SCHAEFFER v MURREN [2020] NZCA 224

SCHAEFFER v MURREN [2020] NZCA 224 [10 June 2020]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA21/2019[2020] NZCA 224BETWEEN GLENN WILLIAM SCHAEFFERAppellantAND JAMES JOSEPH MURREN AS TRUSTEEOF THE JAMES J MURRENSPENDTHRIFT TRUST AND DANIELLEERespondentsHearing: 18 February 2020Court: French, Cooper and Clifford JJCounsel: G D Pearson for AppellantA J Horne and A E Simkiss for RespondentsJudgment: 10 June 2020 at 4 pmJUDGMENT OF THE COURTA The appeal is dismissed.B Mr Schaeffer will pay costs to the respondents for a standard appeal on aband A basis for one counsel with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Clifford J)Introduction[1] In late 2000 the appellant, Glenn Schaeffer — then a resident of Las Vegas,Nevada, and the chief executive of one of that city's large casino companies —acquired an 80 per cent interest in a Nelson vineyard and winemaking business(the Business).[2] In subsequent years Mr Schaeffer invited his friends, including the respondentsMr Murren and Mr Lee, to invest in the Business via a Nevada limited partnershipwhich would also own his interest. Mr Murren and Mr Lee were also Las Vegasresidents and very senior executives of another two of that city's large casinos.The terms of the friends' agreement were recorded in Nevada limited partnershipagreements in 2002 and 2006. The first of those agreements was never registered, asis required under Nevada law to establish such a partnership. The second was.Over time, Mr Murren invested a total of some US$1.6 million, Mr Lee someUS$700,000.[3] The Business subsequently failed. Messrs Murren and Lee each lost all theirinvestment.[4] It transpired that Mr Schaeffer had never transferred his 80 per cent interest inthe Business to the limited partnership and that, subsequently, he had dealt with theassets intended to be owned by the limited partnership as if they were his own.[5] In 2015 Messrs Murren and Lee commenced proceedings in the High Court atNelson against Mr Schaeffer. They focused on a range of statements Mr Schaeffer hadmade to them over time consistent with the investment in the Business being ownedby them through the limited partnership, when that had not been the case. They soughtthe return of their investments. They based their claims on five causes of action:(a) breach of the Fair Trading Act 1986;(b) negligent misstatement;(c) deceit;(d) fraudulent misrepresentation; and(e) violation of the Nevada Deceptive Trade Practices Act.[6] The case was heard by Collins J in the High Court at Nelson in October andNovember 2018. The Judge delivered his judgment on 5 December 2018.1 The Judgefound Mr Schaeffer liable in the tort of negligent misstatement and under the causesof action brought under the Fair Trading Act and the Nevada Deceptive Trade PracticesAct. He dismissed the claims in deceit and for fraudulent misrepresentation. In doingso, the Judge applied New Zealand law, save as regarded the claim under the Nevadalegislation. As regards aspects of that claim, the Judge applied Nevada law as putbefore him by Messrs Murren and Lee's expert witness, Judge Pro, a retired FederalCourt Judge from Nevada. For the balance, for example as regards duties owed bypartners to each other, he applied New Zealand law.[7] Mr Schaeffer now appeals the Judge's decision. As argued, he does so on oneground only: namely, that the Judge was wrong to apply New Zealand law. Rather, asa matter of law, Mr Schaeffer now says the Court was required to determine all thecauses of action by applying Nevada law. In the absence of Messrs Murren and Leenot calling evidence as to that law, the Judge could do nothing but dismiss thoseclaims.ContextFactual[8] In 1996, whilst still a US citizen and resident, Mr Schaeffer and his then wifewere considering becoming permanent residents in New Zealand. That year theypurchased a bed and breakfast establishment in Nelson. Around that timeMr Schaeffer met a Mr Woollaston, who already owned a vineyard in the Nelsonregion. Mr Schaeffer and Mr Woollaston decided they would purchase further land,and establish a new vineyard and winery. Mr Schaeffer held 80 per cent, andMr Woollaston 20 per cent, of the two companies they established to respectively own,and manage and operate the Business.[9] Mr Schaeffer lived in Nevada until 2013, when he moved to New Zealand.We understand he has now returned to, and resides in, the United States. Mr Schaeffer1 Murren v Schaeffer [2018] NZHC 3176 [High Court decision].had a limited partnership agreement prepared, and sent to Messrs Murren and Lee, inSeptember 2002. The purpose of the partnership was recorded as being "to invest in,own, develop and commercially exploit interests in the Phillip [Woollaston] Estatesvineyards and winery in or near Nelson, New Zealand". The partnership was to havean initial capital of US$8 million. Mr Schaeffer was to be the general partner, and alsothe owner of a 23.34 per cent interest. Messrs Murren and Lee were each to befive per cent (US$400,000) investors. There were to be seven other investors.Messrs Murren and Lee duly signed that agreement. It is not clear whetherMr Schaeffer did. None of the other seven investors ever did. Nevertheless by late2005, and in response to capital calls made by Mr Schaeffer as general partner,Mr Murren had in fact contributed a total of some US$1.4 million, Mr LeeUS$102,000.[10] In early 2006 Mr Schaeffer arranged for a revised Nevada limited partnershipagreement, on very similar terms as that prepared in 2002, to be prepared andsubmitted to Messrs Murren and Lee, and a number of new investors. The capital ofthat partnership was to be some US$14 million.[11] The purpose of the partnership was now expressed to be to "invest in, own,develop, and commercially exploit interests in a New Zealand entity which, in turn,owns 80% of the Phillip Woollaston Estates vineyards and winery in or near Nelson,New Zealand". The general partner was to be a company (Constellation Partners LLC)of which Mr Schaeffer was a director. Mr Murren, through a family trust, was to havea 10 per cent interest. Mr Lee, directly, a five per cent interest. Mr Schaeffer washimself not a party to the partnership agreement. He invested through Constellation.[12] The 2006 partnership was registered. Mr Murren's 10 per cent contributionhad been met by the monies he had already paid to Mr Schaeffer. Mr Lee duly paid afurther US$598,406 to meet his five per cent (US$700,000) commitment.[13] Both agreements contained a governing law clause, and a clause requiring thearbitration of disputes between the parties relating to the agreement in Las Vegas in,as relevant, the following terms:13.5 Governing lawThis Agreement shall be construed and enforced in accordance with, andgoverned by, Nevada law.13.17 ArbitrationIf a dispute arises between the Partners as to interpretation, application orenforcement of this Agreement, and that dispute cannot be resolved by goodfaith negotiation, the parties agree to submit all such disputes to bindingarbitration in Las Vegas, Nevada, according to such reasonable proceduralrules as shall permit the parties to fairly discover and present their positions.This binding arbitration agreement shall be specifically enforceable.The parties agree to abide by all awards rendered in such proceedings. Suchawards shall be final and binding on all parties to the extent and in the mannerprovided by Nevada law. [14] In response to the proceedings Messrs Murren and Lee commenced in 2015,Mr Schaeffer filed a protest to jurisdiction. He said that the High Court did not havejurisdiction because of the arbitration clause. Moreover, New Zealand was not themost suitable or appropriate forum for the determination of the dispute. As togoverning law, the protest said:3.7 Pursuant to the partnership agreement, the plaintiffs' claims aregoverned by the law of Nevada. The courts of Nevada are betterplaced to interpret and apply the law of Nevada, than are theNew Zealand courts.3.8 Even if the governing law is not the law of Nevada, the plaintiffs seek(amongst other things) damages under the Nevada Deceptive TradePractices Act. The courts of Nevada are better placed to interpret andapply this Act, than are the New Zealand courts.[15] More generally, the protest stated:3.9 At the time that Kiwi Ventures was formed the parties all resided inLas Vegas, Nevada. The plaintiffs both still reside in Las Vegas,Nevada. The plaintiffs' witnesses reside in Nevada, United States ofAmerica. Save for the investment in Kiwi Ventures, the plaintiffs haveno other interest in New Zealand.3.10 The plaintiffs' claims relate to acts or omissions committed almostexclusively in the United States of America. As a result, it is likelythat the majority of evidence, both witnesses and documentary, islikely to be located in the United States of America.3.11 Arbitration in Nevada will be more cost effective and convenient thanproceeding in the High Court of New Zealand. It is the location of themajority of the parties and witnesses and provides the possibility of afaster process.[16] Mr Schaeffer subsequently applied for a dismissal or stay of the proceeding onsimilar grounds.[17] In opposing Mr Schaeffer's protest and applications for stay and dismissal, andas relevant now, Messrs Murren and Lee argued the choice of law clause was not ageneral submission to the jurisdiction of the Nevada courts for all disputes arisingbetween the parties. They noted that, by reference to the choice of law, the submissionfor Mr Schaeffer was that that clause was "an indication that the parties intended thatthe laws of Nevada were also to govern all other 'matters arising from theirrelationship'". They responded:4.15 This is not correct. The clause is a simple governing law clause whichon its terms relates only to the Agreements. It does not apply tothe plaintiffs' claims in this proceeding, in particular because:(a) The plaintiffs' claims do not rely upon or seek to enforce anyterms of the Agreements; and(b) The defendant is not a party to the 2006 Agreement, which isthe only operative agreement.[2][18] Associate Judge Matthews first dismissed Mr Schaeffer's protest tojurisdiction based on the arbitration clause.3[19] In doing so the Judge reasoned:4(a) The 2002 agreement had not been executed. Moreover, the evidencewas not sufficient to establish an oral agreement to form a partnershipon its terms. Even if the existence of that partnership could beestablished, by the terms of the agreement the partnership would onlycommence on registration. As the agreement had not been registered,the partnership could not have commenced.2 Mr Schaeffer would appear to have owned his interest in the 2006 partnership through a corporatevehicle.3 Murren v Schaeffer [2015] NZHC 2759.4 At [30]–[38].(b) Mr Schaeffer was not himself a party to the 2006 agreement.(c) The claims Messrs Murren and Lee made were outside the terms of thearbitration clause, not being ones involved in the "interpretation,application or enforcement" of the agreement.(d) Even if the 2006 agreement was on its terms to be governed by Nevadalaw, expert evidence on that law from a retired federal judge, hadestablished — unchallenged — that under Nevada law as well thearbitration clause did not apply.[20] As for the application for dismissal or stay, based on the propositionthe High Court of New Zealand was not the most suitable and appropriate forum,the Associate Judge recognised the factors relating to the establishment ofthe partnership were finely balanced.5 If anything, the fact that at the relevant timesall the parties were in the United States, representations were made there, andpayments were made in or from the United States weighed slightly in favour ofNevada.[21] But other factors were relevant. Mr Schaeffer was now a permanent residentin New Zealand, four of the five causes of action were based on New Zealand law andthe Judge assessed Messrs Murren and Lee as having "good, arguable" cases on thoseclaims.6 In addition, Messrs Murren and Lee were willing to travel to New Zealandand wished to submit to jurisdiction here.7[22] Taken overall, the Judge was satisfied that New Zealand was a suitable andappropriate forum and dismissed Mr Schaeffer's application for stay and dismissal.[23] Mr Schaeffer applied to review Associate Judge Matthews' decision, but thatapplication was withdrawn.5 At [42].6 At [43]–[46].7 At [48].[24] Accordingly, when the matter came to be heard by Collins J the case proceededon the basis that New Zealand law applied to four of the causes of action, a propositionthat was not challenged at the time. The Judge recorded the position in a footnote:8Except for the cause of action based on the Nevada Deceptive Trade PracticesAct, all the causes of action were based on New Zealand law, despite both the2002 and 2006 Agreements being governed by Nevada law. This was a resultof Mr Murren's and Mr Lee's election not to plead foreign law, in which casethe Court will apply domestic law irrespective of whether it would have beenthe applicable law had choice of law rules been engaged.[25] On that basis the substantive judgment did not need to address choice of lawor applicable law issues.Analysis[26] The original notice of appeal filed on behalf of Mr Schaeffer challenged theJudge's findings by asserting a wide range of legal and factual errors. In his writtensubmissions for Mr Schaeffer, Mr Pearson advanced a matter that had not been raisedin that notice of appeal: that was the issue of the applicable law. Moreover, at thehearing of this appeal, he confirmed that was the only ground of appeal upon whichMr Schaeffer now relies. In the course of his submissions, Mr Pearson accepted thatthe following proposition was an accurate summary of what he said the law in thisarea was:Given the choice of a particular law in a contract, that law had to be appliedeven if it was not pleaded. Moreover, it had to be proved by the plaintiff.Therefore, if the plaintiff does not prove foreign law, he will be regarded ashaving failed to establish his case. If, more generally, the circumstancesapplying to a particular dispute are such that it is obvious foreign law applies,the Courts of New Zealand cannot — notwithstanding any choice of law theparties might make — apply any other law.[27] Mr Pearson based that proposition on a number of passages from Dicey, Morrisand Collins on The Conflict of Laws.9 It is to those passages, and our understandingof the law in this area based largely on them, to which we now turn.8 High Court decision, above n 1, at [96], n 6 (citation omitted).9 Lord Collins (ed) Dicey, Morris and Collins on The Conflict of Laws (15th ed, Sweet & Maxwell,London, 2012) at ch 9.[28] Put very simply, we find no support for the proposition Mr Schaeffer advancedfrom Dicey itself or from any other relevant source of applicable law. At ch 9, Diceyaddresses the approach to be taken in a case where foreign law applies. Rule 25reads:10(1) In any case to which foreign law applies, that law must be pleaded andproved as a fact to the satisfaction of the judge by expert evidence orsometimes by certain other means.(2) In the absence of satisfactory evidence of foreign law, the court willapply English law to such a case.[29] At [9-003] and [9-004] Dicey explains, first, the general rule that a partywishing to rely on a foreign law must plead it in the same way as any other fact. Beingpleaded as a fact, whilst English courts take judicial notice of the law of England andof notorious facts, they do not do so as regards foreign law. Consequently, foreign lawmust be proved.[30] There may be occasions, exceptional circumstances, where foreign law neednot be proved.11 Mr Schaeffer did not assert that any of those exceptions applied.[31] Rather, he relied on a passage at [9-002], which elaborates on the status offoreign law as a fact. Dicey discusses the application of the principle that, if partieselect not to prove the content of foreign law, a case will be decided by the applicationof English domestic law as though the case were a wholly domestic one. That was,the text acknowledges, generally true. The commentary goes on:12But in recent years there have been increasing signs that this cannot invariablyfollow, and in cases where it would be wholly artificial to apply rules ofEnglish law to an issue governed by foreign law, a court may simply regard aparty who has pleaded but who has failed to prove foreign law with sufficientspecificity as will allow an English Court to simply apply it, as having failedto establish his case without regard to the corresponding principle of Englishdomestic law.10 At [9R-001] (citation omitted).11 At [9-005]–[9-007]. In New Zealand, s 144 of the Evidence Act 2006 also provides for othermeans by which a party can offer evidence as to foreign law. See Elisabeth McDonald andScott Optican (eds) Mahoney on Evidence (LexisNexis, Wellington, 2018) at [EV144.03].12 At [9-002] (citation omitted).[32] It was on that observation that, as we understood the argument, Mr Schaefferbased the proposition we have already summarised.[33] Mr Schaeffer's proposition does not follow from the passage relied on.Messrs Murren and Lee did not plead foreign law. First, whilst Mr Schaeffer pleadedthe choice of law and arbitration clauses in his statement of defence,Associate Judge Matthews had earlier dismissed the protest on the basis that theagreements in which those statements appear did not apply to the claims brought.Mr Schaeffer did not pursue his challenge to that finding, nor did he raise the relevanceof Nevada law in the High Court in the substantive hearing. Secondly, the passagerefers to a situation where "it would be wholly artificial" to apply rules of domestic,here New Zealand, law to an issue governed by foreign law. Neither was that the casehere. The unchallenged findings of Associate Judge Matthews established that. Thus,it is only where foreign law has been pleaded and not proved, and where it would bewholly artificial to apply rules of domestic law, that a court may decline to do so, andregard the plaintiff's case as not having been established.[34] We are satisfied that that principle is of no application here. The general r 25applied. The matter was determined by Associate Judge Matthews, and not arguedagain in the High Court.[35] For all those reasons Mr Schaeffer's appeal is dismissed.[36] Mr Schaeffer will pay costs to the respondents for a standard appeal on aband A basis for one counsel with usual disbursements.Solicitors:PL Law Ltd, Nelson for AppellantMinterEllisonRuddWatts, Auckland for Respondents