Heli Holdings Limited v The Helicopter Line Limited [2014] NZHC 664 (3 April 2014)

Last Updated: 10 April 2014

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

CIV-2013-425-000310 [2014] NZHC 664

BETWEEN HELI HOLDINGS LIMITED Plaintiff

AND THE HELICOPTER LINE LIMITED First Defendant

AND TOTALLY TOURISM LIMITED Second Defendant

Hearing: 20 February 2014

with additional submissions filed on 28 February 2014 and 6 March 2014

Appearances: D J Goddard QC and A Hough for Plaintiff

R S Cunliffe and R G Napier for Defendants

Judgment: 3 April 2014

JUDGMENT OF ASSOCIATE JUDGE OSBORNE

_{on plaintiff ’s summary judgment application}

[1] Heli Holdings Limited (the lessor) in 2002 leased eight identified helicopters (commonly known as the Twins) to The Helicopter Line Limited (the lessee). Totally Tourism Limited (the guarantor) guaranteed the lessee’s performance of its obligations under the lease.

[2] There are three contractual documents to which I will collectively refer as

“the lease”, namely:

(a) The original agreement dated August 2002; (b) A variation agreement dated 8 May 2007;

_{(c) A settlement agreement dated 11 June 2008.}

HELI HOLDINGS LIMITED v THE HELICOPTER LINE LIMITED [2014] NZHC 664 [3 April 2014]

[3] The original agreement requires the lessee to pay on a system whereby there is:

(a) A price for hours actually flown by the helicopters (the price);

(b) A payment for what are defined as “shortfall hours” being the difference between defined minimum flying hours and the actual flying hours (to be charged under the original agreement at 75 percent of the price but subsequently under the variation agreement at 50 percent of the price).

The subject matter of the summary judgment application

[4] By its statement of claim the lessor asserts that the lessee owes it a total of

$2,327,625.04 for shortfall hours for the years 2009 to 2013 (the years) (being those ending 30 June in each year) under the lease.

[5] Of that total claim, the lessor says that it is beyond argument that the lessee owes $2,015,724.72 on account of shortfall hours. The lessor and guarantor (together “the defendants”) accept this is the correct calculation. The lessor accepts that the balance will be a matter for trial.

[6] The lessor also seeks a sum of $151,762.74, which it claims for a “hot start” on 12 May 2008, which is a cost the lessee is required to meet under the lease. The lessor does not include this claim within the summary judgment application, accepting that it is also a matter for trial.

[7] In relation to all causes of action, and in the summary judgment application, the lessor makes parallel claims against the guarantor. Mr Cunliffe, appearing for the defendants, accepts that the findings which apply to the lessee will apply equally to the guarantor.

The defendants’ defence and set-off arguments

[8] The three issues on this application relate to matters of defence and set-off raised by the defendants. I summarise these at their most general level – when I discuss each I will come to the more specific points which arise. By these the defendants assert:

(a) An entitlement to a $383,437.42 credit;

(b) That the lessor is in breach of the settlement agreement by failing to review the system of charging for shortfall hours (the system); and

(c) That the lessor is in breach of its obligations under the original agreement and the variation agreement in relation to maintenance and other obligations.

Defendants’ first defence – the credit

[9] The lessee claims a credit by reason of a payment of $383,437.42 (including GST) which the lessee made to the lessor in June 2008 on account of shortfall hours. The lessee paid the sum without prejudice to the defendants’ liability (and with a reservation of a right to interest).

[10] In response the lessor says:

(a) The credit relates to the 2007 year (that is the year ending 30 June

2007) and its recovery is therefore statute barred, the lessee not having commenced proceedings for its recovery;

(b) The lessee’s credit claim is based on an argument that the relevant provision in the contract is of retrospective effect, which argument the lessor says is manifestly misconceived. It says the defendants were not entitled to the adjustment for which they claim credit; and

(c) If, contrary to the two arguments at (a) and (b), the lessee has an arguable credit claim, the claim defeats the summary judgment application only to the extent of the credit claimed.

Defendants’ second defence – breach of the settlement agreement

[11] The defendants assert that the lessor is in breach of the settlement agreement. They rely on an agreement to review by 7 June 2008 an unavailability clause in the variation agreement and to review the system. They rely also on an agreement as to mediation if the review did not resolve issues between the parties. The defendants say that the lessor failed to review as agreed and that there has been no mediation.

[12] The lessor responds:

(a) By the settlement agreement (cl 1.1) the parties agreed to continue to be bound by the original agreement and the variation agreement. As the parties did not subsequently vary them, the original agreement and the variation agreement are enforceable in their terms;

(b) In any event, there have been discussions on the system and that there was a mediation on 20 – 21 August 2013; and

(c) The complaint as to breach of the settlement agreement lacks substance, having been raised as defence or cross-claim in late 2013, after the defendants had failed since mid-2008 to invoke dispute resolution mechanisms under the original agreement (cl 16.1).

Defendants’ third defence – set off based on lessor’s breaches of the original and variation agreements

[13] The defendants assert that the lessor is in breach of obligations under the original agreement and the variation agreement in that:

(a) The lessor failed to properly maintain the helicopters (cl 6 original agreement) and it failed to perform its duties to best industry standards (cl 10.1(b) original agreement) with the result that the lessee

incurred disruption and unnecessary costs and risk to its pilots and passengers and to the lessee itself. The lessee, as a result, grounded the helicopters, suffering loss and damage (the maintenance argument);

(b) The lessor caused the Twins, without notification or explanation to the lessee, to increase in weight to the extent that they were not the same helicopters in terms of performance as those originally leased to the lessee, with the result that the lessee lost yield (having to carry fewer passengers) and thereby lost revenue through lower pay load and reduced performance (the Twins weight argument); and

(c) The lessor failed to negotiate in good faith a mutually acceptable plan to deal with altered market demand (cl 5.4 original agreement) and, in particular, failed to agree on a suitable replacement fleet for the Twins, causing the lessee to incur costs that it would not otherwise have incurred (including a loss of 4,700 flying hours).

[14] The lessor’s reply to the set off allegations had three aspects:

(a) First, the lessor suggested (in counsel’s written submissions) that there was “room for scepticism” as to whether the lessor had breached its obligations under the contract. However, given the weight and content of the evidence surrounding breach allegations, Mr Goddard responsibly accepted in his oral submissions that the Court is not well placed in a summary judgment context to resolve the disputes surrounding breach.

(b) Secondly, Mr Goddard in oral submissions attacked Mr Bisset’s “calculations” as simply unqualified assessments by Mr Bisset, often not containing any particulars or proper explanation of components of the calculations.

(c) Thirdly, Mr Goddard sought to invoke the exclusion clause (cl 7.4 original agreement).

Quantum of defendants’ cross claims

[15] Based on an assessment by the lessee’s operations manager (Grant Bisset), the lessee calculates its losses through the various heads of alleged breach in the second and third defences to total $4,738,695.36 (excluding GST). The total loss they claim, including the set off in the first defence, is $5,079,528.62 (excluding GST).

A conclusion on the exclusion clause argument

[16] Mr Goddard was briefed to appear for the lessor shortly before the hearing. At the hearing, Mr Goddard attempted to invoke a clause in Part 7 of the original agreement headed “Limited recourse and liability” which provides:

7.4 Heli Holdings shall not be liable for any loss of profits or any consequential, indirect or special loss, damage or injury of any kind suffered by The Helicopter Line or any other party arising directly or indirectly from any breach of any of Heli Holdings’ obligations under or in connection with this Agreement or from any cancellation of this Agreement.

[17] The lessor’s reliance on an exclusion clause had not been signalled prior to the hearing. The introduction of the argument was late and unsatisfactory. It clearly took Mr Cunliffe for the defendants by surprise as it did the Court.

[18] For reasons I explain in more detail below at [80] – [99] I have reached the conclusion that the possibility that the exclusion clause might here operate will not be considered on this application.

An overall conclusion

[19] I have reached a clear conclusion that the plaintiff’s summary judgment

application must be dismissed.

[20] The primary reason for that conclusion is that the lessor, in the way it has presented its summary judgment application, has not discharged the onus upon it of demonstrating in its application that the defendants have no genuine defence. The result of this is that by reason of the defendants’ maintenance argument ([13](a) above), the Twins weight argument ([13](b) above), the defendant’s evidence as to quantum of loss and the rejection of the exclusion clause argument, the defendants have an arguable defence to the lessor’s claim.

[21] I will below set out my more detailed reasons for this conclusion.

A plaintiff ’s summary judgment application

[22] In Krukziener v Hanover Finance Ltd,¹ Miller J, delivering the judgment of the Court of Appeal, summarised the principles applicable to summary judgment in this way:

[26] The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1; (1986) 1 PRNZ 183 (CA), at p 3; p 185. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331; [1979] 3

WLR 373 (PC), at p 341; p 381. In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust

and realistic approach where the facts warrant it: Bilbie Dymock

Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).

[27] Under r 141A the defendant need not file a statement of defence. The onus remains on the plaintiff, and summary judgment will be denied if on the hearing of the application it appears that there is an issue worthy of trial.

[23] The High Court Rules, although renumbered since the Court of Appeal gave its judgment in Krukziener, have not materially altered.

¹ Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162, [2010] NZAR 307.

[24] Rule 12.2(1) provides in relation to a plaintiff’s summary judgment

application:

12.2 Judgment when there is no defence or when no cause of action can succeed

(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.

[25] Rule 12.4 prescribes the interlocutory procedure for summary judgment. By r 12.4(4) the applicant must file an interlocutory application and a supporting affidavit. Rule 12.4(5) specifies the requirements of the affidavit, including who must make the affidavit and the matters which must be dealt with in the affidavit. In

_{particular, the deponent must:}

verify the allegations in the statement of claim;

depose to the belief of the deponent that the defendant has no defence to the allegations; and

_{set out the grounds of that belief.}

[26] Rule 12.11 provides for affidavits in reply. Rule 12.11(2)(a) limits the content of an affidavit in reply to “new matters in the affidavit of the party opposing the application.”

[27] Counsel did not refer me to any authority as to what constitute “new matters”. I am not aware of any authority directly on point.

[28] The context of r 12.11(2) is important to its correct understanding and application. The context is that the plaintiff, in commencing its summary judgment application, is required to have set out the grounds it has for believing that the defendant has no defence. To the extent that the plaintiff is, before commencing its proceeding, aware of the defendant’s arguments, the plaintiff must have its witness depose to the plaintiff’s grounds for believing the defendants’s arguments do not constitute valid defences.

[29] The “new matters” to which a plaintiff may by r 12.11(2) file a reply affidavit are self-evidently not all the matters contained in the defendant’s opposition evidence. The “new matters” to which r 12.11(2)(a) refers will generally fall into two categories, being:

(a) The grounds of defence which the defendant had not previously

brought to the plaintiff ’s attention; and

(b) Any more sophisticated arguments or evidence going to support that particular ground than had previously been provided by the defendant to the plaintiff.

[30] As stated above, by the High Court Rules (r 12.2(1)) and the statement of principles in Krukziener¸² the plaintiff is required to establish that the defendant has “no defence” to the plaintiff’s claim before the court will enter summary judgment in their favour.

[31] As Somers J said in Pemberton v Chappell:³

... the words "no defence" have reference to the absence of any real question to be tried. That notion has been expressed in a variety of ways, as for example, no bona fide defence, no reasonable ground of defence, no fairly arguable defence ...

The evidence on this application

The lessor’s affidavit in support

[32] The lessor filed one affidavit in support of its application, from Christopher Hart, the lessor’s commercial manager. Mr Hart deposed that the contents of the statement of claim were true and correct. He then stated, in respect of the defendants’ claimed defences:

THL’s complaints

36. I am aware that THL has previously raised issues including whether the helicopters subject to the 2002 agreement and 2007 variation are

² _Above.

³ Pemberton v Chappell [1987] 1 NZLR 1; (1986) 1 PRNZ 183 at 3; 185 (CA).

fit for purpose, whether the helicopters were available for use on certain days, and whether the helicopters had been adequately maintained at all times.

37. I note there is no requirement that the helicopters be fit for purpose under the 2002 agreement and 2007 variation so I do not believe THL has a genuine defence to this claim on this ground.

38. I understand that availability issues have been dealt with and taken into account by THL before it submitted its calculation of the agreed shortfall hours amount I refer to in paragraph 18 above so I do not believe THL has a genuine defence to this claim on this ground.

39. As regards maintenance, I reject any suggestion Heli Holdings ever failed to provide adequate maintenance and note our company is certified by the Civil Aviation Authority and has an exemplary record. Because of this I do not believe THL has a genuine defence to this claim on this ground.

Conclusion

40. ... To the best of my knowledge, the defendants have no genuine defence to Heli Holdings’ claim for the agreed shortfall hours amount...

[33] For reasons I set out below that evidence was particularly unsatisfactory. It had significant impact on the way the evidence subsequently evolved. It meant that, in my judgement, the lessor did not discharge the obligations upon it in commencing a plaintiff’s summary judgment application.

[34] The affidavit evidence filed by both parties subsequent to Mr Hart’s affidavit shows a history of dealings between the parties prior to the commencement of this litigation. That evidence shows that the lessee made claims of non-performance against the lessor and identified a need for redress. Hugh Jones, the lessor’s managing director, gave reply evidence for the lessor in which he recorded that the possibility of a counterclaim had been raised by the lessee at a mediation attended by the parties in August 2013, a month before this proceeding was commenced.

[35] I infer from Mr Hart’s choice of the words “no genuine defence” as against “no defence” that Mr Hart was not intending to suggest to the Court that the lessee had not earlier raised issues as to the potential financial consequences of the lessor’s alleged non-performance and the prospect of a cross-claim; rather, I take it from

what Mr Hart in fact stated that he had concluded that any matters of defence earlier

raised by the defendants were not “genuine”.

The defendants’ evidence

[36] The defendants’ opposition documents included the affidavits of three officers or directors of the defendants. The narrative evidence was extensive and the exhibits many. The exhibits included a report authored by John Fogden and Allan Murtagh (the Fogden report) prepared in July 2013 and a lengthy report by Grant Bisset, the lessee’s operations manager, dated 30 January 2013 (the Bisset report).

[37] The Fogden report is entitled “Independent review of matters of concern regarding Airwork SI’s maintenance of Heli Holdings Limited helicopters operated by The Helicopter Line”. The evidence establishes this report was provided to the lessor on 15 July 2013. That date is more than two months before the lessor commenced this proceeding.

[38] The Bisset report concerned an incident in Gorilla Valley on 3 January 2013 and incorporated other reports and numerous findings as to failures of the lessor’s helicopters. The Bisset report recommended that the lessee cease to operate aircraft maintained by Airwork (the lessor’s maintenance provider) as soon as practicably possible. The Bisset report was provided to the lessor on 31 January 2013, some eight months before this proceeding was commenced. The evidence discloses that subsequently (on or about 4 July 2013) the lessee ceased flying the lessor’s helicopters.

The lessor’s initial approach in this proceeding

[39] As is indicated above, Mr Hart did not refer to either of these reports in his original affidavit when deposing as to his grounds for the belief that the defendants had no “genuine defence” to the lessor’s claim.

[40] To the extent that the lessor had been apprised of these defendants’ arguments

before the commencement of the proceeding, it had not only the opportunity but the

obligation to depose as to its grounds for rejecting those defences when commencing the proceeding. It did not do so.

[41] The plaintiff has an obligation to put its grounds up front. This is not an onerous or difficult obligation for the Rules Committee to have imposed on a plaintiff seeking summary judgment. In practice the Court regularly encounters plaintiffs’ affidavits which appropriately meet defences which have been signalled by defendants. Frequently the plaintiff ’s affidavit will attach the letter or letters by which the defendant has raised defences and the plaintiff’s narrative evidence will then state the grounds on which the defences are rejected. Alternatively, the entire statement of alleged defences and responses is frequently dealt with solely in the narrative part of the plaintiff’s affidavit.

The lessor’s “reply affidavits”

[42] In response to the opposition evidence, the lessor filed four “reply affidavits”. The first was another of Mr Hart. The second was of Brent Earnshaw, an independent expert. The third was of Logan Cudby, the operations manager for Airwork. The final was of Mr Jones, the managing director of the lessor. This “reply evidence”, not counting exhibits, ran to 44 pages.

[43] The affidavit of the lessor’s expert, Mr Earnshaw, illustrates why much of the lessor’s evidence was not admissible as reply evidence under r 12.11(2)(a). In his affidavit, Mr Earnshaw comments in detail on, amongst other things, the Fogden report and the Bisset report. As indicated above, both of these reports were available to the lessors long before this proceeding was commenced.

[44] A review of the evidence of the lessor’s witnesses of fact, including that of Mr Earnshaw, shows the extent to which, in reply evidence, the lessor was attempting to deal with matters going to the lessor’s contractual performance over a long period (thereby rejecting the lessee’s allegations of breach of performance). The lessor’s witnesses variously deal with the performance issues which had been raised throughout previous years. They critique the Fogden report. Mr Cudby gives his explanation of differences between the Fogden report and a report which he (Mr Cudby) had himself prepared. By way of illustration, he refers to three incidents in

2008, the significance of which he and Mr Fogden disagree on. The “reply evidence” of the lessor’s other witnesses equally recognises a history of disagreement over the lessor’s performance.

[45] There is also recognition that the relationship between the parties had broken down by late-2012. The reply evidence, in a sense, culminates in the evidence of Mr Jones, to which I have referred – his evidence discloses that the lessee had specifically raised the possibility of a counter-claim at the August 2013 mediation, a month before this proceeding was issued.

[46] Therefore, much of the content of the so-called “reply evidence” of the lessor is not evidence on “new matters”. Rather, it was designed to respond to allegations of breach and set-off or counter-claim of which the lessor was aware well before this proceeding was issued, precisely because the lessee had earlier set out its concerns and claims, including through expert reports.

The “reply evidence” to the “reply evidence”

[47] Against this background, the defendants unsurprisingly filed its own “reply evidence". They also filed an affidavit of Mr Fogden who spoke to the July 2013 report (and the criticisms made of it by Mr Earnshaw). The defendants had not called Mr Fogden initially as an opposition witness. This was understandable. Although the lessor as plaintiff had had the Fogden report for a lengthy period, it had not referred to it at all when applying for summary judgment. The defendants also filed an affidavit from Mr Murtagh, a person with expertise in maintenance control and aviation management, who had co-authored the Fogden report in July 2013.

[48] Messrs Fogden and Murtagh stand by the conclusions they reached in the Fogden report. They reject the evidence of Mr Earnshaw to the effect that the maintenance services provision of the lessor (and Airwork) had been in accordance with best industry standards (a term of the lease).

Arguable breaches of the lessor’s maintenance obligations

[49] Notwithstanding the nature of the summary judgment jurisdiction generally and my observations which follow as to the issues requiring expert evidence in this case, the written submissions initially filed for the lessor for this hearing (not prepared by Mr Goddard) put a significant emphasis upon the proposition that it was not arguable that the lessor had breached, or continued to breach, the lease in relation to maintenance.

[50] Understandably, Mr Cunliffe devoted a significant proportion of his written

synopsis to the defendants’ allegation of breach of maintenance obligations.

[51] At the hearing itself, Mr Goddard abandoned the proposition that there could not arguably be a dispute as to the lessor’s breach of its maintenance obligations. He accepted that the maintenance issues could arguably amount to a breach of the lease if made out on the facts. Therefore, in relation to the maintenance dispute itself, Mr Goddard submitted that the issue which remained for determination of the summary judgment application was whether the defendants had an arguable case as to loss flowing from the breaches which are recoverable under the lease.

The role of expert evidence in summary judgment proceedings

[52] The expert evidence in this case was focused on whether the lessor had breached standards of helicopter maintenance. The historical evidence discloses that the parties had disagreed on that subject before this litigation was commenced, notwithstanding a detailed review of incidents of alleged non-performance by the lessor. Expert evidence on subject matters such as this is invaluable to a Court at trial in determining whether there has been a breach of standards (and if so with what consequence to the operation of the helicopter fleet).

[53] Provided the experts duly identify the subject matter of their report and speak to the issues with particularity, it will not normally be possible for this Court to resolve conflicts between experts in a summary judgment context. MacLean v

Stewart⁴ is an example of such a case – the Court of Appeal upheld an appeal against the entry of summary judgment in a case where the experts’ affidavits disclosed “considerable disquiet” about the respondent’s workmanship.⁵ Applying the standard test, the Court of Appeal found that the appellant’s expert evidence raised a genuine dispute. The Court observed that the appellants clearly had a defence. The Court concluded:⁶

Whether it is well-founded or not must await a full hearing in the arbitration proceeding which is contemplated.

[54] There was a regrettable aspect to the development of the lessor’s reply evidence in this case. Notwithstanding the failure of the lessor initially in its summary judgment application to deal with material such as the Fogden report, criticisms were made in the lessor’s reply evidence as to the integrity of the report Messrs Fogden and Murtagh had provided. That July 2013 report had expressly been provided as an independent review with Mr Fogden’s qualification as an expert recorded. An example of the “reply evidence” critique is in the affidavit of Mr Jones (not qualified as an expert) who describes the July 2013 report as having flowed from “some one-sided investigations by Messrs Fogden and [Murtagh]” who “solely took the views of [the lessee] into account”.

[55] As stated above, both Messrs Fogden and Murtagh have subsequently deposed that they stand by their initial findings, having reviewed further documentation for the purposes of this proceeding.

[56] The attack on Messrs Fogden and Murtagh as experts should not have occurred in this summary context. Mr Goddard did not seek to sustain it in his oral submissions. It was especially inappropriate that it occurred when the lessor had not on its initial summary judgment application provided a response to, or critique of, the Fogden report either through any witness.

[57] As in MacLean v Stewart the testing of the expert evidence and the decision as to whether it is well-founded must await a full hearing.

⁴ _{MacLean v Stewart (1997) 11 PRNZ 66, per Thomas J.}

⁵ _{At 69.}

⁶ At 69.

The Twins weight argument

[58] The opposition evidence filed by the defendants recorded complaints which the lessee had raised with the lessor as to the empty weight of the Twins. The evidence is that the lessee had raised issues as to the loss of revenue which the lessee was sustaining by reason of additional weight, sometimes in excess of 100 kgs, which the lessee claims was added to the helicopters by Airwork. Mr Bisset referred to a meeting in mid-April 2013 at which concerns were discussed between the parties and Airwork. Mr Bisset produced the lessee’s typed minutes of that meeting (some of the detail of which is disputed by the lessor, which dispute cannot be resolved in the context of this proceeding). The minutes refer to added weight having been raised as an issue, together with the loss of revenue which the lessee was sustaining.

[59] Mr Bisset deposed that a “so called weight loss programme” was implemented by Airwork’s engineering team in May 2013. Mr Bisset produced an “aircraft weight study” completed by Airwork in 9 May 2013 following the 15 April

2013 meeting. The report confirms that:

The AS355 fleet with [the lessee] had put on weight over time.

[60] Mr Bisset exhibited an email he sent to Mr Cudby of Airwork on 18 May

2013 on the subject of faith and confidence in the weight report. Mr Bisset deposed that the email related to a particular helicopter that had additional weight of 168 kg, which his email explained was the equivalent of two standard passengers.

[61] As with the maintenance issue, the lessor in commencing the proceeding with a summary judgment application ignored issues which had clearly been raised by the lessee before the litigation commenced. The written synopsis filed for the lessor before the hearing is revealing for what it did not say on the weight issue. The thrust of the attack on the defendants’ grounds of opposition in relation to maintenance was that the alleged concerns were disingenuous and implausible and that they should be rejected as unarguable or “not genuine”. The set-off claim as a whole was described in the synopsis as “a commercial ploy designed to stave off liability for an amount previously acknowledged as due”.

[62] In relation to matters which had been considered seriously more than five months before the proceeding was issued, and had then led to work on both sides to address a perceived issue, the lessor’s written submission as to a mere “commercial ploy” is unsustainable. The record illustrates that there was a real issue to be resolved between the parties. Such an issue calls for resolution at trial, not by summary judgment.

[63] On that basis alone, it would be inappropriate in this summary judgment context to conclude that the defendants’ weight arguments are not arguable. While the defendants cannot point to a warranty in the lease which expressly deals with the future weight of the helicopters, there is scope, possibly by way of an implied term for a successful argument. The evidence already filed points to conduct on the part of the lessor or its maintenance agent which affected the weight and performance of the helicopters.

A conclusion on the maintenance argument and the Twins weight argument

[64] The summary judgment application procedure exists for the benefit of the applicant, here the lessor. The onus rests on it to establish that the defendants have no defence. Four paragraphs of a single affidavit focused on maintenance issues in the context of significant dispute between the parties was clearly insufficient to discharge this obligation in respect of maintenance. This is particularly so when counsel has abandoned, as discussed above, the proposition that there was no arguable dispute in respect of the maintenance obligation and when I have concluded that the exclusion clause will not be considered in this application.

[65] Similarly, the absence of any initial evidence on the Twins weight argument (discussed above), of which the lessor was aware before commencing this proceeding, amounts to a failure by the lessor to meet its obligation in a summary judgment proceeding.

[66] On this basis the plaintiffs have failed to discharge the obligations upon them in the summary judgment context. The defendants are therefore entitled to have treated as arguable at least the maintenance argument and the Twins weight argument.

Quantum of main set-off claim

[67] The defendants assert that the arguable breaches in respect of the maintenance argument and the Twins weight argument give rise to arguably recoverable losses of $4,738,695.36 (excluding GST), a sum calculated by Mr Bisset and tabulated in an exhibit to Mr Bisset’s evidence which is set out as Schedule 1 to this judgment. (Schedule 1 also includes the item of $340,833.26 (excluding GST) which represents the set-off claim of a separate character which I refer to at [9] and [10]. It is not part of the damages claimed by way of set-off).

[68] The defendants rely upon the claim of $4,738,695.36 as fully off-setting the lessor’s claim. The lessor’s claim on the summary judgment proceeding is that the amount which the lessee indisputably owes for agreed shortfall hours is

$2,015,724.72.

[69] None of the deponents for the lessor by way of reply evidence spoke to the way in which Mr Bisset had quantified the defendants’ alleged losses. This was despite the fact that several of the lessor’s witnesses had similar aviation/engineering backgrounds to Mr Bisset, and would have been qualified to speak to at least aspects of his calculations. Similarly, the written submissions filed for the lessor before the hearing did not take issue with Mr Bisset’s quantification of losses. Rather, the lessor by counsel’s synopsis challenged the claimed losses upon the basis that they were insufficiently linked to the lessor’s claim for summary judgment to permit an equitable set-off. For the lessor at the hearing, Mr Goddard did not pursue the synopsis argument as to an insufficient linkage of the losses to amount to an equitable set-off. The implicit concession was rightly made. All the rights involved on either side arise under the same contract and there is sufficient linkage for the

application of the concept of equitable set-off in terms of the authorities.⁷

[70] At the hearing Mr Goddard, instead of relying on an argument as to unavailability of equitable set-off, emphasised the exclusion clause and the proposition that the defendants’ claimed losses are not supported by adequate

_{particulars and calculations.}

⁷ See Grant v New Zealand Motor Corporation Ltd [1989] 1 NZLR 8 (CA).

[71] I will briefly summarise the components of Mr Bisset’s calculations as the defendants’ losses caused by maintenance breaches and the Twins weight issue, totalling some $4,738,695.36 (excluding GST) as set out in Schedule 1:

(a) Additional per-hours costs stemming from unreliability and inadequate maintenance

In his evidence Mr Bisset has stated that the alleged breaches and failings of the lessor has resulted in an increased per-hour cost to run each helicopter. He states that the total increase per helicopter is

$316.00 per hour. This is comprised of (all excluding GST):

(i) $52.00 per hour as a result of additional time required by directors, management and pilots.

(ii) $48.00 per hour as a result of the Twins burning an extra 40 litres of fuel per hour than a single (the fuel costing $1.20 per litre).

(iii) $47.00 per hour as a result of the extra costs associated with training a pilot on the Twins as compared with training on a single (Mr Bisset deposed that this extra cost was $46.00 per hour, but that seeming discrepancy is not significant in the present context).

(iv) $19.00 per hour as a result of increased maintenance costs that the lessee bore in respect of the Twins.

(v) $150.00 per hour (a “conservative estimate” according to Mr Bisset) as a result of loss of yield stemming from downloading (which I take to be the extra weight added to the fleet over time).

Mr Bisset has multiplied the total per-hour figure by the 13,673.70 flight hours recorded between 2008 and 2013 to produce a final figure of $4,320,889.20 (excluding GST).

(b) Cost of experts to independently assess maintenance concerns

Mr Bisset has deposed that the cost of retaining Messrs Fogden and Murtagh to prepare the Fogden report, to which reference is made above, was $9,867.16 (excluding GST).

(c) Cost of grounding the fleet as a result of maintenance issues

Mr Bisset has deposed that the cost of grounding the fleet of eight helicopters is $577 per hour. While Mr Bisset provides no detail below this figure, he has stated that it is an estimated cost. Mr Bisset has multiplied this hourly rate through the 707 hours he says was lost to the grounding from July 2013 to November 2013 to arrive at a final figure of $407,939.00 (excluding GST).

[72] Mr Bisset finally calculated that the lessee had lost 4785.28 hours (referred to in his narrative evidence as 4,705.78 hours) while the Twins were not suitable and singles had to be used. No additional sum of damages is included in the total set-off claim of $4,738,695.36 (excluding GST) as a separate head on that account.

[73] In the lessor’s written synopsis filed for the hearing the defendants’ approach was criticised for a failure to file a counterclaim and for leaving the matter upon the basis that there was simply a possibility that a claim would be filed.

[74] Mr Goddard, at the hearing, criticised the lack of particulars of alleged loss opportunities and additional flights and the lack of calculations of precise amounts said to have been lost.

[75] Mr Bisset gave affidavit evidence. He deposed to his experience. He set out his calculations. They are contained at Schedule 1 and summarised more narratively at [71] above.

[76] I respectfully adopt what Associate Judge Abbott said in AUC Properties Ltd v Rotorua District Council:⁸

Unequivocal statements in an affidavit, alleging facts which if true would found a defence to the claim, will be a sufficient basis for refusing summary judgment (the Court does not need to be convinced as to the ultimate truth of the allegation).

[77] The clear impression created by the way in which the lessor’s summary judgment application has been pursued, and the selection of arguments which the lessor deployed, indicates an expectation on the part of the lessor that it would be able to roll over the defendants’ disputes as amounting to nothing more than a “commercial ploy”. The lessor’s failure to engage with the defendants’ evidence as to the quantum of its set-off/cross-claim is otherwise almost inexplicable. Once the Court finds, as I have, that the defendants have genuinely arguable issues in relation to the substance of the lessor’s performance, the Court is left solely in terms of quantification evidence, with the defendants’ calculations as formulated by Mr Bisset.

[78] The lessor elected to pursue this claim with initially a summary judgment application. The lessor’s suggestion that the defendant ought to have filed a counterclaim ignores both the provisions of the High Court Rules and expediency. The approach taken for the lessor in submissions comes close to suggesting that the defendants, to ground a successful opposition to the claim, needed to employ independent expertise to justify the calculation of their set-off/cross-claim. But, given the absence of any attempt by the lessor to formulate a calculation of what losses would more accurately flow, the evidence adduced by the defendants constitutes a reasonable response on the part of the defendants in the context of a summary judgment application. The position may have altered if the lessor in reply evidence had provided its own critique of calculations, assumptions and quantum.

_{It did not do so.}

⁸ AUC Properties Ltd v Rotorua District Council [2012] NZHC 1509 at [30](d).

Defendants’ remaining arguments

[79] By reason of the conclusions I have reached, it is unnecessary to determine in the summary judgment context whether the defendants have further arguable set-off claim in relation to:

(a) the $383,437.42 previously paid without prejudice to the plaintiff

(above at [9]);

(b) the failure by the lessor to review the system of charging (above at

[11]);

(c) a failure by the lessor to negotiate a plan to deal with altered market demand or a plan for fleet replacement (above at [13](c)).

Rejection of the exclusion clause defence

The litigation background

[80] The litigation background to this point is as I have described it.

[81] The summary judgment application and supporting evidence did not make any assertion that a set-off or other cross-demand was precluded by the terms of the lease. Neither was the exclusion clause (which I set out at [84] below) invoked in the lessor’s reply evidence, nor was the exclusion clause invoked in the lessor’s written synopsis for the hearing. Even Mr Goddard’s written “outline of oral submissions” handed to the Court and Mr Cunliffe at the beginning of the hearing did not refer to the exclusion clause.

Counsel raises the exclusion clause

[82] As I have recorded, the assertion that there was no genuine dispute as to the quality of the lessor’s maintenance of helicopters was abandoned. The lessor’s factual emphasis in that regard was transferred to whether the lessee had an arguable case as to causation of damage recoverable under the lease.

[83] Mr Goddard opened his oral submissions by identifying the remaining contentions of the lessor as to the maintenance obligations. He then turned to clause

7 in the original agreement, the relevant provision of which reads:

7.4 Heli Holdings shall not be liable for any loss of profits or any consequential, indirect or special loss, damage or injury of any kind suffered by The Helicopter Line or any other party arising directly or indirectly from any breach of any of Heli Holdings’ obligations under or in connection with this Agreement or from any cancellation of this Agreement.

[84] There is also an exclusion clause affecting any claim by the lessor against the lessee which reads:

7.5 Subject to clause 12.5, The Helicopter Line shall not be liable for any consequential, indirect or special loss, damage or injury of any kind suffered by Heli Holdings or any other party arising directly or indirectly from any breach of any of The Helicopter Line’s obligations under or in connection with this Agreement or from any cancellation of this Agreement.

[85] Mr Goddard submitted that when one analyses the various heads of damages asserted by Mr Bisset for the defendants, recovery of all those heads is excluded. Mr Bisset had identified what he said were costs incurred by the lessee in avoiding damage caused by alleged lessor breaches. Mr Goddard submitted that such costs of mitigation would also be precluded by cl 7.4 in that a party would not be entitled to recover costs of mitigation if the costs were incurred in avoiding a loss for which liability is excluded.

Reservation of further submissions

[86] The lessor’s development of an argument based on the exclusion clause at the

hearing, with no prior application or notice, was unsatisfactory.

[87] Mr Cunliffe was taken by surprise by the argument. It was not appropriate to require Mr Cunliffe at the hearing to make submissions of any detail in relation to the exclusion clause, whether as to its consideration in the first place, or as to its applicability. I therefore directed that I would hear counsel’s submissions on all matters previously raised and properly before the Court and, in addition, I would at the hearing receive Mr Goddard’s submissions on the exclusion clause. I reserved

leave to counsel to file further submissions specifically on the exclusion clause. I

have since received and considered those submissions.

Rejection of exclusion clause argument

[88] I find it inappropriate to permit the plaintiff to pursue its exclusion clause argument in the context of this summary judgment application. The summary judgment process exists for the benefit of a plaintiff who can, at the commencement of the interlocutory application for summary judgment, demonstrate why the defendant has no valid arguments against judgment. The defendant knows the arguments to be taken by the plaintiff and can muster its evidence and prepare its arguments for its opposition and for the hearing.

[89] Through the lessor’s attempt to introduce the exclusion clause argument at the hearing, there would be injustice in this case if the Court were to endeavour to decide the ambit and application of the exclusion clause to the facts of this case.

[90] The judgment of the Court of Appeal in Rolls Royce New Zealand Ltd v Carter Holt Harvey Ltd⁹ identifies (in a strike out context) some of the difficulties which arise in determining the ambit of an exclusion clause. The Court of Appeal rejected an invitation to deal with the proper interpretation of the exclusion clause “in the abstract”. Glazebrook J, delivering the judgment of the Court, noted:¹⁰

... Even if we decided that Genesis’ interpretation were the correct one, it would not be appropriate, without evidence, to decide which of the categories of damages fell outside the clause. As this is the case, the correct interpretation of the clause is much better addressed after full evidence and in the context of the trial. Strike-out is inappropriate.

[91] The judgments of the Supreme Court in Vector Gas Ltd v Bay of Plenty Energy Ltd¹¹ highlight the importance of context in the construction of written instruments even when those documents appear to have a plain and unambiguous

_meaning.

⁹ _{Rolls Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324.}

¹⁰ _{At [154].}

11. Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5; [2010] 2 NZLR 444; (2010) 9 NZBLC 102,874; [2010] NZSC 5; [2010] NZCCLR 23.

[92] The way in which the lessor sought at the hearing to introduce the exclusion clause argument precluded the defendants from the opportunity to adduce evidence of matters such as the background to the contract and the real nature of the damages claimed, or even to give proper consideration to what evidence might reasonably be called for.

[93] It would be unjust and oppressive to deny the defendants in this proceeding the opportunity to fully explore at trial the ambit and application of the exclusion clause.

[94] My conclusion has been reinforced by the observations of two experienced appellate judges. First, there is the observation of Casey J in Doyles Trading Co Ltd v West End Services Ltd, where his Honour said:¹²

While the desirability of eliminating the frustration and delays which can be caused by unmeritorious or tendentious defence needs no emphasis, it is important to play proper regard to the defendant’s interest and to be wary of allowing the rule to become an instrument of oppression or injustice in the laudable interest of expediting litigation ...

[95] To similar effect, Tipping J in Lindale Financial Services Ltd v Colonial

Mutual Life Assurance Society Ltd said:¹³

... While it is entirely proper for the Court to take a robust approach when ascertaining whether proffered defences have any arguable validity or are simply a smokescreen, there are limits. Defendants should not be deprived of the opportunity of a full trial, unless the plaintiff clearly demonstrates that there is no reasonable possibility of the defence succeeding. While summary judgment proceedings are a valuable and desirable short cut in clear cases, care must be taken not to allow excessive robustness to work an injustice to the defendant.

[96] Much of the lessor’s approach to the summary judgment procedure in this

_{case has invited robustness at the expense of fairness.}

¹² Doyles Trading Co Ltd v West End Services Ltd [1989] 1 NZLR 38; (1986) 1 PRNZ 677 (CA) at

_{41; 680.}

¹³ Lindale Financial Services Ltd v Colonial Mutual Life Assurance Society Ltd (1998) 12 PRNZ

320 at 324; (1998) 10 ANZ Ins Cas 86,081.

Ruling

[97] I therefore rule that the Court will not entertain in this summary judgment

application the lessor’s argument as to the application of the exclusion clause.

[98] The alternative analysis by which I might have reached the same outcome is to have applied the residual discretion under r 12.2 High Court Rules. In that regard, the observation of the Court of Appeal in Berg v Anglo Pacific International (1988) Ltd¹⁴ is on point. Delivering the judgment of the Court, Hardie Boys J said:¹⁵

... An example of the exercise of the discretion is Sayles v Sayles ... where Wylie J refused to enter summary judgment because of the possibility of injustice or that the procedure was being used, whether intentionally or not, as an instrument of oppression.

[99] Exactly the same observation (including that the Court now makes no finding that the course was intentional) applies in this case. Accordingly, even had I come to the view that on the material before the Court the exclusion clause appeared clearly to apply to the defendants’s cross-claim, I would have applied the residual discretion to that aspect of the plaintiff’s summary judgment claim.

Outcome

[100] The outcome is that the plaintiff’s claim for summary judgment fails.

[101] Costs would normally be reserved in accordance with the practice approved by the Court of Appeal in NZI v Philpott.¹⁶ Although there were unsatisfactory aspects of the lessor’s summary judgment application, particularly relating to the late abandonment of some arguments and formulation of new arguments, I refrain from departing generally from the usual practice.

[102] It is appropriate however that the defendants have in any event now the costs associated with the additional submissions which were filed in relation to the

_{plaintiff’s pursuit of the exclusion clause argument. I deal with costs on that limited}

¹⁴ _{Berg v Anglo Pacific International (1988) Ltd (1989) 1 PRNZ 713.}

¹⁵ _{At 717.}

¹⁶ NZI Bank Ltd v Philpott [1990] 2 NZLR 403; (1990) 3 PRNZ 695.

basis, calculating an appropriate award by reference to two-thirds of item 24, Schedule 3 (preparation of written submissions).

Orders

[103] I order:

a. The application for summary judgment is dismissed.

b. The plaintiff is to pay in any event to the defendants costs in relation to the filing of additional submissions which I fix in the sum of $1,326.66.

Solicitors:

Heaney & Partners, Auckland for Plaintiff

Counsel: D J Goddard QC, Wellington

Macalister Todd Phillips, Queenstown for Defendants