Heli Holdings Ltd v The Helicopter Line Ltd
[2016] NZHC 976
•16 May 2016
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
CIV-2013-425-310 [2016] NZHC 976
BETWEEN HELI HOLDINGS LIMITED
Plaintiff
AND
THE HELICOPTER LINE LIMITED First Defendant
AND
TOTALLY TOURISM LIMITED Second Defendant
Hearing: 6, 7, 11-15 and 18-22 May 2015
15-20 and 24 June 2015
6 July 2015Appearances:
D J Heaney QC, A K Hough, S J Wethey for the Plaintiff
T C Weston QC, R S Cunliffe, O B Wensley for the DefendantsJudgment:
16 May 2016
JUDGMENT OF NATION J
HELI HOLDINGS LTD v THE HELICOPTER LINE LTD [2016] NZHC 976 [16 May 2016]
Contents
Introduction ................................................................................................................. 1
The main participants ................................................................................................. 3
The major claim ........................................................................................................ 17
The plaintiff ’s case - overview ............................................................................... 17
The defendants’ case - overview ............................................................................ 20
The issues ................................................................................................................... 24
Summary of judgment .............................................................................................. 26
The contractual arrangements ................................................................................. 59
The 2002 agreement............................................................................................... 61
The 2007 agreement............................................................................................... 66
The 2008 agreement............................................................................................... 75
“Best industry standards” and “just culture” ....................................................... 79
A contractual duty of good faith ............................................................................ 98
Implied term as to maintaining weight of aircraft ............................................... 119The potential for conflict ..................................................................................... 122
Was Heli Holdings in breach of its contractual obligations to THL in the period from 1 July 2008 to 30 June 2013? ........................................................................ 126
Basic outline of developments ............................................................................. 126
The parties’ dealings over mix of aircraft, review of unavailability allowance and system for charging for shortfall hours ............................................................... 136
Weight gains......................................................................................................... 166
Maintenance............................................................................................................. 187
Introduction ......................................................................................................... 187
Result of experts’ conference ............................................................................... 192
The critical incidents ........................................................................................... 205
Mr Scott ............................................................................................................... 206
Mr Earnshaw ....................................................................................................... 218
Mr Anderson ........................................................................................................ 238
Mr Cudby ............................................................................................................. 251
Mr Fogden ........................................................................................................... 256
Mr Murtagh ......................................................................................................... 273
Further review of the particular incidents........................................................... 282
The Gorilla Creek incident, Mr Marwick’s report and the aftermath ................. 338
Mr Bisset .............................................................................................................. 408
The meeting of 15 April 2013 .............................................................................. 417Conclusions over maintenance issues – 1 July 2008 to 30 June 2013 ................ 440
THL’s liability for shortfall hours for the period 1 July 2008 to 30 June 2013 . 442
Heli Holdings’ breaches of contract .................................................................... 442
THL’s abandoned counter-claim/set-off .............................................................. 449Conclusion as to liability ..................................................................................... 453
Quantum of Heli Holdings’ shortfall hours’ entitlement – 1 July 2008 to 30 June
2013........................................................................................................................... 455
Judicature Act interest ......................................................................................... 469
By 4 July 2013, had Heli Holdings repudiated or breached the contract to the extent that THL was entitled to cancel? ................................................................ 471
The position as at 30 June 2015 .......................................................................... 471
The 2 July 2013 conference call .......................................................................... 479
THL’s actions after the conference call ............................................................... 493Mr Jones’ conciliatory letter................................................................................ 502
The relationship after 4 July 2013 ......................................................................... 508
The summary judgment proceedings ................................................................... 513
Continuation of proceedings and formal cancellation ........................................ 538
Mr Jones .............................................................................................................. 542
What impact did Mr Jones’ statements and conduct have on continuing
contractual obligations? Repudiation? Breach? ............................................... 558Conclusion as to breach of contract .................................................................... 595
Did THL cancel the contract by conduct on or after 4 July 2013? ..................... 597
The parties’ pleadings.......................................................................................... 597
Discussion of THL’s conduct ............................................................................... 600Conclusion as to cancellation.............................................................................. 618
Was Heli Holdings entitled to payment for shortfall hours from 1 July 2013 to 20
February 2015?........................................................................................................ 620
Continuing breach of contract ............................................................................. 620
Had THL affirmed the contract? ......................................................................... 625
THL’s liability and entitlement to cancel as at 20 February 2015 ...................... 659
Alternative defences to claim for period after 1 July 2013.................................. 661
Failure to properly review mix of aircraft, the unavailability allowance and the system for charging for shortfall hours ............................................................... 662
Weight of the aircraft ........................................................................................... 680
Failure to mitigate ............................................................................................... 681Exclusion clause .................................................................................................. 682
First subsidiary issue – Heli Holdings’ claim for over-temperature incident .... 684
Second subsidiary issue – THL’s counterclaim for over-payment for
hours flown .............................................................................................................. 713
Intention of the parties......................................................................................... 713
Limitation Act 1950 ............................................................................................. 722
Result ........................................................................................................................ 727
Costs ......................................................................................................................... 729
Introduction
[1] In 2002, Heli Holdings Limited (Heli Holdings) and The Helicopter Line (THL) entered into a business relationship that could have continued for 20 years. Heli Holdings was to own, maintain and lease to THL eight helicopters. THL was to fly those helicopters in its tourism business in the South Island. The relationship broke down in July 2013. On the basis of claimed concerns about maintenance and safety, THL refused to continue flying the helicopters. In this judgment I must decide what, if any, liabilities result from that situation.
[2] The major issue in this case relates to Heli Holdings’ claim for damages against THL and Totally Tourism Limited in respect of unpaid use charges for the helicopters and the loss of future income. There are two other discrete claims arising out of the contractual arrangements between Heli Holdings and THL. I will deal with the subsidiary claims after first dealing with the major claim.
The main participants
[3] Heli Holdings is the plaintiff company. It owns and leased eight helicopters to the defendants. The shares in Heli Holdings are owned by Airwork Holdings Limited. Its maintenance obligations, in terms of the lease, were performed by Airwork (NZ) Limited.
[4] Airwork (NZ) Limited provides helicopter maintenance and engineering support. It operated from maintenance bases at Queenstown, Timaru and Glentanner near Mount Cook.
[5] Airwork Holdings Limited provides maintenance and engineering services for fixed wing aircraft and helicopters in the North Island. In New Zealand, in that business, it is second in size to Air New Zealand. It has a major engineering base at Ardmore in Auckland and employs approximately 400 people. It also maintains and leases helicopters to major overseas businesses in places such as Australia, Papua New Guinea, South Africa and Germany. Airwork Holdings Limited was listed as a public company in November 2013.
[6] Airwork (NZ) Limited and Heli Holdings have pooled resources and personnel in dealing with the business and operations involved in the leasing of the eight helicopters to the first defendant. In this judgment I will often refer to Airwork in describing how Heli Holdings, in conjunction with others, dealt with particular issues.
[7] Mr Hugh Jones qualified as a pilot in 1968. He started Helicopter Specialties Limited, a helicopter services business, in 1974. Mr Jones, with another investor, established Airwork (NZ) Limited in 1984. The company has changed its name twice and is now Airwork Holdings Limited. Mr Jones was the managing director of Airwork Holdings Limited from 1984 until 2006, an executive director until 2013 and is now a non-executive director. He, or entities associated with him and his family, still has a majority share interest in Airwork Holdings Limited.
[8] Mr Chris Hart had commercial roles within Heli Holdings and Airwork before 2010. From 2010, he was chief operating officer for Heli Holdings and Airwork. In late 2013, he became chief executive officer (CEO) of both Heli Holdings and Airwork.
[9] THL is the first defendant. This company’s business is in the tourism sector. It has concessions from the Department of Conservation allowing it to land in national parks in the South Island. It offers scenic trips to the Mount Cook, Mount Aspiring and Fiordland National Parks from bases at Glentanner near Mount Cook, Twizel, Queenstown and Franz Josef. It offers private charters, undertakes commercial work and also ferries skiers to various mountain areas for heli-skiing activities. It provides helicopters to the Police for search and rescue work.
[10] Mr Mark Quickfall and his wife acquired THL in 2002 to lease eight helicopters from the plaintiff and to engage in the helicopter-based tourism industry. In 2011, Mr and Mrs Quickfall sold their interest in this company and other businesses to the publicly listed company Skyline Enterprises Limited (Skyline). Mr Quickfall remains as a director of THL.
[11] Totally Tourism Limited is the second defendant and is a tourism-based company situated in Queenstown. It was originally owned by the Quickfall interests but, as with THL, is now owned by Skyline. It was through this company that Mr and Mrs Quickfall had an interest in a number of tourism businesses including THL. It is the guarantor of THL’s contractual obligations.
[12] Skyline now owns the shares in Totally Tourism Limited and thus controls the shares in THL. One of its directors, Mr Ken Matthews, is, along with Mr Quickfall, a director of THL. Its CEO, Mr Jeffrey Staniland, is also CEO of THL.
[13] Mr Grant Bisset is an experienced helicopter pilot. He began flying for THL in 2005. He subsequently became lead pilot. In 2010, he became operations manager for THL. He is also general manager, Aviation, Operations and Tourism for Totally Tourism Limited.
[14] The Civil Aviation Authority of New Zealand (CAA) is not a party to the proceedings but was often referred to in evidence. Pursuant to the Civil Aviation Act
1990, it effectively regulates the civil aviation industry in New Zealand, licenses those who are permitted to fly aircraft and those who are able to maintain or provide engineering services to aircraft operators. It audits the performance of all those who are involved in the aircraft industry, whether in flying aircraft or in servicing them. The aircraft industry, whether for fixed wing or helicopters, is intensively regulated and controlled to ensure that all those who use aircraft are safe.
[15] The eight helicopters initially leased by the plaintiff to THL were AS355F1 helicopters (“the twins”) built by Eurocopter, now known as Airbus, a business in France. They are twin engine helicopters.
[16] At various times, when THL was flying Heli Holdings’ helicopters, it wanted to replace some or all of the twins with Eurocopter single engine helicopters (“the singles”). As at July 2013, one of the twins had been replaced by a single, an AS350SD helicopter.
The major claim
The plaintiff ’s case - overview
[17] Heli Holdings’ claims that in 2002 it leased eight helicopters to THL. With Heli Holdings having the right to renew the contractual arrangements, the lease of the helicopters could have continued until 22 August 2022. In terms of the lease, THL was to pay for the hours the helicopters were flown but with payment for a specified minimum number of hours each year.
[18] I refer to the claimed liability for the difference between hours flown and the
minimum hours required as a claim for “shortfall hours”.
[19] Heli Holdings claims $6,059,666.60 for shortfall hours due in terms of the lease for the years from 1 July 2008 to 24 March 2015. Heli Holdings denies it repudiated its contract with THL in early July 2013 but says that, if it was in breach of its contract, THL cannot rely on such a breach or repudiation because it affirmed the contract with knowledge of Heli Holdings’ alleged breaches of the contract. Heli Holdings claims that THL wrongly repudiated the contractual arrangements by cancelling the contract in writing on 20 February 2015. In response to that wrongful repudiation, Heli Holdings cancelled the contractual arrangements on 24 March
2015. Heli Holdings claims $10,147,097 for the loss of expected profits and additional expenses for the period from 24 March 2015 to 22 August 2022.
The defendants’ case - overview
[20] THL claims:
(a) The contractual arrangements with Heli Holdings required Heli Holdings to provide maintenance support to “best industry standards” and to deal with THL in good faith so THL could be confident its pilots and passengers could fly in the helicopters safely.
(b) Heli Holdings, in terms of the contractual arrangements, was required to negotiate with THL reasonably and in good faith to replace the
leased helicopters with different models that would be better suited for use in THL’s market.
(c) Pursuant to an agreement reached in 2008, Heli Holdings was required to negotiate in good faith with THL to change the system for charging THL for shortfall hours and the formula for dealing with unscheduled unavailability.
(d)Pursuant to an implied term of the agreement, Heli Holdings had to ensure the weight of the leased aircraft did not increase during the term of the lease so as to reduce the passenger-carrying capacity of the aircraft.
[21] THL claims that Heli Holdings failed to meet these obligations, under the lease arrangements for the period after 1 July 2008, so THL should not have to pay for shortfall hours for the period from 1 July 2008 to 30 June 2013.
[22] THL claims that by 4 July 2013 Heli Holdings was in breach of its contractual obligations to such an extent that it had either repudiated its contract with THL or was so significantly in breach as to justify THL cancelling the contract. THL claims it cancelled the contract through grounding the leased helicopters on 4 July
2013, putting the helicopters under the control of Heli Holdings and refusing to either fly them or make any further lease payments for them. Irrespective of whether there was a cancellation, THL says Heli Holdings is not entitled to claim for shortfall hours after 4 July 2013 because of Heli Holdings’ repudiation/breach of the contract. THL and Totally Tourism Limited, as guarantor for THL, accordingly say they do not have to pay for shortfall hours after 4 July 2013.
[23] THL and Totally Tourism Limited claim THL’s written cancellation of the contractual arrangements on 20 February 2015 was justified if there had not been an earlier cancellation by conduct. Accordingly, THL and Totally Tourism Limited say they are not liable to Heli Holdings for any loss Heli Holdings may suffer in respect of lost income beyond 20 February 2015.
The issues
[24] THL claims that any obligations it had under the contract ended at the latest
on 4 July 2013. Heli Holdings’ claim relates to financial years beginning 1 July
2008. Because 4 July is so close to the end of the financial year, I deal with the relevant demarcation of the claim period as being to 30 June 2013 and from 1 July
2013.
[25] In summary, the issues for me to determine are:
(i)In the period from 1 July 2008 to 30 June 2013, was Heli Holdings in breach of its obligations to THL?
(ii) If Heli Holdings was in breach of its obligations, did that entitle the defendants to avoid paying for the shortfall hours for the period from 1
July 2008 to 30 June 2013?
(iii) If THL is liable for shortfall hours for the period from 1 July 2008 to 30
June 2013, what damages is Heli Holdings entitled to?
(iv) By 4 July 2013, had Heli Holdings repudiated the contract or was it in breach to the extent THL was entitled to cancel the lease?
(v)Did THL cancel the contractual arrangements by conduct through its actions in grounding the fleet of helicopters and associated actions on or after 4 July 2013?
(vi) If not, was Heli Holdings entitled to payment for the shortfall hours from 1 July 2013 to 20 February 2015?
(vii) If it had not cancelled the contractual arrangements earlier, was THL
entitled to cancel the contract on 20 February 2015?
(viii) If THL was not entitled to cancel the contract on 20 February 2015,
given Heli Holdings’ cancellation of the contract on 24 March 2015,
what liability does THL have to Heli Holdings for the period from 20
February 2015 to 22 August 2022?
Summary of judgment
[26] The agreement to provide maintenance in accordance with “best industry standards” and in “good faith” required Heli Holdings to do more than just comply with the requirements of the aircraft manufacturer and the CAA. To provide maintenance in accordance with “best industry standards”, Heli Holdings also had to abide by the principles of “just culture”. This is a philosophy which is recognised in the industry as being of fundamental importance in ensuring that air transport is safe.
[27] In the circumstances of this case, it required Heli Holdings/Airwork to take concerns raised by THL over maintenance seriously, to initially treat them as valid, to investigate them carefully and to avoid attributing blame unless it was essential and then only after proper investigation. Adherence to the principles of “just culture” had to allow frank, open and respectful communication as to potential problems, and an objective and considered response to issues raised to ensure the aircraft operator could continue to have trust and confidence in the maintenance of its aircraft.
[28] In the period 2008 to June 2013, there were occasions when engineers and the most senior people within Heli Holdings/Airwork displayed an attitude towards THL which was inconsistent with “just culture” obligations.
[29] Adherence to the philosophy of “just culture” and the obligation to provide maintenance support in accordance with “best industry standards” required Heli Holdings to not only react appropriately to notice of potential problems but also to be proactive in ensuring problems did not arise. This required Heli Holdings to have the resources, engineering personnel and systems available in the South Island for the maintenance of the aircraft being flown by THL. In the period 2008 to 2013, that was not always the case.
[30] Over the years 2008 to 30 June 2013, there were a number of serious incidents where Heli Holdings had failed to comply with minimum standards.
[31] On five occasions in 2008 and 2009 a helicopter was released for service with serious and dangerous defects, resulting from maintenance being carried out in a manner which breached manufacturer and CAA requirements.
[32] In 2008, 2010 and 2011, there were four incidents of tools or other foreign objects being left in aircraft after maintenance was completed where they could either damage an aircraft or interfere with the pilot’s ability to fly the aircraft.
[33] Incidents over 2008, 2009 and 2010 culminated in Heli Holdings having to withdraw from service an aircraft that was found to be flying with ex-military blades. The installation of ex-military blades is strictly prohibited, would render an aircraft non-airworthy and is potentially serious. The purchase of the blades at a heavily discounted cost had been approved by Mr Jones. Although Heli Holdings had been induced to make the purchase through fraud, Heli Holdings/Airwork should have had a system and personnel in place to avoid this happening.
[34] In the early months of 2011 and again in February 2012, on a number of occasions, pilots experienced a sudden loss of power in one of the twin’s engines and what is known as a torque split. Such an event puts a pilot and their aircraft generally under stress. The pilot is required to compensate for a loss of power in one engine through making demands on the other engine which can result in safe operational limits for that engine being exceeded. These incidents resulted from a defect in a sealed unit which could not be attributed to poor maintenance. Heli Holdings, nevertheless, did not always deal with these problems in accordance with “best industry standards”. On a number of occasions, comments were made within Airwork that THL was raising these concerns for commercial advantage in its negotiations with Heli Holdings. Heli Holdings did not always treat the concerns as valid and serious, impacting on the safety of THL’s operation.
[35] In August 2012, Heli Holdings was significantly in breach of minimum standards in returning an aircraft to service after maintenance with the blades in the wrong sleeves.
[36] The number and seriousness of maintenance-related incidents and faults did reduce over 2011 and 2012 but, against the background of what had occurred previously, THL was justified, as at the end of 2012, in being vigilant and concerned as to the adequacy of the maintenance support it was receiving from Heli Holdings. It was apparent that senior people within Airwork considered THL’s concerns around that time and the issues raised were not genuine but a fabrication or overstated for financial gain to assist THL in negotiating for the replacement of twins with singles and for a change to the commercial terms of their continuing relationship.
[37] On 3 January 2013, a pilot flew an aircraft with tourists to the Gorilla Creek landing site, a ledge at 7,000 feet on Mount Cook. When the pilot and passengers were out of the aircraft and the blades should have been locked in a stationary position, the blades moved and the aircraft began rocking backwards and forwards, shedding debris. The pilot and passengers had to be taken off the mountain in another aircraft. The next day, an Airwork engineer permitted a pilot to try and fly the aircraft back to base with a damaged starter motor and unidentified debris on the engine floor. The attempt to fly the aircraft was aborted when, during an initial hover check, there was an engine surge and it was found a fuel line had broken.
[38] Subsequent investigations confirmed there had been significant failings in the way the engineer had permitted this aircraft to be flown after 31 December 2012 without observed defects having been properly investigated. The engineer’s decision to permit a pilot to fly the aircraft on 4 January 2013 was also a breach of Civil Aviation Rules and “best industry standards”. The engineering failings associated with the Gorilla Creek incident had created serious avoidable risks, including a risk of fatalities, for all those who had been in the aircraft.
[39] Faced with concerns raised by THL over the incident, at the direction of Mr Jones, Heli Holdings had responded prematurely without adequate investigation, attributing what had happened, wrongly, to pilot error. Its response to the whole situation was the antithesis of what is required by “best industry standards” and adherence to the principles of “just culture”.
[40] Following the findings of an independent engineering expert who had investigated the incident, THL lost confidence in the support being provided by Heli Holdings/Airwork.
[41] On 15 April 2013, there was a meeting between senior representatives from THL and Heli Holdings to discuss maintenance concerns and operational issues. Mr Jones did not attend that meeting. At that meeting, Heli Holdings’ representatives acknowledged there had been problems in relation to maintenance support and that, with the history of all that had occurred and if there had been a fatality in connection with the Gorilla Creek incident, the parties would have had a lot to answer for. They agreed that Heli Holdings needed to address those concerns and take steps to restore THL’s confidence in the maintenance and engineering support it was receiving.
[42] The directors and chief executive of THL proceeded on the assumption that Heli Holdings had acknowledged their concerns and was committed to improving the maintenance support which THL required and was entitled to.
[43] Over the period 1 July 2008 to 30 June 2013, THL had continued to fly the aircraft. Until an agreement was reached otherwise, the parties’ rights and obligations remained as in the contract which was continuing. That contract required THL to pay for shortfall hours. The proved liability in respect of shortfall hours over that period was $2,015,724.72.
[44] THL did not seek, either through evidence or submissions, to establish that it suffered a financial loss as a result of breaches of contract over that period. It did not bring any counterclaim or seek any set-off on the basis of such a loss. Accordingly, Heli Holdings is entitled to judgment jointly and severally against THL and Totally Tourism as guarantor for $2,015,724.72 together with interest, under the Judicature Act 1908 on that sum as from 26 September 2013 when it filed proceedings.
[45] On 2 July 2013, Mr Jones made statements in a conference call to THL directors which showed he rejected any possibility that THL could have genuine concerns about the standard of maintenance provided by Heli Holdings/Airwork in the South Island. Mr Jones denied there was any need to improve that maintenance
support and dismissed the significance of the 15 April 2013 meeting in saying that Heli Holdings did not consider THL’s minutes of the meeting were correct. He was adamant that Heli Holdings’ obligation was only to be CAA-approved and THL’s obligation was to fly the aircraft and pay all that was due. In making these statements, Mr Jones made it clear that Heli Holdings would not provide maintenance support in accordance with “best industry standards” or honour the obligations associated with adherence to the principles of a “just culture”. He continued to do so after 2 July 2013, particularly through his dismissal of the validity of THL’s complaints and his statements that Airwork had only to provide aircraft that were CAA-approved and airworthy. In that way, Heli Holdings continued to be seriously in breach of the contract. The parties had agreed that the obligation on Heli Holdings to provide maintenance support in accordance with “best industry
standards” and in good faith was essential to THL.1 Heli Holdings’ breach of its
obligations through the statements and conduct of Mr Jones substantially varied the benefit and burden of the contract to THL.2
[46] The conflict and distrust at operational level within the organisations created risks for the safety of THL’s operation and the reputation of its business. Given Mr Jones’ attitude and the way it affected the maintenance and engineering support available to THL, THL was justified in refusing to fly the Heli Holdings’ aircraft after 4 July 2013. THL thus obtained no benefit from the contract.
[47] THL did not cancel the contract by conduct before 20 February 2015. Nor did THL, with knowledge of the continuing breach, affirm the contract. Because Heli Holdings continued to be in breach of contract, THL was entitled to cancel the contract, as it did, on 20 February 2015.
[48] Because Heli Holdings had continued to be seriously in breach of contract and THL had obtained no benefit from the contract, THL has no liability for shortfall
hours, loss of profits or other expenses for the period after 2 July 2013.
1 Contractual Remedies Act 1979, s 7(4)(a).
2 Section 7(4)(b)(iii).
[49] It was an implied term of the contract that the weight of the aircraft would not increase so as to reduce the passenger-carrying capacity of the aircraft and thus have a negative impact on THL’s tourism and other operations with the aircraft in the South Island. Over the period 2008 to 2013, THL complained over actual or potential weight increases. It did not ask for the weight of the aircraft to be reduced but referred to weight increases as a further reason why some or all of the twin engine aircraft originally leased to THL should be replaced with single engine aircraft as the contract contemplated might be appropriate. In April 2013, the issue of weight increases was discussed at the meeting of senior representatives from THL and Heli Holdings. Heli Holdings took steps to reduce the weight of the aircraft to a level that THL’s chief pilot indicated would be acceptable, at least in the interim. There was no evidence that Heli Holdings would not continue with that work after the April meeting. THL did not pursue any claim for loss suffered as a result of the increase in the weight of the aircraft. The increase in the weight of the aircraft did not avoid or reduce THL’s liability for unpaid charges for the period from 1 July
2008 to 30 June 2013. To the extent any weight increase with the aircraft may have continued after 1 July 2013, it was not a breach which justified THL refusing to fly the aircraft after 4 July 2013 or to cancel the contract on 20 February 2015.
[50] The contract between Heli Holdings and THL was recorded in the original
2002 agreement and two further agreements resulting from mediations in 2006 and
2007. Those agreements required Heli Holdings and THL to review and negotiate in good faith over the mix of aircraft that Heli Holdings was to make available to THL and thus their suitability, having regard to the nature of THL’s operations, including market requirements. They had also agreed to review a formula in the contract for dealing with the unavailability of aircraft and the system for charging for THL’s shortfall hours.
[51] The parties negotiated over these issues during the period 1 July 2008 to 30
June 2013, not strictly in the manner or within the timeframe they had agreed to but in a manner which both parties tolerated. Heli Holdings did not invoice THL for shortfall hours at the end of each financial year. The negotiations intensified after the public company Skyline became the owner of THL and Totally Tourism Limited
in 2011. In late 2012 and through to 21 June 2013, it appeared the parties had made considerable progress in these negotiations.
[52] The proposals and counter-proposals made by Heli Holdings were always conditional on obtaining Board approval. In the circumstances, in a practical sense, that meant subject to the approval of Mr Jones. Heli Holdings also repeatedly made it clear that the negotiations were without prejudice and that the terms of the contract were continuing to apply until the parties had agreed otherwise.
[53] With the way these discussions proceeded over the years 1 July 2008 to 30
June 2013, Heli Holdings was meeting its obligations to review certain aspects of the contract. There was no claim, evidence or submissions as to any loss suffered by THL in relation to any breach of these obligations over this period. THL could not avoid or reduce its liability for the minimum hour charges for the period through to
30 June 2013 because of Heli Holdings’ conduct with regard to the negotiations over
that time.
[54] Heli Holdings was under an obligation to continue negotiating with THL over the mix of aircraft, the system for charging for shortfall hours and the formula for dealing with unavailability after 21 June 2013. Mr Jones’ refusal to engage with THL over reasons for rejecting proposals that had been presented to Heli Holdings as at 21 June 2013 and his dismissing those proposals without adequate consideration of the correspondence and discussions which had taken place between THL and Heli Holdings up to that point was in breach of the obligations on Heli Holdings to review these matters in good faith. There was no indication that Mr Jones would deal with these issues in any different way over the period between 1 July 2013 and 20
February 2015. On that basis also, Heli Holdings continued to be in breach of contract. Although this was not the reason for THL refusing to fly the aircraft after 4
July 2013, this provided a further defence to the claim for payment for shortfall hours after 4 July 2013 and justification for the cancellation of the contract on 20
February 2015.
[55] Heli Holdings claimed $151,762.74 for the cost of repairing an engine after it
had overheated due to pilot error. Allowing for betterment and Heli Holdings’
obligation to pay half the costs, THL’s maximum liability, in respect of this incident, was $54,418.70.
[56] On the pilot’s account of his actions at the time, he had not been in error. Heli Holdings could prove pilot error only through proving that what occurred was not caused by a defect in an engine component, namely the fuel control unit (FCU). There was a report that this unit had been checked without any defect being apparent. Neither the pilot nor any engineer associated with the checking of the FCU was called as a witness. In other instances, there were problems with a component, including a FCU, without the actual defect having been identified. In these circumstances, the evidence was insufficient to prove that, on the balance of probability, the damage resulted from pilot error. Heli Holdings’ claim as to the over-temperature incident is dismissed.
[57] THL claimed $383,437.42 on account of what it argued had been an over- payment for the hours flown in the 2006/2007 year. THL argued that, in accordance with the contract, the hourly rate for use of the aircraft had to be discounted by 12 per cent per hour if the hours actually flown were more than 3,500. Heli Holdings argued that the discount applied only to the hours in excess of 3,500. The interpretation advanced by Heli Holdings is correct. THL was thus not entitled to any credit based on the interpretation it advanced. On that basis, its counterclaim for this amount must be dismissed. Although I did not finally decide the point, it is also possible its claim could have been barred by the Limitation Act 1950.
[58] Heli Holdings is thus entitled to judgment against THL and Totally Tourism Limited for $2,070,143.42 plus interest. THL and Totally Tourism are entitled to a declaration that they have no liability to Heli Holdings on the basis of the contract between them for any period after 4 July 2013.
The contractual arrangements
[59] In 1998 Mr Jones, through Airwork (NZ) Limited, and Tourism Holdings Limited were involved in a joint venture company, Heli Holdings. Mr Quickfall had been general manager of the leisure division of Tourism Holdings Limited. Heli Holdings acquired eight twins operated in the South Island by Tourism Holdings
Limited. Airwork, through an associated company, provided maintenance support for the twins.
[60] In 2002, Tourism Holdings Limited wished to exit the joint venture. It sold its interest in Heli Holdings to Airwork (NZ) Limited. It sold its helicopter operations business to THL.
The 2002 agreement
[61] By an agreement dated 22 August 2002, Heli Holdings agreed to lease the eight twins to THL. Totally Tourism Limited guaranteed the performance of all of THL’s obligations under the agreement. Relevant terms of the agreement included:
(a) The agreement was to commence from the time THL took over the business known as The Helicopter Line.
(b) THL agreed to pay a rent for the aircraft of $925 plus GST per flying hour.
(c) The rent was to cover all costs relating to:
i. rent;
ii. maintenance costs (except for minor maintenance work); and
iii. hull liability insurance for the helicopters and public liability insurance with respect to the aircraft.
(d) The price per hour was to be reviewed in June of each year so that it was an amount equal to the initial price per hour or an amount equal to that initial price plus an amount agreed to by the parties (such agreement not to be unreasonably withheld):
i. with reference to any increased third party costs incurred by Heli
Holdings (including, but not limited to, insurance); and
ii. not greater than the weighted percentage increase (if any) over the retail adult ticket prices of the helicopters’ scenic flights for the most recent past year.
(e) THL was to pay the price for actual flying hours of the aircraft used in a calendar month on the 20th of the succeeding month. THL had to provide Heli Holdings with an operational report on a weekly basis detailing hours flown and a copy of the aircraft trips record for the previous month within two business days from each month’s end.
(f) THL had to “achieve minimum use” of the twins for 3,825 hours per annum (1 July to 30 June).
(g) The amount payable for shortfall hours was to be the amount equal to the shortfall hours multiplied by 75 per cent of the agreed price per hour. Such amount was payable by THL as soon as practicable and, in any event, no later than 31 July for the period 1 July to 30 June of the preceding year.
(h) In determining the shortfall hours, no account was to be taken of flying hours for which aircraft were not available to THL because of non- scheduled maintenance or for any other non-agreed maintenance. This provision was not to apply where the reason for such unavailability was beyond the reasonable control of Heli Holdings. The parties were to agree such hours, if any, on a monthly basis and if necessary in June of each year.
(i) THL was to use its best endeavours during the term of the agreement to maintain any permit, licence or other authority from any party to operate scenic or other flight operations.
(j) If THL intended to sell any of its concessions or if it had to because of financial constraints, insolvency, liquidation or receivership, then Heli Holdings was to have a first right of refusal to take over such
concessions except for options already granted to Glentanner Park (Mount Cook) Limited and Glentanner Station Limited. If THL’s business was adversely affected by a loss or change to the concessions, then “without limiting either party’s other rights or remedies, the parties may agree to review and renegotiate the number of helicopters to be supplied and hours to be flown on terms and prices as mutually agreed” (such prices not to be less than the then current price per hour).
(k) Subject to the existing options granted to Glentanner Park (Mount Cook) Limited and Glentanner Station Limited, if THL at any time wished to sell all or any part of its business or if Heli Holdings wished to sell all or any of the aircraft to an independent third party, each was to give the other the option to purchase the business or the aircraft on the same terms as there could be a sale to a third party.
(l) Heli Holdings had to maintain and insure the helicopters.
(m) Heli Holdings was to maintain third party legal liability insurance cover of US$20 million with both Heli Holdings and THL noted on each policy as co-insured in respect of all liabilities.
[62] The agreement included the following clauses:
5. Review of Aircraft requirements
5.1The parties will meet prior to 30 June in each year during the Term to review the Aircraft mix to determine the seasonal capacity requirements of The Helicopter Line. The parties may mutually agree in writing to change the mix of aircraft comprising the Aircraft, the Base Price, relocation costs and other terms of this Agreement.
5.2The parties acknowledge that further helicopters by mutual consent may be added to and be subject to the terms of this Agreement. The Helicopter Line and the Guarantor each further acknowledge that if either requires to hire helicopters additional to the Aircraft for the purposes of its, or any of its subsidiaries’ or related companies’ or companies which are associated by having common shareholders, scenic or other flight operations then The Helicopter Line and/or the Guarantor (as the case may be) shall offer, or shall procure to have offered to, Heli Holdings a first right of refusal to supply such helicopters or aircraft to The Helicopter Line and/or the Guarantor (as the case may be) on commercial terms and conditions (and in any
event on terms and conditions no less favourable to Heli Holdings as offered by any third party).
5.3For the avoidance of doubt, Heli Holdings may replace the number and mix of Aircraft at any time in its sole discretion provided that the total seat capacity available to The Helicopter Line remains at least the same as at the Commencement Date and such replacement helicopters are suitable for the Business and that The Helicopter Line is not disadvantaged in terms of the price or financial returns it would otherwise have received under this Agreement.
5.4The parties acknowledge that during the Term environmental laws or regulations or market demand could impact on the Ability to operate AS355 F1 helicopters under the terms of one or more of the Concessions. In such circumstances, the parties agree to negotiate a mutually acceptable plan to deal with such situation with a view to protecting the interests of both parties.
6. Maintenance of helicopters
6.1Subject to The Helicopter Line’s obligations to undertake and meet the costs of Minor Maintenance Work, all maintenance work with respect to the Aircraft will be provided by Heli Holdings.
6.2Subject to any provision of this Agreement, Heli Holdings shall: (a) maintain, service, repair, modify and overhaul the Aircraft:
(i) as required to meet the standards applied by either the Manufacturer or the Aviation Authority with respect to aircraft of the same type;
(ii) so as to keep the Aircraft in good working order, condition, state and repair, in efficient operating condition and airworthy in all respects in accordance with the requirements of the Manufacturer and the Aviation Authority including without limitation air transport requirements;
(iii) so as to ensure that the Aircraft remains certified by the Aviation Authority with appropriate airworthiness certificates provided that the Aircraft is in an airworthy state;
(iv) in accordance with the Approved Maintenance Programme; (b) comply, or procure compliance, in relation to all matters
concerning the repair, maintenance, modification, overhaul and servicing of the Aircraft or otherwise howsoever with all applicable laws, directives, mandatory bulletins and requirements of the Aviation Authority and government agencies, all mandatory requirements of manufacturers, including mandatory servicing bulletins and airworthiness directives; and
(c) maintain, complete and keep current the Manuals and Technical Records (except to the extent such Manuals and Technical Records are required to be maintained by The Helicopter Line or any pilot who is employed, contracted or otherwise engaged by The Helicopter Line).
…
8. Concessions
…
8.3 If:
(a) The Helicopter Line fails to renew any of the Concessions;
or
(b) any of the Concessions are revoked or withdrawn; or
(c) The Helicopter Line’s rights under any Concession are, in the reasonable opinion of Heli Holdings, adversely affected, or
(d) any other event, in the reasonable opinion of Heli Holdings, affects The Helicopter Line’s rights under the Concession then, without limiting either party’s other rights or remedies, the parties may agree to review and renegotiate the number of helicopters to be supplied and hours to be flown on terms and prices as mutually agreed (such prices not to be less than the then current Base Price).
…
10. Heli Holdings’ representations and warranties
10.1Heli Holdings represents and warrants to The Helicopter Line that: (a) …
(b) it will at all times perform its duties under this Agreement diligently and in good faith and in accordance with best industry standards and use best endeavours to ensure the Aircraft are available for use by The Helicopter Line as and when reasonably required for commercial operation subject to scheduled maintenance requirements of the Aircraft.
[63] The agreement could be terminated at any time by mutual consent in writing. Otherwise, it was to continue in force for an initial term of ten years with either party having the right to “extend the initial term by up to two periods of five years each by giving notice in writing to the other party not less than 30 days prior to the expiry of the relevant term”.
[64] Between 2002 and 2006, THL flew the eight twins but for less than the minimum hours required by the 2002 agreement. There were certain disputes over maintenance and availability issues. Mr Quickfall began raising issues as to the suitability of the twins for THL’s operations.
[65] With the disputes over these issues and Heli Holdings’ demands for payment in respect of shortfall hours, a mediation took place in Queenstown on 25 May 2006.
The 2007 agreement
[66] On or about 8 May 2007, a variation agreement was signed implementing agreements that had been reached at mediation.
[67] In the introduction to the 2007 agreement, the parties acknowledged that it was their “wish to vary the original agreement with the intention of promoting the long-term relationship amongst them for the operation and use of the helicopters, the subject of the original agreement”.
[68] The 2007 agreement set out various procedures to try and improve communication between the parties and included a provision that, if any issue between the parties could not be resolved through such communication, the parties would submit the issue to resolution by mediation. If an issue could not be resolved by mediation, the issue was to be determined by Court proceedings.
[69] Pursuant to the 2007 agreement, THL agreed to pay Heli Holdings $265,000 plus GST in respect of amounts due for shortfall hours up until 30 June 2006 and in respect of Heli Holdings’ claim for damage to a rotor blade.
[70] Pursuant to clause 7.1 of the 2007 agreement, THL agreed to fly the original eight helicopters for a minimum of 3,500 hours per annum from 1 July 2006. The hourly rate was to be $1,000 plus GST as from 1 July 2006. This clause continued:
7.1 … In relation to review clause 5.1 and 8.3 in the original agreement, the parties undertake to make available information that will assist to confirm the true position relating to helicopter requirements and the hours that may realistically be achieved using the aircraft relating to this agreement. Should Heli Holdings fail to take part in the review within
2 months of the 30 June review date in each year following such written request by The Helicopter Line then the minimum number of hours required to be flown will be automatically waived.
[71] If an aircraft was unavailable for use by THL, because of a need for unscheduled maintenance, and this occurred before midday, THL was to get a credit against shortfall hours of two hours. If the unavailability occurred after midday, the credit was to be one hour. This was subject to immediate notification, maximum credits and THL’s actions not being the reason for the unavailability. THL and Heli Holdings were both to maintain schedules recording the hours of unavailability for the purpose of adjusting minimum hours.
[72] It was further agreed that, if the helicopters were unavailable solely for the purposes of upgrading the fleet to an agreed standard, then that unavailability would be deducted against the minimum hours requirement. The deduction would be based on the average number of hours flown by the aircraft in the corresponding period of the previous year. A simple formula was established for such calculations.
[73] Heli Holdings was to upgrade two of the twins “as soon as practically possible” if the parties agreed the upgrade was economically feasible, the timing of the upgrade and which two of the existing fleet were available for upgrade. If one or more of the twins was upgraded, the hourly charge in respect of that aircraft would be $1,050 per hour plus GST.
[74] In the period 2006 to 2008, there continued to be issues between the parties over maintenance/availability, THL’s requests for upgrading or replacement of some or all of the twins and Heli Holdings’ demands for payment for the shortfall hours.
The 2008 agreement
[75] On 11 June 2008, there was a further agreement reached as a result of another mediation (the 2008 agreement). Amongst other matters, THL agreed to pay $1,030 plus GST per hour for the year ending 30 June 2008 and $1,050 plus GST per hour for the twins from 1 July 2008.
[76] The 2008 agreement included the following further clauses:
4. Upgrade of Helicopters/Project Rotate
4.1 Heli Holdings Limited and The Helicopter Line will within 90
days explore together “Project Rotate”.
4.2 “Project Rotate” shall refer to the possibility of The Helicopter Line purchasing an exit from the original agreement and the variation of agreement including the helicopters and ongoing maintenance arrangements.
4.3 If no agreement is reached on Project Rotate, the parties will explore together the refurbishment and/or renewal of the helicopters. If no agreement is reached within 60 days (in addition to the 90) then the parties agree to mediate that issue.
5. Minimum hours
5.1 The parties will within the next 30 days review the unavailability allowance in clause 7.2 of the variation of agreement. The parties will also review the system. This review will be for the years ended 30 June 2008 and 30 June
2009. If not resolved then the issue will be referred to the mediation contemplated in clause 3.
[77] By necessary implication, I find that any review put in place for the year to
30 June 2009 would also apply for subsequent years. If that was not resolved, the issue was to be dealt with in the mediation which would also deal with issues of refurbishment and/or renewal of the helicopters.
[78] The 2007 and 2008 agreements recognised that, but for the changes recorded in these agreements, the 2002 agreement remained in effect.
“Best industry standards” and “just culture”
[79] In deciding what is required by the terms of this contract, the objective must be to give effect to the intention of the parties primarily by reference to the language used in the contract.
[80] In situations of uncertainty or ambiguity, it can be appropriate to have regard to relevant business practices in determining what a contract meant and required of
the parties.3 The expert witnesses called for both Heli Holdings and THL,
3 Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900; Lumley General Insurance NZ Ltd v Body Corporation No. 205963 [2010] NZCA 316, (2010) 16 ANZ Insurance Cases 61-853.
experienced either in providing maintenance support for aircraft or in operating aircraft, did not agree on what would be meant by “best industry practice” in these industries.
[81] Mr Brent Earnshaw gave evidence as an expert for Heli Holdings. He worked for Air New Zealand for almost 30 years. From September 2003 to August
2013 he worked for Qantas as a general manager then regional manager, Aircraft
Maintenance Services, Queensland. He said:
“Best industry standards” could mean that a company not only carries out its daily duties and obligations in a manner that meets all imposed requirements from manufacturers or regulators but also seeks continuous improvements on how they carry out those obligations. The aviation industry is constantly learning from its mistakes and as a result of that is continuingly [sic] changing. It could be said that today’s “Best Industry Standards” are tomorrow’s common practices.
[82] Mr Logan Cudby had extensive and high level experience with the RNZAF over 26 years. He had been helicopter fleet operations manager for Heli Holdings and Airwork since July 2012. He referred to and approved a statement from the CAA website “it is in the best interests of all aviation participants to perform to a standard above the minimum”.
[83] Mr John Fogden and Mr Allan Murtagh were called as experts for THL.
[84] Mr Fogden was formerly the manager of the CAA rotary wing and agricultural operations unit of the General Aviation Group in the CAA. In that capacity he was responsible for the safety, surveillance and regulatory oversight of all certificated maintenance organisations providing maintenance services to helicopter operators in New Zealand. Those organisations included Airwork in the South Island. He said that he considered Mr Earnshaw’s definition of “best industry standard” referred more accurately to today’s “common industry practice”. He said:
There is no one definition of the term “best industry standard”, as it is accepted that the criteria will vary depending on the context. In the aviation context I believe it to mean “the achievement of continually improving standards that use quality and satisfaction as the measure over and above mandated legislative standards”. Another major New Zealand aviation service provider is quoted as saying “Our customers are telling us that just performing to the minimum is no longer an acceptable benchmark. It really
is about going beyond and ensuring the customer gets what they want. When you operate in a highly competitive market you try and align yourself with others who have the same brand values. If these are your customers, you simply have to over-deliver because that’s what brings them back”. That might be another way of describing “best industry standards”.
[85] He also said “following manufacturers’ requirements and Civil Aviation Regulations is not industry best standard. These are simply the minimum requirements for operating within the aviation system”.
[86] Mr Murtagh has been involved in the aviation industry since 1972. Since
2002, he has been the director of a company that provides independent aviation maintenance control and maintenance management to the general aviation industry. In that role he conducts external audits of maintenance providers and has had extensive exposure to CAA audits and rule requirements. He said, in relation to “best industry standard”:
[27] Best industry standard could be described in a number of different ways and will vary according to the sector and the environment in which the industry operates. In the aviation sector to me it means achieving standards which are significantly higher than the minimum standard set by the CAA. It means trying to achieve the highest safety standard possible. If those standards are lowered, then the risk starts to increase. The risk profile of an organisation achieving best industry standard will be less than one that is not.
[28] From THL’s point of view I would view best industry standard as giving rise to an expectation on its maintenance service provider of a high level of reliability and high level of safety and excellence in all aspects of maintenance services. That would include:
[a] An appropriate management structure which has personnel with the skills and experience to fulfil their obligations in Senior Persons roles and management;
[b] That management aspire to provide “Just Culture” principles
[709] In response to questions from me, Mr Scott said the only evidence that he could point to which would make it more likely that the over-temperature was caused by pilot error was the fact the FCU had been looked at and the report came back that it was not faulty.
[710] For me to accept that Heli Holdings has proved this over-temperature incident was caused by pilot error, I have to accept that the pilot’s account of what he did on landing the aircraft and when he observed the engine was at 1,000 degrees centigrade was misleading. The difference between the pilot’s account of what he did and Mr Scott’s explanation as to how the pilot could have been in error is so marked that, if I accept Mr Scott’s scenario, I must be satisfied the pilot’s report as to what occurred was deliberately misleading.
[711] In connection with other problems with FCUs, albeit some three years later, there was evidence that there had been malfunctions with these units without the defects in the units ever being identified. In the Gorilla Creek incident, Mr Marwick established the cyclic lock failed on an intermittent basis. Heli Holdings says that the actual defect with the lock had not been identified by Eurocopter.
[712] In relation to this incident and this claim, the burden of proof is on Heli Holdings. On the evidence, I am not satisfied that, more probably than not, the over- temperature incident and the damage done to the engine was the result of pilot error.
Second subsidiary issue – THL’s counterclaim for over-payment for hours flown
Intention of the parties
[713] In the 2008 agreement, THL agreed to pay Heli Holdings the sum of
$383,437.42 by 13 June. Clause 3.1 of the agreement stated:
The Helicopter Line will pay Heli Holdings Limited the sum of $383,437.42 by 5pm 13 June 2008. This payment is without prejudice to The Helicopter Line’s right to dispute its liability to make that payment and without prejudice to Heli Holdings Limited’s claim to interest on that amount. The payment is without prejudice to The Helicopter Line’s claim that clause 8.3 of the variation of agreement entitles it to claim a discount across all hours. (The meaning and effect of clause 8.3 remains at large). The parties agree to work together to resolve the interpretation and if unsuccessful then after 150 days subject the dispute to mediation and failing mediation, litigation.
[714] The clause referred to was in the 2007 agreement. Clause 8 of that agreement required THL to pay $1,000 per hour plus GST for the twins. Payment had to be made for a minimum of 3,500 hours subject to adjustment according to the agreed formula for unavailability. Clause 8.3 stated:
In the event that The Helicopter Line achieves productive hours in excess of the minimum hour requirements agreed to under this agreement Heli Holdings agrees to reduce the prices referred to in clause 8.1 and 8.2 by 12% per hour.
[715] Mr Quickfall explained that, in the 2006/2007 year, THL flew 3,450.15 hours and, after adjustments, THL considered that it was entitled to a 12 per cent discount on the price per hour charged for all hours flown, resulting in the claimed credit of
$383,437.42. After the mediation, THL agreed to pay the full amount claimed by Heli Holdings but only on the basis THL was not waiving its claim to credit in respect of this payment. The payment was without prejudice to THL’s ability to dispute its liability to make the payment and to claim that it was entitled to a discount across all hours. THL seeks to off-set that claimed credit against the claims which Heli Holdings made for shortfall hours.
[716] Heli Holdings denied THL’s pleaded entitlement to a credit and said further that the credit did not accrue within six years of these proceedings and so was barred by the Limitation Act 1950.
[717] THL’s claim can be determined through the way clause 8.3 is to be interpreted in line with what I find to have been the intention of the parties having regard primarily to the wording of clause 8.3 and relevant surrounding circumstances.
[718] I agree with the submission of Mr Heaney that the interpretation which Mr Quickfall argues for does not make commercial sense. If accepted, it would mean, if THL flew 3,500 productive hours, it would have to pay $3.5 million but, if it flew
3,501 productive hours, it would have to pay only $3,080,880. The total payable for all hours would then be less than the amount payable for fewer hours, even though the wear and tear on the aircraft would be greater.
[719] I agree with Mr Heaney’s submission that it is not surprising that, after the mediation involving the 2006/2007 hours, THL actually paid over the amount it had been withholding.
[720] The interpretation which Heli Holdings argues for is also consistent with the proposals that were made in late 2012 and 2013 by both Heli Holdings and THL for both minimum hours and hourly rates for the replacement aircraft which the parties were contemplating would be introduced into the Heli Holdings fleet. In Mr Quickfall’s draft agreement sent to Heli Holdings on 21 June 2013, he proposed:
Each super D2 aircraft will be provided at an hourly rate of NZ$1,400 (plus GST) for the first 300 hours per aircraft per annum; this rate will be charged up to 350 hours. Hours above 350 will be charged at a rate of NZ$900 (plus GST) per hour.
[721] THL’s counterclaim with regard to a credit for $383,437.42 must be
dismissed on this basis.
Limitation Act 1950
[722] Heli Holdings also submitted it had a limitation defence to this claim. Mr Heaney’s submission was that THL’s cause of action in relation to this would have accrued on 31 July 2007, being the date on which it had to pay for the shortfall hour amounts for the 2006/2007 contract year. He submitted that any contract claim would thus have had to have been made by 31 July 2013 but it was first made in THL’s counterclaim of 16 April 2014. I note that, if THL had any claim, it did not relate to any amount due for shortfall hours. On this particular year, THL had flown aircraft for more than the minimum. The cause of action probably did arise at such time as the parties could determine whether THL had flown the aircraft for more than
3,500 productive hours.
[723] Mr Weston submits that THL’s cause of action should be deemed to have accrued at the time the claim was acknowledged in the 2008 settlement agreement dated 11 June 2008, meaning the claim was brought in time. He relied on s 25(4) of the Limitation Act 1950.
[724] I have not determined when the cause of action would have accrued independently of the 2008 agreement. I do not however accept that, pursuant to section 25(4), the cause of action would have accrued on the date of the 2008 agreement.
[725] Section 25(4) states:
Where any right of action has accrued to recover any debt or other liquidated pecuniary claim, or any claim to the personal estate of a deceased person or to any share or interest therein, and the person liable or accountable therefor acknowledges the claim or makes any payment in respect thereof, the right shall be deemed to have accrued on and not before the date of the acknowledgment or the last payment:
[726] The meaning of acknowledgement of claim referred to in s 25(4) must be determined having regard to the context in which those words are used. The words are used alongside the reference to a part payment of the debt. Such a part payment demonstrates an acceptance of liability for the debt. The extension of the limitation period, in the circumstances provided for in s 25(1), (2) and (3), also results from
some act or acknowledgement which inherently involves an admission of liability.39
Clause 3.1 of the 2008 agreement preserved THL’s right to bring a claim which was disputed. It did not involve an acknowledgement of the claim in the sense with which those words are used in s 25(4).
Result
[727] The plaintiff is entitled to judgment against the first and second defendants on a joint and several basis in the sum of $2,070,143.42 together with interest under the Judicature Act as from 26 September 2013.
[728] The defendants are entitled to a declaration that neither of them has any liability to the plaintiff on the plaintiff’s claim for shortfall hours or for loss of profits for any period after 2 July 2013.
Costs
[729] Whether and what order might be made as to costs will require a consideration of what was at issue in the proceedings, the scope of the evidence and the success which each party had.
[730] If any party decides to apply for costs and the claim cannot be resolved by agreement, then the claim should be made by way of a memorandum from counsel. The first memorandum is to be filed within 30 days. The other party must file any memorandum in response within 14 days of receiving the first memorandum. A memorandum in reply is to be filed within a further 14 days. The memoranda are to be no longer than eight pages.
Solicitors:
Heaney & Partners, Auckland
MacAlister Todd Phillips, Queenstown.
39 Burrows, Finn and Todd, above n 6, at [21.6.2(e)]; Anchorage Management Ltd v Oldham (1997) 11 PRNZ 110 (HC) at 116; Bradford & Bingley plc v Rashid [2006] 1 WLR 2066 (HL) at [21] per Lord Hope of Craighead; Fog v Frimley Estate Ltd [2015] NZHC 3301 at [38].
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