Americhip Incorporated v Dean

• Jurisdiction: New Zealand
• Judge: Ellis J
• Judgment Date: 12 March 2014
• Neutral Citation: [2014] NZHC 450
• Docket Number: CIV-2013-404-004247
• Court: High Court
• Date: 12 March 2014

Between

Americhip Incorporated

Plaintiff

and

Jason Charles Dean

Defendant

[2014] NZHC 450

CIV-2013-404-004247

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

Application by defendant to dismiss proceeding under r5.49(3) High Court Rules (“HCR”) (objection to jurisdiction) — plaintiff was an American corporation that carried on business in a number of countries — defendant was employed by the plaintiff between 2003 and 2012 — defendant lived and worked in China during that period but he was a New Zealand citizen — plaintiff alleged that during the course of his employment, the defendant, with the assistance of his partner defrauded the company of approximately US$10 million — defendant alleged to have used funds to purchase a property in NZ — plaintiff could not locate defendant in New Zealand and had gained order for substituted service on the defendant's father in New Zealand — whether there was jurisdiction to hear the matter — whether plaintiff could substitute service under r6.27 HCR or r6.29 HCR.

Appearances:

D J Chisholm QC and C O van Leeuwarden for Plaintiff

DPH Jones QC for Defendant

JUDGMENT OF Ellis J

1 The defendant, Mr Jason Dean, has applied under HCR 5.49(3) to dismiss this proceeding on the grounds that the Court lacks jurisdiction to hear it.

2 The plaintiff, Americhip Incorporated (Americhip) is an American corporation that carries on business in a number of different countries. 1 Americhip's CEO, Mr Clegg, described Americhip's business as “designing, developing and selling a wide array of marketing and advertising materials and promotional products”. It is relevant that, for the most part, Americhip tends to outsource the manufacturing aspect of its business to other companies.

3 Between 2003 and 2012 it says it employed Mr Dean as part of its operations in China. 2 Although he lived and worked in China during that period, Mr Dean was, and remains, a New Zealand citizen.

4 Americhip alleges that, during the course of his employment, Mr Dean, with the assistance of Ms Zita Chan (his business associate and, more latterly, his partner) defrauded the company of approximately US$10 million.

5 In about April 2013 Mr Dean, Ms Chan and their son Charlie returned to New Zealand. While there, they lived at a property at 15B Brighton Terrace, Mairangi Bay, which Mr Dean had purchased for approximately $2 million in cash. Americhip says that the property was purchased with Americhip's misappropriated money.

6 In August 2013, Americhip's Chief Executive, Mr Clegg, visited New Zealand. The evidence is that during that visit (on 14 August) he and others visited Mr Dean's home and confronted him and Ms Chan about the alleged fraud. They are said to have admitted embezzling Americhip's funds and using it to buy the Brighton Terrace property. The evidence is that they promised to repay the money. But instead, Mr Dean, Ms Chan and Charlie immediately fled the country.

7 On 18 September 2013, Americhip filed proceedings in this Court against Mr Dean. 3 In the statement of claim as originally filed there was only one cause of action pleaded, in deceit. That cause of action necessarily relates to Mr Dean's alleged fraudulent activities in China, and between China and the United States.

8 By way of example only it is pleaded that between August 2005 and September 2012 Mr Dean and Ms Chan (inter alia):

• (a) established dummy companies with names similar to the names of entities to whom Americhip outsourced its manufacturing business;

• (b) did not forward to Americhip bids they received from legitimate manufacturers but instead:

  • (i) delivered a substantially higher bid from two or three of these dummy companies; or

  • (ii) when instructed by Americhip to seek additional bids, provided inflated bids from other bona fide manufacturers so that Americhip would select the dummy company to undertake the work;

• (c) established companies or false identities with bank accounts in Hong Kong that were controlled by them;

• (d) told Americhip that these were the bank accounts of (genuine) manufacturers with whom Americhip had contracts and that payment (in an inflated sum) should be made to those accounts;

• (e) paid out of those accounts the actual amount charged by the manufacturers and kept the balance.

9 Americhip says that by virtue of these and other deceits, it paid approximately $US10 million into the bank accounts controlled by Mr Dean and Ms Chan. It says that some of the money so derived was paid into a New Zealand bank account jointly held by Mr Dean and his father, Victor Charles Dean and that that money was used to purchase the Brighton Terrace house. It says that Mr Dean holds the proceeds of his fraud, and any substituted assets purchased with them (including the Brighton Terrace property) as a constructive trustee and/or a fiduciary (as Americhip's employee and/or agent), and that he is obliged to account to Americhip in that regard.

10 Americhip seeks:

• (a) compensation of $10 million;

• (b) a declaration that Mr Dean holds the Brighton Terrace property as constructive trustee for Americhip;

• (c) An order vesting legal title in the Brighton Terrace property in Americhip.

“Service”

11 Mr Dean was last seen in New Zealand on 19 August and it seems the Brighton Terrace house has been vacant since then. The only evidence of any effort being made to locate him is that of Mr Hamish Williams who deposed that he had visited the Brighton Terrace property on 24 September and had a conversation with two men who were using the garage, and who told Mr Williams that they were not sure when Mr Dean would be back and were not sure if he was overseas. Nonetheless, Americhip proceeded on the (not unreasonable) assumption that he was likely to have returned to China. 4

12 Presumably because China is a big country and Mr Dean's whereabouts there were unknown, Americhip did not take steps to attempt to serve him personally overseas. Rather, the company sought an order for substituted service on Mr Dean's father in New Zealand. The grounds stated in the application were that:

• 2.1 Prior to the issue of these proceedings,

  • a. The defendant personally met with the plaintiff's CEO, Mr T Clegg at the defendant's home in Auckland,

  • b. Mr Clegg asked the defendant to return the proceeds of his fraud on the plaintiff … without the need for legal proceedings;

  • c. The defendant assured Mr Clegg that he would voluntarily return proceeds of his fraud to the plaintiff; but then

  • d. Without further notice to the plaintiff, the defendant fled the jurisdiction.

• 2.2 Victor Charles Dean is the defendant's father and resides in Auckland. Service in the manner proposed in this application is likely to bring the documents to the attention of the defendant…

13 An affidavit was filed setting out grounds for the plaintiff's belief that service on Victor Dean would be likely to bring the proceedings to his son's attention.

14 Substituted service was ordered by Associate Judge Faire on 30 September 2013 and effected on Victor Dean accordingly.

The protest to jurisdiction and application to dismiss

15 At the end of October 2013, Jason Dean filed an appearance under protest to jurisdiction. Shortly afterwards (and also before the filing of the amended claim) he filed an application under rule 5.49(3) to dismiss the proceeding on the grounds that the Court lacked jurisdiction to hear it.

16 The arguments put forward in both the protest and the application to dismiss are the same. These were expressed as follows:

• 2.1 The Court has no jurisdiction to hear and determine the proceeding in that:

  • (a) The plaintiff is an American company.

  • (b) The relevant business operated in China.

  • (c) All alleged conduct that is the subject of the cause of action alleging deceit took place in China.

  • (d) All alleged representations the subject of the claim were made in or between China and the United States.

  • (e) All alleged “skimmed” payments that are the subject of the claim were made between the United States and China.

  • (f) All alleged loss arising from the alleged conduct occurred in China or the United States.

  • (g) No part of the cause of action in deceit relate to New Zealand.

  • (h) The cause of action in deceit is inapt to determine factual and legal issues governed by the laws and customs of China and/or the United States.

  • (i) The constructive trust pleaded necessarily relies on the cause of action in deceit being proved first.

• 2.2 A New Zealand Court has no jurisdiction to hear a claim based on conduct which is alleged to have occurred in China and/or the United States, such conduct being subject to Chinese and/or American law.

• 2.3 Such further grounds as may be advanced in submissions.

Amendment of claim

17 Shortly afterwards, on 4 November 2013, Americhip filed an amended claim which included three further causes of action, which are entitled:

• (a) Breach of trust;

• (b) Knowing receipt (constructive trust); and

• (c) Money had and received.

18 These causes of action are said to be based on events in New Zealand and, in particular, admissions and promises allegedly made by Mr Dean on 14 August 2013, before he “fled the jurisdiction”. For reasons that will later become apparent it is necessary to set out the new pleadings in a little more detail.

19 The second (breach of trust) claim has two aspects. First, it alleges that as a result of the admissions made by Mr Dean on 14 August, he

… held the property on trust as bare or constructive trustee for the plaintiff or in the alternative the property is traceable to the ASB Bank Account which are some of the funds embezzled by the defendant and thus is property belonging to the plaintiff

20 Secondly, it pleads that by not keeping his promises to repay the funds/transfer the property to Americhip, Mr Dean acted “in breach of his obligation to return the property” or, in...