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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.

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