Langston v Mount Hutt Helicopters Limited [2013] NZHC 1112 (17 May 2013)

Last Updated: 4 July 2013

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2012-409-002820 [2013] NZHC 1112

BETWEEN EDWARD DAVID LANGSTON Plaintiff

AND MOUNT HUTT HELICOPTERS LIMITED

Defendant

Hearing: 7 May 2013

Appearances: B Russell and C Mills for the Plaintiff

H Matthews for the Defendant

Judgment: 17 May 2013

_{RESERVED JUDGMENT OF FOGARTY J}

Introduction

[1] This case concerns two businesses, Wilderness Aviation Limited (Wilderness) and Mount Hutt Helicopters Limited (Mount Hutt Helicopters), and their two principals, Mr E D Langston and Mr B J Chapman. Mr Langston is a businessman who is nearing entitlement for a commercial helicopter pilot licence. He or his interests own the shares of Wilderness. Mr Chapman is a helicopter pilot, and has always been one of the major shareholders of Mount Hutt Helicopters.

[2] In 2008, the shareholders of Mount Hutt Helicopters were Wilderness and Mr Chapman. On 6 November 2008, four parties, Mount Hutt Helicopters, Mr Chapman, Wilderness and Mr Langston entered into a Deed of Settlement to record certain matters relating to repayment of debt by the company. In that Deed, the company acknowledged that it was indebted to Wilderness for the sum of $807,446.1

_{Mount Hutt Helicopters agreed to repay this debt. At the same time, in the same}

1 Deed of Settlement, clause 2.1.

Deed, Wilderness sold a Hughes helicopter to Mount Hutt Helicopters for $692,354.

$600,000 plus GST was to be paid immediately.2

[3] The Deed went on to other matters, including: refinancing with Westpac, employment of Blair Chapman, addressed a loan to his parents, and use of the helicopter by Wilderness.

_{5. Use of Helicopter by Wilderness}

5.1 In further consideration of the terms and covenants set forth in this

Deed the Company will allow Wilderness and/or Edward Langston

250 hours of flight time with the Helicopter over a ten year period from the Commencement Date.

5.2 The Company shall meet all costs associated with the use of the Helicopter pursuant to the rights reserved in clause 5.1 including costs of fuel, insurance and maintenance.

...

[4] The second Deed was entered into on 18 August 2010, between three of these four parties, Wilderness, Mount Hutt Helicopters and Mr B J Chapman, but not Mr Langston.

[5] This Deed effected the exit of Wilderness as a shareholder of Mount Hutt Helicopters and of Mr Langston as a director of Mount Hutt Helicopters. It first provided for the sale and purchase of the shares. Wilderness was the vendor. Mr Chapman was the purchaser, or his nominee. It then addressed “3. Settlement and Payment of the Consideration”. The relevant clauses to this litigation being 3.3, 3.4 and 3.7, which provide:

3.3 Payment of Share Purchase Price: On the Payment Date the Purchaser will pay to the Vendor the Share Purchase Price in cleared funds.

3.4 Repayment of Vendor’s Loan: Contemporaneously with settlement,

the Company will repay the Vendor’s Loan in clear funds.

...

3.7 Payment of the Share Purchase Price and repayment of the Vendor’s Loan shall be in full and final settlement of all moneys and claims owing by the Company to the Vendor.

2 At 2.3 and Part 3 Sale of Helicopter.

[6] At the time of the second Deed, 18 August 2010, Wilderness and/or Mr Langston had not used up all of the 250 hours of helicopter time provided in clause 5.1 of the first 2008 Deed. In 2012, in several letters written by his solicitors, Mr Langston requested details as to when flight time could be made available to him. There was no reply.

[7] These proceedings were issued. In them, the plaintiff pleads that the defendant has repudiated the 2008 Deed by not responding to the correspondence, and making it clear it does not intend to perform its obligations under clause 5.1, and provide Mr Langston with any further flight time. It then pleads that the plaintiff was entitled to cancel that part of the Deed, and did so by letter of 5 December, and was now entitled to claim damages against the defendant. The equivalent cost is quantified at $372,000.

[8] The defendant pleads as an affirmative defence that clause 3.7 of the 2010

Deed settles and extinguishes any liability of the defendant pursuant to clause 5.1 of the 2008 Deed.

[9] The parties have agreed that the determination of the defendant’s affirmative defence will determine the proceedings as a whole. Associate Judge Matthews thereby directed by consent that this issue be tried separately from any other question in the proceedings.

Evidence

[10] At the hearing I admitted an affidavit of Mr Langston adducing contextual “armchair” evidence known to both parties at the time the 2008 Deed was entered into. Prior to that Deed, Wilderness, Mr Langston and two related investors, LED Investments Limited and The Mount Diamond Family Trust, had provided considerable funding by way of shareholder advances to Mount Hutt Helicopters. A dispute had arisen about the level of debt owed back. That dispute was resolved by the Deed.

[11] At the time of the 2008 Deed, Mr Langston had an ambition to obtain his commercial pilot licence, and had around 70 hours of flight training time remaining before he could qualify. He expected to use the flight time agreed upon in the Deed to complete those outstanding hours. Those hours were also of value to the company (Wilderness) if he had his commercial pilot licence. He had other business interests, and free flight time in a helicopter was an asset that would have been very useful.

[12] The flight time had considerable value. After achieving his commercial licence there would be about 180 hours remaining, and Wilderness could use the helicopter from Mount Hutt Helicopters for commercial gain.

The issues

[13] The principal argument for counsel for the defendant was that although the wording in clause 5.1 of the 2008 Deed was “Wilderness and/or Edward Langston”, it was a promise made to Wilderness and Langston as co-promisees. Mr Matthews submitted that this is the normal rule of construction at common law. Challenge

Finance Ltd v State Insurance General Manager,3 Lombard Australia Ltd v N.R.M.A.

Insurance Ltd,4 12 Halsbury’s Laws of England (4th ed) at [1557]: 5

The normal rule of construction is that a covenant made with more than one covenantee is moulded according to the interests of the covenantees so that if their interests are joint the covenant will be construed as joint and if their interests are several it will be construed as several.

[14] As to resolution of the primary determination of whether the covenant or contract is joint and several, Mr Matthews relied upon the principle as stated by the High Court in Blake v Robinson:6

All the facts and circumstances have to be examined and the course of dealing has to be taken into account so that the intention of the parties can be ascertained.

3 _{Challenge Finance Ltd v State Insurance General Manager [1982] 1 NZLR 762 (CA), at 767.}

4 _{Lombard Australia Ltd v N.R.M.A. Insurance Ltd (1970) 72 SR (NSW); 45 (NSW:CA).}

5 _{Cited in Challenge at 767.}

6 Blake v Robinson [1931] NZLR 643 at 647.

Mr Matthews cited also Lord Fitzgerald in White v Tyndall7 at page 274:

The lien of these covenants, as well as the words of obligation, unquestionably import joint covenants, and it was not contended that the words “or some or one of them” could have the effect of making obligations several, which without them would be joint. The authorities are all the other way.

[15] Mr Matthews submitted that properly construed in context the promise in the

2008 Deed, to give Wilderness and/or Langston 250 hours of undivided flight time, was a joint promise not a joint and several promise.

[16] The next step of his argument is the proposition: 8

At common law, a payment to, or release by, one of two or more joint creditors discharges a joint debt.

[17] The third step of Mr Matthews’ argument is that clause 3.7 of the 2010 Deed discharged this joint obligation owed by Mount Hutt Helicopters.

[18] The argument by Mr Russell for the plaintiff Mr Langston was in two parts. Firstly, he argued that “claims” as it appears in clause 3.7 of the 2010 Deed does not include the obligation to provide 250 hours of flight time as promised in clause 5.1 of the 2008 Deed. Rather, he submitted that in clause 5.1 “claims” refers to other money liabilities. So that clause 3.7 is not an effective release. The words “claim owning” have to be read ejusdem generis with “moneys”.

[19] His second argument is that the obligation in the 2008 Deed is a several obligation. He summed this up in the proposition; “or” must have some work to do. He argued the context shows that Mr Langston and Wilderness have separate interests. That was the reason for their personalities being separated in clause 5.1. The promise by Mount Hutt Helicopters was several, that is to each person. That was made clear by the words “and/or”. He submitted that, if there is ambiguity (arguing that it is not ambiguous), the rule of construction requires the Court to

_{account for the interests of both Wilderness and Mr Langston, and where they}

7 _{White v Tyndall (1888) 13 APPCAS 263.}

8 Wallace v Kelsall [1840] EngR 278; (1840) 7 M & W 264; 151 ER 765; Husband v Davis [1851] EngR 142; (1851)

[1851] EngR 142; 10 CB 646; 138 ER 256; Great Republic Gold Mining Co v Hussey and McNeight (1886) 5

NZLR 126; Bosveld v Cardup Industrial Land Holdings Pty Ltd [2010] WASC 411.

diverge, to find that the promise is several. Mr Langston’s separate interest in the use of the helicopter flight time from Wilderness was known to Mount Hutt Helicopters at the time the Deed was entered into.

[20] Mr Matthews in reply on the “claims” argument relied on the definition of

“claim” in the new Shorter Oxford English Dictionary as including:

“A demand for something as due.” “A demand for payment in accordance with law ...” “A right or title (to something).” “Put forward a claim.”

“Assert a right.”

So he argues that the words “claim owing” must include the outstanding hours of

flight time.

Resolution of the competing contentions

[21] I start first with the meaning of “in full and final settlement of all moneys and claims owing by the company to the vendor”, in clause 3.7 of the 2010 Deed.

[22] Counsel were unable to advise whether or not this phrasing is standard phrasing for a general release clause in a Deed of this nature. It certainly does not strike this Court as standard phrasing. It is much shorter than some general release clauses. I approach it then as a unique clause which cannot be interpreted with assistance from decided cases considering the same words.

[23] The preamble to this 2010 Deed, under the heading “Background”, recites first that Mount Hutt Helicopters has a share capital of 150,000 ordinary shares. Second, that the vendor is the owner of 75,000 of them. That is, has a half share of the company. The third recital is:

Subject to the repayment by the Company to the Vendor of the Vendor’s Loan, the Vendor has agreed to sell, and the Purchaser has agreed to purchase the Shares for the consideration and upon the terms and conditions recorded in this Agreement.

[24] The context of this agreement is that immediately prior to the execution of the 2010 Deed there were two sets of interests combining to own and operate Mount Hutt Helicopters: Wilderness and Mr Langston’s interests of the one part, and Mr

Chapman of the other. There had been an earlier resolution in the 2008 Deed of indebtedness as between Mount Hutt Helicopters and Wilderness, and the purchase of a helicopter from Wilderness.

[25] It becomes apparent then that the 2010 Deed marked the end of the business relationship between Wilderness and Mount Hutt Helicopters, and thereby also between Mr Langston and Mr Chapman. You would expect to see in such an agreement for sale and purchase of shares a resolution of the remaining obligations. As set out above, we do see part “3. Settlement and Payment of the Consideration” including the repayment of the vendor’s loan, clauses 3.4 and 3.7. The other financial obligations were in 3.5 and 3.6, whereby Wilderness paid Mount Hutt Helicopters the sum of $9,407 plus GST, being a sum outstanding for aerial spraying, rendered by Mount Hutt Helicopters to Wilderness. Clause 3.6 provided that contemporaneous with the settlement, a sum not exceeding $5,000 would be taken into account in respect of the Residents Withholding Tax payable by Mount Hutt Helicopters on behalf of the vendor. Clause 3.7 then appears as the last clause in part 3.

[26] All these considerations support Mr Matthews’ argument that the phrase “all moneys and claims owing” should be understood to include all liabilities owing by Mount Hutt Helicopters to Wilderness, in order to effect a full and final settlement between the two interests hitherto in partnership in Mount Hutt Helicopters.

[27] It is common in settlements of this sort for the payments to be in full and final settlement of all debts and liabilities, including any claims that might be made. Second, in the 2008 Deed, entered into to resolve debt matters, Mr Langston was a party. He is not a party to the 2010 Deed. Mr Matthews argued the Court should note that Mr Langston executed the 2010 Deed on behalf of Wilderness. This argument does not explain why Mr Langston is not a party to the 2010 Deed. Mr Langston also signed the 2008 Deed on behalf of Wilderness.

[28] Another problem in the case is that where a liability has been established by a Deed, and in the absence of any dispute as to the meaning of the provision in the Deed establishing the liability, that liability would not be described as a “claim

owing by the company”. One would expect to see phrasing like “all moneys and

liabilities due by the company to the vendor”.

[29] However, it has to be recognised that the phrase “all moneys and claims” is capable of being interpreted as Mr Matthews submits, as including the helicopter use obligation. So, treating “claim” as extending to the helicopter usage. It may be noted that the word following “claims” is “owing”. In that respect, the phrasing does not suggest eliminating contingent liabilities or prospective liabilities, but is addressing and recognising that in addition to money being owed by Mount Hutt Helicopters to Wilderness there are claims owing. On the other hand, the evidence before the Court is there is only one claim owing. The use of “claims” in the plural also raises the notion that the phrase “all moneys and claims owing” has a “boilerplate” character, intended to cover off all liabilities of the company, without however any particular regard being had to clause 5.1 of the 2008 Deed.

[30] Having considered the phrase “all moneys and claims owing” in clause 3.7, in the wider context of the whole of the 2010 Deed, taking into account the terms of the 2008 Deed, and keeping in mind the armchair context known to the parties at the time of execution of both Deeds, I am still left with the conclusion that the phrase remains ambiguous. Consideration of the other terms in the Deeds and the armchair context have not resolved this ambiguity.

[31] It is necessary then to fall back on a fundamental principle of the common law. The common law will not lightly deprive any person of property rights, and that includes choses in action. The common law Court is predisposed to look for clear language extinguishing any rights. The ambiguity of “claims” in clause 3.7 should

be resolved in favour of the party whose rights would otherwise be extinguished:9

If a doubt arises upon the construction of a grant, and the doubt can be removed by construing the deed adversely to the grantor, this will be done.

This principle applies both to construction of a grant, and construction of a clause said to extinguish the grant.

9 Halsbury’s Laws of England (5th ed, 2012) vol 32 Deeds and Other Instruments at [378].

[32] Therefore, “claims” in clause 3.7 does not extinguish the liability assumed by

Mount Hutt Helicopters in clause 5.1 of the 2008 Deed to the plaintiff.

[33] That ruling is sufficient to dispose of this point, and entitle the plaintiff to judgment that the obligation to the plaintiff in clause 5.1 of the 2008 Deed is not extinguished by clause 3.7 of the 2010 Deed.

[34] In case, however, that I am wrong, I go on to consider the separate argument for the plaintiff, which is that it is a several liability assumed by Mount Hutt Helicopters in respect of both Wilderness and Mr Langston, so that even if clause 3.7 operates to extinguish the clause 5.1 liability to Wilderness, it does not extinguish the liability to Mr Langston.

[35] The authorities have been collected in the submissions and are set out above. I did not apprehend in the end that there was any significant disagreement between counsel as to the test. Its application depends on the context. When an obligation is being discharged, the presence of a severability clause such as “or” does not mean that the obligation as a whole will not be treated by the Courts as joint and discharged by satisfaction with one of the parties jointly entitled to the benefit.

[36] On many occasions, the common law will leave it to the person also benefitting from that obligation to seek recourse from the co-beneficiary. So, if A owes $100,000 to B and C, and pays it to B, C’s recourse is to get whatever share as between B and C it is entitled to from B. That can be close to a presumption, but the final determination depends on the context. The cases cited by the parties illustrate this.

[37] In clause 5.1 of the 2008 Deed, Mount Hutt Helicopters accepted a contingent liability of providing 250 hours of flight time with the helicopter over a

10 year period. That was to the benefit of Wilderness and/or Mr Langston. Clause

5.1 does not provide, as between Wilderness and Mr Langston, as to how that entitlement will be taken. There is nothing to stop there being a separate agreement between Wilderness and/or Mr Langston as to how that benefit is to be used. But that would be no business of Mount Hutt Helicopters.

[38] Wilderness is a limited liability company. Its decision-making is by its directors. Mr Langston is the director of Wilderness. This context makes it artificial for the common law to treat Wilderness and Mr Langston at arm’s length on taking up the benefit of clause 5.1. Likewise, it makes sense for Mount Hutt Helicopters to treat this clause 5.1 as a joint benefit of Wilderness and Mr Langston, to be exercised for one or other as they should decide.

[39] In these circumstances, I am satisfied that had I found clause 3.7 of the Sale and Purchase of Shares Deed in 2010 to extinguish clause 5.1 in the 2008 Deed liability, then it would have been discharged by clause 3.7, in the 2010 Deed, leaving Mr Langston to pursue any remedy with Wilderness for his loss of the benefit of the helicopter hours.

Conclusion

[40] The obligation of the defendant to the plaintiff in clause 5.1 of the 2008 Deed is not extinguished by clause 3.7 of the 2010 Deed, because “claims” in clause 3.7 does not include the liability in clause 5.1 in the 2008 Deed.

[41] The plaintiff is entitled to costs on a 2B basis. If the parties are unable to agree costs, leave is reserved to make submissions of no more than three pages each, exchanged in draft before filing.

Solicitors:

Lane Neave – [e-mail]

White Fox & Jones – [e-mail]