Lsg Sky Chefs New Zealand Limited v Pacific Flight Catering Limited
[2012] NZHC 1123
•24 May 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-277 [2012] NZHC 1123
BETWEEN LSG SKY CHEFS NEW ZEALAND LIMITED
Plaintiff
ANDPACIFIC FLIGHT CATERING LIMITED First Defendant
ANDPRI FLIGHT CATERING LIMITED Second Defendant
Hearing: 17 May 2012
Counsel: PG Skelton for plaintiff
JK Goodall for defendants
Judgment: 24 May 2012
JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for particular discovery]
Solicitors: Garry Pollak & Co Ltd, PO Box 1588, Auckland 1140
Gilbert Walker, PO Box 1595, Auckland
LSG SKY CHEFS NEW ZEALAND LIMITED V PACIFIC FLIGHT CATERING LIMITED HC AK CIV-2011-
404-277 [24 May 2012]
[1] The defendants apply for an order for particular discovery of two broad categories of documents, namely:
(a) Documents relating to how the plaintiff has accrued and paid out leave to the employees transferred from the defendants to the plaintiff and, in particular, covered by paragraphs 1(a)(i)–(vii) of the application; and
(b) Documents relating to the plaintiff’s tender for the Singapore Airlines
Ltd contract, covered by paragraphs 1(a)(viii)–(x).
[2] The plaintiff agrees to give discovery of documents described under the headings 1(a)(i)–(vi). Accordingly, this application only requires a ruling on whether the following documents are discoverable, namely:
(a) Financial statements covering the period 23 February 2011 to the date of orders;
(b)All documents created by the plaintiff and submitted to Singapore Airlines Ltd in support of its tender for the catering contract at Auckland International Airport which became effective on
23 February 2011;
(c) The catering contract between the plaintiff and Singapore Airlines Ltd that became effective from 23 February 2011; and
(d)All working papers, file notes, correspondence, memoranda and calculations relating to the tender documents.
[3] The orders sought require the plaintiff to file and serve an affidavit of documents within 10 working days.
[4] In the course of submissions a practical solution to the request for copies of the financial statements was agreed to. That is, within 10 working days the plaintiff shall provide a statement that summarises the breakdown of the amount of accrued leave entitlements of each of the transferred employees whom the plaintiff has paid, together with the source documents supporting that statement and that justify the payments. It is understood that the source documents are likely to be the documents about which there is agreement, namely the documents contained in paragraph
1(a)(i)–(vi).
[5] As a result of the agreement, the ruling required of me now centres on whether the documents created to support the tender, the catering contract itself and any other working papers, file notes and other related documents that were created in relation to the tender should be discovered.
Background
[6] This proceeding was filed on 26 January 2011 by different counsel. The scope and purpose of the proceeding and what was sought by way of relief has been significantly amended since Mr Skelton’s instruction. For that reason, it is not necessary for me to review the interim injunction ruling and the two judgments that arise out of it.
[7] The second defendant previously held a catering contract with Singapore
Airlines Ltd.
[8] In 2011 the contract was awarded to the plaintiff following a tendering process. That triggered a restructuring for employment purposes under Part 6A of the Employment Relations Act 2000. This resulted in 40 employees of the second defendant being transferred to the plaintiff, effective from 23 February 2011. Part
6A of the Employment Relations Act 2000 required the plaintiff, in these circumstances, to assume liability for all entitlements of the employees that accrued prior to the transfer.
[9] There is some difference between counsel as to the precise nature of the cause of action pleaded. The plaintiff’s position is that there is one cause of action, which is a cause of action for money paid by the plaintiff to the defendants’ use under compulsion of law. The defendants see the cause of action simply as a claim for money had and received.
[10] The plaintiff pleads that a total of $61,130.79 was paid out by it in accrued entitlements to the transferred employees as at 11 September 2011. The defendants put that in issue.
Basis for application
[11] This application is made in reliance on r 8.19 of the High Court Rules which provides:
8.19Order for particular discovery against party after proceeding commenced
If at any stage of the proceeding it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document filed in the proceeding, that there are grounds for believing that a party has not discovered 1 or more documents or a group of documents that should have been discovered, the Judge may order that party—
(a) to file an affidavit stating—
(i) whether the documents are or have been in the party's control; and
(ii) if they have been but are no longer in the party's control, the party's best knowledge and belief as to when the documents ceased to be in the party's control and who now has control of them; and
(b) to serve the affidavit on the other party or parties; and
(c) if the documents are in the person's control, to make those documents available for inspection, in accordance with rule 8.27, to the other party or parties.
[12] Counsel are agreed on the principles that must be applied by the Court when considering an application for particular discovery, which in summary are:
(a) The applicant must establish that there are grounds for believing that the documents that have been sought exist;
(b)The documents must be relevant to matters in issue in the proceeding and must be described with sufficient specificity; and
(c) The Court must be satisfied that the documents ought to be discovered.
The defendants’ contentions
[13] Mr Goodall submitted that the claim was based on a cause of action founded on unjust enrichment. He referred me to Commissioner of Inland Revenue v Stiassny[1] where the Court cited with approval the following passage from Goff & Jones:[2]
The courts have held that a claimant must demonstrate three things in order to make out a cause of action in unjust enrichment: that the defendant has been enriched, that this enrichment was gained at the claimant’s expense, and that the defendant’s enrichment at the claimant’s expense was unjust. If these three requirements are all satisfied, then the further question arises, whether there are any defences to the claim, and if there are not, then the court must decide what remedy should be awarded. However, there is an additional consideration that the court must also bear in mind, namely that some overriding legal principle [may] justify the defendant’s enrichment and thereby nullify the claimant’s right to restitution.
[1] Commissioner of Inland Revenue v Stiassny [2012] NZCA 93, (2012) 10 NZBLC 99-704 at [92].
[2] Charles Mitchell, Paul Mitchell and Stephen Watterson (eds) Goff & Jones The Law of Unjust
Enrichment (8th ed, Sweet & Maxwell, London, 2011) at [9.01]–[9.04].
[14] Mr Goodall submitted that one of the key components is that enrichment must be gained at the claimant’s expense. He next submitted that the purpose of the application was to enable the defendant to determine whether and how the plaintiff took into account the accrued entitlements in its tender for the Singapore Airlines Ltd contract or, alternatively, how it accepted those entitlements as a cost of its business. He submitted that if these costs were taken into account and the plaintiff was then effectively reimbursed for them, then the plaintiff could not say that it had suffered the expense as required by the second of the “three things” referred to in the
quotation.
(a) Increasing its pricing for the contract to recover the accrued entitlements;
(b)Being given a higher profit margin, or additional business at another port, by Singapore Airlines Ltd to compensate the plaintiff; or
(c) Some other method not apparent to the defendants.
[16] Mr Goodall next took me to the disclosure provisions in the Employment Relations Act 2000. He correctly noted that, in this case, the plaintiff had not sought advanced disclosure as it might have done under the Act. He invited me to infer that the plaintiff, as a sophisticated party who employed a large number of staff around the world, would have been familiar with Part 6A of the Employment Relations Act
2000 and the obligation to take over the employment and costs of transferred employees. He further invited the Court to infer that one would expect the plaintiff to have made some allowance for the estimated employee costs in its turnover.
The plaintiff ’s contentions
[17] Mr Skelton submitted that the plaintiff’s claim neither pleaded nor relied on proof of loss. What the plaintiff relied upon was that it paid a sum which, but for the transfer, the second defendant was legally obliged to pay the transferring staff. The plaintiff’s case is that the second defendant has received a benefit because of the statutory obligation that the transfer imposed on the plaintiff. To that extent, the second defendant has been, or the defendants have been, enriched. So far as the second of the propositions referred to in Goff & Jones is concerned, the enrichment had resulted from a payment made by the plaintiff. That was a sufficient satisfaction of the second of the requirements without more. It was not necessary to prove actual loss.
[18] Mr Skelton submitted that if his view of the law is correct, then there is no justification for discovery of what are loosely referred to as the tender documents.
[19] As the pleadings currently stand, there is no need to consider any document that might provide a basis for some reimbursement of the expenditure the plaintiff has incurred by making the payments. That is because that, as an issue, is not raised in the statement of claim and it is not currently raised in the statement of defence to the current statement of claim. Strictly speaking therefore that is sufficient to answer this application because the starting position in any analysis of whether an order should be made takes one back to the issues specifically raised by the pleadings.
[20] A further observation must be made. The plaintiff’s pricing manager,
Ms Wilson affirmed as follows:
5.I was also the primary person who worked on the Singapore Airlines (SQ) tender. I set the pricing levels for the food and handling services outlined in the SQ tender document.
…
8. The pricing methodology I applied to the SQ tender was based on
LSG’s standard pricing methodology.
9.I can confirm that there was no provision allowance for any accrued leave entitlements for transferring employments as part of setting the pricing level and the preparation of the profit and loss calculations for the SQ tender.
10.I can also confirm that at no stage did Singapore Airlines pay or promise to pay any monies to LSG intended to compensate for any entitlements of transferring employees.
[21] If the pleadings were amended in a way that put in issue whether the plaintiff had been reimbursed in some way for the payment it had made to the second defendant, Ms Wilson’s evidence states categorically that no such reimbursement has been received. That, on the material before me, removes any factual foundation for the order that is sought by the defendants.
[22] Mr Goodall submitted that I should not leave the matter on the basis that the issue has not yet been raised by the pleadings.
[23] I disagree. If the pleadings were amended to include the issue that loss must be proved if the plaintiff is to recover the precise payment, then the proceeding might well be the subject of a strike out application or possibly the determination of a question pursuant to r 10.15 of the High Court Rules. That would be the appropriate time to attempt a response to the defendants’ contention.
[24] Both counsel assembled a number of authorities dealing with the defence that the plaintiff had passed the cost it has paid to the defendants on to a third party.
[25] Counsel have filed and served subsequent memoranda that have referred to authorities where the issue has been raised.
[26] Mr Goodall properly and fairly acknowledged that as this is a test case, the issue will in all probability be required to be determined at appellate level. He submitted that the appellate court would be best placed to hear argument on a passing-on defence once factual findings have been made. The argument, at this stage, is theoretical because there is no factual foundation for the passing-on defence.
[27] Mr Skelton referred to the Whangarei District Council v Northland Regional Council.[3] In that case Baragwanath J found that by-laws that had been used to levy fees under s 36 of the Resource Management Act 1991 were ultra vires. Accordingly, the defendant did not have the power to levy such fees. His Honour dealt with the passing-on defence and said:[4]
[3] Whangarei District Council v Northland Regional Council [1996] NZRMA 445 (HC).
[4] Ibid, at 480.
The defence of District's having passed on the charges to its berth holders, relied upon by Region, was accepted by the majority in Air Canada v British Columbia (1989) 59 DLR (4th) 161. It has not been followed in Australia: Commissioner of State Revenue v Royal Insurance Australia Ltd (1994) 69
ALJR 51 or in England: Kleinwort Benson Ltd v Birmingham City Council ((Civil Division) Unreported judgment 296057502, 9 May 1996). For the reasons of principle and practical consequences of avoiding complexity given by Wilson J (dissenting) in Air Canada, by the High Court in Royal Insurance and by the Court of Appeal in Kleinwort Benson I decline to accept such defence in the present case.
[28] To date there is no New Zealand case where the defence of passing-on has succeeded. Mr Goodall referred, however, to academic writings that lend some support for the defence.[5]
[5] Ross Grantham & Charles Rickett Enrichment and Restitution in New Zealand (Hart Publishing, Oxford, 2000) at 373–379; Rebecca Williams Unjust Enrichment and Public Law: A Comparative Study of England, France and the EU (Hart Publishing, Oxford, 2010) at 152–157.
[29] The current pleadings do not require a final determination of the issue. There is no factual justification for the defence of passing-on in this case as currently presented to me. I do not consider it proper to comment further than that, having regard to the fact that I am not currently dealing with a pleading where the issue has properly been raised. All one can say is, that to date the authorities have not supported the defence in New Zealand.
Conclusions
[30] I conclude:
(a) No order is made in respect of the plaintiff’s financial statements covering the period 23 February 2011 to the present time having regard to the agreement to which I have referred at [4] of this judgment. I reserve leave to apply for the appropriate order to implement the agreement should an order be required;
(b) No order is made on the balance of the defendants’ application.
Costs
[31] Counsel were agreed that if I concluded an order was not justified on the balance of the defendants’ application, an appropriate order was that the plaintiff be awarded costs based on Category 2, Band B for a half-day fixture together with
disbursements as fixed by the Registrar.
[32] I so order.
JA Faire
Associate Judge
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