The difficulties of seeking interim injunctive relief against an overseas defendant
How do you enforce New Zealand consumer law against the operator of an international website? The Commerce Commission claims ticket buyers are being seriously misled by Swiss-based Viagogo. However, it has failed in its attempt to obtain an interim injunction because Viagogo has refused to accept formal service except in Switzerland.
Despite the lack of formal service, Viagogo’s lawyer appeared in court to argue the injunction application. Viagogo argued that the court had no jurisdiction because of the lack of service. Courtney J, in a judgment dated 18 February 2019, agreed: Commerce Commission v Viagogo AG [2019] NZHC 187.
Meanwhile, on 5 March 2019 the Competition and Markets Authority in the UK announced it would be seeking contempt of court orders against Viagogo for failure to comply with previous court orders made against it.
On 4 March 2019 the Government released a discussion paper “Ticket reselling in New Zealand” on which it has sought submissions by 18 April. The government proposals include setting a cap on ticket resale prices (to prevent scalping), the imposition of information disclosure requirements in relation to the resale of tickets (such as disclosing the face value price of tickets being resold), and a prohibition on the use of automated software (bots) used by scalpers to purchase large numbers of tickets for resale. Given the huge number of complaints made to the Commission about ticket resellers (particularly Viagogo) there is a real question about whether there is consumer harm that needs addressing in further regulation.
The big issue though, in my view, is just how you enforce such regulations when the resellers of tickets and ticket reselling websites, like Viagogo, are based overseas. What the MBIE review really needs to consider is what enforcement mechanisms and law changes are required to ensure that overseas traders cannot just thumb their noses at New Zealand laws and regulators.
In my view what should be considered is to provide the Commerce Commission with rigorous stop order powers analogous to those held by the Financial Markets Authority.
The Commission’s proceeding against Viagogo
The Commerce Commission originally issued proceedings against Viagogo in November 2018 alleging that Viagogo was misleading customers on its website in a number of respects.
The Commission alleged that Viagogo made a number of representations that tickets for particular sporting, music and entertainment events were in short supply, when they were not. For example it alleged that Viagogo represented that there was “only 1 ticket left” to a performance of Peter Pan and that tickets were “likely to sell out soon” when in fact, at the time, there were at least 473 tickets available to the relevant performance. The Commission said that Viagogo did not make it clear that its representations relating to availability of tickets were intended to relate to availability on the Viagogo website only as opposed to general availability of tickets.
The Commission also alleged that Viagogo made misleading representations that Viagogo could guarantee the validity of tickets (when that was not the case) and about other matters including the pricing of tickets (as the initial web pages that customers accessed did not quantify fees that were added to the price of the tickets).
Viagogo did not cooperate with the Commission in accepting service. It did instruct solicitors in New Zealand but those solicitors declined to accept formal service of the proceedings. As a consequence the Commission was forced to seek to effect service in Switzerland through diplomatic channels. The Commission advised the court that such service was likely to take about six months.
Given the expected delays in service, the Commission decided that it should seek interim injunctive relief. It contended that if interim relief was not granted there was a significant risk that Viagogo would continue to breach the Fair Trading Act by making representations of the same kind.
Given the lack of formal service, the application for interim injunction was made on an ex parte basis. However, Viagogo’s solicitors were provided with copies of the proceedings and the injunction application.
Viagogo argues no jurisdiction on the basis of no formal service
Despite the lack of formal service, Viagogo’s solicitors appeared at the interim injunction hearing on a “Pickwick” basis (ie, the application was technically still an ex parte application). They also appeared on the basis that their presence should not be taken to be an acceptance of jurisdiction by Viagogo.
Viagogo’s solicitors advised that the company intended, once formally served, to file an objection to jurisdiction.
They then argued that in these circumstances the court had no jurisdiction to determine the injunction application. Courtney J accepted this argument. She held that the court had no jurisdiction until Viagogo had been formally served.
Approach to injunction applications where there is a protest to jurisdiction
Where a protest to jurisdiction is made, the Court of Appeal has held that the protest should be determined before determining any interlocutory applications (Advanced Cardivascular Systems v Universal Specialties [1997] 1 NZLR 186 at 189).
That approach has also been followed where the interlocutory application in question is an application for interim injunction (Rimini Ltd v Manning Management and Marketing Pty Ltd [2003] 3 NZLR 22 at [39] per Randerson J). As Randerson J said in Rimini, if the court was to entertain an interlocutory application, it would necessarily be accepting jurisdiction to hear and determine the proceeding.
In some cases a court has been willing to hear a protest to jurisdiction and application for interim injunction together (for example, this effectively occurred in YPG IP Ltd v Pty Ltd (2008) 8 NZBLC 102,063).
Approach to injunction applications where an overseas defendant has not been served
What then is the situation if the proposed defendant has not yet filed a protest to jurisdiction because it has not been formally served, but says that it intends to file such a protest?
Courtney J suggests that, in that situation, the court has no jurisdiction to determine an interlocutory application. A party is only brought within the jurisdiction of the New Zealand courts by being served (Courtney J at [12] and [13]).
Courtney J referred to the earlier decision of Kós J in Discovery Geo Corporation v STP Energy Pte Ltd (2012) 21 PRNZ 381. In that case, as in the Viagogo case, the respondent to an application for interim orders had not been formally served but appeared on a Pickwick basis and indicated that jurisdiction would be protested.
Kós J said (at [39]) “First, jurisdiction at heart is dependent on valid service on the defendant .… Of course, Mr Kalderimis has received copies of the application and was able to file a comprehensive response, albeit under protest. But that is not service in terms of the Rules. Where service offshore is involved, some rectitude is required. It involves, as has often been said, an exercise of sovereignty within the country in which service is effected.”
Kós J held in Discovery Geo that the intended protest to jurisdiction should be heard before any application for interim relief was heard or granted.
Courtney J accepted the argument of Viagogo that rule 5.49 of the High Court rules only contemplates the filing of a protest to jurisdiction after a defendant has been served. On that basis, until a defendant is served it is not possible for a defendant’s proposed protest to jurisdiction to be considered.
The likely outcome of a protest to jurisdiction
One can understand the frustration of the Commerce Commission.
Do we really have to wait and see whether a court will accept the protest to jurisdiction? Surely this is a case where the court is likely to uphold the jurisdiction of the New Zealand courts?
The claim is one by the New Zealand consumer law regulator to enforce the New Zealand Fair Trading Act, against a company whose website is advertising the sale of tickets to performances and events in New Zealand, and whose representations are directed to and relied on by New Zealand consumers.
In the case of a protest to jurisdiction filed under rule 5.49 the ultimate issue for a court in deciding whether to assume jurisdiction (under rule 6.29) will be “whether the Court is satisfied that there are sufficient grounds for it properly to assume jurisdiction” (Kuwait Asia Bank v National Mutual [1989] 2 NZLR 50 (CA) at 54.
The Commission would need to establish a good arguable case that the proceeding can be served without leave under one of the paragraphs of rule 6.27, that there is a serious issue to be tried on the merits and that New Zealand is the appropriate forum for the trial.
Here it would seem that the Commission could serve without leave under rule 6.27(2)(d)(ii), and/ or rule 6.27(2)(j).
The extensive affidavit evidence filed by the Commission in support of the injunction application would likely satisfy the requirement that there is a serious issue to be tried on the merits.
Representations made in NZ
The international aspect to the representations would not prevent a finding of a serious issue on the merits. Viagogo’s representations were largely made on a website outside New Zealand. However, the representations were addressed to consumers in New Zealand. In those circumstances, the representations can be said to be made in New Zealand (ACCC v Valve Corporation (No 3) [2016] FCA 196).
Further, in any event, s 3 of the Fair Trading Act makes it clear that the Act applies to overseas conduct if the defendant is carrying out business in New Zealand and the conduct relates to the supply of goods or services in New Zealand. Viagogo, by offering its service to New Zealanders, would seem to be carrying out business in New Zealand and the relevant conduct relates to the supply of goods or services (the supply of tickets or the rights to tickets) in New Zealand.
Finally, New Zealand must surely be the appropriate forum for a trial of an action. Indeed in YPG IP Ltd v Pty Ltd (2008) 8 NZBLC 102,063, at [25]-[27] Allan J, in rejecting a challenge to jurisdiction made by Australian respondents to an application for an interim injunction under the Fair Trading Act, commented (at [25]) “… the Fair Trading Act is New Zealand legislation, which targets activities within New Zealand. Foreign parties which trade in New Zealand, or carry on a business which affects New Zealand businesses, become subject to the provisions of the Fair Trading Act 1986. Australian Courts have no jurisdiction to deal with claims brought under that statute” and (at [27]) “I was satisfied that this Court, and only this Court, has jurisdiction to deal with the plaintiffs’ claims, and that the defendants’ challenge to the jurisdiction of this Court must be dismissed”.
Accordingly, the Commission’s case to establish jurisdiction appears strong.
The judge says it’s all about service, not jurisdiction
However, Courtney J noted that just because the conduct was amenable to the jurisdiction of the court, that did not, of itself, bring a defendant within the jurisdiction of the court.
In the judge’s view the essential problem for the Commission was not whether an objection to jurisdiction had been filed or merely intimated, but the fact that Viagogo had not been served (Courtney J at [13]).
But is that right? Ex parte injunctions are commonly granted without it being suggested that there is no jurisdiction to do so. In fact, they are specifically provided for in rule 7.4.6 of the High Court Rules. Freezing orders (Mareva injunctions) have often been granted against overseas defendants without notice.
If there is a problem with the granting of an interim injunction in the case, then I would suggest the problem can only arise for the reason suggested by Kós J in Discovery Geo, ie, because there is an intimated protest to jurisdiction which should be heard before any interlocutory application. The lack of service by itself should not be fatal.
Substituted service in relation to overseas defendants
Courtney J did say that there might be circumstances in which genuine urgency prevented formal service being effected before an application was dealt with. In those circumstances, she suggested a plaintiff should apply for substituted service.
Rule 6.8 of the High Court Rules allows for substituted service where reasonable efforts have been made to serve proceedings by a method permitted under the rules and “either the document has come to the knowledge of the person to be served or it cannot be promptly served”.
The Court of Appeal has confirmed that the court can order substituted service in respect of an overseas defendant – Exportrade Corp v Irie Blue New Zealand Ltd [2013] NZCA 675 at [13]. The English Court of Appeal made similar comments in Cecil v Bayat [2011] 1 WLR 3086 at [68] where Stanley Burnton LJ suggested that substituted service on an overseas defendant might be justified by facts specific to the defendant including “where an urgent application on notice for injunctive relief is required to be made after the issue of proceedings”.
However, it is not clear that substituted service is an answer in relation to Viagogo. Substituted service would likely under rule 6.8(2) be treated as having been effected in Switzerland. The High Court rules provide that service will be invalid if effected contrary to the law of the place where service is effected (rule 6.32(4) and see also Abela v Baadrani [2013] 1 WLR 2043 (UK Supreme Court) at [24]). It is apparently contrary to the Swiss Criminal Code to serve documents other than through consular channels.
Conclusion
The difficulty in the Commission being able to obtain an injunction order against Viagogo demonstrates a gap in the law. The experience of the UK regulator in having Viagogo not comply with court orders is also concerning.
The current MBIE discussion paper on ticket reselling misses the real issue. That is the ability of a New Zealand regulator to effectively enforce New Zealand consumer law against overseas web-based services.
In my view, the Commerce Commission needs the ability to issue stop orders in relation to practices which seriously breach consumer laws, including stop orders to cease conducting business in New Zealand while offending practises continue. The Financial Markets Authority (FMA) has similar powers under ss 462 and 463 of the Financial Markets Conduct Act 2013 (see Land “FMA makes first stop order”, LawTalk 871, 14 August 2015, 26-27).
The FMA’s powers extend to situations where a product disclosure statement is misleading and allows the FMA to prohibit offers and sales of financial products while the order is in force. The timeframes for the exercise of such powers are short (five working days under s 475 though even this time period can be shortened under s 476) and the procedure is simple. The process is certainly not unwieldy and impractical like the Commission’s own former cease and desist powers under s 74A of the Commerce Act 1986 (now repealed by the Commerce Amendment Act 2018).
The Commerce Commission should have similar stop order powers. The law could also provide for other means of effective notice of such stop orders other than just personal service. Under the FMC Act all that is required is “written notice” both of intention to make a stop order, and of the order itself – ss 475 and 477.
Further, the law could require cooperation in the enforcement of a stop order by internet service providers and other parties who are given notice of the order. Safeguards would, of course, be necessary in terms of the ability for parties subject to such orders to be able to apply to court for discharge or variation of the orders.
John Land is a Senior Competition Law Specialist and Commercial Litigator at Bankside Chambers in Auckland. Formerly a partner of Kensington Swan for 20 years, he can be contacted on 09 379 1513 or at john.land@bankside.co.nz