Buxton v Xero Limited
[2021] NZHC 206
•18 February 2021
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2020-485-390
[2021] NZHC 206
BETWEEN KRISTINA LOUISE BUXTON
First Plaintiff
AFB TREASURY LIMITED
Second PlaintiffSPINACH DESIGN LIMITED
Third PlaintiffAND
XERO LIMITED
Defendant
Hearing: 1 December 2020 Appearances:
J Moss for plaintiffs S Leslie for defendant
Judgment:
18 February 2021
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
Introduction
[1] On the pleadings, the substantive issue for determination in this proceeding is the proper scope of s 171 of the Insolvency Act 2006, and more particularly whether, in response to notices under that section served by the Official Assignee as the assignee of the bankrupt estate of Mr Ian Henderson, the defendant, Xero Ltd, breached duties it owed to the plaintiffs, Mrs Kristina Buxton, who is Mr Henderson’s wife, AFB Treasury Ltd and Spinach Design Ltd, by disclosing their private information.
[2] Xero has applied for an order striking out the plaintiffs’ statement of claim. In the alternative, it seeks summary judgment. This application is opposed.
BUXTON v XERO LIMITED [2021] NZHC 206 [18 February 2021]
Law relating to defendant’s application
[3] Counsel were on common ground insofar as the principles are concerned, and it may be as well to deal with these at the outset.
[4] The application for an order striking out the plaintiffs’ claim is made pursuant to r 15.1 of the High Court Rules.
[5] In this case, the defendant relies on r 15.1(1)(d), that is to say that the plaintiffs’ case is an abuse of process. It says the case is predicated on an allegation that the s 171 notices issued by the Official Assignee were unlawful with the result that the defendant is not entitled to rely on those notices in justifying its disclosure of information that is said to have been private to the plaintiffs, and that the lawfulness of those notices has already been determined by the Court in earlier litigation giving rise to a res judicata.
[6]The principles governing strikeout applications are well settled:1
(a)The Court is to assume that the facts pleaded are true (unless they are entirely speculative and without foundation);
(b)The cause of action must be clearly untenable in the sense that the Court can be certain that it cannot succeed;
(c)The jurisdiction is to be exercised sparingly and only in clear cases;
(d)The jurisdiction is not excluded by the need to decide difficult questions of law, even if requiring extensive argument; and
(e)The Court should be slow to rule on novel categories of duty of care at the strike-out stage.2
1 Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267, as cited in Webster Farm Management Ltd v Dargaville Farms Ltd (in liq) [2020] NZHC 1477 at [37].
2 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].
[7] A properly grounded res judicata plea is a foundation for a contention that a proceeding constitutes an abuse of process, rendering it liable to be struck out.
[8] The defendant’s alternative contention that it is entitled to summary judgment is made pursuant to r 12.2 of the High Court Rules which provides as follows:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1)The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
(2)The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[9] The leading case is Krukziener v Hanover Finance Ltd in which the Court of Appeal described the approach to be taken to applications by plaintiffs in the following terms:3
The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is not consistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
Under r 141A the defendant need not file a statement of defence. The onus remains on the plaintiff, and summary judgment will be denied if on the hearing of the application it appears that there is an issue worthy of trial.
[10] Here of course, the application for summary judgment is made by the defendant. However, the same principles apply so that in order to succeed the
3 Krukziener v Hanover Finance Ltd [2008] NZCA 187 at [26]–[27].
defendant must be able to establish that the plaintiff cannot succeed — on any pleaded cause of action.
Background
[11] That brings me to the factual background, which, for present purposes, can be described comparatively briefly.
[12] The evidence before the Court is in the form of affidavits sworn by Xero’s Head of Regulation, Mr Geoffrey Ward-Marshall, and Mrs Buxton.
[13] Up until mid-2010 Mr Henderson — Ms Buxton’s husband — was the driving force behind a property development business. The central company in the business was Property Ventures Ltd. The business, or aspects of it, failed, and as a direct result of this Mr Henderson was bankrupt between November 2010 and January 2017.
[14] It would seem that the relationship between the Official Assignee and Mr Henderson was not a wholly cooperative or tranquil one. Certainly, the Official Assignee felt herself obliged to undertake extensive investigations into Mr Henderson’s affairs, driven it would appear by the view that, despite his bankruptcy, he was effectively controlling what remained of the former business. One component of these investigations involved the service by the Official Assignee of notices pursuant to s 171 of the Insolvency Act 2006 that were intended to obtain information concerning Mr Henderson’s affairs from the defendant, Xero, a cloud-based accounting software company.
[15] In mid-2014 the Official Assignee served such a notice on Xero. This notice purported to require Xero to provide log-in details for subscriptions thought to be held by AFB and Spinach, both of which were concerns formerly owned or controlled by Mr Henderson and with which the Official Assignee obviously suspected he was still actively involved.
[16] In this notice dated 24 July 2014 the Official Assignee sought “… a user name and password for each of [AFB and Spinach] to permit the Official Assignee to review the financial transactions of both companies in which the bankrupt has control and
direction”. From the terms of the notice it was very clear that the Official Assignee was proceeding pursuant to s 171 of the Insolvency Act, and the notice also recorded that the Official Assignee accepted that the documentation and information requested was of a confidential nature.
[17] On receipt of this notice Xero concluded that as Mr Henderson was neither a shareholder nor a director of either of the two companies, and as it had no other information available to it indicating that he had any involvement with them, it could not provide the Official Assignee with the records that it held in relation to them.
[18] Accordingly, in correspondence during July and August 2014 Xero declined to provide any information relating to the two companies, suggesting that the Official Assignee seek the information she wanted directly from them.
[19] On 12 August 2014 the Official Assignee replied to Xero indicating that her request was being made of Xero alone and not the companies.
[20] Later the same day Xero went back to the Official Assignee by email explaining that its policy was to advise its customers when access was being provided to such information.
[21] On 13 August 2014 the Official Assignee replied reiterating and re-emphasising that the notice that had been issued pursuant to s 171 of the Insolvency Act, and effectively forbidding Xero from notifying AFB and Spinach.
[22] On 14 August 2014 the Official Assignee served a second notice pursuant to s 171. This stated that the Official Assignee would summons Xero’s Managing Director to produce the information if it was not provided, and putting a deadline on the provision of this of 24 July 2014.
[23] On 21 August 2014 Xero responded to this second notice. Its response described its contractual arrangements with its clients, emphasising its obligation to comply with those arrangements, particularly to the extent that they required it to maintain confidentiality, but said that if the Official Assignee could demonstrate that
Mr Henderson was connected in some way with AFB or Spinach, or alternatively if a court order were obtained requiring Xero to provide the information sought then it would reconsider its position.
[24] Between 2 and 17 September 2014 the Official Assignee provided Xero with a detailed outline of the grounds upon which she had concluded that Mr Henderson continued to have close connections with AFB and Spinach.
[25] No useful purpose would served by analysing this material in detail here. I am satisfied that, taken in its totality, it demonstrated, at least to a prima facie standard, that during the period of his bankruptcy Mr Henderson was using these companies to continue conducting aspects of his business.
[26] Plainly, Xero reached the same view. In his affidavit evidence sworn in support of Xero’s application, the company’s in-house solicitor, Mr Ward-Marshall, says this about the conclusions that the company drew:
18.Following review of the information provided and after discussion with senior executives at Xero, Mr Vaughan [Xero’s Managing Director] was satisfied that the Official Assignee had established a connection between Mr Henderson and AFB and had a basis for compelling Xero to provide information about transactions carried out by AFB. Xero agreed to release the information to the Official Assignee on the condition that the information would be treated confidentially, only used for the purposes for which it was requested under the Insolvency Act 2006 and only within the powers granted to the Official Assignee under law.
[27] Accordingly, on 9 October 2014 Xero forwarded to the Official Assignee “… a password-protected report showing the credits and debits of each account connected with AFB” (it turns out that Spinach did not have a Xero subscription). The email noted that the information provided was information that the Official Assignee had represented it was entitled to receive and that the Official Assignee had required Xero to produce under the Insolvency Act. Xero requested that it be treated confidentially and “only used for the purposes for which it was requested and as permitted under the Act”.
[28] On 31 March 2015 the Official Assignee served a third s 171 notice on Xero requesting a copy of records held by Xero relating to AFB for the period 30 August 2014 to 31 March 2015.
[29]Xero provided this additional information by email on 8 April 2015.
[30] In my view, Xero approached this matter responsibly and having regard to the terms of the email correspondence between the Official Assignee and Xero, it was quite reasonable for Xero to conclude that the Official Assignee had proper grounds for seeking the information in question and that it was obliged to disgorge this.
The plaintiffs’ complaints
[31] Effectively, the Official Assignee received spreadsheets detailing all transactions undertaken by AFL and held within Xero’s electronic records from the commencement of the AFB subscription to 28 September 2014, and from 30 August 2014 to 31 March 2015. It is by the provision of these spreadsheets to the Official Assignee that the plaintiffs — and most particularly Mrs Buxton — say that Xero breached its obligations to them not to disclose private information.
[32] Insofar as AFL is concerned, the contention is that the disclosure of all transactions over the relevant period of time, and the picture of the company’s business that that presents, is inherently private information that attracts the protection of the tort. As to Mrs Buxton’s position, the complaint is that this material discloses information about her private life such as who her doctors were and when she sought medical services and how much she paid for these.
[33] These descriptions are my summary, rather than Mr Moss’, but I am satisfied that they capture the key complaint for the purposes of dealing with this interlocutory application.
[34] Furthermore, I accept Mr Moss’ broad submission that it is at least arguable that some of this information is of a confidential nature.
Submissions
[35] Counsel focussed some attention on whether the nature of the information was such that the plaintiffs would at trial be entitled to establish a breach by Xero of its obligations pursuant to the developing tort of breach of privacy. In particular an issue on which counsel focussed was whether in order for the tort to apply the information in question must be of a particularly sensitive nature. There is a real issue in relation to this, with the few cases in the area not being conclusive on the point.
[36] However, in my judgment, it is unnecessary to deal with that issue in the context of this application. Ms Leslie argued the case pursuant to r 15.1(1)(d) as an abuse of process case, and not (as is more commonly the case) under r 15.1(1)(a) as a case in which the pleadings did not establish an arguable case to go to trial. Accordingly, unless Xero can establish an abuse of process the plaintiffs’ case should go to trial.
[37] I turn then to the basis upon which Xero says that the plaintiffs’ claim is an abuse of process in respect of which the Court should exercise the extraordinary remedy of striking it out.
[38] What Xero says is that the “plaintiffs’ case that their privacy has been breached depends on [the contention] that the [Official Assignee’s] statutory notices issued to Xero were invalid. That issue has been conclusively determined and it is an abuse of process for the plaintiff[s] to seek to relitigate that issue.”
[39] The argument then is that the lawfulness of the Official Assignee’s notice — or rather notices — under 171 has already been determined by the courts, and that to the extent that the plaintiffs’ case puts their lawfulness in issue it is an abuse of process.
[40] The basis for that argument is res judicata — literally, the thing has already been adjudicated upon.
[41]The Court of Appeal recently summarised the principle of res judicata, saying:4
4 Craig v Stringer [2020] NZCA 260 at [16].
Access to the courts will be denied where a litigant seeks to reopen a dispute that has already been determined. This is precluded by the doctrine of res judicata which serves the public interest in finality in litigation and upholds the principle that a party should not be vexed twice in the same matter. Res judicata applies where a cause of action has been determined in earlier proceedings between the same parties or their privies — cause of action estoppel. The doctrine prevents re-litigation of the same cause of action in any subsequent proceedings. Res judicata can also apply where there has been a determination in earlier proceedings between the same parties or their privies of an issue that was essential to the determination of the claim such that the judgment could not stand without it — issue estoppel. Issue estoppel is narrower, and less absolute in its application than cause of action estoppel.
(footnotes omitted)
[42] The law sets its face against repeated litigation on the same point. So, generally, if a Court has determined an issue between two parties, then, other than by the exercise of an available right of appeal, neither of those parties is entitled to relitigate the issue in subsequent proceedings. If they attempt to do so, the subsequent proceeding will be struck out as an abuse of process.
[43] In the generality of cases, for res judicata to apply, there must be a coincidence of parties and issue. So the same parties must be involved, and the same issue or issues must arise.
[44] This, however, does not apply in the case of judgments in rem, that is to say judgments of courts of competent jurisdiction adjudicating on the status of persons or things. So for example, judgments declaring a person bankrupt or making a winding up order in respect of a corporation, or declaring a marriage at an end, because they relate to the status of a person or thing vis-à-vis the world, may be the subject of a res judicata pleading in litigation between parties who are not the subject or the original proceeding.
[45]Here, Xero relies on the judgment of Associate Judge Osborne (as he was) in
Re Havenleigh Global Services Ltd, ex parte Henderson (No. 1).5
[46] It will be recalled that Mr Henderson was adjudicated bankrupt in November 2010. He was to have been discharged automatically in January 2014.
5 Re Havenleigh Global Services Ltd, ex parte Henderson (No. 1) [2015] NZHC 1761.
However, the Official Assignee objected to his discharge. This triggered the need for his examination, in order to enable this Court to determine whether or not he should be discharged, and the terms of any discharge. This examination was listed to be heard on 3 August 2015. The Official Assignee’s request was duly filed and served. It drew on the information the Official Assignee had obtained from Xero pursuant to s 171 of the Insolvency Act. Mr Henderson objected to any reliance on this information, inter alia on the basis that the s 171 notices under consideration in this case were unlawful. Thus the Court was obliged to determine the lawfulness of those notices.
[47] Here is what the judge said about the s 171 notices that the Official Assignee served on Xero:
[73] Mr Henderson asserts on these grounds (with parallel grounds relied on for other s 171 notices issued by the Assignee) that the Assignee’s notice was unlawful. Mr Henderson added that the s 171 notices were “purposefully false and defamatory”.
[74] For the Assignee, Mr Palmer rejected the allegations of bad faith on the part of the Assignee and of irrelevance of subject-matter. I have read the Assignee’s report in full. Having regard to its contents, Mr Henderson falls far short of establishing a lack of good faith on the part of the Assignee in issuing the s 171 notices. I will again be measured in what I say in relation to the state of information available to the Assignee as I am likely to have to reach firm conclusions on at least some of these matters following the public examination. I therefore focus on the foundation which the Assignee had for her decision to investigate Mr Henderson’s role in relation to AFB and other companies with whom AFB had financial dealings. Mr Patel’s examination had indicated that Mr Henderson was a beneficiary of funds distributed from AFB. In turn AFB received funds from other entities. Mr Henderson (not Ms Buxton) would provide the instructions in relation to payments and receipts. At least seven other companies (including Spinach) were involved in such transactions with AFB.
[75]The Assignee asserts against this background:
(a)the source and disposition of funds flowing through the companies in question was therefore relevant to Mr Henderson’s property, conduct and dealings;
(b)section 15 Electronic Transactions Act 2002 (which applies to the Insolvency Act) entitles a legal requirement to be met by electronic means; and
(c)a username and password are encompassed within the definition of “document” in s 3 Insolvency Act. Xero is a cloud-based software system. The arrangement reached between Xero and the Assignee meant that the Assignee was provided with Xero’s records.
[76] I find that the Assignee was justified in viewing Xero as able to deliver documents relating to Mr Henderson’s property, conduct or dealings. Through the extended definition of “document” under s 3 of the Act, the documents which the Assignee is empowered to require under s 171 include the electronic record held by Xero. The subject-matter of those documents (“the source and disposition of funds which have flowed through these companies”) was clearly identified in the notice of 24 July 2014. Given that a practical arrangement was reached between Xero and the Assignee whereby Xero provided physical forms of the electronic record, the Assignee’s request for a “user name and password” for each of the companies became superfluous. The Assignee was entitled to seek and view the electronic record itself.
[77] There is a suggestion in Mr Henderson’s submission that the Assignee should have narrowed down Xero’s requirement so as to identify specific entities within the expected record and to redact remaining entities. I reject that approach as impracticable and unsound as a matter of logic. For the purpose of her investigation, the Assignee reasonably needed to see the full record of dealings. As with the summonses, the Assignee, in order to take an informed position in relation to Mr Henderson’s bankruptcy and discharge, reasonably required knowledge of the context of dealings in which Mr Henderson may have been involved. A legitimate purpose of such investigation is to allow the Assignee to ensure, so far as it is possible, that she has knowledge of all the relevant background that the bankrupt himself would know and understand.
[78] In short, the comprehensive records that Xero held in relation to AFB and Spinach were an obvious and justified subject-matter of a s 171 requirement when the Assignee issued her notice.
[48] In my view, it is beyond serious doubt that the judge concluded that the Official Assignee’s s 171 notices were within the four corners of the legislation.
[49] In her submissions on Xero’s behalf Ms Leslie relied primarily on the principle of res judicata in personam. She contended that although the parties in the earlier proceeding were (effectively) the Official Assignee and Mr Henderson, and the litigants here are the plaintiffs and Xero, the plaintiffs are privies of Mr Henderson. Her submission was in the following terms:
37.It does not matter in issue estoppel or abuse of process cases that the plaintiff is not the same. Each of the plaintiffs is a privy of Mr Henderson, having “a derivative interest founded on, or flowing from, blood, estate, or contract, or some other sufficient connection, bond, or mutuality of interest. Ms Buxton is Mr Henderson’s partner, and it is his role in directing the funds flowing through the AFB (and Spinach) accounts that he and all plaintiffs to this action have a common interest in seeking to deny. He sent nine emails to Xero complaining about the provision of information in 2015 and asserting Xero had breached his family’s privacy (and continued to assert to Xero, after the July 2015 judgment upholding the notices, that the notices were invalid). He also appears to have given the same type of
evidence before Associate Judge Osborne in July 2015 that Ms Buxton gives now. That evidence is in the nature of a blanket denial that Mr Henderson had any control over AFB and Spinach, with no attempt to engage with the documentary and court record indicating otherwise. This claim can only succeed if the precise arguments he made to Associate Judge Osborne in 2015 are accepted.
38.As to Xero’s involvement, and more generally, abuse of process does not require the parties to the new litigation to have been parties or privies in the older litigation. The court of Appeal has held:
[28] Essentially, it will be an abuse of process to bring the same proceeding “in a different garb”. If this is the case, it is no bar that the later proceeding is brought against a different party. Claims may be struck out as an abuse of process even though the defendant was not party to the previous litigation.
39.In that case, the Court acknowledged that the causes of action against a solicitor for breach of fiduciary duty and undue influence were unrelated to earlier proceedings dividing relationship property between the plaintiff and his ex-wife. However, “for a cause of action to be viable it must be possible to prove loss arising from proof of the cause of action”. There, the court in the new litigation would have to hear afresh the arguments in the old litigation and reach different conclusions. In this case, the plaintiffs’ claim is reliant on a finding that the notices issued to Xero were invalid or overly broad. All causes of action require this Court to find that Associate Judge Osborne was incorrect to uphold the notices and allow the Official Assignee to use all of the material obtained from Xero in her report.
[50]I accept that submission.
[51] Furthermore, although the case was not argued on this basis, it would appear to me to be open to Xero to contend that Associate Judge Osborne’s judgment in Havenleigh Global Services was a judgment in rem as to the lawfulness or status of the Official Assignee’s notices. That is, the notices could be said to be binding on the world generally, unlike decisions in personam that determine the jural relation of persons to each other.6
[52] In response Mr Moss for the plaintiffs asserted that Xero’s “… argument can be disposed of quite easily”.
[53] He submitted “… that this proceeding is not a collateral attack on the decision of Havenleigh at all. That decision by Osborne AJ was not made in the context of a
6 See generally KR Handley (ed) Spencer, Bower and Handley Res Judicata (5th ed, LexisNexis, 2019) at [10.01].
breach of privacy claim. It was made in the context of a discovery application for a public examination and Osborne AJ’s specifically quarantined the purely personal documents”.
[54] I cannot see how this assists the plaintiffs. It is true that the circumstances in which the issue of the lawfulness or otherwise of the Official Assignee’s s 171 notices arose in the earlier case and this case are different. But that does not alter the fact that Associate Judge Osborne concluded that they were lawful. As to the “quarantining” of certain documents, all that reflects is that the judge recognised that certain documentation properly disclosed to the Official Assignee by Xero pursuant to those notices was capable of being confidential in its nature and made orders accordingly to protect Mrs Buxton.
[55] Mr Moss then referred to later decisions of Associate Judge Osborne and Hinton J which he submitted were to the effect that the Havenleigh decision did not determine the lawfulness or otherwise of the Official Assignee’s notices.7
[56] However, the references to the Havenleigh decision in those cases concern Associate Judge Osborne’s 2014 Haveneligh decision,8 and not the 2015 decision currently relied on by the defendant.9 The 2014 Havenleigh decision concerned interlocutory rulings as to the discovery reasonably necessary for Mr Henderson’s public examination. In short Mr Moss’ submission on this point was inaccurate.
[57] In my judgment, in the 2015 Havenleigh decision this Court determined that the Official Assignee’s notices were lawful and had the effect of requiring Xero to do precisely what it did do, that is to say disclose to the Official Assignee all information within its possession or power relating to the affairs of AFB for the specified periods.
[58] In short, I accept the submission made on behalf of Xero that this proceeding amounts to a collateral attack on the lawfulness of the Official Assignee’s 171 notices and cannot succeed.
7 Henderson v Slevin [2015] NZHC 366 at [36]; Henderson v Attorney-General [2017] NZHC 606 at [58].
8 That is, Havenleigh Global Services Ltd v Henderson [2014] NZHC 499.
9 Above n 5.
[59] Even if the spreadsheets that were provided in response to those notices contained information capable of attracting confidentiality, in my judgement, the disclosure of any such information to the Official Assignee by Xero in compliance with lawful notices issued by her exercising her statutory powers cannot give rise to a claim in tort by any of the plaintiffs against Xero.
[60] To put the matter in a different way, the defence advanced by Xero in its first affirmative defence in which it says that it was compelled by lawful authority to make the disclosures to the Official Assignee that it did on 9 October 2014 and 8 April 2015 must succeed.
Conclusion
[61] For those reasons, my judgment is that the proceeding constitutes an abuse of process because the core issue of the lawfulness of the Official Assignee’s 171 notices is res judicata and I make an order striking out the proceeding on that basis.
[62] I deal with the case in those terms because as I understood her argument Ms Leslie’s primary contention was that the proceeding should be struck out (as opposed to seeking summary judgment).
Costs
[63]As to costs, I reserve these not having heard from counsel.
[64] My preliminary view is that the defendant is entitled to scale costs on a 2B basis. If counsel are unable to resolve costs as I would certainly expect them to do they may file memoranda in the usual way.
Associate Judge Johnston
Solicitors:
Canterbury Legal, Christchurch for plaintiffs Bell Gully, Wellington for defendant
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