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District Court of New Zealand |
Last Updated: 21 May 2019
EDITORIAL NOTE: CHANGES MADE TO THIS JUDGMENT APPEAR IN [SQUARE BRACKETS]
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IN THE DISTRICT COURT
AT AUCKLAND
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CIV-2018-004-000352
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BETWEEN
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TMC INTERNATIONAL LTD
Plaintiff
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AND
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AIRBUS NEW ZEALAND LTD
Defendant
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Hearing:
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30 May 2018
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Appearances:
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T Bates for the Plaintiff
J Baigent for the Defendant
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Judgment:
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23 July 2018
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RESERVED DECISION OF JUDGE P A CUNNINGHAM
[On application by plaintiff for summary judgment]
Introduction
[1] This case is about introduction fees of approximately US$21,833.30 (NZ$32,105.35) said to be owed to the plaintiff for services carried out on behalf of the defendant. Those services were marketing the defendant’s services to customers based in Japan and to manage those relationship and payment arrangements. The defendant would carry out the work of propeller and propeller assembly and maintenance on aircraft for third parties. The plaintiff was to be paid 10% of the total value of the invoice paid to the defendant by the third party customer.
[2] One of the invoices was dated 25 November 2015, the other two were in January 2017. Payment of invoices stopped in 2017. The defendant acknowledges that the invoices have not been paid. It says that because of an internal investigation regarding the company’s contracts with third parties and resulting criminal investigations in England and France that it terminated its relationship with the plaintiff (amongst others) and ceased all payments. The Court should exercise its
TMC INTERNATIONAL LTD v AIRBUS NEW ZEALAND LTD [2018] NZDC 14937 [23 July 2018]
discretion not to enter summary judgment at least until the criminal investigations are completed.
The plaintiff’s case
[3] Mr Bates described this as a simple claim in contract. The original agency agreement was between the plaintiff and Safe Air. At some point in 2017 Airbus New Zealand Ltd took over the business of Safe Air, I was not given a month or date in a month.
[4] The plaintiff company which is based in Japan would arrange aircraft maintenance for the defendant to carry out and when the third party was invoiced the plaintiff would be paid 10% of that invoice. The agency agreement was annexed to an affidavit sworn by Aki Osada in support of the application for summary judgment. That agreement was dated 16 January 2015 although Mr Bates said that the arrangement had been in place since 2014. Nothing turns on this date difference.
[5] In a letter dated 20 December 2017 Airbus cancelled the contract with the plaintiff. There is no dispute about this.
[6] Clause 3(b) of the agreement provided that upon cancellation all monies and accrued obligations up until the date of contract cancellation are to be paid in full. Clause 3(c) provided that termination of the agreement did not relieve either party from any liability under the agreement.
[7] Mr Bates submitted that in a notice of opposition and affidavit filed in opposition there was no defence to the contractual claim. Rather there was reference to an international fraud investigation in relation to Airbus internationally and as a result there was a moratorium on paying the invoices. The detail of the investigation had not been made sufficiently clear nor had there been any link made in the opposition documents to the role of TMC (the plaintiff company) in terms of its involvement in any fraudulent activity.
[8] While the Court had a discretion not to enter summary judgment, there had to be some narrative that could amount to a defence in a substantive hearing relying on Jowada Holdings Ltd v Cullen Investments & Anor.1 In that case the Court of Appeal described the discretion to refuse to enter summary judgment as being of a residual kind (para [30]). However in Sudfeldt v UDC Finance Ltd2 the Court of Appeal described the discretion to award summary judgment as unrestricted (see p. 209).
[9] Sayles v Sayles3 was a case where the High Court did exercise its discretion to refuse summary judgment. There was an application for summary judgment in relation to the sale of a property owned by Mr Sayles. Mr and Mrs Sayles had separated. Mrs Sayles had filed matrimonial property proceedings which included that she claimed an entitlement to the property in question. Justice Wylie decided that to sell it may result in some injustice to Mrs Sayles. His Honour refused to enter summary judgment. In discussing the nature of the discretion Wylie J said that it should be given its full discretionary meaning.
[10] In Inner City Properties Ltd v Mercury Energy Ltd4 the Court of Appeal held that the High Court erred in exercising the discretion to refuse summary judgment. The claim was in trespass and it related to an emergency main transmission line across the plaintiff’s property in the Central Business District. This was in the context of a power crisis in Auckland. The Court held that the public interest in having the lines maintained was not a defence and that summary judgment should not be refused on that basis.
[11] In Dominion Breweries Ltd v Countrywide Banking Corporation Ltd5 the Court of Appeal also reversed the Court at first instance. The issue was the interpretation of a clause about payment of a management fee. It turned on the exercise of the residual discretion to give or refuse summary judgment. The Court said:
On the facts of the case we are satisfied that there is no sufficient reason to refuse judgment. To do so would be to defeat the commercial purpose of the contractual exclusion, would be out of touch with business realities and would
1 CA 248/02 5 June 2003 decision of McGrath J.
2 [1987] NZCA 138; (1987) 1 PRNZ 205.
5 CA314/91, 18 August 1992.
keep Dominion Breweries waiting for payments it was intended it should receive monthly while managing the hotel, whilst protracted proceedings on the counterclaim are litigated.
The case for the defendant
[12] Reference was made to an affidavit of Alexander Griffith in support of the defendant’s notice of opposition. It is worthwhile repeating paragraphs 8-15 of his affidavit.
Airbus anticorruption due diligence review
Criminal investigations by UK and French regulatory authorities
irregularities concerning third party consultants. The Airbus Group issued a press release to this effect on 16 March 2017. Annexed marked “ADG-2” is a copy of the press release.
[13] Initially Airbus discovered irregularities in export credit financing for Airbus customers. Then the policies, procedures and practices of Airbus were enhanced. That led to an anticorruption due diligence review which impacted all entities in the Airbus Group including the defendant. That resulted in business relationships of Airbus Group being reviewed and third party business partners were informed. On 20 December 2017 Airbus sent the plaintiff a letter. That is reproduced as follows:
AIRBUS HELICOPTERS
Legal & Compliance Department Division Compliance Officer
[Contact details deleted]
20 December 2017
Subject: Cessation of Business Relationship with Airbus
Dear Sir
We refer to our previous discussions in relation to the performance of due diligence for all third party business partners of Airbus SE and its related Airbus entities.
We regret to inform you that this process was unable to be successfully concluded in relation to TMC INTERNATIONAL LTD, and accordingly advise you that we cannot continue any commercial relationship with you, or release any payments to your organisation.
In line with this decision, we ask that you cease representing Airbus New Zealand Limited (formerly known as Safe Air Limited) or any other affiliate of Airbus SE in any capacity. Please take this letter as confirmation that you are not authorised to provide any services for, or hold yourself out as having
any affiliation with, Airbus New Zealand Limited or any other affiliate of Airbus SE.
We regret this decision but confirm its finality.
Sincerely
[Contact name deleted]
[14] Mr Griffiths’ affidavit deposes that the UK SFO initiated a criminal investigation in the civil aviation business of the Airbus Group relating to irregularities concerning third party consultants and the equivalent to the UK SFO in France did likewise (paragraphs 13 and 14 of the affidavit).
[15] Ms Baigent told me from the Bar that she was not able to provide any further information about the status of the ongoing criminal investigations. What she did do was to point to the letter of 20 December 2017 and draw attention to the fact that in relation to the plaintiff the due diligence was not successfully concluded. This resulted in the termination of the relationship and a freeze of any payments to the organisation. Ms Baigent said that in the substantive proceeding the defendant would seek a stay on the proceeding until the outcome of the criminal investigations were known. It is on that same basis that it was submitted that the Court should not grant summary judgment.
[16] Rule 12.2 of the District Courts Rules 2014 provides that the Court “may” give judgment if the plaintiff satisfies the Court that the defendant has no defence to the cause of action in the statement of claim. The Court retains a discretion to refuse summary judgment if this would cause injustice or oppression (Sudfeldt).
[17] In Phythian v Body Corporate 1200666 the commentary in McGechan on Procedure on the equivalent High Court Rule 12.2 regarding the residual discretion to refuse summary judgment was cited with approval.
[18] The residual discretion may be invoked where:
6 HC Auckland CIV 2008-404-4284, 28 August 2008.
(i) The proceeding involves the actions or possible liability of a third party which is not before the Court;
(ii) The proceedings are such that the opportunity should be given to allow discovery or other interlocutory matters to be concluded;
(iii) The circumstances of the case disclose very unusual features, the presence of which leads the Court to conclude that the entry of summary judgment would be oppressive or unjust; or
(iv) The combination of complex issues of fact and law justify the dismissal of the application for summary judgment, either as a matter of discretion or because the Court cannot be satisfied that the defendant has no defence.
The commentary goes on at 12.2.11.
Even where the Court is not satisfied that a defence has been made out, in exceptional circumstances the application may be adjourned to allow for other processes to be followed.
[19] In Environmental Protections Authority v Chatham Rock Phosphate Ltd7, the plaintiff sought summary judgment for $795,310.05 being the balance of fees said to be owing on an unsuccessful application by Chatham Rock for a marine consent. Chatham Rock challenged some specific amounts being sought by the plaintiff. The Court held that Chatham Rock should have the opportunity to commence a judicial review to challenge the amounts being sought and the entry of summary judgment would pre-empt that public law right. A period of time was allowed to enable that to happen.
[20] In Wei and Ors v Commissioner of Police8 adjourned a civil forfeiture application in relation to property owned by the plaintiffs pending the outcome of Mr Wei’s and Mr Zhang’s criminal trial for laundering drug money. Because the
8 High Court Auckland CIV 2010-404-5461 24 November 2011, Ellis J.
outcome would likely affect the forfeiture procedure whether there was a conviction or an acquittal. Although this was not a summary judgment application, the same principles are applicable.
[21] In Sime v Bale9 the plaintiff wished to sell a property at the end of a de facto relationship. The property was in the name of the defendant. The parties had entered into a property agreement which entitled the plaintiff to one half share in the dwelling in which they had lived together during the relationship. The defendant wished to argue the agreement was unenforceable on two grounds; one of which was it was contrary to public policy to allow the plaintiff she had been in receipt of a domestic purposes benefit during the relationship. While recognising that the plaintiff had the right to apply for sale, Maser Gambrill refused summary judgment because to do so would deprive the defendant of the use and occupation of the house he had bought and there was little if any contribution to the property by the plaintiff. Further the Court had insufficient material to consider any orders under the Contractual Mistakes Act and the Illegal Contracts Act.
Discussion and analysis
[22] The purpose of having the summary judgment procedure is to enable the plaintiff to secure judgment where the defendant has no defence to the claim (see Rule 12.2 District Courts Rules 2014). The word “may” in Rule 12.2 gives the Court a discretion to refuse summary judgment. The issue in this case is whether the defendant is able to show that this is a case where the Court should exercise that discretion in favour of the defendant.
[23] The defendant argues that because of the ongoing criminal investigation in the civil aviation business of the Airbus Group and the wording in the 20 December 2017 letter (set out in para [13] herein), the Court should await the outcome of the ongoing investigations before entering judgment on a summary judgment basis and (eventually) to stay the proceeding on the same basis.
9 High Court Whangarei CP 34/95 15 February 1996.
[24] Ms Baigent drew my attention to two cases where illegal activity (Sime v Bale) or an associated criminal proceeding (Wei & Ors v Commissioner of Police) was enough for the Court to not exercise its discretion to enter summary judgment in the first case and to make a final determination in the second.
[25] In Sime v Bale, to enter summary judgment would have denied the defendant of the opportunity to argue that a property agreement entered into before or during a de facto relationship should be set aside. A fact accepted in the case was that the plaintiff had unlawfully received a government benefit to which she was not entitled during the relationship. This would no doubt have had implications in relation to what contribution she had made to the relationship and possibly to the status of the agreement. As far as the defendant was concerned, entry of summary judgment would have resulted in a sale of the property and the loss of his home. In those circumstances the possibility of an injustice to the defendant was obvious. The position of the plaintiff was still maintained in the sense that she would still receive her entitlement in due course.
[26] In the Wei case, the Court held that whatever the outcome of the criminal proceeding, the outcome of the civil process would be affected. That case in my view is also a clear case where the injustice of entering judgment was obvious. Again the position of the plaintiff was maintained despite the refusal to enter summary judgment.
[27] I turn to the assessment of the evidence in this case. The first issue is whether or not there is a defence to the plaintiff’s claim.
[28] The evidence for the defendant establishes the following:
- (i) In 2014 the Airbus Group discovered irregularities in certain applications for expert credit financing for Airbus customers.
- (ii) As a result Airbus Group enhanced certain policies, procedures and practices and implemented improved procedures including with the engagement of consultants and other third parties.
payments to TMC under the agency agreement including the amounts sought by TMC in this summary judgment application.
(x) On 20 December 2017 Airbus SE (parent company) wrote to TMC advising that Airbus entities were unable to continue a relationship with TMC or release any payments to it.
(xi) On 27 December 2017 Airbus New Zealand received a letter of demand from TMC’s solicitors dated 20 December 2017. Airbus New Zealand responded through solicitors Clifford Chance Europe LLP in a letter dated 11 January 2018 confirming that Airbus could not continue any relationship with or payments to TMC for the reasons stated in the 20 December 2017 letter.
[29] It was not clear from the pleadings or the evidence when Airbus New Zealand Ltd “took over” the original contracting party Safe Air Ltd or the manner in which that occurred. Both counsel were agreed it happened some time during 2017. The initial disclosure document reveals that the invoice from the plaintiff dated 23 January 2017 was to Safe Air Ltd and the next communication was a letter dated 20 December 2017 to the defendant. Thus it appears that all of the invoices were issued when the plaintiff had the contractual arrangement with Safe Air. I infer that the defendant has taken over the liabilities of Safe Air from the fact no defence of non-liability based on those facts has been raised.
[30] The ongoing criminal investigations in the United Kingdom and France began prior to the 16 March 2017 press release. There is no criminal investigation in New Zealand.
[31] It would appear from the wording of the letter of 20 December 2017 that (for reasons unstated) Airbus was not able to conclude due diligence in relation to the contract between the two parties in this proceeding. Why that was not possible is not stated.
[32] How long the two criminal investigations are going to take is not known.
[33] There is no defence to the claim apparent to me. At best there is a possibility that criminal investigations in the United Kingdom and France may produce something that may be relevant to a defence that Airbus New Zealand has to contractual arrangements between Safe Air and the plaintiff at a time prior to Airbus taking over the business (liabilities) of Safe Air. Something I regard as a remote possibility.
[34] Given that there is no defence to the claim, the issue is whether I should exercise my discretion and not enter summary judgment.
[35] The contract provides that upon cancellation all monies and accrued obligations are to be paid in full. There is no known defence. Those factors are usually sufficient to enter summary judgment.
[36] If the criminal investigations in the United Kingdom and or France produce anything that may be relevant to this contract, it would still be possible for a criminal investigation to be launched in New Zealand. It is not clear to me how this remote possibility can affect the defendant’s contractual liability.
[37] Summary judgment is entered for the plaintiff as follows:
- (i) $USD21,833.30 converted to NZ dollars as at today’s date;
- (ii) Interest at 5% in the sum of $USD1,718.39 as at today’s date.
Costs
[38] Mr Bates sought costs with an uplift of 50%. This was on the basis of the opposition being unmeritorious. I do not accept that submission. The reason I have taken two months to deliver a decision is because this is an unusual case. It is not a blank refusal to pay. The defendant is abiding a decision of the parent company not to pay any amounts owing to third party business partners until two criminal investigations are concluded.
[39] This is a straightforward contractual claim and category 1 would normally apply. Because of the complexity given the issues raised by the defendant I am satisfied category 2B is appropriate. With disbursements to be fixed by the registrar.
Dated at Auckland this 23rd day of July 2018 at am/pm.
P A Cunningham District Court Judge
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