Schumacher v Summergrove Estates Limited [2012] NZHC 3177 (27 November 2012)

Last Updated: 20 January 2016

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-8357 [2012] NZHC 3177

BETWEEN PAULINE MARY SCHUMACHER Plaintiff

AND SUMMERGROVE ESTATES LIMITED First Defendant

AND FORERUNNER SYSTEMS LIMITED Second Defendant

AND DALE BENJAMINE SPEEDY AND JEANNE ELIZABETH MARY SPEEDY Third Defendants

Hearing: 2 May 2012

3 September 2012

Counsel: J Hunter for Plaintiff

D Gay for Defendants

Judgment: 27 November 2012

RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON (strike out application)

This judgment was delivered by me on 27 November 2012 at 4.45 pm pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

_{Date ..........................}

Solicitors:

Kendall Sturm & Foote, PO Box 659, Auckland

Palmer Theron, PO Box 2721717, Papakura 2244

SCHUMACHER V SPEEDY HC AK CIV-2011-404-8357 [27 November 2012]

Introduction

[1] The plaintiff, Ms Pauline Schumacher, applies to set aside the defendants’ notices of objection to jurisdiction. The defendants are Summergrove Estates Limited, Forerunner Systems Limited, and Mrs Jeanne Speedy and Mr Dale Speedy.

[2] Ms Schumacher has commenced two proceedings, the second of which gave rise to the defendants’ objection to jurisdiction. The first proceeding is a Property (Relationships) Act 1976 proceeding against her ex-husband, Mr James Speedy.¹ In Ms Schumacher’s statement of claim for her second proceeding, she seeks a declaration that the defendants hold Summergrove House, a section of land and the house attached to it in the Republic of Ireland, by way of institutional constructive trust for her benefit; equitable damages to be quantified; interest; and costs.

[3] Ms Schumacher relies on only one cause of action in her second proceeding. Essentially, it is that she and her then husband, James Speedy, improved Summergrove House while they lived there with between 1993 and 2006 in the reasonable expectation of receipt of benefit in due course (James Speedy still lives there). She claims that it would be unconscionable for the defendants to retain the benefit of Summergrove House following the end of her marriage to James Speedy.

[4] Summergrove Estates owns Summergrove House. It is a company with a registered office in the Turks and Caicos Islands. When Summergrove Estates was incorporated for the purpose of purchasing Summergrove House in 1993, its directors were Jeanne Speedy (James Speedy’s mother), Tristiam Speedy (James Speedy’s now deceased father), Dale Speedy (James Speedy’s younger brother), Ms Schumacher (then known as Pauline Speedy) and James Speedy.

[5] Ms Schumacher and James Speedy were removed as directors in 2003. Summergrove Estates’ current directors are Jeanne Speedy and Dale Speedy.

[6] Summergrove Estates’ sole shareholder is Forerunner Systems which has a mortgage over Summergrove House. Forerunner Systems is an investment company,

¹ That claim was commenced in the Family Court. The Family Court transferred the proceeding to the High Court on 10 August 2011 and its court file number is now CIV 2011-404-5042.

also incorporated in 1993, with a registered office in Manurewa. Jeanne Speedy and Dale Speedy are Forerunner Systems’ shareholders and directors. Ms Schumacher and James Speedy have never held shares in Forerunner Systems.

[7] The defendants oppose Ms Schumacher’s application for a declaration that they hold Summergrove House on institutional constructive trust and for equitable damages. In filing notices objecting jurisdiction under High Court Rule 5.49, the defendants’ point is that the claim should be heard in the Republic of Ireland where Summergrove House is located. Relevantly, r 5.49 states:

5.49 Appearance and objection to jurisdiction

(1) A defendant who objects to the jurisdiction of the court to hear and determine the proceeding may, within the time allowed for filing a statement of defence and instead of so doing, file and serve an appearance stating the defendant's objection and the grounds for it.

...

(5) At any time after an appearance has been filed, the plaintiff may apply to the court by interlocutory application to set aside the appearance.

(6) The court hearing that application must,—

(a) if it is satisfied that it has jurisdiction to hear and determine the proceeding, set aside the appearance; but

_...

(b) if it is satisfied that it has no jurisdiction to hear and determine the proceeding, dismiss both the application and the proceeding.

(8) The court, in exercising its powers under this rule, may do so on any terms and conditions the court thinks just and, in particular, on setting aside the appearance it may extend the time within which the defendant may file and serve a statement of defence and may give any directions that appear necessary regarding any further steps in the proceeding in all respects as though the application were an application for directions under rule 7.9.

[8] As Jeanne and Dale Speedy are domiciled in New Zealand and Forerunner

Systems Limited is a New Zealand company, Ms Schumacher served them without

issue. There was a preliminary dispute as to whether or not she served Summergrove Estates, an overseas company, and whether or not she required leave to do so. Nothing came of the dispute however as counsel agreed that the best way to proceed would be to assume that service of process on Summergrove Estates has been validly effected within New Zealand.²

[9] In a separate application, the defendants sought to dismiss the proceeding against them under r 15.1 because, they claimed, New Zealand is not the appropriate forum.³ At the hearing counsel agreed that the outcome of Ms Schumacher’s application to set aside the defendants’ objection to jurisdiction will dictate the defendants’ r 15.1 application. The subject of this decision is therefore Ms Schumacher’s application to strike out the defendants’ notices of objection to

jurisdiction.

Background

[10] Ms Schumacher and James Speedy were married in 1980. They left New Zealand with their two school-age children in 1992, the same year that they were adjudicated bankrupt in the New Zealand High Court.⁴ They arrived in Ireland in

1993 and obtained residency with a view to becoming domiciled there.

[11] While in Ireland, James Speedy located Summergrove House which was then a run-down Georgian mansion on a 47 acre property. On 11 June 1993, an Irish firm named A&L Goodbody, in a letter addressed to James Speedy, advised him to purchase Summergrove House through a company located outside of Ireland. It states that “the reason for deciding to put the entire property into a company is for asset protection, due principally to the possibility of creditors following you from

_{New Zealand.”}

² Delivering a document to a person named in the overseas register as a director constitutes service under Companies Act 1993 s 389(1)(a).

³ Rule 6.29(3) provides:

When service of process has been validly effected within New Zealand, but New Zealand is not the appropriate forum for trial of the action, the defendant may apply for a stay, or for a dismissal of the proceeding under rule 15.1

⁴ They were subsequently discharged in 1996.

[12] In 1993, Summergrove Estates purchased Summergrove House with funds lent to it by Forerunner Systems on the security of a registered mortgage. James Speedy and Ms Schumacher held no direct proprietary interest in the property but they were directors of Summergrove Estates.

[13] The intention was for James Speedy and Ms Schumacher to take up residence in Summergrove House, restore the mansion and operate stables on the property. They did so, living together at Summergrove from 1993 to 2006, when Ms Schumacher returned to New Zealand and they separated. During that time, the two of them undertook work and spent money renovating Summergrove House.

[14] James Speedy and Ms Schumacher never paid any rent to live at Summergrove House. At various times they met financial troubles and turned to Summergrove Estates and Jeanne Speedy and Dale Speedy for assistance. On one of those occasions in 2004, Summergrove Estates transferred a tract of land near the main Summergrove House into Ms Schumacher’s name. She deposes that it was transferred for the purpose of securing a bank loan and it is unclear what the existing mortgage position is. Nonetheless the tract of land remains in her name.

Issues

[15] If I am satisfied that this court has no jurisdiction, r 5.49(6)(b) requires that I dismiss the application to set aside the appearance and the proceeding. On the other hand, if I am satisfied that this court has jurisdiction, r 5.49(6)(a) requires that I set aside the defendants’ appearance under objection to jurisdiction.

[16] The overriding questions are whether or not this court has jurisdiction to hear and determine the proceeding and, if so, whether Ms Schumacher’s claim has merit and this court is the most appropriate forum. Counsel agreed that these are the specific issues:

a) Whether Ms Schumacher’s claim has merit because it falls within the in

_{personam exception to the general Moçambique}⁵ _rule.

⁵ From the case British South Africa Co v Companhia de Mocambique [1893] AC 602.

b) Whether an assessment of the relevant facts in the case suggests that New

Zealand is the appropriate jurisdiction to hear Ms Schumacher’s claim.

Relevant law

[17] In determining whether this court has jurisdiction over foreign immovable property, the general rule, known as the Moçambique rule, is that “a New Zealand court will not entertain an action which involves the question of title to, or the right to possession of, foreign immovables.”⁶ One exception to the general Moçambique rule is the exercise of jurisdiction in personam:⁷

The Court exercises a jurisdiction in personam in cases involving foreign immovables against people subject to its jurisdiction when there exists between the parties a personal obligation or equity arising out of contract, or trust, or from fraud or other unconscionable conduct. This principle does not give jurisdiction to determine title to foreign immovables when there is no personal obligation between the parties, or when there is only some equity that depends for its existence on the law of the place where the immovable is situated (the lex situs).

[18] Where this court has jurisdiction to try a case (for example because the remedy sought is a judgement in personam) but an overseas court also has jurisdiction, the task is "to identify the forum in which the case can be suitably tried for the interests of all parties and for the ends of justice".⁸ The applicant bears the onus to establish that the New Zealand forum is more suitable than any other potential forum.⁹

[19] In Wing Hung Printing v Saito Offshore¹⁰, the Court of Appeal gave the following guidance when determining the appropriate forum:

[45] In considering whether another forum is more appropriate, the Court looks for the forum with which the proceeding has the most real and substantial connection. Relevant factors include issues of convenience or expense, availability of witnesses, the law

⁶ The Laws of New Zealand Conflict of Laws: Jurisdiction and Foreign Judgements (online ed) at

_{[36]. See {citation suppressed due to potential breach of court order}}

⁷ The Laws of New Zealand Conflict of Laws: Jurisdiction and Foreign Judgements (online ed) at

_[173].

⁸ _{McConnell Dowell Constructors Ltd v Lloyd's Syndicate} [1987] NZCA 144; [1988] 2 NZLR 257 (CA) at 280.

⁹ _{Rule 6.28(5)(c) and Wing Hung Printing Company Ltd at [43] - [44].}

¹⁰ Wing Hung Printing Company Ltd v Saito Offshore Pty Ltd [2010] NZCA 502, [2011] 1 NZLR 754.

governing the relevant transaction and the places where the parties resided or carried on business.

[46] We accept that other relevant considerations also bear on the issue of appropriate forum. These include the cautious approach already discussed to the subjection of foreigners to the jurisdiction of a New Zealand court; whether other related proceedings are pending elsewhere; whether the New Zealand court would provide the most effective relief or whether a foreign court is in a better position to do so; whether the overseas defendants will suffer an unfair disadvantage if a New Zealand court assumes jurisdiction; and any choice of jurisdiction previously agreed by the parties.

Discussion

Issue 1: does Ms Schumacher seek judgment in personam?

[20] In determining whether or not this court has jurisdiction, the real issue is whether the remedy that Ms Schumacher seeks, namely a declaration that the defendants hold Summergrove House by way of institutional constructive trust for her benefit, is a remedy in personam or in rem. The importance of this issue can be stated briefly. If her claim is for an order in rem then it falls within the Mocambique rule and this court will have no jurisdiction. On the other hand, if her claim is for an order in personam, this court will have jurisdiction.

[21] The defendants submit that Ms Schumacher’s claim does not fall within the in personam exception to the Moçambique rule. One of their witnesses, Mr Gavin Ralston,¹¹ discusses this point. He opines that Ms Schumacher essentially claims a share of the ownership of Summergrove House which is immovable property. He deposes that the institutional constructive trust she seeks could only be enforced by an action for the conveyance of the property, concluding that the order she seeks is

an order against real property and therefore an action in rem.

[22] However I am persuaded that the remedy Ms Schumacher seeks is a remedy in personam for two reasons. The first is that in addition to seeking a declaration that the defendants hold Summergrove House by way of institutional constructive trust for her benefit, Ms Schumacher also seeks equitable damages to be quantified.

_{Equitable damages are certainly a remedy in personam.}

¹¹ A Senior Counsel barrister practicing in Dublin.

[23] Secondly, the authors of Dicey, Morris and Collins on Conflict of Laws clarify that if somebody seeks a declaration that a person holds immovable property on resulting trust, then the remedy they seek is a remedy in personam. This is the authors’ formulaic approach:¹²

A, who is domiciled in England, commences proceedings against X, who is also domiciled in England, for a declaration that X holds land in France

on resulting trust for A and an order that X re-convey the land to A. The

English courts have jurisdiction, as the claim does not have as its object rights in rem in immovable property. Case C-294/92 Webb v Webb [1994]

E.C.R. I-1717, [1994] Q.B. 696.

[24] Clearly, in applying the formula to this case, the word “England” is to be substituted with the words “New Zealand” and the word “France” is to be substituted with the words “Republic of Ireland”. It is also clear that the above formula concerns a resulting trust and not an institutional constructive trust as at issue in this case. However the authors of Dicey, Morris and Collins on Conflict of Laws further discussed the Webb v Webb case and opined that if the object of proceedings is to vindicate equitable rights and establish that a purchaser of property holds it as constructive trustee, the proceedings should not be regarding as involving rights in

_rem: ¹³

In Webb v Webb [1994] EUECJ C-294/92; [1994] E.C.R. I-1717, [1994] Q.B. 696 the European Court ruled that an action for a declaration that a person holds immovable property as a trustee and for an order requiring that person to execute such documents as are required to vest legal ownership under the lex situs in the plaintiff does not involve rights in rem within the meaning of Art.

16(1) of the 1968 Convention. It was held to be irrelevant that the ultimate purpose of the plaintiff was to obtain ownership of an

immovable; what is important is whether rights in rem are the object of

the proceedings. Since the plaintiff did not claim that he already enjoyed rights directly relating to the property which were enforceable against the

whole world, but sought only to assert rights against the defendant, the

action was not an action in rem within the meaning of Art. 16(1) of the

1968 Convention, but an action in personam. This ruling suggests that, even if the object of proceedings is to vindicate equitable rights against a

third party (for example, where a claimant seeks to establish that a purchaser of trust property holds it as constructive trustee), the

proceedings should not be regarding as involving rights in rem.

[25] I am satisfied that, despite the fact that the above formula refers to a resulting trust and not an institutional constructive trust, the formula can be applied to the case

¹² Lawrence Collins (ed) Dicey, Morris and Collins on Conflict of Laws (14th ed, Sweet & Maxwell, London, 2006) at [23-012].

¹³ At [23-053].

at hand. Ms Schumacher, who is domiciled in New Zealand, has commenced proceedings against the defendants, who are sufficiently domiciled in New Zealand¹⁴, for a declaration that the defendants hold land in the Irish Republic on an institutional constructive trust for her and equitable damages to be quantified. In that circumstance, following Webb v Webb and the reasoning of the authors of Dicey, Morris and Collins on Conflict of Laws, the object of Ms Schumacher’s claim is a remedy in personam and not a remedy in rem.

[26] Despite the defendants’ submission to the contrary, the order that Ms Schumacher seeks falls within the in personam exception to the Moçambique rule. Overall, I am satisfied that this court has jurisdiction. My conclusion is supported by the authority that New Zealand courts “may exercise jurisdiction to enforce a trust relating to foreign immovables. This includes jurisdiction to decide whether or not a valid trust exists.”¹⁵ Having decided that this court has jurisdiction, I must consider whether New Zealand is the appropriate forum.

Issue 2: is New Zealand the appropriate forum?

[27] The defendants’ position is that the Republic of Ireland, and not New Zealand, is not the appropriate forum in which this case should be suitably tried in the interests of all parties and the ends of justice. They submit that most of the relevant factors favour the proceeding being commenced in and heard in the Republic of Ireland. In particular:

a) The law of the Irish Republic is appropriate and the Irish courts are better equipped to determine a claim involving Irish law than the New Zealand courts. The interests of justice do not require that Summergrove Estates, a

_{foreign defendant, litigate in New Zealand.}

¹⁴ I am satisfied that, notwithstanding Summergrove Estates is an overseas company, the defendants are sufficiently domiciled in New Zealand. Jeanne Speedy and Dale Speedy are Summergrove Estates’ only directors. They are also the only directors and shareholders of Forerunner Systems, which is Summergrove Estates’ sole shareholder. In those circumstances, the fact that Summergrove Estates is located overseas cannot be fatal to Ms Schumacher’s present application when Jeanne Speedy and Dale Speedy are clearly domiciled in New Zealand.

¹⁵ The Laws of New Zealand Conflict of Laws: Jurisdiction and Foreign Judgements (online ed) at

[177].

b) Ms Schumacher’s case against the first defendant is weak at best, raising no serious issue to be tried, and the pleadings against the second and third defendants disclose no reasonable cause of action.

c) Most of the witnesses are resident in Ireland and discovery will need to take place in Ireland.

d) The claim has a decided and natural connection to Ireland as the acts which

lie at the heart of Ms Schumacher’s cause of action occurred in Ireland.

e) Ms Schumacher’s claim is for an institutional constructive trust and the law of the Republic of Ireland does not recognise that type of trust. There are serious questions about whether any order of the New Zealand court would be effective in the Irish Republic and whether a judgement could be enforced there.

[28] On balance, and taking into account the interests of all the parties and the interests of justice, I am satisfied that New Zealand is the appropriate forum. In reaching that conclusion, I am particularly swayed by four factors.

[29] First, I believe that this case is most closely connected with the New Zealand system of law and if the proceeding were transferred to the Irish Republic, Ms Schumacher may be forced to abandon her claim. That is primarily because all of the natural persons involved in the proceeding are domiciled in New Zealand. Although Summergrove Estates is a foreign defendant, it would face little difficulty litigating in New Zealand as the minds of the company, Jeanne Speedy and Dale Speedy, reside here. I am satisfied that, if a constructive trust was recognised, its

closest and most real connection would be to the New Zealand system of law.¹⁶ On

the other hand, Ms Schumacher (and for that matter Jeanne Speedy and Dale

Speedy) may face significant difficulty conducting litigation in the Irish Republic. Ms Schumacher in particular would be significantly disadvantaged and may very

¹⁶ In general, when determining which jurisdiction is appropriate, a trust is governed by its ‘proper law’ and that may ultimately turn on the system of law with which the trust has its closest and most real connection. See The Laws of New Zealand Conflict of Laws: Jurisdiction and Foreign Judgements (online ed) at [198].

well be forced to abandon her claim. I acknowledge the possibility that the defendants’ objection to jurisdiction is an attempt to gain tactical advantage when they do not genuinely desire a trial in the Irish Republic.

[30] Secondly, I am satisfied Ms Schumacher’s claim raises serious questions to be tried. She relies on the Court of Appeal’s observation in Nation v Nation¹⁷ that constructive trust claims may lay alongside claims under the Property (Relationships) Act. In that case the Court raised the question of whether or not the husband and possibly the wife had the grounds to seek a constructive trust against trustees of the discretionary family trust which held the balance of a farm. The Court based its question upon the improvements the couple had made to the farm in light of the clear expectation that the husband would in due course receive half of the farm.

The court said:

[75] We discussed with counsel whether the intention that the husband would receive the half interest in the farm from the H A Nation Children’s Trust could have been sufficient to found a legally enforceable interest or a claim based on estoppel. Another possibility we discussed was that the husband would have had a claim based on constructive trust given that he and his wife had undertaken valuable improvements to the farm in the period between 1978 and 1990 in the expectation of the distribution of the half share in the farm to the husband by the H A Nation Children’s Trust.

[31] While the Court of Appeal only acknowledged the possibility of a constructive trust, I am satisfied that the Court’s reasoning raises serious questions to be tried when applied to the circumstances at hand. I acknowledge that the defendants have raised concerns about whether or not Ms Schumacher may be able

_{to establish an equitable interest in Summergrove House.}¹⁸ _{However, there is no}

¹⁷ _{[2004] NZCA 288; [2005] 3 NZLR 46.}

¹⁸ These are the specific concerns they raise:

a) In her claim Ms Schumacher has not distinguished between the work and money that she personally invested into Summergrove House and that which James Speedy invested.

b) James Speedy confirmed in 1993 that he and Ms Schumacher had no interest in

Summergrove House.

c) Summergrove Estates granted Ms Schumacher and James Speedy a licence to occupy Summergrove House and they enjoyed exclusive possession of it without payment of any money to Summergrove Estates.

d) Ms Schumacher may not have clean hands. The defendants allege that she and James Speedy breached their fiduciary obligations to Summergrove Estates in 2001 and 2002 by purporting to sell part of the Summergrove property and spending the proceeds on personal living expenses.

dispute that Summergrove House has been extensively renovated and that Ms Schumacher contributed to that renovation between 1993 and 2006. The concerns raised by the defendants cannot be fatal on a summary proceeding such as this. They reinforce that there are serious questions to be tried and that this is a case that would benefit from full discovery and cross examination of witnesses.

[32] Thirdly, it will likely be cheaper and more convenient to conduct the proceeding in New Zealand. Much of the necessary evidence will be provided by Ms Schumacher, Jeanne Speedy and Dale Speedy. While witnesses based in Ireland may be required to give evidence of the improvements that Ms Schumacher and James Speedy made to Summergrove House, that evidence may be accessible in New Zealand given the availability of appropriate technology.

[33] Fourthly, I do not see the fact that the Irish Republic does not recognise the term ‘institutional constructive trust’ as not fatal. Much affidavit evidence was filed on this point. However the defendants’ own witness, Mr Ralston, deposes that if the form of the order that Ms Schumacher seeks simply required Summergrove Estates to hold Summergrove House in trust for her, then that would be a form of order readily understood in Ireland.¹⁹ The implication is that the order Ms Schumacher seeks could be amended to reflect the Irish constructive trust. The order could then be enforced in the Irish Republic. The interests of justice favour giving Ms Schumacher the opportunity to frame the order that she seeks such that it may be

recognised in Ireland.

[34] Overall and on balance, I am satisfied that this court has jurisdiction and that New Zealand is the appropriate forum. Having addressed Ms Schumacher’s application to set aside the defendants’ notices of appearance under objection to

_{jurisdiction, I must also consider the second and third applications before the court.}

¹⁹ Mr Ralston’s position is that even if Ms Schumacher amended her claim such that it could be recognised in Ireland, it would still nonetheless be regarded as an action in rem. As outlined however, I do not agree.

Further applications before the court

[35] There were two further applications before the court. I addressed each of them in a minute dated 2 May 2012. First, Ms Schumacher made an application to consolidate proceedings. That application was withdrawn at the hearing and I need not say anything further about it.

[36] Secondly, the defendants applied to strike out or dismiss the proceeding against each of them under High Court Rule 15.1. At the hearing counsel agreed that the outcome of this application will be dictated by the outcome of the first. I have found that Ms Schumacher’s pleading discloses reasonably arguable causes of action. In that light, it would not be appropriate to grant the defendants’ application to strike out or dismiss the proceeding against each of them.

Result

[37] I order the defendants’ applications for notices of appearance under objection to jurisdiction be set aside. I am satisfied that this court has jurisdiction and New Zealand is the appropriate forum. Ms Schumacher’s pleading discloses reasonably arguable causes of action and it would not be appropriate to grant the defendants’ application to strike out or dismiss the proceeding against each of them.

[38] As costs follow the event under the statutory costs regime, Ms Schumacher is entitled to costs on her application to set aside the defendants’ notices of appearance under objection to jurisdiction and the defendants’ application to strike out or dismiss the proceedings. She is entitled to costs on a 2B basis, plus disbursements as fixed

_{by the registrar.}

Associate Judge Sargisson