Nigel Carruthers Aviation Limited v Skyline Aviation Limited

[2024] NZHC 2221

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE

CIV-2024-441-045

[2024] NZHC 2221

BETWEEN

NIGEL CARRUTHERS AVIATION LIMITED

Plaintiff

AND

SKYLINE AVIATION LIMITED

Defendant

Hearing:	31 July 2024
Counsel:	M G Colson KC and G L Baird for Plaintiff K M Quinn KC for Defendant
Judgment:	8 August 2024

JUDGMENT OF RADICH J

[1]    Skyline Aviation (Skyline) assisted Nigel Carruthers Aviation (NCA) in buying a private jet. Under an agreement, Skyline has possession of the aircraft and it manages it for NCA.

[2]    Skyline has issued to NCA a number of invoices for work done on the aircraft and for monthly service fees. They are contested by NCA and have not been paid.

[3]    NCA has terminated the agreement. It has called for the aircraft to be handed back to it. Skyline will not give up possession. It claims a possessory lien over it until its invoices are paid.1 NCA says that Skyline has contracted out of its right to assert a lien. Through this interim injunction application it wants orders giving it possession

1      The invoices to which the lien relates are for work done on and/or improvements made to the aircraft. A common law lien cannot relate to the invoices rendered for monthly service fees.

NIGEL CARRUTHERS AVIATION LTD v SKYLINE AVIATION LTD [2024] NZHC 2221 [8 August 2024]

of the aircraft and, in the substantive proceeding, it alleges in addition various contractual and tortious breaches by Skyline.

The primary sequence of events

[4]    Skyline is a specialised air charter operator. It manages a fleet of aircraft, making them available for charter, including as an air ambulance provider.

[5]    From 2022, Skyline was engaged by NCA to assist it in purchasing an aircraft that NCA’s sole director and shareholder, Christopher Meehan, could use for business and personal purposes and make available for private charter.

[6]    Skyline sourced an aircraft that met NCA’s criteria – a Nextant Aerospace 400XTi jet.2 The purchase of the aircraft was completed on 1 August 2023 and it arrived in New Zealand on 18 December 2023.

[7]    On 10 October 2023, NCA, Mr Meehan and Skyline entered into an “Aircraft Acquisition, Maintenance, Operating and Management Agreement” which recorded the services that Skyline had provided to NCA in relation to the purchase of the aircraft and the terms of Skyline’s subsequent maintenance, operation and management of it (the agreement).

[8]    The Civil Aviation Authority issued approval for the aircraft to operate in New Zealand on 27 March 2024.   Between March and June, the aircraft was used by     Mr Meehan on two occasions and was chartered commercially for another flight. The dispute that emerged during that period has seen it grounded since then.

[9]    The nature of the dispute is captured through the exchanges of correspondence. On 9 April 2024, NCA (through Mr Meehan) wrote to Skyline and expressed its concerns about the quality and timeliness of services provided by Skyline which it saw as falling short of the standards prescribed in the agreement. A response came later

2      It is in fact a Beechjet 400, manufactured 25 years ago by Beechcraft but upgraded in 2012 by Nextant through the replacement of the engines and avionics system and through other modifications. It needed considerable further avionics and other upgrade works for it to comply with New Zealand Civil Aviation Authority certification requirements.

that month from Skyline’s lawyers. It was a comprehensive response, dealing in a reasoned way with each of the points made. But it was legalistic and confronting.

[10]   Mr Meehan, for NCA, responded in late April reiterating his concern that the services received did not align with his perception of what the agreement required. He gave notice in the letter terminating the agreement, with effect from 29 July 2024.

[11]   In late June, NCA engaged an engineer and, through him, sought to collect the aircraft from the hangar at Auckland Airport. Skyline would not let that happen. In a letter of 24 June 2024 from its solicitors to NCA it said that permission was not given on the basis that the aircraft was subject to a possessory lien as security for payment of moneys owing by NCA to Skyline under the agreement.

[12]   Exchanges between lawyers and counsel for both parties followed over Skyline’s entitlement to assert a lien and, on 8 July, this proceeding was issued.

The nature of the substantive claim

[13]   There are six causes of action in the statement of claim. The first is for breach of contract by way of interference. It alleges a breach of the agreement through the refusal to grant NCA access to the aircraft and by interfering with its rights as owner. The second is in conversion for the refusal to give possession of the aircraft. Both causes of action seek possession of the aircraft to be given and claim related damages.

[14]   The third to sixth causes of action are raised by way of a cross-claim to Skyline’s claim for unpaid invoices. Essentially, they each amount to a form of equitable set-off.3 Causes of action are pleaded for pre and post-agreement, breaches of contract and for pre and post-agreement negligence.

[15]   Pending the determination of the substantive claim, NCA seeks, on the basis of the first two causes of action, an interim injunction requiring Skyline to provide possession of the aircraft and to make provision for a range of administrative matters that would accompany the transfer of possession.

3      NCA refers, in claiming the set-off, to Grant v NZMC [1989] 1 NZLR 8 (CA) and Hamilton Ice Arena Ltd v Perry Developments Ltd [2002] 1 NZLR 309 (CA).

Interim injunction principles

[16]   An interim injunction may be granted by the Court under r 7.53 of the High Court Rules 2016 or under its inherent jurisdiction. There is no dispute as to the approach to be taken by the Court in considering an application for an interim injunction. It is well understood and involves the following steps:4

(a)The plaintiff must establish that there is a serious question to be tried; a tenable basis, when the facts and legal principles are considered, to say that the claim can succeed.

(b)Secondly, the balance of convenience must be considered, which requires the Court to consider the impact on the parties in granting, and in refusing to grant, an order. It is the balance of risk of doing an injustice.5

(c)Finally, an assessment of the overall justice of the position is required as a check.

[17]   As Lord Hoffman said for the Privy Council in National Commercial Bank Jamaica Ltd v Olint Corp Ltd:6

The purpose of such an injunction is to improve the chances of the court being able to do justice after a determination of the merits at the trial. …

The basic principle is that the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other.

Serious question to be tried

[18]   There is no challenge to Skyline’s right at common law to assert a possessory lien for unpaid work. The issue is whether the terms of the agreement are such that the right has been excluded.

4      American Cyanamid Co v Ethicon Ltd [1975] AC 396, [1975] 1 All ER 504 (HL); Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142; and NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) TCLR 531 at 12.

5      McLaughlin v McLaughlin [2019] NZHC 2597, [2019] NZFLR 299 at [37].

6      National Commercial Bank Jamaica Ltd v Olint Corp Ltd [2009] UKPC 16, [2009] 1 WLR 1405 at [16] and [17].

[19]   A lien is a right developed at common law enabling one person to retain possession of another’s property pending satisfaction of his or her claims against that person.7 It is a self-help remedy and does not depend upon an implied contract or the Court’s intervention.8 Liens arise by operation of the law in closed categories of business relationships, the most common being, as is the case here, a claim on the part of a worker following repairs to chattels.9 The principle is that someone expending labour or skill on the improvement or repair of chattels delivered to them for that purpose is, when the debt falls due and so long as they retain possession, entitled to a lien until payment of the charges for that work is made.10

[20]   The claim for invoices relating to repairs, maintenance and improvements to the aircraft here is for $288,186.32 (including GST). In his first affidavit in the proceeding, Mr Meehan had calculated the sum claimed for repairs, maintenance and improvement to be just over $153,000 but, for the purposes of the hearing of this application, NCA accepts that the $288,186.32 figure may be used. The total value of the invoices rendered by Skyline is $622,427.16. The difference between that and the

$288,186.32 relates mainly to service fees and charges under the agreement (including monthly service fees, management services costs and pilot fees). The balance cannot, everyone agrees, be the basis for a possessory lien.

[21]   The key to NCA’s claim lies in a principle that was expressed in 1963 by Lord Diplock in the following way:11

The remedy [provided by the lien] can be excluded by the terms of the contract made with the artificer either expressly or by necessary implication from other terms which are inconsistent with the exercise of a possessory lien … in the same way as the common law remedy in damages for breach of contract may be excluded or modified by the terms of the contract itself.

[22]Clause 17.1 of the agreement is in the following terms:

17.1Title in the Aircraft:   Title  in the Aircraft remains at all times with the Owner. The Provider has no interest in or right to the Aircraft other than any rights expressly set out in this Agreement and will not do or permit to be done (or omit or permit to be omitted to be done),

7      Waitomo Wools (NZ) Ltd v Nelsons (NZ) Ltd [1974] 1 NZLR 484 (CA).

8      Tappenden v Artus [1964] 2 QB 185, [1963] 3 All ER 213 (CA) at 195.

9      Toll Logistics (NZ) Ltd v McKay [2011] NZCA 188, [2011] 2 NZLR 601 at [16].

10     Tappenden v Artus, above n 8, at 195; Raitt v Mitchell (1815) 4 Camp 146, 171 ER 47.

11     At 195.

any act or thing which may jeopardise the rights of the Owner as owner of the Aircraft and shall not either directly or indirectly create or suffer to exist any security interest affecting all or any part of the Aircraft.

[23]   Skyline says that the clause does not prevent it from asserting a lien. The word “lien” is not, it says, mentioned in the clause or elsewhere in the agreement and there is, it says, no implication arising from cl 17.1 that a lien may not be asserted. The lien operates, it says, independently and by operation by law and could be removed or inhibited only through the clearest of language.12 There is nothing, it is says, in cl 17.1 that is sufficiently clear.

[24]   I do not think that is necessarily so. There is as I see it at least a serious question to be tried on the proposition that, in providing through cl 17 that Skyline has “no interest in or right to the aircraft other than any rights expressly set out in this agreement” is to say that the agreement governs the four corners of the relationship between the parties and that common law entitlements such as a lien are excluded. There is sufficient force in the argument for NCA that the asserted lien cannot exist without materially breaching the contract between the parties.

[25]   Skyline says that cl 17 is directed at title. Its primary heading is, simply, “TITLE”. Clause 17.1 is sub headed “Title in the Aircraft” and cls 17.2 and 17.3 deal with title in items supplied by Skyline to NCA.

[26]   Certainly, the clause addresses title but cl 17.1 goes further than that. It addresses Skyline’s interests and restrictions over what it can do.

[27]   Mr Colson KC goes further again and submits that, in addition, the lien that is asserted could be regarded as a “security interest” which is something, under the final part of cl 17.1, Skyline is prohibited from creating. It is sufficiently clear, as Mr Quinn KC submitted, that a common law possessory lien is not a security interest. The discussion in McKay v Toll Logistics culminated with a finding that “A contractual lien may be a security interest but a lien created by statute or operation of law cannot be”.13

12     Referring to Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 at 717H, 718E.

13     McKay v Toll Logistics (NZ) Ltd [2010] 2 NZLR 700 at [38].

Mr Colson suggested that the term “security interest” in the clause may be regarded in a contractual sense, rather than being a reference to the term as it is defined in the Personal Property Securities Act 1999.14

[28]   Describing a possessory lien as a security interest – whether under the Personal Property Securities Act or otherwise – is in my view an uncomfortable fit. However, it is not as I see it a point that needs to be made out by NCA in order to establish (on a serious question to be tried basis) that a reasonable person – having the relevant background knowledge of the parties when they created the contract –would conclude that the clause as a whole is at odds with Skyline’s ability to assert a lien.15

[29]   Mr Colson points, also, to other provisions in the agreement to support the plaintiff’s view of cl 17.1. He emphasises the following clauses:

(a)Clause 9.1 which provides that NCA’s use of the aircraft would take priority over Skyline’s use of it, except where Skyline has notified NCA that the aircraft is booked for a commercial charter flight under the terms of the agreement.

(b)Clause 14.1.11 which provides that Skyline will comply with the reasonable directions of NCA (to the extent that they are not inconsistent with provisions in the agreement).

(c)Invoicing and payment provisions in cls 12 and 15 under which NCA can withhold disputed portions of invoices.

[30]   Mr Quinn is right to say that it could not properly be said that the assertion of the lien is in breach of any of these provisions. But there is some force in Mr Colson’s point that, while they cannot be relied upon independently for the point that NCA makes, they are consistent with the conclusion that the parties intended the agreement

14 Personal Property Securities Act 1999, s 17, which defines the term (by way of summary) as an interest in personal property created by a transaction that secures payment of performance of an obligation.

15  To use the approach in Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60]–[63] in assessing mutual intentions that parties assumed by contractual words.

to govern the four corners of their relationship, leaving no room, given the terms of cl 17.1, for the operation of a lien.

[31]   NCA adds that the parties’ prior negotiations are consistent with this approach to cl 17.1. It refers to two emails from Skyline to a representative for NCA in which Skyline sought a guarantee from Mr Meehan or an associated entity, or security against the aircraft or from a company, or a bank bond to cover invoices that may be outstanding from time to time. In response, Mr Meehan provided personal guarantee to Skyline for $200,000.

[32]   The argument is to the effect that, if the parties thought that a lien could be asserted over the aircraft, then negotiations of this type and the resulting guarantee would have been unnecessary. I do not see this point as advancing the matter one way or another. A lien could, if available, be asserted over invoices relating only to work done on the aircraft. Skyline’s exposure to outstanding invoices could always have exceeded considerably the cost of work on the aircraft and the guarantee is not in and of itself inconsistent with the assertion of a lien.

[33]   That said, for the reasons given, there is in my view a serious question to be tried on NCA’s allegation that Skyline is precluded by the agreement from asserting a possessory lien over the aircraft. This conclusion aligns with NCA’s first cause of action.

[34]   Does it align also with the second cause of action? Skyline says that the assertion of a possessory lien could not constitute the tort of conversion. It says that, if Skyline’s actions did constitute conversion, then there could never be a valid possessory lien for work done on a chattel.

[35]   But in circumstances where it is seriously arguable that a lien cannot be asserted, then it is equally arguable that these points would fall away.

[36]   For the tort of conversion to be committed, there must be interference with the use and possession of a chattel of another, without lawful justification or, more broadly, it must be able to be said that the plaintiff’s right trumps the defendant’s

right.16 If that is so – which is the essence of NCA’s case – then the goods may be recovered or damages may be claimed, either in conversion or detinue.17

[37]   On this basis, there is in my view a serious question to be tried on the allegations that NCA makes in the first and second causes of action.

Balance of convenience

[38]   The overarching question under this head is whether refusing the injunction would be harder on a plaintiff who, ultimately, was successful at trial, than granting it would be on an ultimately successful defendant. The threshold question in considering the question is whether damages would provide an adequate remedy for the plaintiff, should its claim be successful.18 Ultimately, I see the plaintiff as being correct when it says that its losses cannot be compensated adequately by damages. The entire point, it says, of owning an aircraft is to be able to use it.

[39]   NCA says that, in addition to monetary losses, it is suffering intangible losses. Mr Meehan has described in evidence his reasons for his purchase of the aircraft. He purchased it so that he could travel around New Zealand and to Australia in his capacity as CEO and chairman of Winton Land Ltd, an NZX listed company, and so that he could travel freely to his homes in Queenstown and in Australia. It is said that the retention of the aircraft by Skyline has caused him a loss of freedom (preventing from operating the aircraft privately), a loss of amenity (preventing him from having the utility and pleasure of the aircraft and from being able to save on the downtime associated with taking commercial flights – a primary purpose, it is said, of purchasing the aircraft) and a loss of control (preventing NCA from carrying out work that is needed at the moment to make the aircraft airworthy).

[40]   Skyline says that NCA’s losses can all be compensated through damages. Its losses, Skyline says, are in the nature of lost chartering income and the cost of commercial flights. NCA is, it is said, an incorporated entity for the purpose solely of

16     Glenmorgan Farm Ltd (In rec and in liq) v New Zealand Bloodstock Leasing Ltd [2011] NZCA 672, [2012] 1 NZLR 555 at [26] and [28].

17     Chesworth v Farrah [1967] 1 QB 407, [1966] 2 All ER 107.

18     American Cyanamid Co v Ethicon Ltd, above n 4, at 408B–C and 510F–G.

owning the aircraft. It refers to NCA having no market presence, no goodwill and no valuable intellectual property. It submits that claims of intangible loss are not available to it.

[41]   I do not see Skyline as being quite right on either of these points. The loss of control affects NCA directly and the loss of freedom and amenity affects Mr Meehan, as the sole director and shareholder of NCA. The Court can, in addition, consider effects on third parties when considering the balance of convenience.19

[42]   Skyline then points to the correspondence referred to in [9] and [10] above in which, among other things, NCA identified its losses as being financial in nature. It suggests that the Court should be cautious of claims that are made now about intangible losses. However, the financial losses outlined by NCA in its correspondence predated Skyline’s claim to have a possessory lien. And, in any event, the intangible losses are, as I see it, established on the evidence. The reason for buying a private jet aircraft must be to achieve a level of freedom and amenity, valuable in both business and personal terms, that cannot otherwise be readily achieved. They are not the type of losses that money can fix.

[43]   Whereas NCA’s losses increase, for as long as it does not have the aircraft, Skyline’s losses are capped. Damages are, as a corollary, adequate compensation for Skyline. As it has said, if the $288,186.32 worth of invoices for repairs to the aircraft are paid into Court, then it will release the aircraft to NCA. It has suggested the use of r 7.78 of the High Court Rules as a mechanism for the payment into Court. Under that rule, if a party seeks to recover specific property from another and the other does not dispute the claimant’s title but retains the property by virtue of a claimed lien, then the Court may order the payment into Court of the amount of money over which the lien is claimed and that the property be delivered to the claimant as a result.

[44]   On the basis of the findings that I have made, albeit at an interlocutory level, I do not see Skyline’s claim to a lien as being of sufficient strength to warrant the application  of  the  rule.    NCA  in  declining  Skyline’s  proposal  that  it  pay  the

$288,186.32 into Court has, however, proposed to pay $88,000 into Court on the basis

19     Dunedin Taxis 1965 Ltd v Dunedin Airport Ltd (1990) 3 PRNZ 391 at 393.

that sum, combined with Mr Meehan’s personal guarantee to the value of $200,000 would provide sufficient security, or at least comfort, for Skyline. I do not see that course of action as being necessary either. Mr Meehan has given evidence of NCA’s financial position and of his own. The aircraft has a value that is well in excess of the contested debt and is free of security interests. While a bank loan was taken to assist with its purchase, the loan is secured on other assets.

[45]   I am satisfied that the balance of convenience favours NCA. Its own losses, to a significant extent, are intangible and ongoing while it does not have the aircraft. While granting the injunction will in a practical sense extinguish Skyline’s claim to assert a lien, its losses, if made out, can be compensated through damages, which NCA would be in a position to pay. The undertaking as to damages it has given will, as I see it, be able to be met.

Overall justice of the case

[46]   There are substantive issues to be resolved between the parties. The $622,000 in outstanding invoices is a significant sum for Skyline to carry. Equally, the claims raised by NCA by way of set-off are material and need to be aired. But this application focuses on who should have the aircraft in the meantime.

[47]   In circumstances in which the parties agreed that rights in the aircraft will be governed exclusively by the terms of the agreement, in which NCA’s intangible losses from not having the aircraft are ongoing and accumulating and in which Skyline’s losses are capped and can be made good through damages, the overall justice of the case in my view favours the Court granting the interlocutory orders that are sought.

Outcome and orders

[48]The plaintiff’s application is granted. I make orders that the defendant must:

(a)provide possession of the Nextant 400XTi aircraft with the Registration Number ZK-NCA and Serial Number RK-248 (the aircraft) to the plaintiff;

(b)deliver the logbooks, historic maintenance records received at the time of the purchase of the aircraft, aircraft flight manual (including Certificate of Airworthiness) and all parts and equipment purchased by the plaintiff under the agreement;

(c)arrange for all maintenance programme subscriptions (including CAMP (campsystems.com)) for the aircraft to be transferred from the defendant to the plaintiff;

(d)provide the Civil Aviation Authority with all necessary details to enable the aircraft’s Certificate of Registration to be transferred to the plaintiff; and

(e)take such other steps as are necessary to ensure an orderly and effective transfer of possession of the aircraft to NCA so that it is operable in the near future.

[49]   Leave is granted to the plaintiff to seek any further orders to ensure the orderly and efficient transfer of possession of the aircraft to the plaintiff so that it may be operable in the near future.

[50]   Costs are payable by the defendant to the plaintiff on a 2B basis. The costs ought to be able to be agreed between the parties but if they cannot, then the plaintiff may file a memorandum within 10 working days and the defendant may file a memorandum in response within 15 working days. Any such memoranda, including schedules, should be no longer than three pages in length.

Radich J

Solicitors:

Duncan Cotterill, Wellington for Plaintiff Sainsbury Logan & Williams, Napier for Defendant