Air National Corporate Limited v Director of Civil Aviation HC Wellington Civ-2011-485-135

[2011] NZHC 35

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2011-485-135

UNDER  the Judicature Amendment Act 1972

IN THE MATTER OF     an application for judicial review

AND IN THE MATTER OF an application for interim relief

BETWEEN  AIR NATIONAL CORPORATE LIMITED Applicant

ANDTHE DIRECTOR OF CIVIL AVIATION Respondent

Hearing:         2 February 2011

Appearances: S S Cook and A N Birkinshaw for the applicant

K I Murray and J F Parnell for the respondent

Judgment:      2 February 2011

REASONS FOR ORAL JUDGMENT OF CLIFFORD J

Introduction

[1]      On 28 January, the respondent (“the Director”), acting under s 17 of the Civil Aviation Act 1990 (“the Act”) suspended the air operator certificate held by the applicant (“Air National”).  That certificate is necessary for Air National to conduct its business of charter flights within New Zealand.   That business involves the operation of what are described as medium and large aircraft. Air National contracts to Air New Zealand, through, as I understand it, Eagle Airways.  Air National also provides flight services  to Air New Zealand itself and a number of other large customers.  I have been told that a total of some 65 flights would be affected by the

initial ten day suspension period.

AIR NATIONAL CORPORATE LIMITED V THE DIRECTOR OF CIVIL AVIATION HC WN CIV-2011-485-

135 2 February 2011

[2]      On 31 January Air National commenced these judicial review proceedings challenging the Director‟s decision.  At the same time it applied without notice, but on  a Pickwick basis,  for orders to  reverse the  effect  of the  Director‟s  decision pending the outcome of its substantive judicial review application, and the appeal that it had also filed in the District Court.

[3]      Following a telephone conference held yesterday morning Dobson J declined to make the without notice orders sought by Air National, but ordered that Air National‟s application be heard on notice this morning.   As directed, affidavits in opposition were filed on behalf of the Director late yesterday afternoon, and further affidavits in reply on behalf of Air National was filed this morning.

[4]      I heard Air National‟s application this morning.  At the end of that hearing I

indicated that I would grant Air National‟s application on the basis that:

(a)       as had been accepted by the Director, relief was necessary to preserve

Air National‟s position; and

(b)that in terms of the wide discretion given to the Court to consider all of the circumstances, having regard to the strength of Air National‟s claim that those safety concerns did not call for the exercise by the Director of the summary power under s 17 to suspend, and balancing

– in a way which essentially involves an assessment of the strength of that claim as it relates to the matters identified by the Director as giving rise to his concerns as to safety – public safety issues against the private interests of Air National, I was persuaded that Air National‟s case that relief as sought was appropriate.

[5]      I adopted as a relevant test of the strength or weakness of the claim, the proposition that for the Director to act under s 17 there needed to be matters which gave rise to a real or imminent risk to safety.

[6]      At the end of very brief oral reasons, I indicated that I would provide written reasons for that oral judgment later this afternoon.  At that time Mr Murray for the

Director asked for my decision to be stayed, as he may receive instructions to appeal. My decision was stayed until the giving of these oral reasons and – if necessary – for a short period thereafter, subject to further application by Mr Murray.

[7]      I now set out in more detail the reasons for my oral decision.

Background

[8]      In  his  formal  notice of  suspension  of 28  January the  Director  made  his decision suspending Air National‟s air operator certificate on the basis that an audit being conducted by the Civil Aviation Authority (“the CAA”) had discovered false training records relating to the training of two pilots in 2010.   In addition, the Director  considered  that  Air  National‟s training  manager  had  been  conducting competency checks on other pilots when not qualified to do so: the Director said that Air National‟s training manager‟s competence had not been checked by a flight examiner who met certain CAA requirements.  These matters were also seen by the Director as reflecting systemic safety issues.  The Director suspended Air National‟s air operator certificate in the interests of aviation safety.

[9]      In its written memorandum Air National applied for interim relief under s 8 of the Judicature Amendment Act 1972 on the basis that:

(a)      Its statement of claim for judicial review, and the affidavits filed in support of this application, establish that there is a serious issue to be tried.

(b)      The balance of convenience favours Air National:

(i)the Director‟s decision to suspend its licence for the initial period of ten days, and possibly beyond that, will cause Air National irrecoverable financial loss, reputational damage, and may well put it out of business;

(ii)at the same time, the circumstances which the Director relies on do not present any realistic or imminent threat to public safety and, moreover, Air National is prepared to enter into binding undertakings in favour of the Director which further reinforce that proposition; and

(iii)finally, the overall justice of the situation favours Air National, particularly given that the Director acted to suspend Air National‟s air operator certificate without giving Air National an opportunity to be heard on the underlying allegations.

[10]     In arguing the case before me, Mr Sheridan presented submissions which adopted what is called by McGechan the “second approach” as set out in Carlton & United Breweries Ltd v Minister of Customs,[1] namely that the Court inquires first as to whether it is necessary to grant interim relief to preserve the position of the applicant and then whether, having regard to a range of relevant considerations, the Court in  its  wide  residual  discretion  considers  it  appropriate to  grant  the relief

[1] Carlton & United Breweries Ltd v Minister of Customs [1986] 1 NZLR 429.

sought.

[11]     The  approach  was,  in  ENZA  Ltd  v  Apple  and  Pear  Export  Permits

Committee,[2] expressed as follows:

[2] ENZA Ltd v Apple and Pear Export Permits Committee HC Wellington CP266/00, 18 December 2000.

Amongst  the  circumstances  of  a  case  that  the  Court  often  considers  in respect of s 8 are the strengths and weaknesses of the plaintiff‟s case, the competing advantages and detriments to the parties, the status quo, the balance of convenience, public repercussions as well as private, and the overall justice position.

[12]     I set out my reasons, following that approach, in terms of Air National‟s

application, the affidavits that have been filed and the submissions I heard.

Necessity

[13]     For the Director, Mr Murray accepted that, in terms of s 8, relief as sought by Air National was “necessary” as Air National claimed.  I agree.  It is not necessary therefore that I further consider that issue.

Strength of Air National’s case

[14]     In  his  notice  suspending  Air  National‟s  air  operator‟s  certificate  the Director first referred to what he referred to as “evidence of the falsification of training records”.  He stated:

The  CAA audit  has  uncovered  evidence  of  the  falsification  of  training records  prepared  by  Mr Andrew  Cliff  (CAA No  57145), Air  National‟s Senior Person Flight and Ground Operations.  The evidence shows Mr Cliff has documented and signed off training in the Westwind aircraft simulator that was not actually conducted as described in order to show completion of the training programme.  This relates to the training of pilots Richard Wright and Sean Morelli on 20 December 2010.   These actions misrepresent the competency of the pilots who received the training and creates a serious safety risk.  I regard these misrepresentations as serious safety breaches and a breach of trust and that immediate action is necessary in the interests of aviation safety.  These actions also demonstrate that this Air National Senior Person cannot be relied upon to present a truthful representation of the status of the operation and its personnel.

[15]     Under section 12 of the Act Air National is responsible to ensure activities are carried out safely in accordance with relevant prescribed safety standards and practices.  It is clear to me that deliberate or negligent preparation of false training records can raise serious issues capable, as the Director states, of creating serious safety risks.

[16]     Mr Cliff has filed an affidavit explaining the circumstances in which the admittedly false internal record was prepared.  Very much in summary, Mr Cliff was supervising simulator flight training for two Air National pilots on a Westwind II aircraft in San Diego, USA.   Neither of those pilots have yet qualified to fly that aircraft, and that aircraft is itself not currently being flown by Air National.

[17]   Mr Cliff explains in his affidavit that the error arose in the following circumstances:

(a)      The simulator training session in San Diego had been intended to be based on a flight route known as “NZAA Oceanic Departure NWV Auckland”.  Mr Cliff, and the two pilots, prepared for the simulator session on this basis.   As part of the preparation for that session, Mr Cliff completed part of the record of the simulator session prior to that session occurring.

(b)On the day, the operator of the simulator was not able to provide the NZAA Oceanic Departure NWV Auckland route due to  computer difficulties.  Instead, another route was adopted for the purpose of the training session.  On the completion of the session Mr Cliff completed his notes, recording performance observations.   He failed to correct the flight reference.

[18]     Mr Cliff explains:

On 7 January 2010, I telephoned Peter Underwood of CAA to touch base with him for the new year and update him on the training programme.  I told him that the training went well but explained that it had been necessary to change  the  routes  flown  because  of  the  issues  with  programming  the simulator with Southern Hemisphere routes.  To the best of my recollection, I said something along the lines of “I had to change a couple of the planned routes because we had a few problems with the simulator”.

I recall that Mr Underwood did not express any concern about this and said something  like  “OK,  just  send  me  an  email  on  the  training”.    I  told Mr Underwood that I would outline the changes in a written report and he said that this was fine.

[19]     In  his  affidavit,  Mr  Cliff  further  explains  that  the  training  programme approved by the CAA requires him to accompany pilots on the first two actual oceanic flights of the Westwind II aircraft, and accordingly there is no particular incentive for Mr Cliff to falsify simulator training on the same route.  The training record forms part of a wider set of documents.  Prior to completion of the training Mr Cliff would have reviewed all records and would have corrected the internal document that the Director became aware of as a result of the audit inspection.  On

that basis, Air National characterises this as a clerical error, not one which justifies the Director‟s suspension decision either in terms of its own significance or as evidencing – as the Director contends – systemic safety issues.

[20]     The  second  specific  matter  the  Director  referred  to  as  the  basis  of  his suspension  decision  was  his  contention  that  Mr Ross  Haverfield, Air  National‟s training manager, had not been checked for competency on the Jetstream J32 aircraft by a flight examiner (in this case a Mr Oberschneider) who met Civil Aviation rule requirements.  Mr Haverfield himself had therefore been flying aircraft in breach of the rules, and had been conducting competency checks on other pilots when not qualified to do so.

[21]     Air National disputes the basis for the Director‟s second original contention. It says that Mr Oberschneider came to check Mr Haverfield‟s competency because the Civil Aviation Authority (“CAA”) recommended that Air National contract with Mr Oberschneider‟s employer, Flight Test (NZ) Limited.

[22]     At  the  hearing  before  me  this  morning,  Mr Murray  provided  further clarification  of  the  reasons  for  the  Director‟s  contention.    He  referred  me  to paragraph 8(b) of Mr Hughes‟ affidavit.   There, the position was explained that Flight Test (NZ) Limited was not recognised to provide this type of service to Air National.   Responding to that clarification, Air National in its further affidavits regarded that as a technical matter.   There is no suggestion that flight Test (NZ) Limited  was  not  qualified  to  undertake  this  work,  merely  that  it  had  not  been recorded as such in Air National‟s documentation.

[23]     The third, and as matters transpired perhaps the most significant, basis for the Director‟s decision involves concerns the Director has at a systemic level relating to Air National‟s record in and approach to safety issues.  In his notice of 28 January, the Director referred to  the fact that Air National had an  “elevated risk profile because of the number of serious findings by the CAA over recent years”.   The Director went on to acknowledge that Air National had implemented specific corrective  actions  to  address  those  findings,  but  was  concerned  there  was  little

evidence to indicate a systemic and proactive approach by Air National to reduce risk.

[24]     In affidavits from its Chief Executive, Mr Gray, Air National responded to the Director‟s concerns as to Air National‟s approach to safety and risk management. Referring to details set out in the a letter provided by Air National‟s solicitors Buddle Findlay to the Director on 30 January, Mr Gray identifies ways in which Air National has responded to issues as to safety raised by the CAA, notes that – in terms of a most recent audit - Air National is working with the CAA to address identified issues and further states that, as the CAA itself recognised in its 28 January letter, Air National undertook prompt and satisfactory remedial action to a variety of issues identified in February 2009.   Mr Gray says that Air National has invested a great deal of time and money in its safety and risk management systems, and that the matters identified by the Director do not provide evidence of systemic risk sufficient to justify his suspension decision.

[25]     Affidavits were filed by and on behalf of the Director yesterday afternoon. The  Director  Mr  Douglas  and  Mr  Richard  Hughes,  General  Manager Airlines, provided affidavits.  Neither of Mr Douglas nor Mr Hughes had read the affidavits filed on  behalf  of Air National  and  therefore  did  not  respond  to  them  directly. Rather, they provided further detail as to the reasoning behind the Director‟s suspension decision.

[26]   In particular, both affidavits emphasise what they consider to be an unsatisfactory history of the management of safety operations by Air National.   In that  context  I  think  the  correct  understanding  of  the  specific  matter  of  the falsification of records can, in effect, be seen from CAA‟s perspective as equivalent to the “straw that broke the camel‟s back”.  The Director deposed that the “history of CAA‟s monitoring of Air National has been characterised by unsatisfactory performance by Air National on frequent occasions during that history necessitating in-depth audits, or investigations following particular incidents”.   The Director referred to one incident in 2007 and one in 2009.  The incident in 2009 resulted in the revocation of the Air Transport pilot licence of Mr Carter, who is Air National‟s current  operations  manager.    The  Director  also  referred  to  the  significance  of

changes to senior persons at Air National in recent times, a matter which obviously gave  rise  to  issues  between  Air  National  and  the  CAA,  particularly  when  a Mr Blizma resigned in September 2010.  Mr Blizma raised safety concerns with the CAA regarding Air National‟s operation.  At the time of Mr Blizma‟s resignation Air National voluntarily grounded its entire operation for a period of six days.

[27]     In addition, the Director referred to the fact that on 25 January 2011 he had received a visit from the Comptroller and Auditor-General and her assistant Auditor- General.  The Auditor-General raised various concerns that had been brought to her office‟s attention with the Director.  These included the question of falsification of documents, and matters which would appear to relate to issues which the Director himself had referred to in his own affidavit.  In addition, and as the Director himself stated “the Auditor-General also raised concerns about the stance adopted by the CAA and its oversight of Air National and questioned whether CAA staff were overly helpful in responding to issues at the airline”.

[28]     Subsequently the  Director had  his  attention  drawn to  the  falsification  of documents already referred to.  The Director in his affidavit deposes that he “viewed the falsification evidence as a very serious development in the audit, as it goes to the heart of the trust that is required and expected by all participants operating safely in the civil aviation system.   It raised doubts about the honesty, integrity and effectiveness of Air National‟s safety systems”.  On that basis, he made his decision to suspend Air National‟s air operator certificate.

[29]     In his affidavit, Mr Hughes, the General Manager Airline, outlined the level of interactions between CAA and Air National which reflected Air National‟s elevated risk profile, as assessed by the CAA.   He appended a letter of 21 April

2009, which followed a special purpose audit in April of that year and set out issues for concern and provided a framework for the documentation of follow-up.   In addition, he referred to a number of specific incidents, including those relating to Mr Carter  (already  mentioned)  who  as  a  pilot  flew  with  an  expired  medical certificate, a pilot who was hired to fly BAE146s in circumstances which raised concerns  as  to  his  competency  and  issues  which  arose  out  of  Mr  Blizma‟s resignation.

[30]     Mr  Hughes  referred  to  the  results  of  the  audit  as  regards  the  falsified documents and the question of the qualifications of Mr Haverfield already referred to.   He also referred to a matter not mentioned by the Director in his suspension letter, namely the circumstances in which a Mr Dorran employed by Air National as a BAE146 pilot operated without a valid airport identity card, an essential security check.

[31]     In  its  reply  affidavits  filed  this  morning  Air  National  provided  further material relating to what it saw as the response it had made over time to concerns raised by the Director and to the Director‟s more general proposition that recent events  emphasised  the  systemic  problems Air  National  continued  to  face.    Air National refuted those propositions.

[32]     On the basis of that evidence, Air National‟s proposition was that it had a strong case that the Director‟s decision was both irrational, in terms of the review under administrative law, and also wrong, in terms of its right of appeal.  Its general submission was that, given the period of time over which Air National had been interacting with CAA satisfactorily that the two matters relied on by the Director simply were not sufficient to justify the exercise of the summary power under s 17. They did not show a real and imminent safety risk to the public.

[33]     Mr Cook relied on the decision of Hammond J in Coromandel Peninsular Watchdog Inc v Hauraki District Council in support of the proposition that a real risk to the safety of the public had to be identified.[3]

[3] Coromandel Peninsular Watchdog Inc v Hauraki District Council [1997] 1 NZLR 557.

[34]     Mr Murray‟s submission was that the case most on point was International Heliparts NZ Ltd v Director of Civil Aviation.[4]   In terms of this part of the exercise he submitted that that case indicated that an assessment of the strengths and weaknesses of the substantive case may not be important or necessary where public safety was involved.  I think that in International Heliparts, involving as it did the actual discovery of a failed part, safety issues would have been at the forefront of

[4] International Heliparts NZ Ltd v Director of Civil Aviation [1997] 1 NZLR 230.

Justice Gendall‟s mind.  Moreover, I do not see how, unless absolute deference is to

be paid to the Director where issues of safety are raised – which I do not think is the correct approach – the Court can consider the exercise of its discretion in terms of s 8 without assessing the strengths and weaknesses.

[35]     On strengths and weaknesses, Mr Murray‟s submission is the Air National‟s substantive case was very weak. The respondent‟s affidavits disclose that suspension was well within the bounds of reasonableness, and questions of procedural fairness obviously were subsidiary to public interest in aviation safety.

[36]     As  regards  balancing  Air  National‟s private  interests  against  the  public interest  and  safety,  he  submitted Air National  had  an  appalling  history of non- compliance  with  minimum  safety  standards  and  that  suspension  action  was inevitable on discovery of the falsified training record.  In terms of the significance as to suspension itself, he said that the public interest was in maintaining suspension so that appropriate enquiries could be made into these matters following which, if appropriate, the suspension could be lifted, continued or amended.

[37]     Before assessing the strengths and weaknesses of Air National‟s case, I think it appropriate to consider the nature of the power given to the Director by s 17 and, therefore, what are likely to be appropriate circumstances for its exercise.

[38]     Section 17 in effect applies for the Director to act in his summary way to suspend.  Subsection (6) of s 19 reflects this.  The Director is specifically relieved from disclosing any information on the basis of which a suspension decision under s 17 is to be made prior to taking that action.

[39]     In my view, the provisions of the section and the Act more generally, reflect that such an interim decision is one made in response to significant safety concerns where the risks are high, even if the Director„s information may not be complete. The ten day suspension period provides the Director with the opportunity to clarify any concerns he or she may have, and to decide on a more considered basis as to the appropriate and more permanent response.   I think, in those circumstances, there needs to be a reasonably high threshold, albeit respecting the Director‟s expertise in safety matters, before action is taken under s 17.

[40]     By contrast, s 15A provides for investigations on notice by the Director into the affairs of the holders of aviation documents where that is considered necessary in the interests of civil aviation security.  Section 18 then provides for the Director to revoke or impose permanent conditions on aviation documents.   Section 11 gives persons affected by proposed adverse decisions, including those that the Director proposes taking after a s 15 or s 15A investigation, certain rights.  Pursuant to s 11(2) a  person  is  to  be  given  21  days‟ notice  of  the  Director‟s  intention,  may make submissions, and the Director‟s action does not take effect prior to 28 days from the date of that notice.

[41]     These two alternative procedures in my view emphasise that the s 17 power to suspend or impose conditions is given to the Director to respond to pressing safety issues.  That is, ones which raised immediate concerns of such significance that it is not appropriate for the more measured process provided by ss 15, 15A in conjunction with s 11 to be followed.

[42]     As discussed in this morning‟s hearing, and as accepted by Mr Murray, I think what the Act envisages is a situation of some urgency where there is a pressing need for a summary power to suspend.  As noted, Mr Cook for Air National put the position as being that there is a real and imminent risk of danger to the safety of the public.

[43]     I have concluded that, in terms of this part of the analysis, that Air National has a strong case for judicial review in terms of the reasonableness of the Director‟s decision, and a stronger case on appeal.   I have reached this conclusion for three essential reasons:

(a)      I think there is a strong argument that, by themselves the specific incidents identified by the Director would not justify summary action under s 17.  In reaching this conclusion I have relied particularly on Mr Cliff‟s affidavit as to the significance of the records error.

(b)      As  regards  the  Director‟s concern  as  to  “systemic”  issues,  I  am

particularly mindful that over time Air National has responded to

issues raised by the Director and, generally, would appear to have done so in a satisfactory manner.

(c)      Given that course of engagement, the nature of the specific matters the Director has identified as being the ones he relied on and the response to those matters by Air National, I consider there is considerable force to its arguments that they do not represent systemic issues of the nature which should properly be responded to by summary action under s 17.

(d)On that basis, I also consider that it is strongly arguable that the rational and reasonable approach by the Director to the issues raised by the audit would have been, as he did, to initiate a s 15A inquiry.  I think it is very arguable that summary action under s 17 was not required and was inappropriate.

[44]     I am also, to be absolutely clear about matters, concerned at the conjunction between the Auditor-General expressing to the Director concerns about the way CAA had responded to Air National over time, and the decision taken last Friday to suspend under s 17.

[45]     I record that I discussed at some length with counsel whether in considering the issue of the strength  of Air National‟s  case,  I should  do  so,  as  Mr Murray suggested, solely by reference to its judicial review proceedings, or also having regard – in an appropriate way to the fact that the position it seeks to preserve includes that of the benefits of its District Court appeal.  I note that I do not accept Mr Murray‟s  submission that in these circumstances the strength of Air National‟s case  should  be  assessed  solely  by  reference  to  judicial  review  considerations. Clearly they are relevant.  But I also think it is relevant that Air National seeks to preserve the benefit of its right of appeal to the District Court, which affords it a broader base for challenging the Director‟s suspension decision that does its judicial review proceeding.  I have therefore assessed the strength of its case in that context.

[46]     I have also considered the harm that suspension would cause Air National.  I think Air National clearly established that part of its case.  Air National has pointed to significant financial costs and losses in the short term.   Although some flights have been able to be subcontracted, Air National is particularly concerned as to the effect of the Director‟s  decision on its reputation, including with its long-standing (20 years) client Air New Zealand.    Air National also emphasises that, notwithstanding the concerns the Director has expressed, Air National has carried on its business for 20 years without having been involved in any incidents involving injury to passengers, or damage to any aircraft or any third party property, as a result of any failure by Air National to maintain safe operating systems.

[47]     It goes without saying, however, that if Air National had not to my mind established a strong substantive case on the question of the safety significance of the matters acted on by the Director, those private interests would not have prevailed. However, I consider that such a case does exist and therefore relief as applied for is appropriate.

[48]     In reaching this conclusion I am very mindful of Mr Murray‟s submissions as to the expertise and responsibilities of the Director and issues of public safety in aviation.  I have carefully considered those submissions.  However, I consider, in the overall discretion provided by s 8, that the interim relief sought by Air National is appropriate.

[49]     There is therefore an order for relief as applied for, subject to the conditions

set out at paragraph 43 of Mr Gray‟s affidavit of 31 January.

“Clifford J”

Solicitors:   Buddle Findlay, Auckland for the plaintiff/applicant.

L D MacIntosh, Civil Aviation Authority, Wellington.