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High Court of New Zealand Decisions |
Last Updated: 28 June 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-2562 [2016] NZHC 1220
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BETWEEN
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ENGINI LIMITED
Appellant
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AND
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NZNET INTERNET SERVICES LIMITED (IN LIQUIDATION) Respondent
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Hearing:
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24 May 2016
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Counsel:
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S Barter for Appellant
B J Norling and A Cherkashina for Respondent
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Judgment:
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8 June 2016
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JUDGMENT OF 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
Solicitors:
Edwards Clark Dickie, Auckland
Waterstone Insolvency, Auckland
ENGINI LIMITED v NZNET INTERNET SERVICES LIMITED (IN LIQUIDATION) [2016] NZHC 1220 [8
June 2016]
[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 the issue of shares would satisfy
them;
e) In not finding that there was sufficient ground for a finding of
an arguable basis of defence and that a defence should
only be struck out in
exceptional circumstances and there were not exceptional circumstances;
f) In striking out as there was no proper opportunity given because
of advancement of the case to advance further oral evidence
of the reliance by
the parties on the promise and the consideration flowing in the way that it did,
and the agreement that the matter
would lead to the end of the debt; and
g) In not taking into account evidence that did exist such as
reference to the debt being extinguished in the books of the
company subsequent
to the transactions above had not been referred to in the Judgment nor
calculated in the result [sic], and go
to the promissory estoppel.
Appellant’s submissions
[10] Broadly, the grounds of appeal challenge Judge Harrison’s findings in three respects: first, in relation to the issue of third-party consideration; secondly, in relation to whether NZNet agreed or acquiesced to the alleged arrangement for the satisfaction of the debt; and thirdly, whether promissory estoppel applies in the present case to prevent NZNet from enforcing its debt.
Third-party consideration
[11] Engini submits that a party to a contract may confer a benefit of
the contract onto a third party. If the third party receives
the benefit of
the contract, then the contracting party is said to have received consideration
under the contract. On that basis,
Engini submits that Judge Harrison erred in
law when he held that:
... 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.
[12] In this case, Engini argues:
... the consideration for Mr Andrews receiving the shares was NZNet (the
creditor) not enforcing payment of the invoices against Engini
(the debtor). The
issuance of the shares only occurred on the basis that NZNet would not enforce
the debt against Engini.
[13] Engini submits that a third party may, with the consent of the
contracting parties, provide the consideration necessary to
satisfy a benefit
due under a contract.
Acquiescence
[14] Engini submits that Judge Harrison erred in law when he found that
the claim should be struck out on the basis that there
was no evidence that
NZNet had acquiesced to the alleged arrangement between Engini and Mr Andrews.
Engini submits that it is unnecessary
to consider the scope of the evidence in
relation to this issue at the strike-out stage, since the pleadings are not
entirely speculative
and without foundation. However, it submits that even if
one were to do so, the evidence supports its contention that NZNet acquiesced
and even encouraged the course of action. In particular, Engini relies on the
affidavit evidence of Mr Andrews, a former shareholder
and director of NZNet, to
show that NZNet acquiesced to the arrangement.
Promissory estoppel
[15] Engini submits that promissory estoppel was “substantially
pleaded” in the
amended statement of defence that it filed in the District Court and therefore Judge
Harrison erred in law when he failed to consider whether promissory estoppel
might apply in the present case. The relevant paragraphs
of Engini’s
statement of defence provided:1
3. ...
b) In any event, these debts were written off by the Plaintiff by way of an oral agreement for the sale and purchase of the Defendant’s shares to the sole director and ultimate shareholder of the Plaintiff, Mr Stephen Andrews;
...
4. They deny paragraph 2.54 and add further that the invoices were
not payable as an oral agreement for the sale and purchase
of the
Defendant’s shares was entered into in consideration for the invoices due
and payable to the Plaintiff being written
off.
[16] Referring to affidavits provided by Messrs Stephen Andrews and
Gerard Mackie, Engini submits that the plaintiff and defendant
entered into an
agreement that debts owed by Engini to NZNet would be forgiven in consideration
for 582 shares in Engini being transferred
to Mr Andrews. Engini says that, had
NZNet not gone into liquidation, it was clear that Mr Andrews would never have
caused NZNet
to seek payment for the debt since he regarded the transfer of
shares as being the fulfilment of the promise that had been made in
relation to
the debt.
[17] Regarding promissory estoppel, Engini submits:
58. So it is clear from the pleading that there was an encouragement of
a belief or representation. NZNet encouraged Engini
to believe that it would
not enforce the debt if shares were given to Mr Andrews. Quite clearly there was
reliance in that belief
in that Mr Andrews then received such shares.
59. The detriment is two-fold – firstly that Mr Andrews now has
more shares, but secondly had there not been a general
agreement amongst the
shareholders to treat all such debts this way then the company may not have sold
its asset (or would have retained
some earnings capacity to pay such
debts).
60. The unconscionability lies in a number of ways. For a subsequent
liquidator, not privy to the original promise, within
days of the expiration of
the six year limitation period, to seek to deny the promises (given that the
director of the company
made the position as plain as he has) is quite clearly
unconscionable.
1 This was the amended statement of defence filed on 18 September 2015.
[18] Engini submits that there is clearly a tenable defence of promissory
estoppel and on that basis its defence should not have been
struck out by Judge
Harrison.
Respondent’s submissions
[19] In summary, NZNet argues that:
a. The alleged arrangement could not amount in law to a valuable
consideration from Engini to NZNet in satisfaction of the
debt. As a result, it
is irrelevant whether NZNet acquiesced to the alleged arrangement. In either
case, this is denied.
b. There is no documentary evidence showing that the alleged
arrangement actually occurred. Without documentary evidence,
the alleged
arrangement is speculative and based on the testimony of a conflicted Mr
Andrews (being on both sides of the
transaction) whom has already been
found to have been dishonest by this court in regard to NZNet.
c. While it is accepted that a promissory estoppel can, in certain
circumstances, cure the absence of consideration, this was
neither plead nor
argued by Engini at the District Court. As a result, his Honour was not
required to consider this defence. This
is a new point on appeal and an
attempt to relitigate the District Court proceeding. This is inappropriate and
should be refused.
d. Given the above, at the District Court Engini had no tenable
defence to NZNet’s claim. Allowing Engini to
continue defending
the District Court proceeding with no tenable defence would be unjust to NZNet
and its creditors.
Approach to appeal
[20] This is an appeal against an order of the District Court under r 15.1 of
the
District Court Rules 2014, which states:
15.1 Dismissing or staying all or part of proceeding
(1) The court may strike out all or part of a pleading if it—
(a) discloses no reasonably arguable cause of action, defence, or case
appropriate to the nature of the pleading; or
(b) is likely to cause prejudice or delay; or
(c) is frivolous or vexatious; or
(d) is otherwise an abuse of the process of the court.
...
[21] Engini has a general right of appeal in respect of that decision
pursuant to s
72 of the District Courts Act 1947. In Austin, Nichols & Co Inc v
Stichting Lodestar, the Supreme Court held:2
[16] Those exercising general rights of appeal are entitled to judgment
in accordance with the opinion of the appellate court,
even where that opinion
is an assessment of fact and degree and entails a value judgment. If
the appellate court’s
opinion is different from the conclusion of
the tribunal appealed from, then the decision under appeal is wrong in the only
sense
that matters, even if it was a conclusion on which minds might reasonably
differ. In such circumstances it is an error for the
High Court to defer to
the lower Court’s assessment of the acceptability and weight to be
accorded to the evidence, rather
than forming its own opinion.
[22] NZNet contended that the appeal was an appeal against the exercise
of a discretion and that, as such, Engini was required
to demonstrate that one
of the following criteria had been met:3
(a) An error of law or principle;
(b) Taking account of irrelevant considerations;
(c) Failing to take account of a relevant consideration; or
(d) The decision was plainly wrong.
[23] 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. Nor do I know of an appeal on a strike-out application that has been approached in this way. The more limited scope for appeal against the exercise of a discretion does not fit with the way that appellate courts usually approach strike-out
appeals.
2 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
3 Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [32].
Relevant law
Strike-out applications
[24] Both parties accepted Engini’s summary of the relevant legal
principles in respect of strike-out applications, which
stated:
11. The relevant principles to be applied on an application for strike
out are helpfully outlined in Sexton v Rice Craig [Barristers and
Solicitors]4 at paragraph [5]:
a) The Court shall generally assume that the facts pleaded in the
statement of claim are true, but the Court is not required
to assume the
truth of allegations that are entirely speculative and without
foundation.
b) Before a Court may strike out proceedings the causes of action
must be so clearly untenable that they cannot possibly succeed.
c) The jurisdiction is to be exercised sparingly, and only in
a clear case where the Court is satisfied that it has the requisite
material.
d) The mere fact the application for strike out involves difficult
questions of law and extensive argument does not preclude
the Court’s
jurisdiction.
[25] Where the claimant makes an application to strike out a statement of
defence, the test is whether the statement of defence
discloses an arguable
ground of defence. The threshold for striking out an application or statement of
defence is high:5
Putting it more bluntly, what striking out applicants must show is that those
claiming on them will undoubtedly lose if the case goes
to trial. A weak case or
one imperfectly pleaded is not enough; they must show the claimant’s loss
is inevitable.
[26] In respect of evidence, the general approach on a strike-out application is that evidence from either or both sides may be admissible, at the court’s discretion. Where evidence is admitted, the court should adopt the construction of the evidence which is most favourable to the impugned pleading.6 Affidavit evidence may be
admissible, but only if the matters to which it refers are
incontrovertible matters of
4 Sexton v Rice Craig HC Auckland CIV-2004-404-2754, 3 June 2005.
5 Twin Bright Shipping Co SA v Tauwhareparae Farms Ltd HC Gisborne CIV-2003-416-1, 26
May 2006 at [5].
6 Wilkins v Auckland District Court (1997) 11 PRNZ 232 (HC) at 238.
fact.7 Evidential issues are to be weighed in light of the
general principle that a strike-out application is not an appropriate forum in
which to resolve genuinely disputed issues of fact.8
Forgiveness of debt
[27] There was no dispute that the release of a debt is to be done by
deed or valuable consideration. Burrows, Finn and Todd
Law of Contract in
New Zealand states:9
A contract which has been performed by A but has not been performed by the
other party, B, may be the subject of unilateral discharge.
In the majority of
cases B has committed a breach of the contract in the sense that B is not ready
and willing to perform his or
her obligation, as for instance where he or she is
unable to pay for goods that have been delivered to him or her under a contract
of sale. In such a case A may agree to release B from the obligation.
A one-sided release of one party’s obligation lacks consideration. It
has long been the law that such a release is ineffective
unless it be by deed,
or unless consideration be given for it. Perhaps it may one day be established
that consideration is no longer
necessary for the discharge of an
obligation, as we have already seen with a variation of contract. But
currently that is not the position. ...
An agreement to release an obligation, if supported by the necessary
consideration, is called accord and satisfaction. This has
been judicially
defined as follows:
Accord and satisfaction is the purchase of a release from an
obligation, whether arising under contract or tort,
by means of
any valuable consideration, not being the actual performance of the obligation
itself. The accord is the agreement
by which the obligation is discharged.
The satisfaction is the consideration which makes the agreement
operative.
If, for instance, $50 is due for goods sold and delivered, a promise by the
seller to accept a cash payment of $45 in discharge of
the buyer’s
obligation is not a good accord and satisfaction, since the buyer is relieved of
a liability to pay $5 without
giving or promising anything in
return.
[28] Here there was no deed of release of debt. The question is whether the consideration which is necessary to validate an accord and satisfaction arrangement
may take the form of a payment to a third party, in the form of Mr
Andrews.
7 Adams v Joseph Banks Trust Ltd HC Wellington CP224/91, 4 March 1992.
8 CED Distributors (1988) Ltd v Computer Logic Ltd (in rec) (1991) 4 PRNZ 35 (CA) at 41.
9 Burrows, Finn and Todd Law of Contract in New Zealand (5th ed, LexisNexis, Wellington,
2016) at 737 - 738.
[29] It is trite law (which nonetheless bears repeating in the
circumstances of the present case) that consideration must move
from the
promisee. However, the benefit of the consideration does not need to accrue to
the promisor directly. There have been
a number of cases in which courts have
been willing to accept that the conferment by the promisee of a benefit upon a
third party
at the request of the promisor can be regarded as adequate
consideration.
(a) In Chas S Luney Ltd v State Bank of South Australia, the
plaintiff promised to construct a residential building for a third party.10
In exchange, the respondent promised to make a series of progress payments
to fund the construction. The respondent did not receive
a direct benefit as a
result of the plaintiff’s promise; however the respondent was secured by a
mortgage over the residential
building.
(b) In Martin v Short, the question was whether there was
adequate consideration to support a guarantee given by the appellant Mr
Martin.11 Katz J noted that in the guarantee context,
consideration would not usually lie in any direct benefit or advantage to the
guarantor,
but would rather lie in the accrual of some benefit to a third party.
In that case, Katz J found that there had been valid
consideration in
that the respondents had, at the request of the guarantors, forborne from
enforcing their rights against a third
party, Vivo Strategic Ltd.
(c) Mardon & Stephens Group Ltd v Zenn Holdings Ltd was
another case concerning consideration given in respect of a guarantee.12
Asher J held:13
The key question in this case is whether there is performance of an act
referable to or in response to Zenn’s promise, which
act was of benefit to
Zenn. In particular, whether payment of a sum of money directly to a third
party to the contract can be regarded
as consideration. Clearly it can. While
consideration must always move to [sic] the promisee, it need not be
directed
10 Chas S Luney Ltd v State Bank of South Australia HC Christchurch CP49/93, 9 November 1994.
11 Martin v Short [2012] NZHC 2664.
12 Mardon v Zenn Holdings Ltd HC Auckland CIV-2006-404-707, 1 August 2006.
13 At [26] (emphasis added).
exactly by the promisee to the promisor. If payment is at the
promisor’s direction, that is sufficient. It can be assumed
without enquiry or explanation that the promisor will not have sought the
payment to the third party unless
this has some value to the
promisor[.]
[30] In summary, it is clear from the authorities that in theory, it is
possible to validly release a debt owed under a contract
in exchange for
consideration which, at the creditor’s direction, moves from the debtor to
a third party. Further, as Mardon makes clear, there is no need to
establish whether the promisor (in this case allegedly NZNet) has received any
benefit in return
for the promisee’s (Engini’s) payment to the third
party (Mr Andrews).
[31] It follows that I reject NZNet’s submission that the alleged
arrangement by which NZNet released Engini from the debt
it owed to NZNet cannot
in law amount to valuable consideration.
Acquiescence by NZNet
[32] As above, it is trite law that in order to form a valid contract, or
as in the present case, to create a valid accord and
satisfaction, there must be
agreement between the parties. Engini contends that Mr Andrews as
director of NZNet purported
to release Engini from its debt to NZNet in return
for Engini transferring shares to him. Whether this occurred is a matter of
proof,
which is not something that can be resolved in a strike-out
application.
[33] NZNet argues that Mr Andrews lacks credibility and there is no
documentary evidence to corroborate the arrangement. Thus,
the defence Engini
seeks to rely upon is speculative and therefore so lacking in any prospect of
success that it can be struck out.
[34] The findings made against Mr Andrew’s credibility in other proceedings, which are what NZNet relies upon, are not relevant to this proceeding. They cannot provide a basis for rejecting his evidence at the interlocutory stage of this proceeding. The arrangement that Engini relies upon is not one for which the law mandates a written form. Proof of oral arrangements can be more difficult to
achieve, but that is no ground for striking out a defence that
relies upon oral evidence.
[35] In summary, NZNet’s arguments about Engini’s defence
raise issues that are best addressed at trial. I do not
see how they can be
addressed in the context of a strike-out application.
Promissory estoppel
[36] The findings I have already made mean that the appeal should be
allowed and so they make it unnecessary to consider this
topic. Nonetheless, I
shall address it.
[37] NZNet contends that Engini cannot raise the issue of promissory estoppel on appeal, given that its amended statement of defence at the time of the strike-out application did not explicitly refer to that principle, and the point was not argued before the District Court. Here NZNet relies upon r 5.50(4) of the District Court Rules (which is equivalent to r 5.48 of the High Court Rules) which provides that an affirmative defence must be pleaded in a statement of defence. McGechan on
Procedure provides:14
Such affirmative defences, raising factual material additional to
that otherwise contained in the statement of claim and statement
of defence,
must be pleaded specifically to avoid surprise, and to enable the
plaintiff to prepare evidence in rebuttal
in advance of trial. Further,
if there is no pleading setting out the nature of the affirmative defence,
there is nothing
defining the issue so it can be properly understood and
determined by the Court: Manukau Golf Club Inc v Shoye Venture Ltd [2012]
NZCA 154 at [22], where the Court also observed that it is possible for an
affirmative defence that has not been pleaded to arise and be considered
in the
course of a hearing, but only if leave is granted to amend and add that
defence.
...
Affirmative defences may arise indirectly through the existence of a so-
called “pregnant negative”. For example, in defamation
proceedings,
a statement of claim may allege publication falsely and maliciously. A bare
denial of such an allegation amounts
to an implicit allegation that
the material published was true or honest opinion. Such indirect
pleading offends against
the rule: Leersnyder v Truth NZ Ltd [1963] NZLR
129 (SC), applied in Stredwick v Wiseman [1966] NZLR 263
(SC).
14 McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR5.48.15].
[38] However, in Johnston v Schurr15 the Supreme
Court when faced with a pleading that in substance could be read as alleging
either breach of statutory duty or negligence
decided that the allegations were
also capable of supporting an additional claim based on the supervisory
jurisdiction of the High
Court in relation to managers under s 17 of the
Judicature Act 1908. This was despite the absence of any reliance on that
jurisdiction
in the pleadings, or that the point was being raised for the first
time in the Supreme Court.
[39] With the strike-out jurisdiction the court must be careful not to
curtail any claim or defence that is capable of being made.
I am satisfied,
therefore, that where the necessary factual allegations to support a cause of
action or defence are 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 may be. The
better approach is to require the relevant party to make clear
the cause of
action or defence to which the factual allegations can give rise. Nor do I see
any basis for finding that Engini cannot
invite the court to take that approach
on appeal. So, I consider that in principle it is still open to Engini to
maintain a defence
based upon equitable estoppel as a shield.
[40] The parties agreed that the following statement of principle
provided by
Engini was an accurate summary of the relevant law relating to promissory
estoppel:
36. The Laws of Contract of New Zealand, in the chapter dealing
with consideration says:
“Unless a promise is given for consideration it is not a contractual
breach of it or not ground in action for breach of contract.
However at times
the law will hold a person to his or her promises in other ways. The
doctrine of estoppel has been developing
rapidly as means of holding
people to promises.”
37. The doctrine of modern development of promissory estoppel
stemmed largely from the High Trees case (Judgment of Denning J in
Central London Property Trust Ltd v High Trees Ltd [1947] AB130).
38. In that case the Receiver of a landlord company, which had reduced its rentals from 1940 to 1945 because of war-time conditions and in
1945 had retrospectively sought recovery of the original rate, did
not
15 Johnston v Schurr [2015] NZSC 82, [2016] 1 NZLR 403.
succeed. Notwithstanding that the Court found there was no consideration
for the promise to reduce the rent.
39. Burrows Finn and Todd explored the reasoning of Justice Denning in
the following words:
“He agreed that there was no consideration for the
Plaintiff’s promise to reduce the rent. If therefore the
Defendants
themselves had sued upon that promise they must have failed. Their claim
depended on a contract which one of the essential
elements was missing, but
where the promise was never used as a defence why should the presence of absence
of consideration be relevant.
The Defendants were not seeking to enforce a
contract and need not prove one.”
40. In the initial cases following High Trees there were two
significant and accepted restrictions. First the doctrine would only operate as
a defence and not as a cause of action.
Secondly, the doctrine would only apply
where the parties were in a contractual relationship and one released the other
from (some
of) his contractual obligations.
41. It is quite plain that those restrictions are themselves no longer
supported. In the New Zealand landmark case of Gillies v Keogh, the
Court noted that three elements are required:
a) encouragement of a belief or expectation; b) reliance on that belief or expectation; and c) detriment.
42. It is accepted that there is now a fourth element from more recent
cases, namely that it must be unconscionable for the
party against whom the
estoppel is alleged to have gone back on his or her word.
43. One of the leading statements in respect of this is that in
National Westminster Finance Limited v National Bank of New Zealand
Limited. On page 550, Tipping J states:
“The decisions of this Court in Wham-O MFG Co v Lincoln
Industries [1984] 1 NZLR 641 and Gillies v Keogh [1989] 2 NZLR
327 have emphasised the element of unconscionability which runs through all
manifestations of estoppel. The broad rationale of estoppel,
and this is not a
test in itself, it is to prevent a party going back on his word (whether express
or implied) when it would be unconscionable
to do so.”
44. The doctrine has continued to expand to give effect to what is said to be “the essential principle underlying the law of contract.” The Court of Appeal in Antons Trawling Co Ltd v Smith was asked to determine whether an oral promise between a fishing company (promisor) and its skipper (promisee) was enforceable despite the fact that no formal consideration accompanied the promise from the fishing company.
45. Firstly, the Court of Appeal determined the construction of
the contract. Although this issue is not relevant in
this appeal as it only
deals with the decision to strike out the defence not factual determinations,
the ultimate decision regarding
the claim of lack of consideration is informed
by an understanding of the intention of the parties. At paragraph [65] the
Court
elucidated its approach to the issue of the construction of the
contract:
“In this context it is necessary to identify what precisely it was that the parties agreed. While that is conventionally expressed as “the intention of the parties” (Chitty at para 12-042) it is in fact the meaning of the agreement appraised objectively, as by an informed independent bystander familiar with the circumstances (para 12-
043). That requires the Court to educate itself as to those circumstances
in order to reach a conclusion that conforms with business
common sense.
46. The Court finally determined the claim of absence of consideration.
The Court held at paragraph [93]:
“We are satisfied that Stilk v Myrick can no longer be
taken to control such cases as Roffey Bros, Attorney-General for
England and Wales and the present case where there is no element of duress
or other policy factor suggesting that an agreement, duly performed, should
not
attract the legal consequences that each party must reasonably be taken to have
expected. On the contrary a result that deprived
Mr Smith of the benefit of
what Antons promised he should receive would be inconsistent with the essential
principle underlying the
law of contract, that the law will seek to give effect
to freely accepted reciprocal undertakings. The importance of consideration
is as a valuable signal that the parties intend to be bound by their agreement,
rather than an end
in itself. Where the parties who have already made such
intention clear by entering legal relations have acted upon an agreement to a
variation,
in the absence of policy reasons to the contrary they should be bound
by their agreement. Whichever option is adopted, whether that
of Roffey Bros
or that suggested by Professor Coote and other authorities, the result is in
this case the same” [Italics own]
[41] Counsel for NZNet added the following principles:
a. One of the limits of the doctrine is that the representation or
promise by one party to the other party must be clear
and unambiguous.
b. It has been held in New Zealand that the doctrine of promissory
estoppel cannot be applied to reduce a debt which has already
fallen due for
payment. In Homeguard Products Limited v Kiwi Packaging Limited [[1981]
2 NZLR 322], Mahon J said:
The High Trees decision itself related to an agreement made before the monetary liability had become due, whereas in the Foakes v Beer situation, the agreement, express or inferred, necessarily applies to an existing liability. Sir Alexander Turner, speaking editorially in Spencer Bower and Turner on Estoppel by Representation (3rd ed,
1977) pp 398-399, has expressed the view that the High Trees decision, for
the reason just stated, cannot be applied as to negate
the result which will
accrue in a Foakes v Beer situation.
[42] However, Homeguard Products Ltd has since been overtaken by
appellate authority in which the court has stated that promissory
estoppel, which is now generally
referred to as equitable estoppel, is not to
be confined to “some preconceived formula”.16 Further
the modern principles of equitable estoppel are applicable
when:17
It is well settled that where one party has 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, then once the other party
has taken him at his word and acted
on it, the one who gave the promise or
assurance is bound by that assurance unless and until he has given the promisee
a reasonable
opportunity of resuming his position. ... I am of the view that
the doctrine applies in appropriate cases where there is a pre-existing
legal
relationship. ...
[43] I find, therefore, that legally Engini can maintain a defence
based upon equitable estoppel. Whether Engini
can factually satisfy
the requirements of equitable estoppel is a separate issue that should not be
determined in a strike-out
application.
Result
[44] The appeal is allowed and the decision made in the District Court
striking out
Engini’s defence is set aside.
[45] The parties have leave to file memoranda on
costs.
Duffy J
16 Burberry Finance v Hindsbank Ltd [1988] NZCA 220; [1989] 1 NZLR 356 (CA) at 359.
17 At 361.
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