IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE	
CIV-2019-425-38
[2019] NZHC 1935	

BETWEEN	OPPORTUNITIES UNLIMITED LIMITED
Plaintiff	
AND	PAUL WILLIAM MITCHELL and KATHERINE LOUISE MITCHELL
Defendants	

Hearing:	30 July 2019	
Appearances:	D G Dewar for the Plaintiff K E Tohill for the Defendants	
Judgment:	9 August 2019	

JUDGMENT OF ASSOCIATE JUDGE LESTER

This judgment was delivered by me on 9 August 2019 at 3.00pm pursuant to rule 11.5 of the High Court Rules

Registrar/Deputy Registrar 9 August 2019

OPPORTUNITIES UNLIMITED LTD v MITCHELL [2019] NZHC 1935 [9 August 2019]

[1]	The plaintiff seeks summary judgment against the defendants in relation to three causes each relying on a guarantee. In each case the basis of the claim is that the defendants are liable as guarantors of the obligations of Heli Tours Ltd (in liquidation) (“Heli Tours”). Mr Mitchell was the sole director of Heli Tours and both defendants were shareholders. Mrs Mitchell was also involved in company administration.

[2]	Heli Tours went into voluntary liquidation on 12 February 2019.

The parties and background

[3]	The statement of claim  pleads that the plaintiff  carries on the business  as     a helicopter lessor and finance lender.

[4]	Heli Tours operated a business in the Queenstown area providing helicopter services, including to the tourist sector.

[5]	It is common ground that Heli Tours entered two written helicopter lease agreements with the plaintiff, and a written loan agreement. There were also undocumented helicopter leases between the plaintiff and Heli Tours.

First claim

[6]	The first written helicopter lease was entered into on 15 July 2016 and related to a helicopter with the registration ZK-IDI. The lease was for a three year term and included a guarantee from the defendants of Heli Tours’ obligations.

[7]	In relation to this guarantee the issue is one of quantum. The defendants do not dispute that they provided the guarantee relied on in the statement of claim but take issue with one of the invoices included in the quantum of the plaintiff’s claim. The defendants have also raised the possibility of a set-off, but they have not quantified it.

Second claim

[8]	Heli Tours entered into a second helicopter lease agreement on 11 August 2016 in relation to a helicopter with the registration ZK-IEP. This lease agreement, as with the agreement entered into on 15 July 2016, was for a term of three years and other than the commencement date and description of the helicopter, both leases were on the same terms.

[9]	The issue in relation to this cause of action is that in late November 2016 Heli Tours ceased using helicopter ZK-IEP. The plaintiff says that a further helicopter with the registration ZK-HQN was provided in substitution for helicopter ZK-IEP. The plaintiff says it was always the parties’ intention that helicopter ZK-IEP was included in the 16 August 2016 lease as a temporary measure only with it being agreed from the outset that it was to be replaced with another helicopter which was to be overhauled and painted in the Heli Tours’ colours.

[10]	In other words, the plaintiff says the replacement helicopter was agreed to be substituted for ZK-IEP so that the second lease contract continued to be on foot.

[11]	The significance of this point is that if this submission is correct then the guarantee provided by the defendants in the second lease of 11 August 2016 will apply to the sum claimed to be outstanding in respect of the lease of the replacement helicopter which was given the registration ZK-HQN.

[12]	The defendants say what in fact happened at the end of November 2016 was that the August 2016 lease came to an end with the return of helicopter ZK-IEP to the plaintiff.

Third claim

[13]	The third issue relates to a term loan agreement entered into on 19 July 2016. This was an agreement for a three year term under which the plaintiff advanced
$270,000 to the defendants.

[14]	The defendants say that they repaid this loan in full on 7 August 2017.

[15]	The plaintiff says that while an amount it advised the defendants was outstanding was repaid on 7 August 2017, nonetheless there remained outstanding interest for which the plaintiff now seeks judgment.  Because I consider that there is a reasonably arguable defence to this last claim, I will deal with it first.

The term loan agreement

[16]	On 26 June 2017, Mrs Mitchell emailed the plaintiff asking as follows, “Can you please send us through the balance owing on the loan?”

[17]	On 12 July 2017, Mrs Mitchell again emailed the plaintiff:

Good news we can now pay this off in full.

Just waiting on bank to let us know when settlement will be but am confident it will be in the next 10 day. [sic]

[18]	The plaintiff replied on 13 July 2017,  “That’s  good  news,  no  rush  from my end”.

[19]	This exchange shows that Heli Tours asked for a balance owing on the loan and shortly after advised it could pay the loan in full. On 13 July 2017 the defendant sent Heli Tours a PDF copy of a document that stated that the loan account balance then due and owing was $207,460.99.

[20]	That is the amount that was paid by the defendants on 7 August 2017.

[21]	Neither at the time the repayment figure was supplied on 13 July 2017 nor when the sum was paid, was there any suggestion from the plaintiff that there was any outstanding interest.

[22]	As noted, the statement of claim pleads that the plaintiff is in trade as a finance lender.

[23]	It  is  common  ground that  solicitors were not  involved in  the request  for  a repayment figure or the provision of the document stating the amount due.

[24]	In my view, it is at least reasonably arguable that a reasonable person in the position of the defendants having asked for a repayment figure and advising that they wanted to repay the loan in full, would expect the figure specified by the plaintiff to have been a full repayment figure. Again, there was no discussion about there being any outstanding interest.

[25]	Against a background of Heli Tours advising that it wanted to pay the loan off in full, it is arguable that the provision of the figure by the plaintiff that it now says did not include interest was conduct that was likely to mislead or deceive the defendants for the purposes of s 9 of the Fair Trading Act 1986.

[26]	The plaintiff was, on its own pleading, in trade in relation to the provision of finance. It did not on its own case provide a full and accurate repayment figure when such was arguably implicit in Heli Tours advising it wanted to pay the loan in full.

[27]	It was at least reasonably arguable that Heli Tours and the defendants relied on the figure specified by the plaintiff to arrange finance to clear the debt as they were advised. The detriment is that on the plaintiff’s case the defendants now face some two years of interest at a default rate.

[28]	The plaintiff submits that under the loan agreement the plaintiff’s actions do not amount to a waiver of interest. The plaintiff relies on cl 7(e) of the loan agreement which provides:

Rights once acquired are not lost: Once acquired, a lender will not lose a right or power unless the lender agrees in writing to waive or release it.

[29]	Arguably, against the request that I have outlined, specifying a repayment figure that did not include interest could be construed as a waiver or a release.

[30]	Further, Mr Dewar for the plaintiff relies on cl 7(b):

Delay does not affect exercise of powers: The lender’s rights under this contract will not be affected by any delay in exercising them (whether or not the lender knows that they have become exercisable). The lender may only be held to have acquiesced in or waived any matter in relation to this clause if and to the extent that the acquiescence or waiver is expressed in writing.

[31]	A similar observation to that made about cl 7(e) applies, but in any event, it is arguable that these provisions would not prevent the defendants relying on the Fair Trading Act in relation to the arguably misleading position created by the manner and context in which the plaintiff provided a repayment figure.

[32]	The application for summary judgment on this cause of action is dismissed.

First lease agreement

[33]	It is common ground that the quantum of the plaintiff’s claim in respect of the first helicopter lease is $244,674.09.

[34]	There is a partial defence as to quantum which concerns whether an invoice for maintenance work on the helicopter is a charge for which Heli Tours is liable so as to make the defendants as guarantors liable. There is also a general claim that there is a set-off available in respect of maintenance issues relating to helicopters leased by the plaintiff to Heli Tours.

The maintenance invoice

[35]	The  invoice  in  question  is  for  $43,171   including  GST.    It  is  dated     31 December 2018. The description on the invoice is as follows:

FOD repairs to ZK-IDI in October 2018

(amount discounted by $20k – covered by OUL)

[36]	“FOD” was explained as referring to “foreign object damage”. “OUL” was accepted by counsel as most likely referring to the plaintiff.

[37]	Counsel for the defendant explained that foreign object damage was a rare event. He described it as a one in 100,000 situation.

[38]	The plaintiff relied on the maintenance obligations under the lease agreement.

Clause 5.1 of the agreement provides:

5.	MAINTENANCE

5.1	The Lessor shall be liable for all scheduled and non-scheduled maintenance on the Aircraft during the Term of the Lease PROVIDED THAT the Lessee shall be liable for and shall pay directly for all the damage caused through negligence, incompetence or any other factor other than fair wear and tear. The Lessee shall ensure that all maintenance is undertaken at an engineers’ workshop by engineers engaged by the Lessor.

[39]	Given the defendants’ characterisation of the foreign object damage as being an unusual or unexpected event, it would seem unlikely that such damage would be characterised as fair wear and tear. “Fair wear and tear” is the normal and expected consequence of the reasonable use of something.

[40]	The question is the meaning of the words “or any other factor”. In my view, “or any other factor” coming as it does after the words “negligence” and “incompetence” means  a factor for which the defendants  are responsible.  This  is   a situation where I consider ejusdem generis applies. I take that view as if “any other factor” was to be read as any reason whatsoever, other than fair wear and tear, it would effectively deprive the reference to “negligence, incompetence” of any role – those words would become redundant as the words “any other factor” would otherwise cover damage however caused.

[41]	At the end of the day, I consider that there are factual issues around the events leading to this invoice that cannot be resolved in the summary judgment context. What is unexplained is if the obligation to maintain the helicopter is as broad as the plaintiff would have it, why a $20,000 credit was allowed against the repair costs.

[42]	Plaintiff’s counsel also referred to the obligation on Heli Tours to maintain insurance over the helicopter. There is no evidence that such insurance would have extended to foreign object damage, nor if it did, why there was not a claim. This is also something that needs to be explored.

[43]	The defendants in their notice of opposition made it clear that they considered that a number of the charges included in the amount claimed under the first lease

agreement were outside the scope of their personal guarantee, that is they were not charges for which Heli Tours was liable. Having expressly put in issue the maintenance obligation the onus was squarely on the plaintiff to provide a full explanation as to the circumstances in which the invoice was raised. The absence of a reason for the $20,000 credit reinforces that this aspect of its claim does not meet the standard for summary judgment.

[44]	I consider there is an arguable issue in respect of the maintenance invoice but that is the limit of the defence in respect of the first cause of action. I do not accept the defendants’ submission that the existence of an issue over this invoice renders the plaintiff’s claim as being for an unliquidated sum. The starting position was agreed – the deduction of one invoice does not make the balance of the agreed sum uncertain.

[45]	I referred at [7] to the possibility of a set-off being raised by the defendants. There is no attempt to quantify the set-off which is based on a claim that business was lost by Heli Tours because of maintenance issues. There being no attempt to quantify, the claimed set-off in any way cannot found an arguable defence.

[46]	Accordingly, there is summary judgment for the plaintiff against each of the defendants in the sum of $201,503.09 being the agreed amount invoiced pursuant to the first lease agreement, less the amount of the foreign object damage maintenance invoice.

[47]	Interest is claimed at the contractual rate of 18 per cent from the date of last payment being 31 December 2018. No submissions were made in respect of interest and given I have found the defendants in default of their obligations, there is interest in respect of the first  cause  of  action  at  the  contractual  rate  of  18 per cent  from  31 December 2018 to the date of this judgment (that is 9 August 2019).

[48]	Costs on an indemnity basis are sought on the basis of the contractual provisions entered into by the parties. There was no suggestion by counsel for the defendant that the defendants were not liable for such costs. No details as to quantum were provided and accordingly while there is an order that the defendants must pay the plaintiff’s costs on a solicitor-client basis in respect of the first cause of action, the

quantum in that regard is reserved for the plaintiff to file the usual evidence of costs. If such cannot be agreed, the amount for which judgment is sought is to be set out in a memorandum with supporting invoices within 10 working days of the date of this judgment (that is by Friday 23 August 2019) and the defendants shall have five working days to respond.

Second lease agreement

[49]	The second lease agreement is dated 11 August 2016 and refers specifically to aircraft ZK-IEP. Heli Tours had in fact been leasing ZK-IEP since December 2016 on a monthly basis without a written lease agreement.

[50]	Clause 4.1 of the lease agreement under the heading “Termination” provides:

4.	TERMINATION

4.1	The Lessee shall, on the Expiry Date or such earlier date as is mutually agreed by the parties, return the Aircraft to Wellington or such part of New Zealand which is inclusive of and south of the greater Wellington region as the Lessor may elect or such other mutually acceptable location upon which event this Agreement shall terminate PROVIDED THAT any obligation intended to survive the expiry of the Lease (including payment of any rental or other moneys payable pursuant to this Lease) shall continue.

[51]	As previously noted, helicopter ZK-IEP was returned, or at least made available to the plaintiff in late November/early December 2016. The defendants say that this return meant that the second lease was terminated pursuant to the terms of  cl 4.1.

[52]	The plaintiff’s evidence, however, is that prior to the parties entering into the second lease,  it  was  agreed  that  the  provision  of  helicopter  ZK-IEP  was  only  a temporary arrangement and that it was always going to be replaced by another helicopter. The replacement helicopter was given the registration ZK-HQN. The plaintiff’s submission is that it was understood by the parties that the new helicopter would be a substitute for helicopter ZK-IEP under the lease agreement and the provision of the substitute helicopter would for all purposes be governed by the lease, including the guarantee.

[53]	Mr Tohill for the defendants in his submissions accepted that helicopter ZK-IEP was supplied as a temporary aircraft.

[54]	The plaintiff relies on an email exchange prior to the second lease.

[55]	On 22 June 2016, Mrs Mitchell on behalf of Heli Tours, emailed the plaintiff:

As per our conversation this morning I am happy to say that we can forge ahead with a loan of $270,00 over 3 years and 2 lease helicopters.

If you are happy we need to understand the terms and conditions around both the lease and the loan. Also we need to know what machines you will be providing and timeframes.

[56]	The plaintiff’s reply in the early evening of 22 June 2016 referred to proposed details for the loan and rates of hire for the helicopters. It then stated:

I am thinking ZK-IDI as its painted in your colours and ZK-IEP which is painted white, but still has dual front seat and FM etc, refurbed maybe 6months earlier.

Neither has a sliding door.

I am trying to get another B2 [helicopter] packed now in USA, once here (end august, it needs a 12yr and an engine), I will paint that your colour during refurb and that has a sliding door and once ready that will replace IEP. [emphasis added]

[57]	Mrs Mitchell replied the next day, “This all looks fair to Paul and I …”. She went on to suggest some variations to the proposed minimum payments under the leases, which are not relevant.

[58]	There then followed the first lease, which as noted is dated 15 July 2016.

[59]	The plaintiff says that the above email exchange shows that it was always intended in the second lease that helicopter ZK-IEP would be replaced by the second helicopter to be prepared for Heli Tours.

[60]	The plaintiff’s key submissions on this point are as follows:

(a)	It cannot have been intended, given the email exchange, that the second three year lease would come to an end at the end of November 2016

when the contemplated replacement helicopter was supplied. If the foreshadowed replacement was to be governed by a new rental agreement there would have been little point documenting the existing informal monthy lease of ZK-IEP into a three year lease, rather the informal lease would  simply  run  on,  on  a  monthly  basis,  until  the replacement became available.

(b)	Clause 4.1 (set out at [50] above), provides that the three year term can be ended by mutual agreement. The plaintiff says there is no evidence of a mutual agreement to bring the term to an end. There is limited email correspondence between the parties towards the end of November 2016 about the process of returning of ZK-IEP but none suggesting that the return of ZK-IEP was an agreed return to effect     a termination of the lease under cl 4.1.

(c)	The provision of ZK-HQN dovetailed in terms of timing with the surrender of ZK-IEP consistent with the new helicopter being in substitution for ZK-IEP.

(d)	There is the acknowledgement of Mr Tohill already referred to that ZK-IEP was a temporary helicopter which does not reconcile with it being covered by a three year lease.

[61]	It is only in the plaintiff’s affidavit in reply that the emails in relation to the replacement of ZK-IEP are referred to.

[62]	Given the significance of this evidence, while the defendants may not strictly have had a right of reply to the plaintiff’s reply, given the plaintiff’s reply evidence raised important evidence in relation to a key aspect of the defendants’ defence (the email exchange set out at [54] – [56]), I accept Mr Dewar’s submission that leave would have been granted for a reply affidavit addressing such important material only raised by the plaintiff in reply. Equally, I accept that it was not evident to the plaintiff before receipt of the defendants’ reply that the defendants were going to argue that the second lease came to an end in late November/early December 2016 with the return

of helicopter ZK-IEP and it is therefore understandable that the evidence about the exchange was only produced in reply. The plaintiff is not required to anticipate defences of which it has no notice.1

[63]	The theme of the defendants’ evidence is that they were not requested to sign a further lease or guarantee in relation to the helicopter supplied to replace helicopter ZK-IEP. The plaintiff says the reason they were not so requested was because it was always contemplated and agreed that helicopter ZK-IEP was going to be replaced with the refurbished helicopter referred to in the plaintiff’s email of 22 June 2016 and that is what occurred.

[64]	Against the factors advanced by the plaintiff in support of its case, there is the defendants’ assertion that they were not requested to provide a further lease or guarantee in respect of the replacement helicopter. When that evidence is seen in context, that evidence is in fact consistent with the plaintiff’s case.

[65]	The defendants’ evidence is:

There was also no agreement that the second lease agreement which applied to ZP-IEP would apply to any other aircraft leased by Heli Tours Ltd.

[66]	The defendants also rely on a document called a “Heli Tours Aircraft Lease Agreement” sent to the plaintiff when Heli Tours received ZK-HQN. That form has  a box marked “insurance arrangements”. The defendants say the fact that they created this form in respect of ZK-HQN and send it to the plaintiffs shows that helicopter was not subject to the earlier lease.

[67]	Against that submission is the fact that Heli Tours generated the same form in respect of the helicopter subject to the first lease, as confirmed by Mr Tohill. The fact that form was created for a helicopter agreed to be subject to the first lease shows that Heli Tours’ form is not inconsistent with the existence of a formal lease document. The form in its reference to “insurance” was not signed by the plaintiff nor, more significantly, were insurance arrangements subject to contemporary discussion or

1	Greenback New Zealand Ltd v Haas [2000] 3 NZLR 341 (CA).

emails consistent with it being intended that the insurance arrangements in the August 2016 would not apply.

Decision

[68]	Neither counsels’ written submissions referred to the legal principles that apply to summary judgment applications.

[69]	A dispute of fact exists because of the defendants’ assertion that there was no agreement that the second lease would also apply to the replacement helicopter.

[70]	The onus at all times remains on the plaintiff to demonstrate that the defendants do not have a defence.

[71]	McGechan on Procedure discusses the Court’s approach to determining whether there is no defence.2 Cases have referred to whether the plaintiff can show that the defendant’s allegations were utterly baseless, as in Harry Smith Car Sales Pty Ltd v Claycom Vegetable Supply Co Pty Ltd.3

[72]	In Towers v R & W Hellaby Ltd,4 Thore J said the critical question will generally be whether the Court is satisfied that the plaintiff’s case is unanswerable, and the Court will not reach that conclusion if it can see an arguable defence.

[73]	The issue has been put in Pemberton v Chappell as whether there is an “absence of any real question to be tried”.5

[74]	What I have to determine is whether the plaintiff has discharged the onus of demonstrating that the defences raised are fanciful or not bona fide.

[75]	Had the defendants addressed directly the email exchange which expressly contemplates the provision of a replacement machine (with the exchange agreed to “this all looks fair”) in respect of the second lease then I would have considered that

2	McGechan on Procedure (online loose-leaf ed, Thomson Reuters) at [HR12.2.06].
3	Harry Smith Car Sales Pty Ltd v Claycom Vegetable Supply Co Pty Ltd (1978) 29 ACTR 21.
4	Towers v R & W Hellaby Ltd (1987) 3 NZCLC 100,064 (HC)
5	Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3.

such evidence may well have meant there was a factual dispute unsuitable for summary judgment.

[76]	The defendants’ limited evidence, I set out at [65] above, in my view is inconsistent with the contemporary email exchange set out at [55] and [56].

[77]	The Court is entitled to take a robust approach to summary judgment applications.6

[78]	I remind myself again that the evidentiary burden remains on the plaintiff. However, the absence of challenge to the email exchange in my view is significant. Again, I note the evidence of the emails came in reply but if there was a reasonable answer to the fact that the emails expressly contemplated a replacement helicopter to be provided then I would have expected the defendants to have raised that in evidence.

[79]	I raised with counsel for the plaintiff during his primary submissions the fact that the key emails relied on only came up in reply. Mr Tohill for the defendants, in his submission did not suggest the defendants felt constrained or unable to reply or prejudiced by not having an opportunity to do so.

[80]	At the end of the day, I consider the bare assertion that there was no agreement to substitute the replacement helicopter for ZK-IEP to be inconsistent with the emails and the contemporary conduct of the parties. The acknowledgement that ZK-IEP was only ever a temporary helicopter against the background of the 22 June 2016 email about that helicopter being replaced by a new helicopter to be painted in Heli Tour’s colours, mean the entry of a three year lease in August 2016 only makes commercial sense if that lease was intended to apply to the replacement helicopter.

[81]	In short, there was no point entering a formal lease for ZK-IEP for three years if that lease was only ever going to be short term because the defendants would have it that lease would fall away when the replacement helicopter came on line. Given the parties have been content to have an informal month-to-month lease of ZK-IEP since December 2016, the defendants offer no explanation as to why the parties would enter

6	Bilbie Dymock Corporation Ltd v Patel (1987) 1 PRNZ 84 (CA).

a three year lease in August 2016 when, on the defendants’ case, that lease was only ever going to be short term.

[82]	The other arguments raised by the plaintiff, summarised at para [60], are also inconsistent with the defendants’ bare assertion.

[83]	In the language of Eng Mee Yong v Letchumanan,7 I consider the defendants’ basic assertion to be lacking in precision and inconsistent with undisputed contemporary documents (the emails already referred to) and unable to be reconciled with the history of the oral lease of ZK-IEP, the defendants’ acknowledgement that ZK-IEP was a temporary helicopter and the entry into a three year lease against the background of it being agreed that ZK-IEP would be substituted by a new helicopter.

[84]	I consider the email exchanges record an agreement that the helicopter to which the 11 August 2016 lease applied would change given the response from Mrs Mitchell that the proposal by the plaintiff “all looks fair to Paul and I”. While the exact date of the hardware was not agreed in the June 2016 email exchange, I do not consider that to be material. The June 2016 email exchange does not suggest that the exchange was time dependent and the relevance of the replacement helicopter being purchased in the United States and having to be  refurbished indicate there would be some delay in  the exchange.

[85]	Accordingly, I consider the plaintiff has met the onus of showing the defendants do not have a defence in respect of the amount due in respect of the second helicopter, that sum being $68,363.38. I enter judgment for the plaintiff against each defendant in respect of that amount together with interest and costs.

[86]	The issue of whether judgment in respect of this cause of action has a material impact on costs is to be addressed in the memoranda filed as directed at para [48] above.

7	Eng Mee Yong v Letchumanan [1980] AC 331.

Conclusion

[87]	Judgment is entered against each defendant in the sums of $201,503.09 and
$68,363.38 relating to the two claims under the lease agreements, along with interest at the contractual rate of 18 per cent. The plaintiff is entitled to costs. If such cannot be agreed, memoranda are to be filed in accordance with [48] above.

[88]	The application for summary judgment relating to the loan is dismissed.

Associate Judge Lester
Solicitors:
Thomas Dewar Sziranyi Letts, Lower Hutt Macalister Todd Phillips, Queenstown