Kahu NZ Ltd v Aviation Utilities Pty Ltd [No 3]
[2024] WASC 347
•25 SEPTEMBER 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: KAHU NZ LTD -v- AVIATION UTILITIES PTY LTD [No 3] [2024] WASC 347
CORAM: SOLOMON J
HEARD: 6 - 14 JUNE, 31 JULY - 1 AUGUST, 19 - 22 SEPTEMBER, 26 - 27 SEPTEMBER, 24 - 25 OCTOBER, AND 30 OCTOBER - 1 NOVEMBER 2023 WITH ADDITIONAL MATERIAL FILED ON 20 NOVEMBER, 21 NOVEMBER, 24 NOVEMBER, 28 NOVEMBER 2023 AND 13 DECEMBER 2023
DELIVERED : 25 SEPTEMBER 2024
FILE NO/S: CIV 2012 of 2022
BETWEEN: KAHU NZ LTD
Plaintiff
AND
AVIATION UTILITIES PTY LTD
Defendant
Catchwords:
Contractual dispute - Contractual construction - Contract for firefighting services by Black Hawk helicopters - Essentiality of contractual terms - Whether defendant entitled to terminate contract for plaintiff's breach - Expert aviation evidence - Statutory reporting obligations in aviation
Specific performance - Damages in lieu of specific performance - Damages under Lord Cairns' Act - Statutory unconscionable conduct in the exercise of contractual rights - Exercise of contractual right for an improper purpose
Assessment of damages - Expert accounting evidence - Exclusion of depreciation costs - Allocation of overhead expenses - Hypothetical future events - Appropriate discount - Australian Consumer Price Index (CPI)
Legislation:
Chancery Amendment Act 1858 (21 & 22 Vict c 27)
Competition and Consumer Act 2010 (Cth)
Corporations Act 2001 (Cth)
Evidence Act 1906 (WA)
Supreme Court Act 1935 (WA)
Transport Safety Investigation Act 2003 (Cth)
Transport Safety Investigation Regulations 2003 (Cth)
Work Health and Safety Act 2020 (WA)
Result:
Judgment for the plaintiff
Application for specific performance refused
Application for damages allowed in part
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr P J Hannan & Mr P M McAuliffe |
| Defendant | : | Mr S M Davies SC & Mr V Ghosh |
Solicitors:
| Plaintiff | : | Peter May McAuliffe Legal (Busselton) |
| Defendant | : | Norton White |
Cases referred to in decision:
Ailakis v Olivero [No 2] [2014] WASCA 127
Aristocrat Technologies Australia Pty Ltd v Konami Australia Pty Ltd (No 3) [2022] FCA 1373; 409 ALR 418
Armada Balnaves Pte Ltd v Woodside Energy Julimar Pty Ltd [2022] WASCA 69
Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1
Australian Securities and Investments Commission v Rich [2009] NSWSC 1229
Binningup Nominees Pty Ltd v Mirvac (WA) Pty Ltd [2021] WASCA 130
Caratti v The Queen [2000] WASCA 279; 22 WAR 527
Carr v JA Berriman (1953) 89 CLR 327
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
Cooperative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1
Cougar Metals NL v Richore Pty Ltd [2024] WASCA 36
Cromarty Resources Pty Ltd v Thalanga Copper Mines Pty Ltd [2021] NSWCA 284
Delooze v Healey [2007] WASCA 157
Galafassi v Kelly (2014) 87 NSWLR 119
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26
J C Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282
Kahu NZ Ltd v Aviation Utilities Pty Ltd [2022] WASC 405
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61
Lombok Pty Ltd v Supetina Pty Ltd (1987) 14 FCR 226
Malec v JC Hutton Pty Ltd (1990) 169 CLR 638
North Sydney Leagues' Club Ltd v Synergy Protection Agency Pty Ltd (2012) 83 NSWLR 710
Primewest (Mandurah) Pty Ltd v Ryom Pty Ltd as trustee for Golden Asset Pty Ltd [2012] WASC 443
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332
Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359
Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd [2016] 2 Lloyd’s Rep 447
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632
Woodar Investment Development v Wimpey Construction UK [1980] 1 WLR 277
Table of Contents
The parties and the dispute
Background facts
The principal characters and the witnesses
General comment on credibility
Expert witnesses
Events after entry into the Kahu Contract
Kings Park demonstration flight
Helitak issues begin to emerge
Problems with internet access and Mark Law's further communications with DFES and United
Complaint about Mark Law's comments at a debriefing
Missing battery cover
Further discussion regarding the Helitak tank
United Black Hawk helicopter experiences inadvertent water drops
Facebook post and alleged social media breach
Inadvertent water drops - a proposed solution
Mark Law's time recording
The debriefing comments resurface
Further advice on proposal for fixing the inadvertent water drops - then more water drops
Flybrook Fire
End-of-season debriefing
Café meeting of 27 April 2022
Events following the café meeting
Further communications
United formally report the inadvertent drops to DFES
Formal breach notice and aftermath
Events following purported termination of Kahu Contract
Proceedings and application for injunctive relief
Article in The Australian
A further inadvertent water drop
Concluding observations of inadvertent water drops
The contracts
The NAFC Contract
The Kahu Contract
Kahu's claim
Claim in contract
Claim under consumer law
United's defence
Understanding United's pleading regarding Kahu's alleged breaches
Failure to read and understand the NAFC Contract
Social media
Aggressive and unsafe flying
Other allegations of failure to comply with NAFC Contract requirements or United's Operations Manual.
Contact with DFES
Breach and entitlement to terminate
Other aspects of the defence
The contractual terms
Legal principles
Kahu Contract - construction
Kahu's breaches
Failure to read and understand
Failure to comply with NAFC Contract - Facebook post - United defence paragraph 17
Failure to comply with NAFC Contract - aggressive and unsafe flying - Kings Park demonstration flight - United defence paragraph 18(1)
Failure to comply with NAFC Contract - aggressive and unsafe flying - Flybrook Fire - United defence paragraph 18(2)
Other alleged breaches of failure to comply with NAFC Contract requirements
Failure to report and trivialisation of Flybrook Fire incident - United defence paragraph 18A(a) - (c)
Missing battery cover - United defence paragraph 18A(d)
Failure to record flight and duty times - United defence paragraph 18A(e)
Breach of clause 4 - United defence paragraph 16
Contact with Mr Landwehr over debriefing comments
Mark Law's café meeting with Mr Bannister
Damages
Assessment of damages
Expert accounting evidence
Ms Low's report
Reallocation of overhead expenses
Depreciation
Maintenance costs
Mitigation
Mr Honey's report
Reallocation of overhead expenses
Maintenance costs
Depreciation
Increase in future expenses
Mr Honey's conclusion
Conclusions on accounting evidence
SOLOMON J:
The parties and the dispute
The plaintiff (Kahu) is a company incorporated in New Zealand where it has primarily conducted its business activities. Those activities are services provided by helicopter and include transportation, heavy lifting, disaster assistance, forestry, and most relevantly, firefighting. Robert Mark Law, generally known as Mark Law, was at the relevant times the sole director of Kahu and effectively its controlling mind. Mark Law is an experienced helicopter pilot and has been Kahu's principal pilot in the conduct of Kahu's activities.
The defendant (United) trades and is generally known as United Aero Helicopters, or just 'United'. It is based in Australia, and it too provides helicopter services. United offers and has experience in a wide range of helicopter services that have been provided to many government agencies and commercial clients both in Australia and overseas. This experience includes aerial firefighting services in Australia. United is a substantial company which at the relevant time had some 70 employees and operated 25 aircraft. It is controlled by its two directors, Jim Norrie and Sam Borg. They are both experienced helicopter pilots.
This proceeding arises out of a contractual dispute. United was engaged by relevant government agencies to conduct firefighting activities for the summer season of 2021/22 and beyond in Western Australia. United in turn engaged Kahu to assist. By the end of the first season in April 2022, the relationship had soured. United terminated its contract with Kahu alleging that Kahu had breached its contractual obligations. Kahu claims the termination was unjustified and seeks various remedies, primarily specific performance and damages. For the reasons set out, I have found that United's purported termination of its contract with Kahu was not justified. I have rejected Kahu's claim for specific performance, and have granted to Kahu some, but not all, of the damages that it seeks.
I begin with an account of the facts. In that process, I make factual findings based on the evidence. In some instances, I defer making findings and do so later in these reasons as I address the particular issues that arise on the pleadings.
Background facts
The Australian Fire and Emergency Service Authorities Council Limited (AFAC) is a public company limited by guarantee. It is the national council for fire and emergency services agencies across Australia. It has members, one of which is the Western Australian Department of Fire and Emergency Services (DFES). AFAC operates certain commercial arrangements through 'business units' one of which is the National Aerial Firefighting Centre (NAFC). NAFC is the business unit of AFAC responsible for aviation matters.
It was common ground that civil aviation and firefighting in Western Australia are governed by a comprehensive regulatory safety regime. It is unnecessary to review the various regulatory schemes and provisions or the government and statutory agencies that administer the regime. It is notorious that a critical objective of the regulatory regimes is the safety of the community and those directly impacted by aviation, including employees and consumers of aviation services. As a general proposition, it is obvious that the maintenance of safety requires compliance with and adherence to the regulatory regime.
By May 2021, Kahu and United already had an existing commercial relationship, although no significant business operations had yet arisen from that relationship. At around that time, Mr Norrie became aware that NAFC had issued a document inviting tenders for the provision of aerial firefighting services in Western Australia for the 2021/22 firefighting season. The tender proposed the use of one large aircraft. Mr Norrie thought it should be possible to provide two Black Hawk helicopters for about the same cost and that would provide a better service. Kahu had an ex-United States military Black Hawk helicopter modified for civilian use. Similarly, United was soon due to take delivery of an ex-military Black Hawk helicopter. Mr Norrie phoned Mark Law, explained his proposal, and asked if Kahu would be interested in cooperating for the tender by providing the second Black Hawk helicopter as part of United's tender. Following that discussion, by email on 27 May 2021, Mr Norrie sent to Mark Law the tender documents[1] which included a specimen contract entitled 'Contract for Services'.[2] The terms of that document mirrored in large measure the terms of the contract ultimately executed by United and NAFC.
[1] DTB 1492.
[2] DTB 1558.
Over June and July 2021, United and Kahu cooperated in the preparation of United's tender, largely through communications between Mr Norrie and Mark Law. The collaborative communication between United and Kahu leading up to the submission of United's tender included information regarding costs for the preparation of rates as part of the tender. To that end, by email on 10 June 2021, Mr Norrie provided Mark Law with a copy of a document titled 'The Conklin & de Decker Report'.[3] That report set out information regarding the Black Hawk helicopters, including the expected annual cost of its maintenance. Following that, Mr Norrie and Mark Law exchanged information, comments and spreadsheets regarding the costing and rates to be included in the tender. The maintenance costs that were included in the budget that evolved in the communication between Mr Norrie and Mark Law for the purposes of the tender, were based on The Conklin & de Decker Report. A budget was agreed as well as the proposed rates, and a 5% profit margin. The proposed rates agreed between Mr Norrie and Mark Law included a daily standing charge of $8,980, and an operational hourly charge of $4,920. It appears from the evidence of Mr Norrie that the daily charge was marginally less than the budgeted costs ($8,980 against $9,098), but the operational hourly charge was significantly more than the budgeted costs ($4,920 against $3,120).
[3] DTB 1682.
As noted, United's tender departed from the tender invitation in that, rather than one high volume aircraft, the tender from United proposed two aircraft, namely two Black Hawk helicopters. It was proposed that the United Black Hawk helicopter would operate with a water carrying tank known as a Helitak tank, which is attached to the bottom of the helicopter for use in firefighting. In contrast, it was proposed that the Kahu Black Hawk would operate with a device known as a 'bucket', which had a somewhat smaller capacity.
The closing date for the tender was 24 June 2021. The tender document adduced in evidence appears to be undated. There is no reason to suggest that it was not submitted in time, although in its written closing submissions the defendant stated that the tender was submitted in early July 2021. The defendant does not cite any evidence in support of that proposition. In any event, nothing particularly turns on the date of submission and the tender submission was plainly accepted by NAFC.
By email dated 15 July 2021, NAFC sought further information from United (curiously by a letter dated 4 June 2021, which was plainly an error). NAFC sought clarification from United as to whether both Black Hawk helicopters could be provided with a tank. Mr Norrie communicated this to Mark Law that same day. By email dated 18 July 2021, Mark Law agreed that the Kahu Black Hawk helicopter could be provided with a Helitak tank without adjustment to the price. That same day, Mr Norrie on behalf of United advised NAFC by email that the second Black Hawk helicopter would also be fitted with a Helitak tank and that the pricing model would remain the same.
By letter dated 30 August 2021 to United, NAFC confirmed that United's tender proposal had been accepted.[4] The letter foreshadowed the execution of a 'long-form' contract and advised that until then, the letter together with the specimen 'Contract for Services' provided with the tender documents, and United's tender, would constitute the agreement between AFAC/NAFC and United. On 8 September 2021, Mr Norrie sent Mark Law (by email), NAFC's letter of acceptance and the specimen contract. It is common ground that the parties executed a comprehensive written 'long-form' contract[5] which was materially in the same terms as the specimen contract (NAFC Contract).[6] An executed copy of the formal contract was tendered in evidence.[7] It was undated. Mr Norrie's evidence was that it was signed by United on 27 October 2021. Nothing turns on the date on which it was executed.
[4] PTB 510.
[5] PTB 390.
[6] PTB 451.
[7] PTB 390 - 485.
The NAFC Contract is a comprehensive and lengthy document. I shall return to its terms later in these reasons.
Following AFAC/NAFC's acceptance letter to United of 30 August 2021, United wrote to Kahu by letter dated 1 September 2021. The letter concluded with the sentence '[t]his contract enters into force on the dates specified below and once signed by all parties'. On the face of the document, it was signed by all parties and dated 2 September 2021. I shall refer to that contract as the Kahu Contract.
I will return to the detail of the relevant terms of the Kahu Contract later in these reasons. At this point it is sufficient to note that the Kahu Contract included the following clauses:[8]
Kahu must study the entirety of the NAFC Contract and comply with all requirements and conditions of the contract specifications. …
[United], being the contract holder is the only point of contact on all matters relating to NAFC, its Members and State and Territory Agencies.
[8] PTB 514.
As noted above, by this stage, United had already provided Mark Law on behalf of Kahu with a specimen contract which was materially in the same terms as the NAFC Contract.
The principal characters and the witnesses
It is convenient at this point to explain the principal characters in the matter and the witnesses. As has already been explained, Mark Law was the principal and controlling mind of Kahu. Mark Law gave evidence partly by sworn witness statement, and partly by further evidence in chief, and was cross examined on days 4, 5, 6 and 7 of the trial.
Mark Law's brothers, David Law and Peter Law, were also helicopter pilots. David flew as a pilot for Kahu, whereas Peter was engaged by United as a helicopter pilot. Each of Peter and David Law provided witness statements which were accepted into evidence on behalf of Kahu. United did not require David or Peter Law to attend for cross examination. Accordingly, the evidence in their witness statements was unchallenged.
Brock Hawes was a pilot for United. Mr Hawes gave evidence on subpoena from United by video link on day 17 of the trial.
United engaged other pilots who did not give evidence. These were Charlie Elliott, Mark Loughridge and Dekel Zamir. Although each of the pilots utilised in the 2021/22 firefighting season was engaged by United or Kahu, it was not uncommon for a pilot engaged by United to fly in the Kahu Black Hawk helicopter or vice‑versa. Indeed, this was expressly contemplated by the Kahu Contract.
A number of witnesses gave evidence concerning Kahu's accounts and the production of Kahu's financial statements. Ms Chanel Haggart was Kahu's administration and accounts manager. Ms Haggart is also Mark Law's fiancée, and she gave evidence in person on day 10 of the trial. Sharyn Bridges was employed with Kahu's external accountants, and gave evidence by video link on day 10 of the trial. John Fisher was the external accountant for Kahu, and in some respects as will be explained, also has a commercial relationship with Mark Law. Mr Fisher gave evidence by video link on days 8 and 9 of the trial. Craig Newson is a chartered accountant with the firm Prism CA. He was an external accountant for Kahu. Mr Newson gave evidence by video link on day 10 of the trial.
As noted, Mr Norrie and Mr Borg were the directors of United. They were both based in New South Wales. Due to travel restrictions to Western Australia caused by the COVID-19 pandemic, Mr Norrie and Mr Borg spent limited time in Western Australia during the firefighting season of 2021/22 (that was particularly so in respect of Mr Norrie). Mr Norrie gave evidence in person on days 12 and 13 of the trial. Mr Borg gave evidence in person on days 13, 14 and 15 of the trial.
Ms Fiona Wedenig was United's operations and safety manager based in Western Australia. Ms Wedenig gave evidence in person on day 16 of the trial.
Adam Bannister was employed by the Department of Fire and Emergency Services of Western Australia (DFES). DFES as noted was a member of the AFAC and was in effect the representative of AFAC/NAFC for the purposes of the NAFC Contract. Mr Bannister was a senior representative of DFES dealing with the NAFC Contract. Mr Bannister gave evidence in person for Kahu in response to a subpoena on day 11 of the trial.
Mr John Landwehr was also a DFES officer involved with the United Contract. Although he was involved in one important aspect of the dispute, Mr Landwehr was not called to give evidence at trial.
Ms Joanne Green was a divisional manager for Gallagher Aerospace in Australia, an insurance broker in the aviation industry. Ms Green gave evidence by video link on day 16 of the trial.
General comment on credibility
I shall comment on the reliability of each of the witnesses as relevant when discussing the evidence of that witness. In general terms, I am not prepared to find (contrary to some of the submissions of the parties) that any witness was generally unreliable or untruthful. Each of the witnesses generally gave their evidence to the best of their ability and honest recollection. However, at this stage, it is appropriate that I make the following general observations regarding three of the principal characters: Mark Law, Mr Borg and Mr Norrie. The evidence of Mark Law was given largely through his own dogged and singular perspective. Although I accept that his evidence was largely given as his honest account of what transpired, I have treated his evidence with some caution and have generally tested it against other, more objective, evidence. There were some limited aspects of Mark Law's evidence that were unsatisfactory, primarily relating to the falsification of Kahu's flying records in November 2022. Ultimately, however, Mark Law conceded those matters in his evidence. Although there was, on limited occasions, some reticence on the part of Mark Law to acknowledge some matters, I did not find his evidence untruthful.
I found Mr Borg to be a generally truthful witness. He presented as a diligent and conscientious business proprietor. However, as I have commented in these reasons, his recollection of matters was significantly tainted by his antipathy towards Mark Law. Mr Borg's evidence, while not deliberately untruthful, was on occasion lacking in objectivity. To that extent, aspects of Mr Borg's evidence were unreliable. I have therefore treated his evidence with some caution.
Mr Norrie's evidence was also given through a perspective of distrust and dislike for Mark Law. As will be explained, that impacted Mr Norrie's recollection of the timing of a conversation with Mark Law recorded in his first witness statement. However, I found Mr Norrie's evidence to be less impacted by his attitude towards Mark Law, and I generally found his evidence to be straightforward, candid, and reliable.
Expert witnesses
There were two sets of expert witnesses. The expert evidence related to aviation matters and accounting. The aviation expert evidence was directed primarily to allegations by United of deficiencies in Kahu's flying of its Black Hawk helicopter, and in particular the flying of Mark Law. United called Mr Ogden and Kahu called Mr McKenzie. Both witnesses were well-qualified in their field, and did their best to assist the court in an appropriately professional manner. However, to a significant extent, their evidence comprised commentary on the observations of others. Neither of them had direct knowledge of the events on which their views were sought. The aviation experts each prepared a report, and following a conferral before a registrar of the court, they prepared a joint report. Mr Ogden and Mr McKenzie gave concurrent evidence on day 17 of the trial. I have referred to their evidence where I found it to be relevant and helpful.
The accounting evidence was primarily directed to the prospective profit alleged by Kahu to have been lost due to United's allegedly unlawful termination of the Kahu Contract. Kahu called Jennifer Low and United called Barry Honey. Each of the accounting experts prepared a report and, following a conferral before a registrar of the court, they prepared a joint report. The accounting experts gave concurrent evidence on day 18 of the trial. I shall have more to say about the expert accounting evidence in the consideration of damages.
Events after entry into the Kahu Contract
Returning now to the narrative, in anticipation of the coming firefighting season, from October 2021, both Kahu and United attended to various regulatory requirements. For example, application was made for Civil Aviation Safety Authority (CASA) approval to operate Kahu's Black Hawk and to that end Mr Borg prepared information to submit to CASA. As part of that preparation, Mr Borg received documentation from Mark Law, including aircraft logbook statements.[9] Mr Borg observed that among the documents was a duplicate of a record but that the two copies were not the same. He contacted Darren Anstey, who at the time was engaged by Kahu to oversee the engineering maintenance on Kahu's Black Hawk helicopter (when the firefighting season began Mr Anstey was engaged in that role by United). Mr Anstey explained that a mistake in the record had been identified and it was therefore changed. Mr Borg did not press the matter further and accepted that explanation. Regulatory approval was obtained.
[9] ts 1809.
In the meantime, on 4 November 2021, United was successful in bidding at an auction in the United States for a second Black Hawk helicopter. The intent behind United's purchase or deployment of the second Black Hawk became an important issue in the trial. The documentary evidence suggests that this additional Black Hawk helicopter had a contract purchase date of 18 March 2022.[10]
[10] PTB 1494.
Also during November 2021, as part of the preparation to meet the requirements of the NAFC Contract, each of United and Kahu procured a Helitak tank. Helitak tanks were supplied by Helitak Firefighting Equipment Pty Ltd (Helitak). Helitak's CEO and Chief Engineer was Jason Schellaars. United purchased its Helitak tank, whereas Kahu leased a Helitak tank directly from Helitak in the United States.
At that time, Helitak had already supplied its tank to another Australian company known as Aerotech Group in South Australia. Aerotech's Chief Pilot and Commercial Manager was Chris Boyd. On 8 November 2021, Mr Boyd emailed Mr Schellaars and advised him of problems that he had encountered while testing the Helitak tank on Aerotech's Black Hawk helicopter. Mr Boyd advised that one of those problems was that the system was shutting down randomly, resulting in the door pressure of the tank being released and loss of the water load. Mr Schellaars responded on the same day, advising in effect that Helitak would address the problem and make changes as required and that it needed to make sure it was not a power supply problem, or a control data issue.[11]
[11] PTB 524 - 525.
The unexpected release of the water load from the Helitak tank attached to the Black Hawk identified by Aerotech came to be referred to as an inadvertent water drop. The problem took on considerable significance in the relationship between United and Kahu and was a central point of contention in this proceeding.
In the meantime, United and Kahu planned for the arrival of relevant personnel in Western Australia for the beginning of December 2021 for the commencement of 2021/22 firefighting season. United was based in Sydney, and Kahu in New Zealand. At that time, travel to Western Australia was particularly difficult because of the restrictions imposed in response to the COVID‑19 pandemic. It appears that at the time, personnel engaged in firefighting were permitted entry into Western Australia as an essential service, but were required to undertake two weeks' quarantine upon arrival.
United had a fixed base at Jandakot airport. Ms Fiona Wedenig was the manager for United based in Western Australia. In addition, United had accommodation premises and aircraft facilities in Serpentine. In early December 2021, Mark Law together with other pilots from New Zealand arrived in Western Australia and were required to quarantine for two weeks at United's accommodation in Serpentine. Mr Borg also arrived from Sydney and quarantined in Serpentine. During that quarantine period, Mr Borg took the opportunity to conduct an induction of Mark Law and the other pilots into the United systems. This included the Air Maestro system, which is a software program used in the aviation industry to record flight information. Mr Borg also introduced Mark Law and the other pilots to United's Operations Manual, Safety Management System, and other documentation. This included historical notices to air crew that had been circulated in relation to various issues. The documents produced in evidence by United included a lengthy document entitled 'United Aero Helicopter Operations Manual'. The footnote contained the notation 'COMD v1.13 - April 2020'. On 13 December 2021, Mark Law signed a certificate that he had read and understood the procedures and instructions contained in the United Aero Helicopters Manual Amendment No 13. There was no direct evidence on the subject, but I infer that the reference to Amendment No 13 is a reference to 'COMD v1.13'. The Operations Manual was of some importance because clause 6 of the Kahu Contract required Kahu to comply with its terms.
Mr Borg's evidence was that during the course of the induction, he made it clear that United took a dim view of the use of social media and directed that attention be paid to the provisions in the NAFC Contract regarding the use of social media. Mark Law accepted in his evidence that these matters were raised in the induction.
Mark Law completed quarantine on about 17 December 2021. Very shortly after that, Mr Bannister from DFES came to Serpentine to welcome the team and to discuss the upcoming firefighting season.[12] Mark Law explained in his evidence that Mr Bannister advised that Fiona Wedenig would be the point of contact, but he told Mark Law and other pilots that if any issue arose, they could raise it with him personally.
Kings Park demonstration flight
[12] ts 397.
A demonstration flight was undertaken by Mark Law in the Kahu Black Hawk helicopter on 22 December 2021, at the beginning of the NAFC and Kahu Contracts and the 2021/22 firefighting season. Black Hawk helicopters and the attached Helitak tank had not previously been used in firefighting in Western Australia and the demonstration flight was organised to take place in the presence of DFES officers, and apparently some representatives of the military. The arrival of the United Black Hawk helicopter was delayed, so only the Kahu Black Hawk was used for the demonstration.
The demonstration flight involved the Kahu Black Hawk picking up water in the Helitak tank at Kings Park and then dropping the water on an oval at Irwin Barracks, a military base a short distance away. The demonstration involved doing this three times in a row. Mark Law was the pilot and Mr Hawes was the co-pilot. Mr Borg was sitting behind Mark Law.
The dashboard of the helicopter contains various warning lights. Among them are warning lights for oil pressure. A warning light for oil pressure can relate to either the transmission or the engines. The warning light is illuminated only for so long as there is a problem. If the problem is resolved, then the light goes off automatically. If any one of the individual warning lights is illuminated, a master caution light also comes on. Even if the individual warning light turns off automatically, the master caution light will only turn off if that is done manually.
The relevant matter arose on the first demonstration flight after Mark Law picked up the water from Kings Park and flew back to Irwin Barracks for the water drop. On manoeuvring the helicopter into the descent for the water drop, oil pressure lights were illuminated.
Precisely what happened was the subject of evidence from each of the three people in the Kahu Black Hawk; Mark Law, Mr Hawes and Mr Borg. The matter was also the subject of expert evidence from the two aviation experts, Mr McKenzie and Mr Ogden.
Mark Law's evidence of the demonstration flight was that during the descent at the oval, Mr Hawes called out 'bank angle'. Mark Law had not previously experienced such a call from a co-pilot, and assumed it was just for the awareness of the pilot. Mark Law appeared to accept that Mr Hawes also called out 'oil pressure'. Mark Law's evidence was that he did not see any oil pressure light come on and therefore, if it did illuminate, it must have been fleeting. He explained that if the oil pressure light had come on, he would not have seen it because he was looking the other way out of the window to line up the water drop at the right place. In substance, Mark Law's evidence was that in his experience a rapid descent will sometimes produce a momentary low oil pressure, triggering the warning light. He accepted that when the matter of the light illumination was raised by Mr Hawes, he may have said something to the effect that it happens often in that situation, although he did not recall that. Mark Law did not think it presented any indication of danger or unduly aggressive flying. Mark Law also gave evidence that if an oil pressure light came on, it must have related to the transmission and not the engine. I do not accept that evidence, which in any event was an opinion. The independent evidence of Mr Hawes discussed below demonstrates that it is more likely to have been the engine oil pressure.
In his evidence, Mark Law accepted that after the demonstration flight Mr Borg spoke to him and complained that the low oil pressure light had come on due to aggressive flying that was not warranted.[13] Mark Law did not seek to argue with Mr Borg, but it was plain he did not agree with him. Mark Law did not think it necessary to modify his flying style to accommodate Mr Borg's observations.
[13] ts 905.
Mr Borg confirmed in his evidence that the demonstration involved three flights and the issue of concern arose on the descent during the first of the three flights. Mr Borg recalled Mr Hawes calling out 'oil pressure, oil pressure'. He did not recall Mr Hawes calling out 'bank angle' and he accepted that such a call was not usual in a civil, as distinct from a military, context. When Mr Borg heard Mr Hawes call out 'oil pressure', he looked across at the dashboard. His evidence was that he saw the oil pressure engine lights illuminated for just a second or two, then after they had gone off, he saw Mr Hawes manually turn off the master caution light. Mr Borg's evidence was that after the aircraft levelled out, Mark Law said words to the effect of 'don't worry. It always does that'. Mr Borg accepted that the engine oil problem was momentary, and did not warrant the adoption of any urgent or emergency response.
Mr Borg's evidence was that when they arrived back at the Serpentine base, he told Mark Law that 'we exceeded a limitation' and 'there was no need to fly the aircraft to that degree'. Mr Borg recalled that he said to Mark Law 'it's understandable that we want to show this thing … and it's a new contract. But it's not a requirement to exceed a limitation to get the job done'. Mr Borg said that he told Mark Law that the rest of the demonstration flight went quite well. His evidence was that 'overall I was relatively pleased with the rest of the flight' and that other than that incident, Mark Law's capabilities were 'quite good'. Mr Borg did not recall that Mark Law gave any meaningful response to his comments at the time. In relation to his discussion with Mark Law, Mr Borg said in evidence, 'and so I gave - had a small talk to Mark Law at the end of it and considered that was enough at the time to, you know, rectify any sort of future behaviour'.
Mr Hawes gave evidence as to his recollection of the Kings Park demonstration flight. Mr Hawes' evidence is of significance as he was the only independent witness who was in the helicopter. He recalled that the oil pressure light for the engines illuminated, which automatically caused the master caution light to illuminate. He called out 'master caution, oil pressure'. The oil pressure lights went off by themselves and he then manually turned off the master caution light. Mr Hawes said that he had not previously experienced the illumination of an oil pressure engine light. When asked about the significance of the oil pressure engine lights coming on, Mr Hawes said it was transient so 'there's no significance'. He explained there was no suggestion of initiating any emergency procedure. Mr Hawes was asked twice by senior counsel for United if he was comfortable with the way the helicopter was handled. Mr Hawes answered yes on each occasion. Given Mr Hawes' independence, his assessment is significant.
Notwithstanding Mr Borg's expression of concern, it was clear on the evidence that no further action was taken at that time regarding the matter. It was also clear that the co-pilot Mr Hawes did not suggest that there was anything unsafe unfolding, and he was comfortable with the manner in which the helicopter was flown. He perceived no reason to initiate any emergency procedure.
Mr Bannister was also present at Irwin Barracks during the descent for the water drop. Mr Bannister's evidence was that he did not observe anything of concern in the manner in which the Kahu Black Hawk helicopter was begin flown. Mr Bannister of course was not in the helicopter; he was on the ground. He could not have seen the illumination of any lights. But as a senior DFES officer involved in the NAFC Contract, and as a person with vast experience, if there had been any manifest concern in the manner of flying at a demonstration flight it would be expected that he would notice.
As Mr Bannister was not in the helicopter, his evidence on this topic is of very marginal relevance. However, Mr Bannister's evidence in this regard was notable for a further reason. When he was asked about the Kahu Black Hawk helicopter flying at Irwin Barracks, senior counsel for United objected to the question on the basis that the question was irrelevant because 'the issue arises in relation to Kings Park' whereas Mr Bannister was at Irwin Barracks, not Kings Park. The objection was misplaced because in fact the issue arose in respect of the Kahu Black Hawk helicopter's descent at Irwin Barracks not in Kings Park. Although innocent errors of that nature are not uncommon in lengthy hearings and are generally of no significance, in this matter the error was regrettably illustrative of an antipathy towards Mark Law that on occasion appeared to reach a level of hostile zealotry. The attitude had the tendency to obscure accuracy and objectivity and the objection raised to the question posed was one such example.
The aviation experts, Mr McKenzie and Mr Ogden gave expert evidence regarding the Kings Park demonstration flight. The substance of their relevant evidence was that they agreed there was some evidence of unnecessarily aggressive flying which led to the illumination of the oil pressure lights, but there was no material danger or emergency that occurred. The experts considered that Mark Law's responsive comment that it had happened before reflected a level of potential over-confidence or what the experts called 'confirmation bias' that invariably carried with it the risk of overlooking potential problems.
I make the following findings regarding the Kings Park demonstration flight. The demonstration flight involved three trips from Kings Park to pick up water and drop it an oval at Irwin Barracks. Mark Law was the pilot and Mr Hawes was the co-pilot. Mr Borg sat behind Mark Law. On the first trip during the descent for the drop on the oval, it is probable that the two engine oil pressure lights went on, which caused the master caution light to go on and led Mr Hawes to call out 'master caution oil pressure'. The oil pressure lights were illuminated for only a matter of seconds before the issue resolved itself, and the lights went off. At that point, Brock Hawes manually turned off the master caution light. The incident most likely reflected some degree of aggressive flying and unwarranted exuberance on the part of Mark Law. The incident did not present any danger or emergency. Nobody involved considered at the time that there was any imminent danger. It is likely that Mark Law responded to Mr Hawes' call by making some reference to the illumination having happened before so as to minimise its significance. The flight and the subsequent two flights continued without incident. After the demonstration flight and the return to Serpentine, Mr Borg discussed the demonstration flight with Mark Law and in the course of that discussion told Mark Law, in effect, that in respect of the first flight, he thought Mark Law had flown the helicopter in a manner that unnecessarily exceeded the limitations of the aircraft. Mark Law did not express agreement or disagreement with Mr Borg's comment. Mr Borg considered that he had responded to and dealt with the incident in an appropriate manner, and that it did not require any further action. Mr Borg did not suggest, and in my assessment, likely did not consider at the time, that any issue arose of a breach of the Kahu Contract.
Mark Law's flying at the first descent of the demonstration flight was unnecessarily aggressive. This reflected his flying style. It did not in the circumstances compromise safety. Mr Borg at the time did not suggest, and likely did not turn his mind to whether, the manner of flying constituted a breach of the Kahu Contract. In closing submissions, United urged findings that Mark Law's flying at the demonstration flight created an extremely rare and abnormal occurrence that eroded the margin of safety and created risk and that if prolonged would have led to engine failure and motor drop which could have resulted in the helicopter crashing. That characterisation is inconsistent with Mr Borg's demonstrated reaction at the time. It is extravagant. Had Mr Borg or others adopted that view of what occurred, it is inconceivable that they would not have reacted more forcefully.
As time passed, Mark Law's style, both in the way he flew his helicopter and in the way he conducted some of his communications, increasingly irked Mr Borg and caused him growing concern. As United's dislike and mistrust of Mark Law evolved, the significance of Mark Law's momentary aggressive flying on 22 December 2021 became amplified in United's perspective. When the conflict erupted between United and Kahu on 27 April 2022 in circumstances that will be explained, the incident loomed larger in Mr Borg's perspective than had been the case when it happened. Looking back critically at Mark Law's conduct in the environment of tension and acrimony on 27 April, Mr Borg utilised that incident to express his frustration with Mark Law. But the attitude that evolved by that time could not, and did not, retrospectively transform Mark Law's conduct of 22 December 2021 into something more serious than it was at the time, less still a breach of contract so fundamental that it gave rise to United's right to terminate. After United's purported termination of the Kahu Contract and as the dispute intensified, so did the retrospective characterisation of what occurred.
This is illustrated also by Mr Borg's evidence. When asked why the Kings Park demonstration flight was not mentioned in the Breach Letter of 27 May 2022 (referred to at [195] below), Mr Borg answered that it was because the letter was to recognise 'the official breaches as per the agreement between the two companies' and that it was not thought pertinent to include each item that 'contributed to us getting to that point'.[14] Later in his evidence, Mr Borg explained that Mark Law was a good pilot, but there were aspects of his flying that needed attention and that was something that could have been addressed if the parties had moved forward to the following season 'but we didn't get to that point'. That evidence negates any conclusion that Mark Law's flying style, including the manner of his flying at the Kings Park demonstration flight, constituted a breach of the Kahu Contract that entitled United to terminate the contract.
[14] ts 1851.
What is perhaps more significant about the Kings Park demonstration flight was that it was an early indication of the emerging conflict that arose from Mark Law's single-minded self-confidence, and Mr Borg's more conservative and cautious approach both to flying and to contract management. This early manifestation of the gap between those styles ultimately became unbridgeable.
Helitak issues begin to emerge
Within a short time of the demonstration flight, Mark Law was experiencing and expressing difficulties with the Helitak tank.
In cross examination,[15] Mark Law said that in Kahu's first call-out, after one drop from the tank, it failed, and they had to stand down. It appears that happened in the early afternoon on Christmas Day 2021.[16] That same day, Mark Law felt sufficiently concerned regarding difficulties he was experiencing with the Helitak tank to send a fairly terse email to Mr Schellaars of Helitak, copied to Mr Norrie and Mr Borg. As will be explained, the terms of the email are relied upon by United as part of its contention that it was entitled to terminate the Kahu Contract. The terms of the email were as follows:[17]
[15] ts 664.
[16] ts 670.
[17] PTB 591.
Hi Jason,
Merry Christmas, I hope you guys are having a nice day.
Further to our conversation, this is the latest re only the PLC's. Essentially, we are currently not complying with the DFES contact due to US PLC's and com modules. The AVDAU is working fine.
1. PLC is US
2. PLC is serviceable and no com module installed.
3. PLC is in helicopter, but com module is US
We will send ASAP but can you send to us another PLC with tested com module to the AVDAU.
Re the other things we chatted about, we need to have a meeting between all to sort this out when you get back on deck. There is too much at stake and we need to get things right. Darren said you never spoke to him at lunch time, like you told me you had. We need to sort the communications out between us as this is not conducive to achieving the outcomes we desire.
Like I said to you yesterday, all of us in the community of operating your tanks are concerned and anxious about actually going out every day and them working every drop. With the current status of Jim and Sam's new tank fixed to our machine not working as it should be, we are desperate to get it sorted ASAP and put the feelings to bed.
Lastly, that comment from you telling me "You didn't get your shit together" being the reason for us being late, the tank not installed on time and late to the contract was absolute bull shit. Don't use that again. You were on speaker phone at that time with our whole entire crew listening to that comment and everyone was aghast.
All of us have made huge commitments, spent truckloads of cash to be here, flying your product only to be stalling at the start line, due only to tank issues. It's your time Jason. We only get one shot at these types of opportunities and its yours at the moment to see it through. If it dies in the arse, then it's not for the lack of our effort to fly your product in front of the world as best we can. We want to see you succeed, but you have to help us more than you have.
Have a nice break and let's get together and sort this out once and for all. Call me anytime.
Kind regards,
Mark Law
The email was strident, and conveyed a level of anger. In cross examination, Mark Law was criticised for its tone and for suggesting that the problems he was concerned about had rendered United/Kahu unable to fulfil its obligations under the NAFC Contract. Mark Law was also criticised for that email because, as it was put to him, communications should have come from United[18] as clause 4 of the Kahu Contract made plain that United was to be the only point of contact.[19] Mark Law defended the email as necessary in the circumstances where United and Kahu were entirely reliant on the Helitak tank, and it had failed the first time they went out. Mark Law said in his evidence that he considered he was dealing with a serious issue, and he was trying to sort it out.[20]
[18] ts 671.
[19] That is the clause referred to at [15] above, and [239] below.
[20] ts 671; See also fn 151.
By late December, if not earlier, United and Kahu had become aware of Aerotech's experience of a loss of the water load as expressed by Mr Boyd in his email to Mr Schellaars on 8 November 2021 as referred to at [35] above. In light of the various difficulties apparently being experienced with the Helitak tank, it was around this time that a 'Google Sheets user group' was created where people using the tank could contribute to discussion in order to identify and solve issues relating to the Helitak tank.
At 3pm on 28 December, Mark Law sent a further email to Mr Schellaars, Mr Norrie and Mr Borg copying others including Mr Boyd. The terms of this email too are relied upon by United to justify its termination of the Kahu Contract. Its terms were as follows:[21]
[21] DTB 1939; PTB 593 - 594.
Hi All,
I thought it best that we assemble as a collective, and act quickly to overcome the significant issues and problems, which we are experiencing, with the Helitak tank. If this is not rectified immediately, it will jeopardise the entire NAFC contracted Hawks.
Everyone on this email list is well aware of the issues, the problems and most importantly the unreliability of the tank.
Jason, this is not an email to discredit you, your team or the tank. It's a great tank, it just needs reliability and simplicity. As a collective, we can make this happen. We just need to seriously simplify it with the bare basics of control. We just can't afford to get kicked off, one more fire.
Additionally, the current lack of support with remedies/solutions, to the issues we are having have not been addressed satisfactorily either. This is adding to the growing frustration by all Involved. We need dedicated support at all times. Its critical.
90 % of the issues are electrical. The PLC and brain seem to hate each other. All of us know how difficult electrical issues and problems can be to solve. It's certainly not time to be sorting them out now and we all seem to be going around in circles.
Therefore, we need to configure a simple "pump on", "salvo drop", "partial drop (5%)", "foam on" solution, immediately. We have the expertise between us to achieve this. Let's act without delay.
I propose we all have a zoom (or similar) meeting and come up with a simple plan and install immediately. The sooner we do this, the sooner we can continue with confidence.
Kind regards,
Please get back to the collective ASAP and let's get this tank performing as it should be.
Mark Law
It appears that around this time, some form of meeting with Mr Schellaars took place. On 29 December 2021, Mr Borg sent Mark Law and others a proposed email in draft to Mr Schellaars which referred to 'a productive meeting' and the benefit of group discussion to find solutions to current problems. After raising seven points, Mr Borg's draft raised an issue that was not discussed at the meeting and was being experienced by Aerotech on Black Hawk helicopters using the Helitak tanks. The email referred to a 'bigger problem altogether if the tank doors suddenly open and release 4 tonne of water'. The proposed email stated that United had not had the problem, but it appeared Aerotech had experienced it on two separate machines. Mr Borg circulated the draft email and invited the recipients to 'edit as required'. Mr Borg told the recipients, 'if you have any suggestions, send them through as I think this should come through me or Jim'.[22] I pause to note that this comment was not put in directory or mandatory terms, but, unremarkably, was couched as reflective of what Mr Borg thought 'should' occur. In response to the proposed email, Mark Law suggested that there should be a follow up with three to four calls per week to keep the pressure on Helitak.
[22] DTB 1941.
The evidence indicated that Mr Borg sent the email to Mr Schellaars on 29 December 2021.[23] In the email to Mr Schellaars, Mr Borg maintained the comment about the inadvertent opening of the tank doors while the tank was loaded characterising it as 'another bigger problem altogether' and referring to the fact that Aerotech had now had it happen on two separate machines.
[23] DTB 1947.
At 9:10am on 31 December 2021, Mark Law sent a further email to Mr Borg and Mr Norrie. United also relies upon the terms of this email to justify its termination of the Kahu Contract. Its terms were as follows:[24]
[24] DTB 1943.
Morning Sam,
Thanks for the update.
We need to keep on these guys. I have been asking Paul for an update of my credit (funds with them) and to return the $10K to me. I asked again yesterday and this morning he said he will get onto it when the others return. It [sic] not good enough I reckon, and they have a bad habit of dragging stuff out.
The email from Brad is very interesting. I think the culture within Helitak is mostly defensive of its product and in particularly of any end user having issues or wanting to sort these out. If this doesn't change, we will have a tough time of it. You can sense that from Brad's comments and my previous experience. It would be good to somehow shape them into a more receptive and proactive supplier.
One way would be to openly establish the user's [sic] group (Including Helitak), recall and raise all past issues, troubles shooting etc and ensure all end users are calling upon Helitak to deliver on their obligation of product support. We can offer solutions and the likes also.
This issue with the water gauge / sensor will be the tip of the ice berg [sic]. This will be a simple test of the honesty box but my money is on nothing being said by him. The project has got out of hand for Jason and co. Too much smoke thrown. They seriously need other people involved to help.
I just hope that with all this knowledge we have, what we have been raising and then there is an incident, how difficult that will be for us to manage our way out. I have been there with the Cabri's [sic], their French manufacturer and a catastrophic failure of (4) Cabri's [sic], I had contracted onto Tuna boats. In the end the French hid behind their pastry, I called the contract for HSE reasons, and went to the wall facing a $2.5M loss.
We need to keep the acid on and with the response of Paul this morning I have my doubt [sic] Helitak are out of ground idle.
Kind regards,
Also on 31 December 2021, Mr Boyd from Aerotech wrote to Mr Borg, Mark Law, Mr Norrie and others raising a number of issues including the fact that Aerotech had experienced an 'uncommanded load release'.[25]
[25] DTB 1952.
As noted, around this time, a user group was established to discuss problems in relation to the Helitak tank. On 31 December 2021, Mark Law sent to Mr Borg a list of issues for the user group. These issues included (but were by no means limited to) the inadvertent opening of the tank, causing the drop of the entire water load.[26] Mr Borg appeared to share at least some of Mark Law's frustration. In Mr Borg's email to Mark Law of 31 December, he said that Helitak's 'modus operandi is to duck and weave, or ignore'.
[26] PTB 605 - 608.
There was no suggestion in the emails emanating from United at the time that United was displeased with the approach that Mark Law had taken with Helitak in his email communications. The closest to any such criticism is contained in the email from Mr Borg of 13 January 2022, responding to Mark Law's email of 11 January 2022.[27] In that email, in responding to Mark Law's criticism of Mr Schellaars, Mr Borg said: '[W]e're not going to change his personality, despite the fact that he takes a lot of money from us and provides an imperfect product. The pressure on him needs to be measured consistent and organised ... I can see all the faults, but I believe we will get the best response by calmly presenting the issues…'. This again reflected the growing tensions arising from the differing approaches of Mark Law and Mr Borg.
Problems with internet access and Mark Law's further communications with DFES and United
[27] DTB 2031.
On Saturday morning, 1 January 2022, Mark Law emailed Mr Norrie and Mr Borg regarding billing arrangements. He attached a breakdown of hours flown to date. He explained that 'the internet here is not letting me send all the DFRs (Daily Flight Records) in one batch'.[28] Mr Norrie responded that same evening,[29] attaching an excel version of the Air Maestro report for December. He added a number of points, including the need for the Air Maestro report to be accurate. He explained that this was necessary because the client is charged by reference to engine time and flight time. He told Mark Law, among other things, that moving forward there was a need to keep Air Maestro accurate. It is plain in the context of the email exchange that Mr Norrie's comments were directed to the accuracy of Air Maestro for billing purposes. Mark Law responded on 2 January 2022, advising that Kahu had been recording both engine and flight times but that he still needed to familiarise himself with the Air Maestro system. On the evidence, there did not appear to be a further response from Mr Norrie or Mr Borg. Certainly, there was no sense of angst, less still alarm, that Mark Law had not yet familiarised himself with the Air Maestro system.
[28] DTB 2009.
[29] DTB 2010.
On Saturday morning, 8 January 2022, Mark Law sent updated FORs (Flight Operations Returns) to Mr Norrie and United's accounts department.[30] A short time later, Mark Law sent a further email stating that he had realised that the updated FORs he thought had been sent were not in fact sent, and observing that 'the lack of internet' is frustrating. He complained that the same problem had been encountered with other emails.[31]
[30] DTB 2027.
[31] PTB 634.
In a lengthy email on 13 January 2022, Mark Law advised Mr Borg and Mr Norrie that he had followed up with Ms Wedenig regarding the internet, and that he expected Ms Wedenig would 'beat the drums again'. Mark Law advised that he appreciated 'everyone down here sounds like a broken record re the lack of internet, but it's actually surprising how much we rely on it to do stuff'. The email went on to say that he had discussed the lack of internet issue with Mr Bannister. Mark Law also advised Mr Borg and Mr Norrie that he had had a 'good chat' with Mr Bannister about 'a bunch of other stuff', including the extension to the helipad.
The following day, 14 January 2022, Mark Law sent an email to Mr Borg which was in effect a draft of a proposed email to Mr Bannister following up on a discussion with Mr Bannister regarding the extension to the helipad and setting out some 'supporting thoughts'.[32] Mr Borg responded to the draft on 15 January 2022. Included in Mr Borg's response was the following:[33]
Also I think this information, and any written correspondence, needs to come from me, Jim or Fiona as the central points of contact DFES. It's great to have that direct access in the field with the DFES manager of air operations, but written correspondence should go through one of us as it reflects a request or opinion of the company and needs to be consistent to that end.
[32] DTB 2035 - 2036.
[33] DTB 2034 - 2035.
A number of things may be observed about those comments of Mr Borg. First, Mr Borg took no objection to the communication between Mark Law and Mr Bannister. On the contrary, Mr Borg affirmed that 'direct access in the field' was 'great'. Secondly, Mr Borg referred to 'written correspondence' as needing to come from United. That was not put in strident or absolute terms. Rather, it was couched politely and sensibly as something that 'should' occur as United was the 'central' point of contact. Nor was the reason for Mr Borg's approach couched as an unalterable contractual requirement, but rather was said to be directed to ensuring consistency.
On 19 January 2022, Mark Law sent Mr Norrie and Mr Borg a lengthy email raising a number of issues as 'discussion points'. Among them, Mark Law advised that it was his view that the rates for the Black Hawk helicopters were 'light on', and although there was nothing that could be done about it at the time, United and Kahu should grab any opportunity to increase the rates. This too is one of the communications relied upon by United to justify its termination of the Kahu Contract. Mr Borg replied by email the same day. On the issue of rates, Mr Borg responded in the following terms:[34]
Rates - This is fair enough and time will tell exactly where the rates should be. An extra couple of grand a day would be awesome but you're right, it isn't coming for now. A review of costs at the end of the season will be telling, albeit the first year will always be the most expensive.
The reality is we don't know when we tender what will win it and we have to go with our educated thoughts. Every single thing we do from rostering to purchasing vehicles has to reflect the fact that the income is tight. Hopefully there is profit at the end.
[34] DTB 270 - 272.
There was further evidence regarding the internet difficulties. In emails between 11 and 20 January 2022 between Ms Wedenig, Mr Bannister and Mr Landwehr, difficulties with the internet and possible solutions were raised and discussed. On 20 January 2022, Mr Bannister from DFES emailed Ms Wedenig regarding the conduct of daily briefs to their pilots and aircrew. Mr Bannister said that, in light of the critical nature of those briefs, 'good connectivity is vital'. Mr Bannister told Ms Wedenig that there had been poor connection issues. The complaint this time emanated from DFES rather than Kahu, regarding problems with internet connectivity. It is of some significance that these observations emanated from DFES rather than Kahu. DFES generally did not share Mark Law's propensity for strident tone in communications.
Complaint about Mark Law's comments at a debriefing
The evidence disclosed that there was firefighting activity on about 23 January 2022 which required the Black Hawk helicopters to fill their tanks from a water source. A woman was observed taking photographs of the activity standing in the water underneath some tree branches. The downwash from the Kahu Black Hawk helicopter blew her over such that she fell into the water. The following day, there was a routine morning debriefing in relation to the previous day's activities. The debriefing took place via video link. Mark Law explained that everyone involved in the activity of that day joined in the video link which was chaired by the relevant DFES officer. Mark Law gave evidence of what he said at the debriefing in relation to the incident when the woman fell over. His evidence was that he reported that 'the poor lady went up to over her breasts in water'.
Shortly after, it appears within a day or two, Mr Landwehr visited Mark Law and other Kahu pilots at their accommodation. Mr Landwehr told them that the reference in the debriefing to a woman's breasts had created an issue, and that someone from DFES had taken offence at the use of the word 'breasts'. Mark Law's evidence was that in response, he told Mr Landwehr that he would be careful not to refer to breasts 'or words to that effect' in the future and that he would 'keep an eye on what was said at briefings'. Mark Law's evidence was that Mr Landwehr then said, in effect, that the issue would not go any further, and he would not raise it with others. Mark Law accepted in cross examination that Mr Landwehr was a fairly senior person within DFES, and that the issue in relation to what was said at the debriefing was the principal subject of Mr Landwehr's visit.
Mark Law's evidence was that, in his mind, Mr Landwehr had clearly given his word that the matter would not go outside the four walls of the premises on which he had discussed the matter; that is, it would go no further. In effect, Mark Law understood that Mr Landwehr had promised to take the matter no further. I have no doubt that Mark Law had that understanding. This was not untypical of the manner in which Mark Law understood matters.
A short time later, Mr Landwehr visited Ms Wedenig at the United Jandakot airport office. According to Ms Wedenig's evidence, this was in late January or early February, so about a week after Mr Landwehr had raised the issue with Mark Law and the other pilots.
Mr Landwehr told Ms Wedenig that he had spoken with Mark Law about the concerns raised in relation to Mark Law's comments at the debriefing and that he had told Mark Law that his comments were not appropriate. Ms Wedenig's evidence was that Mr Landwehr told her that he had conveyed to Mark Law that no further action was required. However, on reflection, Mr Landwehr felt he should raise the matter with Ms Wedenig as the 'Base Manager'. Ms Wedenig's evidence was that at the time of that conversation with Mr Landwehr she did not know the detail of the comments. She only learned later that the comments related to the use of the word breasts. The fact that Ms Wedenig neither knew nor discussed the nature of the allegedly inappropriate comments at the time Mr Landwehr spoke to her, suggests that neither of them regarded the matter as particularly serious. I shall return to the ramifications of these events in the course of the chronology.
Missing battery cover
On 2 February 2022, the Kahu Black Hawk helicopter was flying to combat a fire at Nambeelup. Mark Law's evidence was that on returning to the base in Serpentine, and while locking the aircraft down for the night, Mark Law realised that the battery cover was missing. Ordinarily, a battery cover is secured by fasteners. Mark Law discussed the matter with his copilot on that day, Mr Elliott, who was a United pilot, and then with his brother Peter Law, also a United pilot, and Mr Anstey who, by this time, was a maintenance engineer employed by United for the course of the Kahu Contract, but who was assisting with both United and Kahu Black Hawk helicopters. In those conversations, Mark Law hypothesised that the battery cover might have flown out of the helicopter during the flight. In cross examination, Mark Law accepted that the most probable explanation for the missing battery cover was that it had flown out during flight, but he could not be sure, and he did not know. Mark Law also accepted that other than advising Mr Anstey and discussing it with Mr Elliott and Peter Law, he did not otherwise report the possibility that the missing battery cover had flown out during flight.
Mr Elliott as a United pilot was flying with Mark Law as a Kahu pilot. It was possible that Mr Elliott was the pilot in charge of the flight, and that Mr Elliott had done the majority of the flying. The evidence in relation to those matters remained unclear.
It appears that nothing further was done in relation to the missing battery cover other than procuring a replacement. The matter was not the subject of any further investigation or report.
I find that the battery cover likely flew out during the flight on the Kahu Black Hawk helicopter on 2 February 2022 when Mr Elliott of United and Mark Law of Kahu were the pilots. The matter was reported, and responded to by the on-site engineer Mr Anstey (who, it will be recalled, at the relevant time was employed by United). Other than by replacing the missing cover, no one at Kahu or United did anything further about the incident. No one reported it to any regulatory authority.
Further discussion regarding the Helitak tank
On 2 February 2022, Mr Bannister initiated a meeting at the Serpentine Base with the helicopter crews to review the ongoing operations of the Black Hawk helicopters. Ms Wedenig also attended the meeting.[35] At the meeting, Ms Wedenig told Mr Bannister that there were some ongoing difficulties with the Helitak tank. According to Ms Wedenig's evidence, Mark Law added to the discussion by stating to Mr Bannister that the problems associated with the Helitak tank created a risk that the Black Hawk helicopters would not be serviceable, and he suggested that DFES put pressure on Helitak to prioritise the remediation of the problems. Mr Bannister responded by expressing a high level of concern at the prospect of the Black Hawk helicopters not being operational, and said that DFES would need to be informed immediately if that were to happen. Mr Bannister then left the meeting briefly to take a phone call. At that point, Ms Wedenig took the opportunity to tell Mark Law that she did not think it was appropriate to involve DFES in the efforts to accelerate Helitak's responses, and nor was it appropriate to express that level of frustration and alarm to DFES in relation to Helitak.[36] When Mr Bannister returned to the meeting, Ms Wedenig told him that the issues with the Helitak were being addressed. Ms Wedenig said that following the meeting, she phoned Mr Norrie and told him about Mark Law's comments at the meeting, and that she had counselled Mark Law about the inappropriateness of his comments.
[35] DTB 3698.
[36] DTB 3698.
It emerged over the course of the trial that Mark Law's conduct at this meeting, particularly his comments to Mr Bannister, contributed significantly to the breakdown in the relationship. The meeting exacerbated United's frustration with what it perceived to be Mark Law's unduly direct, strident and insensitive style. That perception meant that United felt it could not trust that Mark Law's communications with DFES would be tempered by an appropriate sensitivity to the disclosure of information. As in many commercial contexts, United was required to engage in a balancing exercise of not wishing to alarm its client but maintaining its obligation of keeping it informed. This required delicate navigation. It is unsurprising that United sought to strike a nuanced and careful approach on such an issue. Such a strategy always involves a level of judgement and some assumption of risk. Mark Law, on the other hand, was not prone to delicacy and nuanced judgement. He was a person who approached matters in a more 'black and white' fashion. The tension that arose from this meeting was a significant example of how Mark Law's more strident and almost Manichean approach to issues was likely to collide with the careful and delicate assessments confronting United dealing with DFES in a valuable contract.[37]
[37] See cross examination of Mr Borg at ts 1961 - 1962, and Ms Wedenig at ts 2077 - 2079.
Following that meeting, on 5 February 2022, Mr Borg emailed Ms Wedenig and Mr Norrie to report on a phone call he had with Mr Bannister the previous evening. Mr Bannister had told Mr Borg that DFES were 'so far happy' with the Black Hawk helicopters. Mr Bannister raised the issues with the Helitak tank and sought some encouragement that United were addressing the issues. Mr Borg reported that he told Mr Bannister that they were working to address the issues.[38]
United Black Hawk helicopter experiences inadvertent water drops
[38] PTB 696.
Mark Law gave evidence that until 7 February 2022, he had only heard of inadvertent drops from Aerotech. On 7 February 2022, he was flying in the Kahu Black Hawk behind the United Black Hawk helicopter which was being flown by Peter Law. Mark Law observed the full load of water release from the United Black Hawk helicopter. On discussing the matter with the United pilots, they told Mark Law that they did not know whether the drop had happened because the switch had been accidentally activated, or whether the Helitak tank had opened without the switch being activated.
Mark Law initially gave evidence that he witnessed a second inadvertent drop the next day on 8 February 2022. However, he corrected this evidence to say that after checking his records, he believed the second inadvertent drop was on 4 March 2022. Curiously, however, the plaintiff's chronology and its written closing submissions listed the second inadvertent drop as having occurred on 8 February 2022. In any event, the second inadvertent drop witnessed by Mark Law was again when he was flying in the Kahu Black Hawk helicopter behind the United Black Hawk helicopter, and saw the water load drop from the United Black Hawk helicopter.
Peter Law also gave evidence of having personally seen or experienced two inadvertent drops while he was flying the United Black Hawk helicopter. Peter Law did not give the dates of those events. His evidence was that in respect of both of those inadvertent drops he could not say whether the switch had been accidentally activated, or that the drops happened without the switch being activated.[39] David Law's evidence was that he saw one inadvertent drop on the United Black Hawk helicopter when he and Mark Law were observing the United Black Hawk helicopter from their flight aboard the Kahu Black Hawk helicopter. David Law's evidence did not include a date for that event.
[39] PTB 1299 - 1300.
Whatever the precise dates and details, it is clear that the two inadvertent drops on the United Black Hawk helicopter occurred and were not reported to Ms Wedenig, Mr Norrie or Mr Borg, or indeed drawn to their attention at all. The inadvertent drops on the United Black Hawk helicopter on 7 and 8 February (or possibly 4 March) were not brought to the attention of Mr Norrie or Mr Borg until later. At the same time, Mr Norrie, Mr Borg, and Ms Wedenig were aware that at least Aerotech had experienced an inadvertent drop and that the matter had been raised with Helitak.
Facebook post and alleged social media breach
On 9 February 2022, Mark Law posted on the Kahu Facebook page a photograph of himself in the Kahu Black Hawk. The photo showed the DFES communication frequencies written in crayon on the windshield. The photo was accompanied by a caption which read: 'the scribing on the window is a quick way to record important details from command and control whilst working on the fireground'. Certain operational information is visible in the photo.
It emerged in the evidence that Kahu was an enthusiastic user of social media as a means of promoting its business whereas United took a 'dim view' of the use of social media. The NAFC Contract contained provisions regarding the use of social media to which I shall return when considering the contractual obligations between United and Kahu. As explained, the Kahu pilots, including Mark Law, underwent an induction process in December 2021 at the beginning of the firefighting season. As already noted, Mark Law accepted in his evidence that at the induction it was made clear that United did not promote their activities through social media and that sub-contractors should adopt the same approach in respect of the operations performed under the NAFC Contract. I accept that the use of social media was raised as part of the induction. However, in light of what occurred as a result of Mark Law's Facebook post, I consider that in the mind of Mr Borg, the matter took on a retrospective prominence that was not objectively apparent at the time of the induction.
In addition, following his Facebook post and in his evidence at the trial, Mark Law indicated there was some ambiguity about the application of the policy because United had participated in some limited social media activity, and until the incident of 9 February 2022, no objection had been taken to Kahu's Facebook activity which apparently included some reference to its participation in the firefighting activities. The induction training included access to various 'NOTAC' forms which were formal notices that had historically been issued to air crew; the term NOTAC being a shortened form of 'Notice to Aircrew'. Reflecting the ambiguity of Mark Law's response in evidence, the NOTAC forms in evidence did not stipulate an unqualified prohibition against the use of social media. They were directed to a policy against media interviews, making public comments and the posting on social media of information which related to operational aspects of the work being undertaken. It was, however, quite plain that posting information to social media that disclosed operational detail was prohibited under United's policy as reflected in the NOTAC forms. As noted, Mark Law's evidence was that he was made aware of the policy during the induction.
Notwithstanding the content of the induction training, there appeared to have been no objection raised to or contention regarding Kahu's use of social media until the post of 9 February 2022.
In his initial witness statement of 13 May 2023, Mr Norrie stated that on 19 January 2022 he had a heated conversation with Mark Law about the use of social media in which he instructed Mark Law not to 'post anything about this contract or operation on social media'. In his responsive witness statement of 23 May 2023, Mark Law stated that Mr Norrie was mistaken and that the heated conversation did not take place until after 9 February 2023 when Mark Law had posted the photo to Facebook. Almost four months later, in a supplementary witness statement of 18 September 2023, Mr Norrie corrected his initial witness statement and accepted that the heated conversation happened only after Mark Law had posted the photo on Facebook on 9 February 2022. Mr Norrie's somewhat belated correction was of more significance than was indicated by the bland terms in which it was expressed. That is because a degree of ambiguity about the permissible boundaries relating to social media was not, as Mr Norrie first recalled, clarified in emphatic terms prior to 9 February 2022. Kahu's conduct falls to be assessed in the circumstances that prevailed at the time it made the post. Mark Law's conduct cannot be assessed as Mr Norrie initially recalled - that the Facebook post was made shortly after he had stridently and emphatically told Mark Law that such a thing should not be done. Rather, on the evidence, at the time that Mark Law posted the offending information on Facebook on 9 February 2022, there was a degree of ambiguity in relation to the attitude of DFES and United regarding the use of social media. There was no doubt that both DFES and United took seriously the posting of any operational information on social media. But short of that, there appeared to be a level of tolerance if not limited participation by DFES in some form of social media presence.
Mr Norrie's initial recollection, belatedly corrected after Mark Law's responsive witness statement, illustrates the way in which United's strongly negative view of Mark Law had the tendency to colour its perspective and indeed its recollection of events. I have no doubt that when Mr Norrie signed his first witness statement, his recollection that his heated conversation with Mark Law preceded Mark Law's Facebook post was an entirely honest belief. Mr Norrie was an honest and straightforward witness. But that only serves to indicate the extent to which honest recollections in this matter (as in many matters) are distorted and shaped by perspective and emotion. United's hostile attitude to Mark Law grew as time unfolded, and only intensified as the litigation took shape. Coupled with barristerial flourish, it produced a rather extravagant caricature of Mark Law's undoubted single-minded and inflexible tendencies.
As noted, there was no ambiguity in relation to the prohibition on disclosure of operational information on social media. DFES's displeasure at the Facebook post was swift. On the afternoon of 9 February 2022, Mr Bannister sent an email to Ms Wedenig advising that he had been made aware of the photo, and that the image clearly showed air to ground frequencies used by state fire agencies. The email stated that this was a 'very serious breach of DFES media protocols' and needed to be removed immediately. The email also sought a contract meeting between DFES and United to discuss the matter.
Ms Wedenig's evidence was that, in addition to the email, she received a phone call from Mr Bannister regarding his concern and asking for the post to be taken down.[40] Ms Wedenig telephoned Mark Law and instructed him to remove the post, which he agreed to do. There is no dispute that Mark Law immediately removed the post. Ms Wedenig then phoned Mr Bannister to advise that the post had been removed. Ms Wedenig also emailed Mr Bannister on the evening of 9 February 2022 to advise him that the image had been removed.[41] Ms Wedenig apologised for the breach of the DFES social media protocol, and said that United had a strict social media protocol and would ensure that such a breach would not occur again.
[40] DTB 3677.
[41] DTB 2113.
Mark Law accepted, both at the time of incident and at the trial, that his conduct amounted to a breach of contract. At the same time, his evidence was to the effect that there was some lack of clarity about the permissible boundaries of social media usage. In the email communication referred to below, it is apparent that Mark Law indeed sought clarity about social media usage. In addition, notwithstanding his immediate removal of the offending post, Mark Law considered there was no difficulty, and indeed some value, in social media exposure of the work being undertaken.
That passage demonstrates that there is no hard rule about this issue. The object remains that the court must do its best on the available evidence to place the plaintiff in the position it would have been in had the contract been performed. Having considered the views of the experts, I find that there should be a reallocation of the overhead expenses to the Australian operations under the Kahu Contract. Each of the methods adopted by the experts is an appropriate and valid means of calculating that reallocation. As the method adopted by Ms Low is valid and appropriate, I shall adopt that method because it is able to be calculated on the basis of the evidence available to the experts, and to the court.
Maintenance costs
Mr Honey also observed that Kahu's financial statements did not accommodate the special maintenance required at 48 months/4,800 flying hours. As noted at [429], Mr Honey reported that he had been instructed that this maintenance cost is approximately US$250,000. Mr Honey did not refer to any documentation to support that instruction. As noted above, in the joint expert report, Ms Low revised her assessment to take account of that expense, albeit at a lesser amount for the reasons she explained and that I accept are reasonable in the circumstances.
Depreciation
Mr Honey also disagreed with Ms Low's treatment of depreciation. Mr Honey's view was that, although depreciation is a non-cash expense when considered on a periodic basis, it nonetheless reflects a real expense over the life of the relevant asset and, consequently, should not be ignored in assessments of profitability.
In Aristocrat Technologies Australia Pty Ltd v Konami Australia Pty Ltd (No 3)[2022] FCA 1373; 409 ALR 418, Nicholas J considered a claim for damages arising from a patent infringement. In considering the question of whether depreciation items should be excluded from the assessment of damages on the basis that they reflect a non-cash expense, his Honour said at [422]:
The fact that depreciation does not reflect a cash expense is not determinative of whether it should be allowed. Depreciation is a well-known and widely applied accounting concept that is used to bring to account the diminishing value of fixed assets for the purpose of calculating profit in any relevant period. In Leplastrier & Co Ltd v Armstrong-Holland Ltd (1926) 26 SR (NSW) 585 at 593, Harvey CJ in Eq appears to have no difficulty in accepting that an amount may be allowable for depreciation of machinery used to manufacture an infringing product. In Celanese International v BP Chemicals [1999] RPC 203, Laddie J noted at [111] that both accountants agreed that depreciation of the relevant plant was a properly allowable deduction and his Lordship's observations at [112] suggest that he agreed with that position. The Full Court in Decor Corp Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 406 recognised that a proportion of overhead comprising rent, salaries of administrators, and depreciation, which are attributable to a range of product [sic] including the infringing products, may be an allowable deduction.
The basis for Ms Low's conclusion that the depreciation item should be removed is set out at [428] above. While Ms Low's reasoning may well be sound in principle, the foundation for her conclusion was not based on evidence admissible for the truth of its content. In the circumstances, I prefer the approach of Mr Honey that depreciation ought not to be excluded from the calculation of lost profit. I agree with Mr Honey's observation in oral evidence[195] that although depreciation often does not precisely reflect the cost of the use of that asset at that point in time, it is a systematic basis of allocating the cost over the useful life of the asset and it is important to bring that into the analysis of a loss of profits. Mr Honey[196] usefully described depreciation as an imperfect but objective systematic approach to charging the expense of an asset.
Increase in future expenses
[195] ts 2292.
[196] ts 2304.
Mr Honey also disagreed with Ms Low's adoption of CPI as a means of forecasting the increase in expenses in the assessment of future lost profits. Mr Honey's view was that there are 'weaknesses' in using CPI because it is a weighted index based on a basket of goods and services and as such 'may not represent all production and consumption in the economy'. Mr Honey went on to explain that the contract costs (as distinct from the rates) are not linked to CPI, and may vary at a different rate with implications for profitability. Mr Honey stated that he had not undertaken an analysis of likely CPI movements that may have impacted on Kahu's contract costs as that was beyond his expertise. He was instructed to assume an increase in costs of 20%. There was no evidentiary foundation for that assumption. It may be accepted that adopting CPI as a measure of future increases entails a level of uncertainty and potential inaccuracy. But no method is likely to be free of such difficulties. In the circumstances, I consider that Ms Low's adoption of CPI is an appropriate means of assessing Kahu's future costs. Where Mr Honey adopted assumptions on the basis of his instructions, there was an insufficient evidentiary foundation for those matters, and I prefer Ms Low's reliance on the financial statements and the official published CPI rates.
Mr Honey's conclusion
Mr Honey, in his analysis, adopted each of the positions I have outlined above in which he disagreed with Ms Low. Having done so, in his assessment, the Kahu Contract was unprofitable. Kahu therefore did not suffer any damage from its termination. Indeed, it was United's position that the termination relieved Kahu from a liability.
Conclusions on accounting evidence
In summary I find:
(a)Kahu's 2020, 2021, 2022 and February 2023 Financial Statements are admissible and probative, and are likely to reflect Kahu's financial position with reasonable accuracy.
(b)Kahu's financial statements should be used as the guide to assess future lost profits. They are a more accurate and appropriate guide than the budget prepared for the tender of the NAFC Contract.
(c)It is appropriate to reallocate a proportion of the overhead expenses to the Kahu Contract. The reallocation of overhead expenses in the manner undertaken by Ms Low is reasonable and appropriate in the circumstances. No other method is available.
(d)Depreciation of the Kahu Black Hawk helicopter should not be excluded from the profit calculation for the 2021/22 firefighting season.
(e)CPI is an appropriate method to assess the increase in Kahu's future contractual costs.
(f)The amount of Kahu's loss should be reduced by the net profit that Kahu earned in the absence of the Kahu Contract, and was likely to earn in future years. I accept Ms Low's analysis of that amount for the 2022/23 season in the sum of $106,836. That amount should be increased by CPI for the future years in respect of which Kahu was entitled to damages.[197]
[197] Kahu's closing submissions appeared to proceed on the basis that relevant sum in respect of mitigation calculated by Ms Low was $288,965, and this sum should be deducted once from the total damages. In my assessment of Ms Low's report, the relevant amount was $106,836, being the relevant proportion of Kahu's net profits for the relevant time, and this related just to the 2022/23 season. A similar adjustment needs to be made in subsequent years.
In all the circumstances, other than in respect of depreciation, I have preferred the analysis and the assessment of Ms Low as reflected in her report and refined in the joint expert report. Although I found both experts to be well qualified, credible and professional, I considered that Ms Low was somewhat more measured and objective. My preference for Ms Low's analysis includes the variances set out in Annexure 2 to the experts' joint report.
In its written closing submissions following the conclusion of the trial, United produced an 'Annexure C' which purported to be a collation of invoices for work undertaken by the Kahu Black Hawk helicopter between 15 December 2022 and 21 April 2023. The aggregate total of the invoices was NZ$1,043,309.90. In its written closing submissions United asserted that, on the basis of those invoices, Kahu had carried out operations in New Zealand and rendered invoices for those amounts. United submitted that Ms Low's analysis made no reference to that income, and that the failure to address those matters was a fundamental flaw in the analysis of Kahu's loss and damage.
The invoices contained in Annexure C were not explained or explored at trial. They were not part of the expert conferral. Approximately one third of the invoices appear to be within the period of the February 2023 Financial Statements. Nothing was asked of any of the witnesses about these matters, including Mark Law, the Prism personnel, or either of the expert witnesses. There was no evidence of the nature of the work apparently reflected in the invoices. There was no evidence of the expenses incurred in relation to the apparent invoices. Nor was there any exploration or consideration of the impact on the analysis of the lost profit, and in particular, the mitigatory impact of the funds that Kahu earned or was likely to earn in the absence of the Kahu Contract. I cannot know for example, whether, if all those invoices were rendered and paid, they produced a profit or a loss. In the circumstances, there is simply an insufficient evidentiary basis for me to take those matters into account. Given that they were not raised at the trial or put to any witnesses, or raised with the experts, it would also be quite unfair if I were to do so.
For the reasons explained above, I assess that the likely loss of income to Kahu is reflected in the analysis of Ms Low.[198] Those amounts are:
[198] It is apparent from Kahu's expert accounting report that reliance was placed on the Financial Statements of 2021, 2022 and February 2023. No reliance was placed on the two-page distillations prepared by Mr Fisher. Nor was reliance placed on other documents such as management statements which were contained in the trial bundle (see PTB from 2496). In the circumstances, the debate about the provenance and probity of those documents was not material to an assessment of the evidence of Kahu's damages.
Firefighting season CPI % increase
(on first year profits of $611,354)Net profits
$Contractual periods 2022/23 7.8% 659,040 2023/24 4.8% 690,674 Option periods 2024/25 3.2% 712,775 2025/26 3.0% 734,158
Those amounts should be adjusted by adding the depreciation of Kahu's Black Hawk helicopter back in as an expense and taking account of the mitigation, that is the amount that Kahu did or would have earned, in respect of the relevant years.
United contended that Kahu was not entitled to be compensated for loss of any profit in subsequent firefighting seasons. That is for two separate reasons, relating not to matters that did occur, but rather to matters that United contended would invariably have occurred had United not purported to terminate the Kahu Contract. The impact on the quantum of damages to be paid relating to hypothetical events that may have occurred if a contract had remained on foot has been considered in many cases, most notably the High Court decisions in Sellars v Adelaide PetroleumNL (1994) 179 CLR 332 and Malec v JC Hutton Pty Ltd (1990) 169 CLR 638, both of which were considered and applied by the Court of Appeal in Armada Balnaves Pte Ltd v Woodside Energy JulimarPty Ltd [2022] WASCA 69 (Armada). The relevant principle emerging from those authorities is that, when the court is dealing with hypothetical events where proof is necessarily unattainable, the court will assess the probability that the event would have occurred and will adjust the quantum of damages to reflect that degree of probability. Once liability is established, the damages awarded to a plaintiff will take into account any reductions arising from the uncertainty of future events.
The first matter is that United contended the Kahu Contract would inevitably have been lawfully terminated in any event before the beginning of the 2022/23 season. That is because of the events described at [206] above. Those events happened prior to the time that the Kahu Black Hawk would have been required to be transported to Australia for the 2022/23 firefighting season. It follows that there is no reason to suppose that Kahu would not have engaged in any different conduct had United not purported to terminate the Kahu Contract in July/August 2022. Had it done so, United submitted that it was inevitable that the falsification of Kahu's flying records would have come to the attention of Mr Borg through the standard procedures he would have had to undertake for the 2022/23 firefighting season. Had that happened, it was inevitable that United would have terminated the Kahu Contract and that such termination would have been lawful.
In my view, it is not possible to infer that such a course of events was inevitable. Had Kahu been preparing for a further firefighting season in Western Australia, it is entirely possible that Kahu would not have undertaken that work or might have been more careful with its record keeping. The more obvious it is said to be that Mr Borg's procedures would have exposed the false record, the less likely it is that Mark Law would have engaged in such conduct knowing that Mr Borg was soon due to review his records. I agree that had Kahu engaged in such conduct, it would have amounted to a sufficiently serious breach of the Kahu Contract to entitle United to terminate. However, in the hypothetical circumstances of United not purporting to terminate the Kahu Contract in July/August 2022, I would not assess the prospect of Kahu's conduct leading to a lawful termination as inevitable. Rather, I would assess the probability of that happening at 25%.
The second matter is that United contended there was no prospect whatsoever of the three-year term being extended. In those circumstances, no damages could be awarded to Kahu in respect of the period beyond the three-year term of the Kahu Contract. It is necessary in that regard to explain the competing positions of the parties.
Kahu proceeded on the basis that it was entitled to the lost profits for the two extended option periods, that is, the two additional years. Kahu submitted that on the proper construction of the Kahu Contract, if NAFC exercised the option for one or both of the two extended periods under the NAFC Contract, then United was bound to extend the Kahu Contract commensurately. Kahu submitted that on the evidence, NAFC (through Mr Bannister) was very satisfied with United and Kahu's performance and would have extended the NAFC Contract. On that basis, Kahu contended that it was entitled to the profits of the further two years, that is, the 2024/25 and the 2025/26 firefighting seasons.
In contrast, United submitted that on its proper construction, the Kahu Contract provided United with an option to renew the Kahu Contract at its discretion. United submitted that in the circumstances, there was no prospect that United would have elected to prolong its relationship with Kahu, and therefore there would have been no possibility of United extending the Kahu Contract for the two additional one-year periods. Accordingly, no damages should be awarded for those periods.
It is first necessary to resolve the issue of contractual construction: was United bound to engage Kahu under the Kahu Contract in the event that NAFC exercised its option, or options, under the NAFC Contract?
As noted above, clause 4.2 of the NAFC Contract provided that NAFC may, in its absolute discretion, exercise an option to extend the contract period for up to two terms of up to one year each. Those option periods are referred to expressly in the opening paragraph of the Kahu Contract:[199]
[United] is about to enter a contract with [NAFC] … during the summers of the years 2021/22, 2022/23, 2023/24 plus two one year options as determined by the NAFC.
[199] PTB 513.
The following paragraph of the Kahu Contract provided that United 'agrees to cross hire exclusively from [Kahu] the [Kahu Black Hawk] for each of the two succeeding Availability Periods (if the options are taken by NAFC)'. That is the provision relied upon by Kahu in its contention that if NAFC exercised the option to extend the NAFC Contract, then United was in turn bound to extend the Kahu Contract. In contrast, United directed attention to the following paragraph in the Kahu Contract:[200]
[United] may exercise its option in respect of each of the fourth and fifth Availability Periods by notice in writing or verbal to Kahu.
[200] PTB 513.
United contended that by reason of that provision, and in particular the word 'may', it had an unfettered discretion as to whether it would extend the Kahu Contract in the event that NAFC exercised its option to extend the NAFC Contract. In my view, construing the Kahu Contract as a whole without seeking to isolate one provision from others, I consider that United was contractually bound to extend the Kahu Contract in the event that NAFC exercised its option to extend under clause 4.2 of the NAFC Contract. The provision referred to at [463] above contains an unambiguous and unqualified promise to engage Kahu in the event that NAFC exercised its option to extend. The provision relied upon by United did not diminish that obligation, or in some way alter its character to that of a permissive discretion. Rather, that provision provided the means by which United could satisfy its obligation to extend the Kahu Contract; at its discretion it could do so by notice in writing or verbally.
It was clear enough from Mr Bannister's evidence that he was satisfied with the service provided by United in the first firefighting season of 2021/22. In the absence of any material change to that position, it is likely that NAFC would have exercised the option for the further two one-year periods. If that had happened, then United would have been contractually bound to engage Kahu for the further one-year option periods under the Kahu Contract. However, in my assessment, that cannot be the end of the matter. Given the deterioration in the relationship between United and Mark Law and the importance of a collaborative and constructive relationship in the performance of the services under the NAFC Contract, it seems to me most unlikely that NAFC would have exercised the option to extend if that had necessitated the maintenance of a fractured and increasingly dysfunctional relationship. It is possible that the relationship might have improved, or even repaired. However, my assessment of the evidence and the personalities is that it is more likely to have deteriorated further. In the circumstances, I would put the prospects of the extension of the Kahu Contract at no higher than 10%.
In the circumstances, I would grant Kahu compensatory damages, being:
(a)75% of the lost profit as assessed above for the 2022/23 and 2023/24 firefighting seasons;
(b)10% of the lost profit for the 2024/25 and 2025/26 seasons as assessed above.
The parties should prepare and, if possible, agree a minute of orders that take account of the relevant adjustments including the conversion to Australian dollars to reflect these reasons.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
YM
Associate to the Honourable Justice Solomon
25 SEPTEMBER 2024
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