Contracting with entities that possess privileges, immunities, and statutory bars

The privileges, and their purpose

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Diplomatic privileges

Diplomatic privileges arise under the Diplomatic and Immunities Act 1958 (the Act), a codification of the Vienna Convention in New Zealand. It may be a sovereign immunity as in the case of an embassy which is recognised as a foreign state, or diplomatic immunity, as to the diplomatic staff. Among exemptions from taxes and duties and freedom from arrest and detention, diplomats and their families residing in New Zealand are generally granted immunity from the jurisdiction of the New Zealand Courts in civil and criminal matters to facilitate and enable the effective conduct of diplomatic functions.

International organisations

International organisations also enjoy privileges and immunities, for example, the World Health Organisation, but also many humanitarian organisations like Peta, World Vision, UNICEF, and Red Cross, who collectively have an established physical presence throughout the country.

The Crown

The Crown manifests in various forms, including as Crown Agents (e.g. ACC, District Health Boards), autonomous Crown entities (e.g. Arts Council of New Zealand, the New Zealand Symphony Orchestra), independent Crown entities (e.g. Commerce Commission), Crown entity companies (e.g. Radio New Zealand), Crown entity subsidiaries, school boards of trustees, and tertiary institutions. They most definitely have an established physical presence throughout the country.

Again, among immunity from taxation, the Crown is generally immune from lawsuit without its own consent, save for the very limited extent permitted under the Crown Proceedings Act 1950. It also has property immunity (protection from compulsory acquisition, forfeiture, and other legal processes).

Whilst the Crown can be liable in contract and in tort, it still holds some immunities in that regard. For example, it is common for a debtor to issue a statutory demand in New Zealand, for a debt over $1,000. But this cannot be issued against a Crown entity. Where judgment has been obtained against the Crown, it is still subject to limitations on enforcement, for example, prohibition on execution or attachment of Crown property to satisfy a judgment debt.

These privileges ensure that the Crown can perform its functions effectively as the executive authority in its constitutional status.

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Why it affects you

To carry out their functions, members of these entities and organisations regularly enter into contracts: leases, licences, development, security, transportation, cleaning, maintenance, infrastructure, procurement, consultancy, storage, insurance, and various other contracts a usual business can require.

Whilst favourable, it does mean that you should be aware of the differences in remedies and enforcements as against contracts with other entities, so that there is a clear intention in the contract and no surprises.

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Scope of the privileges

Whilst their privileges ensure effective diplomatic functions, they also have limitations to ensure accountability and prevent abuse.

Diplomatic privileges and international organisations

Immunity of diplomatic entities is limited to cases related to private or commercial matters, particularly relating to conduct unrelated to diplomatic function.

The exemption from direct taxes and customs duties do not exempt them from indirect taxes or charges for specific services.

Pursuant to the Vienna Convention, the Act, customary international law, and bilateral and multilateral agreements, diplomats must respect the host country’s laws and can be expelled for violations or interference in internal affairs. Family members enjoying immunities must also adhere to local laws and face potential expulsion for non-compliance.

The Ministry of Foreign Affairs and Trade (MFAT) works closely with law enforcement agencies and authorities to ensure compliance with local laws and may liaise with foreign authorities. MFAT can be asked to facilitate communications with diplomats, which may encourage accountability. Although, one should demonstrate good faith and not expect an automatic resolution, as there should be an opportunity for the circumstances to be reasonably clarified first, with opportunities for explanation and response.

Privileges under the Act grant diplomats immunity primarily for acts performed in their official capacity, unless waived by the sending state. Importantly, they do not cover commercial activities, severe traffic violations, or disputes involving domestic staff, who are subject to local labour laws. Diplomatic premises must not be used incompatibly with their functions.

The Crown

Whilst there are limitations on obtaining a judgment and the usual forms of their enforcement, there are unique mechanisms available for judgment debts of the Crown. This includes a payment mechanism, whereby the judgment creditor serves a certificate of the judgment on the respective government department or agency, who is then obligated to satisfy the judgment from public funds. Additionally, the Crown is generally expected to honour its financial obligations, as failure to satisfy a judgment could result in political and administrative repercussions, ensuring a level of accountability.

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Conclusion

Whilst these entities and organisations hold privileges, they are generally regarded as good parties to secure in contract, and less likely at risk to default due to their good reputation and funding. However, defaults are not impossible, and disputes may arise from misunderstanding of these privileges at the contract stage. It is therefore important for parties contracting with them to know what the scope of the privileges are.

If you need the assistance of any recovery and/or insolvency experts, contact us.

Filed Under:News

Farah Tuteja, In-House Counsel

[email protected]