General Equity Building Society v Squant Communications Private Limited
[2017] NZHC 1436
•28 June 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-2292 [2017] NZHC 1436
BETWEEN GENERAL EQUITY BUILDING
SOCIETY Plaintiff
AND
SQUANT COMMUNICATIONS PRIVATE LIMITED
First Defendant
SITI VISION DIGITAL MEDIA PRIVATE LIMITED
Second Defendant
VETCHA SATYA KISHORE Third Defendant
K SIVA RAMA KRISHNA Fourth Defendant
Hearing: 2 June 2017 Appearances:
E J Grove for Plaintiff
N Taefi for DefendantsJudgment:
28 June 2017
JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE
This judgment was delivered by me on
28.06.17 at 2.30 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
GENERAL EQUITY BUILDING SOCIETY v SQUANT COMMUNICATIONS PRIVATE LIMITED [2017] NZHC 1436 [28 June 2017]
[1] The plaintiff seeks summary judgment against the defendants arising out of the plaintiff providing a letter of credit in May 2013. The letter of credit was guaranteed by the second to fourth defendants, with the primary party being the first defendant which obtained the letter of credit to enable the purchase from a Chinese manufacturer (Chang Hong). The letter of credit was to facilitate the purchase of television top boxes.
[2] It is not disputed that the contracts between the various parties contained provisions that the contracts were to be governed by the law of New Zealand and that New Zealand was to be the exclusive forum in which disputes between the parties were to be heard.
[3] The defendants oppose the plaintiff’s application for summary judgment on the basis that the New Zealand Court is not the appropriate forum for the dispute. They apply to dismiss the proceedings.
Principles governing the application of exclusive jurisdiction clauses
[4] Both Mr Grove, counsel for the plaintiff, and Ms Taefi, counsel for the defendant, agreed on the authorities which govern the application of r 5.49 of the High Court Rules (“HCR”), which entitles a defendant who objects to the jurisdiction of the New Zealand Court to file an appearance and apply to dismiss the proceeding on the ground that the Court has no jurisdiction to hear and determine it. It is possible for an order to be made pursuant to r 5.49 in cases where, as here, the parties have agreed to an exclusive forum provision being inserted into their contract.
[5] The defendants accept that, by the provisions in the relevant contractual documents, they agreed to the New Zealand Court having jurisdiction to determine any disputes arising out of the letter of credit and the associated guarantee agreements.
[6] In order to understand how the discretion under r 5.49 is appropriately exercised, consideration needs to be given to the authorities of particular relevance to that rule.
[7] In Advanced Cardiovascular Systems Inc v Universal Specialities Ltd, the Court decided that notwithstanding an exclusive forum provision, a Court may exercise its discretion to decline jurisdiction.1 That discretion will only be exercised
where there are strong grounds or exceptional circumstances.2
[8] The Court further stated:3
A careful weighing of all factors does not persuade us that there are exceptional circumstances or strong grounds which would justify the jurisdictional provisions of cl 18 being defeated. The choice of forum was negotiated by the parties as part of their overall bargain. It was one of the conditions accepted by USL when it obtained distribution rights to the ACS products. It can be observed that one of the effects of the clause is to deprive USL of the right to use the summary judgment procedure available in this jurisdiction. The desire of ACS to ensure contractual disputes are resolved within the nominated jurisdiction is understandable, and there is nothing unreasonable in enforcing that right in the present circumstances.
[9] The Court accordingly gave effect to the provision in the contract in that case which contained an agreement that the Californian Courts would deal with any disputes.
[10] In Donohue v Armco Inc, Lord Scott stated:4
[53] It is accepted that a contractual exclusive jurisdiction clause ought to be enforced as between the parties to the contract unless there are strong reasons not to do so. Prima facie parties should be held to their contractual bargain ...
[11] And in another New Zealand case, The Society of Lloyd’s v Hyslop,
Richardson J said:5
1 Advanced Cardiovascular Systems Inc v Universal Specialities Ltd [1997] 1 NZLR 186, (1996) 9 PRNZ 632 (CA).
2 At 636.
3 At 637.
4 Donohue v Armco Inc [2001] UKHL 64, [2002] 1 ALL ER 749. Citations omitted.
5 The Society of Lloyd’s v Hyslop [1993] 3 NZLR 135 (CA) at 142.
The existence of an exclusive jurisdiction clause places a heavy burden on the party seeking to oppose the clause. While the Court has a discretion, a stay should be granted unless strong cause for not doing so is shown by the plaintiff.
[12] The authorities generally were reviewed by Associate Judge Bell in Perpetual Trustee Co Ltd v Downey.6 In that decision, Associate Judge Bell described the effect of such clauses in the following terms:
[28] In choice of forum disputes, exclusive jurisdiction clauses have special importance. One of their benefits is that they save arguments as to where proceedings should be heard. They enable parties to contract and conduct business on the basis that any disputes will be heard in a particular chosen law area. When an agreement provides for disputes to be heard in courts of the country whose law governs the contract, there is also the benefit that differences between matters of substance (which are part of the proper law of contract) and matters of procedure (part of the law of the forum) fall away.
[13] Associate Judge Bell in that passage identified that there were additional reasons, apart from holding the parties to their contractual bargain, which justified the Court enforcing choice of jurisdiction agreements. In the present case, the parties both agreed to New Zealand being the forum and New Zealand law being the proper law applicable to the contract. There is therefore present one of the factors that Associate Judge Bell identified as favouring the enforcement of a jurisdiction clause.
[14] One circumstance in which the Court will not give effect to an exclusive jurisdiction clause is where there is the risk that separate trials would occur in two different jurisdictions concerning the same subject matter, which raises the risk that the outcome might be determined differently in the two countries.7 A further element which, if present, may justify a departure from the exclusive jurisdiction clause position is where the rights of third parties are impacted. Clearly the policy imperative of holding parties to their bargains, including where they will litigate their disputes, is not applicable to third parties who were not implicated in the
agreement.
6 Perpetual Trustee Co Ltd v Downey (2011) 21 PRNZ 28 (HC).
7 Donohue v Armco Inc, above n 4, at [28].
[15] Against that background of the consideration of the authorities, I will next examine how this case should be determined in light of the principles.
Do the circumstances of the present case mean that the Court ought to treat the jurisdiction clause as not applicable?
[16] The case which the defendants put forward is to the following effect. It is their contention that in the process of formation of the letter of credit contract and associated guarantees, the plaintiff was represented by an agent resident in India, Nexus.
[17] The defendants say that the first defendant, Squant Communications Private Limited, defaulted on its obligation under the agreement in March 2014. It subsequently negotiated a variation to the payment schedule with Nexus. Nexus agreed to the defendants making payments to the manufacturer. It also agreed to give credit for the payments so made. Ms Taefi submitted:
However, [Nexus] and [the plaintiff] did not acknowledge receipt of
[monies] paid under the variation.
[18] It is further alleged that Nexus is a related party against whom the defendants (and potentially the plaintiff) has a claim. The determination of the defendants’ claim against Nexis may result in inconsistent decisions involving the subject matter of this claim.
[19] In response, the plaintiff submits that the arrangement which the defendants contend for is vague, unparticularised and undocumented. Mr Grove submitted that:
31. There is an allegation made at paragraphs 19 and 20 of Mr Krishna’s affidavit for the Defendants that, on some unspecified date, someone (who is not identified) representing Squant entered into an agreement (which would appear to be unrecorded) with someone (who is also not identified) representing the Plaintiff, under which the Plaintiff agreed that Squant would have an extension of time (for an unspecified period of time) to make payment of the sums due in respect of the letter of credit.
32. Mr Krishna’s allegation that any variation to the payment timetable was agreed is denied by the Plaintiff, and the first time the existence of such an alleged variation contract was raised by the Defendants was when Mr Krishna’s affidavit was served in these proceedings. No documentary record of, or prior reference or allusion to, any such agreement has been produced.
33. The alleged variation simply lacks credibility. It also lacks sufficient particulars.
[20] I consider that those criticisms of the supposed agreement are justified.
[21] Notwithstanding the criticisms made of that evidence, Mr Grove submitted that in fact there was some additional leeway provided to Squant and the other defendants, in that the plaintiff itself proposed that the defendants pay the amount of the principal balance due under the letter of credit through a solicitors’ trust account directly to Chang Hong. Counsel said that no response had been received to that proposal. Counsel also said that the position was that the counterparty to the letter of credit, Chang Hong’s bank in China, had refused to enforce the letter of credit in the meantime.
[22] The position therefore is that while the plaintiff apparently agrees that there was some variation to the letter of credit proposed by the plaintiff, no agreement giving time to the principal party under the letter of credit, Squant, or the guarantors (the other defendants) was ever entered into.
Comment on claim
[23] In the first place, having regard to the unsatisfactory nature of the alleged agreement that Mr Krishna put forward, I do not consider that there is any evidential basis to be found in his affidavit for an arrangement of the kind that he says was entered into.
[24] In case I am wrong in approaching matters in that way, I will go on to consider what the effect of any such agreement would be on the exclusive jurisdiction clause.
[25] It is difficult to understand the nature of the claim which the defendants say that they might have against Nexis or the plaintiff.
[26] The position disclosed in the affidavits is that Nexus was the agent of the plaintiff. The plaintiff does not in fact dispute that is the case.
[27] Nor does it dispute that Nexus agreed to provide additional time for the debt owed. The plaintiff admitted that payments had been made by the defendants to the manufacturer, either directly or through Nexus, it is not clear which. It is true that when the claim by the plaintiff was commenced, it omitted to account for a payment of USD 47,000. However, in the submissions which were put before me, counsel for the plaintiff agreed that such a payment had been made. On the evidence which has been put before the Court for the purposes of this application, this is the only payment which was made but not acknowledged.
[28] Against this background, it is necessary to ask what claim the defendants might have against the plaintiff.
[29] Given the state of the evidence which I have already commented on, it would seem to be unlikely that the defendants are able to satisfy the Court that they have an arguable defence along the lines that the plaintiff, either itself or through its agent, breached an agreed variation to the letter of credit arrangement. Quite apart from anything else Mr Grove pointed out, there does not seem to have been any consideration agreed to for the discharge of the debt arrangement for less than its face value or for a deferral of the period by which payments were to be deferred. The uncertainty about these matters stems wholly from the fact that the defendant has not given clear and comprehensible evidence about this subject. In those circumstances, if the defendant is unable to say what the varied arrangement was, then the Court simply cannot act on a complaint that a variation to the contract has not been honoured by the plaintiff.
[30] Because of the vagueness of the proposed claim by the defendants, it is difficult to define from the evidence exactly what its nature might be.
[31] What appears to be the case however is that the plaintiff accepts that Nexus was its agent in India. The defendants have not put forward any basis upon which it could be supposed that they might have a separate claim against Nexus, which lay outside the ambit of its authority as the agent of the plaintiff.
[32] It does not seem to be suggested that the defendants would have an independent claim against Nexis, as an agent who breached its warranty of authority, when it gave assurances about an extended period for making payments. Any claim that Nexus may have that an agreed variation agreement was entered into, which was enforceable and subsequently breached by the plaintiff, will involve only the present parties to this claim and not third parties. There is therefore no warrant for the proceedings not been dealt with in the way that is prima facie indicated, namely that disputes between the parties ought to be litigated in this jurisdiction rather than in India which is the place of residence of the defendants.
Unconscionable conduct by plaintiff
[33] Ms Taefi also made reference in her submissions to other grounds which she said justified the Court not giving effect to the exclusive jurisdiction clause in the contractual arrangements. The overall content of these submissions was to the effect that the plaintiff was not a reputable financier and that it had contravened regulatory standards applicable to lenders in New Zealand. While the plaintiff was at some stage a building society, it no longer functioned as such according to Ms Taefi, and there does not seem to be any substantial dispute that what she has said is correct. Further, the plaintiff does not carry out lending within New Zealand and apparently does not receive deposits. It does not do so because it is not allowed to, not being registered for the purpose with the Financial Markets Authority.
[34] It was the broad submission of the defendants that the way in which the plaintiff had been marketing itself as a financier was by taking advantage of its location in New Zealand, which was implicitly relied upon as reassuring those who dealt with it that its affairs were properly regulated and that the transaction would not be disadvantageous or would not victimise the borrowers.
[35] In my view, even if all of that is correct, it does not influence the question of the applicability of the exclusive jurisdiction clause. The exclusive jurisdiction clause is concerned with where disputes ought to be litigated and nothing else. The plaintiff did not mislead the defendants concerning the quality of the judicial procedures and the standards applicable by New Zealand judicial institutions in the process leading up to the parties’ contract. Therefore, in my view, criticisms which
Ms Taefi made of the plaintiff and its commercial standards are not relevant to the matter of where disputes involving the plaintiff ought to be litigated.
Summary
[36] For all the foregoing reasons, I do not consider that the application which the defendant has made seeking an order that the Court dismiss the proceeding ought to be granted. To the contrary, it is my view that an order ought to be made pursuant to r 5.49(4) of the HCR dismissing the application and setting aside the appearance which the defendants have filed.
[37] The Registrar is to list this matter in the next available summary judgment application list so that directions may be given to further progress the proceeding.
J.P. Doogue
Associate Judge
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