Vertol Systems Company Limited v O M Holdings Limited [2014] NZHC 3393 (22 December 2014)

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This judgment was delivered by me on 22 December 2014 at 2:30 p.m. pursuant to r 11.5 of the High Court Rules 1985.

Mr D Compton (plaintiff ’s instructing solicitor), Heimsath Alexander, Solicitors, Auckland

[1] The plaintiff (Vertol) has applied for an order setting aside a protest to jurisdiction of the defendant (OMH).

[2] The application is made under r 6.29(1)(a) of the High Court Rules. This requires Vertol to establish four matters. These, and OMH’s position on each of them, is as follows:

(a) Vertol must establish that it has a good arguable case that the claim falls wholly within one or more of the paragraphs of r 6.27, being the rule prescribing circumstances when a document may be served out of New Zealand without leave. Mr Shannon, for OMH, accepted that there is a good arguable case to this effect.

(b) There must be a serious issue to be tried on the merits. This was accepted for OMH.

(c) Vertol must establish that New Zealand is the appropriate forum for the trial. This is the principal matter in contention between the parties.

(d) Vertol may also establish any other relevant circumstance which supports “an assumption of jurisdiction”. Mr Quinn, for Vertol, referred to one matter under this heading.

[3] Vertol is a company incorporated in Oregon in the United States of America. Vertol operates and leases a large fleet of fixed wing aircraft and helicopters throughout the world. The evidence is that some of those aircraft have been purchased in, or operated in, New Zealand, or both, but my understanding is that Vertol does not have business premises in New Zealand. Vertol does have an office in Port Moresby, in Papua New Guinea (PNG).

[4] OMH, trading under the name Central Aviation, operates a fleet of fixed wing aircraft and helicopters out of Kagamuga Airport in PNG. OMH does not have any business operation in, or other connection with, New Zealand.

[5] The dispute between the parties arises out of a lease and purchase agreement for a P-750 Xstol fixed wing aircraft. I will refer to this as “the lease”. The lease is dated 20 November 2011.¹Final negotiations for the lease were conducted between the owner and CEO of Vertol, Mr James Montgomerie, and the general manager of Central Aviation, Mr Geoffrey Calder. These negotiations were in Auckland. The aircraft was manufactured in Hamilton. The lease document was signed by Mr

[6] Under the lease OMH was required to pay Vertol a deposit of US$279,300. Vertol is entitled to use this deposit, and other sums required to be paid in advance, in whole or in part, in satisfaction of any sums due to Vertol by OMH under the lease “or otherwise”.

[7] OMH is required to pay what is described as a “Lease Rate” of US$855 per

flight hour per month. The US$855 is for three items: (a) A lease payment of US$550.

(b) A capital payment of US$130 to be held by Vertol and applied as a credit to the purchase price if OMH exercised its option to purchase.

[8] OMH has a right to purchase the aircraft during the term of the lease and a further right to purchase at the expiry of the term. Provisions are made for, amongst other things, credits to OMH for any accrued capital payment, unused maintenance

¹An affidavit of Mr Montgomerie, CEO of Vertol, states that the lease was entered into on 15

December 2011. The date on the lease is 20 November 2011. Nothing turns on the precise date.

[9] Clause 33 makes provision for delivery up of the aircraft by OMH on expiry or termination of the lease if it has not exercised its right of purchase. Delivery is to be made by OMH in Hamilton, New Zealand, at OMH’s cost and OMH is required to register the aircraft on the New Zealand Aircraft Register.

[10] OMH places some emphasis on clause 39 of the lease which requires the parties to act in good faith. It is the third provision in a section headed “Failure to pay Lease Instalments or any other Moneys”. Clause 39 is as follows:

During the term of this Agreement, the parties shall act in good faith to the other. In exercising any of the rights contained in this Agreement the non- defaulting party shall act reasonably and, where reasonably possible, shall give notice of a breach to the defaulting party and give the defaulting party an opportunity to remedy any such notified breach.

Zealand (“NZ”), and for the purpose of legal proceedings this Agreement shall be deemed to have been made in NZ and to be performed there, and the Courts of NZ shall have jurisdiction over all disputes which may arise under this Agreement, provided always that nothing herein contained shall prevent the Lessor [Vertol] from proceeding, at its election, against the Operator in the Courts of any country.

[12] On 30 November 2011, before delivery of the aircraft, OMH paid the deposit to Vertol. The total paid was US$282,939.15. (The difference between this sum and the sum stated in the lease itself may simply arise from exchange rate fluctuations.)

[13] OMH took delivery of the aircraft in New Zealand on 5 April 2012 and flew it to PNG.

[14] On 1 July 2013 Vertol, by email from its CEO, Mr Montgomerie, to Mr Kenneth Vincin, general manager of OMH, gave notice terminating the lease and purchase agreement with a demand for delivery of the aircraft. This was for failure to pay a sum of US$72,208.50 for May flight hours due on 20 June 2013. Before the notice of termination was given Vertol had notified the Papua New Guinea Civil Aviation Safety Authority, presumably purporting to act as owner of the aircraft, that

OMH’s air operator’s certificate, being its commercial transport licence, was to be

[15] OMH claims that, on the date that Vertol gave notice of termination, Vertol was holding what amounted to security from OMH in a total of, at least, US$409,906, being the original deposit of US$282,939 plus capital reserve deposits of US$126,967. On 5 July 2013 OMH paid Vertol the sum of US$72,208.50 for the May flight hours.

[16] On or about 4 July 2013 Vertol sought the assistance of Papua New Guinea Police to recover possession of the aircraft. It is relevant to the jurisdiction issue that Vertol, in its statement of claim in this proceeding, has expressly pleaded these events, as follows:

17. On or about 4 July 2013, the Plaintiff informed the Papua New Guinea Police that the Aircraft had been unlawfully retained by the Defendant.

18. On 5 July 2013, members of the Plaintiff’s staff and officers of the Papua New Guinea Police Force travelled in another of the Plaintiff’s aircraft from Port Moresby to Mount Hagen, where the Aircraft was located.

19. On 6 July 2013, when the Plaintiff’s representatives and the police attempted to reclaim the Aircraft, they were assaulted by persons under the direction of the Defendant. These person were armed with clubs and knives and were successful in preventing the Plaintiff from recovering the Aircraft.

20. On 9 July 2013, the Plaintiff’s representatives and the police took a commercial flight from Port Moresby to Mount Hagen, intending to reclaim the Aircraft.

21. After arriving in Mount Hagen it was discovered that the Defendant had moved the Aircraft to Tabubil, a remote village near the Indonesian border.

22. On 11 July 2013, the Assistance Commissioner of Police (Highlands Divisional Headquarters) issued a written order that the Aircraft be impounded and returned to Port Moresby for safekeeping (the “11

23. On 12 July 2013, the Plaintiff’s representatives and members of the police travelled from Mt Hagen to Tabubil using another aircraft belonging to the Plaintiff and seized the Aircraft pursuant to the 11

24. While refuelling at Kiunga during the journey from Tabubil to Port Moresby, the Plaintiff’s representatives and Police on board the Aircraft were assaulted once more by persons under the direction of the Defendant.

25. On the evening of 12 July 2013, the Aircraft was chained down and put under police guard at Jackson International Airport in Port Moresby.

26. On 13 July 2013, persons under the direction of the Defendant flew to Port Moresby, attacked the police guard and unsuccessfully attempted to take the Aircraft.

27. On the evening of 17 July 2013, persons under the direction of the Defendant returned to Port Moresby and again attempted unsuccessfully to take the Aircraft using physical force.

28. As a result of the Defendant’s unlawful actions, the Plaintiff has needed to engage full time security to secure the Aircraft and to protect its staff.

• Loss of revenue from the use of one of the plaintiff’s aircraft when it was redeployed to travel to Mount Hagen and remain on standby for recovery of the aircraft, full particulars of which are yet to be calculated.

• The cost of returning the aircraft from Tabubil to Port Moresby, full particulars of which are yet to be calculated.

[18] On 12 July 2013 OMH commenced a proceeding in the National Court of Papua New Guinea (the National Court) against two police officers and the State of Papua New Guinea. Various interim orders were sought. On 12 July 2013 there were orders requiring police to release the aircraft to OMH and various restraining orders. On 16 July OMH applied for a further interim order against police and against Craig Keighley. Mr Keighley is the Chief of Operations (Pacific) for Vertol. It appears, from an affidavit from Mr Keighley himself (noted below) that the order was sought against Mr Keighley because of his involvement with PNG Police in taking possession of the aircraft. An order was made on 16 July by the National Court, directing Police and Mr Keighley to release the aircraft.

[19] From this point I will outline events using the chronologies provided for Vertol and OMH in this proceeding. I will refer to the proceeding in the National Court as “the PNG proceeding” and to the proceeding in this Court as “the NZ proceeding”.

18 July 2013 – PNG proceeding:	Vertol applied to be joined in the proceeding. There is an affidavit in support of the application from Mr Keighley. He says that he laid a complaint with PNG Police in relation to the aircraft because he feared “for the safety of the asset”. Mr Keighley said he went on 5 July with Police to Mount Hagen and deposes to other matters which are reflected in paragraphs 17-28 of Vertol’s statement of claim in the NZ proceeding. Orders were made on 18 July by the National Court joining Vertol as a party, staying the earlier order for release of the aircraft, and directing that the aircraft be retained in the Court’s custody.
19 July 2013 – NZ proceeding:	Vertol filed the NZ proceeding. It alleges breach of the lease for failure to pay the May flight hours on due date, termination on 1 July, demand for delivery of the aircraft and failure to deliver. There are then the allegations in paragraph 17-28 recorded above followed by particulars of alleged loss, including those recorded above. There is a claim for US$72,208.50 for the May flight hours and damages in a sum to be calculated, and not less than US$300,000, for particularised items, including those referred to above.
22 July 2013 – PNG proceeding:	OMH paid US$61,252 into the National Court for June flight hours. OMH claims that inclusive of this payment, it has between 30 November 2011 and 22 July 2013 paid Vertol a total of US$627,899.65 for the deposit, “Capital Payments” and “Maintenance Provision”.
23 July 2013 – PNG proceeding:	Mr Montgomerie advised Vertol’s lawyer in PNG that it was his “preference” to pursue OMH in Court in New Zealand.
24 July 2013 – PNG proceeding:	OMH filed an amended statement of claim with Vertol, now the fourth defendant. There are allegations against Vertol that it, directly or through an agent, breached PNG civil aviation rules and a provision of the PNG Civil Aviation Act 2000. There is a claim that OMH would lose approximately 1.5 million kina if the aircraft was flown out of PNG, with this sum being the amount said to have been paid to Vertol “to secure the aircraft”. There is a claim, apparently against all defendants, for return of the aircraft. There is a claim for 1.5 million kina if the aircraft were to leave PNG, but that claim is against the State of Papua New Guinea only. There are no allegations against Vertol in respect of the lease.

21 August 2013 – PNG proceeding:	Vertol applied for an order that the proceeding against it be dismissed for want of jurisdiction and for a further order that the aircraft be released to it. There is an affidavit from Vertol’s PNG lawyer. He annexed a copy of the email from Mr Montgomerie advising that Vertol preferred to proceed in New Zealand. It appears that a copy of the statement of claim in the NZ proceeding was attached to this affidavit.
23 August 2013 – PNG proceeding:	Vertol filed what is described as “conditional defence to the amended statement of claim and its cross-claim against the plaintiff”. The cross-claim is, in substance, a duplication of the statement of claim filed in this Court. Vertol says that this document was filed without instructions.
19 September 2013 – PNG proceeding:	The National Court of Justice, in a reasoned decision of Hartshorn J, dismissed an amended application of Vertol (filed on 29 August 2013) for an order that the proceeding against it be dismissed for want of jurisdiction and for an order for release of the aircraft to Vertol. The Judge held that Vertol, by the steps it had taken in the PNG proceeding, commencing with its application for joinder, had submitted to the jurisdiction of the National Court of Papua New Guinea.
23 October 2013 – PNG proceeding:	The National Court ordered that the aircraft be held at the airport in Port Moresby in the custody of the Court.
4 November 2013 – PNG proceeding:	Vertol filed an application for an order that the PNG proceeding be stayed until final determination of the NZ proceeding. It appears that Vertol took no steps to pursue this application until on or just before 17 November 2014 – noted below.
8 November 2013 – NZ proceeding:	OMH filed its appearance under protest to jurisdiction.
22 November 2013 – PNG proceeding:	Order releasing the aircraft to Vertol.
26 November 2013 – PNG proceeding:	OMH filed a further amended statement of claim, including claims against Vertol alleging breach of the lease. The relief sought against Vertol is an order restraining Vertol from removing the aircraft from PNG, an order that Vertol specifically perform its obligations under the lease, damages for breach of the lease, and a declaration that Vertol was in breach of its obligations of good faith under clause 39 of the lease.

10 December 2013 – PNG proceeding:	Vertol, acting through new lawyers in PNG, filed a further amended statement of defence and cross-claim under the lease.
21 February 2014 – PNG proceeding:	Vertol filed a list of documents. This was certified on oath by Mr Keighley.
11 March 2014 – PNG proceeding:	OMH filed a list of documents.
5 August 2014 – NZ proceeding:	Vertol filed its application to set aside OMH’s protest to jurisdiction.
10 October 2014 – NZ proceeding:	OMH filed a notice of opposition to Vertol’s application to set aside.
17 November 2014 – PNG proceeding:	Vertol was granted leave to discontinue its cross-claim. Vertol also discontinued its application for stay of the PNG proceeding pending final determination of the NZ proceeding. There were directions that any further affidavits for OMH were to be filed by 6 February 2015, any further affidavits for Vertol were to be filed by 6 March 2015, and there would be a status conference on 9 March 2015. A transcript of the Court hearing has been provided. At page 9 counsel for Vertol advised the Court: “It is not disputing that this Court has jurisdiction. This Court will continue to hear the matter and the applicant [Vertol] will continue to be a party to this proceeding to defend the claim against it.” Vertol contends that its counsel acted without instructions in withdrawing Vertol’s application for a stay of the PNG proceeding. In that regard Mr Quinn, for Vertol, referred to an affidavit of Mr Keighley in support of the application for discontinuance of the cross-claim. In that affidavit, at paragraph 18, Mr Keighley recorded that Vertol disputed OMH’s right to bring proceedings in the Papua New Guinea Court based on alleged breach of the lease. In the course of the hearing on 17 November Hartshorn J referred Vertol’s counsel to paragraph 18 in response to a statement by Vertol’s counsel that there was no contest to the jurisdiction of the National Court.

[20] On the critical question whether New Zealand is the appropriate forum for trial, Mr Quinn referred to four factors noted in McGechan which, it is suggested, “should be addressed”.²These are:

(a) It is undesirable to subject a foreigner who owes no allegiance to New Zealand to the jurisdiction of a New Zealand court, especially where the dispute has little contact with New Zealand, or the claim is dubious.

(c) Whether the New Zealand court provides the most effective relief, or whether a foreign court is in a better position to do so.

(d) Whether a party will suffer an unfair disadvantage if the New Zealand court assumes jurisdiction.

[21] Mr Quinn submitted that clause 50 of the lease means that there “can be no principled objection to ‘subjecting’ [OMH] to the jurisdiction of the New Zealand court”. I agree, if this consideration is assessed by reference to the way in which it is expressed in McGechan. OMH, as Mr Quinn said in support of this point, has expressly agreed that the lease is governed by New Zealand law and that the New Zealand courts have jurisdiction. Because New Zealand law does apply, pursuant to clause 50, this is also a separate consideration supporting Vertol’s application. Mr Quinn also referred to the provision in clause 50 which states that “for the purpose of legal proceedings this Agreement shall be deemed to have been made in was and to be performed there”.

[22] Mr Quinn’s submissions on the other considerations noted in McGechan were directed to various factors pointing one way or the other. But the critical

underpinning for Vertol’s application as a whole is clause 50. Clause 50 is the pivot. The onus is on Vertol, and its application is most appropriately assessed by considering whether clause 50 outweighs other considerations, which point firmly to a conclusion that Vertol has not met the onus on it to establish that New Zealand is the appropriate forum for the trial. In my judgment clause 50 falls well short of outweighing countervailing considerations to the extent required for Vertol to have met the onus on it. The prominent countervailing considerations are considered in the following paragraphs.

[23] The first relevant action by either party which bears on the forum question, after the contract was made, was action by Vertol, not by OMH, in PNG. This occurred when Vertol decided to seek assistance of the PNG Police to advance Vertol’s private commercial interests. This, by itself, diminishes the weight that might otherwise be attached to clause 50. This is because Vertol, in spite of clause

50, did not issue proceedings in New Zealand when, on Vertol’s case, OMH breached the lease by failing to make the payment and by failing to deliver up the aircraft.

[24] Vertol then intervened in the PNG proceeding. Vertol has sought to present this intervention as a matter which should not be taken into account, or at least given little weight, when considering forum. This is on the basis that this action was said to have been forced on Vertol in order to protect its claimed right of possession of the aircraft. I do not agree. Vertol was not bound to intervene in the PNG proceeding. In any event, the proceeding in which it did intervene was one arising directly from Vertol’s own actions in engaging the PNG Police.

[25] These two events initiated by Vertol – engaging the Police and then applying to be joined in the PNG proceeding – when related to the position taken by Vertol on the present application, by themselves substantially diminish the weight that might otherwise be attached to clause 50. Vertol’s invocation of clause 50 on this application, when contrasted with its own earlier actions, involves Vertol, in essence, wanting to have its cake and eat it.

[26] There are further important considerations weighing against Vertol’s application. From the time Vertol became a party to the PNG proceeding it has, in different ways, actively engaged in it. This includes, in particular, the filing of the cross-claim advancing in the National Court the same claim it is seeking to advance in this Court. Vertol has acknowledged, in essence, that not only does the National Court have jurisdiction, but also that it is the appropriate forum. Issues have been raised before me as to whether successive lawyers for Vertol have acted without instructions or even contrary to instructions. These are not matters this Court can resolve. Nor should they be resolved by this Court even if all parties concerned were before the Court. I agree with Mr Shannon’s submission for OMH that Vertol, at least at this point, is bound by the actions of its agents – the two law firms and different counsel in PNG – who have acted for Vertol.

[27] Vertol’s contention that its lawyers, in effect, allowed Vertol to become engaged in the substance of the PNG proceeding contrary to Vertol’s instructions, is in any event not easily reconciled with steps directly taken by Vertol. In particular there is Mr Keighley’s affidavit certifying Vertol’s list of documents required to advance the substantive proceeding.

[28] The PNG proceeding, with Vertol’s active involvement, is now well advanced. This is another factor pointing against New Zealand as the appropriate forum for the trial. It is a factor given added weight by the failure of Vertol to advance the NZ proceeding over an extended period. OMH’s appearance under protest to jurisdiction was filed on 8 November 2013. Vertol’s application to set that protest aside was not filed until 5 August 2014.

[29] The National Court of Papua New Guinea has made decisions of importance to the effect that it should be the forum for the trial between these parties, as well as the other parties to the PNG proceeding, and that it has jurisdiction over Vertol. Such decisions, by themselves, would not be determinative, as numbers of other cases have held. But these determinations of the National Court are ones made with the active participation of Vertol in the proceeding and they are ones made before any relevant decision of this Court. Added to this is the fact that the PNG proceeding is well advanced towards trial. There is a reasonable likelihood that there

will be judgment in the PNG proceeding at least many months before a likely trial date in New Zealand. In this context there is also the important consideration, referred to in many cases, of the risk of conflicting decisions of Courts of different countries.

[30] A further consideration is that three of the defendants to the PNG proceeding could not be, or should not be, parties in a proceeding in New Zealand. The first and second defendants are police officers in the Papua New Guinea Police. The third defendant is the State of Papua New Guinea. If Vertol is able to advance this proceeding in New Zealand against OMH, OMH will have to maintain a separate proceeding against the other defendants in the Papua New Guinea Court.

[31] The final consideration is that Vertol’s own pleading in this Court positively indicates that the National Court of Papua New Guinea would be the more appropriate forum for the trial. This is the pleading set out earlier in this judgment. A broad thrust of Vertol’s argument on the present application is that it involves straightforward issues of contract, governed by New Zealand law, and with the evidence bearing on the issues being evidence readily provided by documents and a limited number of witnesses on each side. That position is not borne out by the pleading.

[32] When I raised this aspect with Mr Quinn, he implicitly recognised the difficulty it presented for Vertol by suggesting that, if OMH’s protest to jurisdiction is set aside, a condition could be imposed to limit the scope of the claim. I do not consider that that would adequately address the issue. Seeking to delineate and circumscribe the scope of a claim in advance is not easy. And experience has shown that such procedural steps not infrequently fail to achieve the desired objective. A prominent example arises when parties seek a determination on a single issue thought to be determinative. In any event, a limitation imposed on Vertol cannot be imposed on OMH. If Vertol is able to proceed with its claim against OMH in this Court, this Court cannot in advance limit the scope of any defence OMH may wish to advance, including affirmative defences, nor can it prevent OMH from filing a counter-claim. The scope of possible affirmative defences or counter-claims of OMH against Vertol is apparent enough from OMH’s amended statement of claim

against Vertol in the PNG proceeding. Vertol’s argument in this context involves selectivity as to the issues that might be raised in any proceeding advanced in this Court. That is not a principled basis for concluding that New Zealand is the appropriate forum for the trial.

[33] Apart from clause 50, Vertol has no relevant correction with New Zealand. Trial in New Zealand would not appear to provide any particular benefit to Vertol in relation to cost or convenience for witnesses, or other practical considerations of that nature. Vertol executives who may be required to give evidence have places of business outside New Zealand. I was advised that some may own property in New Zealand, but that is not a factor to which I would attach any weight in relation to a commercial dispute. The Vertol executives likely to be required to give evidence for Vertol work from business offices outside New Zealand and, significantly, with Mr Keighley apparently having an office in Port Moresby. Other witnesses for the plaintiff, in dealing with contentions of the sort contained in paragraphs 17 to 28 of the statement of claim, are likely to be witnesses living in Papua New Guinea. For OMH all witnesses are likely to be people living in Papua New Guinea.

[34] For all of these reasons I am satisfied that Vertol has not met the onus on it of establishing that New Zealand is the appropriate forum for the trial.

[35] Vertol’s application is to be dismissed. But I consider that should be with leave to bring a further application in defined circumstances. This is because Vertol has indicated that it will, or may, bring a fresh application in the Papua New Guinea Court to stay the PNG proceeding. If it is successful it should have leave to bring a further application to set aside OMH’s protest to jurisdiction in this Court. This proceeding can be stayed in the meantime. In addition, I am satisfied that OMH is entitled to costs which should be paid in any event with payment being a further condition of any fresh application by Vertol to set aside the protest to jurisdiction.

(a) The plaintiff’s application to set aside the defendant’s protest to jurisdiction is dismissed with leave granted to the plaintiff to bring a further application subject to the following conditions.

(b) A further application may be brought by the plaintiff to set aside the defendant’s protest to jurisdiction provided:

(i) In the proceeding in the National Court of Papua New Guinea between OM Holdings and Senior Constable Noki Minimbi and others, under Court number WS747 of 2013, there is an order staying the proceeding against Vertol Systems Company Incorporated.

(c) There is an order that the plaintiff pay the defendant’s costs of and incidental to this application on a 2B basis, together with all reasonable disbursements. If there is any dispute between the parties as to quantum the costs are to be fixed by the Registrar.

(d) This proceeding is stayed. If no further steps have been taken by either party by 3 July 2015 it shall be treated as dismissed.

BETWEEN	VERTOL SYSTEMS COMPANY INCORPORATED Plaintiff
AND	O M HOLDINGS LIMITED Defendant

Hearing:	1 December 2014
Appearances:	K M Quinn and V Kumar for the Plaintiff C Shannon the Defendant
_Judgment:	_{22 December 2014}

High Court of New Zealand Decisions

Vertol Systems Company Limited v O M Holdings Limited [2014] NZHC 3393 (22 December 2014)