KIM v OH [2020] NZHC 2985

KIM v OH [2020] NZHC 2985 [12 November 2020]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2020-404-000675[2020] NZHC 2985BETWEEN CHONG CHU KIM and IN SUK KIMPlaintiffsAND TAE LIM OHFirst DefendantYONG SOO CHOISecond DefendantHearing: 13 October 2020Appearances: S Kang for the PlaintiffsP C Murray for the DefendantsJudgment: 12 November 2020JUDGMENT OF ASSOCIATE JUDGE GARDINERThis judgment was delivered by me on 12 November 2020 at 3.30 p.m.pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate.......................................Solicitors:Fairbrother Family Law, NapierCL Law, AucklandP C Murray, AucklandIntroduction[1] The plaintiffs have brought proceedings against the defendants in relation to aloan agreement between them arising out of investments in Mongolian gold mines.The plaintiffs sought leave to apply for summary judgment of their breach of contractcause of action. The defendants object to the jurisdiction of the New Zealand courtsto hear and determine that cause of action, pursuant to r 5.49 of the High Court Rules2016. They rely on an alleged exclusive jurisdiction clause in the contract said to havebeen breached. They say that the courts of the Republic of Korea have exclusivejurisdiction over matters arising from the contract. The plaintiffs apply to set aside thedefendants' appearance and objection to jurisdiction.Factual background[2] The plaintiffs, Chong Chu Kim and In Suk Kim, are husband and wife. Thefirst and second defendants, Tae Lim Oh and Yong Soo Choi respectively, are alsohusband and wife. The parties are of Korean ethnicity, but are New Zealand citizensand reside in Auckland, New Zealand.[3] In February 2018, the first defendant, Mr Oh, introduced the plaintiffs to aninvestment opportunity in a Mongolian mining business operated by Wellich MinesLLC, a Mongolian company. It is alleged that Mr Oh showed the plaintiffs variousphotos and documents about the gold mines, including a table of investment and profitpayments. The plaintiffs say that Mr Oh represented that their principal investmentwould be paid back within two to three months, and they would receive a 1,000 to1,200 per cent profit within three years of their investment.[4] On 12 February, 20 February and 23 March 2018, the first-named plaintiff, MrKim, entered into three investment contracts with Wellich Mines LLC to invest inMines 14686A and 5582A. It is the third contract, dated 23 March 2018, under whichMr Kim agreed to invest USD$400,000 into Mine 5582A ("the Third InvestmentContract"), that is at issue in this proceeding.[5] Clause 8 of the Third Investment Contract provides:Article 8 (Court jurisdiction, etc.) — The contractors shall undertake tosolve any disagreement or doubt regarding matters not stipulated in thiscontract or regarding interpretation of this contract through mutual agreementin accordance with the ["conventions" / "commercial practice"]1 of theRepublic of Korea.[6] The mining venture was unsuccessful. On 17 June 2018, Mr Kim and Mr Ohsigned an agreement by which Mr Kim transferred his rights and responsibilities underthe Third Investment Contract to Mr Oh ("the Transfer Agreement"). The TransferAgreement also provided that Mr Kim would loan to Mr Oh a sum of USD$400,000(being the amount of the principal investment in Mine 5582A). The TransferAgreement referred to a deed of acknowledgment of debt dated 2 June 2018 ("theAcknowledgment of Debt"), which records that the principal sum was to be repaid infull by 1 June 2019, with monthly interest at 5.8 per cent per annum. It is said that bothparties were in Mongolia when the Transfer Agreement was signed; and Mr Kim wasin Mongolia when the Acknowledgment of Debt was signed (but he says it was signedby his wife in New Zealand on his behalf).[7] The mining operations were ultimately halted at both Mines 14686A and5582A, and no profit was paid to the investors. All the funds that were invested in thegold mines were used to pay the costs associated with the mining operations.[8] Mr Oh failed to repay in full the principal sum to Mr Kim by 1 June 2019 inaccordance with the Acknowledgement of Debt. Mr Kim tried, unsuccessfully, tosecure repayment from Mr Oh. In July 2019, Mr Kim made a complaint to the KoreanPolice regarding Mr Oh and the mining investments. He says that this was becauseMr Oh was in Korea at the time. However, the case was dismissed without anycharges; the Korean Police could not prosecute Mr Oh as he was a New Zealand citizenand the alleged wrongdoing occurred outside of Korea.[9] The plaintiffs subsequently brought proceedings in the New Zealand courts.Mr Kim, in his affidavit, states that this was because it was the most convenient forum:21. I drafted the Deed. The Deed does not have an express clause as tothe exclusive jurisdiction either. However, I had an intention that New1 Two translations of the Third Investment Contract were provided to the Court; one from theplaintiffs and the other from the defendants. In the plaintiffs' translation, the term "commercialpractice" is used, whereas, in the defendants' translation, the word "conventions" is used.Zealand courts would be the most convenient forum to hear anydisputes in relation to the Deed, because:a. All four parties are New Zealand citizens, and were ordinaryresidents in New Zealand;b. The Deed was signed by the parties in New Zealand(I authorised my wife to sign on behalf of me);c. The principal and interest amounts were stated in NewZealand Dollars instead of US Dollars. This was because theDefendants were going to pay the monthly interests (and thenthe principal) from New Zealand, to our BNZ account in NewZealand, using New Zealand currency.222. The payments of monthly interest were sometimes made from theDefendants' ASB account in New Zealand and received by our BNZand ASB account in New Zealand.23. Other times, they were paid in person in cash, or from Xado NewZealand Limited (for which the Defendants were the directors at thattime) into our BNZ account in New Zealand.Legal framework[10] Rule 5.49 of the High Court Rules provides that:3 a defendant who objects to the jurisdiction of the Court [may] file and servean appearance in lieu of a statement of defence. Such an appearance is not asubmission to jurisdiction. Subsequently, the defendant may apply to dismissthe proceeding, and the plaintiff may apply to dismiss the appearance. TheCourt, if satisfied no jurisdiction exists, must dismiss the proceeding, and ifsatisfied jurisdiction does exist must dismiss the application and set aside theappearance. The Court may exercise its powers upon terms.[11] In Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue, the Courtof Appeal summarised the principles in relation to r 5.49 as follows:4(a) The procedure for filing an appearance and objecting to the HighCourt's jurisdiction will generally only be suitable where a partyclaims that:(i) it is not subject to the jurisdiction of the New Zealand courts;2 The Transfer Agreement sets out the loaned amount (the principal sum) as "USD 400,000",whereas the Acknowledgment of Debt sets it out as "NZD 571,428 (USD 400,000)".3 McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR5.49].4 Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue [2011] NZCA 638, [2012] 2NZLR 823 at [52]. The case was overturned on appeal, but not on this point: see Commissionerof Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NZSC 94, [2013] 1 NZLR 804.(ii) the case can, by law, only be determined by a different NewZealand court or authority; or(iii) the High Court's jurisdiction is precluded by the operation ofa contractual term or because statutory requirements have notbeen complied with.(b) If none of those situations arises and the application or proceeding isof a kind that the High Court can hear, it must have jurisdiction.(c) The procedure under r 5.49 is only concerned with the Court'sjurisdiction to hear and determine the application or proceeding.Rule 5.49 is not concerned with the Court's jurisdiction to grant reliefin a proceeding within its jurisdiction. Thus, in an application underr 5.49, the Court's focus must be on the allegations made in thestatement of claim and any affidavit evidence put forward to supportor contradict them.[12] For the purposes of r 5.49, the onus is always on the defendant to establish thatthe Court does not have jurisdiction.5Analysis[13] The plaintiffs raise a number of points in support of their application to setaside the defendants' appearances and objection to jurisdiction. The first three relateto procedural matters; the last two relate to the substance of the objection. I addresseach in turn.[14] First, the plaintiffs submit that the defendants' notice of appearance andobjection to jurisdiction was filed out of time. The following documents were filed:(a) On 13 May 2020, the plaintiffs filed a statement of claim allegingbreach of contract and the tort of deceit / negligent misstatement;(b) On 23 June 2020, the defendants filed a statement of defence;(c) On 8 July 2020, the plaintiffs filed an application for leave to apply forsummary judgment and an interlocutory application for summaryjudgment of the first cause of action (namely, breach of contract);5 High Court Rules 2016 Amendment Rules (No 2) 2017 (LI 2017/191) (explanatory note) at 9–10;and McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR5.49.14].(d) On 21 August 2020, the defendants filed a notice of appearanceobjecting to the jurisdiction of this Court;(e) On 1 September 2020, the plaintiffs filed an interlocutory applicationfor an order to set aside the appearance; and(f) On 22 September, the defendants filed a notice of opposition to theapplication for an order to set aside the appearance.[15] The plaintiffs say that the notice of appearance objecting to jurisdiction neededto have been filed by 24 June 2020. However, the defendants filed a statement ofdefence on 23 June 2020 and their notice of appearance on 21 August 2020.[16] The defendants say that, in substance, the statement of defence, at least inrelation to the first cause of action regarding breach of contract, recorded thedefendants' objection to jurisdiction. At para 9 of the statement of defence, it is clearlyrecorded that the defendants "object to the jurisdiction of this Court to hear anddetermine the Plaintiffs' claim under the first cause of action on the grounds that thecourts of the Republic of Korea have exclusive jurisdiction in relation to the deed ofacknowledgment of debt dated 2 June 2018". That, in my view, is sufficient to alertthe plaintiffs to the defendants' objection to jurisdiction. I also accept the defendants'explanation that they filed a statement of defence at the first instance because they didnot object to the New Zealand courts' jurisdiction as to the second and third causes ofaction (for deceit and negligent misstatement). If they had not done so, the plaintiffswould have been entitled to seek judgment by default or by formal proof on thosecauses of action.[17] Secondly, and related to the first, the plaintiffs submit that the defendants havenot followed the correct procedure for raising an objection to jurisdiction under r 5.49.The recommended procedure is that a defendant's solicitor should:6(a) File an appearance in Form G7, with Form G10 memorandum givingaddress for service, ensuring the authority to file complies with r 5.36.This step should be taken within the time allowed for filing astatement of defence.6 McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR5.49.08].(b) Serve a copy of the appearance upon the plaintiff and other partieswho have filed addresses for service.(c) Promptly file an interlocutory application on notice to all parties whohave filed addresses for service for dismissal or stay of the proceeding,or of the proceeding as against that defendant, on the grounds that theCourt has no jurisdiction to hear and determine the proceeding.(d) If the application is dismissed, apply for extended time within whichto file a statement of defence.[18] However, r 5.49 itself is clear that the above procedure is not mandatory("may").7 Counsel for the plaintiffs accepted at the hearing that the procedure was notmandatory but further submitted that the purpose of the procedure is to alert a plaintiffto a defendant's objection to jurisdiction. I have, however, already found that thedefendants' statement of defence was sufficient to notify the plaintiffs of theirobjection.[19] Thirdly, the plaintiffs submit that the defendants, in filing a statement ofdefence which sets out their defence on the merits to the second and third causes ofaction, have submitted to the jurisdiction of this Court. However, as explained above,for the purposes of the first cause of action, the statement of defence is confined solelyto disputing the jurisdictional basis of the plaintiffs' claim. To the extent the statementof defence addresses the merits of the other causes of action, that was because thedefendants do not dispute the Court's jurisdiction to hear and determine those issues,and so had to protect their position against judgment by default or formal proof.[20] Further, counsel for the plaintiffs submitted at the hearing that the defendantscould not rely on r 5.49 to object to the jurisdiction of a single cause of action; thatprocedure is only available where a defendant objects to the jurisdiction of the Courtto hear and determine "the proceeding" (that is, the whole proceeding).8 Counselsuggested that the proper procedure was for the defendants to apply under r 15.1 tostrike out "all or part of a pleading" (here, the first cause of action).7 At [HR5.49.10].8 "Proceeding" means any application to the court for the exercise of the civil jurisdiction of thecourt other than an interlocutory application: see High Court Rules 2016, r 1.3(1).[21] With respect, in my view, that cannot be the correct procedure. For one, thefactors in r 15.1(1) which justify strike-out are not readily applicable to objections tojurisdiction. For example, r 15.1(1)(a) requires the pleading to "disclose no reasonablyarguable cause of action" — however, for the Court to determine that, it would haveto assess the pleading on its merits, which in turn would amount to the defendantssubmitting to the jurisdiction of this Court, contrary to the purpose of an objection.Therefore, despite r 5.49 referring to "the proceeding", in my view, it is proper for thedefendants to bring their objection to jurisdiction for the first cause of action (that is,only part of the proceeding/pleading) under that rule.[22] Fourthly, and now turning to the substance of the defendants' objection tojurisdiction, the defendants submit that cl 8 of the Third Investment Contract is anexclusive jurisdiction clause and that this clause is an implied term of theAcknowledgement of Debt. The plaintiffs submit that clause 8 is not an exclusivejurisdiction clause; and in any case the clause is in the Third Investment Contract andnot the Acknowledgement of Debt. That is a separate contract entered into by differentparties. The plaintiffs say that implying such a term into the Acknowledgement ofDebt is not reasonable or equitable, or necessary to give business efficacy to theagreement. I accept the plaintiff's submissions for the following reasons:(a) Unlike other exclusive jurisdiction clauses in r 5.49 cases,9 cl 8 doesnot refer to the "law" or the "courts" of the Republic of Korea. Thedefendants say that the "conventions of the Republic of Korea" shouldbe understood to include the "laws" of Korea, remembering that theCourt was dealing here with an English translation of the contract. Butthe plaintiffs' translation of the Third Investment Contract refers to the"commercial practice of the Republic of Korea".(b) The defendants bear the onus of establishing that this Court has nojurisdiction. However, counsel for the defendant acknowledged that noeffort had been made to seek a third translation or to reconcile the twotranslations. I therefore place equal weight on the two translations:9 See Advanced Cardiovascular Systems Inc v Universal Specialties Ltd [1997] 1 NZLR 186 (CA);and Perpetual Trustee Co Ltd v Downey (2011) 21 PRNZ 28 (HC)."conventions" and "commercial practice" should be read alongside oneanother. Doing so, I am not satisfied that "conventions" or"commercial practice" is a reference to the law or the courts of theRepublic of Korea.(c) Clause 8 refers to disagreements and doubts being resolved "throughmutual agreement". Court proceedings are not ordinarily brought bymutual agreement. That further indicates that cl 8 is not an exclusivejurisdiction clause. Instead, the logical conclusion is that the parties areto first try to resolve issues by negotiating a mutually agreeablesolution. In the absence of mutual agreement, the parties are free tochoose the forum in which to bring their claim(s), subject to the rulesof private international law.(d) While the heading of cl 8 refers to "Court jurisdiction", that alone doesnot mean that the clause is an exclusive jurisdiction clause. Notably,there is nothing as to the exclusivity of any court, nor does the substanceof the clause address court jurisdiction (as discussed above).[23] Fifthly, I turn to the issue of whether cl 8 of the Third Investment Contract canbe implied into the Acknowledgment of Debt. Having found that cl 8 is not anexclusive jurisdiction clause, it is not necessary for me to address this final issue,however, for completeness, I do. The defendants submit that the Third InvestmentContract, the Transfer Agreement and the Acknowledgment of Debt are all part of asingle transaction; therefore, cl 8 of the Third Investment Contract should be impliedinto the Acknowledgment of Debt. More specifically, the defendants say that therights and responsibilities under the Third Investment Contract, including cl 8, wastransferred, through the Transfer Agreement, from Mr Kim to Mr Oh. The TransferAgreement required the parties to enter into an "IOU", which formed the basis of theAcknowledgement of Debt. So, through that chain, the terms of the Third InvestmentContract are linked to the Acknowledgment of Debt.[24] One translation of the Transfer Agreement provides:[Mr Kim] transfers all rights and responsibilities related to the contractedmining right development 5582A to [Mr Oh], and transfers the sum of fourhundred thousand US dollars (400,000 USD) to [Mr Oh] as a loan, and[Mr Kim] and [Mr Oh] draft the following debt acknowledgement form.Another translation similarly provides:[Mr Kim] shall transfer the all rights [sic] and obligations related to thedevelopment of the 5582A mining right of this contract to [Mr Oh]. Thedeposit of USD 400,000 shall be transferred to [Mr Oh] as a loan. [Mr Kim]and [Mr Oh] shall prepare the IOU as below.[25] The courts have generally viewed the process of implication of contractualterms as being a strict one that should be accompanied by caution.10 In short, a termmay be implied where it is necessary to give business efficacy to the contract.11 In myview, this is not a case in which cl 8 of the Third Investment Contract should be impliedinto the terms of the Acknowledgment of Debt.[26] There are, in effect, two parts to the Transfer Agreement: the first relates to therights and responsibilities under the Third Investment Contract, and the second relatesto the loan of USD$400,000 from Mr Kim to Mr Oh. The Acknowledgment of Debt,which is the contract alleged to have been breached, relates to the second part of theTransfer Agreement, namely the loan of USD$400,000. That second part (the loan) isunrelated to the Third Investment Contract; cl 8 is not necessary to give businessefficacy to the Acknowledgment of Debt. Therefore, implication is unnecessary.Further, the parties of the agreements are different — the Third Investment Contractis between Mr Kim and Wellich Mines LLC (not the defendants), whereas the TransferAgreement and the Acknowledgment of Debt are between Mr Kim and Mr Oh.Result[27] This Court has jurisdiction to hear and determine the first cause of action.Accordingly, the defendant's appearance and objection to jurisdiction is set aside.[28] The plaintiffs are entitled to their costs, on a 2B basis, on the application to setaside the defendant's appearance and objection to jurisdiction. The parties are to file10 Jeremy Finn, Stephen Todd and Matthew Barber (eds) Burrows, Finn and Todd on the Law ofContract in New Zealand (6th ed, Lexis Nexis, Wellington, 2018) at 217.11 At 216.an agreed memorandum within two weeks. Failing agreement, the plaintiffs are to filea memorandum within two weeks and the defendants one week later.[29] The summary judgment applications may now be determined. The defendantsindicated that if their appearance and objection to jurisdiction was set aside, theywould want to file an amended statement of defence and possibly counterclaim.I make the following timetable orders:(a) the defendant will file and serve any amended statement of defence andcounterclaim, together with any further affidavits in opposition to theapplication for summary judgment, by 11 December 2020;(b) the plaintiffs are to file and serve any affidavits in reply by29 January 2020;(c) the Registrar will allocate a half day fixture for the summary judgmentapplications, in consultation with counsel;(d) the plaintiff will file and serve submissions in support, copies of allauthorities referred to, and an indexed and paginated case book 10 daysbefore the hearing;(e) the defendant will file and serve submissions in opposition plus copiesof authorities referred to 5 days before the hearing._____________________Associate Judge Gardiner