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

JurisdictionNew Zealand
CourtHigh Court
JudgeDuffy J
Judgment Date08 June 2016
Neutral Citation[2016] NZHC 1220
Date08 June 2016
Docket NumberCIV-2015-404-2562

[2016] NZHC 1220

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Duffy J

CIV-2015-404-2562

Between
Engini Limited
Appellant
and
Nznet Internet Services Limited (In Liquidation)
Respondent
Counsel:

S Barter for Appellant

B J Norling and A Cherkashina for Respondent

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.

The issues were: whether the appeal was against the exercise of a discretion; whether the “unless order” had taken automatic effect from the point of non-compliance, thereby removing the jurisdiction to make any further orders in the proceeding; whether there was a valid forgiveness when consideration had been provided to a third party; whether NZNet agreed or acquiesced to the alleged arrangement for the satisfaction of the debt; whether the failure to plead promissory estoppel in the DC meant that it could not be raised on appeal; and, whether promissory estoppel could not be applied to reduce a debt.

Held: NZNet did not provide an authority for the proposition that an appeal against a strike-out application should be approached as an appeal against the exercise of a discretion. The more limited scope for appeal against the exercise of a discretion did not fit with the way that appellate courts usually approached strike-out appeals.

The DC acted correctly in respect of the “unless order” point. NZNet's submission on this overstated the effect of the “unless order”. At the interlocutory stage, and in terms of general discovery obligations, an order to discover relevant documents could not be elevated to a threshold requirement that in essence would prevent a defendant from running a defence without reliance on documentary evidence.

There was no dispute that the release of a debt was to be done by deed or valuable consideration. A one-sided release of one party's obligation lacked consideration was ineffective unless it was done by deed, or unless consideration be given for it. The question was whether the consideration which was necessary to validate an accord and satisfaction arrangement could take the form of a payment to a third party (A).

While consideration had to move from the promisee, the benefit of the consideration did not need to accrue to the promisor directly. In theory, it was possible to validly release a debt owed under a contract in exchange for consideration which, at the creditor's direction, moved from the debtor to a third party. Further, there was no need to establish whether the promisor (in this case allegedly NZNet) had received any benefit in return for the promisee's (Engini's) payment to the third party (A). The alleged arrangement by which NZNet released Engini from the debt it owed to NZNet could in law amount to valuable consideration, was rejected. Whether this occurred was a matter of proof, which was not something that could be resolved in a strike-out application.

Findings against A's credibility in other proceedings were not relevant to this proceeding. They could not provide a basis for rejecting his evidence at the interlocutory stage of the proceeding. The arrangement that Engini relied on did not require written form. Proof of oral arrangements could be more difficult to establish, but that was no ground for striking out a defence that relied on oral evidence. NZNet's arguments about Engini's defence raised issues that were best addressed at trial and could not be addressed in the context of a strike-out application.

Although it was not necessary to consider the promissory estoppel argument, this would be addressed. With the strike-out jurisdiction the court had to be careful not to curtail any claim or defence that was capable of being made. Therefore, where the necessary factual allegations to support a cause of action or defence were apparent on the face of the pleading, the absence of direct reference in the pleading to that particular cause of action or defence should not bar the continuation of the claim or defence, as the case might be.

The better approach was to require the relevant party to make clear the cause of action or defence to which the factual allegations could give rise. Nor was there any basis for finding that Engini could not invite the court to take that approach on appeal. In principle it was still open to Engini to maintain a defence based upon equitable estoppel as a shield.

The contention that promissory estoppel could not be applied to reduce a debt which had already fallen due for payment no longer applied. Homeguard Products Ltd had been overtaken by appellate authority in which the court had stated that equitable estoppel was not to be confined to “some preconceived formula” (Burberry Finance v Hindsbank Ltd). The modern principles of equitable estoppel were applicable where one party had by words of conduct made to the other a clear and unequivocal promise or assurance intended to affect the relations between them and to be acted on accordingly. The doctrine applied in appropriate cases where there was a pre-existing legal relationship (Burberry Finance).

Engini could maintain a defence based upon equitable estoppel. Whether Engini could factually satisfy the requirements of equitable estoppel was a separate issue that should not be determined in a strike-out application.

Appeal allowed.

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...

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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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