the respondent's case in chief on the preliminary question
51 In essence (as submitted by the respondent in its written submissions dated 16 August 2004), the respondent submits:
'10. The respondent submits that the applicant, by the 1994 Letter and by its conduct leading up to and consequent upon that letter, induced the respondent to believe and act on the basis that the Licence was no longer on foot, that the parties' rights in Eunice had reverted to those existing before entry into the Licence and that as the Licence was no longer on foot the respondent could not enforce payment of any sums owed it under the Licence or which may fall due in the future. The respondent, acting in reliance upon that assumption and to its detriment did not pursue payment of any amounts owed under the Licence, did not exercise its rights to require remedy of breaches of the Licence or to terminate the Licence, did not further communicate with the applicant regarding Eunice and developed and dealt with Eunice and later computer programs including by entry into territories outside New Zealand. The respondent was further induced to adopt and act on the assumption by the applicant's silence after 1 December 1994, including that the applicant did not pay any of the further instalments due under clauses 2 and 3 of the Licence and did not request copies of further releases of Eunice and accompanying documentation.
11. The respondent submits that the applicant is estopped from now claiming that the Licence is subsisting and from bringing the claims in these proceedings.'
52 Although in its pleading the respondent relied upon two documents, the 1993 settlement and the letter dated 1 December 1994, the respondent called several witnesses in this connection, as did the appellant.
53 The respondent submits:
'16. The 1994 Letter and the assumption thereby induced must be viewed in the context of the parties' and their related entities' evolving relationship since the establishment of the applicant as the Australian arm of the respondent in 1989. In the period 1989-1991 the applicant acted as Australian distributor and sub-licensor of its parent's, the respondent's, software products, including Eunice. The Licence extended the applicant's rights to deal in the software; however, the applicant did not perform its obligations under the Licence, in particular as to payment, and by the end of 1993 the parties had in effect ceased dealings with each other. The respondent pursued payment of certain of the amounts owed it during 1994 and was advised by the 1994 Letter that its attempts were misconceived following the 1993 Deed, to which neither was a party. The parties thereafter had no further dealings with each other.'
54 The respondent contends that their chronology of events supports this conclusion, as follows:
'(a) The computer program known as Eunice was written by employees of the respondent in New Zealand in the 1980s. The respondent is the owner of copyright in Eunice.
(b) In 1989 the applicant was incorporated by a director of the respondent, Chris Collins, to market and distribute Eunice in Australia. The applicant became a subsidiary of the respondent.
(c) At that time the respondent provided master copies of Eunice to the applicant and the applicant undertook the marketing and distributing in Australia of Eunice on behalf of the applicant. The applicant continued to receive updates and brochures for Eunice until June 1993.
(d) From January 1989 the respondent received royalties from the applicant further to the applicant's provision of copies of Eunice to Australian customers. The respondent provided services to the applicant and its end users in Australia and sought payment for those services.
(e) In April 1990, Trilogy Software Limited, a New Zealand company, acquired 50% of the respondent. In late 1990 Errol Williams, representing himself as being executive chairman of Trilogy Business Systems Pty Limited, an Australian entity related to Trilogy Software Limited, approached the respondent's directors and shareholders, M Creed and M Harvey, with a plan to restructure the respondent's ownership of the applicant …
(f) On 2 February 1991, a shareholder's deed was entered into by Trilogy Corporation Pty Limited (an Australian company), C Collins, M Creed and M Harvey (all shareholders in the respondent and, through the respondent, ultimate controllers of the applicant) and the applicant. As a result of this shareholders deed, Collins, Creed and Harvey and Trilogy Corporation Pty Limited each became a shareholder in the applicant. Harvey, a director and shareholder of both the applicant and respondent, did not perceive any problem with the change in structure as he could monitor both company's operations, and to his knowledge the ultimate owner of the [Trilogy companies in] NZ and Australia … was Brierley Investments Limited or related companies.
(g) Pursuant to clause 3.1 the shareholders deed was subject to and conditional upon a number of conditions, one of which was the execution of the Licence. The Licence was duly executed.
(h) In March 1991 the parties informally agreed that the applicant was to pay the respondent AU$6000 per month for research and development of Eunice. This arrangement was unilaterally cancelled by the applicant later that year.
(i) By sale agreement with settlement date of 7 June 1991 ('1991 BIL Sale agreement'), … Trilogy Corporation Ltd sold the shares in Trilogy Corporation Pty Limited (a shareholder in the applicant) and Valley Computers Limited to Southcorp Investments Limited, …. That agreement sought to ratify a number of agreements, including the Licence.
(j) … By letter of 8 November 1991 the respondent proposed that the debt be converted to an interest bearing loan. In response the applicant unilaterally cancelled the R&D charge of $6000 per month.
(k) By May 1992 the applicant had still not made the initial payments in part performance of its obligations under clauses 2 and 3 of the Licence. The respondent identified these defaults in letter dated 22 May 1992. On 25 May 1992, in accordance with clause 10A of the Licence, the respondent sent a notice of default requiring remedy within 21 days.
(l) In June 1992 the applicant proffered A$2000 (the amount of the first 2 payments due under clauses 2 and 3 of the Licence) which the respondent banked on a 'without prejudice' basis. …
(m) During 1992 and 1993 there were numerous disputes arising from the 1991 BIL Sale agreement, and by mid 1993 settlement negotiations were on foot.
(n) In September 1993 the respondent accepted that the applicant and respondent would cease further joint R&D of Eunice and would separately develop and market their software products. This acceptance was recorded in the respondent's board minutes of 23 September 1993.
(o) The 1993 Deed was executed on 24 December 1993 in settlement of the numerous disputes that had arisen among the parties to the 1991 BIL Sale agreement and related parties. Neither party was a signatory. Clause 2.2.4 stipulated that 'any other Agreement between the Trilogy Group and the VCL Group are hereby cancelled …', and clause 4.2.2 acknowledged that the Deed was in final satisfaction of claims arising out of any events, acts or omissions which occurred prior to the Deed including all matters relating to the 1991 BIL Sale agreement.
(p) From at least 7 March 1994 the respondent sent demands to the applicant seeking payment of outstanding amounts (NZ$12,632.08/AU$10,257) due under the Licence. The applicant acknowledged its debt by recording in its balance sheets the liability to the respondent.
(q) The 1994 Letter was the last correspondence received from the applicant by the respondent. As at 1 December 1994 the applicant owed the respondent NZ$12,632.08 and the applicant had failed to pay the second and third [maintenance] payments due under clause 3 of the Licence and being consideration in part for the grant of licence.
(r) From at least the receipt of the 1994 Letter, and consistently with the representations made thereby, the parties had no further dealings with each other regarding further releases of Eunice or the payment of any sums due or which subsequently became due under the Licence or in performance of the terms of the Licence.
(s) In addition, although Harvey and Creed remained minority shareholders in the applicant and requested information from the applicant, the applicant did not accede to any requests or communicate with them in the period 1994-2001. Even as at 2003 the applicant's sole director, Mr Cable, didn't respond to a simple request for information from Mr Harvey, he didn't want to give him information.'
55 In its submissions in respect of the inducement of assumption by the 1994 Letter, the respondent submits:
'18. The 1994 Letter denies the applicant's liability for payment on two independent bases. The second basis put is clear and unequivocal: the 1993 Deed cancelled the applicant's obligations to pay the respondent under the Licence. It did so, the applicant asserts, because the settlement agreement 'encompasses all associate and related companies of both organisations and as such, this would clearly come within the ambit of that agreement.' 'This' is clearly the obligation of the applicant to pay the respondent for debts incurred further to the respondent's performance of its obligations under the Licence, in particular, under clause 5.
19. It is reasonable to infer that the applicant intended by its statements in the 1994 Letter to dissuade the respondent from further pressing for payment of the identified debts and from any further dealings with the applicant, including any claim for payment of the remaining instalments of the consideration for the Licence. As at 1 December 1994, the applicant had paid only the initial amount and the first instalment of the consideration, albeit late and only after demands in mid 1992. The 1993 and 1994 instalments had not been made, although due, and the 1995 and 1996 instalments were still to fall due.
20. That the applicant intended the respondent to assume that it could not demand the existing debts owed or the future instalments of the consideration for the grant of Licence yet to fall due is apparent from the conversation attributed to Mr Friis by Mr Williams at Williams 27.05.04 #14 [Mr Williams said that Mr Friis (who is deceased) showed him the 1 December 2004 letter. Mr Friis said:
"This is about the royalty update fees. Christine [Pears] [from the respondent] has been arguing with them about the remaining software update fees which they say are still owing. I have written this letter to clear up the situation once and for all."]
'Royalty update fees' clearly refers to the obligations in clauses 2 and 3 (1st para) of the Licence. Contrary to the position it asserted in the 1994 Letter, that the applicant accepted it was liable for the then existing debts is clear from the applicant's financial records, even into 1995.'
56 With respect to the 1995 Deed, the respondent accepts (par [21]) that the present parties are not privy to the Deed. But the respondent contends that the 1994 Letter induced the respondent to accept that the respondent was 'nonetheless encompassed' by the Deed, and that the Licence could no longer be enforced and was 'at an end'. The respondent's directors looked at the 1993 Deed. This was the first time that they:
'21. … had cause to consider the Deed as applicable to the respondent, indeed this was the first that Harvey or Creed had seen the Deed. They identified at least clauses 2.2.4 and 4.2.2 as encompassing them and thus the Licence. They concluded that Friis' assertions in the 1994 Letter were right, that the respondent could not enforce its rights to require payment under the Licence and that the Licence was cancelled.
22. By the definitions of the various corporate groups in clause 1.1, the Deed seeks to 'capture' related and associated parties of the parties to the Deed. Thus the "Trilogy Group' includes the New Zealand companies in schedule 1 (including Trilogy Corporation Limited and Trilogy Software Limited) and any company or person related to or associated with any of those listed companies. The respondent is a related company as Trilogy Corporation Limited held 100% of the shares of Trilogy Software Limited which in turn held 50% of the shares of the respondent in the period 19 April 1990 to 30 November 2000.
23. By clause 2.2.4, agreements between any member of the Trilogy Group and the VCL Group are cancelled. The 'VCL Group' is defined as Valley Computers Limited and any company or person related to or associated with VCL:
Clause 2.2.4 provides that 'the Trilogy Group and the VCL Group acknowledge that [certain computer services and maintenance agreements and a debt claim] and any other Agreement between the Trilogy Group and the VCL Group are hereby cancelled and all rights, duties and obligations actual or potential, including rights, duties and obligations which might otherwise have arisen on cancellation or termination of any of those Agreements, are satisfied by the terms of this Deed.'
24. Further to the shareholders deed entered 2 February 1991, Trilogy Corporation Pty Limited owned 50% of the shares in the applicant. Under the 1991 BIL Sale Agreement, Trilogy Corporation Pty Limited and Valley Computers Limited (VCL) each became fully owned subsidiaries of Southcorp Investments Limited which company was associated with and represented by Williams in 1991 and again in 1993 (by December 1993 Southcorp was called Zivenzia Limited).
25. Thus, when the 1993 Deed was drawn to its attention by the applicant's 1994 Letter, so far as the respondent was aware, the applicant, through its now majority shareholder, Trilogy Corporation Pty Ltd, and Trilogy's parent, Southcorp Investments Limited, was related to, or associated with, Valley Computers Limited. Exhibit EW2 to Williams discloses that the first time any change in shareholding in Trilogy Corporation Pty Ltd was lodged at ASIC was not until the 1994 annual return in April 1995, over a year after the 1993 Deed and after the 1994 Letter.
26. It was thus reasonable for the respondent to read clause 2.2.4 of the 1993 Deed as cancelling the Licence, being an agreement between a Trilogy Group related company and a VCL Group related company. The applicant did not disabuse the respondent of that assumption, indeed, by drawing attention to the 1993 Deed without specifying any particular provision, and by arguing that the debts it owed the respondent further to the respondent's performance under the Licence were cancelled, it intimated that it relied on the cancellation provision of the Deed.'
57 In support of its case that it suffered reliance and detriment, the respondent contends:
'27. The respondent was induced by the conduct of the applicant by the 1994 Letter and subsequently to treat the Licence as cancelled and it did so, both in its cessation of communications with the applicant regarding payments due or subsequently falling due and by its separate development and marketing of Eunice and later developed software products and seeking of custom in Asia and in Australia as well as New Zealand. Reasonably, given its experience in trying to deal with the applicant in the immediate period up to the 1994 Letter, and shareholders and sometime directors Harvey's and Creed's experience in trying unsuccessfully to obtain information from the applicant relevant to their position as shareholders and directors …, the respondent did not concern itself with the activities, if any, of the applicant regarding Eunice.
28. The applicant did not pay the consideration expressed in the Licence. In addition, the applicant did not pay the respondent the amounts it owed for the assistance provided further to its obligations under clause 5, despite the demands made prior to and during 1994. By reason of its reliance on the 1994 Letter, the respondent forwent the opportunity to require remedy for those breaches and for the future breaches when the further instalments of the consideration remained unpaid in 1995 and 1996 and to terminate the Licence when those breaches remained not remedied.
29. In 2003, consistent with its understanding that the Licence was determined and in good faith, having no reason to believe that the applicant would cavil at the respondent's desire to trade in its software in Australia, the respondent approached the applicant with a proposal for the applicant, or a company in the applicant's group of companies, to act as reseller in Australia of the respondent's software.'
58 On the question of unconscionability, the respondent submits:
'30. The applicant did not pay the sum of NZ$12,632.08/AU$10,257 it owed the respondent nor the 2 instalments of consideration due under the Licence. After the 1994 Letter the applicant did not make any payments of the remaining instalments of consideration for the Licence that subsequently fell due. It did not request any future releases of Eunice, copies of current documentation or current sales material as it was entitled to do by clause 3 of the Licence. If it dealt with any customers, it did so without calling on the assistance of the respondent. It did nothing to disturb the assumption that it had engendered in the respondent that the parties' rights and obligations under the Licence were cancelled. It would be unconscionable for the applicant to now resile from the assumption it engendered.
31. The respondent further submits that the applicant and its representatives have behaved unconscionably in their dealings with the respondent concerning Eunice. The applicant has been deliberately secretive in its dealings and sought to deflect enquiries from its minority shareholders. The applicant has no written agreements dealing with Eunice with any other of what it terms the 'Trilogy companies'. Any dealings in Eunice appear to have been moved out of the applicant and into another company in the Trilogy Australia group of companies, thereby ensuring that they were beyond the reach and inspection of the respondent's directors Creed and Harvey who remain minority shareholders in the applicant. The applicant's activities were wound down, by mid 1995 it had only 4 employees and by August 1996, only one employee. The applicant has not produced any financial statements since 30 June 1997.
32. The applicant did not respond to enquiries from its minority shareholders. In 2003 the applicant's sole director and secretary, Mr Cable, was extremely reluctant to respond to a simple enquiry as to the financial status and operations of the applicant from the minority shareholder Harvey. Mr Cable referred the enquiry to Mr Williams, a Hong Kong resident and neither a director nor employee of the applicant or its shareholder Trilogy Corporation Pty Ltd, or any other company in the Trilogy companies.
33. The applicant did not join the respondent, the copyright owner, in its proceedings commenced in 2000 for infringement of copyright against Computer Management Services Pty Limited: cf 120 Copyright Act 1968. It brought the proceedings on its own account. It relied on a clause of its contract with CMS that acknowledged the applicant was the copyright owner of Eunice. The applicant thought the damages might be quite substantial. It had no intention of sharing any moneys received from those proceedings with the respondent: cf s 123 Copyright Act 1968.
34. The respondent submits that it would be unconscionable for the applicant to now be able to enforce the Licence as against the respondent and its licensees and future licensees in Asia and Australia. …'
59 In disputing the applicant's claims of additional terms in the Licence, the respondent submits:
'34. The Licence is concerned with granting the applicant certain specific rights and ensuring that the applicant does not trade in New Zealand in Eunice: see clause 2.
35. The express term asserted by the applicant in paragraph 5A of the [Claim] is not apparent on the face of the Licence. The respondent submits that it is relevant that no counterpart obligation is imposed on the respondent in the express terms of the Licence to the obligation imposed on the applicant to use its best efforts to ensure that Eunice is not sold or made available in New Zealand through any action of the applicant.
36. The respondent submits that the implied term asserted in paragraph 5 of the [Claim] is not so obvious that it goes without saying, reasonable, equitable or necessary to give business efficacy to the agreement between the parties expressed in the clear words of the Licence. The term sought to be implied goes much further than necessary to support the express grant of licence. Further, nowhere in the Licence is there any provision that permits the exclusive licensee to sue for infringement of copyright.'