-ranging investigative and enforcement powers including the power to compel production of documents and be given information.
[14] Several sections of the Act contain express limitation provisions. They include s 64 extending the period within which informations for offences may be laid to 3 years “after the date of the offence” and ss 19L and 19M which give the Court power to make compensatory orders and impose pecuniary penalties for breach of a public issuer’s continuous disclosure obligations. The limitation period for the former is in s 19M(4) which reads :
An application [for compensatory orders] may be made at any time within 3 years after the date on which the loss or damage, or the likelihood of loss or damage, was discovered or ought reasonably to have been discovered.
and that for pecuniary penalties appears in s 19L(5) which reads :
An application [for pecuniary penalties] may be made at any time within 3 years after the date on which the matter giving rise to the contravention was discovered or ought reasonably to have been discovered.
[15] It is relevant to note that ss 7, 9, 16, 17 and 18 were enacted as part of the Securities Amendment Act 1988 which came into force on 21 December 1988. Sections 18A-E and ss 19L and 19M were enacted as part of the Securities Markets Amendment Act 2002 and came into force on 1 December 2002, some eight months after the share trading with which this claim is concerned.
Part 2:
(a) Submissions, authorities and preliminary discussion re R 418 questions
[16] In relation to the first and second questions, Mr Galbraith QC, senior counsel for Midavia/Richwhite, made the point that those to whom an inside trader or tipper may be liable under ss 7(2) and 9 do not include the Commission. Naturally, he emphasised the various provisions in the statute, particularly ss 18 and 18A, which expressly state the right of action for insider trading and tipping is that of the public issuer. Any other interpretation would render the liability caps in ss 7(3) and 9(3) inapplicable and s 19 deliberately equated the uses to which recoveries by the public issuer could be put, irrespective of whether the public issuer or the Commission conducts the claim. A prerequisite to the Commission commencing proceedings without leave under s 18B was that the public issuer or others had not begun proceedings in exercise of “that right of action”, that being the right of action under s 18A, with that, in its turn, being the public issuer’s right of action under s 18. If the Commission obtains leave under s 18B(2)(b) to take over existing proceedings issued by the public issuer or another that, it was submitted, did not change the cause of action from one vested in the public issuer to one vested in the Commission.
[17] In addition to the words of s 4(5) he drew support from the definition of “action” in s 2 of the Limitation Act as meaning “any proceeding in a court of law other than a criminal proceeding”. He also drew support from s 28 of that Act extending commencement of limitation periods in actions based on fraud, concealment by fraud and mistake until discovery of the fraud or mistake or when
the plaintiff “could with reasonable diligence have discovered it”. Express enactment of a reasonable discovery provision in s 28 highlighted its absence from ss 7 and 9 of the Act, particularly when ss 32 and 33 of the Limitation Act bind the Crown but provide that the Act does not apply to actions “for which a period of limitation is prescribed by any other enactment”.
[18] Mr Galbraith submitted further support for that argument could be derived from the fact that Parliament has not, to date, adopted the Law Commission’s recommendations for standard limitation periods to be extensible by lack of knowledge of essential facts but with a “long-stop” limitation period of 15 years from the date of the act or omission on which the claim is based (NZLC Report No.6 “Limitation Defences” October 1988) or providing for the limitation period not to begin until the plaintiff discovers the facts on which the claim is based or “could with reasonable diligence” have discovered them with, in that case, a “long-stop” period of 10 years (NZLC Report N 61 “Tidying the Limitation Act” July 2000). Parliament’s response, he noted, had been to enact specific amendments rather than adopt the general recommendations. Sections 19L and 19M, the Fair Trading Act
1986 s 43(5) and the Building Act 1991 s 91 and the Building Act 2004 s 393 were examples. He contended that Parliament in enacting ss 19L and 19M in 2002, indicated both an intention not to provide a special limitation régime in relation to insider trading and tipping claims for pecuniary penalties and an acceptance that s
4(5) should apply on its plain words with no reasonable discoverability component added.
[19] Mr Galbraith said the Securities Legislation Bill currently before the Commerce Select Committee proposes a limitation period of two years in insider trading actions from the “date on which the matter giving rise to the contravention was discovered or ought reasonably to have been discovered”.
[20] With specific reference to the first question, Mr Galbraith submitted that, at least for present purposes, the phrase “right of action” in s 18 was synonymous with “cause of action”. For the purposes of limitation in cases of disability and the like, s 2(7) of the Limitation Act expressly provides that “references to a right of action shall include references to a cause of action”. Some cases use the phrases
interchangeably (Colonial Mutual Life Assurance Society Ltd v Wilson Neill Ltd (No.2) [1993] 2 NZLR 657, 666, 679) though two members of a five Judge Court of Appeal distinguished between the two (Pacific Coilcoaters Ltd v Interpress Associates Ltd [1998] 2 NZLR 19, 28) in actions for recovery of land because such actions “do not depend upon the accrual of a cause of action but are existing vested rights which it is desired to enforce”.
[21] Though accepted by all as obiter, Midavia/Richwhite nonetheless pointed to the Court of Appeal saying the cause of action in insider and tipping cases is that of the public issuer in its judgment on the suitability of this case for the Commercial List. It observed (Securities Commission v Midavia Rail Investments BVBA et al CA28/05 14 March 2005 at [29]-[30]):
The Securities Commission is bringing its action against the respondents under s 18A of the Securities Markets Act. The Commission is in fact exercising the public issuer’s rights of action. …
The Commission is standing in the place of Toll NZ. We accept
Mr Galbraith’s rejoinder to Mr Dobson’s argument. Mr Galbraith submitted:
The appellant has no cause of action in its own right. Therefore, the underlying cause of action is a claim between private commercial parties namely Toll NZ Limited, a public issuer, and certain of its former shareholders. The fact that the claim is being exercised in this instance by the appellant, a regulatory body, cannot alter the fundamental nature of the claim.
[22] Mr Galbraith submitted the Court of Appeal’s view was consistent with similar cases on point. In Colonial Mutual (supra at 660) Heron J described the central issue as being who should “instigate a statutory cause of action belonging to a publicly listed company against insiders for insider trading”. On appeal (Colonial Mutual Life Assurance Society Ltd v Wilson Neill Ltd[1994] 2 NZLR 152, 156) the Court noted that :
… under s 18 the right of action of a public issuer against an insider may be exercised, with the leave of the Court, by any member or past member at the material time.
and in Haylock v Southern Petroleum NL [2002] 3 NZLR 518, 550 at [137], Fisher J
held :
The object of ss 18 and 19 was plainly to allow aggrieved past and present shareholders to access the organisation and funds of their company for the purpose of having it sue insiders on their behalf.
[23] Mr Galbraith next relied on the Commission’s pleadings as accepting it was exercising Tranz Rail’s cause of action.
[24] There is force in that contention. Para 1 of the claim pleads the Commission is “suing in the exercise of the right of action of Tranz Rail … as provided by s 18A” and in para 9 that it made a decision under s 18A “to exercise the right of action which Tranz Rail has against the defendants”.
[25] Further, Mr Galbraith made the telling point that if the Commission is correct in arguing that s 18A creates a new cause of action rather than one vested in Tranz Rail which the Commission is exercising on its behalf, it must recognise that s 18A did not come into force until 1 December 2002 and the trades giving rise to the present claims occurred some eight months earlier With no express retroactive operation, that plainly militates against the Commission’s interpretation of s 18A on the first R 418 question.
[26] On the second question as to factors which must exist before a cause of action for insider trading or tipping accrues under s 4(5), Mr Galbraith submitted all that was required was demonstration that the particular defendant possessed insider information and bought or sold securities in the public issuer or advised or encouraged others to buy or sell and, in so doing, realised a profit or loss not available to those lacking such information.
[27] Anticipating the Commission’s argument that, when it acted under ss 18A and 18B, all the elements of those sections must exist before the cause of action accrued, Mr Galbraith first made the point that if the Commission is bringing or taking over the public issuer’s cause of action, logically it cannot be right that the procedure in ss 18A or 18B must be complied with prior to the cause of action accruing. Were that so, he said, the limitation period for the public issuer’s cause of action could expire before it or shareholders issued proceedings, but the Commission
could later still bring the same claim – including for penalties - by complying when it chose with the sections’ procedural requirements.
[28] He submitted it was well established that, absent express statutory provision, procedural prerequisites as to the commencement of proceedings do not prevent accrual of causes of action and limitation periods beginning to run. Limitation periods frequently begin before potential plaintiffs can sue. Coburn v Colledge [1897] 1 QB 702 held the limitation period for solicitor’s costs ran from the time the bill was rendered even though the relevant statutes prevented the solicitor suing for recovery until one month had passed.
[29] In Pacific Coilcoaters 16 years elapsed between a patent application and its grant. By then, the patent had expired by operation of law. Following sealing, the assignee sued for infringement over the preceding 14 years. Striking-out applications were brought on the basis the claims were statute-barred. The question was whether the cause of action accrued when the allegedly infringing acts were committed or when the patent was granted. The case depended on the provisions of the Limitation Act 1950 s 4(1)(a) as the Patents Act 1953 contained no express limitation provision. A majority of the Court of Appeal overturned the decision dismissing the striking-out applications. The joint judgment of Richardson P and Henry J, after citing Colledge and Sevcom Ltd v Lucas CAV Ltd [1986] 1 WLR 462 continued (at 23) :
Sevcon has been the subject of some academic criticism, as has the principle now well established by the English cases following Coburn v Colledge, that the existence of a procedural bar preventing a plaintiff from instituting or pursuing a claim through the Courts does not prevent time from running for limitation purposes. The impression gained from such criticism is that it is based on a perception that possible injustice or unfairness may result, rather than on established principles. The matter nevertheless remains one of statutory interpretation, and it is the words of the relevant legislation which must be construed.
[30] After noting (at 25-26) that the cause of action for patent infringement is complete when infringement occurs, the Judges turned to the argument that unfairness may result in that the limitation period might expire before proceedings could be commenced but nonetheless held (at 26) that :
If injustice may now result it is not for the Court to give a strained construction to the statute particularly when to do that is to run counter to established principles in applying limitation provisions.
and proceeded (at 26, 27) :
In its terms s 20(4) vests all the privileges and rights in the applicant as if a patent had been sealed. The plain meaning of the words is that the same monopoly rights which are given by a patent are owned by the applicant during the period between publication and sealing. The cause of action in question is the commission of an act which infringes that monopoly. Infringement is then complete, the right breached is an existing vested right, and the cause of action accrued at that time. The enforcement or availability of a particular remedy is something different, and does not affect whether or not the tort has been committed. In simple terms, when the applicant’s existing monopoly right has been infringed the cause of action has accrued, and nothing more is required to establish the tort.
…
To hold otherwise must require the Court to adopt a general principle that a cause of action in tort does not accrue until such time as the plaintiff is procedurally entitled to institute proceedings and to obtain a remedy. There would appear to be no reason why, if that course is run, the same principle should not apply for limitation purposes generally to all causes of action. Such a principle would be counter not only to authority but also to the Limitation Act itself. …
Absent some express statutory provision, an inability on the part of a plaintiff to commence proceedings does not control the date of accrual of the cause of action for the purposes of the Limitation Act.
[31] The Judges went on to make the following observation pertinent in this case
(at 28) :
There appears to be a dearth of New Zealand authority on the point, perhaps for good reason. In our judgment the rationale of Coburn v Colledge is to be preferred. The arguments against it are not uniform, and far from persuasive. As previously stated the alternative is to adopt a new principle, logically of general and wide application, making the ability to commence proceedings an element of a cause of action for the purposes of the Limitation Act. We do not think that is consistent with the true construction of that legislation.
and dealt with the injustice argument in the following way (at 29) :
We are also inclined to the view that any injustice resulting from the construction we favour can be met procedurally. The bar, as has been seen, is a procedural one in the sense that it affects the remedy not the right, and therefore does not prevent a Court from entertaining an action if the point is not taken. A resulting application to strike out a proceeding commenced before sealing could not succeed on the ground that no cause of action was
disclosed. It could be based on an abuse of process, but we see no reason why the Court could not in its discretion stay the action pending sealing [the patent]. In the absence of other relevant factors, no injustice would result.
… That aside, the Court must also resist the temptation to give a particular litigant some form of relief because of what may be perceived subjectively as an unfair result, when to do so cannot withstand a principled analysis of the implications which follow.
[32] Tipping J, concurring, summarised the matter in his customary succinct way
(at 62):
The difference between the accrual of a cause of action and the existence of a bar to the commencement of proceedings seeking a remedy thereon has been established for many years. While it may seem anomalous that time can run against a person who cannot bring proceedings until an event external to the cause of action has taken place, this facet of limitation law is so firmly entrenched that only a general amendment to the Limitation Act 1950 can now change it.
[33] Mr Galbraith then turned to the third question, whether reasonable discoverability postpones accrual of a cause of action under the Act for pecuniary penalties, describing that, correctly, as the principal point of difference between the parties.
[34] Midavia/Richwhite, of course, take the view the limitation period commences when the cause of action accrues, and that occurs for limitation purposes when all facts necessary to establish the claim are in existence (Stratford v Phillip Shayle- George (2001) 15 PRNZ 573, 578 at [17]; Invercargill City Council v Hamlin [1996] 1 NZLR 513; S v G [1995] 3 NZLR 681, 686). Mr Galbraith submitted creation of a general reasonable discoverability test is, as Pacific Coilcoaters held, a matter for Parliament. The areas in which reasonable discoverability postpones commencement of limitation periods are well defined, do not apply to the Commission’s claim for pecuniary penalties and should only be increased with considerable caution. There is nothing in s 4(5) to invoke a test of reasonable discoverability and, since penalties are sought, it should be strictly construed.
[35] Postponement of the commencement of limitation periods by a reasonable discoverability trigger has, for some time now, been accepted in certain personal injury cases and cases based on latent defects, particularly in buildings. But, as Mr Galbraith acknowledged, there have been cases in recent years which have
suggested widening that, even to Judges creating a general reasonable discoverability commencement point for limitation periods.
[36] Cases of latent defects in buildings are, for present purposes, sufficiently represented by Hamlin. There, known defects in a house were sourced in 1990 to inadequate foundations as a result of which the owner sued the Council for negligence in approving the foundations when the house was built in 1972. Damages for diminution in market value of the house were awarded and a plea the action was statute-barred failed at all three curial levels. The nub of their Lordships’ judgment appears in the following passages (at 526-527) :
Once it is appreciated that the loss in respect of which the plaintiff in the present case is suing is loss to his pocket, and not for physical damage to the house or foundations, then most, if not all the difficulties surrounding the limitation question fall away. The plaintiff’s loss occurs when the market value of the house is depreciated by reason of the defective foundations, and not before. If he resells the house at full value before the defect is discovered, he has suffered no loss. Thus in the common case the occurrence of the loss and the discovery of the loss will coincide.
But the plaintiff cannot postpone the start of the limitation period by shutting his eyes to the obvious. …
In other words, the cause of action accrues when the cracks become so bad, or the defects so obvious, that any reasonable homeowner would call in an expert. Since the defects would then be obvious to a potential buyer, or his expert, that marks the moment when the market value of the building is depreciated, and therefore the moment when the economic loss occurs. Their Lordships do not think it is possible to define the moment more accurately. The measure of the loss will then be the cost of repairs, if it is reasonable to repair, or the depreciation in the market value if it is not. …
… The approach is consistent with the underlying principle that a cause of action accrues when, but not before, all the elements necessary to support the plaintiff’s claim are in existence. For in the case of a latent defect in a building the element of loss or damage which is necessary to support a claim for economic loss in tort does not exist so long as the market value of the house is unaffected. Whether or not it is right to describe an undiscoverable crack as damage, it clearly cannot affect the value of the building on the market. The existence of such a crack is thus irrelevant to the cause of action. …
Their Lordships repeat that their advice on the limitation point is confined to the problem created by latent defects in buildings. They abstain, … from considering whether the “reasonable discoverability” test should be of more general application in the law of tort.
It is noteworthy that their Lordships, at the end of that passage, made clear that Hamlin stands not for a general reasonable discoverability extension to the commencement of the limitation period in claims for latent defects in buildings, but for a careful identification of the point where the tort cause of action begins for claims for economic loss through diminution in market value.
[37] Personal injury cases, to the extent still applicable when the no-fault ACC régime is over 30 years old, are also an exception where reasonable discoverability applies to trigger the limitation period, at least to the extent of linking known medical or psychological problems with a perpetrator and their cause in medical negligence or similar.
[38] In S v G a five Judge Court of Appeal overturned a decision granting leave to G to bring a claim for exemplary damages for bodily injury allegedly sustained 2-6 years after the date on which alleged causes of action accrued. She claimed to have been sexually abused by the defendant doctor in 1979-80 when she was under 16. He was convicted in 1992 for indecent assault on her. The Limitation Act 1950 s 4(7) prescribed a limitation period of two years for the claim, brought in breach of fiduciary duty, negligence and trespass. G asserted that until 1990 she did not realise her emotional and psychological damage was linked to S’s conduct. Saying that (at
686) “the cause of action against the abuser accrues only when the victim discovers the link between the abuse and the harm” the Court went on to hold (at 687) :
We accept that where damage is an element of the cause of action, as in negligence, the reasonable discoverability of the link between psychological and emotional harm and past sexual abuse may be employed to determine the accrual of the cause of action. We have more difficulty with that approach to causes of action of which damage is not an element and all other elements are known, unless ss 24 or 28 of the Limitation Act can be invoked. Even in cases of negligence, where some recognised damage flows immediately from the alleged conduct, the limitation period commences to run, subject only to postponement under the Act by reason of disability (s 24) or fraudulent concealment (s 28). In the present case the alleged physical abuse such as the infecting of the respondent with anal and vaginal venereal warts and the physical assaults can hardly be regarded as wholly latent such that no cause of action should arise until later therapy linked the consequential psychological damage to the abuse.
Of course the Limitation Act itself does not define when a cause of action accrues. It is not a matter of statutory construction. It is a question of when as a matter of law the cause of action accrues for the purpose of the
Limitation Act. In the Hamlin case the majority view was that the cause of action in negligence in causing defective foundations accrued when the house owner discovered the defect or acting reasonably would have done so. That he had earlier seen cracks around the house was not sufficient since those observations did not lead to discovery of the defective foundations nor would they have led a reasonable house owner to that discovery. By analogy it can be said that the sexual abuse victim who reasonably has not linked serious psychological and emotional damage to the abuse does not have the limitation period run merely because of awareness of the symptoms of that damage. It is only when the psychological damage is or reasonably should have been identified and linked to the abuse that it can be said that the elements of the negligence cause of action are known and thus the cause of action has accrued. That approach was followed by Gallen J in G v G D Searle and Co [1955] 1 NZLR 341. [ sic: 1995]
In the judgment under appeal, Blanchard J appears to have gone somewhat further in adopting what seems to be a wholly subjective test when at p 29 of his judgment he expressed the view that the intended plaintiff’s cause of action in negligence did not accrue until she herself appreciated the casual connection between the injury and the intended defendant’s alleged conduct. We would not go that far. It would be to render the Limitation Act quite ineffective to hold that a cause of action accrues only when the plaintiff realises that it exists.
[39] G D Searle & Co v Gunn [1996] 2 NZLR 129 was an unsuccessful appeal against the striking-out on limitation grounds of a claim for damages for the allegedly negligent insertion of an intra-uterine device in 1981 with later infertility but lack of realisation of a possible link between them until 1991. The Court of Appeal first posed the critical question in the following passage (at 131) :
For the purposes of s 4(7) of the Limitation Act 1950, does a cause of action in negligence for personal injury accrue at the moment when damage results from the negligent act or omission, whether or not the damage is discovered or discoverable, and whether or not causation between the damage and the negligent act or omission is discovered or discoverable?
[40] The Court then observed of Hamlin (at 131-132) :
In Hamlin their Lordships noted that their advice in this regard was confined to the problem created by latent defects in buildings, and that they abstained from considering whether the reasonable discoverability test should be of more general application to the law of tort. Although emphasis was placed on the argument that the damage in such a case could be classed as economic and therefore not occurring until discovery of the defect, there was recognition in this Court of the injustice to which the Pirelli [Pirelli General Cable Works Ltd v Oscar Faber & Partners (A Firm) [1983] 2 AC 1] approach gives rise, and inferentially at least also of the logical desirability in applying the Hamlin test on a wider basis. …
[41] Then, after citing part of the passage recounted above from S v G, the Court of Appeal continued (at 132-133) :
This Court has therefore already taken what could be described as the Hamlin principle one step further and applied it to a personal injury claim of a specific kind. … It is still a question of what is meant in s 4 by “the date on which the cause of action accrued”. The phrase must be given a consistent meaning which is applicable to differing factual situations.
… The problem of latent defects in buildings did not really surface in this country until such cases as Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394 and Mount Albert Borough Council v Johnson [1979]
2 NZLR 234. The law in that regard is now settled. The corresponding problem of what may be described as latent injury or latent disease in actions for bodily injury has only comparatively recently been called into question in this Court, and was referred to but left open in an asbestos-related cancer case, McKenzie v Attorney-General [1992] 2 NZLR 14. It should now be resolved in a similar way. To hold that a plaintiff who has not discovered that a bodily injury is attributable to the wrongful action of another, and who could not reasonably have discovered that fact, is barred from suit if the injury in fact occurred outside the statutory period is effectively to deny a person the right of action. We do not see that consequence as being required by the legislation. We would therefore hold that for the purposes of s 4(7) of the Limitation Act 1950, a cause of action accrues when bodily injury of the kind complained of was discovered or was reasonably discoverable as having been caused by the acts or omissions of the defendant.
This conclusion avoids any difficulty arising from the fact that many cases of personal injury result also in economic loss, both actual and potential. Logically it should not be possible to argue that where a particular tortious act is compensable, different rules apply depending upon classification of the nature of the loss.
[42] A number of decisions since S v G and Searle have discussed reasonable discoverability in limitation contexts.
[43] The earliest is Jackson v ANZ Banking Group (New Zealand) Ltd (HC Auckland NP1447/97, 29 October 1998), a decision on R 418 questions as to whether a prospective partner in an accountancy firm was owed a duty of care by the defendant bank and whether the claim was statute-barred. Since the former was decided against the applicant, Paterson J’s observations on the latter are, strictly, obiter but nonetheless the Judge held (at 22) :
If I had been required to determine this matter, I would have determined that the reasonable discoverability rule does not apply to liabilities which were incurred at the time the partnership agreement was entered into and to the other losses, all of which were caused prior to 8 April 1991. It would be departing from a long line of precedent to hold otherwise. The building
defect cases and personal injury cases currently form a class of their own in respect of the limitation period.
[44] Stratford was an appeal against a finding that an action by a wife against her former solicitors for negligence over a conveyancing transaction was statute-barred. In respect of an alternative argument based on reasonable foreseeability, the Court of Appeal observed (at 579-580 para [25]) :
[25] No question of discoverability arises if the plaintiff is already aware of all the facts necessary to establish the cause of action. The plaintiff does not however have to be aware of the legal consequences of those facts. Mrs Stratford obviously knew of the facts which gave rise to the solicitors’ duty of care and its breach. She also knew she had signed the mortgage in November 1987 and that her husband went bankrupt in September 1989. She therefore knew the facts constituting the ingredients of the cause of action, namely duty, breach and loss. The same applies with the analogous equitable approach. The case is quite different from one in which the plaintiff is not aware of the facts demonstrating loss or damage, for example cracks in the foundation of a building caused by negligent construction. It is in this sort of situation that the concept of reasonable discoverability applies.
[45] Saunders & Co v Bank of New Zealand [2002] 2 NZLR 270 was a claim by solicitors against its trust account banker arising out of lengthy theft from the trust account by an employee, theft which remained undetected despite investigation by a Law Society inspector. In striking out the claim against the inspector by the firm on limitation grounds and in particular considering whether commencement of the limitation period was extended in negligence cases by reasonable discoverability, O’Regan J held against extension of the doctrine in the following passage (at 279-
280 paras [37] – [41]):
Should the doctrine be extended?
[37]Saunders has argued that reasonable discoverability should be applied to actions taken on contracts. The argument is that there is no principled distinction between the doctrine’s application to tortious claims and its non–application to contract claims. In support of this contention, Saunders cites extracts from the Laws NZ, Contract, and from Christine French’s article, “Time and the Blamelessly Ignorant Plaintiff: A Review of the Reasonable Discoverability Doctrine and Section 4 of the Limitation Act 1950”
9 Otago LR 255. The thrust of the article is that there is no good reason to confine the reasonable discoverability doctrine to building latent defect and personal injury cases.
[38]The purpose of the limitation periods prescribed by the Act are to ensure certainty, prevent litigation being brought well after the
wrongful events complained of, and to bring disputes to an end. As T A Gresson J noted in White [v Taupo Totara Timber Co [1960] NZLR 547] at 551:
“In fixing an arbitrary period of time within which action must be brought – namely, six years – the Legislature, in my view, intended to provide a degree of commercial stability and finality, notwithstanding that this might result in hardship in individual cases.”
[39]The building latent defect and personal injury cases are a limited exception to the basic rule that a cause of action accrues when it comes into existence, not when the claimant could reasonably have known of its existence.
[40]The case for extension of the reasonable discoverability doctrine to contract is made in Laws NZ, Contract in the following terms at para
448:
“In principle, there seems no good reason why the reasonable discoverability doctrine should be confined to building cases nor indeed to tort claims. Certainly, the most recent formulations of the doctrine are of a more general nature, and although there is as yet no authority dealing specifically with a claim in contract, it seems very likely that the reasonable discoverability principle will be held to extend to contractual claims as well as tortious ones.”
[41]That appears to be based more on the authors’ view of what ought to happen than on existing authorities. I see it as less likely than the authors do, unless there is legislative reform of the kind Ms French recommends in her Otago Law Review article. Although it is of no practical significance in this case, I believe that the current position in New Zealand is that reasonable discoverability is a limited doctrine designed to deal with the specific problems identified in building latent defect and personal injury cases. It does not apply to contract cases and, therefore, any action founded in contract is statute–barred. This is a legal issue which can be determined properly at the strike-out stage. I would therefore have struck out the contract claim on that basis.
[46] One of the grounds on which the defendants based their appearances under protest in Bomac Laboratories Ltd v F Hoffman-La Roche Ltd (2002) 7 NZBLC
103,627 was that the causes of action against them were statute-barred under the then form of the Commerce Act 1986 s 82(2). The claim was brought by New Zealand food producers against overseas companies which engaged in unlawful price fixing in other jurisdictions. The principal claim was based on the Commerce Act 1986 s 27 alleging the defendants had been involved in arrangements which substantially lessened competition in a market.
[47] At the material time, s 82(2) required proceedings to be commenced within three years “from the time when the cause of action arose” but by the time of hearing s 82 had been amended to require actions to be commenced within three years “after the matter giving rise to the contravention was discovered or ought reasonably to have been discovered” with a 10 year “long stop” provision.
[48] Harrison J first discussed which of two alternative interpretations should be given to the word “arose”, holding (at 103,655 paras [156] – [159]) that if “arose” was synonymous for “accrued” the action was statute-barred but if it meant “came to attention” the contrary was the case. The Judge opted for the latter because of the intrinsically covert nature of anti-competitive behaviour and what may be lengthy delays before it came to buyers’ attention. He held it unlikely that Parliament intended to deprive purchasers of an advantage over suppliers in such circumstances and that Parliament “cannot have intended that time should run while the purchaser was unaware of its rights”.
[49] Despite that decision, he turned to the reasonable discoverability argument. He declined (at 103,657 para [167]) an argument that reasonable discoverability under Hamlin was confined to latent building defects, holding (ibid para [168]) that New Zealand law had “continued to develop” since Hamlin by reference to S v G and Searle. He cited passages from Searle earlier mentioned and concluded (at
103,658 paras [171] – [173]) :
[171] … Neither the Limitation Act nor the Commerce Act require the Court to deny the plaintiffs a right of action where they had not discovered and could not reasonably have discovered the defendants’ wrongs before 1999. As noted, it can hardly be inferred that the Legislature intended to deprive Bomac of the specific remedies created by s 82(1) in these circumstances.
[172] In my opinion the reasonable discoverability doctrine is an incremental creature. The principle is well recognised; its application must be determined on a case by case basis. It all comes back to the facts. I am satisfied that the reasonable discoverability doctrine should be read into s
82(2) on the facts as pleaded in Bomac’s revised proposed second amended statement of claim. Accordingly I find against the international defendants on this alternative basis.
[173] I should add that I regard the recent amendment to s 82(2), expressly incorporating the test of reasonable discoverability into the statute, as supporting my conclusion.
[50] Bomac led the Commerce Commission to reconsider its previous stance to the issues in that case. It sued Roche for pecuniary penalties. However, Roche successfully applied to strike out the proceeding on limitation grounds. (Commerce Commission v Roche Products (New Zealand) Ltd [2003] 2 NZLR 519).
[51] Fisher J posed the question for decision (at 523 para [11]) as being :
Are there any circumstances in which the covert nature of a restrictive trade practice, or its subsequent concealment, could result in a period greater than three years from the date of the misconduct for the issue of penalty proceedings under s 80 of the [Commerce] Act?
[52] After noting, in outline, the Bomac findings and the distinction that what was before him was a quasi-criminal proceeding, the Judge first addressed the proper interpretation to be accorded the word “arose” in the following passage (at 524 para [15]) :
[15] The defendants argue that for this purpose the matter “arose” when it occurred. The commission argues that it “arose” only when it was discovered or became reasonably discoverable. The concept of discoverability as a possible trigger for limitation periods is not new. Section
28 of the Limitation Act 1950 is the best-known example. Negligent liability for defective buildings (Mount Albert Borough Council v Johnson [1979]
2 NZLR 234 (CA) at p 239), and personal injury (G D Searle & Co v Gunn
[1996] 2 NZLR 129 (CA)), are others. But it has never been suggested that the concept applies to all limitation periods. The sole question is whether
Parliament intended to make liability under the Commerce Act 1986 one of
those cases to which a discoverability regime would apply.
[53] After noting the Interpretation Act 1999 s 5, conducting a close textual analysis and reviewing other statutes in which “arose” had been used in limitation provisions he concluded (at 527 para [30]) that “arose” in the sense of “occurred” was the more likely interpretation but the “meaning advocated by the Commission
… would not be fatal to it if statutory purposes so required”.
[54] Turning to those purposes, the Judge observed (at 527-529 paras [33] - ]39]) :
[33] Although the purposes of limitation provisions have been variously expressed, I think it would be generally accepted that they include the protection of defendants against those difficulties of proof which can be expected to mount with the passage of time. Providing prosecutors and plaintiffs with an incentive to bring proceedings within a reasonable time enhances the quality of justice by encouraging fresh evidence. A second purpose is to avoid the time, cost, and disruption, of reopening those matters
whose social significance will have diminished with the passage of years. … A third purpose is to promote certainty. With the passage of years, potential defendants will be increasingly justified in ordering their lives in reliance upon the status quo. In that regard I accept Ms Callinan’s submission that one of the purposes implicit in s 80(5) of the Commerce Act is to promote commercial certainty. A company’s exposure to penalties and civil claims for periods that are open–ended could represent an undesirable disincentive for its future investors and creditors who may be entirely innocent of the original misconduct which contravened the Act. A fourth purpose can be the striking of a reasonable balance between the expansion of liability for an identified group, on the one hand, and placing temporal limits on their exposure, on the other. …
[34] All limitation periods presuppose that at some point the limitation values to which I have just referred will outweigh those values that had driven the primary statutory right or prohibition in question. Accordingly, it could not be sufficient to say, as does the commission in this case, that to deny a postponement of the three-year limitation period in the circumstances suggested would frustrate the primary purpose of deterring those bent upon covert trade practices. The objective must be to achieve the right balance between deterrence for that purpose and those competing values which originally underpinned the introduction of the limitation period.
[35] The commission emphasised the inherent likelihood that behaviour that substantially lessened competition pursuant to ss 27 and 30 would be covert. The argument was that to deny a postponement of the commencement of the three-year limitation period until discoverability occurred would frustrate the point of the prohibition and its associated enforcement provisions. I cannot accept this. For those contemplating covert price-fixing and market-sharing arrangements, the risk of discovery and penalty proceedings will be no less during the initial three-year period than after it. It is not as if the risk of discovery significantly rises at the expiration of three years. If illegal anti–competitive behaviour passes unpunished, it is much more likely that the reason for this will be the fact that it is never discovered than the fact that it emerges only after three years have passed.
[36] It would also seem important to bear in mind that s 80(5) can bear only one meaning. Its interpretation must be applied to a wide variety of cases. … Some restrictive trade practices prohibited under Part II of the Act involve a high level of dishonesty, active concealment, and a continuity of personnel between contravention and penalty. Equally, however, there will be cases involving the overt use of a dominant position (s 36) and overt resale price maintenance (ss 37 and 38). Contraventions of Part II do not necessarily involve active concealment at the time of the impugned conduct or subsequently.
[37] There is a final point relevant to commercial certainty. Until 2001 there was no equivalent to the “long–stop” of ten years introduced as part of the new discoverability package. Discoverability might not occur for decades. On the commission’s interpretation, proceedings could be brought
50 years after the event.
[38] I conclude that the relevant purposes of the Commerce Act do not require adoption of the discoverability interpretation supported by the commission. The legislation balances the general purpose of promoting
competition against the more specific purposes of avoiding future evidentiary difficulties, needlessly reagitating stale issues, prolonging commercial uncertainty, and limiting exposure to a new source of liability. The balance has been struck with a limitation period of three years. The express and implied statutory purposes do not require qualification to that unadorned period.
Conclusions as to interpretation
[39] The text of s 80(5) favours the interpretation contended for by the defendants, as do the express and implied purposes of the Act. It was not suggested that the New Zealand Bill of Rights Act 1990 had any role. There is no need to resort to the common law presumption favouring a strict construction of penal provisions but it is worth noting that that too would have favoured the defendants’ interpretation: R v Pora [2001] 2 NZLR 37 (CA) at pp 48 and 50.
[55] Pangani Properties Ltd v Owens Transport Ltd (HC Auckland CP332-SD01
9 July 2002 p 16 para [35]) was a claim for negligence against solicitors for failing to advise the plaintiff its lease omitted any fair wear and tear exception to the covenant to repair. In striking out the claim the view was expressed, in reliance on Jackson, Saunders and Stratford that “the reasonable discoverability rule has no application outside claims for latent building defects and personal injury”.
[56] The judicial differences of view in those cases were widened by BP Oil New Zealand Ltd v Ports of Auckland Ltd [2004] 2 NZLR 208 where one of the many issues considered was whether a counterclaim for contamination of leased land was statute-barred and whether commencement of the limitation period was affected by the reasonable discoverability doctrine. After reviewing (at 232-3 paras [94]-[97]) the cases earlier discussed plus W v Attorney-General [1999] 2 NZLR 709, Rodney Hansen J observed (at 233, para [98]):
[98]Faced with facts which are closely analogous to the latent defect “exception”, I am perhaps more ready to explore whether principle or precedent dictates that the doctrine of reasonable foreseeability be confined to the two recognised categories.
He continued (at 233-234, paras [99]-[102]):
[99]The issue in each case is when, as a matter of law, the cause of action arose for the purpose of the Limitation Act: S v G at p 687. The resolution of that issue will ultimately turn on the facts of each case. As Henry J said, giving the judgment of the Court in Searle, at p 132:
“It is still a question of what is meant in section 4 by ‘the date on which the cause of action accrued’. The phrase must be given a consistent meaning which is applicable to differing factual situations.”
This approach, Henry J said, enabled the Court of Appeal to take “the Hamlin principle” one step further in S v G and to apply it to personal injury claims. The process by which Hamlin was extended in S v G has been criticised as based on a misstatement of the Court of Appeal’s own decision: Christine French, “Time and the blamelessly ignorant plaintiff: a review of the reasonable discoverability doctrine and section 4 of the Limitation Act 1950” (1998) 9 Otago LR 255. However, as the author goes on to explain, the true basis of the Hamlin decision was acknowledged when the extension of the doctrine in S v G was expressly affirmed in Searle.
[100]The reasoning of the Court of Appeal in Searle and the cases leading up to it, lead Ms French to argue, persuasively in my view, that the reasonable discoverability doctrine should apply to all causes of action, both contractual and tortious. However, the issue in this case, does not call for consideration of that sweeping proposition. It is whether the doctrine should apply to the causes of action available to POAL in this case.
[101]The decisions of the Court of Appeal do not suggest that the doctrine should be confined to the two categories so far identified. In Stratford the Court appeared willing to apply the doctrine to any case where a plaintiff is unaware of the facts giving rise to the cause of action. …
…
[102]In Searle at p 131, Henry J discussed the purposes of a limitation statute as threefold – to give a potential defendant security against being held to account for an ancient obligation, to prevent litigation being determined on stale evidence, and to require due diligence of a plaintiff in pursuing a cause of action. The judgment of Thomas J in W v Attorney-General [[1999] 2 NZLR 709] at pp 728–730 contains an extended discussion of these objectives. In Searle, Henry J went on to say, however, that to deprive a plaintiff of the right to bring an action is not one of the legislative purposes of the Limitation Act.
and concluded with reference to Bomac (at 234-235, paras [103], [105]):
[103]In my view, the doctrine of reasonable discoverability has potential application in any case where the plaintiff did not know or could not with reasonable diligence have known of the essential elements of a claim and to uphold a limitation defence would be to deprive the plaintiff of the right to bring an action. Certainly there seems to be no reason why the doctrine should not apply in circumstances such as the present. It must be open to POAL to show that it had no knowledge or no reasonable opportunity of discovering the damage to its reversionary interest until the commencement of the limitation period.
…
[105]In concluding that the reasonable discoverability doctrine applies to all surviving causes of action, I make no distinction between contract and tort causes of action. I am conscious that there is no case in which reasonable discoverability has been applied to a contractual cause of action but I see no reason in principle why the doctrine should not apply to such causes of action and respectfully subscribe to the views of Ms French in the article earlier discussed and of her and her co–authors of Laws NZ Contract.
[57] Mr Galbraith said six High Court decisions have considered the issue since delivery of BP Oil in May 2003, two adopting the Bomac/BP Oil view, three the contrary, and one neutral.
[58] But of the two, in the first, Allfund Mortgage Corp Ltd v Castle & Brown (HC Auckland CIV 2634103, 4 August 2003) Laurenson J, after reviewing the authorities, refused to strike out a pleading holding that the question of requisite knowledge was a matter of fact incapable of resolution on a striking-out application.
[59] A similar view was adopted in Primosso Holdings Ltd v Alpers [2004]
3 NZLR 521. That was a striking-out application in a negligence claim against solicitors who had acted for borrowers asserting they knew or should have known the plaintiff was lending money to another group believing it to be solvent and able to service the borrowings when the contrary was the case. Reasonable discoverability was asserted to postpone commencement of the limitation period to when the plaintiffs received disclosure of the defendant’s file and learnt they had allowed themselves to be used to facilitate the borrower’s fraud. Chisholm J discussed the cases already discussed and concluded (at 538, paras 37 and 38):
[37] With the benefit of these authorities and publications a number of pointers can be extracted from the decisions of the Court of Appeal and Privy Council. The reasonable discoverability test was formulated to ameliorate the harshness of a strict application of s 4(1) in situations where the plaintiff was unaware that the cause of action had come into existence and could not have been aware of that fact by the exercise of reasonable diligence. Although the test was originally utilised in the context of latent building defects, the Privy Council in Invercargill City Council v Hamlin expressly refrained from considering whether the test should have a wider application in the law of tort. By analogy with Hamlin the test was extended in S v G to an abuse situation (including a cause of action alleging trespass to the person) and then further extended in Searle v Gunn. There are also indications in Stratford v Phillips Shayle–George that had the facts so
required the Court of Appeal might have been prepared to extend the test to a situation where the plaintiff could not reasonably have discovered that she had a cause of action against solicitors. Rather than there being a long line of precedent confining the test to latent defects and personal injuries, it seems to me that the true position is that over recent times there has been a willingness to progressively extend the application of the reasonable discoverability test when an extension is reasonably required to ameliorate the harshness of a strict application of s 4(1). Consistency has also been recognised as a desirable objective. These developments seem to have been achieved without eroding the underlying purpose of s 4(1). As I see it, utilisation of the test on this occasion would be nothing more than a logical progression along the path already set by the Court of Appeal.
[38] In my view the plaintiffs should not be deprived of an opportunity to argue reasonable discoverability at trial.3
[60] On the other side of the divide, in Murray v Morel & Co Ltd (HC Auckland CIV 2003-404-4897, 8 April 2004), Master Lang in a striking-out application in a claim based on allegedly untrue prospectus declined to take the view that reasonable discoverability was now to be applied generally and held (at [100]) that:
Any further extension of the law in this area must come either from legislative change or from an authoritative decision of the Court of Appeal
[61] A similar result occurred in Walkers Nurseries Ltd v Carlile Dowling (HC Auckland CIV 194-441-57, 8 July 2004), where Master Faire, in a contract and negligence claim against a firm of solicitors, took the view in discussing the cases earlier referred to that (at 18):
There is no New Zealand authority that applies reasonable discoverability of the material facts by the plaintiff as the point when time begins to run for limitation purposes in respect of contract claims.
[62] The same conclusion was reached by Associate Judge Faire in Heaven v
Webster Malcolm & Kilpatrick (HC Auckland CIV 2004-404-2826, 3 February
2005.
[63] Finally, in Johnson v Mansfield (HC Auckland CIV 2004-404-4548, 10 June
2005), in a negligence claim against a solicitor, Heath J, again after review of the authorities, took the view that the starting point to resolve the differences of judicial opinion was the purpose of limitation provisions and concluded the claims of breach
3 Appeal allowed but without dealing with the reasonable discoverability point: Weston
Ward & Lascelles v Primosso Holdings Ltd CA152/04 26 July 2005.
of fiduciary duty were statute-barred but, rather than making orders to that effect, stayed the proceeding pending delivery of the Court of Appeal decision in Primosso. He expressed his reasons for taking that view in the following passage (para [49]) :
[49] In my view, the approach favoured by O’Regan J, in Saunders, and
Judge Faire, in Heaven, ought to be preferred for the following reasons:
(a)In the absence of a legislative longstop provision of a type akin to s91 of the Building Act 1991 or s82(2) of the Commerce Act 1986, the usual rule ought to apply, namely that a cause of action accrues in tort at the time when the act complained of occurs and damage results.
(b)The reasons of fairness inherent in the decisions which apply the “reasonable discoverability” principle to cases of personal injury, sexual abuse or latent defects in buildings have no application to the case of a solicitor who is not alleged to have concealed his or her actions from the plaintiff. To hold otherwise would undermine the provisions postponing a limitation period on the grounds of disability, fraud or mistake: see ss24 and 28 of the Act.
(c) Too much emphasis on unfairness to a blameless intended plaintiff acting in ignorance of the facts giving rise to the cause of action may have the unintended effect of altering the careful balance of rights as between intended plaintiffs and defendants that the Act strikes. An intended defendant may have lost insurance cover, or may no longer be insured for an adequate sum, due to the effluxion of time. Difficulties may be caused to a defendant in defending a stale claim: memories can dim; witnesses can die or disappear and records can be disposed of. In addition, it is difficult for expert witnesses to address issues without reference to developments that have occurred subsequently.
[64] Mr Galbraith submitted overseas authorities were largely irrelevant, affected as they are by differences in the statutory provisions, including such special statutes as the Latent Damage Act 1986 (UK), which introduced reasonable discovery or tests akin to it. Australian decisions have tended against adoption of a reasonable discoverability test while the opposite has been the case in Canada (e.g. City of Kamloops v Nielsen [1984] 2 SCR 1, Central Trust Co v Rafuse [1986] 2 RCS 147) but, he submitted, most Canadian states have now passed legislation adopting the reasonable discoverability test or conferring a judicial discretion to extend limitation periods generally.
[65] In summarising all the above, Mr Galbraith submitted:
a) the reasonable discoverability test should not be extended beyond the limited classes of latent building defects and personal injury claims;
b)essentially, this was an exercise in statutory interpretation in construing the words “the date on which the cause of action accrued” in s 4(5). On the plain words, that occurred when all the essential elements of the cause of action existed;
c) any wider adoption of a reasonable discoverability factor postponing commencement of the limitation period was a matter for Parliament, not the Courts. Where Parliament had enacted specific limitation in certain cases, it was not for the Courts to legislate for others where Parliament had not acted;
d)the R 418 questions being focused on the limitation period as far as pecuniary penalties were concerned, s 4(5) should be interpreted strictly.
[66] For Berkshire/Ferenbach, Ms Dean QC, senior counsel on this aspect of the matter, unsurprisingly supported Mr Galbraith’s submissions. Though accepting it was a matter of fact, she submitted that even if the date of commencement of the limitation period was on a reasonable discoverability basis all the elements of this cause of action were reasonably discoverable at or shortly after the impugned share sales occurred in February 2002.
[67] She, too, pointed to the form of the pleading as supporting the cause of action as that of Tranz Rail, particularly having regard to the phrasing of ss 7, 9, 18, 18A,
18C and 19. She submitted it would be procedurally impossible for there to be two different causes of action based on identical facts but residing in different plaintiffs, when the public issuer’s or other plaintiffs’ right to sue could be statute-barred but, on the Commission’s interpretation, the same result would not apply to it. A finding against the Commission would also, she suggested, invalidate the pecuniary penalty claims given the date on which the amending Act came into force.
[68] On question 2, she submitted the requirements of s 18B are procedural bars which are not substantive.
[69] She submitted on question 3 that the test of reasonable discoverability was not appropriate, particularly in relation to protecting defendants from stale claims for penalties under s 4(5). Adopting a reasonable discoverability commencement date for limitation proceedings, Ms Dean submitted, necessarily precluded the Court from fixing a termination date or a “long stop” provision.
[70] Ms Dean submitted proof of loss to a person is not an element of insider trading or tipping claims (Haylock v Southern Petroleum NL [2003] 2 NZLR 175,
185, para [42]) and persons can be liable for such even without fault (Colonial Mutual Life (supra at 162 on appeal). Importation of a reasonable discovery commencement point was therefore, she submitted, unjustified.
[71] None of the cases discussed dealt with what Ms Dean submitted was the unique situation here where one entity’s cause of action was exercisable by others. In that situation, she queried, whose reasonable efforts at discovery should be assessed, and how?
[72] Mr White QC, senior counsel for the Commission, first submitted the approach to the R 418 questions should accord with the purpose of the Act being for investor protection by “regulating the conduct of issuers of securities and by providing sanctions for infringement by those issuers and their officers” (Re AIC Merchant Finance Ltd [1990] 2 NZLR 385, 391). It is a statute for “improving commercial morality” (Colonial Mutual Life supra at 161 on appeal).).
[73] Mr White suggested the nature of insider trader was such that discovery of the factual basis for claims under ss 7 and 9 may not emerge until long after the trading, particularly if the Commission takes action against the public issuer as an insider, thus resulting in lengthy postponement of the limitation period to parties’ detriment.
[74] With regard to the statutory scheme, Mr White relied on the definition of “insider” including the public issuer and the provisions of ss 7, 9, 15 and 18A. That meant, he submitted, the Commission had practical difficulties in detecting covert insider trading. Other problems included that affected persons beyond those possessing inside information may be unaware of offending until the information is disclosed to the market. Further delays were likely to occur before the information comes into the Commission’s possession, particularly since no party is obliged to notify it.
[75] He made detailed submissions in support of those propositions by reference to the provisions of the Act. In particular, he referred to inevitable delays following the impugned trades in calculating the losses avoided or gains made in accordance with the formulae in ss 15 and 16.
[76] He submitted the discoverability provisions in other limitation sections of the Act should not affect the interpretation of s 4(5) relying on Goodman Fielder Ltd v Commerce Commission [1987] 2 NZLR 10, 18. But that authority affords scant support for the submission. The purposes of limitation statutes outlined in Searle were not, he submitted, complete. He relied on the observation of Lord Millett in Cave v Robinson Jarvis & Rolf [2002] 2 All ER 641,644, para [7], that “in common justice a plaintiff ought not to find that his action is statute barred before he has had a reasonable opportunity to bring it” – though that passage refers to the Limitation Act
1980 (UK) s 32(2) which postpones commencement of the limitation period by deliberate concealment.
[77] Turning to question 1, Mr White’s basic submission was that the cause of action being exercised by the Commission was in its own right. The Commission was not merely exercising the public issuer’s cause of action since the Commission’s case has distinctive features. In particular, they stem from the overriding public interest which limits the Commission’s right to bring a proceeding and informs its conduct of the claim (ss 18A(1) and 18B(3)). Practically, although the public issuer will know the factual background, it is for the Commission to discover what occurred. That will often be a time-consuming process. That said, the Commission accepted linkage between its cause of action and that of Tranz Rail despite the
separate characteristics. Section 18B, he submitted, was a means of ensuring the public issuer and controlling insiders could not block the Commission taking action in the public interest.
[78] He submitted the Court of Appeal’s subrogation analogy in this case was inapt, particularly when the public issuer may be a defendant insider. A derivative action under the Companies Act 1993, s 165, though a closer fit, was not an appropriate paradigm. He submitted, therefore, that a s 18B cause of action with its public interest dimension is a distinct cause of action with its own distinct procedural requirements which the Commission exercises in its own right.
[79] Mr White also submitted the argument over the consequences of the date on which the Securities Amendment Act 2002 came into force was not a matter for a decision on the R 418 questions.
[80] On questions 2 and 3, Mr White submitted that when the Commission in its own right brings insider trading proceedings, the cause of action only accrues when the Commission, acting reasonably and exercising due diligence in uncovering all material facts, satisfied itself that all elements under ss 7 and 9 existed and it was in the public interest for it to exercise Tranz Rail’s right of action under s 18A. The Commission did not assert that it should be able to prevent time from running until it had actually made its public interest decision under s 18A.
"In 1975 the Rules of Practice respecting service out of Ontario were drastically changed. On this appeal we are asked to decide whether the amendments were merely intended to simplify the procedure, or to both simplify the procedure and change the principle underlying its application. The Divisional Court took the latter view.
…
… there is no express language in either the old or the new Rule dealing with the question of forum conveniens, but that question, as already noted, was constantly dealt with on motions to set aside service of Ontario process outside the jurisdiction, yet no one has suggested in this or any of the other cases decided after the amendments that consideration of forum conveniens has been abolished. Since that consideration formed a part of the exercise of
the former discretion, its acknowledged continuance strengthens my view that the discretion of the Court survived the amendments.
I quite agree with the view of Southey J, that the realities of interprovincial and international trade are such that businessmen are constantly engaged in commercial activities which cross our borders, and as a matter of course, cross continents and oceans as well. The fact is, however, that there are now more independent States in the world than there ever were, and the Courts of this Province must respect their sovereignty with the same solicitude and care that was exercised prior to 1975. Form 3 is not a command of the Queen of Canada, as a writ of summons is, but although signed by the plaintiff’s solicitor only, it notifies the defendant to come into the Ontario Court or suffer the consequences.
…
In the result, I am of the opinion that the Divisional Court erred in the approach that it took and that the service out of Ontario in this case must be looked at by the Court having in mind the same principles which governed the scrutiny by the Court of process issued under the old Rules when the Court was hearing an application to set aside the order allowing service ex juris."
[154] That led their Lordships, in conclusion on this point, to hold (at 529) that RR 131 and 219 “have not abrogated the Court’s inherent discretion to decline jurisdiction”.
[155] It is to be noted that R 17.02 of the Ontario Rules of Civil Procedure entitles parties to serve proceedings outside Ontario without leave in a number of named circumstances. There are echoes of the R 219 list but it includes claims “authorised by statute to be made against a person outside Ontario by a proceeding commenced in Ontario”. R 17.03 gives the Court power to grant leave to serve proceedings outside Ontario “in any case to which R 17.02 does not apply”. There is no equivalent to R 220(4).
[156] At the forefront of his submissions, Mr McLachlan, who presented this section of Berkshire/Ferenbach’s case, said that the phrase “any other proceeding which the Court has jurisdiction to hear and determine” in R 220, properly construed, related only to jurisdiction given by statute or regulation over defendants abroad in the particular class of case. Cockburn, which adopted a wider reading, was wrongly decided, an approach supported by the English Court of Appeal decision in Re Harrods (Buenos Aires) Limited [1992] Ch 72.
[157] There, Swiss companies held the shares in the Harrods company. The shareholders fell out and commenced in England minority oppression proceedings. The Registrar gave leave under RSC Ord 11, r 1 to serve the majority shareholder out of the jurisdiction. It applied to set aside the order and stay the claim on the ground that Argentina, where the company’s business was primarily conducted, was the appropriate forum. An appeal against the dismissal of the application was allowed. The relevant company rules applied the High Court practice to proceedings under them but, that notwithstanding, the Judge at first instance held that the Rules did not apply to the “unfair prejudice” sections in the Companies Act 1985 (UK) as leave to serve out of the jurisdiction was not required because of the wording of RSC Ord. 11 r.1(2)(b)(d). That did not require leave for claims “which by virtue of any other enactment … the High Court has power to hear and determine”. However, the Court of Appeal held the wording of the rule resulted from the form of a statute called the Civil Aviation (Eurocontrol) Act 1962 (UK) which was intended to give effect to the Brussels Convention. Dillon LJ held (at 115) that r.1(2)(b) may have been intended to have a “wider scope than only applying where its actual wording has been used in the statute”. He mentioned certain of the Conventions which had been listed in Ord 11, r.1(1) as requiring leave but were no longer listed because the Conventions now had the force of law in England. The Judge continued (at 116):
But in my judgment to be within Ord. 11, r.1(2)(b) an enactment must, if it does not use the precise wording in the rule, at least indicate on its face that it is expressly contemplating proceedings against persons who are not within the jurisdiction of the court or where the wrongful act, neglect or default giving rise to the claim did not take place within the jurisdiction. It is not enough, in my judgment, that the enactment … gives a remedy in general cases … without any express contemplation of a foreign element.
(f) Submissions and preliminary discussion on substantive points
[158] Most of Ms Dean’s submissions for Berkshire/Ferenbach were made in the limitation part of the hearing but, on the present question, she submitted it was open to defendants to raise a limitation defence as part of a protest to jurisdiction. That was, she submitted, relevant to the second aspect of the exercise of discretion under R 220 namely whether the Commission had established a serious issue to be tried or good arguable case on the merits. Defences, she argued, were germane to that aspect. That may well be right, although the authorities on which Ms Dean relied (Seaconsar Far East Limited v Bank Markazi Jomhouri Islami Iran [1994] 1AC 438,
452 Hyde v Agar (1998) 45 NSWLR 487, 516) do not clearly support her submission if for no other reason than that Hyde was reversed on appeal (Agar v Hyde (2000)
173 ALR 665 especially per Callinan J at 701 para [130]-[131]). Ms Dean, however, is on firmer ground in her submission that the onus of rebuttal of a limitation defence is on a defendant to show a good arguable case that the claims can survive such a challenge (Asian Pacific (supra) para [18]).
[159] Ms Dean also submitted that if the pecuniary penalties were held statute- barred, that was also to be taken into account in deciding whether leave to serve out should have been granted. Her submissions were supported on this point by Agar v Hyde (supra at 687 para [92]) and by the Privy Council in Kuwait Asia (at 535) where their Lordships held that if the statement of claim discloses no cause of action thus rendering it liable to be struck out, then, under R 131:
There is no need for the circuity of procedure which would be involved in an application to strike out the statement of claim in a case like the present, since “no cause of action” provides the ultimate example of failing to show a good arguable case. Having regard to their Lordships’ conclusions and to the terms of R 131, the appropriate order … is to dismiss the proceeding as against the bank.
[160] However, since the issue here arises through a combination of R 418 questions and an application by Berkshire/Ferenbach to dismiss the proceedings under R 131 - a Midavia/Richwhite striking-out application in relation to the pecuniary claims remaining unheard - the appropriate orders may not be quite as straightforward as those envisaged in Kuwait Asia.
[161] The result here, however, is, as Ms Dean submitted was open, that a protest to jurisdiction can be upheld on one ground but not on others or may relate to one aspect of a claim, not to all. Claims, “may, like the curate’s egg, be good in part and bad in part, in which case the plaintiffs may not proceed with those claims which are bad” (Saipem SpA v Dredging V02 BV (The “Volvox Hollandia”) [1988] 2 Lloyds Rep 361, 371-372 per Kerr J; Churchill Group Holdings Ltd v Aral Property Holdings Limited HC Auckland CP 574-IM01 30 September 2003 at 32-33 para [86], 44 para [110]).
[162] The starting point, Mr McLachlan emphasised, was that the Court’s jurisdiction to serve claims against overseas defendants exists only if authorised by
statute or statutory order (Collins et al Dicey and Morris on The Conflict of Laws
13th Ed. (2000) Rule 22 p 263). The claim must fall wholly within a head of jurisdiction created by such an instrument, as in R 219, and required plaintiffs under that Rule to show good arguable case for jurisdiction as the first stage of the inquiry (Seaconsar at 456-7). Berkshire/Ferenbach’s protest is now based on that first stage alleging that neither R 219 nor R 220 permitted service overseas. The second stage, whether the case was a proper one for service out, meant the Court was required to decide whether there was a serious issue on the merits and whether New Zealand is the appropriate forum. Heads of jurisdiction are to be strictly construed and, Mr McLachlan submitted, leave should not extend to causes of action which do not come within the Rules (Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391, 436). He submitted the Privy Council endorsed that principle in Kuwait Asia in the following passage (at 524-525):
Their Lordships agree with the approach which commended itself to the
Court of Appeal and consider that, notwithstanding the right conferred by R
219 to serve proceedings without leave out of New Zealand and the ostensibly narrow ground of objection embodied in R 131, the Court retains a discretion to set aside service on the same principles as governed the granting of leave under the former R 48 and the setting aside of service before 1986.
[163] Mr McLachlan emphasised the Commission’s abandonment of reliance on R 219. This surprising concession, he submitted, was inevitable in light of Jones v Flower.
[164] In a R 220 case it is open to defendants to challenge jurisdiction on the additional basis that there is no serious issue to be tried and New Zealand is not forum conveniens. This is the second stage of the jurisdictional inquiry and applies in New Zealand notwithstanding its omission from the Rule itself. There is, for present purposes at least, nothing in that second stage inquiry distinguishing between the tests of serious issue to be tried and good arguable case (Stone v Newman (2002) 16 PRNZ 77, 85 paras [24]-[26]).
[165] Berkshire/Ferenbach’s approach would not, he said deprive R 220 of much of its practical effect since there were a number of statutes which confer jurisdiction. The omission to include the Securities Markets Act in R 220 (or R 219 by contrast with the Civil Aviation Act 1990 and the Marine Pollution Act 1974) was, he
submitted, telling against the Court having jurisdiction to grant leave under R 220 to serve Berkshire/Ferenbach overseas. That, he suggested, was particularly the case when penal consequences were in issue.
[166] Turning to what he described as a non-exhaustive list of statutes in New Zealand expressly empowering the Court to grant leave for service overseas, he noted the Child Support Act 1991 s 202 and the Tax Administration Act 1994 s 158. The Fair Trading Act 1986 s 3 and the Commerce Act 1986 s 4(1) (2), both extend the reach of those statutes to conduct outside New Zealand by persons resident or carrying on business here if the conduct has effects within this country, Mr McLachlan also noted s 42 of the Act which provides :
Jurisdiction of Courts in New Zealand: The High Court has exclusive jurisdiction to hear and determine proceedings in New Zealand under this Act, other than proceedings for offences against this Act.
(The Securities Act 1978 s 65A is effectively identical).
[167] Mr McLachlan suggested that as between courts in this country s 42 merely allocated jurisdiction under the Act, not created jurisdiction. While there is some support for that submission in that the 2002 Amendment which introduced s 65A also amended the definition of “court” from this Court to the “court before which the matter is to be determined”, its repetition of the phrase “jurisdiction to hear and determine proceedings” does not assist in construing that critical phrase for R 220 purposes.
[168] Mr McLachlan submitted that the amended definition of “person” in s 2 of the Act as including bodies corporate “whether incorporated in New Zealand or elsewhere” did not assist in defining jurisdiction to grant leave to serve overseas.
[169] In support of his submission that claims for pecuniary penalties should be strictly construed, he directed attention to an article by van Schie “Insider Trading, Nominee Disclosure and Futures Dealing: an Analysis of the Securities Amendment Act 1988” ((1994) para 5.3 p 39) which discussed the extra-territorial application of the Act, mainly in relation to whether actions outside this country may give rise to
statutory liability under the Act. Both Messrs McLachlan and White drew support from the following passage:
The Act is clearly intended to have effect in respect of foreign persons. This is evidenced by the fact that the definition of “person”, which carries into the definition of “insider” and “public issuer”, alludes to companies and bodies corporate incorporated in New Zealand or elsewhere.
In relation to overseas persons therefore the only question to be answered is whether a New Zealand Court will have jurisdiction in such cases. Basically, provided that the relevant person is validly served with notice of the proceedings in accordance with the High Court Rules, then our Court has jurisdiction. Valid service can be effected by serving the person when he or she is physically in New Zealand or outside New Zealand in accordance with High Court Rules, RR 219 or 220. A party may also submit to jurisdiction voluntarily. The Court can decline jurisdiction but is unlikely to do so unless the foreign national can convince the New Zealand Court that it is forum non conveniens: that is, that there is some other available forum having competent jurisdiction which is a more appropriate forum for the action.
[170] Mr White began by submitting that the allegations pleaded against Berkshire/Ferenbach should be treated, for present purposes, as provable. If the submissions made on their behalf were correct, he submitted that, both in this case and generally, the clear purpose of the Act would be severely frustrated with liability for insider trading and tipping easily evaded by persons residing overseas, either at the time or subsequently. That, he submitted, would be of concern given the large proportion of New Zealand public issuers’ shares held, and directors living, outside this country. The New Zealand commercial community would be surprised, he suggested, to learn this Court had no jurisdiction to hear and determine insider trading and tipping claims against such persons.
[171] Noting that forum conveniens had been conceded by Midavia/Richwhite and not pursued by Berkshire/Ferenbach, he submitted that the latter’s submissions, if accepted, would deprive R 220 of any effect in any claim against defendants resident overseas other than claims brought under a few statutes such as those mentioned. He submitted statutory analogies such as the Commerce Act and the Fair Trading Act were unpersuasive since those statutes, whilst extending the statutory reach to actions overseas, said nothing about service on overseas residents. Omission of those statutes from R 219 was notable.
[172] Mr White then turned to an historical review leading up to RR 219-220. In the 1902 edition of Stout & Sim Practice of the Supreme Court and Court of Appeal of New Zealand, the notes on “Service out of the Colony” preceding R 48 said (p 30) the Court’s jurisdiction did not follow defendants after they left the country and any judgment obtained here “will be treated as an absolute nullity in other countries”. R 48 permitted service out of the Colony by leave only in some five cases almost exactly corresponding with R 219(a)-(e). In the 1966 edition of Stout & Sim Practice of the Supreme Court and Court of Appeal of New Zealand
(10th ed p 68) the note “Service Out of New Zealand” remained the same but R 48
empowered service out of New Zealand by leave in some ten cases, again almost exactly those in R 219(a)-(j) and R 49 required the discretion to grant leave to be exercised having regard to factors now appearing in R 220(4).
[173] A 1978 report to the Rules Committee prepared by the Supreme Court Procedure Revision Committee (paras 14-18) proposed a major change by abandonment of the “writ of summons as a common written command from the Sovereign through the Royal Courts [for] the attendance of the defendant before the Court to answer to the plaintiff’s claim” with the resultant limitation on writs. The Committee recommended to the Rules Committee service without leave outside New Zealand in cases where leave was then required and for leave to be given in other cases (para 36).
[174] Mr White submitted that not only was the disappearance of the writ significant but so, too, was the absence of reference in any of that material, or in the High Court Rules when they were finally promulgated eight years later, of any mention in what is now R 220 to jurisdiction under “any other enactment”. In light of that, were the Berkshire/Ferenbach submissions correct, he submitted that R 220 would only apply to isolated provisions such as those listed and this Court would have no jurisdiction over defendants resident overseas in relation to any other cause of action statutory or otherwise outside R 219 which it could otherwise hear. That, he submitted, would have been so marked a reduction in the jurisdiction built up by amendments to the Code over the years that, if intended, would have been bound to have excited comment. None has been discovered.
[175] Mr White also drew support from the Judicature Act 1908 s 16 which provides:
The Court shall continue to have all the jurisdiction which it had on the coming into operation of this Act and all judicial jurisdiction which may be necessary to administer the laws of New Zealand.
[176] Rt Hon Sir Michael Hardie Boys Laws NZ; Courts (Reissue 1, para 133 p 152) described that jurisdiction as “general, extending to all causes of action, except where expressly excluded …”.
[177] Mr White then analysed and relied strongly on the decision of the Privy Council in Kuwait Asia and what he submitted was their Lordships’ approval of Cockburn in that case.
[178] Mr White’s submissions made the point that, though Kuwait Asia was principally concerned with RR 219 and 131, the judgment contains no hint their Lordships thought Cockburn wrongly decided or that R 220 was limited in the way for which Berkshire/Ferenbach contend. Their contention, it was submitted, required substantial additional words being added to R 220. Such an addition was beyond the Court’s powers, particularly when, in his submission, the rule worked as intended without amendment by contrast with the comparable Ontario and United Kingdom provisions, which included express words similar to those for which Berkshire/Ferenbach contended. Re Harrods, therefore, was no authority in New Zealand. Leave applications under R 220 must, he accepted, persuade the Judge as to the factors in R 220(4) even though, on the authority of Kuwait Asia and Society of Lloyds v Hyslop [1993] 3 NZLR 135 at 149, those forum conveniens issues and the Judge’s view on them can later be challenged under R 131, something not currently in issue in this matter.
[179] Mr White summarized his submissions concerning RR 219 and 220 in the following way :
a) Though leave is not required in the cases specified in R 219, a person served outside the jurisdiction can challenge by way of a R 131 protest whether the rule has been correctly relied on and, if they do,
the plaintiff must show a good arguable case that the claim falls within the rule and satisfy the Court it should exercise its discretion in the plaintiff’s favour on the serious question to be tried/good arguable case and forum conveniens grounds.
b)By contrast, R 220 requires leave at the outset and, in such applications, the court has a discretion, first, in deciding it has “jurisdiction to hear and determine” the claim, that is to say whether it has subject matter jurisdiction, and, secondly, whether leave should be granted having regard to the factors listed in sub-rule (4). Had it been intended that the phrase “jurisdiction to hear and determine” in R 220(1) (and R 131(4)) was to exclude personal jurisdiction over overseas defendants, it would have been so expressed. The Court has again to be satisfied both as to the serious question/good arguable case question and that New Zealand was forum conveniens. Mr White made the point that the dearth of authority suggests few defendants challenge the grant of leave because most persons served overseas with New Zealand proceedings accept this country as forum conveniens. Cockburn was one such challenge and one where the challenge was successful as it was held New Zealand was forum non conveniens. As he put it, forum conveniens usually determines jurisdiction but jurisdiction to commence the claim does not usually determine the forum conveniens. (Cockburn at 245).
c) In this case this Court has exclusive jurisdiction to hear and determine insider and tipping claims under the Act. Subject matter jurisdiction is not disputed by the defendants. Accordingly, on the leave application, the Judge had to determine there was a serious question to be tried between the parties. That, too, is not disputed. The Judge also needed to decide New Zealand was forum conveniens. That is conceded by Berkshire/Ferenbach or, at least, he submitted, they have not discharged the onus on them of showing New Zealand was forum non conveniens. The forum conveniens point distinguishes this case from Cockburn.
d)The decision in Cockburn does not suggest Canadian material was before Hardie Boys J. Had it been, Mr White submitted, his decision would have been reinforced. Cockburn was decided some 17 years ago. It had never previously been criticised. It was, at least impliedly, adopted by the Privy Council in Kuwait Asia. Cockburn should be accepted as correct.
[180] That led Berkshire/Ferenbach to reply:
a) Great care was taken to define the heads of jurisdiction in R 219 and it would be wrong if a party could get around those restrictions by making an ex parte application under R 200.
b)The Commission’s construction requires treating R 220 as if it were conferring jurisdiction over persons abroad by extending the operation of the Court’s domestic jurisdiction. The Commission’s reliance on the Judicature Act 1908 s 16 was misconceived. That section merely affirms this Court’s inherent jurisdiction.
c) The Commission’s approach, if accepted, would give this Court universal jurisdiction conferred by R 220 in all civil cases outside R 219 without regard to the sovereignty of other nations. Such could never have been intended.
d)Re Harrods is not distinguishable by the more explicit wording of the English Rules. This Court still must have “jurisdiction to hear and determine” the claim. Kuwait Asia makes clear that the leave requirement is procedural not substantive.
e) The appropriate response to the Commission’s submissions that an expansive reading of R 220 is required to avoid persons alleged to have breached New Zealand law escaping liability,
is for statutory or regulatory amendment, something from which Parliament has refrained, presumably on comity grounds. Parliament is best placed to consider the foreign policy implications of the exercise of “long-arm” jurisdiction. It is not for the Court to arrogate that jurisdiction.
(g) Discussion and decision
[181] As mentioned at the outset of this section, the essential difference between the parties was whether the phrasing in R 220(1) - “any other proceeding which the Court has jurisdiction to hear and determine” - means all cases other than those in R
219 which can be tried in this Court – the Commission position – or only those cases where extra-territorial jurisdiction is expressly conferred on this Court by statute or regulation – that for which Berkshire/Ferenbach contend.
[182] In favour of the former interpretation is the decision in Cockburn, admittedly not a definitive decision on appeal but one which has stood as good law for 17 years without being questioned, and was at least impliedly approved by the Privy Council in Kuwait Asia.
[183] In the Commission’s favour, RR 219 and 220 can be seen as a complementary pair governing extra-territorial service of any claim this Court can try. Leaving aside the fact that R 220(1) speaks of the service of documents while R 219 speaks of service of the particular documents listed – a difference which Cockburn and the commentators regard as a distinction without a difference (McGechan op.cit. para HR220.01(2) p 1-11 33) - it is noteworthy that R 219 speaks of “any proceeding” and R 220 of “any other proceeding”. That plainly suggests complementarity across all cases triable in this Court.
[184] While, with respect, this Court agrees with Hardie Boys J in Cockburn as to the difficulties arising from the terms of R 220 for the reasons he discussed, this Court also accepts the Judge’s view that jurisdiction to try the case must be sourced other than from R 220. In that regard, not only could there be no doubt this Court has the jurisdiction to try cases of insider trading and tipping but, in addition, s 42
(and the Securities Act 1978 s 65A) is of pivotal importance. Excluding offences under the Act, that section should be properly seen as expressly conferring exclusive jurisdiction on this Court to try proceedings under the Act, particularly when seen in tandem with the Court’s general jurisdiction as confirmed by the Judicature Act 1908 s 16. That is also fortified by the breadth of this Court’s inherent jurisdiction (Taylor v Attorney-General [1975] 2 NZLR 675, 689; Champtaloup v Northern Districts Aero Club [1980] 1 NZLR 673, 679). Therefore, whether insider trading and tipping claims are seen as within this Court’s general jurisdiction or seen as claims where this Court is given express jurisdiction under s 42, such claims must be regarded as proceedings “which the Court has jurisdiction to hear and determine” in terms of R
220.
[185] It must be accepted that s 42 does not deal with extraterritorial service, unlike the Child Support Act 1991 s 202 and the Tax Administration Act 1994 s 158 but, tax and similar régimes are so essentially domestic that it is to be expected that when New Zealand takes steps to extend such régimes extraterritorially, there will be specific statutory provision to that effect. In addition, while the Fair Trading Act
1986 s 3 and the Commerce Act 1986 s 4 give New Zealand Courts jurisdiction over actions outside this country having effect within it is noteworthy they do not deal with extraterritorial service, leaving that to RR 219 and 220. Claims under those statutes have obvious similarities with this claim since, essentially, what is in issue here as far as Berkshire/Ferenbach are concerned are actions by foreigners both within New Zealand and outside giving rise to the impugned share sales. If proceedings under the Fair Trading Act and the Commerce Act can be served outside New Zealand – some under R 219, some with leave under R 220 - it is illogical not to apply the same precepts to insider trading and tipping claims.
[186] Then, the statutes and regulations expressly giving power for this Court to grant leave to serve extraterritorially are so few in number, it seems difficult to understanding why, if the Berkshire/Ferenbach approach to R 220 is preferred, Parliament would have intended to deprive this Court not of jurisdiction to hear all such claims but of jurisdiction to serve them on defendants who happen to be overseas. While Courts and Parliaments remain properly cautious about actions in other countries arguably affecting sovereignty, in a world of multi-national
companies, burgeoning international trade, travel and the Internet, comity seems an increasingly inadequate justification (Agar v Hyde supra at 676-677 para [42]; Amchem Products Inc v Workers’ Compensation Board (1993) 102 DLR (4th) 96,
104). In any event, a distinction can justifiably be drawn between claims impleading the actions of foreigners in New Zealand and affecting our economy by contrast with actions by persons in other countries or actions by this Court affecting foreign courts, the latter provided as a sovereign function of a foreign state. There seems no warrant to read down the general provisions of a Rule authorising service out of the pleadings concerning claims under a uniquely New Zealand statute just because defendants in such claims are now out of this country.
[187] With Hardie Boys J, this Court, again with respect, takes the view that R 220 must be given practical effect empowering this Court to assume jurisdiction to grant leave to serve out of New Zealand proceedings in every case with which it is otherwise competent to deal except those listed in R 219. That is consonant not just with the assumption of jurisdiction but with “jurisdiction” as it relates to the subject matter of the proceeding. As Hardie Boys J held (supra at 248) :
The Rule is to be read as enabling the Court to grant leave, and so assume jurisdiction, in any proceeding not covered by R 219 but it would be entitled to hear and determine whether defendants served in New Zealand …
[188] There is also the approbation the Privy Council gave Cockburn in Kuwait Asia and the trend towards widening the assumed jurisdiction seen in the amendments to RR 219 and 220 over the past century. Although Re Harrods was later in time, the principles in issue in that case and Kuwait Asia were not markedly dissimilar and it is to be expected that the Privy Council would have made its views plain had it not agreed with the line of reasoning in Cockburn. Further, as Mr White submitted, had the form of R 220 been intended to reverse the increase in this Court’s assumed jurisdiction shown in each iteration of the Rules, some legislative indication of that intention would be bound to have surfaced.
[189] Despite Mr McLachlan’s academically respectable submissions that this Court should follow Re Harrods, the fact remains the English Rules on which that decision depended dealt first with extraterritorial service without leave - that case dealt with the English equivalent of R 219 not R 220 - and the case revolved round
the inclusion in Ord 11 r.1 (2)(b) of the words requiring the claim to be one “which by virtue of any other enactment” the English Court had power to hear and determine. The passage from Dillon J’s judgment earlier cited was directed to whether the repeal of certain listed statutes because they were now part of the law of Britain meant that service extra-territorially without leave was permissible. He held the statute in question expressly conferring jurisdiction must in some way echo the terms of the rule. General statutory words were insufficient. The difference in the facts of the two cases and the wording of the relevant Rules strongly suggest Re Harrods should not be regarded as authority in New Zealand on the proper construction of R 220.
[190] Finally, it is important to keep in mind that the approach taken in Cockburn and in this case does not deprive overseas defendants of the capacity to contest New Zealand proceedings. Though not pursuing their original forum conveniens argument, Berkshire/Ferenbach have fully exercised their objections to extra- territorial service on them and the question of jurisdiction. In Cockburn, though the appearance protesting jurisdiction was set aside, the action was stayed as Kinzie had discharged the onus of showing New Zealand was forum non conveniens. By contrast, in Kunzang v Gershwin Hotel (HC Auckland CP318-SD99 19 September
2000) the plaintiffs were New Zealand residents who sued the defendants over the death of a family member who fell from the New York defendant’s hotel. The defendants applied to dismiss the proceeding on the basis this Court had no jurisdiction to hear it and New Zealand was forum non conveniens. The judgment principally dealt with the forum non conveniens point but Master Faire relied on Cockburn opining (at 23) that “R 220 is intended to enable the Court to assume jurisdiction in any proceeding not covered by R 219 but which it would be entitled to hear and determine if the defendants were served in New Zealand”. The claim was dismissed partly on the basis the plaintiffs should have sued in New York. Those cases show that defendants in such circumstances are far from impotent.
Part 4: Result
[191] As a result, the Court holds :
a) In relation to the R 418 questions :
1. For the purposes of s 4(5) of the Limitation Act 1950, when the Commission commences an action for pecuniary penalties pursuant to the provisions of s 18A and 18B of the Securities Markets Act 1988, it is not the Commission’s own cause of action but is the cause of action of the public issuer, the shares of which have been the subject of the trading to which the action relates (see para [104]).
2. The answer to Question 2 appears in paras [106]-[108].
3. Reasonable discoverability does not apply to commence the limitation period for pecuniary penalties for claims based on insider trading or tipping. (see para [130])
b)All of Berkshire/Ferenbach’s protests to jurisdiction are dismissed on the basis :
1. All their preliminary objections are rejected.
2.That R 220 applies to all proceedings this Court has jurisdiction to hear and determine with such jurisdiction being conferred other than by R 220, here pursuant to the Court’s general and inherent jurisdiction under the Judicature Act
1908 s 16 and particularly by the Securities Markets Act 1998 s 42.
c) There will be a telephone conference with counsel on 27 October
2005 at 9:00am to consider the future conduct of these proceedings.
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