Enforcement of a promise to pay a mahr: characterisation and public policy in the context of Almarzooqi v Salih
By Maria Hook (University of Otago)
In Almarzooqi v Salih [2021] NZCA 330, the Court of Appeal recently considered whether a judgment by a Dubai court ordering the defendant, Mr Salih, to pay a marriage dower was enforceable in New Zealand at common law. The High Court had refused enforcement on the basis that the Dubai Court did not have personal jurisdiction over Mr Salih, and the Court of Appeal upheld the High Court’s decision.
We have outlined the background to the proceeding in a previous post on this blog. Ms Almarzooqi, the claimant, and Mr Salih met on an Islamic dating site. Ms Almarzooqi was living in Australia at the time, and Mr Salih was living in New Zealand. They subsequently got married in Dubai in accordance with Islamic law, which involved the parties entering into a contract of marriage (nikah). This contract provided that Mr Salih would pay Ms Almarzooqi a deferred dower (also known as a mahr) of about $212,000 in the event of Mr Salih’s death or the parties’ divorce. The marriage did not last long. Ms Almarzooqi, a citizen of the United Arab Emirates (UAE), moved to New Zealand to live with Mr Salih, who had both Iranian and New Zealand citizenship. After a few months the couple separated, and Ms Almarzooqi eventually returned to UAE to file for divorce on the ground of domestic abuse. The Dubai Court awarded a default judgment in Ms Almarzooqi’s favour, ordering Mr Salih to pay the mahr. Ms Almarzooqi subsequently returned to New Zealand, where she continues to reside, and issued proceedings in the High Court, pleading two causes of action: enforcement of the UAE judgment, and a claim for breach of the contract of marriage.
The High Court dealt with the former claim first, declining the application to enforce the judgment on the basis that the Dubai Court did not have personal jurisdiction over Mr Salih ([2020] NZHC 2441). In this post, I provide a brief analysis of the Court of Appeal’s judgment, before turning in more depth to the remaining issues now facing the parties in the context of Ms Almarzooqi’s claim for breach of contract.
I Whether the Dubai Court had jurisdiction over Mr Salih for the purposes of enforcement of the Dubai Court’s judgment
The plaintiff made two main arguments on appeal. First, it argued that the Dubai Court did not require personal jurisdiction over Mr Salih because its decision to enforce the mahr was a decision in rem. Second, it argued that the Dubai Court had jurisdiction on the basis of the principle of reciprocity, which would have required the New Zealand court to recognise the Dubai Court’s jurisdiction based on New Zealand rules of personal jurisdiction.
The Court of Appeal rejected both arguments. It acknowledged that reciprocity (or connection) played some relevance in the context of the recognition of foreign judgments as to status (at [33], [41]-[58], citing The Conflict of Laws in New Zealand (CLNZ) at 5.96 and 9.4). However, the decision to enforce the mahr was not a decision as to status, or, indeed, a decision in rem (see the explanation of the concepts of personal jurisdiction and subject-matter jurisdiction at [41], citing CLNZ at 2.32-2.33). This meant that there was no basis for departing from the general principle that “New Zealand courts do not recognise the jurisdiction of a foreign court over a non-resident by reference to the principles, reflected in rr 6.27-6.29 [of the High Court Rules], in determining whether they have jurisdiction over a non-resident” (at [33], citing CLNZ at 5.96).
Although the Court of Appeal’s conclusion was correct, the case demonstrates the unduly restrictive nature of New Zealand’s existing framework for the enforcement and recognition of foreign judgments. The Dubai Court, as the Court that had also granted the divorce, was clearly the appropriate forum to determine the enforcement of the mahr (this is also implicit in s 182 of the Family Proceedings Act 1980, discussed further below). In these circumstances, it is unfortunate that the plaintiff’s only option now is to bring her claim again in the New Zealand court.
II Ms Almarzooqi’s claim for breach of contract
This claim may raise some difficult questions, covered briefly in my previous post on the proceeding. In particular, the court might be faced with the following issues:
- How are claims for the enforcement of a deferred mahr agreement to be characterised for choice of law purposes?
- Based on this characterisation, what is the applicable choice of law rule and how is it to be applied to the case at hand? (For example, if the matter is characterised as contractual, what is the proper law of mahr agreements?)
- If the applicable law is New Zealand law, are mahr agreements enforceable as a matter of substantive law?
- If the applicable law is foreign law, and assuming that the agreement is enforceable pursuant to that law, is it nevertheless unenforceable on the basis that application of that law would be contrary to New Zealand public policy?
In this post, I offer some further thoughts on how these questions could be resolved in a New Zealand court.
A How are claims for the enforcement of a deferred mahr agreement to be characterised for choice of law purposes?
The process of characterisation requires the court to have regard to the purposes or functions of the competing choice of law rules, as well as the function(s) of the substantive rules of law that would be applicable as a result of those choice of law rules. The goal is to identify the most appropriate law to govern the issue, which means that the court must be prepared to re-frame the issue from a conflict of laws perspective, unconstrained by particular notions or distinctions of domestic law: see Raiffeisen Zentralbank Österreich AG v Five Star General Trading LLC [2001] EWCA Civ 68, [2001] QB 825 at [27]-[29]; Haugesund Kommune v Depfa ACS Bank [2010] EWCA Civ 579, [2012] QB 549 at [41]-[47]; CLNZ at 4.B.2.
This exercise is particularly challenging in the context of the deferred mahr, which has been said to serve a range of functions (that may, moreover, vary between regions, cultures and legal systems). On the one hand, the deferred mahr can make up for modest or inexistent entitlements by the wife to relationship property or statutory maintenance. In Islamic legal systems, the mahr therefore serves at least a supplementary function to support the wife financially following her divorce. On the other hand, the mahr has also been ascribed a transactional function. Although provision of a mahr is compulsory, it is based on a contract and involves a promise by the husband to pay a certain sum of money or make a specified gift. The wife negotiates the amount (or size) of the mahr in light of – amongst other things – the social and economic costs that she will suffer in the case of divorce. More fundamentally, the mahr may be said to be given in exchange for the husband’s unilateral right of divorce; and if the wife wishes to end the marriage, she can use the mahr as a bargaining tool to obtain her husband’s consent to the divorce by agreeing to forego part or all of the mahr.
For helpful commentary on the functions of the mahr (including from a comparative perspective), see P Fournier “Flirting with God in Western Secular Courts: Mahr in the West” (2010) 24 International Journal of Law, Policy and the Family 67; K Spencer “Mahr as Contract: internal pluralism and external perspectives” (2011) 1 Oñati Socio-legal Series; S Rutten “The Struggle of Embedding the Islamic Mahr in a Western Legal System” in R Mehdi and J Nielsen (eds) Embedding Mahr (Islamic Dower) in the European legal system (DJØF Publishing, Aarhus, 2011) 113; N Yassari “The Islamic Mahr in German Courts: Characterization in Private International Law and Accommodation in German National Family Law” R Mehdi and J Nielsen (eds) Embedding Mahr (Islamic Dower) in the European legal system (DJØF Publishing, Aarhus, 2011) 193; D Schawlowski “The Islamic Mahr in German and English Courts” (2010-2011) 16 Yearbook of Islamic and Middle Eastern Law 147; JR Bowen “How Could English Courts Recognise Shariah?” (2010) 7 University of St Thomas Law Journal 411. For a recent German judgment grappling with the question of the characterisation of the mahr for the purposes of private international law, see the German Federal Court’s in BGH XII ZB 380/19, 18 March 2020 (and for a short commentary on the decision in English, see this blog post by Matthias Lehman).
(i) The particular issue to be characterised
How the mahr is to be characterised for choice of law purposes should depend on the particular issue that has arisen before the court. For example, if the question is whether the mahr may operate as an agreement to contract out of an obligation to share or divide relationship property, then the question relates to the property consequences of personal relationships (see CLNZ at 9.C.2). Similarly, if the question is whether the mahr may contract out of statutory obligations to pay maintenance, the question clearly falls within the choice of law rule governing maintenance obligations (see CLNZ at 9.C.3). More difficult are cases where the mahr is sought to be recognised as part of a settlement of the spouses’ property or financial obligations following divorce or separation. For example, an issue might arise whether a particular asset is to be treated as the wife’s separate property to reflect her entitlement to the mahr, or the court might have to determine whether the mahr should be a factor in determining the overall fairness of the property allocation. It seems that a characterisation based on the property consequences of the relationship would again be appropriate, albeit with a possible incidental question whether there is an enforceable obligation to pay the mahr in the first place.
This latter question is the principal issue arising in Almarzooqi, which is solely about the enforcement of a promise to pay the mahr, unrelated to any claims to specific property or statutory maintenance. The claim is brought in contract. However, based on the principles of characterisation outlined above, the form of the action is not in itself determinative of the question of characterisation (cf the following comment in my previous post, which, on reflection, does not adequately reflect the need for an internationalist and functional approach to characterisation: “if there were a basis in New Zealand contract law to give effect to deferred dowry contracts … then it is very likely that characterising the issue as contractual for the purposes of the conflict of laws was the right approach”). Because the mahr does not form part of New Zealand domestic law, contract may simply be the only available vehicle to bring the claim. Having regard, then, to the functions of the mahr outlined above, the question is whether the husband’s personal obligation to pay the mahr is best characterised as a matter relating to the property consequences of relationships, maintenance or contract.
(ii) Choice of law rules governing the property consequences of personal relationships?
There are some functional differences between relationship property laws and the obligation to pay the mahr. The function of relationship property laws is to allocate property between parties to a personal relationship. The obligation to pay the mahr, however, is not tied to property that is in existence at the time of divorce or separation. Moreover, there are limited functional similarities between mahr agreements and relationship property agreements (see Spencer at 13-14). Unlike relationship property agreements, mahr agreements do not seek to protect certain assets from a spouse. Their effect is transactional – that is, they envisage a transfer of assets – and it is in this sense that they may also be said to serve a function that, in New Zealand, would be the domain of the default rules of the Property (Relationships) Act 1976 (PRA).
On their own, these concerns would not be determinative. There is an argument that courts should take a relationship-focused and inclusive approach to choice of law governing the property consequences of personal relationships, enabling the court to make a holistic assessment of a couple’s property and financial obligations at the end of their relationship (M Hook “A First Principles Approach to Couples’ Property in the Conflict of Laws” (2019) 15 Journal of Private International Law 257). However, this is not currently the approach taken in New Zealand. The existing choice of law rules on relationship property are property-focused and fragmented. They are also largely inward looking, and as will be seen in the next sections on maintenance and contract, a lex fori rule would not be the most appropriate choice of law rule for mahr agreements.
It is true that application of the same governing law to both issues (ie the property consequences of personal relationships and the husband’s obligation to pay the mahr) would assist the court in reaching an overall fair and coherent result. If the issues are split across two (or more) governing laws, there is a risk that the applicable rules will be difficult to reconcile. However, on balance, this does not seem to be a sufficient reason to characterise the husband’s obligation as going towards the question of relationship property (but cf Yassari).
(iii) Choice of law rules governing maintenance?
This leaves the question whether the obligation is more properly characterised as relating to contract or maintenance. Islamic legal systems provide for rights of maintenance that are distinct from the wife’s entitlement to the mahr. In Almarzooqi, for example, the Dubai Court’s order to pay the mahr was in addition to a requirement to pay a certain amount of “alimony”. However, this does not necessarily mean that the two should be characterised differently for choice of law purposes (but cf Yassari at 208). There is clearly an overlap in functions because both provide the wife with financial support in case of divorce.
Yet there are differences, too. Maintenance is focused on offering a degree of minimum protection, which is assessed on the basis of the applicant’s needs and the respondent’s ability to pay (s 64, Family Proceedings Act 1980). Thus, in New Zealand, statutory maintenance rights are considered to be of such public importance that they are always governed by the law of the forum. The mahr, on the other hand, gives effect to the parties’ bargaining, regardless of the husband’s ability to pay, and may go well beyond covering the wife’s needs. Like maintenance, it also raises issues of public policy. By enforcing the mahr, the law contributes to the regulation of the parties’ personal relationship (more specifically, of the terms of the parties’ marriage and their potential divorce). In New Zealand, divorce – like maintenance – is governed by the law of the forum. Does this mean that the enforcement of the mahr raises questions of such a sensitive nature that it should be characterised as falling within the lex fori rule?
(iv) Choice of law rules governing contract?
On balance, I think that contract choice of law rules offer a better fit, even though the mahr is a compulsory component of the marriage contract. Applying contract choice of law rules to determine whether there is an obligation to pay the mahr would not interfere with the scope of the lex fori rule for maintenance and divorce. In other words, a foreign proper law of the mahr would not take away any minimum protections provided by the New Zealand rules on maintenance, or restrict the parties’ access to divorce under New Zealand law. In these circumstances, there is limited justification for immediately prioritising New Zealand family values over the interests of the spouses (and, to some extent, of the community or communities to which they are closely connected). It would be more appropriate, therefore, to apply a law that reflects the reality of the parties’ lives and expectations at the time they entered into the agreement (cf Art 8(4), Hague Protocol on the Law Applicable to Maintenance Obligations (signed 23 November 2007, entered into force 1 August 2013)). Contract choice of law rules are sufficiently flexible to achieve this.
This approach, which was adopted in Shahnaz v Rizwan [1965] 1 QB 390 (DC) and in Almarzooqi v Salih [2020] NZFLR 251, would also avoid some of the problems that courts have encountered when attempting to incorporate the mahr into Western family law. Because New Zealand substantive law is not familiar with the mahr, application of the lex fori can have the effect of distorting its function (see, in particular, Fournier). Under contract choice of law rules, on the other hand, the applicable law may be a law that is familiar with the concept, and conflict of laws rules on the proof of foreign law would ensure that the court’s assessment is based on adequate evidence. Moreover, the court would have an easier task when determining whether certain rules or incidents of the mahr are inconsistent with values of New Zealand family law. For example, a court might be unable to accept that, as a matter of New Zealand substantive law, a wife should not be entitled to the mahr because she was the one who initiated a (consent-based) divorce; but it might be comfortable accepting such a proposition as a matter of foreign law and refusing to invoke the public policy exception (see below).
B If the matter is characterised as contractual, what is the proper law of mahr agreements?
Contract choice of law rules generally call for the application of the law the parties intended to be applicable or, in the absence of an intention to that effect, the law of the country with which the contract is most closely connected (CLNZ at 6.B.1).
Courts have refined the application of these rules in the context of particular contracts. For mahr agreements, courts should be prepared to consider the parties’ relative bargaining power and any information asymmetries when determining the validity of the choice of law agreement. In the absence of a valid agreement, they should give weight to the parties’ expectations, their cultural, religious and social connections, and the wider normative context or background of their marriage (including the place of the marriage).
The function of the mahr is to protect the interests of the wife, so the court should focus on connecting factors that are consistent with this function (see CLNZ, ch 4 at [8]; for an example of a choice of law rule that aims to protect a certain group of claimants, see Hague Protocol on the Law Applicable to Maintenance Obligations, Art 3). The country of the wife’s nationality or residence may assume particular relevance. It would also usually be in the wife’s interest that the mahr be governed by a law that knows and recognises the mahr (as opposed to a law that, say, treats the mahr as a purely moral commitment).
In Almarzooqi ([2020] NZFLR 251), in the context of the High Court’s determination of the plaintiff’s application for security of costs, the Associate Judge concluded that the proper law of the agreement was New Zealand law, because “the overwhelmingly most important consideration in this case is that, although the parties married and entered into their contract in the UAE, it was their joint intention at the tie that the contract would govern their relationship as a married couple in New Zealand” (at [47]). I have criticised this reasoning in my previous post but add here that the Court should have also had regard to the wife’s interest in the application of a law that knows the mahr and that is closely connected to her, which here seemed to be the law of the UAE.
C If the applicable law is New Zealand law, are mahr agreements enforceable as a matter of substantive law?
If New Zealand law applies – whether by virtue of a lex fori rule or a multilateral choice of law rule – the question arises whether mahr agreements are in principle enforceable under rules of New Zealand family and contract law.
There is nothing in the Property (Relationships) Act, Family Proceedings Act or Child Support Act 1991 that would directly prohibit such an agreement. On the contrary, s 62(2) of the Child Support Act expressly recognises that liability to pay maintenance may arise under ordinary contractual principles (Townshend v Bellamy 3 June 2005, CIV-2004-483-393 (HC Wanganui) at [10]; see Margaret Briggs “Marital Agreements and Private Autonomy in New Zealand” in Jens Scherpe Marital Agreements and Private Autonomy in Comparative Perspective (Bloomsbury Publishing, 2012) 256 at 266).
There is also no general rule of contract that would prevent parties from entering into a binding marriage contract. In Radmacher v Granatino [2010] UKSC 42, [2011] 1 AC 534, Lord Phillips said:
“… the old rule that agreements providing for future separation are contrary to public policy is obsolete and should be swept away . . . If parties who have made such an agreement, whether ante- nuptial or post- nuptial, then decide to live apart, we can see no reason why they should not be entitled to enforce their agreement.”
More specifically, common law courts have recognised in principle that mahr agreements may be enforceable as contracts (see, eg, Uddin v Choudhury [2009] EWCA Civ 120; Mohamed v Mohmend [2012] NSWSC 852; the decision in Shahnaz v Rizwan [1965] 1 QB 390 (DC) seemed to be based on an application of “Mohammedan law” as given effect by the law of India).
The reasons why enforcement of a deferred mahr may be contrary to public policy have been widely discussed in the literature: see, eg, Spencer for a useful account. There are challenging questions here to what extent the law is capable or willing to reflect the needs of a pluralist society. In a New Zealand context, an additional point is that s 182 of the Family Proceedings Act, which provides the court with powers to vary or cancel any agreement or settlement relating to marriage, would not be available where the spouses divorced abroad. This is unfortunate, because s 182 might prove to be a useful mechanism to deal with any public policy concerns arising from the enforcement of a mahr.
D If the applicable law is foreign law, and assuming that the agreement is enforceable pursuant to that law, is it nevertheless unenforceable on the basis that application of that law would be contrary to New Zealand public policy?
If the promise to pay the mahr is governed by foreign law, the New Zealand court may still have to consider whether application of that law (or of particular provisions of that law) would be contrary to public policy. The threshold is often said to be a high one but may depend on a number of factors, including the connection of the case to New Zealand and the values that would ordinarily support the application of the foreign law (see CLNZ at 4.B.5(b)):
- The more closely connected the case is to New Zealand, the more appropriate it may be to adopt a lower threshold. For example, English courts have readily invoked the public policy exception to deny enforcement to contracts in restraint of trade in circumstances where the case had a close connection to the forum (see, eg, Duarte v Black & Decker Corp [2007] EWHC 2720 (QB), [2008] 1 All ER (Comm) 401 at [56]-[63]). In Almarzooqi, the spouses were – and still are – resident in New Zealand, which might make it more appropriate to apply the exception than in a case that has overwhelmingly foreign connections.
- The values that would ordinarily support the application of the foreign law should be evaluated in the context of the particular issue before the court. Where the issue is linked to general areas of public policy, the exception is a useful tool to modulate the effect of multilateral choice of law rules. The exception here operates as a more flexible alternative to lex fori rules or overriding mandatory rules. In this way, the public policy exception could play an important part in ensuring that mahr agreements need not be submitted to a general lex fori rule (see above). Where the spouses are divorced in New Zealand, the court would also be able to rely on s 182 of the Family Proceedings Act instead of the public policy exception (see above), assuming that s 182 has overriding mandatory force and is not merely self-limiting (see CLNZ at 4.4 and B.5.a.ii).
The overall question is whether the effects of upholding the mahr would be contrary to public policy in the circumstances of the particular case. There seem to be at least a couple of scenarios that might trigger the exception in this context:
- The exception could be relied upon where enforcement of the mahr would have the effect of undermining the purpose of the agreement and distort the function of the mahr. This might occur, for example, where enforcement of the mahr would expose the husband to double liability (under the mahr and, say, New Zealand rules of relationship property), in circumstances where the parties had entered into the mahr on the assumption that the wife would have no entitlement to share in the husband’s property.
- Depending on the facts of the case, the mahr might come close to a penalty for divorce (cf Mohamed v Mohmend [2012] NSWSC 852 at [53)). The fact that it is payable on divorce – directly disincentivising the husband from leaving the relationship – may not in itself be problematic. After all, relationship property laws and maintenance laws can have a very similar effect, discouraging a party from pursuing a separation because it would result in a significant reduction in wealth. But what if the relationship was a relationship of short duration, the divorce has had limited – or no – financial or social implications for the wife, and the wife had equal access to divorce (see Rutten at 4.2-4.3)? It is conceivable that the public policy exception could be triggered in such a case.
In Almarzooqi, the parties’ relationship was a relationship of short duration. The plaintiff obtained a fault-based divorce in the Dubai Court, and it is unclear whether she would have had a general right of divorce through the New Zealand court (this would have required that either she or the defendant was domiciled in New Zealand at the time: Family Proceedings Act, s 37(2)). What is more, divorce in accordance with Islamic law might have been the only culturally appropriate option for the parties. There has been no evidence so far of the financial or social implications of the divorce, but the fact that the plaintiff resides in New Zealand cannot be taken to mean that there were, or are, no such implications.
In the context of Ms Almarzooqi’s claim for enforcement of the UAE judgment, the High Court concluded that enforcement would not have been contrary to public policy because “New Zealand places a high value on cultural and religious autonomy” ([2020] NZHC 2441 at [62]). In my view, the Associate Judge was right to conclude that enforcement of a mahr would not in principle be contrary to public policy, but this does not mean that application of a foreign law giving effect to an obligation to pay a mahr may not be contrary public policy on the facts of the particular case.
III Conclusion
Courts face a challenging task when asked to enforce, or take account, of a promise to pay a mahr. Regardless of the particular approach that is adopted, it is crucial that courts are alive to the possible interrelationship between relationship property, maintenance and the obligation to pay the mahr, and that they make use of all available tools (including the principle of adaptation: CLNZ at 4.B.4(b)) to ensure the harmonious application of these different regimes. For example, an enforceable obligation to pay the mahr may be a factor in assessing the plaintiff’s entitlement to relationship property or maintenance, but courts should be very careful to conclude that the mahr amounts to a contracting out agreement. Fortunately, Almarzooqi v Salih does not seem to give rise to such concerns.
Claims for unjustified dismissal by “locally employed civilians” in the New Zealand court
New Zealand’s conflict of laws rules relating to employment matters are plagued by uncertainty. Is the Employment Relations Act 2000 (ERA) subject to ordinary choice of law rules? Do parts of the ERA have overriding mandatory effect? To what extent does the Employment Court/Employment Relations Authority have jurisdiction to apply foreign employment law? Although the Supreme Court had an opportunity to provide some clarity on these questions, its decision in Brown v New Zealand Basing Ltd [2017] NZSC 139, [2018] 1 NZLR 245 only seems to have contributed to the confusion. This was particularly evident in a recent case, Radford v Chief of New Zealand Defence Force [2020] NZEmpC 35, where the Employment Court had to determine whether the ERA was applicable to Ms Radford, a civilian working for the New Zealand Defence Force overseas, and whether the Employment Relations Authority (or the Employment Court) would have jurisdiction to determine the claim if it was governed by foreign law.
The claimant was employed to work for the New Zealand Defence Force in Washington DC. After eight years, the Chief of Defence Force terminated her employment without providing reasons, which he believed to be consistent with the law in Washington. The claimant returned to New Zealand and brought proceedings for, amongst other things, unjustified dismissal under the ERA. The Chief of Defence Force protested jurisdiction, arguing that the parties had agreed on Washington law being applicable, that the Court/Authority did not have jurisdiction to determine the claims pursuant to foreign law, and that in any case Washington was the appropriate forum. In this post, I will focus on the first two issues.
Applicable law
The Defence Act 1990 expressly provides that the Employment Relations Act applies to “Civil Staff” working for the New Zealand Defence Force (s 69). However, the claimant was not employed as a member of “Civil Staff” but as a “locally employed civilian” under s 90A of the Act. According to the Employment Court, there was nothing in the Act preserving the application of the ERA to locally employed civilians, even though the Chief of Defence can freely choose whether to employ a person overseas as Civil Staff or a locally employed civilian (at [88], [93], [94]).
The claimant further argued that, despite the Court’s interpretation of s 90A, it was still open to the Court to conclude that the ERA had overriding mandatory effect. The claimant relied on the Supreme Court’s decision in Basing to support this argument (even though the Court did not use the concept of “overriding mandatory rules” to conclude that the ERA applied in that case, holding instead that the question was purely a question of statutory interpretation: at [76], see Hook & Wass The Conflict of Laws in New Zealand (LexisNexis, 2020) at 4.114ff). The Employment Court seemed to have some sympathy for this argument. Yet it did not consider whether the ERA did, in fact, have overriding mandatory force, concluding instead that its application to the claimant would not be excluded if the law applicable to the agreement was New Zealand law (at [103]-[104]). The reason for this approach is unclear.
Applying traditional choice of law rules, the Employment Court held that the parties’ agreement was governed by the law of Washington, but that the parties had intended to incorporate the ERA into their employment relationship by signing the NZDF Civil Staff Code of Conduct 2006, which referred to the ERA (at [122]). Whether this incorporation of the ERA was effective was a matter for the proper law of the contract, the law of Washington (at [126]). Under Washington law, proceedings were only available to a claimant if the reason for the dismissal was a prohibited ground of discrimination or, potentially, if there was a breach of contract (at [126]).
This analysis demonstrates the difficulty of navigating between the Supreme Court’s approach – based on statutory interpretation – and traditional choice of law rules. Although it may be possible to reconcile the two approaches (see The Conflict of Laws in New Zealand at 4.124-4.126), further appellate guidance would clearly be beneficial. In particular, the Supreme Court left open the question whether a personal grievance claim based on the right not to be unjustifiably dismissed could still be characterised as contractual, which would lead to the application of ordinary choice of law rules rather than principles of statutory interpretation (at [57] per William Young and Glazebrook JJ, at [86] per Elias CJ, O’Regan and Ellen France JJ):
“… the more contractual a particular right may appear to be, the easier it may be to construe the right as applying only where the proper law of the employment agreement is that of New Zealand. This is a consideration which may be of some moment where the personal grievance right invoked is the right not to be unjustifiably dismissed.”
This was precisely the issue confronting the claimant in this case.
Subject-matter jurisdiction
In light of its conclusion that foreign law was applicable, the Employment Court had to consider whether the Court/Authority had jurisdiction to determine cases pursuant to foreign law, or whether their subject-matter jurisdiction was limited to cases governed by New Zealand law.
In Brown, William Young and Glazebrook JJ had drawn a distinction between contractual and statutory claims for this purpose. They pointed out that the Employment Court had jurisdiction over a range of claims, including claims for breach of contract, and they considered that there was “no reason why such claims should not be determined by reference to foreign law if such law is the proper law of the contract” (at [47], see Royds v FAI (NZ) General Insurance Co Ltd [1999] 1 ERNZ 820). They did not specifically consider the position of the Authority (as opposed to the Employment Court). Moreover, they did not form a view on whether the Employment Court “would have jurisdiction to give effect to statutory rights arising under a foreign statute which correspond generally to our personal grievance rights” (at [49]).
The main form of relief available to Ms Radford under Washington law appeared to be a breach of contract claim so to that extent – based on William Young and Glazebrook JJ’s reasoning – it was clear that the Employment Court would have jurisdiction to determine the claim. The Employment Court further decided that there was no principled reason why the Authority should be treated any differently, concluding that “Parliament intended the Court and the Authority to be able to entertain cases which involve the application of foreign law” (at [138]). It found support for this conclusion in the breadth of the Authority’s personal jurisdiction over foreign defendants (at [150], [151]).
The Employment Court did not distinguish between jurisdiction over contractual and statutory claims (at [129]-[131]), as William Young and Glazebrook JJ had done. On the facts, the distinction may not have been material, but it seems to be rather fraught in any case. Which types of claims would be characterised as contractual, and which as statutory? What would be the basis for the distinction in principle? The distinction reflects the Supreme Court’s bifurcated approach to choice of law more generally – treating the cross-border scope of statutory employment rights as a question of interpretation that falls entirely outside of the conflict of laws, while retaining conflict of laws reasoning for “contractual” employment matters. A better approach would be to recognise that all employment claims are “sui generis” (cf Brown at [77]) and in need of an integrated conflict of laws/statutory interpretation analysis (see The Conflict of Laws in New Zealand at 4.124-4.126, 6.79-6.85).
As to the more general question whether the Employment Court and/or Authority have subject-matter jurisdiction to determine employment matters governed by foreign law, it is worth noting that the broad powers for service out of the jurisdiction may not necessarily be indicative of a power to apply foreign law, as the Employment Court in Radford concluded. On the contrary, because the rules for service out are accompanied by a relatively restrictive discretion to decline jurisdiction, there is an argument that they are more consistent with an already limited subject-matter jurisdiction (that is because, if the Court’s/the Authority’s subject-matter jurisdiction is already largely confined to claims governed by New Zealand law, New Zealand is necessarily more likely to be the appropriate forum): see The Conflict of Laws in New Zealand at 2.312. One may also wonder about the practicalities of applying foreign employment law in a New Zealand court, when such rights often go hand in hand with procedures and infrastructure that could not be recreated here. These considerations are far from determinative, but they suggest that the question may not be as straightforward as the Employment Court might have thought.
CBL Insurance and section 9 claims against foreign insurers
By Jack Wass (Stout Street Chambers)
CBL Insurance collapsed in 2018 after intervention by the Serious Fraud Office, the Reserve Bank and the Financial Markets Authority owing very substantial sums. Class actions have since been launched against the company and directors.
An important source of recovery may be public offering and directors’ and officers’ liability policies held by CBL that respond to the plaintiffs’ losses. Under section 9 of the Law Reform Act 1936, the victim of a tort can assert a charge over the proceeds of policies held by the tortfeasor, so that the funds are used to satisfy the plaintiffs’ claims instead of being applied to the company’s general pool of creditors. The latter outcome is seen as unfair in circumstances where the funds are only available because of the plaintiffs’ claim.
In Ludgater v Gerling [2010] NZSC 49, [2010] 3 NZLR 713, the Supreme Court found that in a case with international dimensions, whether section 9 was available depended on whether the debt (representing the proceeds under the policy) was situated in New Zealand. In Bridgecorp Ltd (in rec and liq) v Certain Lloyd’s Underwriters [2014] NZCA 571, [2015] 2 NZLR 285, the Court of Appeal held that a debt could only ever be situated in a place where the insurance company was incorporated or had a physical place of business.
The latest decision in the CBL saga – an application to strike out the representative plaintiffs’ reliance on section 9 (Livingstone v CBL Corporation Ltd [2021] NZHC 753) – is yet another case illustrating the unjust results from that approach: policies that are held in the name of a New Zealand company in liquidation in New Zealand, and in one case are subject to a New Zealand choice of law clause, cannot support a statutory charge because the insurer is based in the United Kingdom. The result is that even where the insurer sought out business in New Zealand section 9 does not apply, as long as the insurer did not have a place of business in New Zealand (the plaintiffs do argue that the insurers were present through an agent in New Zealand).
I have previously argued that the Court of Appeal’s approach derives from a false turn taken by English law in the mid-20th century and is wrong in principle: Jack Wass “The Situs of Insurance Debts” (2014) 20 NZBLQ 221. Indeed more recent English cases have held that a debt can be situate in a country where the debtor is not resident: Hardy Exploration & Production (India) Inc v Government of India [2018] EWHC 1916 (Comm), [2019] QB 544; SAS Institute Inc v World Programming Ltd [2020] EWCA Civ 599 (an exception to the residence rule where suit can or must be brought in another jurisdiction, for example under an exclusive jurisdiction clause).
In the latest CBL decision, the plaintiffs’ claim narrowly survived a strike-out application and it is hard to resist the impression that Lang J went out of his way to keep the proceedings alive despite the apparently clear effect of Bridgecorp. While section 9 deserves comprehensive legislative reform, in the meantime it is open to the appellate courts to correct the wrong direction taken in Bridgecorp and restore the law to a more just position that recognises that a debt may be situate where payment is to be made.
Webb v Webb
In the relatively recent Cook Islands case of Webb v Webb, the Privy Council ([2020] UKPC 22) considered the relevance of a New Zealand tax debt to matrimonial property proceedings in the Cook Islands. The proceedings were brought under the New Zealand Matrimonial Property Act 1976 as incorporated into Cook Islands law. The two main issues in this regard were (a) whether a personal tax debt owed by Mr Webb to the New Zealand Inland Revenue had to be enforceable in the Cook Islands in order to be deductible from the value of Mr Webb’s matrimonial property located in that country and (b) whether the debt was enforceable against the matrimonial property in the Cook Islands or whether it was barred by the “foreign tax principle”. We provide a critical analysis of the the Board’s reasoning on these issues here. The case may be of particular relevance to New Zealand law. In relation to the first issue, the Board considered whether the meaning of “debt” in s 20(5) of the Act is confined to debts that are enforceable against the matrimonial property in question. This question could still arise in New Zealand under s 20D of the Property (Relationships) Act 1976. In relation to the second issue, the case raises general questions about the relevance of the foreign tax principle in the context of cross-border insolvency.
The complex meaning of ‘the good arguable case’ standard
In Zhang v Y [2020] NZCA 592, the Court of Appeal recently considered whether there was “a good arguable case” that the plaintiffs’ claim fell within the heads of jurisdiction of r 6.27 of the High Court Rules for the purposes of service outside of the jurisdiction. The judgment provides a useful opportunity to re-examine the meaning of the “good arguable case” standard, which has caused difficulty in New Zealand (both before and after the reform of the High Court Rules in 2008) as well as in England.
Relevance of the “good arguable case” standard
In order to bring a claim against an overseas defendant in the New Zealand court, a claimant must first persuade the court to assume personal jurisdiction over the defendant. The court may assume personal jurisdiction only if there is a basis for serving the defendant outside of New Zealand. The two main bases for service outside of New Zealand are rr 6.27 and 6.28 of the High Court Rules. Under r 6.27, the claimant may serve the proceeding out of New Zealand if its claim falls within one of the heads of jurisdiction listed in the rule. For example, r 6.27(2)(a)(i) provides that a claim in tort may be served out of New Zealand if “any act or omission in respect of which damage was sustained was done or occurred in New Zealand”. The purpose of these heads of jurisdiction is to set out the circumstances in which there would ordinarily be a real and substantial connection to New Zealand sufficient to justify the assumption of jurisdiction over a foreigner. Service under r 6.27 is without the leave of the court. However, if the defendant subsequently protests the court’s jurisdiction, the claimant must show “a good arguable case” that its claim falls within one or more of the heads of jurisdiction in r 6.27.
The meaning of the “good arguable case” standard has caused a great deal of confusion in the past: it has “become befuddled by ‘glosses’, glosses upon glosses, ‘explications’ and ‘reformulations’” (Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV [2019] EWCA Civ 10, [2019] WLR 3514 at [59]). This is not surprising, because it is expected to do some heavy lifting: to negotiate the fact that it is not usually appropriate to resolve disputed questions of fact at the jurisdictional – and hence interim – stage of the proceeding. For example, what if a claimant who sues in the tort of deceit relies on r 6.27(2)(a)(i) to argue that the court may assume jurisdiction because the alleged misrepresentation was made in person in New Zealand, but the defendant disputes that she was in the country at the time? Or what if a claimant who sues for breach of contract relies on r 6.27(2)(b)(i) to argue that the contract was made in New Zealand, but the defendant disputes that they entered into the contract at all?
On the one hand, the answer cannot be to leave the dispute for trial, because the purpose of the inquiry is to establish whether there is a sufficient connection for the purpose of jurisdiction. If it turns out that the defendant was right, then there would have been no basis for determining the claim on the merits in the first place. On the other hand, it would not be feasible for the court to engage in a preliminary trial of the question of jurisdiction, especially if the same facts will also be relevant to determining the merits of the claim (which they may or may not). Yet it would also be unfair to decline jurisdiction every time the defendant disputes that the claim falls within a relevant head of jurisdiction.
The standard of a “good arguable case” involves a necessary compromise between these two extremes. Ideally, the standard of proof should not be so onerous as to make it impossible for the plaintiff to succeed in the face of conflicting evidence, while being sufficiently stringent for the court to be able to conclude with some confidence that the requisite connection to New Zealand is met.
The Court of Appeal’s judgment in Zhang
The plaintiffs in this case had obtained a default judgment against the defendant for deceit in relation to an investment into a company operated by the defendant in New Zealand. The defendant subsequently applied for recall of the judgment and filed a protest to jurisdiction. She argued that the High Court’s assumption of jurisdiction (and judgment by default) was based on an error of fact, which was that the defendant had made the alleged misrepresentations while they were visiting New Zealand in 2014. In fact, the defendant was not in New Zealand at the time, with the result – she argued – that r 6.27(2)(a) was not satisfied. The plaintiffs now seemed to accept that they had not met with the defendant in New Zealand in 2014. But instead, they insisted that the misrepresentations were made when the defendant visited New Zealand with one of the plaintiffs for ten days in 2015.
The High Court recalled its judgment and allowed the protest to jurisdiction on the basis that r 6.27(2)(a) was not engaged (Zhang v Yu [2019] NZHC 29). The Court was “far from persuaded that any relevant representations were made by [the defendant] to [the plaintiff]” during their visit in 2015 (at [54]). If such representations were made, it was “more likely that they were made in China”. The plaintiffs appealed to the Court of Appeal.
The Court of Appeal allowed the appeal. It noted that, to find that the good arguable case standard was met, it was “only necessary to find that there was a sufficiently plausible basis for the relevant representations having been made in New Zealand” (at [51]). It was not necessary to establish “a prima facie case” (at [12], referring to Wing Hung Printing Co Ltd v Saito Offshore Pty Ltd [2010] NZCA 502, [2011] 1 NZLR 754 at [41]) or “to find the representations were ‘more likely’ to have occurred in New Zealand” (at [51]). Disputed questions of fact could not be resolved on affidavit evidence (at [12]).
Here, there was “a sufficiently plausible basis on the evidence for the claim that [the defendant] made the relevant representations while in New Zealand” (at [51]). The plaintiff and the defendant had spent 10 days together on a trip in New Zealand, and it was “entirely plausible” that the defendant would have made relevant representations during that time. In fact, given the context and the timing of the visit, it seemed “implausible” that the parties would have avoided discussion of the investment altogether. It was not appropriate to form a view of the plaintiffs’ credibility, in relation to their claim that the misrepresentation occurred in New Zealand (at [52]). This could only be done after cross-examination.
The good arguable case – a low bar?
The Court of Appeal dismissed the defendant’s argument that the plaintiffs had not shown a good arguable case that their claim fell within r 6.27(2)(a)(i). The Court reached this conclusion even though the key question of fact – whether the representations were made in New Zealand – had been the subject of apparently inconsistent evidence from the plaintiffs and was directly disputed by the defendant. Does that mean that the good arguable case necessarily favours the plaintiff?
The answer, I think, is ‘no’. As previously noted, the purpose of the good arguable case standard in this context should be to provide the court with sufficient confidence that the claim has the requisite connection to New Zealand to assume jurisdiction. This means that the inquiry must be approached with a certain degree of flexibility and a willingness, where possible, to evaluate the relative merits of the parties’ competing positions.
The English courts have provided useful guidance on how to achieve this in practice. In Four Seasons Holdings Inc v Brownlie [2017] UKSC 80, [2018] 1 WLR 192 Lord Sumption accepted that a good arguable case involves the plaintiff having the better argument on the material available. He then broke down the inquiry into three limbs (at [7]):
(i) that the claimant must supply a plausible evidential basis for the application of a relevant jurisdictional gateway; (ii) that if there is an issue of fact about it, or some other reason for doubting whether it applies, the Court must take a view on the material available if it can reliably do so; but (iii) the nature of the issue and the limitations of the material available at the interlocutory stage may be such that no reliable assessment can be made, in which case there is a good arguable case for the application of the gateway if there is a plausible (albeit contested) evidential basis for it.
This approach was later confirmed in Goldman Sachs International v Novo Banco SA [2018] UKSC 34, [2018] WLR 3683. A useful analysis of each limb can be found in Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV [2019] EWCA Civ 10, [2019] WLR 3514. The Court of Appeal here clarified that:
- “plausibility” under limb (i) still involves a relative inquiry – in other words, the plaintiff has to show that it has the better argument (at [73]);
- limb (ii) asks the court “to overcome evidential difficulties” if it “reliably” can, using judicial common sense and pragmatism (at [78]);
- limb (iii) operates as an exception to the relative inquiry, where the court “finds itself simply unable to form a decided conclusion on the evidence before it and is therefore unable to say who has the better argument” (at [79]; and
- the effect of limb (iii) is that a plaintiff may satisfy the evidential test even though the court is unable to conclude that it has the better argument (at [80])
The New Zealand Court of Appeal in Zhang did not refer to these authorities. In fact, some of its dicta seem to be at odds with the English position. Both in Wing Hung and in Zhang, the Court of Appeal said that a good arguable case does not require the plaintiff to establish a prima facie case; but the English authorities are quite clear that a good arguable case requires at least a prima facie case (Four Seasons Holdings Inc v Brownlie at [5]; Aspen Underwriting Ltd v Credit Europe Bank NV [2018] EWCA Civ 2590, [2019] 1 Lloyd’s Rep 221 at [34]). This is not a recent development but reflects the position adopted by the House of Lords in Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran [1994] 1 AC 438 (HL) at 453: see Hook & Wass The Conflict of Laws in New Zealand (LexisNexis, 2020) at 2.153.
Does that mean that the New Zealand “good arguable case” is different from the English “good arguable case”, and that the English approach is more defendant-friendly than the New Zealand approach? Not necessarily, for two reasons:
- As we have seen, the English authorities recognise (under limb (iii)) that, where the court cannot take a reliable view on the material because of the interlocutory stage of the proceedings, a prima facie case (or less) may be sufficient for the plaintiff to succeed. To some extent, the evidential uncertainty is here resolved in the plaintiff’s favour. Perhaps this is the situation that the New Zealand Court of Appeal had in mind when it said that the plaintiff need not establish a prima facie case – so what it really meant to say was that the plaintiff need not establish a prima facie case where the court cannot come to a concluded view on the conflicting material before it. This is, in any case, how the drafters of r 6.29(1)(a)(i) may have intended the expression to be understood, based on Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran [1994] 1 AC 438 (HL).
- It is far from clear that the New Zealand court and the English court mean the same thing when they refer to a “prima facie case”. In some ways, this expression may simply be another “gloss”, “explication” or “reformulation” that does more harm than good in elucidating the meaning of the good arguable case.
Ultimately, the Court of Appeal’s reasoning seems to be consistent with the approach summarised in Kaefer. There is no doubt that questions of jurisdiction – to the extent that they raise questions of fact – cannot be determined on the balance of probabilities (cf Kaefer at [75]). In Zhang, there seemed to be a genuine dispute whether the alleged representations were made during the 2015 trip to New Zealand, bringing the case within limb (iii). The parties made competing claims to that effect, and there was no further (eg documentary) evidence that would have enabled the court to “[work] around the problem” and resolve the issue as required under limb (ii) (Kaefer at [78]). In determining whether the plaintiffs had provided sufficiently plausible evidence, the Court did not accept the plaintiffs’ evidence uncritically but evaluated the overall plausibility of the plaintiffs’ version of events. Arguably, the inconsistencies in the plaintiffs’ evidence could have been thrown into the overall mix to raise some doubt as to the plausibility of the plaintiffs’ claims. What was not necessary, however, was to engage in a relative inquiry of the merits of the parties’ respective positions – that is, to conclude that it was more likely than not that the defendant made the alleged misrepresentations in New Zealand.
The enforcement of Chinese money judgments in common law courts
The High Court recently rejected an argument that a Chinese money judgment should not be enforced because the courts of China do not qualify as “courts” for the purpose of New Zealand’s rules on the enforcement of foreign judgments: Hebei Huaneng Industrial Development Co Ltd v Shi [2020] NZHC 2992. For a brief note on the judgment, see this post by Jack Wass on Conflictoflaws.net.
The enforcement of Australian judgments concerning New Zealand land
By Jack Wass (Stout Street Chambers)
The Trans-Tasman Proceedings Act 2010 (TTPA) and corresponding legislation in Australia fundamentally reoriented the rules of private international law concerning trans-Tasman disputes. It recognized that it was no longer appropriate for many purposes to treat Australia as a foreign country, thus (among other changes) making judgments essentially enforceable in the other country as of right, and much circumscribing the traditional defences to enforcement. The remaining limits on enforcement were the subject of the High Court’s recent decision in Lange v Lange [2020] NZHC 2560.
Lange arose out of relationship property proceedings in Western Australia, where the couple had lived. Mr Lange had purchased a property in Kaitaia during the marriage, but after separation had transferred it to his daughter from a previous relationship and forgiven the debt. Moncrieff J set aside the forgiveness of debt and granted a charge over the Kaitaia property. He did not grant Ms Lange’s request to set aside the transfer itself, or to make a declaration that Ms Lange was the equitable owner of the property.
Ms Lange registered the judgment in New Zealand under the TTPA, and obtained a sale order by way of execution of the judgment debt. Mr Lange sought a stay of execution of that order and (belatedly) leave to oppose registration. In substance the question for Gault J was whether the judgment was entitled to recognition under the TTPA.
The first ground on which Mr Lange sought to have the registration set aside was that the judgment was contrary to public policy, because the result was contrary to what the New Zealand Family Court would have ordered applying New Zealand law; Mr Lange had not been treated fairly; and Moncrieff J did not have jurisdiction under the Australian Family Law Act 1975. Breach of public policy has been retained by s 61(2) of the TTPA as one of the few defences to registration, but it imposes a high threshold requiring that the result “shock the conscience” of the ordinary New Zealander (Reeves v OneWorld Challenge LLC [2006] 2 NZLR 184 (CA) at [67]). It has never been sufficient that a New Zealand court would decide the case differently, and it has been clear since Godard v Gray (1870) LR 6 QB 139 that a foreign judgment will not be re-examined on the merits. It would be a rare case indeed where an Australian judgment was held to breach New Zealand public policy, and the judge found that this was not such a case.
The more difficult question was whether the judgment could not be registered because it concerned New Zealand land. Private international law has long afforded special treatment to land, and this is reflected in s 61(2)(c) of the TTPA which requires the court to set aside registration of a judgment if it was “given in a proceeding the subject matter of which was immovable property” located outside Australia.
Gault J found that this exception was only engaged if the New Zealand property was “in issue” in the proceedings. Although the judge noted that no authorities had been cited concerning the scope of s 61(2)(c), its antecedent language in s 6 of the Reciprocal Enforcement of Judgments Act 1934 has been considered twice: in McCormac v Gardner [1937] NZLR 517, Myers CJ held that a proceeding for payment of arrears under a mortgage was not “an action of which the subject matter was immovable property”, and in Gordon Pacific Developments Ltd v Conlon [1993] 3 NZLR 760, Henry J held that an action for damages for breach of a contract for the sale of land also fell outside that description because the section only caught “actions where title to or possession of property is at issue” (both judges leaving open the question of whether an action for specific performance would qualify). Thus Gault J got to the right result albeit without the benefit of relevant authority: a judgment setting aside a fraudulent disposition is not rendered unenforceable simply because the debt concerned the sale of New Zealand land.
The judgment also illustrates two more difficult questions that the judge was not required to decide.
The first is whether the charge imposed by Moncrieff J would be enforceable. The Family Law Act 1975 (Cth) empowers a court to order that any judgment sum be secured (s 80) and to alter the property interests of third parties (s 90AE). Unlike the common law, the TTPA allows the enforcement of non-money judgments, but it is doubtful whether a charge over New Zealand land would be enforceable: a charge creates a proprietary interest and s 61(2)(c) allocates exclusive jurisdiction to the New Zealand courts to determine legal title to New Zealand land.
For the same reason, an order setting aside the transfer of the property itself would not be enforceable in New Zealand. (Moncrieff J appeared to be conscious of this issue, since he refused to make such an order, and his judgment records for the benefit of the New Zealand judge why his orders did not infringe the immovable property limitation in the TTPA). But if the judge had declared that Ms Lange was the beneficial (ie equitable) owner of the property, without purporting to affect legal title, then there is a good argument that the judgment would have been enforceable (see Jack Wass “The court’s in personam jurisdiction in cases involving foreign land” (2014) 63 ICLQ 103).
The final interesting point concerns the relationship between the enforcement of foreign judgments and relationship property regimes. Gault J acknowledged that if the positions had been reversed, s 7 of the Property (Relationships) Act 1976 would have limited the court’s ability to take into account the existence of Australian land in assessing the appropriate division of relationship property. He noted that Australian courts were under no such disability, and was reluctant to adopt a reading of the legislation that prevented Australian judges from taking into account the existence of New Zealand land. That approach is to be commended (as is the New Zealand Law Commission’s recent proposal to abolish s 7). It also illustrates the paradox that New Zealand courts may be willing to enforce foreign judgments where a New Zealand court would not have exercised original jurisdiction in the same circumstances.
The law governing collisions on the high seas
By Maria Hook (University of Otago)
In American Eagle Fishing Llc v Ship “Koorale” [2020] NZHC 1935, the High Court recently considered an important question of choice of law in maritime torts: what is the law governing maritime collisions on the high seas where both vessels are flying the same flag? The answer, according to Whata J, is the lex fori. However, his Honour also acknowledged that there was force in the submission that the law of the flag should govern. This post offers some brief comments on the Court’s reasoning.
Two tuna fishing boats flying the flag of the United States had collided on the high seas. One of the boats, the Koorale, was subsequently served with proceedings in New Zealand while it was undergoing repairs in Nelson. The plaintiffs, the owners of the American Eagle, sought compensation for damage suffered in the collision. The defendant, the owner of the Koorale, applied for a stay of proceedings on the basis that New Zealand was not the appropriate forum to determine the claim. It argued that the dispute should be determined in the US courts, where it had filed proceedings against the plaintiffs. The question of the applicable law arose in the context of that application. Under New Zealand law, liability of the boat owners would be capped at about US$2m. Under US law, compensation would be based on the market value of the vessel and its freight. The defendant estimated its damage and loss to exceed US$10m.
Whata J concluded that New Zealand law was applicable, but that the applicable law was in any case a neutral point in the forum conveniens analysis (at [41]-[68]). His Honour accepted the claimants’ submission that the law of the forum has traditionally been applied in collision cases (at [44], [55]-[57]). He seemed to reject the defendant’s submissions that, where the ships involved have the same home jurisdiction, it should be the law of the flag that is applicable (at [41], [55]-[57]. He also rejected the argument that the claim was subject to the choice of law rules contained in the Private International Law (Choice of Law in Tort) Act 2017, because the Act “presupposes the tort occurred in ‘a country’” (at [42], [63]-[68]).
This reasoning confirms the orthodox common law position that the law of the forum applies to collisions on the high seas. More specifically, it is the “maritime law as administered in the courts of England” that has traditionally been said to be applicable (Chartered Mercantile Bank of India v Netherlands India SN Co (1883) 10 QBD 521 at 545, per Brett LJ) – although in practice this seems to mean “nothing more than English law” (Lloyd v Guibert (1865) LR 1 QB 115 at 123 per Willes J).
Where the ships involved in the collision fly different flags, this position makes sense, because there is no immediately obvious alternative. It would seem unfair to prioritise the law of one ship over the law of the other and there is no other objective connecting factor available. But where the ships fly the same flag, the law of the flag is a viable alternative, and there is no need to rely on the lex fori. His Honour acknowledged the potential merit of this proposition (at [59]). In fact, courts in other jurisdictions have applied the law of the flag in such circumstances (see, eg, The Eagle Point 142 F 453 (1906), referred to by the defendant’s counsel at [41]). There is also academic support for this solution: see, eg, M George “Choice of Law in Maritime Torts” (2007) 3 Journal of Private International Law 137 at 159; S Gahlen Civil Liability for Accidents at Sea (Springer, 2015) at 356; C F Finlayson “Shipboard torts and the conflict of laws” (1986) 16 VUWLR 119 at 138 (“There is no reason why the Eagle Point principle should not be applied in England provided English law is properly pleaded and proved”).
It would be open to the New Zealand court to take this approach. The Private International Law (Choice of Law in Tort) Act 2017 does not apply, because it expressly preserves any choice of law rules for torts that were not previously governed by the double actionability rule (s 11(1), see Hook & Wass The Conflict of Laws in New Zealand (LexisNexis, 2020) at 6.73). Moreover, as noted by the Court, the Act presumes the relevant acts to have been committed within a country. This means that the question remains a question for the common law. In the leading English case, Chartered Mercantile Bank of India v Netherlands India SN Co, the Court applied the lex fori in a case involving a collision between two Dutch ships. However, the claim was brought by the (English) shipper of the cargo (which had been damaged in the collision), so the decision is distinguishable. In any case the Court’s rigid reliance on “general maritime law” (at 544) may not sit well with the principles and policies underpinning the modern conflict of laws. Drawing on the principles of the Private International Law (Choice of Law in Tort) Act 2017 for guidance, the law of the flag would seem an appropriate solution, on the basis that it would be more closely connected to the tort than New Zealand law (cf the submission for the defendant at [52]).
In light of these considerations, one might have expected the Court to have more sympathy for the defendant’s argument. The Judge placed particular weight on the need to give effect to international maritime sources that have been incorporated into New Zealand law (at [55]). Clearly, the application of the law of the flag should not undermine the operation of uniform rules of maritime law. However, another way of dealing with this concern would have been to clarify that such rules have overriding mandatory force (so would invariably be applicable, even if the law of the flag is not New Zealand law).
The Supreme Court affirms orthodox approach to the application of foreign law
By Jack Wass (Stout Street Chambers)
The Supreme Court has recently confirmed the approach that the courts should follow where a question of foreign law appears on the facts of a case, but the parties have failed to plead foreign law.
In earlier Blog posts, we explained that where the parties have failed to plead or prove foreign law, then the general rule is that the court can and must apply the substantive law of New Zealand in default. Although courts in recent years have recognised that this default rule may sometimes be displaced, this has only been permitted in three categories of case: where the plaintiff’s claim positively relies on foreign law and they have failed to establish it; where case management considerations make it necessary for the parties to address foreign law; or where New Zealand law is inherently local and cannot be applied to foreign facts. We explain these principles in more detail in Chapter 3 of The Conflict of Laws in New Zealand.
In Schaeffer v Murren [2020] NZSC 98, the trial had been conducted on the basis of the New Zealand law of negligent misstatement and the Fair Trading Act 1986 (except for one cause of action based on a Nevada statute). The Court of Appeal rejected the proposition that the High Court ought to have applied Nevada law to all issues, and because Nevada law had not been proved by the plaintiffs the claim should have failed. The Supreme Court dismissed an application for leave, confirming the orthodox position described in The Conflict of Laws in New Zealand that where the parties have not pleaded foreign law then the court is entitled and required to decide the case on the basis of New Zealand law. Although acknowledging that there were exceptions to the default rule, these were not engaged on the facts.
While only a leave decision, the Court’s judgment is a valuable affirmation of the orthodox approach to the application of foreign law. The scope of the exceptions to the default rule remains an interesting issue for determination in a later case.
Pre-judgment charging orders against overseas defendants: reasons for leaving
By Jack Wass (Stout Street Chambers)
It is now established that the High Court has the power to grant interim relief without notice against foreign defendants. The High Court has recently considered a different question: does the fact that the defendant is outside New Zealand create a basis for ordering interim relief in advance of trial?
The court’s power to grant interim relief
The High Court may grant a wide range of orders to protect a plaintiff’s ability to enforce a judgment on the merits. Some of these orders are designed to preserve assets before trial, “in order to improve the prospect of the court being able to do justice between the parties after a determination of the merits at a trial” (Commerce Commission v Viagogo AG [2019] NZCA 472 at [7]). These include freezing orders and interim injunctions. Other orders are granted after judgment has been obtained to secure property for the discharge of the judgment debtor’s obligations. These include attachment orders, sale orders and possession orders.
Charging orders straddle this distinction, because they can be granted both before and after judgment. Although a charging order does not create a proprietary interest in the charged property, it has the effect converting the plaintiff’s in personam claim for a sum of money into a security interest by charging the property with payment of the judgment sum and preventing the debtor from disposing of the property without paying the plaintiff. It constitutes an “interest” in terms of the Land Transfer Act 2017 and a security interest in terms of the Insolvency Act 2007. By contrast, a freezing order operates strictly in personam (see McGechan on Procedure at [HR17.40.03]).
Pre- and post-judgment charging orders
Where a plaintiff has already obtained judgment and had it sealed, they may obtain a charging order as of right (r 17.42). In such a case, a judge has already determined that the defendant owes a liquidated sum to the plaintiff, and the plaintiff has a prima facie right to enforce that judgment which justifies granting them an interest in the defendant’s assets. While the court also has the power to grant pre-judgment charging orders, it must be satisfied that “the liable party, with intent to defeat either his or her creditors or the entitled party or both,– (a) is removing, concealing, or disposing of the liable party’s property; or (b) is absent from or about to leave New Zealand.”
This condition was recently considered by the High Court in ASI Global Investments Inc v Yousef [2020] NZHC 1983. The applicant had begun substantive proceedings against the respondent in Switzerland. He sought leave to obtain a pre-judgment charging order over a Northland forestry block to secure payment of the anticipated Swiss judgment.
Duffy J refused the order. The judge accepted evidence that the respondent had taken steps overseas which demonstrated an intent to defeat creditors, and apparently that unless interim relief were granted then the applicant’s ability to enforce any judgment against the Northland property might be defeated. But there was no evidence that the respondent’s presence outside New Zealand had anything to do with his intent to defeat creditors, particularly if he had never been here in the first place. The judge concluded:
Before I can draw the necessary linkage between the respondent’s absence from New Zealand and his intent in terms of r 17.41, I would need to be informed of the respondent’s movements to and from New Zealand and how they may be connected with the acquisition of the subject land as well as any potential alienation of that land. It must necessarily be the case in these days of global transactions that persons who reside overseas buy land in New Zealand as an investment [without residing here]. In such circumstances I do not consider it can readily be inferred that they remain absent from New Zealand because they intend to defeat creditors or other entitled persons who may otherwise seek to attach their New Zealand based assets.
The judge indicated that she was willing to reconsider the application if the applicant could produce specific evidence that demonstrated the necessary link between the limbs of r 17.41.
The judgment is consistent with earlier authority emphasising that even where the defendants had left New Zealand recently, the applicant must show that they did so with the necessary intent (Amplexus Ltd v Liao [2016] NZHC 924). By contrast, where Australian residents arranged for construction of a house platform in New Zealand but failed to pay, then apparently returned to Australia and put the property up for sale, the court was satisfied that they had left the country with the intention of defeating their creditors (AHS Construction Ltd v Andrews [2019] NZHC 1779).
The significance of the debtor leaving the country
The effect of these requirements is that the applicant must demonstrate that a purpose of the respondent in leaving the country was to make it more difficult for creditors to enforce their rights. That higher standard may be justified by the more extensive rights afforded to the holder of a charging order, by comparison with a freezing order which operates strictly in personam (although as I note below, the effect can be the same). Nevertheless, the requirement substantially narrows the scope for the application of pre-judgment charging orders, particularly where the respondent has never been in New Zealand. Where there is proof of an intention to defeat creditors (but not proof that the respondent is actually disposing of property sufficient to satisfy r 17.41(a)), and the respondent’s presence outside New Zealand may make it easier for them to evade their creditors, it is arguable whether Parliament intended to require proof of a conscious causative nexus between the two facts.
It is not only in the context of pre-judgment charging orders that the court may take into account the respondent’s departure from the country. Section 40 of the Senior Courts Act 2017 empowers the court to issue a warrant to arrest a defendant if they are satisfied that the plaintiff has a good cause of action against the defendant, and there are reasonable grounds to suspect that the defendant is about to leave the country with the intention of evading payment of the amount claimed. This replaced the old prerogative writ of ne exeat regno (most famously sought to restrain the All Blacks leaving New Zealand on a tour of South Africa in Parsons v Burk [1971] NZLR 244).
Section 40 was formerly found in s 55 of the Judicature Act 1908. That section did not require the plaintiff to show that the defendant was leaving the country to evade payment, but that their absence would “materially prejudice the plaintiff in the prosecution of those proceedings” (for example by making them unavailable as a witness). It is not clear whether Parliament intended that change (see Hook and Wass The Conflict of Laws in New Zealand at [3.205]).
Freezing order?
There remains a question whether the court’s broad jurisdiction to grant interim relief is capable of addressing the dilemma in which the applicant found itself. It appears from the judge’s summary of the evidence that the applicant was concerned that it would have no means of monitoring compliance with a freezing order, other than after the fact. It appears that the particular value of the property was in cutting rights, and the applicant was concerned that the respondent might exploit these rights and dispose of the proceeds without the applicant’s knowledge.
The court has a broad power to fashion interim relief to meet the requirements of justice. The freezing order is merely one – particularly famous, sophisticated and codified – instance of this inherent jurisdiction. Any third party on notice of an injunction who assists in its breach commits a contempt of court. A freezing order should be capable of preventing the transfer of title to the land itself out of the respondent’s name. While recognising the difficulties of monitoring activity on a remote forestry block, one would have hoped that it would be possible to fashion interim relief that is designed to put anyone who might be involved in a large-scale cutting operation on notice that to assist would be a breach of the High Court’s orders.
