Helilogging Limited (in receivership and liquidation) v Civil Aviation Authority of New Zealand
[2021] NZCA 21
•25 February 2021 at 12 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA45/2020 [2021] NZCA 21 |
| BETWEEN | HELILOGGING LIMITED |
| AND | MARK WAYNE FORD AS TRUSTEE OF THE WESSEX TRUST |
| AND | CIVIL AVIATION AUTHORITY OF NEW ZEALAND |
| Hearing: Further submissions: | 21–23 September 2020 |
Court: | Miller, Gilbert and Goddard JJ |
Counsel: | P J Dale QC and A J Steel for First and Second Appellants |
Judgment: | 25 February 2021 at 12 pm |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellants are to pay costs to the respondent for a complex appeal on a band B basis and usual disbursements. We certify for second counsel.
____________________________________________________________________
REASONS OF THE COURT
(Given by Gilbert J)
Table of contents
Introduction [1]
The appeal [7]
Notice by CAA to support the judgment on other grounds [9]
Regulatory framework [10]
Chronology [18]
Westland Wessex series of helicopters [22]
Fatal accident in New Zealand involving a Westland Wessex Mk 5 [25]
CAA review of safety issues concerning ex-military helicopters [27]
Helilogging purchases two Westland Wessex Mk 2 helicopters [37]
Steps by Helilogging prior to filing exemption petition [40]
Petition for exemption [62]
9 November 2004 memorandum [75]
Judicial review proceedings [83]
Implementation of seven-stage process
Step 1 — briefing from technical advisers [88]
Step 2 — request for further information [90]
Step 3 — updated advice from technical advisers [103]
Step 4 — consideration of advice and preliminary decision [108]
Step 5 — preliminary decision provided to Helilogging [109]
Step 6 — consideration of Helilogging’s comments [110]
Step 7 — final decision [125]
2005–2014 [135]
The pleaded claims
Deceit [160]
The CAA [161]
Mr Lewis [165]
Mr Fogden [166]
Misfeasance in public office [167]
High Court judgment [171]
Grounds of appeal [174]
Ground 1 — 1999 Lewis report [177]
Ground 2 — recklessness in respect of the 2005 Lewis letter [205]
Ground 3 — the vibration flight [218]
Ground 4 — safety as the primary ground for refusal [233]
Ground 5 — the effect of the director’s conduct [237]
Ground 6 — findings contrary to the weight of evidence [239]
Ground 7 — pleadings [246]
Ground 8 — counsel’s concession [249]
Ground 9 — alteration to Mr Lewis’ 23 July 2005 letter [252]
Ground 10 — the evidence of Irene King [258]
Ground 11 — whether the decision was reasonably open tothe director [266]
Summary [269]
Result [277]
Introduction
In July 2004, the appellants (collectively referred to as Helilogging) petitioned the director of Civil Aviation (the director) for an exemption from the Civil Aviation Rules to enable them to use an ex-military Westland Wessex Mk 2 type helicopter for heli-logging operations in remote areas of the central North Island. The Westland Wessex series of helicopters were manufactured in the United Kingdom between 1958 and 1970 and were designed for use by the British armed forces. In a written decision issued on 19 August 2005, the then director, John Jones, declined to grant the necessary exemption.
Nine years later, in September 2014, Helilogging commenced the present proceedings against the Civil Aviation Authority of New Zealand (the CAA) claiming damages for alleged deceit and misfeasance in public office. In its sixth amended statement of claim Helilogging claimed 10 years’ lost profits of approximately $56 million or, alternatively, $5.2 million for wasted expenditure (including $2.86 million for the purchase in December 2002 of two Wessex Mk 2 helicopters and various spare parts). Unspecified exemplary or punitive damages were also claimed. In addition, the second appellant, Mr Ford sought $100,000 in general damages for stress, anxiety and inconvenience caused to him by “the CAA’s wrongful declinature and/or fraud by concealment”.
In July 2019, the High Court directed a split trial on liability due to delays by Helilogging in formulating its damages claim.[1] The liability trial was also to deal with what the regulatory outcome would have been, or could have been, but for the wrongdoing.[2] Following a trial of some seven weeks duration, the claims were dismissed by Cooke J in a comprehensive judgment delivered on 13 December 2019.[3] As to the misfeasance claim, the Judge concluded that “at no stage did Mr Jones or other officials act knowingly beyond their functions or powers, or recklessly indifferent to this”.[4] Indeed, the Judge observed that Helilogging did not advance their case on the basis that the director had done so.[5] In terms of the deceit claim, the Judge found that “at no point did [the director or other CAA officials] make untrue representations to [Helilogging]”.[6]
[1]Helilogging Ltd (in rec and liq) v Civil Aviation Authority of New Zealand [2019] NZHC 1641.
[2]At [32].
[3]Helilogging Ltd (in rec and liq) v Civil Aviation Authority of New Zealand [2019] NZHC 3305 [High Court judgment].
[4]At [271].
[5]At [284].
[6]At [271].
While strictly not necessary in view of these key factual findings, the Judge identified difficulties with Helilogging’s case on causation and loss.[7] In particular, the Judge considered much of Helilogging’s evidence had been directed to the wrong question — what would have occurred if the alleged wrongdoing had been exposed? Instead, the relevant enquiry should have been to examine what would have occurred if there had been no wrongdoing. The Judge said this should be considered with reference to the objective test of whether a reasonable director would have granted the exemption but for the wrongdoing.[8] A related issue concerned the appropriate methodology for assessing loss. The Judge identified three possible approaches. The first was whether Helilogging could prove on the balance of probabilities that the exemption would have been granted (an “all or nothing” approach). The second was to assess the loss on a loss of a chance basis. The third possibility was to assess the loss “more directly caused by the wrongdoing”.[9] In respect of the deceit claim, the loss would be confined to that directly caused by any reliance on the director’s allegedly fraudulent representations.[10]
[7]At [282].
[8]At [287].
[9]At [288].
[10]At [289].
The Judge also commented briefly on the issues of vicarious liability and limitation. The Judge did not consider the CAA could be vicariously liable for any wrongdoing on the part of Charles (“Bernie”) Lewis, an independent aviation consultant whose advice, which was heavily criticised by Helilogging, was relied on by the director to support one of his reasons for declining the exemption. The Judge pointed out that the authorities relied on by Helilogging concerned the vicarious liability of a principal for the conduct of a person acting as its agent. But Mr Lewis was not acting as an agent of the CAA, rather as an independent expert.[11]
[11]At [303].
Finally, the Judge noted that the proceedings were commenced well outside the normal six-year limitation period and the claims were therefore time-barred unless the alleged fraud was not reasonably discoverable more than six years before the proceedings were issued. The Judge went no further, considering it would be artificial to do so given his finding there was no fraud and therefore nothing to discover.[12]
The appeal
[12]At [307].
Helilogging now appeals. There is no complaint that the Judge made any error of law. Rather, Helilogging seeks to persuade this Court to interfere with the Judge’s key factual findings on the liability issues. In their agreed statement of issues, counsel formulate the principal questions on appeal in very broad terms, namely whether the High Court was correct to find that Helilogging had not proved:
(a)Fraudulent acts or omissions sufficient to establish misfeasance by the director and/or John Fogden (Mr Fogden was employed by the CAA as the manager of rotary wing and agricultural operations. He provided a detailed report to the director dated 9 August 2005 recommending that Helilogging’s application be declined).
(b)Fraudulent misrepresentations and reliance on such representations sufficient to establish the tort of deceit.
The appeal grounds are mostly directed to these factual issues. Helilogging abandoned a further ground, ground 12, which challenged the Judge’s finding that the CAA was not vicariously liable for any dishonesty on the part of Mr Lewis. This was an appropriate concession. The other appeal grounds are directed to the issues of causation and loss. In particular, Helilogging contends the Judge erred by focusing on whether a reasonable director could have granted the exemption. This is said to be an error because Helilogging’s case was that they were misled in the approval process by material information being withheld. Helilogging claims that if this information had been disclosed, this would have resulted in:
25.1 An application for judicial review, with good prospects for success.
25.2The possibility that the Director would be removed from the decision-making process, both because of the withholding of material information and the political and public pressure which the Director was facing at the time, which would have required then an assessment on a loss of a chance basis of the appellants’ prospects of succeeding.
Notice by CAA to support the judgment on other grounds
The CAA has given notice to support the judgment on four further grounds:
(a)Contrary to the Judge’s finding, it is more likely than not that a director of the CAA, acting reasonably, would not have granted the exemptions sought by Helilogging.
(b)Helilogging’s causes of action are time-barred by s 4 of the Limitation Act 1950 (then applicable). To the extent that s 28 of the Limitation Act applies (postponement in a case of fraud), the pleaded causes of action were discovered, or, with reasonable diligence could have been discovered, more than six years prior to the proceedings being issued in 2014.
(c)The CAA is not vicariously liable for the pleaded deceit or misfeasance by the director or Mr Fogden.
(d)Helilogging’s claim for a loss of a chance is not available because third party actions are not at issue. The other approaches to causation and loss discussed in the High Court judgment are correct.
Regulatory framework
It is helpful to commence by summarising the relevant regulatory framework. The Civil Aviation Act 1990 (the Act) was enacted to establish rules of operation and divisions of responsibility within the New Zealand civil aviation system in order to promote aviation safety and ensure compliance with New Zealand’s obligations under international aviation agreements, including the Convention on International Civil Aviation signed on behalf of the Government of New Zealand in Chicago on 7 December 1944 (the Chicago Convention).[13] The Chicago Convention introduced a framework for civil aviation including standards and recommended practices to guide the regulation of civil aviation in member states. In broad terms, it provides for a comprehensive and integrated system where responsibilities are devolved to certified entities such as designers, manufacturers and operators to ensure the safe operation of international and domestic civil aviation.
[13]Convention on International Civil Aviation 15 UNTS 295 (opened for signature 7 December 1944, entered into force 4 April 1947) [the Chicago Convention].
The Act confers power on the responsible minister to promulgate rules to implement New Zealand’s obligations under the Chicago Convention.[14] These rules, known as the Civil Aviation Rules (the Rules), include rules prescribing general operating and flight requirements for the operation of civil aircraft.[15] References in this judgment to specific rules are to those in force at the relevant time. Subject to limited exceptions, the Rules prohibit any person from operating an aircraft unless it has a current airworthiness certificate and it is in an airworthy condition.[16]
[14]Civil Aviation Act 1990, s 28(1)(a) [the Rules].
[15]Civil Aviation Rules, r 91.1(a).
[16]Rule 91.101(a).
Airworthiness certificates are governed by pt 21 of the Rules. At the relevant time, these were issued in three categories — standard, restricted and special.[17] The special category comprised two subcategories — special experimental and special flight permit.
[17]Rule 21.173.
Aircraft issued with airworthiness certificates in the standard and restricted categories could be used for air transport operations, meaning operations for the carriage of persons or goods by air for hire or reward.[18] By contrast, aircraft issued with an airworthiness certificate in the special (special experimental or special flight permit) category could not be used for hire or reward operations.[19]
[18]Rule 1.1.
[19]Rule 91.105(a).
An applicant for an airworthiness certificate in the standard or restricted categories required a “type certificate” for an aircraft manufactured in New Zealand or a “type acceptance certificate” for an aircraft imported into New Zealand.[20] An applicant for a type acceptance certificate was required to provide various information to the director, including evidence that the type design had been approved by the relevant overseas “State of Design” having jurisdiction over the entity responsible for the type design:
21.43 Data requirements
(a)An applicant for the grant of a type acceptance certificate for an aircraft type must provide the Director with—
(1) evidence that the type design has been approved by an ICAO contracting state by the issue of a type certificate or an equivalent document; …[21]
(Footnote added.)
[20]Rule 21.191.
[21]ICAO denotes International Civil Aviation Organisation, a United Nations agency funded by 193 national governments to support their diplomacy and cooperation in air transport as signatory states to the Chicago Convention.
We pause here to note that military helicopters are largely regulated under a different regime. As an ex-military helicopter, the Westland Wessex Mk 2 did not have a type certificate (or equivalent document) and was not eligible for one. Helilogging’s petition, submitted on 26 July 2004, sought an exemption from the type acceptance requirement in connection with its application for an airworthiness certificate in the restricted category. If granted, this would enable it to conduct commercial heli‑logging operations for hire or reward.
Helilogging later sought, in the alternative, an exemption from the hire or reward restriction applicable to all airworthiness certificates issued in the special experimental category:
91.105 Special category airworthiness certificates — Operating limitations
1.Except as provided in paragraph (b), no person may operate an aircraft that has a special category airworthiness certificate for the carriage of persons or goods for hire or reward.
2.Paragraph (a) does not apply to a person operating an aircraft for the carriage of persons for hire or reward where the person being carried is—
(1) the holder of a flight instructor rating issued under Part 61; and
(2)giving conversion instruction to the operator.
…
The director has the power under the Act to grant exemptions from any requirement in the Rules. However, this power can only be exercised in specified circumstances and then only where the director is satisfied the risk to safety will not be significantly increased by granting the exemption. The director’s exemption power is contained in s 37 of the Act. At the time, this section relevantly read:
37 Exemption power of Director
(1)The Director may, if he or she considers it appropriate and upon such conditions as he or she considers appropriate, exempt any person, aircraft, aeronautical product, aerodrome or aviation related service from any specified requirement in any rule made under section 28 or section 29 or section 30 of this Act.
(2)Before granting an exemption under subsection (1) of this section, the Director shall be satisfied in the circumstances of each case that—
(a)The requirement has been substantially complied with and that further compliance is unnecessary; or
(b)The action taken or provision made in respect of the matter to which the requirement relates is as effective or more effective than actual compliance with the requirement; or
(c)The prescribed requirements are clearly unreasonable or inappropriate in the particular case; or
(d)Events have occurred that make the prescribed requirements unnecessary or inappropriate in the particular case,—
and that the risk to safety will not be significantly increased by the granting of the exemption.
…
Chronology
A reasonable grasp of the sequence of events is necessary in order to understand Helilogging’s claims and to set the context for consideration of the grounds of its appeal. Because Helilogging seeks to persuade this Court to reject the factual findings made in the High Court and find that the director and Messrs Fogden and Lewis were all dishonest and deceitful in carrying out their professional obligations, it is necessary to examine the evidence in some detail. [22]
[22]Although it was conceded at the hearing of the appeal that the CAA could not be vicariously liable for any dishonesty on the part of Mr Lewis, dishonesty and recklessness in connection with his engagement and 2005 letter remain key features of Helilogging’s case.
Three contextual matters are worth noting at this stage. First, under s 37 of the Act, the director was ultimately responsible for the exemption decision. The decision whether to grant such an exemption was his alone. Thus, it was the director, Mr Jones, who held the public office and was responsible for exercising the relevant power (not the CAA). Secondly, the director was not empowered to grant an exemption unless satisfied of the matters set out in s 37(2). As will be seen, the director’s key technical advisors (Messrs John Lanham, Fogden and Gill) had differing views on whether Helilogging’s exemption petition should be granted and, if so, on what basis. Thirdly, at the time the exemption petition was filed, the CAA was engaged in the process of undertaking a comprehensive review of the Rules relating to special category aircraft, including the use of ex‑military helicopters for external load carrying purposes such as heli‑logging. The review was prompted by an unacceptably high accident rate, including fatal accidents, involving these types of aircraft. The Rules review had not been completed at the time the director was required to make his decision on Helilogging’s exemption petition. The director’s decision was therefore of interest to other operators in the industry and would set an important precedent.
A further point to note is that by the time the trial commenced, 14 years had passed since the date of the decision. This lengthy delay posed inevitable problems for both parties. Some of the key participants had died and others were being asked to recall specific details of events that took place many years earlier. For example, Mr Lewis, whose advice was a central focus of Helilogging’s complaints, was aged 91 at the time of the trial. He was accused of dishonestly failing to disclose a report he had written on 12 January 1999 concerning flight trials he carried out in a Wessex Mk 5. Mr Jones was also elderly by the time of the trial and he had suffered a head injury in 2017 that affected his memory. As a result, he was simply unable to provide any useful evidence at the trial.
Fortunately, however, an almost complete contemporaneous documentary record of relevant events remained. The following chronological summary is drawn from this record.
Westland Wessex series of helicopters
The Mk 1 Westland Wessex helicopter was designed for the Royal Navy, primarily to carry out anti‑submarine operations. It was a single-engine helicopter and first flew in 1958. The Mk 2, the subject of these proceedings, was a high performance development of the Mk 1. It was designed as a troop carrier for the Royal Air Force (RAF) and was powered by two Rolls Royce turbine Gnome engines. It first flew in 1961.
A number of variants of the Mk 2 were subsequently produced. We mention four. The Mk 4 was used by the Queen’s Flight of the RAF to transport members of the Royal Family. The Mk 5 was a specialised version of the Mk 2 designed for the Royal Navy for deploying troops from the decks of ships. The Mk 52 was a military transport version of the Mk 2 used by the Iraqi Air Force.
The Mk 60 was the only civil variant. It was certified by the United Kingdom Air Registration Board for public air transport and was primarily used by Bristow Helicopters Ltd (Bristow) for passenger transport to North Sea oil rigs. However, several of these Mk 60 aircraft were involved in fatal crashes, including one that crashed in the North Sea in August 1981 causing 13 fatalities. The United Kingdom Civil Aviation Authority (UK CAA) withdrew type certificate status for these aircraft in 1990. It appears that the original equipment manufacturer, GKN Westland, asked for the type certificate to be cancelled because only a handful of these aircraft remained, they had not flown for many years and their parts history was unclear. The company therefore saw no value in continuing to support the aircraft type.
Fatal accident in New Zealand involving a Westland Wessex Mk 5
Only one Westland Wessex helicopter has operated in New Zealand, a Mk 5 manufactured in 1964. It was operated by Metro Air Ltd (Metro Air), a company owned and directed by Bruce O’Malley. This was the same helicopter referred to at [20] above in which Mr Lewis conducted flight trials in December 1998 and January 1999. This helicopter was later issued with an airworthiness certificate in the special experimental category. It crashed in February 2001 shortly after lifting a log from the ground during heli-logging operations in Motueka, instantly killing the pilot who was the sole occupant. The subsequent CAA aircraft accident report released in June 2002 concluded that the accident was caused by the stoppage of the number two engine, which likely occurred some time prior to the log being lifted off the ground. The cause of the engine stoppage could not be determined because the aircraft was destroyed in the accident.
At the time of this fatal accident, Mr O’Malley was under investigation for breaching the hire or reward prohibition on aircraft operating with airworthiness certificates issued under the special experimental category. Charges were subsequently laid and guilty pleas were entered in July 2002.
CAA review of safety issues concerning ex-military helicopters
The crash of the Wessex Mk 5 was the latest in a series of accidents (including fatal accidents) in New Zealand involving ex-military helicopters. There had been seven deaths between 1998 and 2004. This spate of accidents raised concerns within the CAA over the certification, operational use and oversight of this category of aircraft. Investigations into the supply of parts and components for these aircraft further highlighted the need to review the overall operation of ex-military helicopters. Accordingly, in June 2001, Mr Lanham, general manager of the general aviation group at the CAA, initiated a comprehensive review of ex-military helicopter operations. The review was led by Jeremy Remacha, manager of the aircraft certification unit.
In the context of this review, Mr Remacha was asked to report specifically on airworthiness issues with the Wessex Mk 2 and Mk 5 helicopters. This was because Mr O’Malley had applied on 24 September 2001 for airworthiness certificates in the special experimental category for his two Mk 2 Wessex helicopters (the two helicopters subsequently purchased by Helilogging in 2002 and the subject of these proceedings). The director notified Mr O’Malley on 18 December 2001 that his applications would not proceed further until the accident report into the fatal crash of the Wessex Mk 5 was completed. Further, he advised that the CAA was currently conducting a review into the certification processes and operation of foreign ex‑military aircraft in New Zealand and he said the history of the Wessex Mk 2 would be reviewed in this context and would be relevant to his consideration of the applications.
In his 22 May 2002 report entitled “Helicopter Airworthiness: Westland Wessex Mk 2 and Mk 5 Series”, Mr Remacha made the following pertinent observations:
(a)The Wessex is a large and complex aircraft designed over 44 years previously. It was not designed for a specific single role involving high frequency external load operations (such as heli-logging).
(b)The civil variant Wessex Mk 60 had been involved in several significant accidents causing multiple fatalities. There were unresolved airworthiness issues regarding its safety. Civil operation of the Mk 60 likely ceased in the United Kingdom in the early 1980s (soon after the North Sea crash in 1981 which had resulted in 13 fatalities).
(c)Airworthiness support by Westland Helicopters, the original equipment manufacturer, was withdrawn for the Mk 60 aircraft in 1990 and it did not intend to provide such support for the Wessex type in the future.
(d)The UK CAA, the original certifying authority, subsequently rescinded the type certificate status for the Wessex Mk 60. Unresolved safety issues arising from the North Sea accident would require resolution before type support could be reinstated. This was unlikely given the significant time that had passed since that accident occurred in 1981.
(e)The UK CAA no longer collected data on the Wessex types and records appeared to have ceased in 1993.
(f) Military variants (all but the Mk 60) continued to be used in limited military operations but there was only one major such operator, the United Kingdom Ministry of Defence (UK MoD). At the time of the report, it was still operating three Mk 2 aircraft in Cyprus with support from GKN Aerospace (GKN) as the post-design support authority. However, the UK MoD had declared the type obsolete and set a final out-of-service date of 31 March 2003. No Wessex Mk 5 aircraft were still in service with the UK MoD.
(g) Rolls Royce, the manufacturer of the Gnome engine used in the Wessex helicopters, only serviced these engines for customers who purchased directly from them. Engines on the civil market purchased ex-military were not supported.
(h) The Wessex Gnome engine was no longer supported for new spares delivery and, given the notified withdrawal of the Wessex from service by the UK MoD, very few, if any, spares were available from Rolls Royce.
(i) Maintenance manuals for the Gnome engine were effectively sealed in the 1980s and no service bulletins addressing airworthiness issues had been produced since 1987.
Mr Remacha also noted difficulties the CAA would face as the administering airworthiness authority given the lack of relevant data on these aircraft and the lack of appropriate in-house expertise:
The only remaining Wessex aircraft are operated solely in the military environment which affords many mechanisms to provide an adequate level of safety. These include considerable numbers of highly trained and currently experienced maintenance and flight personnel, access to authentic and approved parts, available tooling and equipment, extensive corporate knowledge on the operation and maintenance of the type, and a strictly controlled maintenance and operating environment. This infrastructure cannot be easily replicated for small or unique operations due to the extensive costs involved.
Furthermore as there is no equivalent civil type still in service or supported by a civil airworthiness authority there is at best an “arm’s length” and distant support structure for any operator or any airworthiness authority administering its ICAO State of Registry responsibilities.
As access to the necessary design data, service history and other relevant information to ensure proper continued airworthiness for the type can be undertaken, the administering airworthiness authority (in this case the NZ CAA) would need to ensure it possesses the necessary knowledge and skills to adequately evaluate such matters as specially tailored maintenance programmes and assessment of design change approvals etc. In many cases, CAA staff possess limited specific knowledge to make these assessments, because the system of civil certification relies heavily on access to OEMs and other foreign certifying authorities to provide the support.[23]
This does not exist in this case.
(Footnote added.)
[23]OEM denotes original equipment manufacturer.
Mr Remacha concluded his report with a list of recommendations for the authorisation of initial operations of the Wessex Mk 2 and suggested further requirements for the authorisation of external load or agricultural purposes.
Following completion of this review, the director wrote to Mr O’Malley on 27 May 2002 advising that his applications on behalf of Wessex Air for airworthiness certificates for the two Wessex Mk 2 helicopters could proceed under the special experimental category. However, this would be subject to the standard certification requirements in the Rules. Further, the airworthiness certificates would be subject to 11 conditions, including that the aircraft could not be used for the carriage of persons or goods for hire or reward and could not be used for external load operations.
In a separate draft report dated 8 August 2002, Mr Remacha summarised the key issues and made preliminary recommendations to enable the CAA to brief the industry at the forthcoming Aviation Industry Association (AIA) conference. By way of overview, Mr Remacha wrote:
The application of ex-military helicopters to a variety of roles in New Zealand over the last decade has raised a number of key issues surrounding the level of safety for particularly external load operations. A number of key issues have arisen which indicate current level of safety is inadequate and both short term and long-term action is required to address the situation. As more and more operators in the industry are keen to continue sourcing ex-military aircraft for external lifting operations, particularly heli-logging, the CAA must ensure that it formulates a plan to address the immediate safety issues in a rational and logical approach, whilst making strategic plans to address the wider regulatory issues raised by this type of operation with these aircraft.
Mr Remacha noted that the accident rate for ex-military helicopters was unacceptably high in comparison to other helicopters. Fatality rates per 1,000 reported flight hours were more than 10 times higher than those for all other helicopters registered in New Zealand. In the six-month period from January to June 2001 alone, there had been three major accidents causing five fatalities. Civilian operators were currently using the aircraft well outside their original design limits with repetitive lifting operations occurring as much as 2,000 per cent more often than envisaged in the original design and certification. Other problems identified by Mr Remacha included lack of a review of technical and airworthiness oversight, lack of support of the original equipment manufacturer, lack of training, difficulties with parts traceability, lack of data and inadequate maintenance programmes. Mr Remacha made a number of initial recommendations including placing limitations on external load and agricultural operations on airworthiness certificates for all special category helicopters until the level of safety for the intended operation had been assessed as adequate for the purpose.
Messrs Remacha and Fogden gave a presentation at the AIA annual conference in September 2002. This presentation summarised the CAA’s current strategies and future directions to address the unacceptably high accident rate involving ex-military helicopters. These included developing guidance and advisory material for heli‑logging operations, reviewing airworthiness certification in the restricted and special categories to include specific purposes, and investigating regulation and certification of commercial external lifting operations.
Following the conference, the CAA provided a further update to the industry in the September/October 2002 edition of CAA News. This highlighted the significant differences identified by Mr Remacha between military and civilian use of military aircraft. Military aircraft operate in a highly controlled environment with extensive standard operating procedures, training and proficiency, all of which are constantly reviewed. Further, military aircraft are almost never flown with just a single crew. By contrast, in the civil system helicopter pilots receive a type‑rating but not necessarily any further formal training. There was also no specific evaluation of maintenance programmes to meet the aircraft’s intended use. The lack of direct technical and airworthiness support from the original equipment manufacturer was also identified as an issue. Various actions the CAA intended to take to raise the safety levels of ex‑military helicopters were set out. These included introducing requirements that all restricted and special category aircraft have an approved maintenance programme with any variation to be approved, design changes must use approved data, and all special category helicopters would have limitations imposed on external load and agricultural operations until the level of safety could be assessed as being adequate for the intended purpose. The CAA signalled its intention to consult with the industry on several initiatives including the certification of commercial external lifting operations and the development of guidance and advisory material for such operations.
Helilogging purchases two Westland Wessex Mk 2 helicopters
Mark Ford, the second appellant, is the sole director of Helilogging Ltd (now in receivership and liquidation). The company was incorporated in July 1999 to undertake heli-logging operations. Mr Ford and his brother were early pioneers of heli-logging operations in New Zealand, commencing in 1983. Mr Ford is also the sole trustee of the Wessex Trust which was established to hold the intellectual property associated with the operation.
In early December 2002, the finance company that had financed Mr O’Malley’s purchase of the two Wessex Mk 2 helicopters approached Mr Ford to see whether he would be interested in buying them. Only one of these aircraft had a New Zealand airworthiness certificate. This was issued on 28 May 2002 in the special experimental category and was subject to 11 conditions as mentioned above.[24]
[24]This airworthiness certificate was issued following the director’s letter to Mr O’Malley dated 27 May 2002, referred to at [32] above.
Mr Ford said he considered this to be “a very good opportunity” to upgrade the helicopter he was then using for heli-logging operations, a less powerful single engine Westland Scout. Mr Ford said he “was confident [he] would not infringe the hire and reward restriction, because [he] owned [the] sawmill and … the lifted logs were owned by [him]” under contracts he was entering into with the forest owners. Mr Ford quickly agreed to purchase these two Mk 2 helicopters together with spare parts and an unregistered Mk 60 helicopter which could also be used for parts. The agreed purchase price was $2.86 million. Helilogging’s solicitor provided instructions to the bank for the issue of a bank cheque for this amount on 13 December 2002.
Steps by Helilogging prior to filing exemption petition
On 19 December 2002, Paul Muller, who had maintained Helilogging’s Westland Scout helicopters for many years, made preliminary enquiries with the CAA about the steps that might be required for the Wessex Mk 2 helicopters to meet the airworthiness and maintenance safety standards to enable the external load prohibition to be lifted and the aircraft to be used for heli‑logging. Mr Remacha advised Mr Muller that Helilogging would need to request a meeting with the CAA, provide operational details and an approved maintenance programme.
On 21 January 2003, Mr Ford wrote to Mr Remacha attaching a proposal for a “limited Lifting Trial”. The stated purpose was “to determine the suitability of Westland Wessex helicopters for the role of lifting logs from forests in New Zealand”. The proposed trial was to be conducted over a two to three-month period with up to 300 lifts. Mr Ford said the data collected would be “used to primarily decide acceptability of the helicopter within the role but [would] also be used to determine the operational and airworthiness issues”.
On 10 February 2003, Messrs Ford, Muller and Maurice Gordon (a consultant aircraft engineer engaged by Mr Muller on behalf of Helilogging) met with Messrs Lanham, Remacha, Fogden and Graeme Pearson (another CAA employee in the General Aviation team) to discuss the likely steps required to remove the current prohibition on Westland Wessex helicopters being used for heli-logging. A “whole concept” approach was discussed which would involve an overall review of maintenance, flight operations and airworthiness. To this end, four main requirements were identified: manufacturer support; a maintenance programme tailored to the intended operation; airworthiness flight testing; and the establishment of a detailed operating manual covering all intended operational practices and specifications. The CAA representatives present at this meeting all said it was made clear to Mr Ford that the CAA’s role was to assess, not to lead, any proposal and that no guarantee of a successful outcome could be given. Matters were left on the basis that Helilogging would submit a proposal in due course.
A few days later, as promised at the meeting, Mr Remacha sent Mr Gordon a copy of his airworthiness report on the Wessex Mk 2 and Mk 5 dated 22 May 2002. He also provided contact details for the relevant Westland personnel in the United Kingdom he had dealt with in preparing his report.
Mr Gordon subsequently approached GKN to assist with flight test analysis for the proposed heli-logging operations and preparation of maintenance documentation. On 22 April 2003, Mr Gordon wrote to Mr Remacha advising that GKN had estimated the likely cost for the analysis and maintenance documentation to be £114,285. In addition, flight test costs were estimated to be $85,000 and a surety was required to cover test equipment. Mr Gordon advised that Mr Ford was in the process of arranging finance to cover these costs but before doing so required “confidence that on satisfactory completion of the test and analysis” the CAA would “remove the current prohibition for logging” and would “permit commercial use of Westland Wessex Helicopters for logging operations”.
The director did not give any such assurance, but he indicated that the approach being taken by Helilogging was appropriate. He wrote to Mr Ford on 7 May 2003 drawing attention to the relevant rules and identifying specific issues that would require consideration.
As to the restriction on external load operations, the director stated:
As this aircraft is not type certificated and only eligible for a special category airworthiness certificate, the responsibility belongs to the applicant to satisfy the Director that the level of safety is adequate for the purposes for which the aircraft is to be used. With respect to the declared proposed use for external heavy lift logging operations, this involves two key elements namely;
Airworthiness Considerations: This involves detailed assessment of the aircraft to address airframe structural, maintenance and parts supply considerations and will ultimately result in a maintenance programme (approved by CAA) appropriate to the type and frequency (utilisation) of the proposed activity.
Your current approach to GKN Westland is very appropriate in working towards meeting this requirement.
Operational Considerations: In the current absence of civil aviation certification requirements for Part 133 external load operations and given two fatal accidents (including one with a Westland Wessex Mk2)[25] we will also require [the CAA] to be assured that operational aspects are addressed appropriately for the proposed operation. These will include but are not limited to:
· Crew requirements (number of crew)
· Crew training
· Operational procedures
These issues need not be addressed right now but will need to be considered and discussed with CAA as part of the removal of any external load operation limitations. In that respect, your draft outline operations manual dated 7 May 2003 is appropriate and suitable for further development.
(Footnote added.)
[25]This was an error. The aircraft that crashed in February 2001 was a Westland Wessex Mk 5.
Concerning the separate prohibition on the use of special category aircraft for hire or reward operations, the director set out the relevant rule and stated:
The type of operation that you contemplate is regarded as a hire and reward activity and the prohibition applies to use of this aircraft in this manner.
To address this rule prohibition, you may apply … for an exemption against this requirement. The CAA will consider this application in conjunction with the supporting evidence provided.
Mr Gordon met with GKN personnel in Cowes in the United Kingdom on 21 May 2003 including Phil Grainger, technical director, and Larry Gladdis, engineer‑in‑charge, Wessex. Mr Remacha and Geoff Connor, team leader continuing airworthiness at the CAA, were also able to attend this meeting because they happened to be in Europe on other business at the time. Mr Gordon described Helilogging’s proposed operations and Mr Remacha outlined the New Zealand regulatory system. GKN agreed to provide a proposal and quote on receipt of a formal request from Helilogging.
A proposal for testing the Wessex helicopters was subsequently submitted by GKN to Helilogging on 22 September 2003. Mr Gordon wrote to Mr Lanham on 29 September 2003 advising that a proposal had been received from GKN for the design, conduct and analysis of a test programme. He described this as being “not an inexpensive proposal” and advised that Mr Ford was working through final issues with GKN. Mr Gordon requested a meeting with CAA personnel to “work through the issues of exemption petition”.
This communication gave rise to some concerns within the CAA. Brian Fearnley, who had taken over from Mr Remacha following his secondment to Air New Zealand, sent an internal email on 15 October 2003 to Messrs Lanham and Fogden, copied to Mr Remacha, raising various issues including the need for Rolls Royce to be involved in any testing. Mr Fearnley also suggested they should “point out there are significant risks for the applicant” and it was “entirely possible that after they invested a significant amount of money it turns out not to be a ‘flyer’”. Mr Lanham responded to the group agreeing with Mr Fearnley’s comments but saying “[a]ll this has been conveyed to Messrs Ford and Gordon on their first visit to us. … We now proceed on a ‘without prejudice’ basis”.
Mr Gordon appears to have recognised that no assurance could be given that an exemption from the hire or reward prohibition would be forthcoming. He sent an email to Mr Lanham, copied to Mr Ford, on 22 October 2003, the day before the meeting with the CAA, saying:
John[,] finally finished the draft of petition for exemption and flight trial proposal. Firstly may I say we are not trying to put the horse before the cart [sic] by talking exemptions at this point, rather it is a matter of all parties being aware of the others, [sic] direction and thoughts. The purpose of the meeting tomorrow is to bring CAA up to date with the recent events, I have not reported back on my visit to the UK and meetings with [GKN] and Air and Ground support [regarding supply of parts]. …
On 29 October 2003, Mr Gordon sent an email to Ian Smith, a lawyer acting for one of Mr Ford’s financiers. Mr Gordon sent a copy of this email to Mr Ford and Mr Lanham. Mr Gordon noted that the CAA had indicated at the 23 October 2003 meeting that it was happy with the general direction being taken by Helilogging regarding the testing programme. Mr Gordon set out the steps envisaged over the next four months with a view to submitting all data to the CAA in support of an application for an exemption from the Rules. Mr Gordon invited Mr Smith to contact Mr Lanham directly should he wish to do so.
Mr Lanham forwarded this email to Messrs Fearnley, Fogden and Remacha expressing concern about it — “the lawyers may expect more than we are prepare[d] to give”. Mr Fearnley replied:
Yes I agree. Whilst the purpose of the exercise is to develop a pertinent maintenance, inspection and operating schedule; perhaps we need to get across somehow this is experimental and the outcome of the ‘trial’ will initially determine if heli-logging is safe and viable with this machine. We can deal with the broader safety issues once we have the facts, Mr Ford deals with the viability issues, and perhaps GKN can give the financier the likelihood of the machine’s capabilities.
Mr Lanham subsequently spoke with Mr Smith and explained that although the CAA was pleased with the professional approach being taken, there were a number of obstacles to overcome.
The following day, Mr Ford purchased five more Wessex helicopters (ex‑Cyprus machines) for £200,000 and various spare parts for a further £25,000. Mr Ford said he thought he should move quickly because he was concerned Mr O’Malley might buy them.
On 3 November 2003, Mr Ford wrote to GKN advising that its proposal was generally acceptable subject to clarification of various points prior to formal agreement. One of these was to address the prospect of failure. Mr Ford asked “[w]hat mechanism is available for adjusting costs should the unfortunate happen and the program fail at an early stage”. Final agreement was reached over the next few months culminating in Helilogging placing a conditional order with GKN in January 2004.
On 17 March 2004, Helilogging applied for permission to conduct a 95-hour flight test programme. This proposal was styled “Westland Wessex Flight Trial Directive Logging Operations” and sought permission for five hours of flying within the confines of an airfield and 90 hours in a forest environment lifting logs. The stated purpose was to test the suitability of the Wessex to perform lifting operations and to establish operational and airworthiness procedures to ensure safe operation.
David Gill, team leader of registration and airworthiness at the CAA, responded to Mr Ford advising that a special flight permit would be issued for development and currency flying subject to conditions. However, he advised it was “clearly not appropriate to pre-judge the current program and permit you to carry out any logging operations”.
Mr Gordon unsuccessfully attempted to persuade Mr Lanham to allow 30 hours of training in the forest. In his email to Mr Ford on 5 May 2004, Mr Gordon said his telephone conversations with Mr Lanham were non-productive. He described the CAA’s reaction to the request as being “incredulous”, and said the CAA thought Helilogging was “pulling the wool over their eyes” and “pulling a fast one”.
Mr Ford wrote to Mr Lanham on 7 May 2004 explaining why in-forest training carrying logs was needed. Mr Lanham responded that same day confirming CAA’s position:
I regret if there has been any misunderstanding and I emphasise that there has been no change in thinking or ‘policy’ with respect to your long term goals. We also appreciate the considerable investment you have made, we commend the professional approach you are taking and we wish you every success in the outcomes. However, as we agreed, this project was/is always going to be a steady progress through to the end of carefully planned and approved stages, with no guarantee necessarily of technical, operational or financial viability at the end of it.
In June and July 2004, the CAA issued test pilot approval certificates for two pilots for the Wessex flight trials and a special experimental airworthiness certificate to enable these to be undertaken. Due to flight trials not being completed by the expiry date of 21 July 2004, a further one-month special experimental category airworthiness certificate was requested by Helilogging and granted by the CAA. A third airworthiness certificate was later issued at Helilogging’s request because the flight trials had still not been completed by 21 August 2004. The flight trials were eventually completed at the end of August 2004.
Petition for exemption
On 26 July 2004, prior to completion of the flight trials, Mr Ford petitioned for an exemption from the type certificate requirement to enable the helicopters to be used for commercial operations with an airworthiness certificate issued in the restricted category. We note this was not the type of exemption envisaged by the director in his letter to Mr Ford on 7 May 2003 (referred to at [46] above), which discussed the prospect of an exemption from the existing prohibition on external load operations and an exemption from the hire or reward prohibition associated with airworthiness certificates in the special experimental category.
On 25 August 2004, Mr Ford advised Mr Lanham that Helilogging expected to complete the flight trials that week and he requested a three-hour meeting with the CAA, preferably on 7 or 8 September 2004 when Mr Gladdis from GKN would be available to attend. Mr Ford included with his letter a draft agenda listing four items for discussion: presentation of flight trial findings and supporting documents; GKN’s ongoing support; removal of cargo hook prohibition for the Helilogging operated Wessex; and exemption from type certificate requirement in the restricted category under the rules. The meeting was held on 7 September 2004 and was attended by Messrs Lanham, Fogden, Gill and John Bushell for the CAA. Messrs Ford, Gordon and test pilot Cranleigh Lee attended for Helilogging and Mr Gladdis from GKN.
The witnesses who gave evidence about this meeting differed in their recollections of it. For his part, Mr Ford said he recalled asking Mr Gill towards the end of the meeting why the CAA would not immediately remove the prohibition to allow the Wessex to be used for heli-logging and was told that this would contravene the hire or reward restriction (for airworthiness certificates issued in the special experimental category). Mr Ford said that if he had been informed at the outset of this being a problem, he would not have taken all the steps he had. He said he threatened court action because he did not agree with the CAA’s interpretation of the hire or reward restriction. Mr Gill said he did not recall this being discussed but it was consistent with his view that commercial activities for hire or reward were not permitted under the special experimental category.
Following this meeting, on 13 September 2004, Mr Ford sent Mr Gill the Wessex operations manual, maintenance programme and amendments to the airworthiness report. Mr Ford wrote to Mr Lanham confirming he had done this and asking when it would be convenient to discuss the way forward. Mr Lanham replied that the aircraft certification and rotary wing unit of the CAA had been given the material and would assess it and brief the director as soon as possible.
Mr Lanham attended a meeting to brief the director on 16 September 2004. He also requested Mr Gill to prepare a report on how Helilogging’s application would fit within the regulatory options available if it were to be granted. Mr Gill’s subsequent report to the director is dated 21 September 2004 and records the background to Helilogging’s exemption application:
The CAA has always had the view that transporting logs, and hence adding to their value, must be a hire or reward operation. Mr O’Malley was in the process of being prosecuted for this very action using his Experimental Category Wessex before it crashed fatally. Unfortunately the principle was not tested in court because Mr O’Malley pleaded guilty. After the fatal crash a restriction prohibiting use of the hook was placed on all further applications for airworthiness certificates for any Wessex helicopters, until it could be shown that such operations were safe.
After discussions and encouragement from the CAA [Helilogging] contracted the original manufacturer, GKN Westland, to do a technical survey on the effects of logging operations on the Wessex helicopter. This involved sending out a technician to instrument the helicopter and conduct a series of flight tests. The results were then analysed back in England. Westland have produced detailed reports covering the testing and analysis. As a result of the analysis Westland have produced a completely new “Green Book” specific to the intended high-frequency lifting operations, which is the list of all parts with fixed replacement lives.
The CAA stated to [Helilogging] that three aspects of any Wessex logging operation had to be satisfied: Maintenance; Operations and Airworthiness. The applicant has satisfied quite stringent criteria on all three of these aspects. Irrespective of whichever route is chosen for the exemption, the same type of conditions need to be imposed to call up the complete operating system that has been developed by [Helilogging] as a condition of continued operation. This is to ensure those conditions are maintained for the life of the helicopter. The critical aspect from the airworthiness point of view is continued manufacturer engineering backup, in case of any problems. This would maintain a similar level of support as would be expected of a type certificated civil helicopter.
In my personal view the CAA should never have started the process of allowing a non-certificated aircraft to be used for commercial operations. However now the CAA has allowed the trials and investigations to go so far and [Helilogging] has committed a substantial sum of money, it would be very difficult to refuse the application except on purely technical grounds.
Mr Gill discussed two regulatory options. The first was to grant an exemption from the prohibition in r 91.105(a) of the Rules on hire or reward operations using aircraft with a special experimental category airworthiness certificate. Mr Gill explained why he strongly opposed this option:
Discussion – Option 1
Option 1 would be setting a huge precedent that aircraft which have not met any recognised standards can be used for hire or reward operations. New Zealand is a signatory to the [Chicago Convention] which requires every aircraft issued with an airworthiness certificate to have met a comprehensive code of airworthiness equivalent to ICAO Annex 8.[26] All countries do have a means to allow aircraft to fly that cannot meet this requirement, which varies from country to country. However they all impose limitations on those aircraft, which ALWAYS prohibits commercial operations.
Part 115 has been proposed to provide an avenue to let such aircraft be used for passenger carrying, where the attraction of the ride is flying in that particular aircraft. The Wessex does not fit into this category at all and is being used solely because it is cheap to purchase and operate. The argument in this case appears to be that standards can be relaxed for remote-area logging, because the risk is lower. (Presumably this means the third-party risk, and the pilots are prepared to accept the higher risk for themselves.) This argument would undermine the basic integrity of the Rules, and those operators who pay the cost to purchase eligible aircraft with their attendant airworthiness support provided under the umbrella of a type certificate. If we are going to use an exemption to create a special category of operation just to suit one applicant, this would create an expectation from other applicants that such a route outside the Rules might be available to them. (For example I do not see what grounds we could then use to prevent the Mil-8 from operating similarly on the New Zealand register.)[27]
In fact I find it difficult to see on what grounds an exemption could be given, other than that the requirements were unreasonable. As stated above this would be calling into question the whole need for type certification. Any other grounds would effectively not be an exemption, but would be de facto rule‑making.
(Footnote added.)
[26]This is a reference to Annex 8 of the Chicago Convention.
[27]Mil-8 is a reference to a type of military helicopter originally designed in the Soviet Union and currently produced in Russia.
In Mr Gill’s view, the only potentially viable option was to allow the Wessex Mk 2 to obtain type acceptance in the restricted category by granting an exemption to the type certificate requirement in r 21.43(a)(1) of the Rules. Mr Gill explained that this option would allow the Wessex to operate within the basic rules (for hire or reward) by requiring the helicopter to meet a defined standard of airworthiness. In discussing this option, Mr Gill noted the following:
The CAA has already set the precedent to some extent by allowing in ex‑military Restricted category Iroquois helicopters, when at the time the CAA did not have a good understanding of the [Federal Aviation Administration of the United States of America (FAA)] Rule. We now know that the requirements for issue of a Restricted Category [type certificate] under [the Federal Aviation Regulations r 21.25] are fairly basic, provided it meets the rule “Is of a type that has been manufactured in accordance with the requirements of and accepted for use by, an Armed Force of the United States and has later been modified for a special purpose.” …
In my view the Westland Wessex is in a completely different league. Under the British system in military service the airworthiness design authority was still the manufacturer. A copy of the Airworthiness Report for the Wessex helicopter was provided to the CAA. This also shows that the Wessex was subject to a very recent detailed review, including instrumented tests, because it was discovered that the RAF had accidentally been operating overweight. Therefore the Wessex was retired from RAF service in very good condition. Subsequently Westland have conducted a detailed evaluation of the effect of logging operations. They have stated that underslung logging is not much different from military underslung loads. The fundamental difference is the frequency, and this is what has driven the huge reduction in lives, primarily for the tail-rotor drive system.
Westland have produced a document called the Airworthiness Report, which defines the basis of airworthiness approval for logging operations. This would be an ideal document to call up as the basis of Restricted category type acceptance in New Zealand, and to call up any restrictions imposed.
Granting type acceptance under the equivalent of the [United States] system for ex‑military aircraft as proposed would not be setting any dangerous precedent, for a number of reasons. One the type acceptance is totally dependent on manufacturer support, which would be difficult to achieve for any unsuitable aircraft. Any aircraft with likely civil applications would probably already have a civil approval. (The Wessex is slightly unusual in that Westland were able to cancel the civil type because there was only ever one operator, Bristow Helicopters.) There are also very few other British types which would come into this category. (The Westland Gazelle is one that comes to mind.)
Mr Lanham updated Mr Ford on 4 October 2004 as to the remaining steps anticipated before the director would make his decision on the application. The first step was to complete the overall technical review of the aircraft’s certification and flight trials, the flight operations procedures and the maintenance programme. Mr Lanham said he hoped recommendations to the director could be formulated that week. The next step was to seek the director’s decision — “overall approval or otherwise” — which would require consideration of whether to grant acceptance of the aircraft in the restricted category with an exemption from the type certification requirement, or to grant an exemption to the prohibition on operations for hire or reward in the special category. Mr Ford was notified later that day that the proposed maintenance programme had been approved.
Mr Lanham provided his written recommendation to the director on 11 October 2004. Mr Lanham identified three pathways available to the director to give relief to Helilogging in approving the aircraft for use for hire or reward. The first was to accept the aircraft into the restricted category and grant an exemption from the type certification. Contrary to Mr Gill’s view, Mr Lanham counselled against this pathway:
The [Helilogging] proposal is one of an increasing number that cannot be addressed within the current Rules structure because such operations were not contemplated when the Rules were written. It should be noted that [pt 21 of the Rules] is on the 2004-05 Ministry of Transport Rules programme and that it will be re-worked extensively over the next two years. It is not possible to be certain of the outcome, although it is hoped that most of the concepts outlined above will find their way into the final form of the Rule. Until that is known it would be wise to take no action that would conflict with, inhibit or distort the final Rule.
Accordingly, it is considered that option 1 would set an undesirable precedent and place the CAA at risk in the long term. The two categories of Standard and Restricted are limited to type certificated aircraft and to accept an ex‑military helicopter into even the latter would open the door to almost any aircraft that could demonstrate a similar standard to the [Helilogging] proposal. It would be a Trojan horse.
The appeal must accordingly be dismissed.
Result
The appeal is dismissed.
The appellants are to pay costs to the respondent for a complex appeal on a band B basis and usual disbursements. We certify for second counsel.
Solicitors:
Sandi Anderson & Partners, Auckland for First and Second Appellants
Darroch Forrest Lawyers, Wellington for Respondent
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