{"id":164,"date":"2020-12-18T11:31:48","date_gmt":"2020-12-17T22:31:48","guid":{"rendered":"https:\/\/blogs.otago.ac.nz\/conflicts\/?p=164"},"modified":"2020-12-18T11:31:48","modified_gmt":"2020-12-17T22:31:48","slug":"the-complex-meaning-of-the-good-arguable-case-standard","status":"publish","type":"post","link":"https:\/\/blogs.otago.ac.nz\/conflicts\/the-complex-meaning-of-the-good-arguable-case-standard\/","title":{"rendered":"The complex meaning of ‘the good arguable case’ standard"},"content":{"rendered":"

In Zhang v Y<\/em> [2020] NZCA 592, the Court of Appeal recently considered whether there was \u201ca good arguable case\u201d that the plaintiffs\u2019 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 \u201cgood arguable case\u201d 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.<\/p>\n

Relevance of the \u201cgood arguable case\u201d standard<\/strong><\/p>\n

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 \u201cany act or omission in respect of which damage was sustained was done or occurred in New Zealand\u201d. 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\u2019s jurisdiction, the claimant must show \u201ca good arguable case\u201d that its claim falls within one or more of the heads of jurisdiction in r 6.27.<\/p>\n

The meaning of the \u201cgood arguable case\u201d standard has caused a great deal of confusion in the past: it has \u201cbecome befuddled by \u2018glosses<\/em>\u2019, glosses upon glosses, \u2018explications<\/em>\u2019 and \u2018reformulations<\/em>\u2019\u201d (Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV<\/em> [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 \u2013 and hence interim \u2013 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?<\/p>\n

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.<\/p>\n

The standard of a \u201cgood arguable case\u201d 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.<\/p>\n

The Court of Appeal\u2019s judgment in Zhang<\/em><\/strong><\/p>\n

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\u2019s 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 \u2013 she argued \u2013 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.<\/p>\n

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 <\/em>[2019] NZHC 29). The Court was \u201cfar from persuaded that any relevant representations were made by [the defendant] to [the plaintiff]\u201d during their visit in 2015 (at [54]). If such representations were made, it was \u201cmore likely that they were made in China\u201d. The plaintiffs appealed to the Court of Appeal.<\/p>\n

The Court of Appeal allowed the appeal. It noted that, to find that the good arguable case standard was met, it was \u201conly necessary to find that there was a sufficiently plausible basis for the relevant representations having been made in New Zealand\u201d (at [51]). It was not necessary to establish \u201ca prima facie case\u201d (at [12], referring to Wing Hung Printing Co Ltd v Saito Offshore Pty Ltd<\/em> [2010] NZCA 502, [2011] 1 NZLR 754 at [41]) or \u201cto find the representations were \u2018more likely\u2019 to have occurred in New Zealand\u201d (at [51]). Disputed questions of fact could not be resolved on affidavit evidence (at [12]).<\/p>\n

Here, there was \u201ca sufficiently plausible basis on the evidence for the claim that [the defendant] made the relevant representations while in New Zealand\u201d (at [51]). The plaintiff and the defendant had spent 10 days together on a trip in New Zealand, and it was \u201centirely plausible\u201d that the defendant would have made relevant representations during that time. In fact, given the context and the timing of the visit, it seemed \u201cimplausible\u201d that the parties would have avoided discussion of the investment altogether. It was not appropriate to form a view of the plaintiffs\u2019 credibility, in relation to their claim that the misrepresentation occurred in New Zealand (at [52]). This could only be done after cross-examination.<\/p>\n

The good arguable case \u2013 a low bar?<\/strong><\/p>\n

The Court of Appeal dismissed the defendant\u2019s 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 \u2013 whether the representations were made in New Zealand \u2013 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?<\/p>\n

The answer, I think, is \u2018no\u2019. 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<\/em>, to evaluate the relative merits of the parties\u2019 competing positions.<\/p>\n

The English courts have provided useful guidance on how to achieve this in practice. In Four Seasons Holdings Inc v Brownlie<\/em> [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]):<\/p>\n

(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.<\/p><\/blockquote>\n

This approach was later confirmed in Goldman Sachs International v Novo Banco SA<\/em> [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<\/em> [2019] EWCA Civ 10, [2019] WLR 3514. The Court of Appeal here clarified that:<\/p>\n