AMERICHIP INCORPORATED V DEAN CA184 [2014] NZCA 380

AMERICHIP INCORPORATED V DEAN CA184 [2014] NZCA 380 [8 August 2014]IN THE COURT OF APPEAL OF NEW ZEALANDCA184/2014[2014] NZCA 380BETWEEN AMERICHIP INCORPORATEDAppellantAND JASON CHARLES DEANRespondentHearing: 9 July 2014Court: O'Regan P, Ellen France and Harrison JJCounsel: D J Goddard QC and K Crossland for AppellantD P Jones QC for RespondentJudgment: 8 August 2014 at 11 amJUDGMENT OF THE COURTA The appeal is allowed.B The appearance under protest to jurisdiction is set aside.C The order for costs made in the High Court is quashed.D The proceeding is remitted to the High Court to determine the appellant'sapplication for summary judgment.E The respondent is ordered to file by 30 August 2014 any notice of oppositionand affidavits in answer to the respondent's application for summary judgment.F The respondent must pay costs to the appellant for a standard appeal on a band A basis together with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Harrison J)Introduction[1] Americhip Inc, an American corporation based in Los Angeles, carries on business worldwide. Jason Dean, a New Zealander, was formerly employed by the company in a senior position in China. Americhip alleges that Mr Dean embezzled substantial amounts of its money and used part of the proceeds to buy a property in Auckland. The company issued a proceeding against Mr Dean in the High Court to recover its alleged losses.[2] Ellis J dismissed Americhip's proceeding on the ground that the High Courtlacked jurisdiction to hear and determine the claim.1 The company now appeals.Facts[3] Americhip relies on these essential facts to bring its proceeding against Mr Dean in New Zealand:(a) Americhip is in the business of designing and selling marketing and advertising material on promotional products worldwide, for which purpose it outsources its manufacturing operations to other entities.(b) Americhip employed Mr Dean between 2003 and 2012 as part of its operations in China.(c) While engaged in employment with Americhip, Mr Dean and his partner, Ms Zita Chan, defrauded the company of about US$10 million, primarily by submitting false or inflated invoices fromsuppliers (a practice known as "skimming").1 Americhip Inc v Dean [2014] NZHC 450.(d) The stolen funds were paid into bank accounts held jointly by Mr Dean and Ms Chan and some of the money was then transferred to an account with the ASB Bank in New Zealand held jointly by Mr Dean and his father, Victor.(e) In 2013 Mr Dean, Ms Chan and their son returned to New Zealand, where Mr Dean purchased a residential property at Mairangi Bay in Auckland for about $2 million cash traceable back to his ASB account.(f) At a meeting in New Zealand shortly afterwards, Mr Dean and Ms Chan admitted to Americhip's chief executive, Timothy Clegg,that they had embezzled the company's funds which they promised to repay and that they had used some of the money to buy the Mairangi Bay property.[4] Originally Americhip sued Mr Dean in deceit alone. Ellis J particularised the allegations of fraud pleaded in support as follows:[8] By way of example only it is pleaded that between August 2005 and September 2012 Mr Dean and Ms Chan (inter alia):(a) established dummy companies with names similar to the names of entities to whom Americhip outsourced its manufacturing business;(b) did not forward to Americhip bids they received from legitimate manufacturers but instead:(i) delivered a substantially higher bid from two or three of these dummy companies; or(ii) when instructed by Americhip to seek additional bids, provided inflated bids from other bona fide manufacturers so that Americhip would select the dummy company to undertake the work;(c) established companies or false identities with bank accounts in Hong Kong that were controlled by them;(d) told Americhip that these were the bank accounts of (genuine) manufacturers with whom Americhip had contracts and that payment (in an inflated sum) should be made to those accounts;(e) paid out of those accounts the actual amount charged by the manufacturers and kept the balance.[5] Americhip effected substituted service of the proceeding on Victor Dean in accordance with an earlier order of the High Court on the ground that Mr Dean had since left New Zealand. Mr Dean responded by filing an appearance under protest to jurisdiction, followed by an application to dismiss the proceeding for lack of jurisdiction. Both steps were based on the ground that Mr Dean's impugned conduct, and Americhip's resulting loss, all occurred in either China or the United States; and that it was appropriate to determine the factual or legal elements of the deceit claim according to the laws and the customs of those two countries.[6] Americhip filed an amended statement of claim adding three further causes of action – for breach of trust, knowing receipt (constructive trust) and money had and received. Each relies on Mr Dean's alleged transfer of embezzled funds into his ASB account and withdrawal of cash to buy the Auckland property. Accordingly, the funds are traceable as representing Americhip's own money. As Ellis J pointed out,the company's additional causes of action will inevitably stand or fall on the deceit claim.2[7] Americhip claims the relief of: (a) a declaration that Mr Dean holds the Auckland property as constructive trustee for Americhip and (b) an order vesting legal title in the company. The company has also applied for summary judgment on all its claims against Mr Dean. Comprehensive affidavits have been filed in support.Statutory provisions[8] The High Court Rules codify the rights and obligations of a party objecting to the High Court's jurisdiction. First, the party must file an appearance and objection in these terms:5.49 Appearance and objection to jurisdiction(1) A defendant who objects to the jurisdiction of the court to hear and determine the proceeding may, within the time allowed for filing a statement of defence and instead of so doing, file and serve an appearance stating the defendant's objection and the grounds for it.2 At [57].(2) The filing and serving of an appearance does not operate as a submission to the jurisdiction of the court.(3) A defendant who has filed an appearance may apply to the court to dismiss the proceeding on the ground that the court has no jurisdiction to hear and determine it.(4) The court hearing an application under subclause (3) must,—(a) if it is satisfied that it has no jurisdiction to hear and determine the proceeding, dismiss the proceeding; but(b) if it is satisfied that it has jurisdiction to hear and determine the proceeding, dismiss the application and set aside the appearance.(5) At any time after an appearance has been filed, the plaintiff may apply to the court by interlocutory application to set aside the appearance.(6) The court hearing that application must,—(a) if it is satisfied that it has jurisdiction to hear and determine the proceeding, set aside the appearance; but(b) if it is satisfied that it has no jurisdiction to hear and determine the proceeding, dismiss both the application and the proceeding.(7) To the extent that an application under this rule relates to service of process effected outside New Zealand under rule 6.27 or 6.28, it must be determined under rule 6.29.(7A) But both this rule and rule 6.29 are subject to section 27(1) of the Trans-Tasman Proceedings Act 2010, which provides that a New Zealand court cannot stay a civil proceeding before it on forum grounds connected with Australia otherwise than in accordance with subpart 2 of Part 2 of that Act.(8) The court, in exercising its powers under this rule, may do so on any terms and conditions the court thinks just and, in particular, on setting aside the appearance it may extend the time within which the defendant may file and serve a statement of defence and may give any directions that appear necessary regarding any further steps in the proceeding.(9) If the appearance set aside has been filed in relation to a proceeding in which the plaintiff has applied for judgment under rule 12.2 or12.3, the court—(a) must fix the time within which the defendant may file and serve—(i) a notice of opposition; and(ii) an affidavit by or on behalf of the defendant in answer to the affidavit by or on behalf of the plaintiff; and(b) may, under subclause (8), give any other directions that appear necessary regarding any further steps in the proceeding.[9] Second, service of a proceeding may be effected out of New Zealand without leave in these circumstances:6.27 When allowed without leave(2) An originating document may be served out of New Zealand without leave in the following cases:(e) when the subject matter of the proceeding is land or other property situated in New Zealand, or any act, deed, will, instrument, or thing affecting such land or property:(g) when any relief is sought against any person domiciled or ordinarily resident in New Zealand:(l) when a claim is made for restitution or for the remedy of constructive trust and the defendant's alleged liability arises out of acts committed within the jurisdiction:[10] Third, where service is not allowed under r 6.27, the plaintiff may apply for leave to serve out of New Zealand, and a Court may grant the application in the following circumstances:6.28 When allowed with leave(5) The court may grant an application for leave if the applicant establishes that—(a) the claim has a real and substantial connection with New Zealand; and(b) there is a serious issue to be tried on the merits; and(c) New Zealand is the appropriate forum for the trial; and(d) any other relevant circumstances support an assumption of jurisdiction.[11] However, if service is effected out of New Zealand without leave, and jurisdiction is protested, the Court has a discretion whether to assume jurisdiction in these terms:6.29 Court's discretion whether to assume jurisdiction(1) If service of process has been effected out of New Zealand without leave, and the court's jurisdiction is protested under rule 5.49, the court must dismiss the proceeding unless the party effecting service establishes—(a) that there is—(i) a good arguable case that the claim falls wholly within 1 or more of the paragraphs of rule 6.27; and(ii) the court should assume jurisdiction by reason of the matters set out in rule 6.28(5)(b) to (d); or(b) that, had the party applied for leave under rule 6.28,—(i) leave would have been granted; and(ii) it is in the interests of justice that the failure to apply for leave should be excused.[12] Finally, the recently added r 6.36 is also relevant, and provides:6.36 Subpart does not apply to service in Australia of documents for or in certain trans-Tasman proceedingsThis subpart (which contains rules on service out of New Zealand) does not apply to service in Australia of an initiating document for, or of any other document to be served in or for, a proceeding an initiating document for which may be served in Australia under subpart 1 of Part 2 of the Trans-Tasman Proceedings Act 2010.High Court[13] Ellis J succinctly summarised the reasons for her decision as follows:[72] On the basis of the analysis above, Americhip has failed to satisfy me that there are sufficient grounds for this Court properly to assume jurisdiction in this case. Although, in terms of the requirements of r 6.29, I have found that there is a good arguable case that the claim falls within two of the paragraphs of rule 6.27(2), and that the deceit cause of action raises a serious question to be tried on the merits (at least in terms of New Zealand law), I do not consider that New Zealand is the appropriate forum. In particular:(a) the facts comprising the critical, deceit, cause of action all occurred either in China or the United States;(b) in the (likely) event that Americhip is required to prove those facts, none of the relevant documents or witnesses are in New Zealand;(c) Mr Dean would be entitled to call evidence of the equivalent Chinese (or possibly United States) law and the Court would most likely need to apply that law to the first cause of action;(d) Although the remaining three causes of action appear on their face to engage with the New Zealand jurisdiction, in reality they add nothing to the first cause of action and (indeed) are dependent upon Americhip establishing the facts which comprise it;(e) While the constructive trust claimed over the [Auckland] property favours New Zealand as the appropriate forum it is outweighed by the other matters I have listed above. Moreover the funds that are said to be traceable to that property comprise only about twenty per cent of the total amount claimed against Mr Dean.Decision[14] Ellis J determined Mr Dean's protest and application under rr 5.49(7) and6.29 on the basis that substituted service on Victor Dean in New Zealand constituted service without leave on Mr Dean overseas within the meaning of r 6.29(1).3Mr Goddard QC, who did not appear in the High Court, submitted that this approach was wrong because Mr Dean had not relied upon rr 5.49(7) and 6.29 in his protest or application to dismiss; and there was no evidence from Mr Dean as to his whereabouts when the proceeding was filed or served.[15] We agree with Mr Goddard that the effect of r 6.36 is that service "out of New Zealand" must now be read as "out of New Zealand and Australia". However, in our judgment the broader argument that rr 5.49(7) and 6.29 are inapplicable has no practical utility. Determination of Mr Goddard's further submissions on this point would be largely academic given that when applying the statutory test4 the Judge found: (a) Americhip had established the subject matter of the proceeding is land or other property situated in New Zealand;5 (b) the relief sought was against a person3 At [31]–[44].4 Rule 6.29(1).5 At [49]: r 6.27(e).domiciled in New Zealand;6 and (c) the deceit cause of action raised a serious question for trial.7 Mr Dean has not cross-appealed against those findings.[16] Accordingly, as Mr Goddard acknowledged, the only issue is whether the High Court should have assumed jurisdiction8 because New Zealand is the appropriate forum for trial.9[17] The issue narrowed further with Mr Jones QC's acceptance of Mr Goddard'ssubmission that, because a New Zealand Court would not recognise or enforce a judgment from a foreign country relating to ownership of immovable property in New Zealand, a foreign Court would be unlikely to agree to adjudicate uponAmerichip's claim to the Mairangi Bay property.10 Mr Jones emphasises nevertheless that the success of Americhip's constructive trust claim will depend on proof of the same factual elements as for the deceit claim which, he says, should be heard in another forum.[18] Ellis J adopted as the express starting point for her forum inquiry the assumption that more than one forum was available to hear all claims.11 However, that assumption was based on the unlikely premise that a foreign court would assumejurisdiction to adjudicate on Americhip's property claim. In fairness to the Judge,Americhip's then counsel did not raise in the High Court the submission now made by Mr Goddard.[19] The statutory inquiry is whether the High Court of New Zealand is satisfied that it has jurisdiction to hear the proceeding – that is, an application for the exerciseof the Court's civil jurisdiction. In this context that inquiry will be answered by whether New Zealand is the appropriate forum for trial of Americhip's claims,6 At [50]: r 6.27 (2)(g).7 At [55]–[58]: r 6.28(5)(b).8 Rule 6.29(1)(a)(ii).9 Rule 6.28(5)(c).10 Reciprocal Enforcement of Judgments Act 1934, s 6(4)(a); Lord Collins (ed) Dicey, Morris & Collins on the Conflict of Laws (15th ed, Sweet & Maxwell, London, 2012) at [14-114]. See also Islamic Republic of Pakistan v Zardari [2006] EWHC 2411 at [171] although it is not directly material to this appeal because it relates to proceeds of immovable property.11 At [60]–[61].whether for Mr Dean's breach of constructive trust alone or for the other three claims as well.[20] We agree with Mr Goddard that it would be contrary to the interests of justice and common sense if the constructive trust claim was not tried in New Zealand when a domestic Court alone has power to enforce a judgment on Americhip's claim to ownership of the Mairangi Bay property. Where it is established that part of the claim will likely be heard and determined in only one jurisdiction, this supports the case that New Zealand is the most appropriate forum to hear the entire claim.12 In this respect we acknowledge that a New Zealand Court will have to hear and determine Americhip's underlying claim that Mr Dean dishonestly diverted the company's funds. That in turn will require proof of the same factual elements as the deceit claim, but not of the cause of action itself.[21] However, while the events leading to those facts may have occurred in the United States or China, that is not a justification for severing off part of the trial. A division of the trial of the one claim in two separate fora would be artificial. The constructive trust claim should be tried as a whole in New Zealand. We are satisfied that New Zealand is the most appropriate forum to hear and determine the proceeding at least insofar as it relates to that claim.[22] The question then is whether we should accept Mr Goddard's submission that New Zealand is also the appropriate forum for trial of the rest of Americhip's claims. On balance, that question is best left to the High Court which will be guided by considerations of justice, fairness and common sense. Factors such as the expense and inconvenience of litigating the same factual issues in two different jurisdictions and the risk of conflicting results on the same facts will be directly relevant. Alternatively, a New Zealand Court may stay the deceit claim until determination of the constructive trust claim, or on the basis that the underlying factual elements are heard in the appropriate foreign jurisdiction.12 Wing Hung Printing Co Ltd v Saito Offshore Pty Ltd [2010] NZCA 502, [2011] 1 NZLR 754 at [141].[23] Our conclusion on that ground is sufficient to determine the appeal. It is thus unnecessary for us to address Mr Goddard's alternative argument. He submitted that a New Zealand court should assume jurisdiction in any event because Mr Dean has failed to discharge his responsibility as the party challenging jurisdiction to establish what would be the most appropriate overseas court to assume jurisdiction, in a situation where two alternative fora are raised.[24] On our analysis, Mr Dean's protest to jurisdiction was misplaced from theoutset. Given that the High Court always had jurisdiction to determine Americhip'sproperty claim, the factors to which we have referred would necessarily dictate that the balance of the claim was heard and determined here. Any challenge by Mr Dean should have been more appropriately determined in the context of an application for stay. In that respect he would have to satisfy the Court that findings on the underlying factual issues could be more justly, fairly or conveniently made in another identified forum to which he was willing to submit. However, that issue does not presently arise for our determination.Result[25] The appeal is allowed and the appearance is set aside.13[26] The order for costs made in the High Court is quashed.[27] Despite Mr Jones' opposition, we are satisfied that this Court must make timetable orders, as follows:14(a) The proceeding is remitted to the High Court to determineAmerichip's application for summary judgment;(b) By 30 August 2014 Mr Dean must file any notice of opposition and affidavits on behalf in answer to affidavits filed by Americhip in support of its application for summary judgment.13 Rule 5.49(6)(a).14 Rule 5.49(9).[28] Mr Jones accepts that costs in this court should follow the event but at a reduced level because we summarily rejected Mr Goddard's first ground ofargument. However, given that the appeal has succeeded we are satisfied that Mr Dean must pay costs to Americhip for a standard appeal on a band A basis together with usual disbursements.Solicitors:Shieff Angland, Auckland for AppellantWinston Wang & Associates, Auckland for Respondent