The doctrine of infection comes to New Zealand
The Doctrine of Infection Comes to New Zealand
Hawaiki Submarine Cable Limited v Tonga Cable Limited & Another
Arguments in the New Zealand courts over the jurisdiction of the New Zealand Courts to hear a claim are not common. When such arguments occur, the relative paucity of New Zealand authority in the area can mean that points of law are aired for the first time in New Zealand. This was the case in Hawaiki Submarine Cable Limited v Tonga Cable Limited & Another [2019] NZHC 1595, which considered the application in New Zealand of the “doctrine of infection”.
Background of the Case
The plaintiff, Hawaiki, was seeking judgment against Tonga Cable Limited (“TCL”). TCL is a commercial company majority owned by the Kingdom of Tonga. It owed a contractual debt to Hawaiki. The debt arose from Hawaiki’s construction of a “branching unit”. That allowed TCL to connect to an undersea telecommunications cable that runs from New Zealand to Hawaii and the continental United States.
Judgment was also sought against the Kingdom of Tonga. In a separate contract (“the Guarantee”), it had guaranteed TCL’s payment of the sum claimed by Hawaiki. Both TCL and the Kingdom of Tonga had defaulted on payment.
Issue of Interest
The contract between Hawaiki and TCL was expressed to be governed by the laws of New Zealand. The parties also submitted to the non-exclusive jurisdiction of the courts of New Zealand. The Guarantee, however, was silent as to both choice of law and jurisdiction.
Hawaiki commenced proceedings in the New Zealand High Court. It served the proceedings on TCL and the Kingdom of Tonga in Tonga. Both TCL and the Kingdom of Tonga filed appearances under protest to jurisdiction. Hawaiki applied to set the notices aside.
Positions of the Parties
The main issue of interest in the application arose the from the fact that Guarantee was silent as to jurisdiction. The Kingdom of Tonga’s position was that, unlike TCL, it had not expressly or impliedly submitted to New Zealand law or the jurisdiction of the New Zealand courts. Accordingly, any proceeding against it had to be commenced in Tonga.
The Doctrine of Infection
Hawaiki’s position was that the Guarantee secured obligations TCL owed to Hawaiki. The contract containing those obligations expressly chose New Zealand law, and submitted to the jurisdiction of the courts of New Zealand. By guaranteeing those obligations the Kingdom of Tonga by implication also chose New Zealand law, and submitted to the jurisdiction of the courts of New Zealand.
Hawaiki relied on English authority on the charmingly named “doctrine of infection”. The doctrine states that where a contract is governed by a given law, courts infer that the parties to a guarantee of that contract intended the guarantee to be governed by the same law. This is especially so when the guarantor and the party whose performance is guaranteed are connected.
Relevance of English Authorities
The relevant English authorities include Wahda Bank v Arab Bank Plc [1996] 1 Lloyds Rep 470 (CA) at 473, Bonython v Commonwealth of Australia [1951] AC 201, and Mitsubishi v Alafouzous [1988] 1 Lloyd’s Rep 191 at 196.
The Kingdom of Tonga (accurately) pointed out that none of the authorities involved a guarantee given by a sovereign state. Nor had any of them been applied in New Zealand.
High Court's Decision
The High Court rejected the Kingdom of Tonga’s submissions, and accepted that the doctrine of infection applied in New Zealand law, and in this case.
Factors Considered
The factors that were relevant to the High Court accepting that the doctrine of infection applied included:
The guarantee was obviously very closely linked to the contract it guaranteed – in fact it was an accessory contract.
There was a very close relationship between TCL and the Kingdom of Tonga. TCL was majority owned by the Kingdom of Tonga.
The doctrine of infection is a principle of general application.
The fact that the Kingdom of Tonga is an independent sovereign state was irrelevant. The Kingdom was acting as a commercial player rather than in its capacity as an independent sovereign state
That finding was ultimately determinative. The Kingdom of Tonga also submitted that the laws of Tonga precluded enforcement of foreign judgments against it.
The High Court disagreed. It found that it would be
…highly unlikely that a Tongan court would conclude that the Kingdom of Tonga, having [by implication] submitted to the jurisdiction of the New Zealand courts, could then turn around (in what would be seen as an act of bad faith) and contend that the New Zealand judgment could not be enforced against it in Tonga because the only way to sue the Kingdom…is to bring proceedings in a Tongan court.