IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE	
CIV-2020-404-000675
[2020] NZHC 2985	

BETWEEN	CHONG CHU KIM and IN SUK KIM
Plaintiffs	
AND	TAE LIM OH
First Defendant

YONG SOO CHOI
Second Defendant	

Hearing:	13 October 2020	
Appearances:	S Kang for the Plaintiffs
P C Murray for the Defendants	
Judgment:	12 November 2020	

JUDGMENT OF ASSOCIATE JUDGE GARDINER

This 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 Registrar Date.......................................

Solicitors:

Fairbrother Family Law, Napier CL Law, Auckland

P C Murray, Auckland

KIM v OH [2020] NZHC 2985 [12 November 2020]

Introduction

[1]	The plaintiffs have brought proceedings against the defendants in relation to a loan agreement between them arising out of investments in Mongolian gold mines. The plaintiffs sought leave to apply for summary judgment of their breach of contract cause of action. The defendants object to the jurisdiction of the New Zealand courts to hear and determine that cause of action, pursuant to r 5.49 of the High Court Rules 2016. They rely on an alleged exclusive jurisdiction clause in the contract said to have been breached. They say that the courts of the Republic of Korea have exclusive jurisdiction over matters arising from the contract. The plaintiffs apply to set aside the defendants’ appearance and objection to jurisdiction.

Factual background

[2]	The plaintiffs, Chong Chu Kim and In Suk Kim, are husband and wife. The first and second defendants, Tae Lim Oh and Yong Soo Choi respectively, are also husband and wife. The parties are of Korean ethnicity, but are New Zealand citizens and reside in Auckland, New Zealand.

[3]	In February 2018, the first defendant, Mr Oh, introduced the plaintiffs to an investment opportunity in a Mongolian mining business operated by Wellich Mines LLC, a Mongolian company. It is alleged that Mr Oh showed the plaintiffs various photos and documents about the gold mines, including a table of investment and profit payments. The plaintiffs say that Mr Oh represented that their principal investment would be paid back within two to three months, and they would receive a 1,000 to 1,200 per cent profit within three years of their investment.

[4]	On 12 February, 20 February and 23 March 2018, the first-named plaintiff, Mr Kim, entered into three investment contracts with Wellich Mines LLC to invest in Mines 14686A and 5582A. It is the third contract, dated 23 March 2018, under which Mr Kim agreed to invest USD$400,000 into Mine 5582A (“the Third Investment Contract”), 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 to solve any disagreement or doubt regarding matters not stipulated in this contract or regarding interpretation of this contract through mutual agreement in accordance with the [“conventions” / “commercial practice”]1 of the Republic of Korea.

[6]	The mining venture was unsuccessful. On 17 June 2018, Mr Kim and Mr Oh signed an agreement by which Mr Kim transferred his rights and responsibilities under the Third Investment Contract to Mr Oh (“the Transfer Agreement”). The Transfer Agreement 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 Transfer Agreement referred to a deed of acknowledgment of debt dated 2 June 2018 (“the Acknowledgment of Debt”), which records that the principal sum was to be repaid in full by 1 June 2019, with monthly interest at 5.8 per cent per annum. It is said that both parties were in Mongolia when the Transfer Agreement was signed; and Mr Kim was in Mongolia when the Acknowledgment of Debt was signed (but he says it was signed by his wife in New Zealand on his behalf).

[7]	The mining operations were ultimately halted at both Mines 14686A and 5582A, and no profit was paid to the investors. All the funds that were invested in the gold 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 in accordance with the Acknowledgement of Debt. Mr Kim tried, unsuccessfully, to secure repayment from Mr Oh. In July 2019, Mr Kim made a complaint to the Korean Police regarding Mr Oh and the mining investments. He says that this was because Mr Oh was in Korea at the time. However, the case was dismissed without any charges; the Korean Police could not prosecute Mr Oh as he was a New Zealand citizen and 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 to the exclusive jurisdiction either. However, I had an intention that New

1	Two translations of the Third Investment Contract were provided to the Court; one from the plaintiffs and the other from the defendants. In the plaintiffs’ translation, the term “commercial practice” is used, whereas, in the defendants’ translation, the word “conventions” is used.

Zealand courts would be the most convenient forum to hear any disputes in relation to the Deed, because:

a.	All four parties are New Zealand citizens, and were ordinary residents 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 New Zealand Dollars instead of US Dollars. This was because the Defendants were going to pay the monthly interests (and then the principal) from New Zealand, to our BNZ account in New Zealand, using New Zealand currency.2

22.	The payments of monthly interest were sometimes made from the Defendants’ ASB account in New Zealand and received by our BNZ and ASB account in New Zealand.

23.	Other times, they were paid in person in cash, or from Xado New Zealand Limited (for which the Defendants were the directors at that time) 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 serve an appearance in lieu of a statement of defence. Such an appearance is not a submission to jurisdiction. Subsequently, the defendant may apply to dismiss the proceeding, and the plaintiff may apply to dismiss the appearance. The Court, if satisfied no jurisdiction exists, must dismiss the proceeding, and if satisfied jurisdiction does exist must dismiss the application and set aside the appearance. The Court may exercise its powers upon terms.

[11]	In Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue, the Court of Appeal summarised the principles in relation to r 5.49 as follows:4

(a)	The procedure for filing an appearance and objecting to the High Court’s jurisdiction will generally only be suitable where a party claims 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] 2 NZLR 823 at [52]. The case was overturned on appeal, but not on this point: see Commissioner of 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 New Zealand court or authority; or

(iii)	the High Court’s jurisdiction is precluded by the operation of a contractual term or because statutory requirements have not been complied with.

(b)	If none of those situations arises and the application or proceeding is of 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’s jurisdiction to hear and determine the application or proceeding. Rule 5.49 is not concerned with the Court’s jurisdiction to grant relief in a proceeding within its jurisdiction.  Thus, in an application under r 5.49, the Court’s focus must be on the allegations made in the statement of claim and any affidavit evidence put forward to support or contradict them.

[12]	For the purposes of r 5.49, the onus is always on the defendant to establish that the Court does not have jurisdiction.5

Analysis

[13]	The plaintiffs raise a number of points in support of their application to set aside the defendants’ appearances and objection to jurisdiction. The first three relate to procedural matters; the last two relate to the substance of the objection. I address each in turn.

[14]	First, the plaintiffs submit that the defendants’ notice of appearance and objection to jurisdiction was filed out of time. The following documents were filed:

(a)	On 13 May 2020, the plaintiffs filed a statement of claim alleging breach 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 for summary judgment and an interlocutory application for summary judgment 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 appearance objecting to the jurisdiction of this Court;

(e)	On 1 September 2020, the plaintiffs filed an interlocutory application for an order to set aside the appearance; and

(f)	On 22 September, the defendants filed a notice of opposition to the application for an order to set aside the appearance.

[15]	The plaintiffs say that the notice of appearance objecting to jurisdiction needed to have been filed by 24 June 2020. However, the defendants filed a statement of defence 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 in relation to the first cause of action regarding breach of contract, recorded the defendants’ objection to jurisdiction. At para 9 of the statement of defence, it is clearly recorded that the defendants “object to the jurisdiction of this Court to hear and determine the Plaintiffs’ claim under the first cause of action on the grounds that the courts of the Republic of Korea have exclusive jurisdiction in relation to the deed of acknowledgment of debt dated 2 June 2018”. That, in my view, is sufficient to alert the 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 did not object to the New Zealand courts’ jurisdiction as to the second and third causes of action (for deceit and negligent misstatement). If they had not done so, the plaintiffs would have been entitled to seek judgment by default or by formal proof on those causes of action.

[17]	Secondly, and related to the first, the plaintiffs submit that the defendants have not 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 giving address for service, ensuring the authority to file complies with r 5.36. This step should be taken within the time allowed for filing a statement 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 parties who have filed addresses for service.

(c)	Promptly file an interlocutory application on notice to all parties who have filed addresses for service for dismissal or stay of the proceeding, or of the proceeding as against that defendant, on the grounds that the Court has no jurisdiction to hear and determine the proceeding.

(d)	If the application is dismissed, apply for extended time within which to 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 not mandatory but further submitted that the purpose of the procedure is to alert a plaintiff to a defendant’s objection to jurisdiction. I have, however, already found that the defendants’ statement of defence was sufficient to notify the plaintiffs of their objection.

[19]	Thirdly, the plaintiffs submit that the defendants, in filing a statement of defence which sets out their defence on the merits to the second and third causes of action, 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 solely to disputing the jurisdictional basis of the plaintiffs’ claim. To the extent the statement of defence addresses the merits of the other causes of action, that was because the defendants 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 defendants could not rely on r 5.49 to object to the jurisdiction of a single cause of action; that procedure is only available where a defendant objects to the jurisdiction of the Court to hear and determine “the proceeding” (that is, the whole proceeding).8 Counsel suggested that the proper procedure was for the defendants to apply under r 15.1 to strike 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 the court 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, the factors in r 15.1(1) which justify strike-out are not readily applicable to objections to jurisdiction. For example, r 15.1(1)(a) requires the pleading to “disclose no reasonably arguable cause of action” — however, for the Court to determine that, it would have to assess the pleading on its merits, which in turn would amount to the defendants submitting 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 the defendants 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 to jurisdiction, the defendants submit that cl 8 of the Third Investment Contract is an exclusive jurisdiction clause and that this clause is an implied term of the Acknowledgement of Debt. The plaintiffs submit that clause 8 is not an exclusive jurisdiction clause; and in any case the clause is in the Third Investment Contract and not the Acknowledgement of Debt. That is a separate contract entered into by different parties. The plaintiffs say that implying such a term into the Acknowledgement of Debt is not reasonable or equitable, or necessary to give business efficacy to the agreement. I accept the plaintiff’s submissions for the following reasons:

(a)	Unlike other exclusive jurisdiction clauses in r 5.49 cases,9 cl 8 does not refer to the “law” or the “courts” of the Republic of Korea. The defendants say that the “conventions of the Republic of Korea” should be understood to include the “laws” of Korea, remembering that the Court was dealing here with an English translation of the contract. But the 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 no jurisdiction. However, counsel for the defendant acknowledged that no effort had been made to seek a third translation or to reconcile the two translations. 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 one another. Doing so, I am not satisfied that “conventions” or “commercial practice” is a reference to the law or the courts of the Republic of Korea.

(c)	Clause 8 refers to disagreements and doubts being resolved “through mutual agreement”. Court proceedings are not ordinarily brought by mutual agreement. That further indicates that cl 8 is not an exclusive jurisdiction clause. Instead, the logical conclusion is that the parties are to first try to resolve issues by negotiating a mutually agreeable solution. In the absence of mutual agreement, the parties are free to choose the forum in which to bring their claim(s), subject to the rules of private international law.

(d)	While the heading of cl 8 refers to “Court jurisdiction”, that alone does not mean that the clause is an exclusive jurisdiction clause. Notably, there is nothing as to the exclusivity of any court, nor does the substance of the clause address court jurisdiction (as discussed above).

[23]	Fifthly, I turn to the issue of whether cl 8 of the Third Investment Contract can be implied into the Acknowledgment of Debt. Having found that cl 8 is not an exclusive jurisdiction clause, it is not necessary for me to address this final issue, however, for completeness, I do. The defendants submit that the Third Investment Contract, the Transfer Agreement and the Acknowledgment of Debt are all part of a single transaction; therefore, cl 8 of the Third Investment Contract should be implied into the Acknowledgment of Debt. More specifically, the defendants say that the rights and responsibilities under the Third Investment Contract, including cl 8, was transferred, through the Transfer Agreement, from Mr Kim to Mr Oh. The Transfer Agreement required the parties to enter into an “IOU”, which formed the basis of the Acknowledgement of Debt. So, through that chain, the terms of the Third Investment Contract 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 contracted mining right development 5582A to [Mr Oh], and transfers the sum of four hundred 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 the development of the 5582A mining right of this contract to [Mr Oh]. The deposit 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 contractual terms as being a strict one that should be accompanied by caution.10 In short, a term may be implied where it is necessary to give business efficacy to the contract.11 In my view, this is not a case in which cl 8 of the Third Investment Contract should be implied into the terms of the Acknowledgment of Debt.

[26]	There are, in effect, two parts to the Transfer Agreement: the first relates to the rights and responsibilities under the Third Investment Contract, and the second relates to 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 the Transfer Agreement, namely the loan of USD$400,000. That second part (the loan) is unrelated to the Third Investment Contract; cl 8 is not necessary to give business efficacy to the Acknowledgment of Debt. Therefore, implication is unnecessary. Further, the parties of the agreements are different — the Third Investment Contract is between Mr Kim and Wellich Mines LLC (not the defendants), whereas the Transfer Agreement 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 set aside the defendant’s appearance and objection to jurisdiction. The parties are to file

10	Jeremy Finn, Stephen Todd and Matthew Barber (eds) Burrows, Finn and Todd on the Law of Contract 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 file a memorandum within two weeks and the defendants one week later.

[29]	The summary judgment applications may now be determined. The defendants indicated that if their appearance and objection to jurisdiction was set aside, they would 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 and counterclaim, together with any further affidavits in opposition to the application for summary judgment, by 11 December 2020;

(b)	the plaintiffs are to file and serve any affidavits in reply by
29 January 2020;

(c)	the Registrar will allocate a half day fixture for the summary judgment applications, in consultation with counsel;

(d)	the plaintiff will file and serve submissions in support, copies of all authorities referred to, and an indexed and paginated case book 10 days before the hearing;

(e)	the defendant will file and serve submissions in opposition plus copies of authorities referred to 5 days before the hearing.

Associate Judge Gardiner