|
|
Home
| Databases
| WorldLII
| Search
| Feedback
Court of Appeal of New Zealand |
Last Updated: 17 June 2020
|
|
|
|
BETWEEN |
GLENN WILLIAM SCHAEFFER Appellant |
|
|
AND |
JAMES JOSEPH MURREN AS TRUSTEE OF THE JAMES J MURREN SPENDTHRIFT TRUST AND DANIEL LEE Respondents |
|
Hearing: |
18 February 2020 |
|
Court: |
French, Cooper and Clifford JJ |
|
Counsel: |
G D Pearson for Appellant A J Horne and A E Simkiss for Respondents |
|
Judgment: |
10 June 2020 at 4 pm |
JUDGMENT OF THE COURT
____________________________________________________________________
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 respondents Mr Murren and Mr Lee, to invest in the Business via a Nevada limited partnership which would also own his interest. Mr Murren and Mr Lee were also Las Vegas residents and very senior executives of another two of that city’s large casinos. The terms of the friends’ agreement were recorded in Nevada limited partnership agreements in 2002 and 2006. The first of those agreements was never registered, as is 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 some US$700,000.
[3] The Business subsequently failed. Messrs Murren and Lee each lost all their investment.
[4] It transpired that Mr Schaeffer had never transferred his 80 per cent interest in the Business to the limited partnership and that, subsequently, he had dealt with the assets 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 at Nelson against Mr Schaeffer. They focused on a range of statements Mr Schaeffer had made to them over time consistent with the investment in the Business being owned by them through the limited partnership, when that had not been the case. They sought the 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.
[7] Mr Schaeffer now appeals the Judge’s decision. As argued, he does so on one ground only: namely, that the Judge was wrong to apply New Zealand law. Rather, as a matter of law, Mr Schaeffer now says the Court was required to determine all the causes of action by applying Nevada law. In the absence of Messrs Murren and Lee not calling evidence as to that law, the Judge could do nothing but dismiss those claims.
Context
Factual
[8] In 1996, whilst still a US citizen and resident, Mr Schaeffer and his then wife were considering becoming permanent residents in New Zealand. That year they purchased a bed and breakfast establishment in Nelson. Around that time Mr Schaeffer met a Mr Woollaston, who already owned a vineyard in the Nelson region. Mr Schaeffer and Mr Woollaston decided they would purchase further land, and establish a new vineyard and winery. Mr Schaeffer held 80 per cent, and Mr 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 Schaeffer had a limited partnership agreement prepared, and sent to Messrs Murren and Lee, in September 2002. The purpose of the partnership was recorded as being “to invest in, own, develop and commercially exploit interests in the Phillip [Woollaston] Estates vineyards and winery in or near Nelson, New Zealand”. The partnership was to have an initial capital of US$8 million. Mr Schaeffer was to be the general partner, and also the owner of a 23.34 per cent interest. Messrs Murren and Lee were each to be five 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 whether Mr Schaeffer did. None of the other seven investors ever did. Nevertheless by late 2005, 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 Lee US$102,000.
[10] In early 2006 Mr Schaeffer arranged for a revised Nevada limited partnership agreement, on very similar terms as that prepared in 2002, to be prepared and submitted to Messrs Murren and Lee, and a number of new investors. The capital of that 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 have a 10 per cent interest. Mr Lee, directly, a five per cent interest. Mr Schaeffer was himself not a party to the partnership agreement. He invested through Constellation.
[12] The 2006 partnership was registered. Mr Murren’s 10 per cent contribution had been met by the monies he had already paid to Mr Schaeffer. Mr Lee duly paid a further 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 the arbitration of disputes between the parties relating to the agreement in Las Vegas in, as relevant, the following terms:
13.5 Governing law
This Agreement shall be construed and enforced in accordance with, and governed by, Nevada law.
...
13.17 Arbitration
If a dispute arises between the Partners as to interpretation, application or enforcement of this Agreement, and that dispute cannot be resolved by good faith negotiation, the parties agree to submit all such disputes to binding arbitration in Las Vegas, Nevada, according to such reasonable procedural rules 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. Such awards shall be final and binding on all parties to the extent and in the manner provided 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 have jurisdiction because of the arbitration clause. Moreover, New Zealand was not the most suitable or appropriate forum for the determination of the dispute. As to governing law, the protest said:
3.7 Pursuant to the partnership agreement, the plaintiffs’ claims are governed by the law of Nevada. The courts of Nevada are better placed to interpret and apply the law of Nevada, than are the New 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 Trade Practices Act. The courts of Nevada are better placed to interpret and apply 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 in Las Vegas, Nevada. The plaintiffs both still reside in Las Vegas, Nevada. The plaintiffs’ witnesses reside in Nevada, United States of America. Save for the investment in Kiwi Ventures, the plaintiffs have no other interest in New Zealand.
3.10 The plaintiffs’ claims relate to acts or omissions committed almost exclusively in the United States of America. As a result, it is likely that the majority of evidence, both witnesses and documentary, is likely to be located in the United States of America.
3.11 Arbitration in Nevada will be more cost effective and convenient than proceeding in the High Court of New Zealand. It is the location of the majority of the parties and witnesses and provides the possibility of a faster process.
[16] Mr Schaeffer subsequently applied for a dismissal or stay of the proceeding on similar grounds.
[17] In opposing Mr Schaeffer’s protest and applications for stay and dismissal, and as relevant now, Messrs Murren and Lee argued the choice of law clause was not a general submission to the jurisdiction of the Nevada courts for all disputes arising between the parties. They noted that, by reference to the choice of law, the submission for Mr Schaeffer was that that clause was “an indication that the parties intended that the laws of Nevada were also to govern all other ‘matters arising from their relationship’”. They responded:
4.15 This is not correct. The clause is a simple governing law clause which on its terms relates only to the Agreements. It does not apply to the plaintiffs’ claims in this proceeding, in particular because:
(a) The plaintiffs’ claims do not rely upon or seek to enforce any terms of the Agreements; and
(b) The defendant is not a party to the 2006 Agreement, which is the only operative agreement.[[2]]
[18] Associate Judge Matthews first dismissed Mr Schaeffer’s protest to jurisdiction based on the arbitration clause.[3]
[19] In doing so the Judge reasoned:[4]
- (a) The 2002 agreement had not been executed. Moreover, the evidence was not sufficient to establish an oral agreement to form a partnership on its terms. Even if the existence of that partnership could be established, by the terms of the agreement the partnership would only commence on registration. As the agreement had not been registered, the partnership could not have commenced.
- (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 the arbitration 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 Nevada law, expert evidence on that law from a retired federal judge, had established — unchallenged — that under Nevada law as well the arbitration clause did not apply.
[20] As for the application for dismissal or stay, based on the proposition the High Court of New Zealand was not the most suitable and appropriate forum, the Associate Judge recognised the factors relating to the establishment of the partnership were finely balanced.[5] If anything, the fact that at the relevant times all the parties were in the United States, representations were made there, and payments were made in or from the United States weighed slightly in favour of Nevada.
[21] But other factors were relevant. Mr Schaeffer was now a permanent resident in New Zealand, four of the five causes of action were based on New Zealand law and the Judge assessed Messrs Murren and Lee as having “good, arguable” cases on those claims.[6] In addition, Messrs Murren and Lee were willing to travel to New Zealand and wished to submit to jurisdiction here.[7]
[22] Taken overall, the Judge was satisfied that New Zealand was a suitable and appropriate forum and dismissed Mr Schaeffer’s application for stay and dismissal.
[23] Mr Schaeffer applied to review Associate Judge Matthews’ decision, but that application was withdrawn.
[24] Accordingly, when the matter came to be heard by Collins J the case proceeded on the basis that New Zealand law applied to four of the causes of action, a proposition that was not challenged at the time. The Judge recorded the position in a footnote:[8]
Except for the cause of action based on the Nevada Deceptive Trade Practices Act, all the causes of action were based on New Zealand law, despite both the 2002 and 2006 Agreements being governed by Nevada law. This was a result of Mr Murren’s and Mr Lee’s election not to plead foreign law, in which case the Court will apply domestic law irrespective of whether it would have been the applicable law had choice of law rules been engaged.
[25] On that basis the substantive judgment did not need to address choice of law or applicable law issues.
Analysis
[26] The original notice of appeal filed on behalf of Mr Schaeffer challenged the Judge’s findings by asserting a wide range of legal and factual errors. In his written submissions for Mr Schaeffer, Mr Pearson advanced a matter that had not been raised in that notice of appeal: that was the issue of the applicable law. Moreover, at the hearing of this appeal, he confirmed that was the only ground of appeal upon which Mr Schaeffer now relies. In the course of his submissions, Mr Pearson accepted that the following proposition was an accurate summary of what he said the law in this area was:
Given the choice of a particular law in a contract, that law had to be applied even 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 as having failed to establish his case. If, more generally, the circumstances applying to a particular dispute are such that it is obvious foreign law applies, the Courts of New Zealand cannot — notwithstanding any choice of law the parties might make — apply any other law.
[27] Mr Pearson based that proposition on a number of passages from Dicey, Morris and Collins on The Conflict of Laws.[9] It is to those passages, and our understanding of the law in this area based largely on them, to which we now turn.
[28] Put very simply, we find no support for the proposition Mr Schaeffer advanced from Dicey itself or from any other relevant source of applicable law. At ch 9, Dicey addresses the approach to be taken in a case where foreign law applies. Rule 25 reads:[10]
(1) In any case to which foreign law applies, that law must be pleaded and proved as a fact to the satisfaction of the judge by expert evidence or sometimes by certain other means.
(2) In the absence of satisfactory evidence of foreign law, the court will apply English law to such a case.
[29] At [9-003] and [9-004] Dicey explains, first, the general rule that a party wishing to rely on a foreign law must plead it in the same way as any other fact. Being pleaded as a fact, whilst English courts take judicial notice of the law of England and of notorious facts, they do not do so as regards foreign law. Consequently, foreign law must be proved.
[30] There may be occasions, exceptional circumstances, where foreign law need not 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 of foreign law as a fact. Dicey discusses the application of the principle that, if parties elect not to prove the content of foreign law, a case will be decided by the application of English domestic law as though the case were a wholly domestic one. That was, the text acknowledges, generally true. The commentary goes on:[12]
But in recent years there have been increasing signs that this cannot invariably follow, and in cases where it would be wholly artificial to apply rules of English law to an issue governed by foreign law, a court may simply regard a party who has pleaded but who has failed to prove foreign law with sufficient specificity as will allow an English Court to simply apply it, as having failed to establish his case without regard to the corresponding principle of English domestic law.
[32] It was on that observation that, as we understood the argument, Mr Schaeffer based 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 pleaded the choice of law and arbitration clauses in his statement of defence, Associate Judge Matthews had earlier dismissed the protest on the basis that the agreements 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 relevance of Nevada law in the High Court in the substantive hearing. Secondly, the passage refers 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 case here. 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 be wholly artificial to apply rules of domestic law, that a court may decline to do so, and regard the plaintiff’s case as not having been established.
[34] We are satisfied that that principle is of no application here. The general r 25 applied. The matter was determined by Associate Judge Matthews, and not argued again 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 a band A basis for one counsel with usual disbursements.
Solicitors:
PL Law Ltd,
Nelson for Appellant
MinterEllisonRuddWatts, Auckland for Respondents
[2] Mr Schaeffer would appear to have owned his interest in the 2006 partnership through a corporate vehicle.
[3] Murren v Schaeffer [2015] NZHC 2759.
[4] At [30]–[38].
[5] At [42].
[6] At [43]–[46].
[7] At [48].
[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.
[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 other means by which a party can offer evidence as to foreign law. See Elisabeth McDonald and Scott Optican (eds) Mahoney on Evidence (LexisNexis, Wellington, 2018) at [EV144.03].
[12] At [9-002] (citation omitted).
NZLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.nzlii.org/nz/cases/NZCA/2020/224.html