Zhang v Yu
[2020] NZCA 592
•1 December 2020 at 3.30 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA75/2019 [2020] NZCA 592 |
| BETWEEN | YIHUIA ZHANG |
| AND | CHUNLIN YU |
| Hearing: | 29 July 2020 |
Court: | Collins, Peters and Whata JJ |
Counsel: | C J C McLean for Appellants |
Judgment: | 1 December 2020 at 3.30 pm |
JUDGMENT OF THE COURT
AThe appeal is allowed insofar as it relates to the protest as to jurisdiction. The appeal is otherwise dismissed.
BThe decision in relation to protest as to jurisdiction, quashing the freezing order and dismissing the proceedings is set aside.
C The protest to jurisdiction is referred back to the High Court for reconsideration.
DThe respondent is to pay one set of costs to the appellants for a standard appeal on a band B basis.
____________________________________________________________________
REASONS OF THE COURT
(Given by Whata J)
Introduction
On 27 August 2018 Ms Zhang and Dr Hu obtained judgment by default against Ms Yu for deceit in relation to an investment into a foreign currency dealer operated by Ms Yu, Honest Deal Holdings Company Ltd (Honest Deal) in New Zealand (default judgment).[1] Ms Yu subsequently invited van Bohemen J to recall his default judgment. She claimed, among other things, that Ms Zhang and Dr Hu misled the Court about key facts, including that a meeting about the investment took place at Ms Yu’s New Zealand home in July 2014. Immigration records show Ms Yu was not in New Zealand in July 2014. Ms Yu also filed a protest as to jurisdiction, claiming that China is forum conveniens, because that is where the agreement to invest was executed.
[1]Zhang v Yu [2018] NZHC 2215 (Default judgment).
On 29 January 2019 van Bohemen J recalled his default judgment and set it aside (first recall judgment). He upheld the protest to jurisdiction.[2] Ms Zhang and Dr Hu then applied to have the first recall judgment recalled, claiming that the Court misinterpreted the evidence about the July 2014 meeting. This application was dismissed on 19 February 2019 by van Bohemen J (second recall judgment).[3]
[2]Zhang v Yu [2019] NZHC 29 (First recall judgment).
[3]Zhang v Yu [2019] NZHC 206 (Second recall judgment).
This is an appeal against the decision to recall the default judgment, the protest to jurisdiction decision, and the refusal to recall the first recall judgment.
Issues on appeal
The appeal raises three key issues:
(a)whether the solicitors on the record are authorised to act for Ms Yu;
(b)whether the High Court was correct to recall its judgment in advance of determining whether to uphold the protest as to jurisdiction; and
(c)whether the High Court was correct to uphold the protest to jurisdiction.
We see nothing in the first issue. We have affirmation evidence of Ms Yu’s solicitor in China providing signed written confirmation of authority to act. Mr McLean, counsel for the appellants, nevertheless maintained there was insufficient proof Ms Yu authorised the solicitors on the record to act. Expert handwriting evidence was adduced to the effect that the signature on the authority to act was not Ms Yu’s signature. However, that expert opinion is highly contestable on its face and in the absence of any complaint of Ms Yu, we see no reason to inquire further.
The remaining issues require careful consideration of the High Court Rules 2016 as they relate to the power of recall and protest to jurisdiction. It is helpful to briefly explain those rules before detailing the background.
Power to recall
The power to recall judgments is stated at r 11.9:
11.9 Recalling judgment
A Judge may recall a judgment given orally or in writing at any time before a formal record of it is drawn up and sealed.
The principal categories for recall are well-known:[4]
(a)where since the hearing there has been an amendment to a relevant statute or regulation, or a new judicial decision of relevance and high authority;
(b)where counsel have failed to direct the Court’s attention to a legislative provision or authoritative decision of plain relevance; and
(c)where for some other very special reason justice requires that the judgment be recalled.
[4]Horowhenua County v Nash (No 2) [1968] NZLR 632 (SC)
Only the last category is relevant to this case. For present purposes, it is sufficient to note that this category is intended to be narrow[5] and does not extend to a challenge of any substantive findings of fact and law in the judgment.[6]
Protest to jurisdiction
[5]Unison Networks Ltd v Commerce Commission [2007] NZCA 49 at [23] and [34].
[6]Nottinghamv Real Estate Agents Authority [2017] NZCA 145 at [9].
As Ms Yu was served without leave overseas, jurisdiction to hear the plaintiffs’ claim is governed by r 6.29(1)(a) which states:
6.29Court’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
Relevantly, r 6.27(2)(a) permits service out of New Zealand without leave in the following circumstances:
(a) when a claim is made in tort and—
(i)any act or omission in respect of which damage was sustained was done or occurred in New Zealand; or
(ii)the damage was sustained in New Zealand:
As stated by this Court in Wing Hung Printing Co Ltd v Saito Offshore Pty Ltd, r 6.29(1)(a) envisages a two-stage inquiry.[7] The party effecting service must first establish that there is a “good arguable case” their claim falls within one or more paragraphs of r 6.27.[8] This first stage may be regarded as a “gateway or threshold” which must be established before moving to consider stage two issues.[9] The “good arguable case” test does not relate to the merits of the case but to whether the claim falls within one or more circumstances specified at r 6.27(2). Furthermore, the test does not require the plaintiff to establish a prima facie case because disputed questions of fact cannot be resolved on affidavit evidence. Rather, there must be a “sufficiently plausible foundation established that the claim falls within one or more of the headings in r 6.27(2).”[10]
[7]Wing Hung Printing Co Ltd v Saito Offshore Pty Ltd [2010] NZCA 502, [2011] 1 NZLR 754 at [32].
[8]At [32].
[9]At [32].
[10]At [41].
The second stage of the assessment requires consideration of the matters listed at r 6.28(5)(b)–(d), namely whether there is a serious issue to be tried, whether New Zealand is the appropriate forum and whether there are any other relevant circumstances that support an assumption of jurisdiction. The ultimate issue is whether there are sufficient grounds for the Court to properly assume jurisdiction.[11]
[11]Kuwait Asia Bank EC v National Mutual Life Nominees Ltd (No 2) [1989] 2 NZLR 50 (CA) at 54. This approach was not disturbed by the Privy Council on appeal: Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1990] 3 NZLR 513 (PC) at 524–525.
In the present case, Ms Zhang and Dr Hu claim in the tort of deceit. That tort requires a false representation as to a past or existing fact made by a defendant who knew it to be untrue or who had no belief in its truth or who was reckless as to its truth; intention that the claimant should have acted on the representation; and action by the claimant in reliance on the representation. In addition, the plaintiff must suffer damage as a result of relying upon the representation.[12] Accordingly, Ms Zhang and Dr Hu had to show that there was a good arguable case that either, the acts or omissions in respect of which damage was sustained were done or occurred in New Zealand, or that the damage was sustained in New Zealand.
Background
[12]As noted in Stephen Todd (ed) Todd on Torts (8th ed, Thomson Reuters, Wellington, 2019) at 815, citing Amaltal Corp Ltd v Maruha Corp [2007] 1 NZLR 608 (CA) at [46] and [55].
In 2014, Ms Zhang and her husband Dr Hu were resident in China. They have since migrated to New Zealand. Ms Yu was also resident in China in 2014, but owned a home in Auckland, New Zealand. Ms Yu was employed by Finawin Finance Management Jiansu Ltd (Finawin) and by this time had registered Honest Deal with the New Zealand Companies Office. In July 2014, Ms Zhang and Dr Hu travelled to New Zealand and visited Ms Yu’s home. Dr Hu also returned to New Zealand with Ms Yu in March 2015 to observe Honest Deal in operation. This trip lasted 10 days. In June 2015, Ms Zhang transferred about $500,000 to an associate of Ms Yu and entered into an “Agreement of Investment Advice and Service” with Finawin, under which Finawin undertook to give investment advice in respect of this sum. A second agreement was executed by Ms Zhang and Finawin on 6 September 2015 in which it was agreed that the investment sum would be repaid on 7 December 2015. That never happened. Shortly after the second agreement was executed, Finawin’s operations were shut down by the Chinese Government and Ms Yu was arrested.
Ms Zhang and Dr Hu claim Ms Yu led them to believe Honest Deal was a legitimate foreign currency trading company registered with the Financial Markets Authority (FMA) in New Zealand. Ms Zhang and Dr Hu say that they invested with Finawin because of this and that they always understood from Ms Yu that their investment could be recouped in New Zealand. They also say that this proposal was discussed with Ms Yu in New Zealand and in China.
Ms Yu denies this. She says she never represented to them, in China or in New Zealand, that their investment would be returned in New Zealand. She observes the agreement with Finawin makes no reference to any repayment in New Zealand and that it is illegal to transfer more than USD 50,000 per year out of China.
Process
In May 2017, Ms Zhang applied by way of summary judgment against Honest Deal for a freezing order over Ms Yu’s residential property in Auckland. The application was dismissed as misconceived.[13] The application was based on the investment agreement with Finawin and a breach of promise by Ms Yu to repay investment sums or for misusing investment sums. As there was no claim against Honest Deal, the application had to be dismissed. A further statement of claim was subsequently filed in October 2017. It was reviewed by Associate Judge Bell with the result that Ms Yu was substituted as the defendant in the proceedings.[14] He also made an order for substituted service on Ms Yu by email. Associate Judge Bell was not told Ms Yu was in prison in China at that time.[15]
[13]Zhang v Honest Deal Holdings Co Ltd [2017] NZHC 1206 at [12]–[13].
[14]Zhang v Yu HC Auckland CIV-2017-404-493, 6 October 2017.
[15]Ms Yu’s residence in a detention facility is, however, later noted in the oral judgment of Lang J in which he makes freezing orders in respect of Ms Yu’s New Zealand residence. See Zhang v Yu [2017] NZHC 3107 at [10].
An amended statement of claim dated 2 December 2017 was filed and served on Ms Yu in accordance with the order for substituted service. This statement forms the basis of the subsequent judgments. In this statement, Ms Zhang claimed Ms Yu promised Ms Zhang and Dr Hu in July 2015 that she could help them to do foreign exchange speculation in New Zealand. She also claimed Ms Zhang and Ms Yu entered into a contract on 6 September 2015 whereby Ms Zhang agreed to invest NZD 500,000 in the foreign exchange market in New Zealand. In addition, Ms Zhang stated that Ms Yu agreed to refund that investment in New Zealand because Ms Zhang planned to use that money for a work visa application. However, Ms Zhang alleged Ms Yu disappeared in October 2015, Ms Yu’s company was removed and that she learned of Ms Yu’s arrest in China for illegal fund raising through the media.
Freezing orders were also obtained in respect of Ms Yu’s property.[16] When Ms Yu did not respond to this claim, Associate Judge Bell set the matter down for formal proof before van Bohemen J.[17] Associate Judge Bell also made orders for substituted service, having found that the plaintiff’s claim fell within r 6.27(2)(a). The reasons for those orders are relevant to this appeal. He stated:[18]
The case comes within r 6.27(2)(a). The plaintiff sues the defendant in deceit and tort. A significant part of the defendant’s tortious conduct took place in New Zealand, even though the plaintiff entered into a contract in China. Leave to serve out the jurisdiction is accordingly not required. If leave were required I would grant it under r 6.28. There is a serious issue to be tried on the merits. There is a real and substantial connection with New Zealand as the defendant made her representations to the plaintiff’s husband in New Zealand and the funds advanced by the plaintiff were to be repaid to her in New Zealand.
Default judgment
[16]At [11].
[17]Zhang v Yu HC Auckland CIV-2017-404-493, 26 January 2018.
[18]At [2].
When the matter was first called before van Bohemen J, he adjourned the matter to enable more evidence to be adduced by Ms Zhang. He also made an order directing Dr Hu to be joined as plaintiff. The matter was eventually heard on 18 May 2018. In the default judgment that followed, van Bohemen J found Ms Zhang and Dr Hu met with Ms Yu in New Zealand in July 2014 and that, during that visit, Ms Yu encouraged them to invest in the foreign exchange trading business she operated through Honest Deal. He also found that, during the same visit, Ms Yu gave Dr Hu and Ms Zhang a prospectus about Honest Deal’s operations which stated that Honest Deal had attained New Zealand Financial Service Provider (FSP) certification and was therefore governed by the FMA. He noted also that the pair met Ms Yu in China later in 2014 and that, in March 2015, Dr Hu paid another visit to New Zealand and observed Ms Yu operating her currency exchange business in New Zealand.[19]
[19]Default judgment, above n 1, at [19]–[24].
The Judge then found:
[25] Based on their interactions with and the representations made by Ms Yu, Dr Hu and Ms Zhang concluded that Ms Yu was a trustworthy person and decided to invest in Honest Deal’s currency exchange business as a prelude to coming to New Zealand and using that investment to meet the requirements of the entrepreneur work visa scheme. They raised a loan in China for RMB … 2,180,000 with the Industrial and Commercial Bank of China (ICBC). The loan was secured by mortgages over properties Ms Zhang and Dr Hu owned in China.
The Judge said Ms Zhang entered into an initial “Agreement of Investment Advice and Service” with Finawin and remitted the above sum to an associate of Ms Yu on 18 June 2015, and that Ms Yu gave them a flow chart which shows how to open a customer service account with Honest Deal. Then, on 6 September 2015, a second financial services agreement was entered into between Ms Zhang and Finawin under which Finawin undertook to provide investment advice in respect of the same fund.[20] Ms Zhang said that Ms Yu told them that a corresponding sum would be paid to Ms Zhang in New Zealand on 7 December 2015. However, this never happened.[21] The Judge also refers to reports on financial crimes in China where Ms Yu is described as a major suspect.[22]
[20]At [26]–[28].
[21]At [29].
[22]At [30].
Before turning to the merits of the claim in deceit, the Judge concluded New Zealand was the natural forum for the litigation because almost all of the consequences of the alleged deceit took place in New Zealand and the property against which Ms Zhang sought satisfaction was in New Zealand.[23]
[23]At [44]–[46].
As to the merits, the Judge observed:
[53] From the affidavits sworn by Ms Zhang on 22 March 2017, 2 December 2017 and 3 April 2018, including the extensive exhibits annexed to the affidavit sworn on 3 April 2018, and the affidavit sworn by Dr Hu on 3 April 2018, I am satisfied Ms Yu made the following representations to Ms Zhang and Dr Hu, either orally or in the documents she gave them, in particular the prospectus handed to Ms Zhang and Dr Hu during their visit to Ms Yu’s Annalong Road property in July 2014:
(a)That Honest Deal was a Financial Service Provider registered with the FMA;
(b)That Honest Deal’s operations were subject to oversight by the FMA;
(c)That Honest Deal’s operations had guarantee arrangements and were supported by a Government-supervised dispute-resolution service;
(d)That any investment made by Ms Zhang and Dr Hu with Honest Deal would be safe and that their return on such an investment would be better than the return from investing in a bank;
(e)That the money Ms Zhang invested in Finawin would be transmitted to New Zealand for investment by Finawin in New Zealand’s foreign exchange market and would be returned to Ms Zhang on 7 December 2015 and available to satisfy the requirements for Ms Zhang and Dr Hu’s entrepreneur work visas.
The Judge also found the representations about Honest Deal’s status as a FSP were false statements and that the Honest Deal operation was set up to entrap people such as Ms Zhang and Dr Hu who wanted to move to New Zealand.[24] Additionally, the Judge found that Ms Yu was a central player and made the representations without an actual and honest belief in their truth, that she intended for the representations to be relied upon, that Ms Zhang and Dr Hu relied on these representations and that this caused them loss. In the result, he awarded Ms Zhang and Dr Hu $721,952.75 in damages, together with specified sums for interest.
Ms Yu appears
[24]At [55]–[57].
Before the judgment could be sealed, Ms Andrews, counsel for Ms Yu, informed the Court Ms Yu had become aware of the proceedings and notified the Court she intended to file a protest as to jurisdiction. On 29 October 2018, a notice of appearance to protest jurisdiction with affidavits in support, together with a request for recall, was filed on Ms Yu’s behalf. It was supported by evidence of Mr Zhengqing Yang, an employee of Finawin, and included a statement by Ms Yu annexed to an affidavit from a solicitor in China, Mr Zhanyang Gu. On 12 November 2018, Ms Donovan filed a memorandum on behalf of Ms Zhang and Dr Hu asking the Court to set aside Ms Yu’s protest to jurisdiction and to seal the default judgment.
The supporting affidavit evidence contradicted the claims made by Ms Zhang and Dr Hu regarding what, when and where the alleged representations were made. It included evidence that Ms Yu could not have been in New Zealand in July 2014 as alleged, that Dr Hu worked closely with Ms Yu as an employee of Finawin and that although Dr Hu had known of Ms Yu’s arrest when seeking orders as to service or judgment by default, he did not mention this to the Court. There was also evidence Honest Deal was registered by Mr Yang as a FSP with the New Zealand Companies Office, that it was a member of Financial Services Complaints Ltd (FSCL) and that a person could not transfer more than USD 50,000 out of China. Mr Yang also said that no final prospectus had ever been produced for Honest Deal. Ms Yu also denied telling Ms Zhang and Dr Hu she would transfer their investment to Honest Deal. She said she never provided them with a prospectus and that it was her intention to operate Honest Deal as a legal FSP in New Zealand.
In response, Ms Zhang and Dr Hu maintained Ms Yu had promised them their investment would be returned in New Zealand by 7 December 2015 and that they would not have applied for an entrepreneur visa unless they could invest in New Zealand. Dr Hu said that he became an employee of Finawin to learn more about Honest Deal. He insisted Ms Yu made representations to him about Honest Deal in New Zealand when he visited New Zealand with her in March 2015. Although Ms Zhang and Dr Hu accepted an individual can only transfer USD 50,000 overseas, they said that certain companies have permission to transfer more than this. They understood from Ms Yu that Honest Deal was one such company and that Ms Yu in effect told Ms Zhang that she could transfer $500,000 to New Zealand from China through Finawin. Dr Hu said he “now” understood Ms Yu did not include a clause about this in the investment agreement because it was illegal. Dr Hu also disputed the evidence regarding Honest Deal’s status as a FSP in New Zealand, and confirmed the advice he received from the FMA that the company was never registered with it and the evidence that any membership of FSCL had lapsed by July 2015, shortly after his family’s investment was made in Honest Deal.
Recall
The Judge did not consider that the request to recall the default judgment constituted a submission to jurisdiction[25] and instead considered the recall was “consequent” on the protest to jurisdiction.[26] However, the Judge explained that, because rr 5.49(1) and 6.29(1) provide that a court must dismiss a proceeding if the grounds for service set out in rr 6.27 or 6.28 are not made out, he would first decide whether he should recall his judgment.[27] The Judge also did not consider that a formal application for recall was required, given that it was made in the context of the protest to the Court’s jurisdiction. The Judge also noted that the request met the requirements in terms of explaining the reasons why recall was sought.[28]
[25]First recall judgment, above n 2, at [16].
[26]At [17].
[27]At [17].
[28]At [19].
In assessing the merits of recall, the Judge reviewed the evidence given at the default judgment hearing and the subsequent evidence filed in support of the recall. The Judge acknowledged that the recall process is not an opportunity to relitigate contested evidence,[29] but found that the parties now agreed that Ms Zhang and Dr Hu did not meet Ms Yu when they visited New Zealand in July 2014 because she was not in New Zealand at that time.[30] He said his understanding that Ms Yu met with and made representations to Ms Zhang and Dr Hu while they were all in New Zealand was central to his finding that New Zealand was the natural and appropriate forum for dealing with Ms Zhang’s claim.[31] Given that this central element was factually incorrect, he was satisfied that recalling his decision was in the interests of justice.[32]
Protest to jurisdiction
[29]At [24].
[30]At [25].
[31]At [26].
[32]At [32].
As to protest to jurisdiction, the Judge found the documents filed by Ms Zhang with the Court “omitted a good part of the history of this case” and did not disclose to Associate Judge Bell that the pair knew or had reason to suspect Ms Yu was being detained or was in prison.[33] He also found that, had Associate Judge Bell known of this, the Associate Judge would have been hesitant to make the order for substituted service on Ms Yu’s email address and would have “had pause” in concluding that the case fell within r 6.27(2)(a).[34] The Judge further stated that he personally would have had little hesitation in setting aside the order, had the order for substituted service come before him by way of appeal.[35]
[33]At [36].
[34]At [43].
[35]At [44], citing Kuwait Asia Bank EC v National Mutual Nominees Ltd, above n 11, at 524.
However, the Judge did not consider it was open to revisit the decision of the Associate Judge.[36] Instead, he examined whether the Court should assume jurisdiction pursuant to r 6.29. This involved an assessment of two issues. First, whether the claim fell within r 6.27(2)(a) and if so, whether the Court should assume jurisdiction pursuant to r 6.28(5)(b)–(d). Second, if not, whether leave would have been granted if Ms Zhang and Dr Hu had applied for leave under r 6.28.
[36]At [46].
The Judge was not satisfied r 6.27(2)(a) was engaged. As noted, that rule permits commencement of proceeding in New Zealand without leave if the claim involves a tort and either, an act in respect of which damage is sustained, is done or occurred in New Zealand, or the damage is sustained in New Zealand. He identified that, “a good and arguable case means that there is [a] serious or substantial legal question to be tried and there is a credible or plausible factual basis for the legal question.”[37] He accepted there was no dispute Ms Zhang invested a substantial amount with Finawin or that this investment was not repaid to Ms Zhang as previously agreed. However, he said:[38]
… Ms Zhang and Dr Hu must satisfy me that there is a credible or plausible factual basis for their contention that Ms Yu made representations in New Zealand about the circumstances of the investment, including a representation that the funds invested [in] China would be transferred to and paid out in New Zealand.
[37]At [51].
[38]At [52].
On this point, the Judge said it was now clear Ms Yu could not have made the representations to Ms Zhang and Dr Hu during their visit to New Zealand in July 2014 which were the foundation of his finding of deceit. Accordingly, the Judge found there was no evidence before him of any representations made to Ms Zhang while she was in New Zealand.[39] He also considered Dr Hu’s new evidence about this was inconsistent with the evidence he and Ms Zhang gave at the first hearing, that the agreement did not provide for transfer of the investment to New Zealand, and that Dr Hu had many opportunities to discuss the investment arrangement with Ms Yu in China while he was working with her in Finawin and also as her friend and her parents’ doctor.[40]
[39]At [53].
[40]At [53].
In those circumstances, the Judge concluded:[41]
I am far from persuaded that any relevant representations were made by Ms Yu to Dr Hu while he visited New Zealand in March 2015. If such representations were made, I consider it more likely that they were made in China rather than in New Zealand. I reach that conclusion because the opportunities for discussion in China over the course of 2015, when Dr Hu was working at Finawin with Ms Yu and acting as her family’s doctor, would have been significantly greater than during a 10-day group visit to New Zealand. I am not satisfied, therefore, that Ms Zhang and Dr Hu have established a credible or plausible factual basis for their contention that Ms Yu made representations to them in New Zealand on which they relied when making their investment in Finawin.
[41]At [54].
The Judge also found, “the investment was made in China and was lost in China”, and that it was “now apparent … [that] Ms Zhang and Dr Hu were aware that the investment had been lost when Ms Zhang emigrated to New Zealand”.[42]
[42]At [55].
The Judge acknowledged that in the default judgment, he had held that almost all of the consequences of the alleged deceit took place in New Zealand. However, the Judge also noted this finding was based on a understanding that Ms Zhang and Dr Hu had been relative strangers to Ms Yu, when it was now apparent Dr Hu had a relationship of some long standing with her.[43] The Judge said, “[this new information] puts a very different complexion on their decision to emigrate to New Zealand when they knew that … their investment had probably been lost”.[44] In those circumstances, the Judge did not consider that the consequences of any alleged misrepresentations by Ms Yu took place in New Zealand. Accordingly, he concluded r 6.27(2)(a) was not engaged.[45]
[43]At [56].
[44]At [56].
[45]At [57].
As to whether leave would have been granted if Ms Zhang and Dr Hu had applied for leave under r 6.28, the Judge was not satisfied that the threshold requirements of r 6.28(5) were met. For present purposes, it is sufficient to note the Judge found that there was no substantial connection to New Zealand, because “if any representations were made to Dr Hu it was more likely that they were made in China rather than in New Zealand”.[46] He also found:
[60] In terms of paragraphs (b) and (c) of r 6.28(5), I am satisfied there is a serious issue to be tried but I do not consider that there is a good arguable case that New Zealand is the appropriate forum for trying the claim. The evidence that led me to conclude in my earlier judgment that New Zealand was a natural and appropriate forum for considering the claim – that representations were made by Ms Yu to Ms Zhang and Dr [Hu] in New Zealand in July 2014 – has now been shown to be incorrect.
[46]At [59].
As to r 6.28(5)(d), neither Ms Zhang’s and Dr Hu’s residency in New Zealand, nor the fact that Ms Yu has property in New Zealand against which they could pursue their claim, provided a sufficient basis to support an assumption of jurisdiction.[47] The Judge also addressed Dr Hu’s explanation that there was no provision for the investment in Finawin to be transferred to New Zealand because such a transfer was illegal. The Judge observed that, if true, the explanation suggested Ms Zhang and Dr Hu had asked the New Zealand courts for help recovering loss incurred from non‑performance of an illegal undertaking. He considered this was a strong factor against assuming jurisdiction.[48]
[47]At [61].
[48]At [62].
Overall, the Judge found Ms Zhang and Dr Hu did not meet the requirements of r 6.29(1).[49] In the result, the recall judgment was set aside, the freezing order over Ms Yu’s New Zealand property quashed, and Ms Yu’s protest to jurisdiction upheld.
The second recall judgment
[49]At [64].
Dr Hu’s application for recall of the recall judgment claimed that Ms Yu’s signature to answers she provided to questions in an annexure of the affidavit sworn by Mr Gu were forged, the authority to act from Ms Yu was invalid and that Ms Yu was effectively served with the proceedings.
The Judge did not consider the alleged forgery in relation to Ms Yu’s answers was relevant because he did not base his recall judgment on those answers.[50] He also rejected the invalidity of authority claim, noting that Mr Gu’s signed affidavit was witnessed by a Consular Officer at the New Zealand Consulate‑General in Shanghai in accordance with s 10 of the Oaths and Declarations Act 1957.[51] The Judge also noted that, even if Ms Yu’s signature on the authority to act was forged, it did not affect the basis for the recall judgment — that is, that no meeting took place in New Zealand in July 2014 involving Ms Yu, Ms Zhang and Dr Hu.[52] He also considered the issue of service to be irrelevant on the basis that it did not affect his decision to recall.[53]
Procedural error
[50]Second recall judgment, above n 3, at [8].
[51]At [10].
[52]At [11].
[53]At [13].
Mr McLean submits the Judge was wrong to entertain the recall judgment in advance of the protest to jurisdiction. Ms Andrews responds that the recall and the protest to jurisdiction logically go together.
As noted above, if, as here, the service has been effected out of New Zealand without leave, the Court must dismiss the proceeding unless the party effecting service satisfies the threshold criteria. “Proceeding” means any application to the Court for the exercise of civil jurisdiction of the Court other than an interlocutory application.[54] In Advanced Cardiovascular Systems Inc v Universal Specialties Ltd this Court said:[55]
It is the jurisdiction of the Court to entertain the claim which is now at issue, and that must be determined prior to the Court embarking on a hearing of the proceeding, whether substantively or in any interlocutory way.
[54]High Court Rules 2016, r 1.3.
[55]Advanced Cardiovascular Systems Inc v Universal Specialties Ltd [1997] 1 NZLR 186 (CA) at 189.
But as this Court more recently explained in Commerce Commission v Viagogo AG:[56]
[79] The apparent tension between the making of orders against an overseas defendant and the right of that defendant to object to the jurisdiction of the New Zealand court is resolved by focusing on the sense in which the term “jurisdiction” is used in the context of the rules governing service of proceedings outside New Zealand, and objections to jurisdiction. The objection to jurisdiction contemplated by the rules is an objection to the jurisdiction of the court to hear and determine the proceeding on the merits … But the court plainly has jurisdiction to entertain the proceedings and make orders for the purpose of determining the objection to jurisdiction. For example, and at the risk of stating the obvious, the court has jurisdiction to hear and decide an application under r 5.49(3) to dismiss the proceeding, or an application under r 5.49(5) to set aside the appearance under protest. That is, the court has jurisdiction to determine whether it should proceed to exercise jurisdiction to determine the substantive claim. The court can make a range of orders that are ancillary to (preliminary) determinations of this kind, such as case management orders.
[56]Commerce Commission v Viagogo AG [2019] NZCA 472, [2019] 3 NZLR 559.
We think that this reasoning in Viagogo AG is applicable here, as the recall of the default judgment was ancillary to the protest to jurisdiction. Put another way, the object of the recall of the default judgment was to enable the Court to consider the protest to jurisdiction. The protest would be meaningless if the case was already decided. We are also satisfied that, given the agreed error of fact relating to the alleged presence of Ms Yu in New Zealand, recall was available to the Judge. Accordingly, we also dismiss this ground of appeal.
Before addressing the next issue, we wish to observe that consideration should have been given to exercise of the power to set aside the default judgment pursuant to r 15.10 (which provides for the setting aside of default judgments on miscarriage of justice grounds) or pursuant to r 15.11 (which provides for refusal to grant leave to seal a default judgment). This would have avoided the evident jurisdictional difficulties associated with the recall process which does not ordinarily extend to a challenge to multiple substantive findings of fact, as appears to have been undertaken here.[57] Moreover, we think this case more directly engages the scheme directly applicable to default judgments.
Protest to jurisdiction
[57]Nottinghamv Real Estate Agents Authority, above n 6, at [9].
We turn to the appeal against the decision to uphold the protest to jurisdiction. Mr McLean submits van Bohemen J erroneously applied a “prima facie case” test and determined credibility issues when assessing whether the plaintiffs had a New Zealand-based tort claim. Mr McLean also submits the Judge placed too much emphasis on the evidence relating to the July 2014 meeting. Ms Andrews responds that the Judge’s findings about forum conveniens were clearly available to him, given among other things, the discrediting of the primary basis for the plaintiffs’ claim that Ms Yu made representations in July 2014, that evidence now revealed Dr Hu’s active involvement in Finawin, that Du Hu did not disclose Ms Yu’s whereabouts and that Dr Hu did not disclose he knew a transfer of more than USD 50,000 out of China was illegal.
Assessment
Although the Judge correctly identified the “good arguable case” test as the requisite threshold, we are unable to agree with his finding that there was no plausible basis for the claim that key misrepresentations were made in New Zealand. We repeat the salient paragraph of the judgment here for ease of reference:[58]
I am far from persuaded that any relevant representations were made by Ms Yu to Dr Hu while he visited New Zealand in March 2015. If such representations were made, I consider it more likely that they were made in China rather than New Zealand. I reach that conclusion because the opportunities for discussion in China over the course of 2015, when Dr Hu was working at Finawin with Ms Yu and acting as her family’s doctor, would have been significantly greater than during a 10-day group visit to New Zealand. I am not satisfied, therefore, that Ms Zhang and Dr Hu have established a credible or plausible factual basis for their contention that Ms Yu made representations to them in New Zealand on which they relied when making their investment in Finawin.
[58]First recall judgment, above n 2, at [54].
We note that it was not necessary to find the representations were “more likely” to have occurred in New Zealand. It was only necessary to find that there was a sufficiently plausible basis for the relevant representations having been made in New Zealand. In any event, we think there is a sufficiently plausible basis on the evidence for the claim that Ms Yu made the relevant representations while in New Zealand. Indeed, if Ms Yu did promise to refund the monies in New Zealand, it is entirely plausible she would have done so while on a 10-day trip with Dr Hu in New Zealand. Conversely, it seems quite implausible Ms Yu would have avoided altogether any discussion about the return of the investment in New Zealand while on a trip to view Honest Dealing’s operations in New Zealand. Notably also, within three months of the March visit to New Zealand, Ms Zhang signed an initial agreement with Finawin and transferred about $500,000 to an associate of Ms Yu.
In fairness to the Judge, we can readily appreciate why he formed an adverse view of Dr Hu and Ms Zhang’s credibility. Contrary to what he had been led to understand for the purpose of his default judgment, they had not met with Ms Yu in New Zealand in July 2014. There was also now some evidence that Honest Deal may in fact have been properly registered as a FSP. But whether Ms Zhang or Dr Hu are credible about the key facts in issue (in particular, whether and where they were told their money would be returned in New Zealand) can only be resolved after their evidence, and Ms Yu’s evidence, is properly tested under cross-examination.
In this regard, the key findings at paragraphs [55] and [56] of the first recall judgment about the location of the loss and whether Ms Zhang was duped appear to involve credibility findings rather than a gateway assessment of whether there was a plausible basis for the alleged representations having been made in New Zealand. For example, the Judge noted, “as is now apparent, Ms Zhang and Dr Hu were aware that the investment had been lost when Ms Zhang emigrated to New Zealand in December 2015.”[59] The Judge also noted that the new evidence about their relationship with Ms Yu “puts a very different complexion on their decision to emigrate to New Zealand when they knew that Finawin had been shut down by the Chinese authorities and that their investment had probably been lost”.[60] Although both findings were available on the affidavit evidence, no adequate conclusion could be reached about credibility on that evidence alone.
[59]First recall judgment, above n 2, at [55] (emphasis added).
[60]At [56].
We also consider Ms Andrews’ contention that Ms Zhang and Dr Hu must have known that the alleged transfer out of China was illegal begs the very question that must be resolved at trial, namely whether Ms Yu said that their investment could be legitimately paid out in New Zealand.
Given this, we agree with Mr McLean that the Judge erred by setting the bar too high for the purposes of r 6.29(1)(a). We consider there is a sufficiently plausible basis for the claim that alleged deceit occurred in New Zealand. We consider therefore that the appeal in respect of the protest to jurisdiction should be allowed. However, as we did not hear detailed argument on stage-two considerations, we consider this matter must be referred back for reconsideration by the High Court.
Outcome
The appeal is allowed in relation to the protest as to jurisdiction. The decision in relation to protest as to jurisdiction, quashing the freezing order and dismissing the proceedings is set aside. The protest as to jurisdiction is referred back to the High Court for reconsideration in light of our judgment. The appeal is otherwise dismissed.
Ms Yu must pay the appellants one set of costs for a standard appeal on a band B basis.[61]
[61]Court of Appeal (Civil) Rules 2005, r 53C(1)(a).
Solicitors:
McLean Law Ltd, Auckland for Appellants
Righteous Law, Auckland for Respondent
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