Lun v Kong: confusion about subject-matter jurisdiction
Cross-border adjudicatory jurisdiction can be split into two types: personal jurisdiction and subject-matter jurisdiction. Personal jurisdiction is the main vehicle for determining whether a New Zealand court will exercise jurisdiction over a particular defendant. Subject-matter jurisdiction plays a more targeted role. For example, a New Zealand court may lack subject-matter jurisdiction to hear a claim involving questions of title to foreign land. As a concept, subject-matter jurisdiction has – at least traditionally – been much less visible than personal jurisdiction. But it has received increased attention in the New Zealand courts over the past few years (see, eg, Almarzooqi v Salih [2021] NZHC 330, [2021] NZFLR 501; Mao v Findlay [2022] NZHC 521 at [51]; Johnston v Johnston [2020] NZHC 2887, [2020] NZFLR 594 at [38]).
Subject-matter jurisdiction is an important concept (see CLNZ, ch 2.E). It can play a useful role in shaping the proper reach of the court’s adjudicatory powers. However, because of its complex interrelationship with choice of law, it is important that the functions of subject-matter jurisdiction are clearly understood and carefully circumscribed. Without a good grasp of the concept, there is a risk of methodological confusion. This risk was highlighted by Goddard J in Commerce Commission v Viagogo AG [2019] NZCA 472, [2019] 3 NZLR 559 at [50], where his Honour cautioned that the term should not be used where the issue concerned the law applicable to the claim – for example, the question of whether a particular statutory provision can be applied to a case involving foreign facts (for a more detailed analysis of this particular point, see CLNZ at [2.334]).
This kind of confusion is evident from a recent case, Lun v Kong [2023] NZHC 1317. Here, the concept of subject-matter jurisdiction ended up unduly encroaching on the territory of choice of law and thus confusing the proper nature of the court’s enquiry. The plaintiff, Mr Lun, alleged that the defendant, Mr Kong, had committed a breach of trust in relation to shares issued in a Chinese company. The question before the Court was whether New Zealand was the appropriate forum to determine the claim.
There was no real basis for arguing that the New Zealand Court lacked subject-matter jurisdiction to determine the dispute. In particular, Associate Judge Taylor had no trouble rejecting an argument by the defendant that the claim concerned corporate arrangements within China (which would have been under the exclusive jurisdiction of the Chinese courts and thus given rise to a true question of subject-matter jurisdiction) (at [75]). Nevertheless, the Court proceeded to consider – on a more general basis – whether New Zealand had subject-matter jurisdiction to determine the dispute, prompted (presumably) by counsel’s submissions to that effect.
In a brief analysis, the Judge relied on a number of connecting factors to conclude that the Court did have subject-matter jurisdiction: the fact that the parties’ arrangements giving rise to the alleged trust/fiduciary obligations were “mostly connected with New Zealand” or were “brought into existence in New Zealand”, and the fact that both parties lived in New Zealand and the defendant was a New Zealand citizen (at [76]). To the extent that this reasoning suggests that a New Zealand court will lack subject-matter jurisdiction over a claim unless it is the forum most closely connected to the claim, it is incorrect. There is no general limitation on the court’s subject-matter jurisdiction based on a requirement of closest connection.
The concept of (closest) connection is an important organising principle in the conflict of laws, but its principal relevance is to the questions of choice of law (ie, what system of law governs the claim, which depending on the nature of the issue may be the legal system of the country most closely connected to the claim) and of the appropriate forum or forum non conveniens, which determines whether the court will exercise personal jurisdiction (since the connections between the claim and New Zealand will influence the question of whether it is the appropriate forum for the trial of the action).
The discussion of subject-matter jurisdiction did not add anything to the Court’s analysis. What is more, it detracted from the more relevant questions of choice of law and appropriate forum. There was a disagreement between the parties as to the proper characterisation of the claim and the implications of this for choice of law purposes. The plaintiff argued that the claim involved a trust issue, that this issue was governed by New Zealand law, and that the applicability of New Zealand law favoured New Zealand as the appropriate forum. The defendant made competing arguments. The Court did not address the question of choice of law head-on, but closer engagement with this question would have been valuable, and might also have aided in the Court’s identification of the appropriate forum.
Australian interim relief granted in support of New Zealand proceedings in Kea v Wikeley
As readers of this blog will know (see here and here), the New Zealand High Court recently granted an interim anti-enforcement injunction in relation to a default judgment from Kentucky against Wikeley Family Trustee Limited (WFTL), a New Zealand company, and Mr Wikely, the sole shareholder and director of the company (Kea Investments Ltd v Wikeley Family Trustee Limited [2023] NZHC 466 and [2022] NZHC 2881). The plaintiff is claiming that the defendants have committed a tortious conspiracy against it, because the Kentucky default judgment was based on fabricated claims intended to defraud it, and is seeking a declaration that the Kentucky judgment would not be recognised or enforceable in New Zealand.
In an interesting new development, the case has now reached the Australian courts. Following the High Court’s decision to refuse the defendants’ protest to jurisdiction, Mr Wikeley apparently sought to evade or contravene the Court’s interim orders, by purporting to assign the Kentucky judgment from WTFL to a new (Kentucky) company. The New Zealand Court responded by placing WFTL under the control of a provisional liquidator. However, because Mr Wikeley was located in Queensland, the Court had limited powers to make its restraining orders effective against him.
Kea therefore applied to the Supreme Court of Queensland under s 25 of the Trans-Tasman Proceedings Act 2010. Under this section, a party to a New Zealand proceeding may apply to the Australian courts for interim relief in support of the New Zealand proceeding. More specifically, the Australian court may give interim relief if “the court considers it appropriate” to do so (s 26(1)(a)). The court must be satisfied that, “if a proceeding similar to the New Zealand proceeding had been commenced in the court”, it would have had power to give – and would have given – the interim relief in that similar proceeding (s 26(1)(b)(i) and (ii)). The equivalent provisions in the New Zealand Act are ss 31 and 32.
The Queensland Court granted the application and made an order restraining Mr Wikeley from leaving Australia (Kea Investments Ltd v Wikeley [2023] QSC 79). The Court accepted that the assistance sought was “consistent with the beneficial nature of the Act” (at [32]). It was also satisfied that it would have had power to grant the relief if Kea had commenced a similar proceeding in Queensland, and that it would have granted the relief, satisfying s 26(1)(b)(i) and (ii) (at [39]-[60]).
The case provides a good example of the value of ss 25 and 26 (and its New Zealand equivalents): the power to provide prompt and effective support of the other country’s proceedings, in circumstances where the court asked to grant the support will not – and should not – be taking jurisdiction over the merits. This power was not, of course, available under the old common law approach (The Siskina [1979] AC 210, but see now Broad Idea International Ltd v Convoy Collateral Ltd [2021] UKPC 24. [2023] AC 389), with the result that – here – the New Zealand proceeding might have proven entirely fruitless in practice. It is good to see the Trans-Tasman regime working as intended.
A more specific point worth noting is that, in the course of its analysis, the Court commented on the approach that the supporting court should take to the question of jurisdiction in the hypothetical similar proceeding. In particular, the Court noted that it had “reservations” about “transposing relevant facts, including the respondents’ connections with the jurisdiction to a Queensland setting” (at [43]-[44]). The Court’s preference seemed to be to assess the question of jurisdiction on the basis of the facts as they were. Either way, it was clear that the Court would have had jurisdiction (at [44]). The Court “plainly” had jurisdiction over Mr Wikeley, due to his presence in Queensland. Moreover, Mr Wikeley’s conduct to avoid or contravene the New Zealand orders took place in Queensland, with the result that Queensland would have been “an appropriate forum if a similar proceeding had been brought in this court” (at [45]).
The Court did not elaborate on the nature of its concerns. However, one disadvantage of “transposing” relevant facts, including geographical connections, is that – when followed strictly – this approach may render ss 25 and 26 unavailable in circumstances where they would be most useful. Ordinarily, the very reason why an applicant is asking the court for orders in support of the New Zealand proceeding, is that the New Zealand court does not have the jurisdiction to make the necessary orders. Here, the New Zealand Court did not have enforcement jurisdiction over Mr Wikeley. It could not make an order preventing him from leaving Australia or an order for his arrest. The Queensland Court’s pragmatic approach to the question of jurisdiction, therefore, is to be welcomed.
An anti-suit injunction to compel compliance with an arbitration agreement: MMIA v Silica Sandport
The New Zealand jurisprudence on anti-suit injunctions is developing at pace. Three years ago, the High Court in Lu v Industrial and Commercial Bank of China (NZ) Ltd [2020] NZHC 402 declined an application for an injunction restraining proceedings for the recovery of a debt in China. The case was notable because it appeared to be only the second time a New Zealand court had been asked to grant such an injunction. Since then, the High Court has granted an anti-enforcement injunction in relation to a default judgment from Kentucky, in a case involving allegations of large-scale fraud, and it has also granted an anti-suit injunction to compel compliance with an arbitration agreement. It is this latter decision that I want to focus on here. The decision raises the question whether, like fraud, the existence of a jurisdiction or arbitration agreement really justifies the granting of an anti-suit injunction.
The case
In Maritime Mutual Insurance Association (NZ) Limited v Silica Sandport Inc [2023] NZHC 793, Gault J granted an interim anti-suit injunction to stop Guyana proceedings commenced in breach of an agreement to arbitrate. The applicant was a New Zealand company that had provided marine insurance to Silica Sandport Inc, a company incorporated in Guyana. The insurance cover related to a barge that capsized in international waters north of Trinidad. Silica brought proceedings against MMIA in Guyana, claiming breach of the insurance policies and breach of the (Guyana) Insurance Act 2016. MMIA lodged a protest to jurisdiction, but it also applied to the New Zealand court for an injunction restraining the proceeding on the basis that the parties had agreed to arbitrate any dispute in New Zealand or England.
Gault J granted the order. Referring to Lu, his Honour noted that the legal principles “derive[d] largely from a number of leading United Kingdom decisions” and were “reasonably well-settled” (at [34]). Even though comity was an important consideration when granting an anti-suit injunction, comity played “a smaller role” in cases involving arbitration (or jurisdiction) agreements (at [38]). In such cases, the court would “ordinarily exercise its discretion to restrain the pursuit of proceedings brought in breach of a forum clause unless the defendant can show strong reasons to refuse the relief”. That was because the court was involved “in upholding and enforcing the parties’ contractual bargain” (at [38]). His Honour referred to the following passage from QBE Europe SA/NV v Generali Espana de Seguros Y Reaseguros [2022] EWHC 2062 (Comm) at [10]-[11] by way of further explanation:
… It has been held that respect for comity is not a strong reason for the court not to give effect to a contractual choice of forum clause, and that comity requires that where there is an agreement for a sole forum for the resolution of disputes under a contract, that agreement is respected … By way of parenthesis, in that context, comity is served by applying the same respect to choice of court or arbitration agreements in favour of other jurisdictions and arbitral seats.
… It has been held that the existence of a mandatory provision of foreign law applicable in the foreign court which overrides the contractual choice of jurisdiction is not a strong reason to refuse an [anti-suit injunction].
Applying these principles, Gault J concluded that there were no strong reasons here to refuse an anti-suit injunction.
Comment
Based on English law, Gault J’s reasoning is entirely predictable. However, the question is whether New Zealand courts really ought to be adopting the same approach to anti-suit injunctions as the English courts (see here, and CLNZ at ch 2, Part H). That is because anti-suit injunctions can be difficult to reconcile with an internationalist approach to the conflict of laws. What may appear to the New Zealand court as a blatant attempt to evade a forum clause might be viewed differently by the foreign court, and legitimately so. The foreign court’s perspective should at least be a relevant consideration in the decision whether to grant an injunction.
It can be illuminating to play around with a hypothetical reversal of the facts. What might the New Zealand court do if it was in the position of the foreign court? In other words, what if a New Zealand insured sought to bring proceedings under a policy entered into with an overseas insurer, in an apparent breach of a forum clause? It is conceivable that there are circumstances in which a New Zealand court would refuse to enforce the clause. It is not uncommon for common law jurisdictions to restrict the enforceability of jurisdiction and arbitration agreements in insurance contracts. The fact that common law courts would still feel entitled to interfere with an insured’s access to justice in the foreign court, in the name of upholding the parties’ bargain as to jurisdiction, seems indefensible.
In this context, it is useful to point out that the English position has not been free from criticism. In particular, the argument that the “true role” of comity is to protect the parties’ agreement has been shown to be misguided (Andrew Dickinson “Taming Anti-suit Injunctions” in Andrew Dickinson and Edwin Peel (eds) A Conflict of Laws Companion (OUP, 2021) 77 at 85-6). Rather, “comity requires the English court to accept that ‘different judges operating under different legal systems with different legal policies may legitimately arrive at different answers’” (at 85). I would add to this that different judges operating under different legal systems but with similar legal policies may still arrive at different answers, simply because of differing connecting factors to the particular case. New Zealand courts should think twice before following the English lead and granting injunctions in such circumstances as a matter of course.
Kea Investments Ltd v Wikeley Family Trustee Limited: the good arguable case applied to jurisdiction agreements
In a recent post, I reported that the High Court had granted an interim anti-enforcement injunction in relation to a default judgment from Kentucky in Kea Investments Ltd v Wikeley Family Trustee Limited [2022] NZHC 2881. Kea Investments Ltd (Kea), a British Virgin Islands company, alleges that the US default judgment is based on fabricated claims intended to defraud Kea. It claims that the defendants – a New Zealand company, an Australian resident with a long business history in New Zealand, and a New Zealand citizen – have committed a tortious conspiracy against it and seek a declaration that the Kentucky judgment is not recognised or enforceable in New Zealand. In my post, I also noted that two of the defendants – Wikeley Family Trustee Limited and Mr Wikeley – had since protested the Court’s jurisdiction. The Court set aside the protest to jurisdiction in Kea Investments Ltd v Wikeley Family Trustee Limited [2023] NZHC 466, and I want to explore this decision in more detail here.
The defendants’ protest to jurisdiction focused on two main points: that Kea was bound by a US jurisdiction clause and that New Zealand was not the appropriate forum to determine Kea’s claims. The defendants did not focus on challenging the appropriateness of the anti-enforcement injunction. Considering the nature of Kea’s allegations of fraud, and the tenor of Gault J’s earlier judgment, this might have seemed like too much of an uphill battle. Still, it is a little surprising that the defendants did not make more of the potential comity concerns associated with the granting of an anti-enforcement injunction.
The Court rejected both of the defendants’ arguments. The jurisdiction clause was unenforceable by virtue of the allegations of fraud and conspiracy, and in any case its scope did not extend to Kea’s claims. New Zealand was also the appropriate forum to determine Kea’s claims. In substance, the dispute was whether the defendants were perpetuating a fraud against Kea (at [82]). In these circumstances, it was doubtful whether Kentucky was an available forum for Kea’s claims (at [83]), and the New Zealand Court had a greater interest in regulating the conduct of the defendant (at [84]).
In this post, I want to focus on the role of the jurisdiction agreement, rather than the question of appropriate forum.
Before I do so, however, it is useful to make a preliminary comment about the nature of the defendants’ application, which was based on a misunderstanding of the rules of personal jurisdiction. The defendants sought a dismissal of Kea’s claims under r 5.49 of the High Court Rules on the basis that the Court had no jurisdiction to determine the claim. However, because the defendants had been served with the claim as of right (at [32]), there could be no question of the Court lacking personal jurisdiction in this case. The right question to ask was whether the Court should exercise its jurisdiction. The misconceived basis of the defendants’ jurisdictional argument makes the judgment a little difficult to follow, but Gault J did clarify that the defendants were unable to challenge the existence of the Court’s jurisdiction and that rr 6.27 and 6.28 of the High Court Rules were, therefore, irrelevant (at [31]-[32], [43], [44]). Gault J said that the question was one of the assumption of jurisdiction (at [31]), although the term assumption – as opposed to “exercise” – is apt to confuse here, given that r 6.29 refers to the court’s discretion to “assume” jurisdiction in service out cases.
The standard of proof for establishing the US jurisdiction agreement
The defendants argued that the proceeding should be dismissed or stayed because the parties had selected a foreign forum, the US, to determine any dispute between them. Kea argued that the contract that contained the jurisdiction clause was a forgery and the result of fraud, and that the jurisdiction clause was therefore unenforceable.
In order to determine the effect of the jurisdiction clause, the Court first had to work out to what extent it could – at this interim stage of the proceeding – engage with the merits of Kea’s case and assess the fraud and forgery allegations. There seemed to be two distinct questions, although the Court did not treat them as such. First, were the allegations relevant to the jurisdiction clause at all or was the clause separable from the substantive contract (see CLNZ at 2.407-2.408)? Second, if the allegations were relevant, what was the standard of proof to determine the validity of the allegations?
On the first question, the plaintiff referred to the case of Credit Suisse First Boston (Europe) Ltd v Seagate Trading Co Ltd [1999] CLC 600, where the Court held that an allegation of fraud in a US proceeding affected not just the substantive contract but also its English jurisdiction clause, with the result that the clause was unenforceable. Gault J agreed that the allegations impugned the existence of the contract as a whole (at [63]).
On the second question, the Court relied on the test in Four Seasons Holding Inc v Brownlie [2017] UKSC 80, which sets out the good arguable case standard applicable to “jurisdictional facts” that form the basis for an application to serve proceedings outside of the forum (for a more detailed discussion of this standard, see this previous post here). Gault J considered that, even though the test in Four Seasons was concerned with the different scenario of a plaintiff seeking to establish jurisdictional facts to support an assumption of jurisdiction by the forum court, it was appropriate to apply the test by analogy to the defendants’ application for a stay or dismissal of the New Zealand proceeding by virtue of the US jurisdiction clause (at [44]).
This point is a useful clarification of the law. Where a court is concerned with “jurisdictional facts” in the context of the “gateways” or heads of jurisdiction in r 6.27, the question is whether there is a sufficient connection to New Zealand for the court to assume jurisdiction. The question has been described as a “threshold” question, which has to be determined before the court goes on to ask whether it should assume jurisdiction (Wing Hung Printing Co v Saito Offshore Pty Ltd [2010] NZCA 502, [2011] 1 NZLR 754 (CA) at [32]-[35]). A New Zealand jurisdiction clause is one of the gateways of r 6.27. However, even in service out cases, jurisdiction agreements – whether New Zealand or foreign – will be more definitively relevant under the second stage of the jurisdictional inquiry. In fact, the effect of a jurisdiction agreement is largely the same whether it falls to be determined under the second stage of the jurisdictional inquiry in service out cases or in the context of an application to stay or dismiss a proceeding that has been brought as of right.
What Gault J’s judgment seems to confirm is that the evidential standard that must be applied to establish the agreement is the same across all three scenarios: where the agreement is a New Zealand agreement that is a gateway or head of jurisdiction under r 6.27; where it is relied upon to argue that the New Zealand court should – or should not – assume jurisdiction under r 6.29; and where it is relied upon to argue that the New Zealand court should – or should not – exercise the jurisdiction that it has, in cases where the defendant has been served as of right (as in the present case). This makes sense, to the extent that the broad issue in the three scenarios is the same: namely, whether the court is able to give effect to a contested jurisdiction agreement, at a point in the proceeding where the court’s ability to make factual findings is necessarily limited The assessment of the jurisdiction agreement should not descend into a predetermination of the merits. In other words, the court should not have to resolve the parties’ substantive dispute in order to determine whether it has, or should exercise, jurisdiction over the dispute (for a contrary view, however, see Stephen Pitel and Jonathan de Vries “The Standard of Proof for Jurisdiction Clauses” (2008) 46 Canadian Business Law Journal 66).
There is one aspect of the Judge’s reasoning, however, that raises further questions. The good arguable case test is especially difficult to apply in cases where the court is unable “to form a decided conclusion on the evidence before it and is therefore unable to say who has the better argument” (at Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV [2019] EWCA Civ 10, [2019] WLR 3514 at [79]). In such cases, the good arguable case inquiry is no longer a relative inquiry, and all that is needed is a plausible (albeit contested) evidential basis. This is probably fine where the plaintiff is seeking to establish a head of jurisdiction; but the approach may cause unfairness where a party wants rely on a jurisdiction agreement more definitively, to argue that the New Zealand court should/should not assume or exercise jurisdiction. The reason this approach may cause unfairness is that it would require the court to decide on the effect of the jurisdiction agreement even though it is unable to say who has the better argument (see Kaefer at [80]).
Of particular relevance in these circumstances will be the question who is the party who is merely required to show a plausible evidential basis. Is it always the plaintiff, or is it the party seeking to enforce the jurisdiction agreement? The latter view seems to be the view adopted by Dicey, Morris and Collins on the Conflict of Laws at 12-093. Gault J, however, adopted the former view, and applied the evidential standard to the question whether the contract was a forgery (or the result of fraud), as opposed to the question whether there was a contract (executed by Kea). Thus, Gault J considered that Kea had to show “a plausible evidential basis” for its argument that there was no jurisdiction clause: “[t]he test is whether there is a plausible (albeit contested) evidential basis for the claimant’s case in relation to the jurisdiction clause (by analogy with the application of the relevant gateway). It is not whether the defendants have a plausible (albeit contested) evidential basis for their position that the Coal Agreement was executed by Kea” (at [60], see also [63]).
It is likely that Gault J’s approach can at least to some extent be explained by reference to the peculiar facts of the case. However, if his approach were adopted more generally, the result would be that in cases of evidential uncertainty that cannot be resolved, the good arguable case inquiry necessarily favours plaintiffs over defendants, and New Zealand jurisdiction agreements over foreign jurisdiction agreements. This would not be a desirable outcome. Having said that, the concern might be more theoretical than real. In practice, a court is always likely to engage in some form of relative inquiry in practice, reaching the best conclusion it can, even though it is technically unable to form “a decided conclusion on the evidence”.
Determining the exclusive or non-exclusive nature of the jurisdiction agreement: applicable law and standard of proof
Despite the Court’s conclusion that the jurisdiction agreement was unenforceable, it nevertheless continued to determine two issues of interpretation: whether the agreement would have had exclusive or non-exclusive effect, and whether it would have extended to cover Kea’s claims. The alleged jurisdiction agreement stated that the parties had “agreed that the jurisdiction shall be the USA” (at [65]).
The Court concluded that the law governing the interpretation of the jurisdiction agreement was the law of Kentucky, as the proper law of the contract. In relation to the first issue, the issue of exclusivity, the Court was presented with conflicting evidence on US law, and the Court considered that there was “at least a plausible evidential basis for Kea’s case that the jurisdiction clause is permissive rather than exclusive” (at [70]). In relation to the second issue, the Court concluded that the clause did not cover Kea’s claims, pointing to the “non-expansive wording” of the clause and the fact that Kea’s claims included matters that were unrelated to the contract (at [74]).
There are two interesting points here. The first is that the Court applied the good arguable case test to the interpretation of the jurisdiction agreement, again resolving the question of evidential certainty in favour of the plaintiff. There is a good argument, however, that any evidential matters that are directed only at the jurisdiction agreement – and that are irrelevant to the merits of the claim – should be resolved at the time of the court’s decision on jurisdiction. In other words, it is not clear that the good arguable case standard should have applied here at all (cf CLNZ at 2.155 in the context of r 6.27). This is for two reasons. First, the evidence in question here, concerning the exclusive or non-exclusive nature of the jurisdiction agreement, was solely relevant to the question of jurisdiction. Therefore, the Court would not have risked predetermining the substance of the dispute by forming a conclusive assessment of this evidence. Second, the source of the uncertainty was a question of (US) law. It is true, of course, that questions of foreign law are treated as matters of fact, but it is difficult to see how a conflict of expert evidence on US law could only be properly resolved at trial (at which point, in any case, the question would have necessarily been moot).
The second point is that the Court applied the proper law of the contract, not New Zealand law, to determine the question of exclusivity. To the extent the question involved an interpretation of the agreement based on general principles of the law of contract, there is little doubt that this was the correct approach (see Mary Keyes “Jurisdiction clauses in New Zealand law” (2019) 50 VUWLR 631 at 636). Nevertheless, the question of exclusivity occupies an awkward spot as far as matters of choice of law are concerned. That is because rules of interpretation that are specific to the conflict of laws would only ordinarily apply if they form part of New Zealand law as the law of the forum (see CLNZ at 2.410). An obvious example would be a rule that jurisdiction agreements are presumed to be exclusive (see Hague Choice of Court Convention, Art 3(b)). But at what point does an application of the general rules of interpretation to a jurisdiction agreement turn into a specific rule of the conflict of laws? This is an interesting question that the Court did not need to ponder in this case, because the jurisdiction agreement would have also been treated as non-exclusive under New Zealand law (at [71]).
A first for the NZ conflict of laws: court grants an (interim) anti-enforcement injunction
In an exciting new conflict of laws case, the New Zealand High Court has granted an interim anti-enforcement injunction in relation to a default judgment worth USD136,290,994 obtained in Kentucky (Kea Investments Ltd v Wikeley Family Trustee Limited [2022] NZHC 2881). The decision was made in November last year but has only now been released. It seems to be the first time that the New Zealand court has granted an (interim) anti-enforcement injunction.
The case involves allegations of “a massive global fraud” perpetrated by the defendants – a New Zealand company (Wikeley Family Trustee Ltd), an Australian resident with a long business history in New Zealand (Mr Kenneth Wikeley), and a New Zealand citizen (Mr Eric Watson) – against the plaintiff, Kea Investments Ltd (Kea), a British Virgin Islands company. Kea alleges that the US default judgment is based on fabricated claims intended to defraud Kea. Its substantive proceeding claims tortious conspiracy and a declaration that the Kentucky judgment is not recognised or enforceable in New Zealand. Applying for an interim injunction, the plaintiff argued that “the New Zealand Court should exercise its equitable jurisdiction now to prevent a New Zealand company … from continuing to perpetrate a serious and massive fraud on Kea” (at [27]) by restraining the defendants from enforcing the US judgment.
The whole judgment is well worth a read. It is illustrative of the kind of cross-border fraud that private international law struggles to deal with effectively: here, alleged fraudsters using the Kentucky court to obtain an illegitimate judgment and, apparently, frustrate the plaintiff’s own enforcement of an earlier (English) judgment, in circumstances where the Kentucky court is unwilling (or unable?) to intervene because Kea was properly served with the proceeding in BVI.
More specifically, Gault J’s decision is notable because anti-enforcement injunctions – injunctions to restrain a defendant from enforcing a judgment already obtained overseas – are rarely granted. That is because “the New Zealand Court has great respect for the work of foreign courts” and “[t]o grant an injunction which will interfere, even indirectly, with the process of a foreign court is therefore a strong step for which a clear justification is required” (at [66]). The main exception, however, are cases involving fraud (for cases involving foreign judgments obtained in breach of an agreement, see Tiong Min Yeo “Foreign Judgments and Contracts: The Anti-Enforcement Injunction” in Andrew Dickinson and Edwin Peel A Conflict of Laws Companion – Essays in Honour of Adrian Briggs (OUP, 2021) 251), and Gault J accepted counsel’s submission that this was “one of the rare cases” where an anti-enforcement injunction was justified (at [65]).
Gault J considered that the case was “very unusual” (at [68]). Kea had no connection to Kentucky, except for the defendants’ allegedly fabricated claim involving an agreement with a US choice of court agreement and a selection of the law of Kentucky. Kea also did not receive actual notice of the Kentucky proceedings until after the default judgement was obtained (at [73]). In these circumstances, the defendants were arguably “abusing the process of the Kentucky Court to perpetuate a fraud”, with the result that “the New Zealand Court’s intervention to restrain that New Zealand company may even be seen as consistent with the requirement of comity” (at [68]).
One may wonder whether the Kentucky Court agrees with this assessment – that a foreign court’s injunction restraining enforcement of its judgment effectively amounts to an act of comity. In fact, Kea had originally advanced a cause of action for abuse of process, claiming that the alleged fraud was an abuse of process of the Kentucky Court. It later dropped the claim, presumably due to a recent English High Court decision (W Nagel (a firm) v Chaim Pluczenik [2022] EWHC 1714) concluding that the tort of abuse of process does not extend to foreign proceedings (at [96]). The English Court said that extending the tort to foreign proceedings “would be out of step with [its] ethos”, which is “the Court’s control of its own powers and resources” (at [97]). It was not for the English court “to police or to second guess the use of courts of or law in foreign jurisdictions” (at [97]).
Since Gault J’s decision granting interim relief, the defendants have protested the Court’s jurisdiction, arguing that Kea is bound by a US jurisdiction clause and that New Zealand is not the appropriate forum to determine Kea’s claims. The Court has set aside the protest to jurisdiction (Kea Investments Ltd v Wikeley Family Trustee Limited [2023] NZHC 466). In its judgment, the Court traverses a number of issues that may be of interest to readers, to be discussed in a future post. For now, it is worth noting that the Court has ordered that the interim orders continue, although the Court was not prepared to make a further order that the defendants consent to the discharge of the default judgment and withdraw their Kentucky proceedings. This, Gault J thought, was “a bridge too far” at this interim stage (at [98]).
A2 Milk Company, again
Late last year, I noted on this blog that A2 Milk Company Ltd (A2), a company incorporated in New Zealand, was facing class actions in Australia and New Zealand, in relation to allegedly misleading or deceptive statements to the Australian Stock Exchange (ASX) and the New Zealand Exchange Main Board (NZSX) regarding its revenue and earning forecasts. I reported a decision by the Supreme Court of Victoria that it had jurisdiction to determine claims made by some of the plaintiffs in the Australian proceeding under New Zealand legislation, seeking declaratory relief and monetary compensation.
The New Zealand court has now granted a stay of the New Zealand proceeding against A2 pursuant to s 24 of the Trans-Tasman Proceedings Ac 2010 (TTPA): Whyte v A2 Milk Company Ltd [2023] NZHC 22. Like the Australian proceeding, the claim involved allegations of misleading and deceptive conduct on the ASX and NZSX and breaches of continuous disclosure obligations. However, the claim focused solely on contraventions of New Zealand law. There was no risk of overlap with the class of plaintiffs in the Australian proceeding, because the arrangement was that every person represented in the New Zealand proceeding would opt out of the Australian proceeding. Nevertheless, the High Court decided that Australia was the more appropriate court to determine the claim, because of the existence of the Australian proceeding, which was “a substantively similar proceeding”.
In coming to this decision, Edwards J first concluded that the Australian Court had jurisdiction to determine the matter, including claims brought by New Zealand shareholders who acquired shares on the NZSX (at [43]). The Supreme Court of Victoria itself had confirmed that it had jurisdiction to determine the claims and grant relief under the Fair Trading Act 1986 and the Financial Markets Conduct Act 2013. In my last blog post, I noted that a potential limitation of the Australian judgment was that it did not address the question of choice of law, because the question of choice of law could – at least in theory – affect the question of subject-matter jurisdiction. However, this did not appear to be an issue on the facts.
Taking into account the factors listed in s 24(2), the Judge then concluded that Australia was the appropriate forum, because a stay would “streamline both proceedings and promote the twin goals of efficiency and cost saving embodied in the TTPA” (at [119]). The determinative factor was that the Australian proceeding was a “substantially similar proceeding … involving the same facts, substantially the same law, same defendant, and shareholder plaintiffs” (at [101]).
Section 24(2)(f) requires the court to take into account whether “a related or similar proceeding has been commenced against the defendant in a court in Australia”. There has been considerable case law on the problem of multiplicity of class action proceedings. Her Honour provided clear and helpful analysis on this issue, grouping the cases into three different categories, depending on whether the proceedings involved the same or different plaintiff classes and whether they were commenced in the same jurisdiction or in different jurisdictions (at [78]). Here, the proceedings involved different plaintiff classes and were commenced in different jurisdictions. Such proceedings were not considered oppressive or an abuse of process per se, so a stay was not “a pre-determined response”: at [80].
However, to allow the two proceedings to continue in parallel “would be at odds with” the aims of the TTPA, which includes “streamlining the process for resolving civil proceedings with a trans-Tasman element” (at [93]). Case management techniques such as a joint trial could be a useful alternative to a stay in some cases. However, a stay of proceedings would lead to greater efficiencies, and case management techniques did not address the risk of inconsistent judgments, which was “a significant risk in this case” (at [97]). The Australian proceeding had been commenced first, and this, too, was relevant to the “streamlining and cost reduction purposes of the TTPA” (at [100]). The fact that the plaintiff’s proceeding had been commenced in New Zealand was not a permissible consideration (at [36]).
In these circumstances, even if some of the other factors in s 24(2) had favoured New Zealand as the appropriate forum, they would have been “outweighed by the existence of a substantively similar proceeding in Australia” (at [119]). As it happened, the other factors did not favour New Zealand.
It was true that the majority of the shareholders represented in the New Zealand action would be New Zealand residents, and that A2 was incorporated in New Zealand. However, this was of limited relevance because the underlying dispute had “little or no connection to place of residence or place of business” (at [49]).
In relation to “the law that it would be most appropriate to apply in the proceeding” (s 24(2)(e)), the Judge noted that “the underlying premise” of this provision was that courts are ordinarily best placed to apply their own law (at [68]). In the present case, however, the laws of both countries were engaged (at [57], [69), and the Judge did not consider “one law to be more appropriate than the other” (at [69]). It is not clear from the judgment whether the Australian court is likely to apply Australian law to claims that, in the New Zealand court, would have squarely fallen within the FTA or FMCA (and that, overall, may have had a closer connection with New Zealand). In such a scenario, the applicable law might have assumed greater relevance.
The Judge further noted that any juridical advantage enjoyed under the FMCA in the New Zealand court was not a relevant consideration (at [65]). The Judge gave a number of reasons for this conclusion. An additional – arguably more fundamental – point is that the trans-Tasman regime “must, almost of necessity, eliminate any … juridical advantage” in the forum from consideration: Nevill v Nevill [2016] FamCAFC 41, (2016) 307 FLR 23 at [34], 40] and [45], cited in Conflict of Laws in New Zealand at [2.326]; see also Richard Garnett “Determining the Appropriate Forum by the Applicable Law” (2022) 71 ICLQ 589 at 595.
Finally, the Judge noted the burden on A2 of defending multiple class actions (at [105]), and that a stay of the New Zealand proceeding would not preclude the plaintiffs from bringing their claim, which meant that “the intrusion on their access to justice interests” was “very low” (at [112]).
A2 Milk Company and the Australian court’s ability to apply the FTA/FMCA
A2 Milk Company Ltd (A2), a company incorporated in New Zealand, is currently facing class actions in Australia (Victoria) and New Zealand. The Supreme Court of Victoria has just released an interesting judgment dealing with a number conflict of laws issues relating to the Victorian proceeding: Thomas v A2 Milk Company Ltd No 2 [2022] VSC 725. In short, the Court decided that it had jurisdiction to determine claims made by some of the plaintiffs in that proceeding under New Zealand legislation, seeking declaratory relief and monetary compensation. The claims allege misleading or deceptive conduct and breaches of continuous disclosure obligations under the Fair Trading Act 1986 and the Financial Markets Conduct Act 2013, in relation to the purchase of shares in A2 on the NZSX.
The Court determined the following preliminary matters:
- That the Court had personal and subject-matter jurisdiction to determine the claims arising under the FTA and the FMCA, subject-matter jurisdiction being an unlikely source of material constraint on jurisdiction (at [28]).
- That, assuming the New Zealand statutes applied, the claims were enforceable in the Supreme Court of Victoria. It was clear that a foreign lex causae to be applied could include statute law (at [36]). The claims also did not fall within the exclusionary rule in relation to statutes advancing a foreign ‘governmental interest’, because they were advanced to vindicate the private interests of group members (at [42]). Finally, the FTA and FMCA did not confer exclusive jurisdiction on New Zealand courts (at [43]-[84]).
- That, assuming the New Zealand statutes applied, the Court could grant the relief sought. The New Zealand relief provisions formed part of the substantive law of New Zealand (at [119], [148]) and the Supreme Court of Victoria had the power to grant the relief (at [164]).
The reason for determining these matters on a preliminary basis was to allow the plaintiffs to make an informed decision whether to opt out of the Victorian proceeding and, instead, opt in to the New Zealand proceeding.
For New Zealand readers, the judgment is of interest in particular because of the Court’s conclusion that the FTA and FMCA should not be construed as conferring exclusive jurisdiction on New Zealand courts. Based on Rimini Ltd v Manning Management and Marketing Pty Ltd [2003] 3 NZLR 22 (HC), it was open for foreign courts to apply a New Zealand statute unless Parliament had expressly or by clear implication said otherwise. Where a statute set out for domestic purposes which courts in New Zealand had jurisdiction to apply it, this did not mean that a foreign court was excluded from applying it (at [60]). Neither the FMCA nor the FTA expressly, or by clear implication, precluded foreign courts enforcing the relevant provisions (at [73], [77]).
The judgment also offers a useful reminder that foreign courts may, in fact, apply New Zealand legislation, even where such legislation gives rise to statutory causes of action. This has not always been appreciated. In YPG IP Ltd v Yellow Book.Com.Au Pty Ltd (2008) 8 NZBLC 102,063 (HC) at [22], for example, the Court suggested in a rather sweeping statement that “[n]o Australian Court has jurisdiction in respect of claims for relief pursuant to a New Zealand statute”: see Maria Hook and Jack Wass The Conflict of Laws in New Zealand (LexisNexis, 2020) at 2.342.
This point is especially relevant to New Zealand courts determining whether they are the only – or the appropriate – forum to determine a claim under New Zealand legislation: see The Conflict of Laws in New Zealand at 2.227 (see also at 6.90). In Wing Hung Printing Co Ltd v Saito Offshore Pty Ltd [2010] NZCA 502, [2011] 1 NZLR 754 at [141], for example, the Court of Appeal suggested that New Zealand is obviously the appropriate forum to determine a claim brought under the FTA. However, in some cases this may not be true, because the foreign court may give effect to the FTA even though it is a New Zealand statute (and there might be other factors making the foreign court the appropriate forum, such as the existence of related proceedings).
The judgment will no doubt be useful to the New Zealand court when determining an application for a stay of the New Zealand proceeding against A2 (see [14]). A potential limitation in this regard is that the judgment does not address the question of choice of law. The Court proceeded on the assumption that New Zealand law would be applicable to the New Zealand claims. This is unfortunate, because the question of choice of law may affect the question of subject-matter jurisdiction (broadly understood): see The Conflict of Laws in New Zealand at 2.342. In the context of statutory causes of action, common law courts often determine the application of the law of the forum on a unilateral basis, raising questions as to any residual role left for foreign law. It may be the case that the particular issue is exclusively governed by the law of the forum, with the result that any claim falling outside of the scope of the law of the forum also falls outside of the court’s subject-matter jurisdiction. In the context of fair trading and consumer protection, the better view may be that the law of the forum should not be understood to apply exclusively (see The Conflict of Laws in New Zealand at 6.90, Maria Hook “Does New Zealand consumer legislation apply to a claim against a foreign manufacturer?” [2022] NZLJ 201 at 203). However, it would have been helpful for the judgment to address this question head-on.
Zuru v Glassdoor and international judicial assistance
By Jack Wass (Stout Street Chambers)
International civil procedure has broken into the mainstream news cycle with the US District Court ordering disclosure of the identity of former employees of a New Zealand company who posted scathing reviews of the company online.
Glassdoor, a company headquartered in California, enables employees to post anonymous reviews of their employer. One or more employees posted highly critical reviews of the New Zealand toymaker Zuru. Before Zuru could bring defamation proceedings, it had to find out the identity of the reviewers. It applied for a subpoena in the US District Court for the Northern District of California requiring the website to disclose this information. Magistrate Judge Alex Tse granted the order, opening up the potential for Zuru to bring defamation proceedings against employees who had posted under what they must have thought was a cloak of anonymity.
Debate has swirled over the implications of the decision for employees, employers and the role of online reviews more generally – see, for example, https://thespinoff.co.nz/the-bulletin/22-07-2022/the-implications-of-the-glassdoor-decision-for-new-zealanders, https://www.theguardian.com/world/2022/jul/19/glassdoor-ordered-to-reveal-identity-of-negative-reviewers-to-new-zealand-toymaker and https://www.stuff.co.nz/business/129328682/order-for-glassdoor-to-reveal-employee-identities-could-make-website-unviable.
But the decision is also an illustration of international judicial cooperation in action, and the extent to which the conflict of laws is designed to ensure that national borders do not provide a barrier of immunity. Zuru invoked § 1782, a provision of the US Code that enables a district court to assist in gathering evidence to assist proceedings in a foreign court. Whatever one’s opinion of the merits of allowing Zuru to sue (or intimidate) disgruntled former employees, the purpose of that mechanism (and the equivalent rules in New Zealand’s Evidence Act 2006) is to ensure that the trial court is able to decide the case with the benefit of all the evidence it requires, so that a defendant cannot hide behind the fact that relevant evidence happens to be in a server in another country.
In making his decision, Judge Tse was alert to the competing policy concerns. He had to consider the relevant New Zealand authorities to satisfy himself that a claim in defamation under New Zealand law was tenable, and concluded that the reviewers’ expected reliance on a defence of honest opinion was a matter for trial that did not justify refusing disclosure in the first place. It remains to be seen whether Zuru will pursue a defamation action, or whether it was a sensible public relations decision to embark on the exercise in the first place, but the decision is a useful illustration of the practical significance of international civil procedure.
Does New Zealand consumer legislation apply to a claim against a foreign manufacturer?
In Body Corporate Number DPS 91535 v 3A Composites GmbH [2022] NZHC 985, the High Court recently concluded that neither the Consumer Guarantees Act 1993 (CGA) nor the Fair Trading Act 1986 (FTA) applied to a claim against a German manufacturer of cladding products.
The defendant, 3A Composites GmbH (3AC), was a German manufacturer of a cladding product installed on the plaintiffs’ buildings. The plaintiffs alleged that the product was highly flammable because it contained aluminium composite panels with a polyethylene core. Panels of this kind were the main reason why the fire at Grenfell Tower in London had spread so rapidly. The plaintiffs brought proceedings against 3AC, as well as the importers and distributors of the cladding in New Zealand. They alleged negligence, breach of s 6 of the CGA and breaches of the FTA. In response, 3AC protested the New Zealand court’s jurisdiction.
The High Court upheld 3AC’s protest in relation to the CGA and FTA causes of action, on the basis that they fell outside of the territorial scope of the Acts. In relation to the CGA, the Court concluded that the Act did not apply to an overseas manufacturer like 3AC that did not have a presence in New Zealand (see [38]–[47]). In relation to the FTA, the Court concluded that the Act did not apply to 3AC’s allegedly misleading or deceptive conduct, apparently on the basis that the conduct did not fall within s 3(1) extending the Act to “conduct outside New Zealand” (at [117]).
An analysis of the decision is available in the latest issue of the New Zealand Law Journal: Maria Hook “Does New Zealand consumer legislation apply to a claim against a foreign manufacturer?” [2022] NZLJ 201. The note argues that the Court misapplied the principle of territoriality and that, on a closer examination of the statutes – combined with an application of the general principles of the conflict of laws – the claims were at least arguably covered by New Zealand law.
ABLI-HCCH webinar: Cross-Border Commercial Dispute Resolution – HCCH 2005 Choice of Court and 2019 Judgments Conventions (27 July 2022)
Readers of this blog may be interested that the Singapore-based Asian Business Law Institute (ABLI) and the Permanent Bureau of the Hague Conference on Private International Law (HCCH) are co-hosting a webinar on the HCCH 2005 Choice of Court Convention and the 2019 Judgments Convention on Wednesday, 27 July. Details about the webinar can be found here. New Zealand is not currently a party to either Convention, but there are good reasons why it should consider joining both schemes. One of the speakers will be Justice David Goddard of the Court of Appeal, who chaired the Diplomatic Session that adopted the Judgements Convention.
