LSG Sky Chefs New Zealand Limited v Pacific Flight Catering Limited [2012] NZHC 1996 (9 August 2012)

Last Updated: 17 August 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-000277 [2012] NZHC 1996

BETWEEN LSG SKY CHEFS NEW ZEALAND LIMITED

Plaintiff

AND PACIFIC FLIGHT CATERING LIMITED First Defendant

AND PRI FLIGHT CATERING LIMITED Second Defendant

Hearing: 19 July 2012

Counsel: PG Skelton and A Borchardt for Plaintiff

JK Goodall and A Drake for Defendants

Judgment: 9 August 2012

JUDGMENT (NO. 2) OF TOOGOOD J (Strike-out and discovery – reasons)

This judgment was delivered by me on 9 August 2012 at 4:30 pm

Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:

Garry Pollak & Co. Limited, Auckland: [e-mail]

Gilbert Walker, Auckland: [e-mail]

Copy:

PG Skelton, Auckland: [e-mail]

JK Goodall, Auckland: [e-mail]

LSG SKY CHEFS NEW ZEALAND LIMITED V PACIFIC FLIGHT CATERING LIMITED HC AK CIV-2011-

404-000277 [9 August 2012]

Table of Contents Paragraph

Number

Introduction [1] [3]

LSG’s claim to restitution

Pacific’s defences [4] The interlocutory applications [5] Applicable legal principles [9] Summary of issues [12] What is the present state of the law in New Zealand? [15] What is the present state of the law in Australia? [22] What is the present state of the law in Canada? [27]
_{What is the present state of the law in England and Wales?} [32]

Did the Court of Appeal in Commissioner of Inland Revenue v Stiassny affirm the possibility of a passing on defence?

In Waikato Regional Airport Ltd v Attorney-General, did the Privy Council leave open the possibility that passing on might be a defence to LSG's claim in restitution?

Do the views of the academics provide a basis upon which the New Zealand courts might decide that passing on is an available defence to LSG's claim?

Are there practical considerations militating against the availability of the passing on defence?

Is the defence of passing on clearly untenable so that the

_{Court could be certain that it cannot succeed?}

[42] [43]

[46]

[48] [53]

The discovery issues [54]

Introduction

[1] These are my reasons for the interlocutory orders I made in a results judgment issued on 3 August 2012.1

[2] The plaintiff (“LSG”) won a tender to provide catering services to Singapore Airlines. As a consequence, 44 employees formerly employed by the defendants ("Pacific")2 elected to transfer their employment to LSG.3 By operation of Part 6A of the Employment Relations Act 2000, their employment entitlements were transferred with them and LSG assumed a liability to pay out accrued benefits valued at

$257,809.05 at the date of transfer.

LSG's claim to restitution

[3] LSG sues Pacific for restitution of the money paid and to be paid in meeting the transferred entitlements. It says it is a well-established common law rule that where a plaintiff has been compelled by law to pay money which the defendant was ultimately liable to pay, so that the defendant obtains the benefit of the payment by the discharge of his liability, the defendant is held indebted to the plaintiff in the

amount of the payment.4

Pacific's defences

[4] Pacific denies that LSG has a right to restitution because:

(a) the effect of the legislative scheme is to transfer the entitlements of the employees into the new employment relationship in a way which extinguishes Pacific’s liabilities and imposes new liabilities on LSG;

_and

1 LSG Sky Chefs New Zealand Limited v Pacific Flight Catering Limited & Anor (Judgment

_{No. 1) [2012] NZHC 1942.}

2 For convenience, the defendants are referred to collectively as “Pacific”. The first defendant is a

wholly-owned subsidiary of the second defendant and there is no need to distinguish between the two companies for the purposes of this judgment.

3 _{Employment Relations Act 2000, ss 69A and 69F.}

4. Lord Mackay of Clashfern (ed) Halsbury's Laws of England (5th ed, LexisNexis, London, 2008, vols 40-41) "Restitution" at [63].

(b) in any event, LSG has not actually met the transferred entitlements;

and in the alternative, as affirmative defences,

(c) LSG has passed on to Singapore Airlines the burden of meeting the transferred entitlements and has suffered no loss for which restitution should be made; or

(d) if LSG has not passed on the liability, it should have done so under its duty as plaintiff to mitigate its losses.

The interlocutory applications

[5] LSG applied to strike out the two affirmative defences on the grounds they are not tenable in law, because passing on is not a defence to a claim in restitution, and LSG was not under any duty to mitigate.

[6] Pacific alleges that LSG is in breach of its obligations to disclose all information relevant to LSG's claim for restitution and it applies, in respect of the passing on defences, for particular discovery of what LSG says are highly-sensitive commercial documents, including its contract with Singapore Airlines and all working papers and other documents relating to LSG’s tender pricing.

[7] Faire AJ had already delivered a judgment dealing with discovery,5 some aspects of which Pacific asked to be reviewed. The affirmative defences have been pleaded since that judgment was issued.

[8] In the results judgment I made the following orders:6

(a) The defences pleaded in paragraphs 27-33 of the Amended Statement of

Defence dated 13 June 2012 are struck out.

(b) The plaintiff shall comply forthwith, or verify by affidavit forthwith that it has complied with, the agreement to produce all internal communications within the plaintiff, and/or between the plaintiff and related companies,

5 _{LSG Sky Chefs New Zealand Limited v Pacific Flight Catering Limited [2012] NZHC 1123.}

6. LSG Sky Chefs New Zealand Limited v Pacific Flight Catering Limited & Anor (Judgment No 1) [2012] NZHC 1942 at [12].

relating to the recording or payment by the plaintiff of entitlements that accrued to the transferred employees prior to 23 February 2011 (“Transfer Date”), including all communications from and/or to Jaap Roest, Roger Deverell, Marie Park, Peta Kome, Sriram Bhardwaj, Anna Manuatu, Ashton Dempsey and Gaye Wilson.

(c) The other applications for interlocutory orders are dismissed.

Applicable legal principles

[9] Rule 15.1 of the High Court Rules provides that the Court has a discretion to strike out a pleading if it discloses no reasonably arguable cause of action or defence. The parties are agreed that the relevant principles are those set out in McGechan on Procedure7 at HR15.1.02 as derived from the judgments of the Court of Appeal in Attorney General v Prince8 and the endorsement by the Supreme Court in Couch v

Attorney General.9 In this case, I have paid particular attention to the following:

(a) the cause of action or defence must be clearly untenable so that the

Court must be “certain that it cannot succeed”;

(b) the Court is reluctant to terminate a claim or defence short of trial, so the jurisdiction to strike out should be exercised sparingly and only in clear cases;

(c) the jurisdiction to strike out is not excluded by the need to decide difficult questions of law, requiring extensive argument. However, the Court should be particularly slow to strike out a claim in any areas where the law is confused or developing.

[10] The parties disagree over whether the law relating to the asserted defence of passing-on “is confused or developing.”

7 _{Andrew Beck and others McGechan on Procedure (looseleaf ed, Brookers).}

8 _{Attorney-General v Prince [1998] 1 NZLR 262 at 267.}

9 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33], per Elias CJ and

Anderson J.

[11] The principal test for LSG's discovery obligations is relevance. Whether LSG has met its obligations in this case fell to be determined principally on the nature of the pleadings after the strike-out application had been determined.

Summary of issues

[12] The central question to be answered is whether the defence of passing on is clearly untenable so that the Court could be certain that it cannot succeed. LSG submitted that the law in New Zealand rejects the defence in a case such as the present and should be regarded as settled, because it reflects the fundamental principles of the law of restitution and is supported by the leading authorities in Australia, Canada, and England and Wales. Pacific submitted that there were three main reasons why the law in New Zealand should be regarded as confused or

developing. First, in Commissioner of Inland Revenue v Stiassny10 the New Zealand

Court of Appeal identified that where the necessary elements of a restitutionary claim are established, a remedy is prima facie available unless there are defences to the grant of the remedy or some overriding legal principle which may justify the defendant’s enrichment and negate the claimant’s right to restitution. Second, in a New Zealand case, Waikato Regional Airport Ltd v Attorney-General,11 the Privy Council left open the possibility that passing on might be a defence to LSG's claim in restitution. Third, respected academic writers have criticised the doctrinal basis for the rejection of the passing on defence by the courts as misguided; they argue that the interpretation of the requirements for a claim in restitution is too simplistic and

overlooks the corrective justice basis of the law of restorable enrichment.

[13] To answer the central question, the following issues have to be determined: (a) What is the present state of the law in New Zealand?

(b) What is the present state of the law in Australia?

_{(c) What is the present state of the law in Canada?}

10 _{Commissioner of Inland Revenue v Stiassny [2012] NZCA 93.}

11 Waikato Regional Airport Limited v Attorney-General [2004] 3 NZLR 1 (PC).

(d) What is the present state of the law in England and Wales?

(e) Did the Court of Appeal in Commissioner of Inland Revenue v

Stiassny affirm the possibility of a passing on defence?

(f) In Waikato Regional Airport Ltd v Attorney-General, did the Privy Council leave open the possibility that passing on might be a defence to LSG's claim in restitution?

(g) Do the views of the academics provide a basis upon which the New Zealand courts might decide that passing on is an available defence to LSG's claim?

(h) Are there practical considerations militating against the availability of the passing on defence?

[14] If the answer to the central question is that passing on is arguably an available defence, it is necessary to consider whether LSG was under a duty to mitigate any loss by passing on the liability to meet the transferred entitlements. If the passing on defence is rejected, the argument about a duty to mitigate falls away.

What is the present state of the law in New Zealand?

[15] In support of the existence and application of the defence of passing-on, Mr Goodall for Pacific addressed first the nature of the plaintiff’s claim. Referring to the pleaded cause of action in “money paid to the defendants’ use”, he acknowledged that the action is appropriate if it is proved on the evidence that LSG has paid money to a third party (in this case the transferred employees) to the benefit of Pacific thereby relieving Pacific of the liability to meet the entitlements of the transferred employees. Assuming for the purposes of the strike-out application that that has occurred, he said the claim is a species of claim in unjust enrichment and that defences available to such claims are open to Pacific in this proceeding.

[16] Mr Goodall placed particular reliance upon the views of the Court of Appeal in Stiassny where the Court identified that where the necessary elements of a

restitutionary claim are established, a remedy is prima facie available unless there are defences to the grant of the remedy or some overriding legal principle which may justify the payee’s enrichment and negate the claimant’s right to restitution.12 The Court referred with approval to the following passage from Goff & Jones which, Mr Goodall submitted, emphasised a key component of unjust enrichment claims; namely, that the enrichment must be gained “at the claimant’s expense”: 13

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 his 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 principles [may] justify the defendant’s enrichment and thereby nullify the claimant’s right to restitution.

[17] Mr Goodall submits that it follows as a matter of principle that, if Pacific can show that LSG did not suffer an “expense”, it has a complete defence to the claim. Mr Skelton for the plaintiff did not dispute that proposition and I agree that it reflects correctly the general principles to be derived from the authorities. As Mr Goodall acknowledged, the plaintiff’s argument, based on what it submits is the view the courts have expressed in New Zealand, Australia, Canada, and England and Wales, would focus narrowly on the mere payment of the money by LSG to the transferred employees to satisfy the “expense” requirement. He submitted, however, that it was “more sensible” to take a broader approach to prevent the potential windfall that a plaintiff would enjoy if it were to recover the expenditure from both a third party and the defendant. He argued that looking at whether the plaintiff had been able to recover the “expense” from a third party would prevent the plaintiff from being unjustly enriched.

[18] Mr Goodall's argument faces the considerable difficulty that it is founded on a view of the doctrine of restitution as providing compensation for loss, a view

_{rejected by the New Zealand High Court which sees the focus of the remedy as being}

12 _{At [92]}

13 _{Charles Mitchell, Paul Mitchell and Stephen Watterson (eds) Goff & Jones The Law of Unjust}

Enrichment (8th ed, Sweet & Maxwell, London, 2011) at [1.09].

on the unjust enrichment of the defendant rather than on whether the plaintiff has suffered loss. In Equiticorp v Attorney-General (No. 47)14 Smellie J was concerned, among other things, with a claim to restitution for knowing receipt. Applying the principles explained by Hobhouse J in Kleinwort Benson Limited v South Tyneside Metropolitan Borough Council,15 Smellie J said that subsequent events which might have resulted in the plaintiffs mitigating their losses were not relevant to the assessment of the amount of restitution to be awarded. At 641, he said that this is because restitution is based on the principle of restoring to the plaintiff what was taken or received from him or her without justification, and not on the principle of compensating the plaintiff for loss or damage. In taking this view, Smellie J relied also upon the view of Mason CJ in Commissioner of State Revenue v Royal Insurance.16

[19] A similar view was taken by Baragwanath J in Whangarei District Council v Northland Regional Council.17 The Court held that bylaws requiring the payment of annual licence and mooring fees at various marinas were ultra vires. The plaintiff sought to recover $46,181.25 in fees paid pursuant to the bylaw, in response to which the Regional Council argued that the plaintiff had passed on the charges to its berth- holders. This argument was rejected, Baragwanath J following the approach in

Australia in Commissioner of State Revenue v Royal Insurance and in England in Kleinwort Benson Limited v Birmingham City Council.18 The Court decided that the defence of passing-on should not be accepted, not only for the reasons of principle explained in those cases, but also for the practical consequences of avoiding complexity.19 The "undue complexity" point is one which requires consideration in

_{the present case and I shall return to it.}

14 Equiticorp Industries Group Limited (In Statutory Management) v Attorney-General (Judgment

_{No. 47) [1998] 2 NZLR 481.}

15. Kleinwort Benson Ltd v South Tyneside Metropolitan Borough Council [1994] 4 All ER 972, discussed below at [32].

16 Commissioner of State Revenue (Victoria) v Royal Insurance Australia Limited (1993-1994)

_{[1994] HCA 61; 182 CLR 51, discussed below at [23].}

17 _{Whangarei District Council v Northland Regional Council (1996) NZRMA 445.}

18 _{Kleinwort Benson Limited v Birmingham City Council [1997] QB 380 , discussed below at [34].}

19 At 480.

[20] In the third New Zealand case referred to by counsel, the Privy Council considered an asserted passing-on defence on appeal from New Zealand Court of Appeal in Waikato Regional Airport Ltd v Attorney-General.20 In that case, various regional airports sought to recover fees for the provision of border biosecurity services that had been imposed on them by the Ministry of Agriculture and Forestry. The Board held that the charging scheme was unlawful.21 The Crown sought to argue that the fees extracted from the airports under the invalid requirement had been passed on to their customers, and should not be returned. In discussing the availability of the defence, the Privy Council referred without criticism to the rejection of the defence in Australia and England. The Crown's argument failed, in their Lordships’ view, because the factual basis for any defence of passing-on was not made out and the Board did not consider it necessary to decide the point of

principle. I shall return to this case in discussing Pacific's proposition that the Privy

Council expressly left the defence open.

[21] The present state of the law in New Zealand, taken from the two High Court authorities in which the existence of the defence has been considered directly, is that passing on is not available as defence to a claim between private parties to restitution for a benefit conferred on a defendant by a plaintiff through compulsion of law.

What is the present state of the law in Australia?

[22] In Mason v New South Wales,22 the plaintiffs carried goods by road between Victoria and New South Wales. The State imposed fees pursuant to permits issued under a statute that the Privy Council later found had no valid application. The plaintiffs had passed on the fees to their customers. They later sued the State in money had and received to recover the fees paid under compulsion. In delivering his judgment in the High Court of Australia, Windeyer J found no basis for denying the plaintiffs restitution, rejecting the notion that the concept of impoverishment of the

_{plaintiff was a necessary correlative of the defendant’s improper enrichment. It was}

20 _{Waikato Regional Airport Limited v Attorney-General [2004] 3 NZLR 1 (PC).}

21 _{At [63].}

22 Mason v The State of New South Wales [1959] HCA 5; (1959) 102 CLR 108.

held that a plaintiff ’s recovery from third parties was “irrelevant” in a restitutionary

claim.23

[23] In Commissioner of State Revenue (Victoria) v Royal Insurance Australia,24 the plaintiff insurance company sought to recover duty totalling $2 million mistakenly paid to the defendant Comptroller of Stamps under a statute in ignorance of certain amendments to that statute. The cause of action was money had and received for payments made under mistake of law. In the High Court of Australia, the Commissioner argued that the plaintiff should be denied restitution because it had collected the duty from its customers when issuing insurance policies. Rejecting that submission, Mason CJ approved the approach taken by Windeyer J in Mason v

New South Wales.25 His Honour held26 that restitutionary relief, as it had developed

in Australia at common law did not seek to provide compensation for loss. Instead it operated to restore to the plaintiff what has been transferred from the plaintiff to the defendant whereby the defendant has been unjustly enriched. The subtraction from the plaintiff’s wealth enables one to say that the defendant’s unjust enrichment has been “at the expense of the plaintiff” notwithstanding that the plaintiff may recoup the outgoing by means of transactions with third parties. This view was concurred in

by the other members of the Court.27

[24] The point was more firmly decided by the High Court in Roxborough v Rothmans,28 where the plaintiff retailers sought to recover tobacco licence fees from the defendant wholesaler, which had charged the license fees to retailers pursuant to a State law, but had not passed on the fees to the taxing authority. In other proceedings,29 the High Court held the law to be invalid. Roxborough and other retailers sued Rothmans for money had and received on the grounds that there had

_{been a total failure of consideration.}

23 _{Ibid at 146. See also Menzies J at 136.}

24 Commissioner of State Revenue (Victoria) v Royal Insurance Australia Limited (1993-1994)

_{[1994] HCA 61; 182 CLR 51}

25 _{At 74.}

26 _{At 75.}

27 See Brennan J at 90-91 and Dawson J at 101 (where His Honour noted that although he

considered this to be “the better view”, he did not need to decide it). Toohey and McHugh JJ (at

_{103) concurred in the reasons given by Brennan J.}

28 _{Roxborough v Rothmans of Pall Mall Australia Limited (2001) 208 CLR 516.}

29 Ha v New South Wales [1997] HCA 34; (1997) 189 CLR 465.

[25] The majority of the High Court saw no reason to depart from the principle established in Mason and affirmed in Royal Insurance; the retailers were held to be entitled to recover the license fees from the wholesaler notwithstanding that the retailers had passed on the cost to their customers when selling tobacco products.30

Kirby J dissented, holding that Royal Insurance involved recovery from a State party which presented “different considerations of legal policy and principle” from recovery between two private parties “said to be affected by a court decision holding that certain statutory fees are constitutionally invalid.”31 I shall return to Kirby J's views in due course.

[26] There can be no doubt that the Australian position is that the requirement for a plaintiff to show that the defendant has benefitted "at the plaintiff's expense" is to be viewed narrowly and that the defence of passing on would not available to the present defendant in Australia.

What is the present state of the law in Canada?

[27] In 1989, the Supreme Court of Canada was required to consider, in Air Canada v British Columbia,32 whether airlines which claimed to have passed on to customers the burden of taxes paid under an invalid requirement could recover the tax paid from the provincial government. La Forest J, writing for the majority,33 indicated his preference for the view that, if a taxing authority retains a payment to which it was not entitled, it has not been unjustly enriched at the taxpayer’s expense if the taxpayer has shifted the economic burden of the tax to others. He considered that the law of restitution is not intended to provide windfalls to plaintiffs who have suffered no loss, taking the broader view, advocated by Mr Goodall for Pacific, of the requirement that the measure of restitutionary recovery is the gain the defendant made at the plaintiff's expense. On that view, if the airlines could not show that they

_{bore the burden of the tax, then they would not have made out their claim.}

30 Roxborough v Rothmans at [27] (per Gleeson CJ, Gaudron and Hayne JJ) and [68]-[69] (per

_{Gummow J).}

31 _{Ibid at [140].}

32 Air Canada & Pacific Western Airlines Ltd v The Queen in Right of British Columbia [1989] 1

_{SCR 1161.}

33 At 1202-1203.

[28] In my view, however, this aspect of the judgment must be considered in light of the policy considerations which underpin it. The Judge went on to say34 that, even if the airlines could show that they bore the burden of the tax, he would still deny recovery. La Forest J acknowledged that it was clear that the principles of unjust enrichment could operate against a government to ground restitutionary recovery but was of the opinion that, where the effect of an unconstitutional or ultra vires statute

is in issue, special considerations operated to take the case out of the normal restitutionary frame-work, and require a rule responding to the specific underlying policy concerns. The Judge said that there were solid grounds of public policy for holding that a prohibition on recovery by the taxpayer airlines existed "quite independently of the law of restitution." It may be inferred from the last comment that La Forest J recognised that the general law of restitution did not recognise the defence of passing on.

[29] In her dissenting judgment, Wilson J said, applying ordinary principles of the law of unjust enrichment, there was no requirement that the airlines should be required to show that the unjust enrichment of the province was at their expense. Where the payments were made pursuant to an unconstitutional statute there was no legitimate basis on which they can be retained.

[30] The Supreme Court of Canada more recently rejected the defence of passing on in a taxing case, preferring the minority view of Wilson J in Air Canada. In Kingstreet Investments v New Brunswick35 there was a challenge by nightclub operators to the imposition of an additional a user charge on purchases of liquor from the provincial liquor corporation’s stores, and a claim to recover the payments. The charge was held to constitute an unconstitutional tax. Bastariche J, writing the judgment of the Court, rejected the Province’s defence of passing on. The Court held the defence to be inconsistent with the basic premise that restitution law was not

_{concerned by the prospect of a plaintiff obtaining a windfall because it is not}

34 _{At 1203.}

35 Kingstreet Investments Limited v Province of New Brunswick [2007] 1 SCR 3.

founded on the concept of compensation for loss.36 Furthermore, the Court held, the defence is economically misconceived and difficult to prove.37

[31] Thus, the law in Canada accords with that in New Zealand and Australia in rejecting the defence of passing on for reasons of principle and practicality.

What is the present state of the law in England and Wales?

[32] Similar considerations have influenced the English Courts in rejecting the defence. In Kleinwort Benson Ltd v South Tyneside Metropolitan Borough Council,38 the plaintiff bankers entered into five interest rate swap contracts with the defendant local authority which involved payments by both parties. The bank also entered into parallel hedging transactions to offset its potential liabilities under two of the swap contracts. Finding that the swap contracts were ultra vires the Council’s

powers and void ab initio, Hobhouse J rejected the passing on defence and applied the res inter alios acta maxim to hold39 that what contracts or other transactions or engagements the plaintiffs may have entered into with third parties have nothing to do with the principle of restitution. It was held to be sufficient for the plaintiffs to show that they were the payers of the relevant money and that the defendants were unjustly enriched by the payments.

[33] After discussing the judgment of La Forest J in Air Canada,40 Hobhouse J

indicated a preference for the dissenting judgment of Wilson J in that case.

[34] Hobhouse J’s views in Kleinwort Benson v South Tyneside were accepted by the Court of Appeal of England and Wales in Kleinwort Benson Ltd v Birmingham City Council.41 In that case also the plaintiff bank sought restitution of payments made to the defendant local authority under an interest rate swap contract that was

_{void for being ultra vires the local authority’s powers. The bank’s claim was for}

36 _{At 28-30.}

37 _{At 30.}

38 _{Kleinwort Benson Ltd v South Tyneside Metropolitan Borough Council [1994] 4 All ER 972.}

39 _{At 985.}

40 _{See [27].}

41 Kleinwort Benson Limited v Birmingham City Council [1997] QB 380.

money had and received, based on total failure of consideration. Relying on the principle that a claim in unjust enrichment cannot lie unless the defendant has been enriched at the claimant’s expense, the local authority argued that the bank’s net payments under the void swap contracts were not at the “expense” of the local authority because the bank had covered its exposure to losses by entering into

hedging contracts.42

[35] The notion that unjust enrichment, to be actionable, must be “at the expense of the claimant” appears to have originated in the American Law Institute, Restatement of the Law, Restitution (1937) which stated that a “person who has been unjustly enriched at the expense of another is required to make restitution to the other.”43 In Kleinwort Benson v Birmingham City Council, Morritt LJ suggested that the concept was first articulated in England in the speech of Lord Goff of Chieveley in the House of Lords in Lipkin Gorman v Karpnale Limited44 in which His Lordship said that he accepted that the plaintiffs’ claim was founded upon the unjust enrichment of the defendant and could only succeed if, in accordance with the principles of the law of restitution, the defendant was unjustly enriched at the expense of the plaintiffs.

[36] In Kleinwort Benson v Birmingham City Council, Evans LJ rejected the argument that the recovery by the plaintiff of some losses under hedging arrangements meant the defendant council had not been enriched at the bank’s expense. He held that the phrase “at his expense” identified “the person by or on whose behalf the payment was made and to whom repayment is due”. Having made the payment, that person is “necessarily out of pocket to that extent and the defendant’s obligation is to replenish his pocket when the circumstances are such

that the money should be returned”.45 Evans LJ rejected the notion that the bank had

been under a duty to mitigate potential losses by hedging the risks to which it was exposed under the swap contracts.46

42 _{At 392.}

43 _{See Kleinwort Benson Limited v Birmingham City Council at 396 per Morritt LJ.}

44 _{Lipkin Gorman v Karpnale Limited [1991] 2 AC 548.}

45 _{At 393.}

46 At 393.

[37] Saville LJ agreed,47 holding that the council had been unjustly enriched by receiving and retaining money it had received from the bank and to which it had no right. The payee does not cease to be unjustly enriched because the payer for one reason or another is not out of pocket. The obligation to return the money is not based on any loss the bank may have sustained, but on the simple ground that it is unjust that the council should keep something to which it had no right and which it received only through the bank’s performance of an obligation which did not in fact exist. In His Lordship’s view, the phrase “at his expense” did not justify the “importation of concepts of loss or damage with their attendant concepts of mitigation, for these have nothing to do with the reason why [the] law imposes an

obligation on the payee to repay to the payer what he has no right to retain.”48

[38] Morritt LJ also concurred. He held that the words “at the expense of the plaintiff” did not appear in a statute and should not be construed or applied as if they did. In the Judge's view, those words do no more than point to the requirement that the immediate source of the unjust enrichment must be the plaintiff, and the type of restitutionary claim with which the appeal was concerned relates to a subtraction from the plaintiff’s gross wealth.49 Morritt LJ reasoned that, since the action for money had and received was not founded on a wrong, the requirement that a plaintiff should mitigate its loss could have no application – the bank was under no duty to mitigate anything.50

[39] Morritt LJ considered also the practical implications of admitting a defence of passing on and rejected the proposition, advanced for the local authority, that once the plaintiff made out its claim for restitution the onus would shift to the defendant to prove that the plaintiff had passed on the costs to a third party.51 Morritt LJ held that “[t]he switch of onus could do little to ameliorate the wide-ranging practical consequences of a defence of passing on”, observing that it would be little

_{consolation to a claimant required to disclose on discovery all its books and other}

47 _{At 394.}

48 _{At 395.}

49 _{At 400.}

50 _{At 399.}

51 At 399.

records relevant to a defence of passing on to be told that the onus of proof rested on its adversary.52

[40] While I would respectfully question the proposition that the onus of disproving passing on would fall on a plaintiff, I observe that one of the difficult practical consequences of the defence would be determining how wide-ranging the inquiry should be into whether the claimant had recovered any element of the expense incurred to the benefit of the defendant. See, for example, the description, by Mason CJ in Royal Insurance of a court’s task in working out the actual loss

sustained by a plaintiff as a “daunting exercise.”53

[41] The present defendant’s proposed extension of the concept of “expense” to mean the net cost to the plaintiff, and the plea that a plaintiff is under a duty to mitigate by passing on, would not find favour in England and Wales where the law coincides with the New Zealand rejection of the passing on defence.

Did the Court of Appeal in Commissioner of Inland Revenue v Stiassny affirm the possibility of a passing on defence?

[42] Considering the matters discussed above at [16], I am not persuaded that the Court of Appeal in Commissioner of Inland Revenue v Stiassny did any more than recognise that a key component of unjust enrichment claims is that the enrichment must be gained at the claimant’s expense. There is nothing in the judgment in that case to support the proposition that the Court of Appeal would take the view, contrary to that taken by the New Zealand High Court, the High Court of Australia, the Supreme Court of Canada, and the Court of Appeal of England and Wales, that the availability of the defence should not focus narrowly on the mere payment of the money by LSG to the transferred employees to satisfy the “expense” requirement but take into account whether LSG had incurred a net loss in meeting the liability of the

_{accrued entitlements.}

52 _{At 400.}

53 Royal insurance at 75.

In Waikato Regional Airport Ltd v Attorney-General, did the Privy Council leave open the possibility that passing on might be a defence to LSG's claim in restitution?

[43] Although Mr Goodall acknowledged his advocated approach had been rejected in Equiticorp Industries v Attorney-General (No. 47) and Whangarei District Council v Northland Regional Council, he submitted that the defence would not have been available on the facts of those cases and argued that the question had been left open for future consideration by the Privy Council in Waikato Regional

Airport Limited v Attorney-General.54 Mr Goodall suggested that because the factual

basis for a defence of passing-on was not made out in that case, the possibility that the defence might be held to be available in New Zealand was left open. He argued that their Lordships noted55 observations by Lord Goff in Woolwich Equitable Building Society v Inland Revenue Commissioners;56 by the majority of the Supreme Court of Canada in Air Canada v British Columbia, and by the United States Supreme Court in United States v Butler,57 to the effect that a special defence of passing-on might be available in circumstances where very substantial sums of money may be held to have been exacted ultra vires from a very large number of tax

payers.

[44] But even if, for policy reasons, an exception might be held to exist in respect of extensive tax takes affecting a large number of taxpayers, the Privy Council said that the amount involved in the Waikato Regional Airport case, which ran to many millions of dollars, was not to be “regarded as such as to threaten the disruption of public finances in New Zealand.” Whatever might be said about the force of the passing observations of the Privy Council in Waikato Regional Airport, the present case concerns a claim between private entities which does not involve the imposition of a tax or levy by a taxing or other authority, and the amounts involved here are relatively insubstantial. In this context, I record also that I am unable to accept Mr Goodall’s submission that the law is open to development in accordance with the

_{views of Kirby J in what counsel described as “a powerful dissent” in Roxborough v}

54 _{Waikato Regional Airport Limited v Attorney-General [2004] 3 NZLR 1 (PC).}

55 _{At [82].}

56 _{Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70.}

57 United States v Butler [1936] USSC 11; 297 US 1, 80 L Ed 477 (1936).

Rothmans.58 In that case, Kirby J dissented on policy grounds from the views of the majority as to whether it was just that plaintiffs who had recovered from their customers taxes paid under a legislative requirement subsequently held to be invalid should reap a windfall by recovering the same sums from the taxing authority. But Kirby J did not purport to dispute the recognised principles of restitution in a case involving a private claimant and a private defendant, where the defendant has obtained a windfall benefit from the impact of statutory intervention.

[45] Furthermore, the observations of the Privy Council, though strictly obiter and not decisive of the point of principle, contain references, without criticism, to the rejection of the passing on defence in Australia and England, and it is not without significance that the 2007 decision of the Canadian Supreme Court in Kingstreet

Investments v New Brunswick,59 which brought the Canadian position into line with

that in Australia and England, post-dates the Privy Council’s discussion of the Air Canada decision in the Waikato Regional Airport case in 2004. I am not persuaded that the Privy Council did any more than decline to provide its opinion on a matter which it was not called upon to decide.

Do the views of the academics provide a basis upon which the New Zealand courts might decide that passing on is an available defence to LSG's claim?

[46] Mr Goodall also sought to persuade me that analysis by respected academic writers provides avenues for the New Zealand courts to re-examine the extent to which a plaintiff’s expense in a restitution claim should be interpreted narrowly to mean the gross expense initially incurred, rather than taking into account the true extent to which the plaintiff’s wealth has been diminished by the defendant’s

windfall gains. He placed particular reliance on Rickett and Grantham60 who, after a

careful analysis of the cases discussed above, and others, consider the doctrinal basis for the rejection of the passing-on defence as articulated to be “misguided”. They argue that the “interpretation given to the relevant element of ‘at the plaintiff’s

_{expense’ is too simplistic, and overlooks the corrective justice basis of the law of}

58 _{Discussed above at [24].}

59 _{Discussed above at [30].}

60. R Grantham and C Rickett Enrichment and Restitution in New Zealand (Hart Publishing, Oxford, 2000) at 372-379.

restorable enrichment’. They consider it incorrect to define “expense” as meaning

“immediate expense”.61

[47] But the jurisprudential and policy basis for taking the narrower view has been articulated in the cases to which I have referred and I have already said that I see no opportunity for the present defendant to persuade a New Zealand Court to depart from the views of the Court of Appeal of England and Wales, the Supreme Court of Canada, and the High Court of Australia on that point.

Are there practical considerations militating against the availability of the passing on defence?

[48] Furthermore, as Rickett and Grantham themselves acknowledge, a compelling practical reason for disallowing a passing on defence lies in the serious problems associated with actual proof. As the learned authors note,62 it will be virtually impossible, wherever the burden of proof lies, for either of the parties to prove that the financial loss suffered by the plaintiff was off-set by the incorporation of the payment made by the plaintiff to or on behalf of the defendant in the price of

goods or services then charged to the plaintiff ’s customers.

[49] Rickett and Grantham conclude that the consequences of this practical consideration is that proving passing on would be enormously costly for a defendant and would provide Judges with difficulties of nightmare proportions. They conclude, therefore, that although as a matter of principle defendants should be permitted to pursue the defence, practical considerations militate against its

availability.63

[50] The present case provides an illustration of the difficulties referred to. The plaintiff denies that it has built into its agreement with Singapore Airlines any mechanism for it to be reimbursed by the airline for any payment it makes in

_{satisfaction of the transferred entitlements; a witness in the interlocutory proceedings}

61 _{At 379.}

62 _{At 379.}

63 Quoting Mitchell McInnes, “The Plaintiff ’s Expense in Restitution: Difficulties in the High

Court” (1995) 23 ABLR 472 at 474-5.

has sworn an affidavit to that effect. If that was the only basis upon which the defendant asserted that the plaintiff had passed on the effect of its statutory obligation, the matter might be capable of straightforward resolution. But whether or not any express recovery in that way is absent, the defendant would be entitled to question also whether the plaintiff had (or, if under a duty to mitigate, should have), recovered the anticipated cost of meeting the transferred entitlements in its pricing structure for the tender leading to the new contract.

[51] Mr Goodall says that this possibility is inherent in the statutory scheme which provided LSG with an opportunity to obtain information about the accrued entitlements under the disclosure provisions in sub-part 2 of Part 6A of the Employment Relations Act 2000. Why else, Mr Goodall asks, would the legislature have provided for such disclosure? In my view such an inference is not available, or at least by no means necessarily to be drawn, from the provision of an opportunity for a prospective new employer to obtain information about the likely cost of succeeding in a competitive tender or securing a contract for the provision of services under a contracting out agreement with the current employer. Although a prospective new employer might be able to make an educated assessment of how many of the employees of the current employer would be likely to elect to transfer their employment to a new employer under s 69I of the Act, it will inevitably be the case, in a competitive tendering situation for a subsequent contract, that notification and a right to elect to transfer will not be given to the employee until after the tender process has been completed. The prospective employer could not know in advance of submitting the tender how many employees would later elect to transfer.

[52] Furthermore, a prospective new employer seeking to price the tender competitively may consider it unattractive to the offeree to provide in the tender for a direct reimbursement by the offeree of the payment of transferred entitlements. The offeree is likely to have met the cost of those entitlements under the terms of the terminating contract and would be unlikely to willingly accept the burden of meeting them twice. It is more likely, therefore, that the tenderer will seek to amortise the cost of the entitlements across contract rates for the provision of services. In such circumstances it would be almost impossible to know, even with detailed analysis of the tenderer’s pricing mechanism and evidence related to the preparation of the

tender, whether, and if so to what extent, the anticipated cost of meeting the transferred entitlements had been factored into the tender price.

Is the defence of passing on clearly untenable so that the Court could be certain that it cannot succeed?

[53] For the reasons given in respect of the disputed issues discussed above, I was satisfied that there is no tenable basis for the affirmative defences of passing off and failure to mitigate in a proceeding of this kind and was certain they could not succeed. I concluded that the defences should be struck out.

The discovery issues

[54] The discovery issues are narrowed to those relevant to the plaintiff’s claim

and the general defences that

(a) the claim does not arise as a matter of law; and

(b) it is not proved by the evidence.

[55] The plaintiff consented to discovering the documents referred to in the defendants’ application for particular discovery dated 28 February 2012 and set out in sub-paragraphs 1(a)(i)-(vi). It says it has complied with the orders except to the extent that it objects to producing the documents more specifically particularised by the defendants since the consent order was made. It says the particular information sought is irrelevant to the matters at issue and would, in any event, require the plaintiff to incur prohibitive expense if compliance was required.

[56] I was inclined to the view that the reasons why employees have taken leave or whether leave was properly approved is irrelevant to the question of whether the plaintiff has complied with its obligation to meet the accrued entitlement of the transferred employees to leave of varying kinds. In any event, I considered I was not in a position on the material before me to determine whether the plaintiff’s contended compliance is adequate or whether the specific subsequent requests of the

defendants are oppressive. They are matters which may be better resolved by the trial Judge if the need arises in the context of the evidence given at trial.

[57] Apart from making a consent order that the plaintiff would verify by affidavit that it has complied with paragraph 1(a)(ii) of the defendants’ application for particular discovery and non-party discovery dated 6 July 2012, I concluded that there was no reason to set aside the orders made by Faire AJ and that the applications for further discovery should be dismissed.

[58] Costs on the interlocutory applications are reserved for memoranda.

..................................................

Toogood J