Corporate Flight Services Limited v Catley
[2017] NZHC 1588
•10 July 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV 2016-485-818 [2017] NZHC 1588
BETWEEN CORORATE FLIGHT SERVICES
LIMITED Appellant
AND
DOUGLAS HEWDY CATLEY Respondent
Hearing: 5 April 2017 Counsel:
G P Blanchard for Appellant
K I Murray for RespondentJudgment:
10 July 2017
JUDGMENT OF ELLIS J
[1] In 2012 Mr Douglas Catley purchased a Cessna Citation III jet aircraft for his personal use. On 23 July 2012 he entered a three year contract whereby he agreed to pay $24,150 ($21,000 plus GST) a month to Corporate Flight Services (CFS) to manage and operate the aircraft on his behalf. The central idea was that CFS would maintain the aeroplane and provide pilots to fly it for Mr Catley whenever he wished to travel by air, either domestically or internationally.
[2] CFS says that Mr Catley repudiated the contract on 19 March 2015. CFS sued him for damages. But in the District Court, Judge Hastings found that Mr Catley had sent a notice to remedy on 3 March, was entitled to treat the contract as at end on 10 March, and that it was terminated lawfully.1
[3] CFS now appeals that decision.
1 Corporate Flight Services Ltd v Catley [2016] NZDC 18264.
CORORATE FLIGHT SERVICES LTD v CATLEY [2017] NZHC 1588 [5 April 2017]
Background
[4] The contract is dated 23 July 2012. It is clear, however, that its commencement was contingent on Mr Catley taking possession of the aircraft, which did not occur until sometime later.
[5] Two pilots are required to fly a Cessna Citation III. It is not disputed that there was, at the time Mr Catley bought the aircraft, no pilot in New Zealand who had the requisite rating to fly it. Although the pre-contractual negotiations were not in evidence, it is quite plain that, for this reason, Mr Catley agreed to, and did, pay for three pilots to receive the required training in the United States in August 2012. The pilots concerned were Mr Rimmer, Mr Miller and Mr Mullins. The training cost Mr Catley over US$60,000.
[6] I have set out general thrust of the contract above. But it is useful to set out the key clauses in issue in full.
[7] First, there is cl 7, which relevantly provides:
7.THE Operator shall at the Operator’s expense, at such rates agreed and set down in the 2nd schedule of this agreement, retain an experienced and fully qualified flight crew consisting of a minimum of two (2) pilots (“flight crew”) to enable performance of the obligations contained in this agreement and defined as follows:
(a) Flight Crew: Shall comprise of one Captain and one First Officer or two Captains, one of which shall perform the duties of a First Officer to enable the aircraft to be operated under Visual and/or Instrument Flight Rules on both National and International private operation to meet the travel requirements of the Client.
(b) Advance Notice of travel requirements:
The Operator shall make every endeavour to accommodate the travel requirements of the Client, who agrees to provide as much prior notice as possible but not less than:-
Ø For travel within New Zealand - 3 hours notice
Ø For travel internationally - 5 hours
Such travel shall be accommodated within the parameters and limitations that may be imposed from time to time by Airport curfews, adverse weather, customs & immigration
requirements, aircraft maintenance, fuel & services providers, flight crew & duty time regulations.
[8] Clause 9 provides:
9.The Operator shall subject to customary maintenance and repair obligations and flight crew and duty time limitations and such other limitations set down in Clause 7 (above), have the aircraft available to the Client (or their Nominees) for flight at any time on any day. For it’s (sic) part the Client will provide the Operator with reasonable notice in which to schedule flights to accommodate the Client travel requirements. Refer 7(b) for minimum notice.
[9] And termination is covered by cl 20 which relevantly states:
20.THIS agreement shall be terminated prior to the expiry of the term referred to in Clause 19 hereof by:
(a) Upon the giving of three (3) months notice in writing if:
(i) in the opinion of the Client the Operator’s performance of this agreement is inadequate, unsatisfactory or of an unacceptable standard.
…
(c) The Operator is in default or breach of any of the covenants or obligations contained in this agreement and has failed to remedy such breach within seven (7) days of receiving notice to remedy such breach.
[10] And under the heading “Flight crew training, re currency and competency
checks”, cl 25 of the agreement provided:
Any flying required to comply with regulations or requirements for flight crew training re-currency or competency checks shall be at the Client’s expense, being the direct cost of operating the Aircraft and/or that of a contracted training establishment and travel.
[11] But I return now to the factual narrative. The first two-and-a-half years of the contract were uneventful. Mr Rimmer and Mr Miller were engaged by CFS as pilot and co-pilot respectively. As I have said, they received their type training in the USA in August 2012. Of the $21,000 monthly fee, $10,000 went to Mr Rimmer, and
$7,500 to Mr Miller. Mr Dennis Thompson (the director and CEO of CFS) deposed that although CFS had arranged for Mr Mullins to act as standby crew, “Mr Catley
did not use his aircraft enough for Capt Mullins to continue in this role after the
initial period of the agreement”.
[12] By the end of 2014, however, problems had arisen. Mr Rimmer had formed the view that the aircraft was not being properly maintained by the engineer. For his part, the engineer said that Mr Rimmer had been carrying out illegal maintenance on the jet which had resulted in a cockpit fire. Mr Thompson then terminated Mr Rimmer’s access to the maintenance reports and directed him to stop interfering.
[13] Mr Rimmer took his complaints about maintenance to Mr Catley. Mr Thompson said that by this act Mr Rimmer undermined CFS’s relationship with Mr Catley and caused him to lose trust and confidence in Mr Rimmer. And on
7 January 2015, Mr Rimmer emailed Mr Thompson advising that he was
“relinquishing” his position.
[14] At that point, the contract still had six months to run. In order to be able to fly the plane when Mr Catley needed it, Mr Thompson needed to find a replacement for Mr Rimmer. So, on 12 January 2015, he emailed Mr Scott, a Sydney-based pilot, asking if he could “help out with crewing for a period.” Mr Scott was the only other person in Australasia qualified to fly a Cessna Citation III.2 But he was already committed to flying three other aircraft and, as just mentioned, he lived in Australia.
[15] On 22 and 23 January Mr Catley emailed Mr Rimmer and Mr Miller, asking whether CFS had any “binding employment agreements” with the crew and asking if the “essence of the difficulties” was “the unsatisfactory maintenance regime applying to my aircraft”.
[16] On 24 January, Mr Rimmer emailed Mr Thompson to say that he agreed to stay on for another three months, at Mr Catley’s request. But on 13 February, Mr Thompson wrote to Mr Rimmer advising that CFS had accepted his resignation, effective 31 January. And on 16 February Mr Thompson wrote to Mr Catley advising that CFS had accepted Mr Rimmer’s resignation and that “Mr Scott … from
Australia” had accepted the position as captain. Mr Thompson said that Mr Scott “is
2 History does not relate what became of Mr Mullins.
engaged in flying various other aircraft and has undertaken to carry out the captain’s duties requesting as much prior notice as possible…”.
[17] Mr Catley did not respond to this email. He said in evidence in the District Court that he did not understand it to mean that Mr Scott lived in Australia. He said he did not object to the engagement of Mr Scott because he was paying CFS to take responsibility for such decisions and it was up to Mr Thompson to make sure that he complied with the requirements of the contract.
[18] On 27 February, at either 11:10 or 11:25 am Mr Catley’s personal assistant, Ms McLaughlin, telephoned CFS to say that Mr Catley wanted the aircraft at 2.30 that day to fly from Wellington to Paraparaumu and then on to Feilding. Mr Thompson told Ms McLaughlin that it was not possible for the aircraft to be ready to fly at such short notice, and that it was not, in any event, possible to fly in and out of Feilding because the runway was too short. At 12.35 pm Mr Catley emailed Mr Thompson to say that he was postponing the monthly payments under the contract until Mr Thompson could satisfy him that “CFS could meet its future obligations”.
[19] On 3 March Mr Thompson responded, saying that while CFS would endeavour to accommodate Mr Catley’s travel requirements, this was not a guarantee. He pointed out that even if both the original pilots were sitting at home (in Tauranga) it was doubtful whether they could have got to Wellington in time. He said that “as you have been made aware … [Mr] Scott is located in Sydney” so reasonable notice is required. He then said that the alternative was to engage another pilot for the four to five months remaining and have them complete a type training course. Mr Thompson suggested that this was neither possible nor practicable.
[20] Mr Catley replied by email the same day saying:
This really doesn’t satisfy your existing contractual obligations in my view. No one including me likes disruptions but contractual clauses exist for a reason, and I have to protect my interests. They obviously cannot be met with crew based in Sydney.
It is my intention to purchase a larger aircraft able to meet the NZ - Honolulu range. In this case it will be necessary to first sell N163JM. It may be that you could specialize in this area for me?
I invite your comment on both please.
[21] Mr Thompson replied four hours later acknowledging that a captain based in Sydney, with other commitments, was “not ideal”, but that it was “the most practical and economic option”. The alternative was to hire another pilot short-term, who would need to be trained at Mr Catley’s expense.
[22] On 19 March, Mr Catley emailed Mr Thompson, advising that, in the absence of any reassurance that the flight crew could meet the notice requirement, the contract “no longer applies”. He said that CFS’s inability to provide crew on
27 February was inconvenient, but that he did not favour acrimonious dealings. Finally, he said that he would still retain Mr Thompson for the purchase of a new aircraft.
[23] No more payments were made under the contract and CFS subsequently issued these proceedings.
District Court decision
[24] Judge Hastings identified that the issues for determination as follows:
(a) whether CFS was in breach of the contract after 31 January 2015, either when it engaged Captain Scott or when it declined Mr Catley’s request on 27 February; and
(b)whether Mr Catley had complied with cl 20(c) when he purported to terminate the contract on 19 March.
[25] As to the first question, the Judge held that:
(a) the purpose of the contract was to enable Mr Catley to use his aircraft at short notice;
(b)the cl 9 obligation to have the aircraft available at any time on any day was subject to cl 7, provided that cl 7 did not limit cl 9 in a way that is inconsistent with the contract;
(c) the limitations in cl 7 (airport curfews, adverse weather, customs and immigration requirements, aircraft maintenance, fuel and services providers, and flight crew and duty time regulations) were all matters beyond the control CFS. Any other limitations that are said to be implied would need to be of a similar kind;
(d) accordingly, the “every endeavour” obligation in cl 7(b):
(i)must be read as limited only by the matters expressly listed in that clause. In the absence of any such limitation, then the obligation in cl 9 to have the plane available was limited only by the notice requirements; and
(ii)required CFS to take the steps that a reasonable and prudent person would take, to achieve the purpose of the contract, and to have the jet available at all times, except where any of the limitations outside CFS’ control are present.
[26] The Judge found that, following the resignation of Captain Rimmer, CFS was in breach of its cl 9 obligation. While acknowledging the difficult position in which Mr Thompson had found himself, the company was required to secure the services of at least two pilots to enable performance of the contract. Reducing the flight crew from two full time captains to one full time captain and one part time captain, resident in Sydney and committed to three other aircraft, reduced CFS’s ability to meet its obligation. Mr Catley was not required to give notice that was any longer than the contractual minima. It was not up to Mr Catley to assist CFS to perform its end of the bargain and nor did he have to accede to any alternative, non-compliant, proposal by Mr Thompson. Accordingly, CFS was in breach from 31 January.
[27] As to the second issue (whether Mr Catley had given the required notice under cl 20) Judge Hastings:
(a) noted that clause 20(c) appeared to contemplate that, once a notice to remedy was given, a failure to meet that notice within seven days results in the automatic termination of the contract;
(b) found that Mr Catley’s 3 March email (set out at [20] above):
(i) specifically identified the relevant contractual breach;
(ii)would be interpreted by a reasonable commercial person in Mr Thompson’s shoes as a notice to remedy and that the contract would terminate after seven days if the breach was not rectified;
(c) said that the invitation to comment contained in the email:
(i)would reasonably have been interpreted as an invitation to Mr Thompson to explain how he intended to remedy the breach; and
(ii)was in fact interpreted by Mr Thompson in that way because his reply to the email effectively acknowledged that there was a breach and that it could not be rectified.
[28] The Judge therefore held that the 3 March email was a valid notice to remedy, and that Mr Catley was entitled to treat the contract as at an end on 10 March, and did so on 19 March.
The appeal and the relevant approach on appeal
[29] CFS contends on appeal that:
(a) it was not in breach of cls 7(b) and 9 of the contract (and so there were no grounds for termination); and/or
(b) the contract was not, in any event, lawfully terminated because the
3 March email was not a notice to remedy.
[30] The principles governing general appeals are as set out in Austin, Nichols &
Co Inc v Stichting Lodestar:3
[16] Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion is an assessment of fact and degree and entails a value judgment. If the appellate court’s opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ. In such circumstances it is an error for the High Court to defer to the lower Court’s assessment of the acceptability and weight to be accorded to the evidence, rather than forming its own opinion.
[31] Thus the onus is on the appellant to show that the judgment is wrong in some relevant way. But if the Court is so persuaded then it can enter its own judgment without deference to the trial judge other than the customary caution arising from the fact that he or she has had the advantage, in terms of credibility issues, of seeing and hearing the witnesses. No significant credibility issues arise, however, in the present case.
[32] The two issues raise by the appeal will be considered in turn.
Was there a breach?
[33] This aspect of the appeal can briefly be dealt with. I have little hesitation in agreeing with Judge Hastings that there was a breach here. I can really do no better
than he in explaining why. In short, however, I consider:
3 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
(a) the central premise of the contract was that Mr Catley would be provided with air transport when and where he wished, subject only to:
(i) the minimum notice requirements, which were unambiguous;
and
(ii)factors over which CFS had no control such as weather and regulatory requirements, none of which were at play in the present case;
(b) the monthly amount paid by Mr Catley under the contract reflected
the potentially onerous nature of CFS’ obligations;
(c) Mr Catley had paid a considerable sum for three pilots to be trained in the United States before the commencement of the contract. There is a reasonable inference to be drawn that this was done precisely in order that a “back up” pilot would be available;
(d)how Mr Thompson otherwise chose to take appropriate (reasonable) steps to ensure that CFS was able to meet its obligations was a matter for him, including in particular the nature of his employment or contractual arrangements with Messrs Rimmer, Miller and Mullins;
(e) given that Mr Catley had already paid to have Mr Mullins trained, there could be no obligation on him, or reasonable expectation of him to expend a further $40,000 to train a new pilot once Mr Rimmer had left and nor did the contract require it;4
(f) the decisions to let Mr Rimmer go and not to keep Mr Mullins on some form of a retainer without taking any other step to ensure that
CFS could continue to meet Mr Catley’s requirements in accordance
4 In my view cl 25 is about ensuring that the existing pilots maintain their rating and comply with all regulatory requirements. It has nothing to do with type training of the kind that would be required if CFS wished to engage a new pilot.
with the contract were decisions taken voluntarily by CFS and were
all matters within CFS’ control;
(g) those decisions (which led to CFS’ inability to meet Mr Catley’s
requirements) put CFS in breach of:
(i)the general obligation in cl 7 to retain a minimum of two pilots to enable CFS to meet its obligations;
(ii)the specific obligation in cl 7(b) to make every endeavour to accommodate Mr Catley’s requirements, provided he gave CFS at least the minimum notice stipulated; and
(iii)the cl 9 obligation to have the aircraft available for flight at any time on any day (subject to Mr Catley giving the required notice).
Was the 3 March email a notice to remedy?
[34] The second ground of appeal advanced by CFS is, I think, more difficult to resolve.
[35] In my view there can be no real dispute that Judge Hastings’ statement of the relevant inquiry was correct. After noting (and quoting from) Lord Goff’s minority speech in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd (which arguably requires more stringent compliance with the relevant contractual notice clause) he went on to quote from the speech of Lord Steyn (who formed part of the majority
in the same case), from which the following propositions emerge:5
(a) the construction of notices must be approached objectively;
(b)the issue is how a reasonable recipient would have understood the notices;
5 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19, [1997] AC 749 at 767 and 771.
(c) in considering this question the notice must be construed taking into account the relevant objective “contextual scene”;
(d)in determining the meaning of the language of a commercial contract, and unilateral contractual notices, the law generally favours a commercially sensible construction. Words are therefore interpreted in the way in which a reasonable commercial person would construe them;
(e) the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language;
(f) it would be a disservice to commercial practice to classify such notices as technical documents and to require them to be interpreted as such. Nowadays one must substitute for the rigid rule in Hankey v Clavering the standard of commercial construction.6
[36] Mr Blanchard had two essential criticisms of the Judge’s approach.
[37] First, he submitted that in relying only on Mannai, the Judge wrongly ignored a number of other decisions to which he had been referred which, arguably, adopt a stricter approach. In particular, Mr Blanchard referred me to:
(a) the decision of the High Court of Australia in Balog v Crestani;7
(b) the decision in Italmare Shipping Co v Ocean Tanker Co Inc (The Rio
Sun) where it was said that “a notice must be as clear as an ultimatum”;8
6 Hankey v Clavering [1942] 2 KB 326 (CA).
7 Balog v Crestani [1975] HCA 16; (1975) 132 CLR 289.
8 Italmare Shipping Co v Ocean Tanker Co Inc [1982] 1 All ER 517 (CA) at 522 [The Rio Sun].
(c) Delta Vale Properties Ltd. v. Mills where Slade L.J. observed:9
In my judgment, notices to complete served under condition
23, if they are to be valid, must be sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate.
(d) Angus v Kinraid where Hardie Boys J said:10
In order to invoke the contractual procedure it is I think necessary that it be brought home to the defaulting party that that is in fact what is being done. … Whilst no particular formalities are required I very much doubt whether the letters of 11 July were sufficient for this purpose. Not only is there no reference to cl. 8, but also the enlargement without explanation of the 12 working days time limit to one which was in fact of 21 days strongly suggests that cl. 8 was not being invoked.
[38] I am not persuaded convinced that these, older, dicta differ markedly or materially from what Lord Steyn said in Mannai. But to the extent that Mannai suggests a more liberal approach, I prefer it. The real question relates to the application of the relevant principles to the present case, which was Mr Blanchard’s second point.
[39] Read in context, Mr Catley’s 3 March email arguably does sufficiently identify (and give notice of) the breach complained of, which is one of the requirements of an effective notice. On the other hand, however, cl 20(a)(i) permits termination on three months’ notice for inadequate performance.11 I am far from certain that, in saying “This really doesn’t satisfy your existing contractual obligations in my view”, Mr Catley was talking about a fundamental breach which might warrant termination within a week. It might reasonably have been interpreted as an expression of dissatisfaction with CFS’ performance which might warrant the
giving of three months’ notice. So while Mr Blanchard accepted before me that the
notice was adequate in this respect, I am unable to agree.
9 Delta Vale Properties Ltd v Mills [1990] 1 WLR 445 (CA) at 454.
10 Angus v Kinraid (1988) ANZ ConvR 129 (HC) at 132.
11 This point was not referred to either by counsel or in the District Court judgment.
[40] The potential for confusion on the part of the recipient is, of course, precisely why a contractual notice (whether to remedy or to terminate) must make the intentions of the giver of the notice, or the consequences of the notice, clear. Again, I consider that the 3 March email was deficient. The email did not expressly refer to any part of cl 20. It did not refer at all to any consequences of CFS’ failure to meet its obligations. In my view the severity of the consequences of a notice under cl 20(c) (deeming the contract to be terminated early and without further notice if the breach is not remedied within seven days) by and of themselves demand some express reference to them in the notice.
[41] I also agree with Mr Blanchard that Mr Catley’s invitation to “comment” and the suggestion of an ongoing (albeit slightly different) contractual relationship muddies the waters further and points away from the email being the requisite “line in the sand”.
[42] Notably, this is a very different case from Mannai where the notice at issue made it very clear that the tenant was intending to exercise his contractual right to terminate. The only question there was whether the (very obvious) error as to the relevant date meant that the notice was not effective. Lord Steyn’s eschewing of overly technical interpretive approaches must, I think, be viewed in that context.
[43] So while I have very considerable sympathy for Mr Catley here, I am unable to find that his email constituted the requisite notice in terms of cl 20. The point of a contractual notice is to make it quite clear to the recipient both what the consequences of non-compliance with it will be and the date on which those
consequences will flow. The email did neither of those things.12
12 I acknowledge that had clear notice under cl 20 been given it is difficult to see what CFS could have done do to rectify the breach within seven days. I do not accept that Mr Catley could have been obliged to pay to train another New Zealand based pilot and, in any event, that could not possibly have occurred within a week. But perhaps Mr Thompson could have persuaded Mr Rimmer to return or located Mr Mullins. One can only speculate.
Conclusion
[44] Accordingly, and although I agree with Judge Hastings that the contract was breached in a fundamental way by CFS I am unable to agree that Mr Catley’s
3 March email constituted a valid notice to remedy in terms of cl 20 or (accordingly) that the contract was automatically terminated on 10 March 2015. CFS’ appeal must therefore succeed.
[45] I therefore make orders:
(a) setting aside the judgment in the District Court and granting judgment
(as to liability) to CFS;
(b)directing the District Court to determine the remaining issues in the proceedings as to quantum and costs; and
(c) that the respondent is to pay the appellant’s 2B costs in relation to the
appeal.
Rebecca Ellis J
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