Engini Ltd v Nznet Internet Services Ltd ((in Liquidation))

JurisdictionNew Zealand
JudgeDuffy J
Judgment Date08 June 2016
Neutral Citation[2016] NZHC 1220
Docket NumberCIV-2015-404-2562
CourtHigh Court
Date08 June 2016
Between
Engini Limited
Appellant
and
Nznet Internet Services Limited (In Liquidation)
Respondent

[2016] NZHC 1220

Duffy J

CIV-2015-404-2562

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Appeal against a District Court (DC) decision striking out the appellant's statement of defence against a claim in debt — the appellant had originally alleged that the debt was forgiven by the respondent — the respondent argued that the release of a debt had to be by deed or valuable consideration and no particulars or documentary evidence had been produced to support the forgiveness of debt — the DC made an unless order directing the appellant discover any supporting documents — the respondent said the affidavit of documents did not address the contents required by the unless order and at that point the strike out was operative, removing the jurisdiction for further orders — the appellant changed its position and argued that the debt had been satisfied by the transfer of shares to the respondent's sole director and shareholder at the time of the transfer — whether the appeal was against the exercise of a discretion — whether the “unless order” had taken automatic effect from the point of non-compliance — whether there was a valid forgiveness when consideration had been provided to a third party — whether the respondent agreed or acquiesced to the alleged satisfaction of debt — whether a failure to plead promissory estoppel in the DC meant that it could not be raised on appeal — whether promissory estoppel could not be applied to reduce a debt.

Counsel:

S Barter for Appellant

B J Norling and A Cherkashina for Respondent

JUDGMENT OF Duffy J

Duffy J

This judgment was delivered by me on 8 June 2016 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

1

The appellant (Engini) appeals against a decision of the District Court striking out its statement of defence against a claim in debt for unpaid rent that it allegedly owes to the respondent (NZNet).

2

Engini contends that it has tenable defences to NZNet's claim in debt, and therefore, the District Court was wrong to strike out its defence. In this regard Engini claims that the debt was satisfied in exchange for the transfer of a number of shares in Engini to Mr Andrews, the former director and shareholder of NZNet, which is now in liquidation.

3

The respondent is the liquidator of NZNet and so sues in the name of that company. NZNet contends that the District Court was right to strike out Engini's statement of defence as no three way arrangement to release the debt was made; and if it was, then NZNet never acquiesced to it.

District Court decision
4

The factual background is succinctly summarised by Judge Harrison in his decision at first instance as follows:

The claim

  • [1] The plaintiff (NZ Net) was placed into liquidation on 17 November 2011 by special resolution of its shareholders and this claim is now advanced by the liquidators.

  • [2] Engini Limited (Engini) was involved in the development of software. It sublet premises from NZ Net. In 2008 and thereafter, NZ Net issued invoices to Engini for occupation of the premises and also for domain name hosting, those invoices totalling $77,568.25 for which NZ Net now seeks judgment plus interest and costs.

  • [3] In its statement of defence, conducted by Gerard Mackie, one of its directors, Engini claimed that the debt was forgiven by NZ Net.

  • [4] At the first case management conference held on 29 January 2015 the Judge conducting the conference noted that ‘the defendant is relying on an alleged forgiveness of the debt but no such document appears from its list of documents’. He ordered standard discovery to be completed within 20 working days. NZ Net complied with that order on 2 March 2015 but Engini failed to comply.

  • [5] On 31 March 2015 the second case management conference was held. Again there was no appearance on behalf of Engini. On NZ Net's application I made an ‘unless order’ in the following terms:

    Unless the defendant files and serves an affidavit of documents within 10 working days of receipt of this direction, which discovers document(s) which support the defence of forgiveness of debt, the defence will be struck out and judgment entered for the plaintiff.

    This order was served on Engini on 7 April 2015.

  • [6] On 16 April 2015 Engini served its affidavit of documents together with electronic discovery but this did not disclose any documentation as evidence of the alleged forgiveness.

  • [7] Prior to the making of this order, on 27 March 2015 NZ Net applied to strike out the statement of defence, essentially on the ground that although forgiveness of the debt was pleaded no particulars or documentary evidence had been produced to support that.

  • [8] On 30 April 2015 Engini filed notice of opposition to the strike out application in which it changed its position by alleging that, rather than being forgiven, the debt was satisfied by the transfer of shares in Engini to Mr Stephen Andrews who was a director of NZ Net. Annexed to the notice of opposition was a calculation entitled ‘Engini shareholder debt/share calculations 2010/2011’. No explanation of the meaning of this document was given and I have not been able to decipher it. Suffice to say that it does not refer in any way to a transfer of shares in satisfaction of the debt owed to NZ Net.

  • [9] On 18 September 2015, apparently, in an effort to reconcile the conflicting defences raised, an amended statement of defence was filed. This alleged, essentially, that NZ Net had not suffered any loss as its director and shareholder, Mr Stephen Andrews, received the benefit of the Engini shares as valuable consideration for the writing-off of the debt.

5

Judge Harrison then set out his reasons for striking out the application:

Was the debt forgiven?

  • [10] The Court of Appeal in McCathie v McCathie [1971] NZLR 58 stated (at [61]–[62]):

    ‘There is of course no question that there is an ancient rule of law now too firmly established to be displaced other than by legislation, that in order to support an assertion by a debtor that a debt was released by the creditor it is necessary that the release be enshrined in a deed unless consideration has passed between the debtor and the creditor. It is not enough that there should be clear evidence of the release contained for example in a letter which passed between the two parties.

  • [11] Based upon that authority, in the absence of a deed forgiving the debt, and there is no deed, the debt can only be satisfied by the passing of valuable consideration.

  • [12] There is no evidence whatsoever of any consideration passing from Engini to NZ Net. The fact that Mr Andrews may have received shares cannot amount to satisfaction of the debt owed to NZ Net even though Mr Andrews may have been the sole director and shareholder of NZ Net at the time of the share transfer. A director and shareholder of a company is a separate legal identity from the company itself, one from the other, and a payment to a director cannot amount to the satisfaction of a debt owing to the company of which he is a director without acquiescence by the company in that course of action, of which there is no evidence whatsoever.

  • [13] In these circumstances I am of the view that the defence must be struck out as disclosing no tenable defence. A-G v Prince [1998] 1 NZLR 262; Couch v A-G [2008] NZSC 45.

6

At the hearing before Judge Harrison there was a separate issue about whether Engini had failed to comply with an “unless order” made on 31 March 2015, and, therefore, whether the “unless order” had taken automatic effect from the point of non-compliance, which would have removed jurisdiction to make any further orders in the proceeding. The Judge decided to determine the strike-out application on its merits, rather than for non-compliance with the “unless order”. This has some relevance to the appeal because if the “unless order” did take automatic effect there would be no basis for this appeal.

7

I am satisfied that the District Court acted correctly. Engini disputed that there was any non-compliance with the “unless order”, and in this regard Engini was correct. The “unless order” required Engini to file and serve an affidavit of documents, which it did within the due date. NZNet contends that the contents of that affidavit did not fulfil the requirements of the “unless order” as the affidavit listed no documents of that kind. However, this overstates the effect of the “unless order”.

8

In my view the “unless order” required Engini to list by affidavit the documents, if any, that were relevant to its defence; if Engini then provided an affidavit that, in NZNet's view, listed nothing of moment to prove Engini's defence that was something to be pursued at trial. I do not see how at the interlocutory stage, and in terms of general discovery obligations, an order to discover relevant documents can be elevated to a threshold requirement that in essence would prevent a defendant from running a defence without reliance on documentary evidence.

Grounds of appeal
9

Engini appeals against the decision of Judge Harrison on seven separate grounds, namely that the Judge erred in law:

  • a) In finding that a Deed is required to complete a forgiveness of debt;

  • b) In not finding an agreed payment to a third party as between debtor and creditor amounts to consideration in any event, and ought to have been sufficient to establish a prima facie defence;

  • c) In not finding that a promissory estoppel applies in relation to the position where a debtor and creditor agree to resolve a debt by conferring a benefit on a third party and the debtor alters its position as a result;

  • d) In failing to take into account that the creditor's invoices arose solely to create the transaction and the Defendant would not have accepted the invoices without prior agreement that...

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1 cases
  • Trainor v Leotuki
    • New Zealand
    • High Court
    • 25 November 2020
    ...New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at [44]. See also Engini Ltd v NZNet Internet Services (in liq) [2016] NZHC 1220. 11 Hickman v Turn and Wave Ltd [2011] NZCA 100, [2011] 3 NZLR 318 (footnotes 12 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008)......

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