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High Court of Solomon Islands |
HIGH COURT OF SOLOMON ISLANDS
Civil Case Number 387 of 1995
AEROLIFT INTERNATIONAL LIMITED
-V-
MAHOE HELI-LIFT (SI) LIMITED AND MAHOE HELI-LIFT (NZ) LIMITED AND
THE ATTORNEY-GENERAL (Representing the Director of Civil Aviation)
High Court of Solomon Islands
(Palmer J.)
Hearing: 14/08/00 - 18/08/00; 21/08/00 - 25/08/00; 28/08/00 - 1/09/00; 4/09/00; 9/04/2001.
Judgment: 14/09/2001
Sol-Law for the Plaintiff
Bridge Lawyers for the First and Second Defendants
S. Manetoali for the Attorney-General
PALMER J. The Plaintiff, Aerolift International Limited (hereinafter referred to as “Aerolift”) is a foreign company incorporated in the Republic of Ireland. It has its headquarters in Singapore. It is a joint venture company between Kentwich and Vladivostok Air, both foreign companies. Kentwich is comprised of investors from the Western World, Vladivostok Air (“VA”) is a Russian company that supplies Russian aircraft. VA supplies the aircraft that Aerolift uses in its business worldwide, inter alia, leasing out Russian aircraft whether fixed wing or rotary for commercial use. There are subsidiaries that Aerolift has worldwide including one in New Zealand (hereinafter referred to as “Aerolift NZ”) from which initial contacts were made concerning the lease of a kamov KA 32 T helicopter.
The First Defendant, Mahoe Heli-Lift (SI) Limited (hereinafter referred to as “Mahoe SI”) is a locally incorporated company, carrying on the business of logging operations, in particular the extraction of round logs by helicopter. It is at all material times a subsidiary of Mahoe Heli-Lift (NZ) Limited (hereinafter referred to as “Mahoe NZ”). Mahoe SI is the arm of Mahoe NZ in Solomon Islands.
Mahoe NZ on the other hand is a company incorporated in New Zealand. It is a family business owned by Christopher Bergman (“Bergman”) and his brothers. Bergman is a director in Mahoe NZ and Manager Director in Mahoe SI. He is the ‘brains’ behind Mahoe SI and the initiator of the idea to carry out heli-logging operations in Solomon Islands. Heli-logging entails the extraction of logs by helicopter from the forest where they had been felled (this is referred to as “the lift site”) to agreed drop off zones (this is referred to as “the skid site”). Initial contacts and arrangements were made between Bergman and William McLellan Campbell (“McLellan”), a director of Aerolift NZ. This culminated in a meeting on 14th November 1994 at Nelson, New Zealand. Present at that meeting were representatives of Aerolift, Gee, McDonald, McNicholas, Anderson and McLellan, and Ward and Bergman of Mahoe NZ. McLellan took notes of that meeting. He was thus able to refresh his memory through those notes and to give clear undisputed evidence of the matters discussed therein. These can be summarized as follows:
From that meeting, a draft agreement (“Exhibit 1”) was drawn up by McLellan for consideration by Mahoe NZ. This led to the signing of a lease agreement dated 28th June 1995 (hereinafter referred to as “the Agreement”), for the lease of a Kamov KA 32-T helicopter, (hereinafter referred to as “the Helicopter”).
The claim of the Plaintiff
The Plaintiff relies on the terms of the Agreement for its claims against Mahoe SI and Mahoe NZ. These include claims for moneys due and owing under the Agreement, damages for breach of contract, trespass, detinue and conversion. Against the Third Defendant, Plaintiff claims damages for negligence and detinue.
Claim against Mahoe NZ
The claim against Mahoe NZ is based on the terms of the Agreement, which revolves around the lease of the Helicopter:
“The Company is undertaking logging operations in the Solomon Islands (called “the Operations”) and is desirous of engaging the services of the Contractor to supply one (1) KAMOV KA 32 T helicopter with Russian pilots and support crew subject to the terms and conditions below.”
(see heading “Background” in the Agreement)
The Helicopter was delivered to Mahoe NZ in Honiara, Solomon Islands on 22nd July 1995 (Exhibit 54) and commenced operations on 25th July 1995. Some six months later however, Mahoe NZ terminated the Agreement by letter dated 12th December 1995 (Exhibit 35). The grounds relied on were:
(1) That the helicopter was a Kamov Ka 32-C and not a Ka 32-T as specified in the agreement (Exhibit 8 Clause 1);
(2) The helicopter had been plagued with major mechanical problems. These were specified as removal of engines (twice) to fix a leaking fuel problem and ultimately replacement of the engines, gearbox replacement and blade delamination with a total of 36 days lost from the end of July to 17 November 1995.
Aerolift contends there was no basis to the grounds relied on for termination and that accordingly Mahoe NZ had wrongly repudiated the Agreement. Nevertheless it conceded that by filing Writ of Summons in this action on 20th December 1995 it accepts the Agreement in any event had been brought to an end. The initial issue for determination therefore is whether Mahoe NZ had wrongly repudiated the Agreement or not.
Is the Helicopter a Kamov KA 32 C or a T model?
Aerolift had gone to great lengths to furnish this Court with the relevant evidence that the Helicopter leased to Mahoe NZ was for all purposes a Kamov Ka 32-T. Three witnesses (William McLellan Campbell, Boris Ostavich and Vladimir Danilenko) gave unchallenged evidence that the Helicopter was a T model and not a C. McLellan confirmed (page 52 of Transcript) that it was a C model but converted to a T and licensed by Russian Aviation authorities as a T. Boris Ostavich (hereinafter referred to as “Boris”), himself a helicopter pilot gave irrefutable evidence of the differences between a C model and T. Some of the differences mentioned by Boris include the following:
Boris confirmed that a C model can be converted to a T model and be able to perform exactly the same tasks as a factory manufactured T (pages 116 -117 of Transcript). He explained that when a conversion is done the specialist search and rescue equipment are removed and a second pilot’s controls fitted. The certificate of airworthiness is then issued. He pointed out that a converted T would still have the empty radome in place but without the specialist equipment. He pointed out too that any layperson could easily see the difference between the cockpit in a C model and a converted T model (see Exhibits 101 and 102). Apart from those differences the engines are exactly the same. He confirmed that the Helicopter leased to Mahoe NZ was a converted T.
Vladimir Danilenko (“Danilenko”) was the expert witness on helicopters. He hails from Khabarovsk, Russian Federation and had been brought all the way from Russia to give evidence in this trial. An interpreter Tanya Downs had to be brought also by Aerolift for the purpose of translating his evidence, as he did not speak English. Danilenko is a helicopter engineer by profession and holds the position of Chief Helicopter Maintenance Engineer of the Far East Regional Administration, Department of Air Transport, Khabarovsk, USSR (Exhibit 99). He has extensive experience in helicopter engineering maintenance including Ka-32 (both C and T versions), Mil versions 2, 6, 8T (P), 8-AMT, 8-MTV-1 and 26. Not only did he give vital and unchallenged evidence on the mechanical engineering aspect of the Kamov Ka 32 versions and their differences, but had also brought numerous documents, including manuals, regulations, registration procedures, documents on maintenance and life span of various parts of the Helicopter. He gave vital evidence on the conversion process. Danilenko explained that a C model is designed primarily for maritime search, rescue and exploration functions whereas a T model is specifically designed for transportation of heavy loads (page 169 of Transcript). He pointed out that apart from the differences in cockpit layout and instrumentation a C and T model are identical with respect to engines, chassis, fuselage, transmission and rotors (pages 171-172 of Transcript and Exhibits 101 - 102). Part of the documents submitted as evidence included a document called an Act (Exhibit 103) dated 15 May 1995. That document showed that the Helicopter with an onboard number 31021 had been duly certified as fulfilling the conversion process from a C to a T. One of the things Danilenko did during his visit to this country in 1996 was to carry out a physical inspection of the Helicopter and produce a report (pages 188 - 190 of Transcript, Exhibit 105). His report on the conversion is conclusive, that the helicopter was at all material times legally and operationally, a Ka 32-T. When all the evidence is compiled together, it is simply overwhelming. The Helicopter delivered to Mahoe NZ had been duly converted and certified as a Kamov Ka 32 T model. No evidence whatsoever, to challenge this fact has been produced by the Defendants. I find no basis, for the ground relied on in the letter of termination dated 12 December 1995, that the Helicopter used in Solomon Islands was a Ka 32 C and not a Ka 32 T.
Alleged Major Mechanical Problems
The second ground relied on was that the Helicopter was plagued with major mechanical problems. These included fuel/oil leakage, transmission (gearbox) problems and blade delamination. Aerolift does not deny the occurrence of those allegations. It conceded the engines experienced fuel/oil leakage problems on three occasions (pages 90, 92, 99 of Transcript and Exhibits 53, 54), blade delamination and replacement of transmission and swash plates (see pages 100, 105, 108-109 of Transcript and Exhibits 53 and 54). Aerolift however denies there was any corresponding loss of flying time. Boris explained that the engine change would have occurred at a later time in any event and that what actually happened was that it merely brought forward a scheduled change. Bergman conceded during cross-examination that it was reasonable to change the engines at that time (page 242 of Transcript).
The decision to change the transmission (gearbox) was made by Aerolift at a time it felt convenient to carry out, without necessarily affecting the operations. It was not done due to any mechanical problems. It still had some 200 hours of its resource life available before any change was required. The swash plates were changed because their scheduled life was near expiry anyway (page 105, 108 - 109 Transcript and Exhibit 54). Whilst Aerolift conceded that the blade delamination and fuel leaks were the cause of unscheduled maintenance, they argued that the Agreement expressly took this into account (Exhibit 8). Clause 2.5 provided:
“In the event of an occurrence of unscheduled maintenance arising from the failure of a part while the Aircraft is being flown in accordance with aircraft’s operations manual any ferry time cost shall be borne by the Contractor. The Company shall render all possible assistance in organising technical services and maintenance for the Aircraft.”
Taking all matters into account I am not satisfied the unscheduled maintenance of the Helicopter as a result of a failure of a part or fuel leakage amounted to any breach of the contract and warranted termination of the Agreement under that ground.
Loss of 36 days
The letter of termination alleged that 36 days were lost as a result of the mechanical problems. In countering this allegation, detailed evidence was adduced from Boris. A summary of his evidence has been succinctly set out in paragraph 23 of the written submissions of the Plaintiff. The number of days lost due to the first occasion of fuel/oil leakage was four (4) days (subparagraph 23(a) - see also evidence of Boris at pages 90-91 of Transcript and Exhibits 53, 54); on second occasion, one day was lost (see evidence of Boris at page 92 and Exhibits 53, 54); and on third occasion, 2.5 days (see evidence of Boris at page 99 Exhibits 53, 54). The blade delamination was repaired with the loss of 1.5 days (subparagraph 23(b) - also see pages 94 - 95 of Transcript and Exhibits 53, 54). There was no loss of time when the engine change was made as it took place at a time when the Helicopter was grounded anyway and due to Mahoe NZ’s fault (subparagraph 23(c) and pages 100-101 of Transcript). The transmission change took place prior to commencing operations at Vura and so no time was lost anyway (page 105-106 of Transcript) (paragraph 23(d)). Under paragraph 23(e) the Helicopter was already grounded when the swash plates were replaced, so again no loss of time can be attributed against Aerolift. Also the long line needed repair and so couldn’t be used at that time even if the Helicopter was available. Again this must be attributed to Mahoe NZ’s failure (Clause 3.8 of Exhibit 8). No Mahoe NZ pilot was also available during the said time (page 108-110 of Transcript). Aerolift concedes to losing a day due to faults in the Loadrite weighing system paragraph 23(f) (page 87 of Transcript) and another day because of a fire extinguisher fault (page 98 of Transcript). The total time lost came to only 10.5 days and not 36 days as alleged in the termination letter. After replacement of the engines in early October 1995, not a single day has been lost on Aerolift’s account thereafter; conceded by Bergman (page 242 of Transcript).
In contrast, evidence adduced showed that time lost due to Mahoe NZ’s default including the following matters, exceeded 30 days:
(a) Helicopter grounding through non-payment of dues;
(b) Problems with the long line and hook;
(c) Incorrectly stropped logs (heads not cut off);
(d) Hookers and stroppers not in place (including a one day strike);
(e) Mahoe pilots unavailable;
(f) Lack of fuel;
(g) Poorly prepared helipads; and
(h) Re-lifting of all logs at Fuambu (pages 87-114 of Transcript and Exhibits 53, 54).
On the question whether the scheduling and performance of maintenance and repair work was reasonable Danilenko confirmed that this was so (pages 185-187 of Transcript). It is also submitted on behalf of Aerolift that even if the time lost had amounted to a breach of the Agreement sufficient to warrant termination, nevertheless Mahoe NZ, by its conduct in using the Helicopter for a further two months after the engine replacement, elected to affirm the Agreement and thereafter could not rely on the earlier mechanical failure as a ground for termination. A number of cases were relied on - see United Australia Ltd v. Barclays Bank Ltd [1941] AC 1, 30 (Lord Atkin); Wendt v. Bruce [1931] HCA 9; (1931) 45 CLR 245, 257 (Dickson J); Sargent v. ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634.
Much of the evidence adduced by Aerolift against the grounds of termination has been unchallenged and simply overwhelmingly against Mahoe NZ.
Additional Ground for Termination Subsequently relied on by Mahoe NZ - Force Majeure
There was also another ground relied on by Mahoe NZ and Mahoe SI under paragraphs 17, 18 and 18A of their Amended Statement of Defence and Counter-Claim. This is the ground of force majeure based on the Director of Civil Aviation’s (“the DCA”) orders for removal and grounding of the Helicopter. The force majeure relied on can be summarized as follows:
“(a) that the DCA, without warning or without giving to both the Plaintiff and the First Defendant any reasons, ordered the grounding of the helicopter and its removal from Solomon Islands;
(b) that the First Defendant assumed that the DCA had power to and had acted lawfully since it does not know about the model of the helicopter;
(c) that at the time of grounding of the helicopter, the Plaintiff had no other helicopter in Solomon Islands;
(d) that the Plaintiff was not able to immediately replace the grounded helicopter;
(e) that the helicopter supplied by the Plaintiff was not of the model licensed to the First Defendant and as provided for in the agreement between the Plaintiff and the First Defendant, namely, a Kamov KA 32-T, or in the alternative;
(f) that the Plaintiff was not immediately able to convince the DCA that the helicopter licensed to the First Defendant was a Kamov KA 32-T model.”
It is not in dispute an order for removal of the Helicopter was issued by the DCA to Chris Bergman as Chief Executive of Mahoe SI, pursuant to letter dated 11th December 1995 (Exhibit 34). The reason given was that the Helicopter used was a KA-32 C and not a KA-32 T model. Circumstances pertaining to force majeure however are governed by clause 10 of the Agreement. Clause 10.1 specifically provided that delays in performance or non-performance directly caused by force majeure shall not constitute a breach of contract. The non-performance of the contract by Aerolift due to the order of the DCA accordingly could not amount to a breach of contract and entitling Mahoe NZ or Mahoe SI to terminate the Agreement. Clause 10.2 required the party affected by force majeure to give prompt notice and to do all things reasonably possible to remove or mitigate its effects. The undisputed evidence adduced showed that Mahoe NZ did nothing of those things. On the other hand, I am satisfied Aerolift made continual approaches to the DCA’s office to have the order revoked [see evidence of McLellan at pages 54 - 55 of Transcript, Ostavich pages 119, 121 - 125, 127] and ultimately came to Court for assistance [see evidence of Anita at pages 379-380 of Transcript and Exhibit 163]. Clause 10.4 gave definition of force majeure as “means any event or circumstance (whether arising from natural causes, human agency or otherwise) beyond the control of the affected party including but without prejudice to the foregoing . . . rules or regulations of any government authority asserting jurisdiction or control compliance of which makes continuance of operations impossible.” Mahoe NZ needed to show that the order of the DCA made continuance of operations impossible. This it failed to do. The evidence adduced by Aerolift showed that another helicopter was easily available within the time contemplated by the Agreement, that is, within seven days [evidence of McLellan at page 66 of Transcript, conceded by Bergman at page 266 of Transcript]. As to the question whether the Helicopter was a Kamov KA 32-T or C, ample evidence had been adduced to show that there was simply no basis on which such view could be sustained. Further, little opportunity was given to Aerolift to convince the DCA of the correct model of the Helicopter. On the evidence before me, I am not satisfied the ground of force majeure can be sustained.
Order of removal of the Helicopter
On 11th December 1995, the DCA issued a letter directed to Bergman as Chief Executive of Mahoe SI to have the Helicopter removed from Solomon Islands forthwith (Exhibit 34). The sole ground relied on was that the Helicopter used by Mahoe SI was a KA-32C and not KA-32T. I quote:
“It has come to the attention of this office and I am very concerned indeed to realize that you are presently utilizing a helicopter KA-32C model instead of a KA32-T as stipulated in your Air Operators Certificates issued by this Department.
You are hereby ordered to have this KA-32C model removed from the country immediately. Any further amendment to your current Air Operators Certificate can only be considered upon this compliance.”
Two witnesses were called for the third Defendant. The first was George Satu (“Satu”). He was the Acting Principal Flight Standard Officer during the period June 1994 to December 1996. His evidence on the airworthiness of the aircraft is crucial to the Plaintiff’s case. Part of this included the checking of aircraft for airworthiness, checking of pilot licences, checking of aircraft engineers, grade licences and air fuel inspections. When the Helicopter arrived at Munda on 21st July 1995, he was present to escort and marshal it in. The next day (Friday 22nd July 1995) he flew with the crew to Honiara. On the following Monday he carried out inspection of the Helicopter and granted approval for it to commence operations. One of the meetings mentioned in chief by this witness was the meeting of 18th October 1995 in which a request was made for copies of the certificate of airworthiness of the Helicopter, flight manual and maintenance manual of the Helicopter. It was also requested in that meeting that the cockpit instruments be placarded in English as everything was written in Russian. Satu gave evidence also of having received complaints from Mahoe SI and people working on the ground of the operations of the Helicopter at Malaita. As a result of these complaints he instituted an investigation. This included a physical visit to the site and flying with the crew to see for himself how the operations were being carried out. In spite of those complaints and concerns nothing appears to have been done until December 1995 when this witness issued a letter (Exhibit 117) dated 7th December 1995, addressed to the DCA complaining about a number of things. These included the failure of the Operator (presumably this meant Mahoe SI) to provide various manuals he had earlier requested, and to placard the instruments in the cockpit. Satu also expressed concerns about the load capacity of the Helicopter; he thought it was a C model and military surveillance helicopter rather than a T model meant for logging operations. The DCA’s response (see note in Exhibit 117) was for Satu to collect all necessary documents and materials for further investigation (confirmed by Anita at 355 of Transcript). When asked to comment about the order of removal issued by the DCA under cross-examination, Satu stated he was taken aback especially when investigations and enquiries were yet to be commenced and completed.
The second witness called was the DCA himself, Michael Tom Anita (“Anita”). He was the one who issued the order of removal on 11th December 1995. According to the evidence adduced before this Court, the only material relied on by him for removal of the Helicopter was the memorandum of Satu dated 7th December 1995 (Exhibit 117). Those grounds can be summarized as follows:
The note by Anita advising that all necessary document and materials be collected for further investigation written on Satu’s memo was indeed the right advise and decision given at said time. The sudden decision taken a couple of days later, on 11th December 1995 to have the Helicopter removed clearly was wrong and without basis. The only reason given in that letter was that it was a C model and not a T. During cross-examination, Anita was asked why it took so long for him to take action against the Helicopter when he knew right from the beginning that the marking on the outside of the Helicopter identified it as a C model though in the Aerial Works Permit it was described as a KAMOV KA 32T model. His response was unconvincing when he said that he only became concerned after receiving numerous complaints and the letter of Satu (Exhibit 117). He had nothing to say when it was put to him that since the engine changes and the fixing of the various mechanical faults in about the second week of October 1995, there had been no complaints or problems. In other words, for the span of more than one month prior to the making of the order for removal there had been no complaints about engine performance.
Boris had given clear, detailed and unchallenged evidence as to the various scheduled and unscheduled maintenances, engine changes, repair work and replacement of parts throughout the operations of the Helicopter. He had provided satisfactory explanation as to each and every engine change and maintenance. Virtually no stones had been left unturned.
There were some concerns expressed about the lifting capacity of the Helicopter but the clear, detailed and unchallenged evidence of Boris and Danilenko too had addressed these. There is simply no basis for any suggestion that the engines of the Helicopter might have been “over-stressed” by the weights of logs it was lifting, or that the Helicopter was not a T model. The Defendants have simply not produced any iota of evidence to challenge the evidence of the Plaintiff. Those allegations in my respectful view can best be described as mere speculations. The evidence adduced clearly showed there was simply no basis for the decision to order removal of the aircraft on the ground that it was a C model and not T. Whilst the marking on the outside of the Helicopter showed that the Helicopter was a C model that had merely been an oversight. If the matter had been brought to the attention of the Plaintiff, the markings would have been removed. I am satisfied the Helicopter had been well and truly converted into a T model and for all purposes was a T model helicopter operationally.
What was unfortunate about the DCA’s decision was the fact that little time or opportunity had been given to Aerolift to explain. Not only that, when they tried to get in touch with the DCA and provide explanation, they were simply shunned. They knew what the truth was and could have provided it, but were not given the opportunity to do it. Boris was available to do this immediately. But even if any check had been done with the relevant aviation authorities in Russia, any doubts too would have been clarified. Similar checks on the lifting capacities of such helicopters too would have cleared any doubts entertained by the DCA. Further, at no time was it made known to Boris or Aerolift, in writing or verbally, that the Helicopter provided was a C model and not a T.
On the issue of placarding the instrument panel in English for instance, Boris gave unchallenged evidence that about two weeks after the request was made, he got a dymo label marker and placarded the instrument panel in English. Had Satu checked the cockpit before writing his letter of 7th December 1995 he would have found that the placarding had been done. I accept the unchallenged evidence of Boris on this. Had Satu enquired, he would have been told (by Boris) that the work had been done. On the issue of maintenance schedules, Boris explained this was recorded in a white board in the Container where maintenance and repair work was carried out. Satu conceded in evidence he had access. Regarding flight manuals, the unchallenged evidence was that a copy had been provided to Ward in September, but that an extra copy in any event was ordered for Satu.
The evidence adduced showed conclusively that at no time was any request made for proof that the Helicopter was a C model and not a T. Even in the meeting of 18th October 1995, no mention was made by Satu or the DCA that the Helicopter provided was a C and not a T. The only viable conclusion that can be reached by this Court is that the decision to order removal of the Helicopter was reached in haste, without proper consultation and investigation and without giving the Plaintiff opportunity to respond to the allegations contained in the DCA’s order. There was simply no basis for it.
Collusion between Bergman and the DCA
The Plaintiff alleges over and above its claims that there was collusion between the DCA and Bergman. It alleges Bergman wanted Aerolift out so that Mahoe NZ could proceed with a new agreement with Nefteyugansk for the lease of its helicopters and that the DCA did whatever Bergman asked, including giving the order for the removal of the Helicopter.
Collusion is defined in Black’s Law Dictionary, sixth edition as:
“An agreement between two or more persons to defraud a person of his rights by the forms of law, or to obtain an object forbidden by law. It implies the existence of fraud of some kind, the employment of fraudulent means, or of lawful means for the accomplishment of an unlawful purpose. A secret combination, conspiracy, or concert of action between two or more persons for fraudulent or deceitful purpose.”
Osborne’s Concise Law Dictionary defines it as:
“The arrangement of two persons, apparently in a hostile position or having conflicting interests, to do some act in order to injure a third person or deceive a court.”
The Third Defendant apparently relies on this definition to oppose any suggestions that there had been collusion. Counsel Manetoali for the Third Defendant submits Aerolift had to prove that the DCA and Bergman were in a hostile position or have conflicting interests. He submits there is no evidence of any conflicting interests or hostile position between the DCA and Bergman and that accordingly there can be no collusion.
In Words and Phrases Legally Defined Vol 1: A - C, Butterworths 1988, two meanings are given to the word “collusion”. The first meaning given relates to divorce proceedings and essentially requires the presence of an agreement or conspiracy to be established. The Canadian Courts define it as:
“In my opinion . . . collusion may be: (a) Any agreement or conspiracy to which the petitioner is a party which . . . tends to pervert or obstruct the course of justice; (b) Any agreement or conspiracy to which the petitioner is a party to obtain a divorce by means of manufactured evidence; (c) Any agreement or conspiracy to which the petitioner is a party to obtain a divorce by some fraud or deceit practiced on the court.” (Johnson v. Johnson (1960) 31 WWR 403 at 415, BCSC per Norris J).
See also the case of Peel v. Peel (1965) 55 WWR 202 at 207-208, Sask QB per Disbery J:
“A study of four decisions of the court of appeal of this province leads me to the conclusion that in this jurisdiction [Saskatchewan] the law likewise requires as an essential element in a collusive bargain or agreement an attempt by adverse parties in the action to pervert the course of justice, by entering into such bargain or agreement with an improper, corrupt or dishonest purpose in view. This is the touchstone which, when applied, will distinguish between collusive and non-collusive bargains.”
A similar definition is given by the South African Courts:
“In my view collusion consists in our law in an agreement between the parties to a suit to suppress facts, or to put false evidence before the court, or to manufacture evidence, in order to make it appear to the court that one of the parties has a cause of action, or a ground of defence, which in fact he has not.” (Kuhn v. Karp 1948 (4) SA 825 (T) per Roper J).
The second meaning given is that in interpleader proceedings. In para. 1019 of 25 Halsbury’s Laws (4th edn) the learned Authors define it as follows:
“It is difficult to draw a clear line between interest and collusion and the modern interpretation is that there must be no identification of interest between the applicant and the claimant. Collusion does not here necessarily entail anything morally wrong; it means that the applicant must not ‘play on the same side as one of the claimants’.”
See also Murietta v. South American etc Co Ltd & Dever (1893) 62 LJQB 396 at 398, DC per Charles J:
“Collusion, in the sense in which it is used in this Order [RSC (1883) Ord LVII, r 2(b) (revoked; see now RSC 1965, Ord 17, r 3(4)(b)] under which an applicant for relief by way of interpleader had to satisfy the court that he did not collude with any of the claimants], does not necessarily entail anything morally wrong, although the word has acquired a meaning generally associated with something morally wrong . . . . The word in the interpleader order has its logical signification, that the applicant . . . must not play the same game as one of the parties.”
If the first definition were applied, Aerolift would have to show that some sort of agreement or conspiracy exists between the DCA and Bergman to injure it. Under the second definition, Aerolift only needs to show that the DCA was playing on the same side as Bergman. Is there evidence of an agreement or conspiracy? Is there evidence to show that the DCA was playing on the same side as Bergman?
The evidence
The evidence adduced before this Court speaks for itself. There is little doubt the DCA and Bergman had become so close to each other and that this affected the neutrality and objectivity of the DCA in the discharge of his duties. This is a situation all public servants, especially those in positions of power and authority must be wary of. There is nothing wrong with establishing an amicable working relationship with one’s clients or customers, but that does not mean that a public officer can then sacrifice his official duties in favour of that friendship or relationship. There is a difference between clients and customers that one comes into contact with through ones official duties or jobs as opposed to personal friends. The DCA came into contact with Bergman through his official duties, not as a personal or former friend. It is this kind of relationships that public officers must always be on guard against, especially where such so-called friends start making “demands” touching on ones duties and responsibilities. Of-course that does not mean they might become good friends thereafter, provided that friendship does not interfere with the DCA in the due discharge of his duties. What is unfortunate about this relationship is that it deteriorated to the point where the DCA unwittingly or not was being used by Bergman to achieve what he wanted. This was brought out clearly during cross-examination when Anita was cornered and had to concede that what Bergman wanted he got (see page 381 of Transcript of Evidence).
Bergman and Anita admitted they were more or less on first name terms with each other and met frequently as much as once a week; more frequently at other times (see pages 258 and 345 of Transcripts). They also admitted having discussed the helicopters they intended to use from Nefteyugansk United Air Transportation Company (“Nefteyugansk”) well before any decision for removal of the Helicopter was made by the DCA. The Bergman brothers (Chris and Derek) signed an agreement for the use of two of the Nefteyugansk helicopters in Solomon Islands, as early as 13th November and 19th November 1995 respectively (see Exhibit 155 and pages 288 and 356 of the Transcript). Bergman had already commenced negotiations a month earlier (see page 291 of Transcript). Nefteyugansk executed the agreement with Mahoe NZ on Friday 8th December 1995. On the following Monday 11th December 1995 the DCA issued his order for removal of the Helicopter [Exhibit 34], and on Tuesday 12th December 1995 Bergman issued his letter of termination of the Agreement with Aerolift [Exhibit 35]. The closeness of the happenings of those events could not be mere coincidence. They knew what was happening. The DCA could not plead ignorance. I am satisfied he was aware of what was happening throughout.
Bergman and the DCA had also discussed together the complaints concerning the Helicopter and its removal (pages 288-289 and 356-357). Anita admitted on evidence his order for removal was based partly on Bergman’s complaints. He conceded he discussed with Bergman the idea of bringing in the helicopters prior to the order for removal but probably asked Bergman to provide evidence to support the order (pages 64, 366 and 367). This is consistent with the production by Bergman of a patently false document of 29th December 1995 [Exhibit 121]. That document sought to support the view that the Helicopter used by Mahoe NZ was a KA-32 C and not a T (pages 269 and 365 of Transcript). Bergman was strenuously questioned on this particular document as to how it came into his hands and why it was given to Anita in support of his claims that the Helicopter was a C and not a T. His answers can only be best described as evasive, confused, defensive and unconvincing and unsatisfactory.
The DCA nevertheless relied on this document despite his concession that it looked funny and in the face of overwhelming evidence that the Helicopter was a KA 32-T. On 20th December 1995 when Bergman requested permission to bring in the Nefteyugansk helicopters [Exhibit 118] it was granted the same day [Exhibit 120]. This is consistent with their admitted close relationship. The events that transpired prior to and after the order of removal by the DCA, could only point to a close working relationship between them. After the order of removal was made, Aerolift made attempts to speak with the DCA and provide documents to show that the Helicopter was a converted T but to no avail. The same cannot be said however for Bergman. The DCA was always available for him, to do his bidding. When an application was made for extension of the Foreign Investment Board (“FIB”) approval for Mahoe NZ, the DCA threw in his support despite the fact Mahoe NZ did not have a helicopter in the country at that time [Exhibits 122 and 123, and pages 272-273, 372-374). On 10th February 1996 he ordered the grounding of the Helicopter [Exhibit 87] notwithstanding overwhelming evidence in his possession as to the true status of the Helicopter [Exhibits 36, 77, 79 and 125]. On 22nd April 1996, the DCA cancelled Boris’s permit to access the airfield [Exhibit 127] on the same day following a request by Bergman and telling Boris by letter [Exhibit 126] that he would be charged for unauthorized access to Henderson. At the same time Boris’s ID security card was cancelled (page 374 of Transcript). All throughout nothing could be clearer, that the DCA had sided with Bergman. Aerolift was on the opposite side.
The only plausible conclusion this Court can reach is that there was collusion between Bergman and the DCA to have the Helicopter grounded and removed from service so that the Nefteyugansk helicopters can be brought in. I am satisfied there was a consensus in the minds of Bergman and the DCA to have the Helicopter removed or grounded even when it was obvious there was no basis for it. The consequences of that collusion resulted in the making of an ill-considered order and the DCA acting in a hostile manner to Aerolift personnel. He just simply did not want anything to do with Aerolift. In the result I am satisfied this is additional ground on which Aerolift is entitled to rely on as constituting repudiatory conduct and giving rise to its claims for recovery of moneys owing under the agreement, and damages subject to the ground of illegality raised by the Defendants.
GROUNDS OF ILLEGALITY
This is the crucial submission Mahoe NZ relies on, as it has little defence to the claims of Aerolift based on the Agreement. Mahoe NZ does not deny the existence of the Agreement. Its defence lies on the submission that even if it were a valid agreement, it would not be enforceable in this jurisdiction on grounds of illegality. Illegality has not been expressly pleaded but I am satisfied it was adverted to in paragraph 4 of the Amended Statement of Defence and Counter-Claim. It is pleaded there that the provisions of the Investment Act [Cap. 142] (“the Act”) had been breached; that Aerolift and Mahoe NZ were not approved investors under section 6 of the Act, and that no approval had been obtained under section 19 for the Agreement. But even if it might be argued otherwise, courts have taken judicial notice of illegality where evidence exists - see Edler v. Auerbach [1950] 1 KB 359 and Snell v. Unity Finance Company [1964] 2 QB 203; applied in Solomon Islands by Awich J. in the case Ampo Company Limited, Gerard Amoretti and Didier Ferri Pisani v. Tropical Forest Resources Limited Civil Case Number 53 of 1995, judgment delivered on 25th March 1997 (hereinafter referred to as “Ampo’s Case”). The well-established principles of law on illegality were set out in Alexander v. Rayson [1936] 1 KB 169, 182 (CA):
“It is settled law that an agreement to do an act that is illegal or immoral or contrary to public policy, or to do any act for a consideration that is illegal, immoral or contrary to public policy, is unlawful and therefore void. But it often happens that an agreement which in itself is not unlawful is made with the intention of one or both parties to make use of the subject matter for an unlawful purpose, that is to say a purpose that is illegal, immoral or contrary to public policy. The most common instance of this is an agreement for the sale or letting of an object, where the agreement is unobjectionable on the face of it, but where the intention of both or one of the parties is that the object shall be used by the purchaser or hirer for an unlawful purpose. In such a case any party to the agreement who had the unlawful intention is precluded from suing upon it. Ex turpi causa non oritur action. The action does not lie because the Court will not lend its help to such a plaintiff.”
In Ampo’s Case his Lordship Awich J. made reference to the approach of Australian Courts on illegality, which was, to look at the contract together with the legislation and decide whether the contract is illegal as to formation or illegal as to performance. It would not be enforced if it was illegal as to formation, but may be enforced at the suit of the innocent party if the contract was illegal as to the performance intended by the guilty party or performance procured by the innocent party - see T.P. Rich Investment Pty Ltd v. Calderon [1964] NSW R 709. His Lordship pointed out that the result of such approach renders many contracts in business where licences or permits are required but not obtained, unenforceable because of illegality - one such example cited was the case of Haddin v. Le Feuvre [1969] 2 NSW R 32. In that case the New South Wales Court of Appeal held that a deed entered into for carrying on business of dairyman or milk vendor, which was not registered under the New South Wales State’s Milk Act, was illegal as formed and therefore unenforceable.
His Lordship also made reference to the approaches by courts in England, New Zealand and South Africa, which are also important for our purposes in this case.
“The Approach favoured in England is to interpret the legislation by deciding what the purpose and therefore the intention of the legislation is. If the interpretation is that the legislation is aimed at prohibiting all together the type of transaction, the subject of the contract, then the contract is unenforceable. If on the other hand the purpose is merely to impose some regulatory measures for the orderly conduct of the business or simply raise revenue, then the contract may be enforced at the suit of the innocent party, despite the breach of the legislation. The other aspect is that which I have already stated above, namely, if the legislation is aimed at protecting a category of persons such as tenants, passengers, patients and others, the contract may be enforced by a person in the category protected.”
[Page 10, Ampo’s Case]
His Lordship cited the judgment of Devlin J. in St. John Shipping Corporation v. Joseph Rank Ltd [1957] 1 QB 267 in support, which gave numerous illustrations of the rule.
The approach of New Zealand courts followed that of the courts in England. The approach by the South African courts is more direct. A contract is illegal if it is illegal in formation, performance and its ultimate purpose is contrary to public policy, statute or contrary to moral - contra bono mores. The leading case is Conradie v. Rossouw 1919 AD. 314, see also Jajbhay v. Cassim 1939 AD 548 and Pietzch v. Thompson 1972 (4) SA. 122.
In Ampo’s case, Ampo Company Limited (“Ampo”) who was a foreign investor had failed to obtain approval and registration with the Investment Board (“the Board”) for purposes of carrying out logging operations in the country. Section 6 of the Investment Act required any foreign investor wishing to engage in investment in the country to be registered with the Board and in possession of a certificate of approval. Despite this, Ampo entered into an agreement with Tropical Forest Resources Limited (“Tropical Limited”) a locally incorporated company, to carry on logging business in the country. The two parties fell out not long after and Ampo sought to recover monies due and owing under the agreements it had entered into with Tropical Limited. Awich J. held the agreements entered into could not be enforced for illegality. His Lordship concluded as follows:
“I think the consequence of sections 5 and 6 of the Investment Act, 1990, to contracts with unregistered foreign investor should be determined by taking into account the public interest in Solomon Islands, intended to be protected by the Act. The purpose is no doubt to enable policy makers in Solomon Islands, a country in its very early stage of development, to have control over investments and therefore in the direction of its development. In my view, sections 5 and 6 were enacted with the intention of prohibiting a foreign investor from engaging in business before the country’s authorities have obtained information about the foreigner and have admitted the foreigner to do business in Solomon Islands in accordance with the policy in Solomon Islands. Violation of sections 5 and 6 defeats the public interest intended to be protected. It should result in the court declining to enforce a contract entered into by the violator, an unapproved and unregistered foreign investor. If the contract is with a Solomon Islander who was aware of the illegality and encouraged it by taking it upon himself the responsibility of obtaining the approval as it is in this case, he too should be denied relief by court. It is my decision therefore that in this case, the claim of the three plaintiffs based on contracts tainted with illegality and on a letter of guarantee issued in contracts tainted with illegality cannot be enforced. The claims of the plaintiffs, based on any of the three contracts or oral one, are unenforceable because of illegality and are dismissed.”
[Emphasis added]
The ratio in his Lordships decision is that a foreign investor who carries out investment in Solomon Islands without approval of the Board runs the risk of not being able to enforce a contract entered into on grounds of illegality. Section 6 of the Investment Act is in very clear terms. It is prohibitive. It prohibits any foreign investor from engaging in any investment in Solomon Islands, unless the foreign investor is registered with the Board and has approval.
The issues, which apply to this case in my view, are also similar. The Court is being asked to consider whether Aerolift and Mahoe NZ were engaged in investment in the country. To determine that question, this Court would have to decide whether there was any breach of the Investment Act. Mr. Sullivan submits Aerolift has not breached any provisions of the Investment Act in that neither it nor Mahoe NZ were engaged in any investment in the country.
Was Aerolift engaged in investment in Solomon Islands?
The initial question for determination is whether Aerolift and Mahoe NZ were engaged in any investment in Solomon Islands. Put another way, “whether the lease of a helicopter between two foreign investors, where that helicopter is operated by a third foreign investor (Mahoe SI), which has approval, is an investment in Solomon Islands by the parties to the lease” (see para. 71 of the submissions of the Plaintiff). Aerolift and Mahoe NZ do not deny they are “foreign investors” as defined in section 2 of the Investment Act (conceded in paragraph 68 of submissions of Plaintiff). Aerolift however argues, that the Agreement did not amount in anyway to being engaged in any investment in Solomon Islands.
Meaning of Investment - Plaintiff’s Submissions
The Plaintiff submits that because the word “investment” as used in section 6 of the Act was not defined, the common law definition should be applied. Mr. Sullivan cites in support the case of Culverden Retirement Village v. Registrar of Companies [1997] 1 NZLR 257, 261 (PC), which defined the word “investment” as: “the laying out of money in the acquisition of property in the hope of return”. He also cites the case of Wragg v. Palmer [1919] 2 Ch 58, 64-65 (Lawrence J) in support.
Mr. Sullivan submits that the common law definition of investment could not possibly apply to Aerolift as it is not laying out money, nor acquiring any asset by way of purchase in respect of the lease agreement. Nor did it apply to Mahoe NZ as there was no purchase or acquisition involved in the lease of the helicopter from Aerolift. He submits too that the contract was made out of Solomon Islands and linked only to this jurisdiction through the delivery and operation of the helicopter. The fact the helicopter was used, as part of a wider investment in Solomon Islands through Mahoe SI does not make the lease an investment per se. He submits that if the common law meaning is applied to “investment” section 6 cannot apply to either Aerolift or Mahoe NZ. But even if the word “investment” was to be construed as meaning an undertaking, the lease of the Helicopter per se was not an undertaking. He submits an “undertaking” normally connotes the whole enterprise and not the ingredients of which it is comprised [Halsbury (4th 07-1650]. It is the whole heli-logging operation, which was the undertaking and not the mere lease of an individual asset. The Helicopter is but one ingredient in the operation and cannot be an investment as defined within section 6 of the Act.
Section 6 of the Investment Act
Section 6 prohibits a foreign investor from engaging in any investment in Solomon Islands unless approval had been obtained from the Board. I quote:
“Subject to the provisions of section 20, from and after the commencement of this Act no foreign investor shall engage in any investment in Solomon Islands, unless the foreign investor is registered with the Board and is in possession of a certificate of approval in terms of this Act.” [Emphasis added]
The focus of section 6 is on investments conducted by foreign investors in Solomon Islands. Investment is not defined in the Act but the term “foreign investment” is. I quote:
“‘foreign investment’ means an industrial, commercial, business or service undertaking carried on by a foreign investor. ”
The word “investment” as used in section 6 should be construed in a manner that is consistent with the meaning given to “foreign investment”. Section 11 of the Interpretation and General Provisions Act (Cap. 85) provides as follows:
“Where a word or an expression is defined in an Act for any purpose then for that purpose all grammatical variations and cognate and related expressions are to be understood in the same sense.”
Section 6 thus can be read in the following manner. That when it refers to investments it refers to any industrial, commercial, business or service undertaking that is intended to be carried on by a foreign investor in Solomon Islands. Such activities are clearly prohibited under the Act save on approval. In my respectful view, approval is crucial; it is a pre-condition to the conduct of any investment in the country. Without such approvals, any foreign investor will be in breach of section 6 of the Investment Act and acting illegally. The same also applies to any technology agreement entered into in respect of any investment under section 19 of the Act.
The initial question asked for determination thus can be rephrased as follows: “Whether the Plaintiff and Mahoe NZ are engaged in any industrial, commercial, business or service undertaking, (that is investment) in Solomon Islands?” There are respectfully, two parts to this question; first, whether Aerolift and Mahoe NZ are engaged in any industrial, commercial, business or service undertaking; and secondly whether it is conducted in Solomon Islands.
Are Aerolift and Mahoe NZ engaged in any investment in Solomon Islands?
This question directly relates to the status of the lease of the Helicopter by Aerolift to Mahoe NZ; whether it amounts to an investment as defined in section 6 of the Investment Act or not. In his submissions Mr. Sullivan had confined his arguments to the common law definition of investment, that there was no laying out of money, nor acquisition of any asset by way of purchase. Unfortunately this submission overlooks the fact that the investment of Aerolift lies not in the laying out of money, or the acquisition of any asset by way of purchase, but in the lease of a helicopter. Aerolift is not laying out money to acquire a helicopter. It had already done that and the purpose is so that it can lease its helicopter out for gain or profit. That in essence is the investment Aerolift is engaged in.
In Re Wragg, Wragg v. Palmer [1919] 2 Ch. 58 at 64, 65, per P O Lawrence J., “investment” is defined as:
“Without attempting to give an exhaustive definition of the words “invest” and “investment” I think that the verb “to invest” when used in an investment clause may safely be said to include as one of its meanings “to apply money in the purchase of some property from which interest or profit is expected and which property is purchased in order to be held for the sake of the income which it will yield;” whilst the noun “investment” when used in such a clause may safely be said to include as one of its meanings ‘the property in the purchase of which the money has been so applied’.”
Lawrence J. includes the definition of investment as the purchase of some property in order that it may be held for the sake of the income, which it will yield. This must necessarily include the acquisition of a helicopter so that it can be leased out for gain or profit. Aerolift specializes in the lease of helicopters to interested persons for gain or profit. There can be no doubt in my respectful view that Aerolift engages in a commercial or business undertaking, consisting in the lease of its Helicopter to Mahoe NZ.
In Tootal Broadhurst Lee Co Ltd v. Inland Revenue Comrs [1949] 1 All ER 261, (“Tootal’s Case”), the word “investment” was defined as:
“The meaning of “investment” is its meaning, not in the vernacular of the man in the street, but in the vernacular of the business man. It is a form of income-yielding property which the businessman, looking at the total assets of the company, would single out as an investment. It certainly does not include all the property of the company and I am unable to accede to the proposition . . . that every item of the company’s property is an investment, and that while the company uses those items itself the profit derives from them is a profit of trade, but, if it hands one of them over to others to use in return for a periodic payment, it begins to receive an income from an investment. The business man would not limit income from investments to income from the kinds of securities which are quoted on the stock exchange, and he would, I think, regard as income from investment a profitable rent from a sub-lease of office premises or the like surplus to the company’s requirements.”
[per Lord Normand, at pages 265, 266]
Lord Normand included the definition of “investment” as “a form of income-yielding property which the businessman . . . would single out as an investment”. It seems fairly obvious that the lease of a helicopter for purposes of gain or profit must surely fall within the vernacular of a businessman as an investment, a “form of income yielding property”. It is clear Aerolift carries on the business of leasing out inter alia, helicopters. That is how it makes money. Can it be said that the lease of its Helicopter is an investment? In my respectful view, this question must be answered in the affirmative.
In Black’s Law Dictionary, Sixth Edition, “investment” is also defined as:
“An expenditure to acquire property or other assets in order to produce revenue; the asset so acquired. The placing of capital or laying out of money in a way intended to secure income or profit from its employment. . . . to place money or property in business ventures . . . or otherwise lay it out, so that it may produce revenue or gain (or both) in the future.”
The lease of the Helicopter by Aerolift seems to fall squarely within the definition of placing capital or property in a way intended to secure income or profit from its employment or in business ventures so that it may produce revenue or gain (or both) in the future.
In a New Zealand case, Taxes Comr v. Australian Mutual Provident Society [1902] NZGazLawRp 133; (1902) 22 NZLR 445 at 450, CA, a similar definition is given, per Stout CJ:
“What then, is an “investment”? It is defined by Webster in his dictionary as meaning “The laying-out of money in the purchase of some species of property, usually of a permanent character”. Skeat, in his Etymological Dictionary, says “invest” means “to lay out money”, and in Wharton’s Law Lexicon the same meaning is given. In Latham’s “Johnson’s English Dictionary” the meaning given of “invest” is “Putting out capital (ie establishing a vested interest in it) for the purpose of obtaining interest for it”. The root idea is the “putting-out of money”.”
Another member of the Court of Appeal, Edwards J. also gave the following definition:
“There is no statutory definition of the word “investment”. The word must therefore be read in its popular meaning. That popular meaning embraces, I think, every mode of application of money which is intended to return interest, income, or profit. Money employed as capital in a business is, in popular language, money invested in a business; money used for the purchase of negotiable instruments is an investment; so also money lent upon a bond or other personal security; so money deposited with a bank or other financial institution at interest.”
From the definitions cited above, it is clear the common law meaning of investment cannot be confined only to the laying out of money, but must include the laying out of capital (in this case a helicopter) from which interest or profit is intended. That includes the lease of a helicopter. Aerolift’s investment in this particular case is the lease of its helicopter to Mahoe NZ, from which it expects an interest or profit. The fact this lease is part of the heli-logging operations carried out in Solomon Islands should not cloud the fact Aerolift stands to gain separately from this business arrangement. In reality there are a number of investors involved; Mahoe NZ and Mahoe SI are the investors in respect of the heli-logging operations being carried out at Malaita but Aerolift is also the investor in respect of the lease of the Helicopter to Mahoe NZ. Respectfully therefore, the argument put forward by Mr. Sullivan that the lease of a helicopter does not amount to an investment under the common law definition must be rejected.
I am satisfied on the authorities before me and evidence adduced, that the lease of the Helicopter, is a commercial or business undertaking in itself. The terms of the Agreement speak for themselves. They contain a meticulous description of the rights, obligations and responsibilities of each party. The fact a dispute had arisen between the parties show beyond doubt, that even this lease agreement, what the Plaintiff describes as comprising merely an ingredient of the whole undertaking, is quite a complicated and major business undertaking or arrangement in itself. Further, Aerolift had also conceded in paragraph 1(c) of the Statement of Claim filed 4th June 1996 that:
“The Plaintiff carries on and at all material times carried on the business of providing helicopters for use in various countries including Solomon Islands.” (Emphasis added).
The lease agreement entered into with Mahoe NZ is a major business undertaking or arrangement entered into by Aerolift for gain. It couldn’t be for anything else. The question thus whether the lease agreement between Aerolift and Mahoe NZ is an investment (industrial, commercial, business or service undertaking), must be answered in the affirmative. Aerolift’s investment is the lease of the Helicopter to Mahoe NZ. Mahoe NZ’s investment in Solomon Islands on the other hand is the heli-logging operation undertaken at Malaita.
Was the investment conducted in Solomon Islands?
This is the second part of the question posed for determination by this Court. Respectfully, this is a territorial or geographical question. If what the Plaintiff submits is correct, that it did not carry out any investment (commercial, business or service undertaking) in Solomon Islands, then where did it carry out that investment? The place of investment or business is crucial to any investor or businessman because it is the location of its operations. This can be crucial in terms of the sort of legal requirements the investor or businessman must comply with.
The Plaintiff places much emphasis on the fact, which is not contested, that because the Agreement was signed outside Solomon Islands, that that ruled it out of reach of the Act. It is not in dispute that the headquarters of the Plaintiff is in Singapore and that the Agreement was executed in New Zealand. The Plaintiff however did not seek to enforce its agreement in either of those countries. This raises the question why Aerolift should seek to enforce the Agreement in Solomon Islands when it argues that it did not undertake any business investment in Solomon Islands?
There are a number of indisputable facts to be noted concerning the implementation of this lease agreement. The most obvious being that it was to be implemented in Solomon Islands. This has been borne out in the evidence adduced and in the Agreement itself. The parties too had been aware of this from the beginning. At page 1 of the Agreement, under the heading “Background”, it reads:
“The Company (Mahoe NZ) is undertaking logging operations in the Solomon Islands (called “the operations”) and is desirous of engaging the services of the Contractor to supply one (1) Kamov KA32T helicopter with Russian pilots and support crew subject to the terms and conditions below.”
(Emphasis added)
Clause 2.1 reads:
“The Contractors shall at the cost of the Contractor unless otherwise specified:
Use their best endeavours to deliver the Aircraft and supporting spare parts to the Company at Honiara on or about 7 July 1995.”
(Emphasis added)
Secondly, the success of the lease agreement was just as dependent on success of the heli-logging operations. Whatever income or profits Aerolift expected to get from that lease, were directly linked to the heli-logging operations. The lease was not implemented in vacuum. It had its roots in Solomon Islands. Whilst it might have been executed outside of Solomon Islands, it was to be performed here. Thirdly, it is important to differentiate between the execution of a document and its performance. A document can be executed anywhere, even on the moon if that were possible, but the place of implementation pins it down to a particular location. This is vital when a dispute occurs and the question of enforcement arises. Fourthly, it is very unusual to have a contract performed in a country and not say that it is conducted in the same country. In seeking to enforce its lease in this jurisdiction, Aerolift in my respectful view, must necessarily concede that the Agreement (comprising its investment) was conducted in Solomon Islands. For how could it both argue at one and the same time, that the Agreement (the investment) was not conducted in Solomon Islands but at the same time, seek to enforce it here. If the lease was not conducted here, then Aerolift should not seek enforcement here but in the country it says the Agreement was conducted in. Its readiness however, to enforce it here, in my respectful view is but a concession (although denied) that the lease was conducted in Solomon Islands. The heli-logging operations conducted by Mahoe SI could not have materialized without the Agreement being in place.
The Technology Agreement [Exhibit 156] between Mahoe NZ and Mahoe SI
One of the arguments put forward by Aerolift was that any obligations it might have, had been subsumed under the technology agreement [Exhibit 156] between Mahoe NZ and Mahoe SI. That technology agreement however hardly featured at all throughout the logging operations. The agreement that was being performed on the ground was the lease agreement and not the technology agreement. The evidence adduced also reveals that the money generated from the heli-logging operations was being used to meet directly the payments due from that lease and not from the technology agreement. That is consistent with the conclusion that what was being performed on the ground was not the technology agreement [Exhibit 15] but the Agreement! The erroneous assumption made was that even though Aerolift was performing the lease in Solomon Islands that did not amount to any investment. Even if it might be argued that Aerolift was not performing the lease in Solomon Islands, merely leasing its helicopter out to Mahoe NZ, I still maintain the view that it is leasing out its helicopter for use by Mahoe NZ in Solomon Islands. And for Aerolift to be allowed to do that, it must obtain approval from the Investment Board. Otherwise any foreign investor, can simply by-pass the Investment Act through that argument. With respect that is exactly what has happened in this case. Aerolift had over-stepped the Investment Board, the Investment Act and all other relevant authorities and legislations, taken a foothold in the country without anyone realizing what was happening. They had simply by-passed all monitoring mechanisms through this arrangement. Any foreign investor that intends to lease out helicopters in Solomon Islands surely must know that they need Investment Board approval. There are laws to be complied with. They just cannot walk in, lease out their helicopter, collect their money and walk out again. It is plain common sense that anyone seeking to put a foothold in any country must familiarize itself with the legislation of that country before undertaking any business (investment). I am not convinced Aerolift’s lease did not amount to an investment in the country. Aerolift engages in the business of leasing out aircrafts including helicopters worldwide. Wherever it leases its helicopters out therefore, it is respectfully investing in that country!
In my respectful view, from whatever angle the Agreement is considered, one cannot but help come to the conclusion that it was a business undertaking by Aerolift in Solomon Islands and thereby an investment. Any business investor would describe such activities as anything but an investment. In my respectful view, the so-called technology agreement between Mahoe NZ and Mahoe SI was not sufficient to exculpate Aerolift from the legal obligations required by the Investment Act, to get approval from the Board for the lease of its helicopter to Mahoe NZ.
Was there a breach of section 6 of the Investment Act?
The answer in my respectful view must be yes. I am satisfied the Plaintiff was engaged in investment in Solomon Islands without the Board’s approval and therefore in breach of section 6 of the Act. As a multi-national company, engaged in the business of providing inter alia, helicopters worldwide, it must surely be aware of the importance of complying with the domestic laws of any country where they are in business. They must be deemed to have weighed the risks to be encountered in such business ventures. In agreeing to lease its aircraft to Mahoe NZ for use in Solomon Islands, Aerolift cannot have failed to realise, that it is obliged to comply with the laws of this country, which might impinge upon its business activities. It is as much responsible as Mahoe NZ is, in ensuring that its activities comply with the laws of this country. Unfortunately it had failed to act like a vigilant and prudent foreign business investor. It completely by-passed the Act, signed up an agreement for the lease of its helicopter, without the necessary approval from the Board. It failed to make enquiries about the proposed business activity with Mahoe NZ and whether any approvals, permits etc. were needed. Any suggestions that the responsibility for getting the necessary permits and approvals vested on Mahoe NZ, does not and cannot exculpate it from its own responsibility to make enquiries and investigations. Ignorance is no defence especially where it stood to benefit directly from the Agreement that was implemented in Solomon Islands.
Was Mahoe NZ engaged in any investment in Solomon Islands?
It is not in dispute Mahoe NZ intended to carry out heli-logging operations at Malaita. It did not have approval however from the Board. Instead what it did was to incorporate Mahoe SI and applied through that company for approval. This was accepted and a Certificate of Approval dated 24th May 1995 (Exhibit 140) granted. The heli-logging operation at Malaita and in the country for the purposes of the Investment Act thus, was being carried out by Mahoe SI as a foreign investor under the management of Bergman. But Mahoe SI and Mahoe NZ did not have any helicopters with which to perform the heli-logging activities. This was where the crucial link with Aerolift was made. They had the type of helicopters needed by Mahoe NZ and Mahoe SI. Unfortunately or perhaps deliberately, instead of leasing the Helicopter directly to Mahoe SI, it leased it to Mahoe NZ who in turn sub-leased it to Mahoe SI. That was how it was arranged on paper, but in reality it did not happen that way as we have seen. Had Aerolift leased the Helicopter directly to Mahoe SI, approval would have been needed for it as a technology agreement under section 19 of the Investment Act. In this case, the sub-lease was subsumed in the technology agreement [Exhibit 156] (hereinafter referred to as “the TA”) entered into between Mahoe NZ and Mahoe SI and duly approved under section 19 of the Act. Mahoe NZ thus was able to bring in the Helicopter it had leased from Aerolift legitimately into the country under this arrangement. The sub-lease arrangement entered into between Mahoe NZ and Mahoe SI thus was legitimized under that setup. When it came down to the implementation of that TA however, it was completely different. For instance, clause 3 of the TA sets out the payment schedule for the provision of management expertise and all required plant and equipment.
“3.1 For the services provided pursuant to this agreement, the Company shall pay to MHNZ USD45 per tonne of logs lifted up to a 2 kilometre lift and at a rate to be agreed between the parties for logs lifted in excess of 2 kilometres.”
Bergman was obliged to make such payments towards Mahoe NZ for the so-called sub-lease of the Helicopter. No evidence however has been adduced of any such transactions being performed. To the contrary, the only agreement that was implemented on the ground was the lease agreement itself. Boris gave crucial evidence in support of this. His evidence was that the Helicopter was being operated right down to the minutest detail in accordance with terms of the Agreement. And when it was not being complied with, the services of the Helicopter were suspended. It is not too difficult to work out what was happening. Instead of acting in his capacity as the Manager or Chief Executive Officer of Mahoe SI, Bergman was acting all along for and on behalf of Mahoe NZ. That was how Aerolift was dealing with him, as one of the Managers, Directors and agent of Mahoe NZ. Having brought the Helicopter into the country under the TA, Mahoe SI did not continue with its performance. It was merely a paper arrangement, more a red herring, intended to divert attention from the real thing. Instead, it implemented the lease agreement. In a way, Bergman wearing two hats was able to kill two birds with one stone. He had successfully brought the Helicopter into the country under Mahoe SI and having done that, switched hats and implemented the lease agreement without having to go through all the formalities of getting approval under the Investment Act. A short cut perhaps, but not all short cuts are necessarily right. This is the hurdle Aerolift has to overcome. It had no approval for the lease of its Helicopter to Mahoe NZ in Solomon Islands and yet through the back door it had successfully put a foothold here. Mahoe NZ too had no approval under section 19 to have that lease agreement implemented as a technology or external agreement and yet that was exactly what it did. That is clearly a breach of the provisions of section 19 of the Act as well.
One of the arguments presented by Mr. Sullivan against the application of section 19 is that the definition provided under section 2 of the Act appears to confine such agreements to payments in foreign currency for royalty or any professional services provided. I quote:
“‘technology or external agreement’ means an agreement involving payments in foreign currency for royalty or any professional services provided.”
Learned Counsel argued that the lease of a helicopter in no way involved royalties or professional services. Unfortunately I do not agree. The TA, which required approval from the Board under section 19, was in very similar terms. In my respectful view, the term “professional services” should be given its fair, broad and liberal meaning. Black’s Law Dictionary Sixth Edition defines “professional” as “one engaged in the learned professions or in an occupation requiring a high level of training and proficiency”. A profession in turn is defined as “a vocation or occupation requiring special, usually advanced, education, knowledge, and skill.” The Act clearly contemplated the provision of management expertise, plant and equipment as falling within the definition of professional services. That is why the TA had to be approved by the Board. The Agreement with respect falls squarely within the definition of professional services. It requires highly specialized skill to operate and maintain a heavy lift helicopter for purposes of logging operations. That is why Aerolift insisted that it provides its own Russian engineers and pilots to work along with the pilots provided by Mahoe NZ.
Was Aerolift an innocent party?
One of the arguments advanced by Aerolift is that it is an innocent party in all these and therefore the ex turpi causa non oritur principle does not lie against it. With respect I must disagree. Innocency is not open to Aerolift, ignorance perhaps, but it is no defence. Aerolift is not a newcomer to these kinds of operations and activities. It leases out helicopters all the time and all over the world. Surely, it cannot fail to realise that there are legal requirements to be complied with in whatever country it wishes to operate in. The fact responsibility might have been given to Mahoe NZ to ensure all legal requirements are complied with is no excuse for Aerolift to sit back and allow itself to be dragged into an illegal investment in this country. Its failure or omission to comply with the laws of this nation and the consequences, which flow from that, are matters, which it must be prepared to bear.
It almost seems ridiculous that a major undertaking in the form of a lease of a helicopter can somehow slip into the country without the scrutiny and approval of the Board. In my respectful view this Court cannot lend assistance to such dubious conduct. It is this very kind of activity, which the Investment Act was set up to monitor, control and supervise and the same kind of activity, which his Lordship Awich J. refers to as defeating the public interest, which the Act seeks to protect. I quote:
“I think the consequence of sections 5 and 6 of the Investment Act 1990, to contracts with unregistered foreign investors should be determined by taking into account the public interest in Solomon Islands, intended to be protected by the Act. The purpose is no doubt to enable policy makers in Solomon Islands, a country in its very early stage of development, to have control over investments and therefore in the direction of its development. In my view, sections 5 and 6 were enacted with the intention of prohibiting a foreign investor from engaging in business before the country’s authorities have obtained information about the foreigner and have admitted the foreigner to do business in Solomon Islands in accordance with the policy in Solomon Islands. Violations of sections 5 and 6 defeats the public interest intended to be protected. It should result in the court declining to enforce a contract entered into by the violater, an unapproved and unregistered foreign investor.”
The purpose of the legislation is simple. It prohibits the investment by any foreign investor in the country, without approval. In other words, no foreign investor should attempt to commence business activities in the country unless approval had been obtained. This is made crystal clear by the requirement that different departments of Government and authorities had to be consulted first before any approvals can be granted. For instance under section 5 of the Investment Act, on receipt of an investment application, the Board is required to give notice “ to appropriate Ministries, the relevant Provincial Governments or the Honiara City Council, as the case may be, and seek their approval in respect of the investment application. ” [Emphasi added]
Under section 10, the Board has to satisfy itself first that the application meets the following requirements:
(a) that the investment would further the economic development of, or be of benefit to Solomon Islands;
(b) that the citizens of Solomon Islands would be employed, except where the employment of foreign nationals is necessary and that training would be provided to citizens of Solomon Islands at technical, skilled and managerial levels;
(c) that the local raw materials and supplies would be used as far as practicable;
(d) that the enterprise or investment has or may have the potential to promote exports or to substitute imports;
(e) of the extent to which the proposed investment would be dispersed in the provinces; and
(f) of the extent and capacity to transfer technology.
Further, section 14 makes provision for a foreign investor in respect of an approved enterprise to be able to transfer out of Solomon Islands foreign currency after payment of taxes. If Aerolift did not have approval for its lease agreement, it follows there is no approved enterprise whereby it could legitimately transfer foreign currency out of the country. It surely must also be in breach of this provision as well! How it has managed to remit funds overseas in the meantime is a matter, which should be looked into.
Finally section 15 gives supervisory powers to the Board over a foreign investor. In this instance, this provision too has been by-passed completely thus enabling Aerolift to undertake an investment in this country without being monitored by the Board. The only conclusion open to this Court is that it must refuse to enforce such agreement tainted with illegality.
Quantum Meruit
Aerolift claims it is entitled to payment up to the date of termination of the Agreement on quantum valebat/meruit basis. It relies on the case of Pavey & Mathews Pty Ltd v. Paul [1987] HCA 5; (1987) 162 CLR 221. It was held by the High Court of Australia in that case that the right to recover on a quantum meruit basis does not depend on the existence of an implied contract but on a claim to restitution or one based on unjust enrichment. The Appellant Company had performed “building work” at the request of the Respondent. It had also been agreed that the Appellant would be paid at the prevailing rates of payment in the building industry. Unfortunately, the agreement was not put down in writing. Section 45 of the Builders Licensing Act 1971 (N.S.W) required such building contracts to be in writing otherwise it would not be enforceable against the other party. The majority held the Appellant was entitled to recover payment on quantum meruit basis on the ground in essence, that work had been requested, performed and accepted. The only ground relied on by the Respondent for refusing to pay was that it was not in writing. Mason J. and Wilson J. took the view this was inconsistent with the policy and purpose of the legislation. I quote:
“However, it seems to us that in the context or a provision such as s. 45 with its injunction that the contract shall not be ‘enforceable’, it is more appropriate to look to the more precise legal meanings that have been assigned to the term in comparable situations where a contract or a security is expressed to be unenforceable.
This is not a case in which other provisions of the Act throw textual light on what is meant by the word. It is therefore a matter of determining whether any assistance is to be gained from an examination of the policy and purpose of the statute. On one view the purpose of s. 45 is to protect the building owner against spurious claims by a builder by preventing the enforcement by him of nonconforming contracts. This in substance was the view taken by the Court of Appeal in this case .... That purpose includes the protection of the building owner against a claim by a builder on a written contract that fails to describe the building work sufficiently, even in a case where the builder has fully executed the contract on his part. But it would be going a very long way indeed to assert that the statutory protection extends to a case where the building owner requests and accepts the building work and declines to pay for it on the ground that the contract fails to comply with the statutory requirements. True, it is that the informal contract, though not enforceable by the builder, is enforceable against him. But it is not to be supposed that it is enforceable against him on the footing that the building owner is under no liability to pay for building work upon which he insists and the performance of which he accepts. The consequences of the respondent’s interpretation are so draconian that it is difficult to suppose that they were intended. An interpretation that serves the statutory purpose yet avoids a harsh and unjust operation is to be preferred.”
Deane J. held that the builder was entitled to recover what was fair and reasonable remuneration for work which he had actually done and which had been accepted by the building owner.
“There is no apparent reason in justice why a builder who is precluded from enforcing an agreement should also be deprived of the ordinary common law right to bring proceedings on a common indebitatus count to recover fair and reasonable remuneration for work which he has actually done and which has been accepted by the building owner.”
His conclusions on the legislative intent were as follows:
“Nor, upon a consideration of the words of s.45 in their context in the Act, am I able to identify any legislative intent to deprive the builder of that ordinary common law right. The section does not make an agreement to which it applies illegal or void. Nor does its words disclose any legislative intent to penalize the builder beyond making the agreement itself unenforceable by him against the other party.”
His findings on the legislative policy were:
“It may be that the bringing of an action as on a common indebitatus count would conflict with the apparent legislative policy underlying s. 45 if the claimant in such an action were entitled as of right to recover the amount which the building owner had agreed to pay under the unenforceable agreement. I am, however unpersuaded that the bringing by a builder of an action on the common indebitatus count in which he can recover no more than what is fair and reasonable in the circumstances as compensation for the benefit of the work which he has actually done and which has been accepted by the building owner conflicts with any discernible legislative policy.”
Deane J. also approached the case on the basis of the doctrine of restitution. That what would be fair and just compensation in all the relevant circumstances is the benefit or ‘enrichment’ actually or constructively accepted by the building owner.
Dawson J. also concurred in the majority decision. He took the view that the claim for payment of work done in the circumstances was a separate claim altogether from contract. It was a claim based on restitution and that section 45 did not apply to it.
The only judge that dissented was Brennan J. He took a literal view of the Statute.
“Section 45 is not expressed to operate differently on contracts which are executed and contracts which are not and it makes all contracts falling within its terms unenforceable by the licence holder. No cause of action founded on the contractual promise to pay can arise. If the contractual promise to pay the licence holder’s remuneration is capable of giving rise to an enforceable debt, however, an action founded on the debt - derived from the action of debt or the action of indebitatus assumpsit - would provide an alleviating remedy, preventing injustice under s. 45 as it has prevented fraud under the Statute of Frauds.” [page 242]
At page 243 his Lordship continued:
“Apart from legal theory, the submission that a licence holder can sue for remuneration due under his contract with the building owner when s. 45 declares that the contract is not enforceable against the building owner seems contrary to the plain words of the Statute. If s. 45 were held not to bar such an action to recover a debt due under the contract the section would have had little, if any, practical effect on the litigation of building contracts where the holder of the licence had discharged his obligations to completion (or perhaps to substantial completion). If it were necessary to prove the discharge of the licence holder’s obligations under the unwritten contract in order to establish an enforceable debt recoverable by the plaintiff, litigation arising out of unwritten building contracts would focus on the work which had been agreed upon and the remuneration promised. The effect of s. 45 would be to exacerbate the very problem . . . which s. 45 was intended to overcome. In my opinion, s. 45 precludes the arising of an enforceable debt. The contractual promise to pay is clearly unenforceable and there is no room, while the unenforceable contract is subsisting, for a quasi-contractual claim.”
The Issue
The issue for determination in this case is whether Aerolift is entitled to be paid for services rendered up to date of termination on quantum valebat / meruit principles even though the Agreement is illegal and therefore unenforceable.
It has been well settled as a rule of law that no person can take any benefit from a contract when that benefit results from the performance by him of an illegal act (Re the Estate of Crippen [1911] UKLawRpPro 4; [1911] P. 108 at 112; Archbolds (Freightage), Ltd v. Spanglett, Ltd. [1961] 1 Q.B. 374 at 388; Re Giles [1972] Ch. 544.). This has been epitomized in the maxims, in pari delicto potior est conditio defendentis (In a case of equal or mutual fault the condition of the party in possession is the better one) and ex turpi causa non oritur action (out of a base [illegal or immoral] consideration, an action does not arise). The classical statement is contained in Lord Mansfield’s judgment in Holman v. Johnson [1775] EngR 58; (1775) 1 Cowp. 341, 343:
“The objection, that the contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in the general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may say so. The principle of public policy is this: ex dolo malo non oritur actio. No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If from the plaintiff’s own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would not then have the advantage of it; for where both are equally in fault, potior est conditio defendentis.”
Examples of this abound. In Berg v. Sadler and Moore [1973] 2 KB 158 the plaintiff who had formerly been a member of the Tobacco Trade Association, but had been put on a Stop List used another person to try and get cigarettes. When it was discovered the defendants refused to deliver the cigarettes or to return the money. Plaintiff sued the defendants for the recovery of the money so paid. The Court of Appeal held this was an attempt to obtain goods by false pretence and refused to grant the order sought. Another example related to the deliberate importation of insured goods under a policy of insurance without payment of customs duty. No recovery was permitted in such circumstances (Geismar v. Sun Alliance and London Insurance Ltd. [1978] Q.B. 383).
The same rule applied to preclude the recovery of money or property transferred pursuant to an illegal contract. Wilmot C.J. stated this colourfully in Collins v. Blantern (1767) 2 Wilson 341 at 350:
“All writers upon our law agree in this, no polluted hand shall touch the pure fountains of justice. Whoever is a party to an unlawful contract, if he hath once paid the money stipulated to be paid in pursuance thereof, he shall not have the help of a court to fetch it back again.”
I think it cannot be disputed, that having found that the contract had been entered into and performed in breach of section 6 of the Investment Act, that this Court will not lend its hand to have it performed. The claim of quantum meruit, as I perceive submissions of Mr. Sullivan for Aerolift, was that it was based not on contractual grounds but on restitution, which is founded on the principles of unjust enrichment; that having received the benefit of the services of the helicopter in its logging operation, the law imposes an obligation on Mahoe NZ to pay for the services actually rendered and accepted by Mahoe NZ. The majority decision in the case Paveys & Mathews Pty Ltd v. Paul [1987] HCA 5; (1987) 162 CLR 221 cited supports this proposition.
The majority decision in Paveys & Mathews Pty Ltd (ibid) however did consider when determining the question whether payments were recoverable, the legislative intent and policy aspect of the legislation which formed the subject of the dispute. In so doing they found it did not go against the view that payments can be recovered for work done even though the contract was unenforceable.
In my respectful view, in approaching the question whether the claim for quantum meruit in restitution can be claimed successfully in this case the Court is obliged to look at the legislative intent and policy of the Investment Act. This was the same matter adverted to by His Lordship Awich J. when analyzing section 6 in Ampo’s Case (ibid). It is my respectful view, that to allow the claim of quantum meruit in the circumstances of this case would run counter to the legislative intent and policy of the Statute. It would mean that any foreign investor can invest in this country without complying with the requirements of the Investment Act and when any contract becomes unenforceable through illegality sue for quantum meruit in restitution and recover money for work done. Attractive though this argument may be, this Court will not lend a hand to such illegal activities. That is the very situation, which the legislation seeks to control and avoid. The simple advice in such situations is, disclose everything honestly and get clearance from the appropriate authorities before proceeding any further. It appears this crucial business arrangement between Aerolift, Mahoe NZ and Mahoe SI had never been disclosed to the Investment Board. Why that had not been done and the failure so to disclose must lie at the hands of all the parties. They are in pari delicto. They cannot plead ignorance - ignorantia legis neminem excusat [ignorance of law excuses no one]. In J. M. Allan (Merchandising) Ltd. v. Cloke [1963] 2 Q.B. 340 the plaintiffs sued the defendants for rentals payable in respect of a roulette table hired and designed for the playing of ‘Roulette Royale’, a game which was unlawful by virtue of the Betting and Gaming Act 1960. At the time the hire agreement was entered into neither party knew that the game was illegal. The plaintiffs pleaded that they had no ‘wicked intention to break the law’. The Court of Appeal rejected this plea and held that ignorance of the law was no answer to the charge of illegality.
Also contracts that are illegal per se, that is, expressly forbidden by statute or by public policy, are void and unenforceable even though the parties may have been ignorant of the facts constituting the illegality. An example of such a contract forbidden by statute can be seen in the case of Re Mahmoud and Ispahani [1921] 2 KB 716, where the plaintiff who was ignorant of the fact that the defendant had no licence to purchase linseed oil, was unable to recover damages for non-acceptance in face of a statutory prohibition.
In this case, section 6 is clear and unequivocal. Such activities, which Aerolift engaged in, were expressly prohibited, without approval. It is this very kind of transactions, which the Act sought to control, monitor and supervise. And the only way this can be effectively done is for all such activities to be processed through the Investment Board under sections 6 and 19 of the Investment Act. Any investment that bypasses that net must be prepared to face the consequences of its actions. To be consistent with the legislative intent and policy of the Investment Act, the claim for quantum valebat/meruit must also be rejected. This Court simply will not lend its aid to such a plaintiff. The parties knew that in seeking to carry out any investment in this country, there are laws that must be complied with. In the same way any foreign investor wishing to invest in New Zealand, Australia or wherever, must exercise care and discretion. No less vigilance applies to any such intending investor in this country. The tree must lie where it has fallen.
CLAIMS AGAINST MAHOE SI AND MAHOE NZ FOR TRESPASS, DETINUE AND CONVERSION
Aerolift’s claim for trespass, detinue and conversion arise in respect of the alleged break-in to the Helicopter and Container on 21st April 1996 and the removal of numerous items belonging to it. The items removed included:
Total value of items removed was USD2,583.50.
Defence
Mahoe SI and Mahoe NZ (hereinafter referred to as “Mahoe”) did not dispute that title to the Helicopter vested in Aerolift. Mahoe argues however that possession remained with it as the licensed operator of the Helicopter in Solomon Islands up to 17th July 1996 even though Mahoe NZ terminated the Agreement on 12th December 1995. It also argues that Boris remained its employee in that period and therefore could not claim possession of the Helicopter on behalf of Aerolift. It submits there was no evidence to show that Boris was an employee of Aerolift in the period between 11 November 1995 and July 1996. As the licensed operator Mahoe SI remained in possession throughout and therefore could not be sued for trespass. The same argument applies to the Container which it claims (not disputed) belonged to it and therefore no trespass could be committed.
The Evidence
The evidence as to the alleged break-ins and removal of items is not disputed. This can be summed up as follows. On 21st April 1996 the Helicopter was broken into, witnessed by Leonard Scott Palmer (“Palmer”) [see transcripts at pages 157 - 159]. He also took photographs of the break-in (see Exhibits 82 and 83). Boris confirmed identification of the vehicle used as belonging to Mahoe and one of the persons seen in the photographs. He identified that person as James Montgomery the new supplier of helicopters, that Bergman used after dumping Aerolift (see Transcript 130). Bergman admitted being present at the time the Helicopter was broken into (see Transcript 276). Bergman also admitted breaking into the Container by cutting the lock [Transcript 275] and removing items [Transcript 129-130 and Exs. 85, 86]. As far as Aerolift was concerned, the break-in to its Helicopter and removal of items from the Container was not authorized [Transcript 129].
Has Trespass been committed?
Trespass to chattels is a wrongful interference by the defendant with the possession of them (see Winfield and Jolowicz on Tort 9th Edition, Sweet and Maxwell 1971, page 412; Tort by C. D. Baker Fourth Edition, page 26; and Law of Torts in the South Pacific by Stephen Offei 1997 at page 230). The crucial element in issue between the parties here is possession. In order for Aerolift to succeed in its claim for trespass it has to prove that it was in possession of the Helicopter at the time of interference by Mahoe. Aerolift claims possession of the Helicopter reverted to it when Mahoe NZ terminated the Agreement on 12th December 1995. Bergman confirms this in his evidence (see Transcript 273). I quote:
“Question: Once the agreement was terminated you had no interest in the helicopter?
Answer: That’s right.
Question: And that helicopter was in the possession of Aerolift?
Answer: Yes.”
Boris also confirms in his evidence that possession reverted to Aerolift after 12th December 1995 (see Transcript 125-126). Only he had the keys to the Helicopter apart from the Aerolift Russian engineer. Bergman did not have a key. He states in evidence that he regularly inspected the aircraft and the containers to ensure that everything was safe. The Helicopter at that time had been inhibited, a process carried out by Aerolift’s engineers, to preserve the engines and other components for storage. Bergman had nothing to do with it at that time. No evidence has been produced to show that Boris remained an employee of Mahoe SI throughout that period. To the contrary, evidence adduced showed plainly that Boris was acting from 12th December 1995 on instructions from Aerolift and no one else, definitely not from Bergman. There can be no doubt who, was in possession of the Helicopter and the items in the Container on 21st April 1995. Whilst it was conceded the Container belonged to Mahoe SI, the items contained therein belonged at all times to Aerolift. The submission by Mahoe SI that as the licensed operator in Solomon Islands possession remained throughout with it cannot be sustained. According to the so-called technology agreement entered into with Mahoe NZ, Mahoe SI’s rights arise from the sub-lease with Mahoe NZ. But that sub-lease is dependent on the existence of the original lease between Aerolift and Mahoe NZ. If the original lease had been terminated, the so-called sub-lease automatically fails, especially when possession had been re-asserted over the Helicopter by Boris on behalf of Aerolift. The evidence adduced is consistent with possession having been re-asserted over the Helicopter by Boris. He placed locks (consistent with exclusive possession) on the Helicopter and Container to ensure that the contents therein were safe and to keep out intruders. Only Boris had access to the Helicopter and Container. The evidence in my respectful view is crystal clear, Bergman had trespassed onto the Helicopter when he broke into it on 21st April 1995 and removed items therein. He had also committed trespass by entering the locked Container and removing items belonging to Aerolift without the knowledge and permission of Boris. Whilst it is not disputed the Container belonged to Mahoe SI, Bergman knew all along that the tools and other items kept in that Container belonged to Aerolift. I am satisfied trespass had been proven on the balance of probabilities against Mahoe.
Detinue
Detinue is the wrongful retention of the possession of a chattel evidenced by a refusal to deliver it up on demand including the situation where a defendant is unable to return it and that such failure is due to it having been negligently lost (Clerk & Lindsell 1177 - 1179; Winfiel and Jolowicz on Tort 9th edition page 417). That is the very situation that has occurred in this case. A number of items removed have not been returned and presumed lost by Bergman.
Conversion
This may be defined as any act in relation to the goods of a person, which constitutes an unjustifiable denial of his title to them (Winfield and Jolowicz (ibid) at page 422; Clerk & Lindsell paragraph 1077). There are two concurrent elements in conversion: (a) a dealing with goods in a manner inconsistent with the right of the owner, and (b) an intention in so doing to deny that person’s right or to assert a right inconsistent to the right of the owner. I think it cannot be denied when this test is applied to the circumstances of this case that conversion had occurred. Goods had been deliberately taken possession of from the Helicopter and Container and dealt with in a manner inconsistent with the right of Aerolift.
Quantum of Damages to be awarded
Aerolift claims damages for trespass, detinue and conversion in respect of the following goods removed and not returned according to their value:
Total value of damages claimed is USD2,583.50. Mahoe submitted no evidence to the contrary and accordingly I am satisfied this amount should be allowed.
Counterclaim of Mahoe NZ
I note Mahoe NZ had made no submission on its counterclaim. For the reasons given in this judgment the counterclaim is unsustainable and must be dismissed.
AEROLIFTS CLAIM AGAINST THE DIRECTOR OF CIVIL AVIATION
There are two parts to this claim. The first part deals with the period up to 11th December 1995. This part I think can be dealt with as follows. It is premised on the assumption that the Director of Civil Aviation owes Aerolift a duty of care and in the failure to discharge that duty, he acted wrongfully, negligently and in breach of statutory and common law duties. But the duty of care so relied on depends to a large extent on the relationship between Aerolift and the DCA.
Does the DCA owe Aerolift any statutory or common law duty?
I do not think it can be successfully argued to the contrary, that the DCA has a common law and statutory duty to take care, to act reasonably, and without mala fides, in the making of any orders or decisions regarding the use and operation of aircrafts in the country. In the context of this case, the operation of the Helicopter in the country. The preliminary issue for determination however is whether such a duty is owed to Aerolift? Where does Aerolift’s right come from as against the DCA? I have considered the detailed submissions presented by Mr. Sullivan on behalf of Aerolift, that the order of the DCA was wrongful in that there was no basis or ground to support it, that it was ultra vires, that it was made mala fides and that it was made without reasonable cause. I do not think any contrary argument can be successfully raised against the strength of his submissions as to the conduct and manner in which the DCA behaved. The question however, is whether the DCA owes such duty to Aerolift.
Aerolift rely on the views expressed in Cutler v. Wandsworth Stadium Ltd (1949) AC 398 that where a statute imposes a duty but does not create an offence for its breach, a cause of action lies at the suit of those injured. Mr. Sullivan relied on the statements of Lord Simons at page 407 and Lord Normand at page 413 respectively:
“It is, I think, true that it is often a difficult question whether, where a statutory obligation is placed on A., B. who conceives himself to be damnified by A.’s breach of it has a right of action against him. . . . The only rule which in all circumstances is valid is that the answer must depend on a consideration of the whole Act and the circumstances, including the pre-existing law, in which it was enacted. But that there are indications which point with more or less force to the one answer or the other is clear from the authorities which, even where they do not bind, will have great weight with the House. For instance, if a statutory duty is prescribed but no remedy by way of penalty or otherwise for its breach is imposed, it can be assumed that a right of civil action accrues to the person who is damnified by the breach.” [Lord Simons]
“If there is no penalty and no other special means of enforcement provided by the statute, it may be presumed that those who have an interest to enforce one of the statutory duties have an individual right of action. Otherwise the duty might never be performed. But if there is a penalty clause the right to a civil action must be established by a consideration of the scope and purpose of the statute as a whole. The inference that there is a concurrent right of civil action is easily drawn when the predominant purpose is manifestly the protection of a class of workmen by imposing on their employers the duty of taking special measures to secure their safety. The penalties provided by the Act apply when a breach of the duty occurs, but each workman has a right to sue for damages if he is injured in consequence of the breach.” [Lord Normand]
Lord Norman cited with approval the statements of Lord Herschell in Cowley v. Newmarket Local Board [1892] UKLawRpAC 42; [1892] AC 345, 352 along the same lines:
“We are to consider the scope and purpose of the statute, and in particular for whose benefit it is intended. Now the object of the present statute is plain. It was intended to compel mine owners to make due provision for the safety of the men working in their mines, and the persons for whose benefit all these rules are to be enforced are the persons exposed to danger. But when a duty of this kind is imposed for the benefit of particular persons, there arises at common law a correlative right in those persons who may be injured by its contravention.”
Reliance was also placed on Halsbury (4th) at paragraphs 194 - 195:
“A public officer who commits a breach of his common law or statutory duty may be liable to have an action for damages. Exemplary damages may be awarded in cases of oppressive, arbitrary or unconstitutional action by servants of the government, . . . who may be described as exercising governmental functions.” [paragraph 194]
“The question, whether the breach of a duty imposed on a public authority or public officer by statute gives rise to civil liability, will be determined according to the same principles as apply to the creation of statutory torts in general. Where a statute granting a power to provide public services imposes correlative duties the courts are reluctant to allow enforcement of these duties by private actions for damages. If a right of action is found to exist the plaintiff must prove that he is a member of the class of persons whom the statute is designed to protect, that the damage suffered is within the scope of the mischief against which the statute is aimed, that the defendant is in breach of the statutory obligation, which may be strict (sometimes described as absolute), or simply a duty to use due diligence; and that the breach of duty causes damage, although exceptionally a breach of duty is actionable per se.” [paragraph 195]
The statutory duty relied on by Aerolift had been distilled from sections 4 and 5 of the Civil Aviation Act (Cap. 47); that is, to act honestly, diligently, impartially and with reasonable care in pursuit of the objects and performance of the functions and duties specified in the Act and subsidiary legislation. Sections 4 and 5 read:
“4. The general purposes and functions of the Division shall be to-
(a) ensure the safety of air navigation;
(b) promote and encourage the orderly and economic development of civil aviation;
(c) ensure the observation of all regulations made under this Act;
(d) initiate and carry out surveys into any aspect of civil aviation;
(e) advise the Minister on all matters affecting civil aviation; and
(f) perform such other functions relating to the regulation, control and development of civil aviation as the Minister may from time to time direct.
5. It shall be the duty of the Division to -
(a) supervise all matters connected with civil aviation;
(b) undertake or co-operate with persons undertaking projects, technical research, study or such other investigation as in its opinion will promote the development of civil aviation in Solomon Islands;
(c) control and manage aircraft and equipment necessary for the conduct of government aviation services;
(d) operate or provide such other services and facilities as the Minister may approve;
(e) prescribe aerial routes;
(f) take such action as may be necessary to secure, by international agreement or otherwise, the rights of the government in respect of international air traffic;
(g) co-operate with the aviation authorities or staff of other governments or countries for any purposes pertaining to civil aviation;
(h) investigate, examine and report on the operation and development of commercial aviation in Solomon Islands;
(i) consider and advise the Minister on regulations as may be necessary for the control or operation of civil aviation in Solomon Islands and for the control or operation of aircraft registered in Solomon Islands; and
(j) carry on after consultation with the Minister, such activities as appear to be necessary or desirable for or in connection with the exercise and performance of its functions.”
Does Aerolift come within the class of persons envisaged by the Civil Aviation Act?
In order to answer this question, the relationship between Aerolift and the DCA, and the effect of the order must be understood. How the Helicopter had been brought into the country is an important consideration. Whilst it was not disputed Aerolift was the owner of the Helicopter it was brought into the country via the sub-lease between Mahoe SI and Mahoe NZ. The person who had legal possession and ultimate responsibility for the operations of the Helicopter in Solomon Islands was Mahoe SI. It held the Aerial Works Permit to operate the said aircraft in Solomon Islands from 18th July 1995 to 17th July 1996 (see Exhibit 113). As the licensed operator of the Helicopter in Solomon Islands and as the company carrying out the heli-logging operation in Solomon Islands, it (not Aerolift) is owed the duty of care by the DCA in the making of its order. The person directly affected and would have been aggrieved by the orders of the DCA was Mahoe SI. The hurdle Aerolift has to overcome is in showing that it is a member of the class of persons whom the statute is designed to protect and that the damage suffered is within the scope of the mischief against which the statute is aimed, or the common law protects.
That Aerolift has been injured by the action of the DCA cannot be denied. But the reason is because Aerolift and Mahoe NZ were investing illegally in the country. If they had complied with the requirements of the law, then the person who would have been directly accountable for the actions of the DCA was Mahoe SI. Any consequences flowing from that would simply have been recoverable from Mahoe NZ the person with whom they had a contractual arrangement. I am not satisfied Aerolift comes within the class of persons envisaged by the Civil Aviation Act or under the common law and accordingly this claim must be dismissed.
The events after 12th December 1995
What happened after 12th December 1995 however, was different. Possession of the Helicopter reverted to Aerolift. Any rights, which Mahoe SI had flowing from the sub-lease with Mahoe NZ subsequently, also ceased forthwith. From henceforth, Aerolift became solely responsible for the removal and repatriation of the Helicopter. Unfortunately the hurdle of convincing the DCA that the Helicopter was indeed a converted T was unsuccessful. Despite numerous correspondences and attempts at face-to-face meetings with the DCA, Aerolift’s representatives were virtually snubbed (see letter of 10th February 1996 - Exhibit 87 in which the DCA maintained his reasons for the grounding). By 6th February 1996, the DCA was in possession of a translated copy of the Certificate of Air Worthiness (Exhibit 36) in respect of the Helicopter and a letter from the Chief of State Air Safety, Supervisory Division, Department of Air Transport, Ministry of Transport Russian Federation (Exhibit 125), confirming the validity of that Airworthiness Certificate. On 16th February 1996, the Kamov Company manufacturers of the Helicopter itself wrote to confirm that the Helicopter had been validly converted from a C to a T (Exhibit 162). In spite of these incontrovertible documents being provided, the DCA was adamant in his stance. Even when Aerolift made a demand on 20th May 1996 for the release and delivery of the Helicopter [Exhibits 91, 152] that too was ignored. Only a Court order, obtained on 28th May 1945 could move the hand of the DCA. On 3rd June 1996 he relented and rescinded his order of grounding [Exhibit 163]. I am satisfied the DCA failed to carry out his statutory and common law duties when he continued to maintain his ridiculous position that the Helicopter should be grounded when there was no basis for it or reasonable cause to support it. I am satisfied he acted ultra vires in maintaining his ground though I am not prepared to go as far as to find that he acted mala fides. This was rather a bad case of dereliction of duty and damages must flow from that. I am satisfied Aerolift is entitled to claim reasonable damages (not at the rate of USD128,000-00 per month for 7 months) to be assessed in chambers if not agreed, for breach of duty, wrongful grounding and negligence for the period from January 1996 to July 1996.
Claim for trespass, detinue and conversion against the DCA
This claim arises from the same break-in committed by Bergman over the Helicopter on 21st April 1996. The link arises from the presence of a security officer at the time of break-in. Mr. Manetoali submits against this claim on the basis of the relationship between the DCA and Aerolift. He submits their relationship is that of a licensor and licensee where there is no transfer of possession and as a result the DCA is not liable for the break-in and the loss of chattels. He relied on the case of Tinsley v. Dudley [1951] 2 KB 18, in which an owner of a motorcycle parked it in a closed yard adjoining and forming part of the hotel premises. While the owner was in the hotel having a drink, the motorcycle was stolen. The court held that the publican was not a bailee of the motorcycle in that there had been no transfer of possession to the publican. Accordingly he was not liable for the loss of the motorcycle.
The question for determination regarding the liability of the DCA must rest on the question whether the role played by the security officer was sufficient to amount to being a participant together with Bergman. Is mere presence sufficient? The only evidence before this court is that she was present at the time of break-in and trespass. Her presence however is significant because it did give what took place that day some legitimacy. It would not have been possible for Bergman to have access to the Helicopter without going through the DCA and getting the necessary permission to enter Henderson Airport (which is a restricted area). Bergman knew he had no right to have access to that Helicopter and yet he persisted and somehow convinced the DCA to give him permission. The DCA too should have known that Bergman had no right to have access to the Helicopter and yet granted access, confirmed by the presence of the security officer. I accept submissions of the Plaintiff regarding liability of the DCA. This case can be distinguished from the case Tinsley v. Dudley (ibid) cited by Mr. Manetoali in that Bergman would not have been able to access the Helicopter without expression permission obtained from the DCA. The presence of the security officer confirms that this was so and accordingly must be deemed to have consented to and be a party to the break-in when he had duty to stop Bergman. I accept submissions of Mr. Sullivan that the DCA must also be responsible for the losses of 21st April 1996. The quantum claimed by Aerolift is confined to USD2,583.50. I see no reason why this amount should not be granted and I do so order.
CLAIM AGAINST MAHOE SI
The claim of Aerolift against Mahoe SI is that it is contractually liable to the extent of the unpaid irrevocable letters of authority issued on behalf of Mahoe NZ [see Exhibits 27, 29, 30 and 32]. The total amount claimed from those irrevocable letters of authority which remain unpaid is USD350,000-00. How did this arise? Mahoe NZ had been unable to keep up with the payments due to Aerolift under the Agreement. As a result, Aerolift had ordered that the Helicopter be grounded. Naturally Mahoe SI as the legitimate operator in the country was affected. On or about 7th September 1995, McLellan and Bergman agreed on this payment system [Transcript 45-48]. Under this payment system Mahoe SI issued an irrevocable letter of authority (“ILA”) authorizing National Bank of Solomon Islands Limited to credit the account of Aerolift for the amount of the ILA as soon as funds became available. Aerolift claims a binding agreement exists between the two of them.
Mahoe SI’s defence
Mahoe SI has raised a number of defences. First it argues there is no contract in existence between Aerolift and Mahoe SI. There is no privity of contract between them. Second, it argues there is want of consideration.
Aerolift’s Response
Aerolift argues that the submission that there is want of consideration is misconceived. It argues the grounding of the Helicopter by Aerolift resulted in a detriment to Mahoe SI. It could not fly the Helicopter and its operations were halted. The change in the payment system was intended to prevent this stoppage from happening. In entering into this payment arrangement, benefit was conferred on Mahoe NZ in reducing its outstanding debt as well it being a benefit to Aerolift. At the same time Mahoe SI benefited from this arrangement as it could enjoy continuous flying hours. Mr. Sullivan relied on a number of case authorities in support of his submissions.
The Law on Consideration
In Halsbury’s Laws of England (4th edition) Vol 9, paragraph 310, valuable consideration is defined as “some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other at his request [Currie v. Misa [1875] UKLawRpExch 11; (1875) LR 10 Exch 153 at 162]. It is not necessary that the promisor should benefit by the consideration. It is sufficient if the promisee does some act from which a third person benefits, and which he would not have done but for the promise [Bailey v. Croft [1812] EngR 458; (1812) 4 Taunt 611].” Consideration must necessarily be given in return for the promise, and usually given at the request of the promisor.
The submission of Aerolift
Aerolift submits that the consideration provided by it for the ILA is in permitting the Helicopter to fly for the benefit of Mahoe SI. The benefit received by Mahoe NZ in turn is in having its liability reduced accordingly. It is irrelevant that there is no agreement between Mahoe NZ and Mahoe SI. In honoring its obligation under the ILA, it would be subrogated to the rights of Aerolift against Mahoe NZ for the part paid, which in itself is adequate consideration. In support of its argument two cases were cited. First, is the case of Re Downer Enterprises Ltd [1974] 1 WLR 1460, 1468 (Pennycuick VC):
“If A and B are liable to a creditor for the same debt in such circumstances that the ultimate liability falls on A, and if B in fact pays the debt to the creditor, then B is entitled to be reimbursed by A, and likewise is entitled to take over by subrogation any securities or rights which the creditor may have against A.”
The second case is Duncan, Fox Co. v. North and South Wales Bank (1880) 6 App. Cas. 1, 10 (Lord Selborne L.C.):
“In examining the principles and authorities applicable to this question, it seems to me to be important to distinguish between three kinds of cases:
(1) Those in which there is an agreement to constitute, for a particular purpose, the relation of principal and surety, to which agreement the creditor thereby secured is a party;
(2) Those in which there is a similar agreement between the principal and surety only, to which the creditor is a stranger; and
(3) Those in which, without any such contract of suretyship, there is a primary and a secondary liability of two persons for one and the same debt, the debt being, as between the two, that of one of those persons only, and not equally of both, so that the other, if he should be compelled to pay it, would be entitled to reimbursement from the person by whom (as between the two) it ought to have been paid.”
Application of the Law to the facts
The first thing to note is that the debt in issue is owed by Mahoe NZ to Aerolift pursuant to the terms of the Agreement. Mahoe SI does not owe Mahoe NZ or Aerolift that amount of money. There was however, purportedly, a different arrangement under the technology agreement between Mahoe NZ and Mahoe SI over which the latter would be liable. The facts adduced do not reveal that that agreement was ever acted upon or relied upon as between them. It existed only on paper. Rather, the only agreement that was ever relied on over the heli-logging operations at Malaita was the lease agreement itself. Whilst it was recognized Mahoe NZ owed Aerolift the sums claimed under those ILA, there was no sub-lease on similar terms, assignment of the debt as in Re Downer Enterprises (ibid) or surety arrangement as in Duncan Fox Co. v. North and South Wales Bank (ibid). The two cases relied on by Aerolift in support of its case therefore are distinguishable on their facts. The ILA’s (4) are all worded in similar terms. Nothing on their face indicates anything to the point that there might have been an assignment of a debt by Mahoe NZ to Mahoe SI, or that there may have been liability incurred by Mahoe SI to Aerolift. With due respects, I find the ILA’s devoid of any contractual obligation and devoid of any consideration. They were in reality an arrangement of convenience for the parties. I acknowledge Mahoe SI may be said to have received a benefit in the use of the Helicopter, but the ILA’s were not issued for the use and benefit of the Helicopter. That is the difference in this case. In any event it is incorrect to claim that Mahoe SI benefited through the use of the Helicopter. The ILA’s were issued to secure part payment of Mahoe NZ’s arrears (payment it owes Aerolift for use of its Helicopter) in order in turn to secure the release of the Helicopter for use by Mahoe NZ. In reality, the Helicopter was being used by Mahoe NZ to fulfil its contractual obligations to Aerolift under the agreement. The Helicopter was never used (no evidence in fact had been adduced in support) by Mahoe SI to fulfil its so-called sub-lease agreement with Mahoe NZ. That was a mere paper arrangement. In the circumstances I am satisfied the claim against Mahoe SI by Aerolift must be dismissed.
COUNTER-CLAIM OF MAHOE NZ
By way of counter-claim Mahoe NZ claims that it had adequately, reasonably and fairly rewarded Aerolift for the work done in Solomon Islands by payment of USD236,378-00. Unfortunately in view of how this Court had ruled in regards to the claim of Aerolift, this claim cannot be sustained.
The second counter-claim of Mahoe NZ alleges a breach of the Agreement with Aerolift in supplying an incorrect model of helicopter and as a result caused damage and loss to it. As a consequence Mahoe NZ had to mobilize two new helicopters from Russia resulting in a cost of USD390,000-00 to be expended; the amount claimed in the counter-claim. Again I have addressed this matter fully in this judgment and found against Mahoe NZ. Accordingly this counter-claim must simply be dismissed.
Costs
Aerolift argues that costs should be awarded in its favour on an indemnity basis against Mahoe NZ and Mahoe SI if successful in this case. Unfortunately, that has not been the case. Its success had been confined to the claims under trespass, detinue and conversion. As a result the submission that costs be awarded on an indemnity basis cannot be granted. Aerolift in any event is to have its costs against Mahoe NZ and Mahoe SI on a solicitor and client basis with certification for overseas counsel.
Costs against a non-party
It has also been submitted that costs against Bergman be made although he is not a party to the case. It was submitted on behalf of Aerolift that the manner in which he had conducted himself throughout justified an order for indemnity for costs.
Costs can be made against a non-party where the circumstances of a case in the interest of justice warrant (see Mbaeroko Timbers Company Limited v. Island Construction Management Limited & National Bank of Solomon Islands Limited Civil Case Number 100 and 231 of 1997, Judgment delivered 10 May 1999). In Knight v. FP Special Assets Ltd (1992) 174 CLR 179, 192, 202 Mason CJ and Deane J. said:
“The conclusion that the wide words of O.91, r. 1 should not be read down so as to preclude jurisdiction to make an order for costs against a non-party does not, of course, mean that a judge has an unfettered discretion to make any order that he or she chooses. The wide jurisdiction conferred by the rule “must be exercised judicially and in accordance with general legal principles pertaining to the law of costs”, to take up the words of Lambert J.A. in Oasis Hotel Ltd. v. Zurich Insurance Co. (1981) 124 DLR 455 at 462.
Obviously, the prima facie general principle is that an order for costs is only made against a party to the litigation. As our discussion of the earlier authorities indicates, there are, however, a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awards of costs support an order for costs against a non-party. Thus, for example, there are several long -established categories of cases in which equity recognized that it may be appropriate for such an order to be made.
For our part, we consider it appropriate to recognize a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.”
See also judgment of Dawson J. in which he made reference to a Canadian case Re Sturmer and Town of Beaverton (1912) 25 OLR 566 quoting Middleton J. on the question of costs at common law:
“It is quite true that the jurisdiction of the Common Law Courts to award costs must, in general, be found in some statute; but it is equally a recognized exception to this general statement that the Common Law Courts always had power to award costs against one unsuccessfully invoking the aid of its process, even when the Court had no jurisdiction to entertain the application:. . . And the Court always had power to award costs against the real applicant when the motion was made by him in the name of a man of straw for the purpose of avoiding liability. The Courts were never so blind as to be unable to see through the flimsy device nor so impotent as to be unable to act.”
At page 202 his Lordship said after referring to a few more cases:
“The cases therefore establish a long-asserted jurisdiction to award costs in appropriate cases against a person who is not a party to the proceedings where that person is the effective litigant standing behind an actual party or where there has been a contempt or abuse of the process of the court.”
At page 203 he continued:
“The circumstances in which it would be appropriate to award costs to a non-party would necessarily be confined, but that is a question of discretion, not jurisdiction. I should add that the discretion to award costs is to be exercised judicially so that a person against whom costs may be awarded must, if not a party, be brought before the court. In many cases the convenient method of bringing him before the court would be to make him a party whereupon, even upon the appellant’s argument, any problem of lack of jurisdiction would disappear.”
See also Oz B and S Pty Ltd v. Elderw IXL Ltd [1993] FCA 371; (1993) 117 ALR 128, 129-130; Symphony Group PLC v. Hodgson [1994] QB 179, 191-195 (CA) (Balcombe LJ). I am satisfied the case authorities cited are consistent with the discretion vested in O. 65 r.1, which would entitle this Court to make an order for, costs against a non-party.
Can costs be made against Bergman
Aerolift’s submission is that Bergman was the real party behind the Mahoe entities in that he was the controlling mind. His conduct, before the action, in the course of the proceedings and at trial, justifies an award of costs to be made against him. Having heard the evidence I do not think it can really be seriously argued that Bergman was not the controlling mind in the affairs of both Mahoe entities. He was wearing two hats at one and the same time, whether deliberately or not, I do not know, but he seemed to have used that position to the maximum advantage. I am satisfied costs should be ordered against him.
Aerolift’s submissions on indemnity costs against Bergman.
A number of reasons have been given as to why indemnity costs should be awarded against Bergman:
(1) It is claimed Bergman made allegations which ought never to have been made or were maintained long after the truth was apparent and in particular no evidence was lead to support them.
(2) Bergman gave express instructions on behalf of Mahoe NZ (Transcript 238, 253) to plead that: -
(a) the helicopter was not a Ka 32 T [Defence para. 18A(d)]
(b) the helicopter was unable to perform, suffered constant breakdowns, under-performed and was unreliable and under-powered [Defence paras. 10(a), 16(a) Counterclaim para. 3];
(c) Aerolift be put to strict proof on significant issues (Defence paras 7 and 23).
(3) The allegations as to correct model and performance were made in wilful disregard of clearly established facts and ought never to have been made. They put Aerolift to enormous trouble and expense in having to fly witnesses from Russia, Australia and East Timor to disprove the allegations. Their evidence and corresponding evidence in cross-examination extended the trial by up to at least 7 sitting days.
(4) On 15.1.96 Mahoe applied to set aside ex parte orders restraining some of the proceeds of Mahoe’s operations. Bergman in his supporting affidavit [Ex. 148 para. 4] alleged untruthfully [admitted by Bergman Transcript 256] that payments by Mahoe of USD192,500 had not been acknowledged by Aerolift, with the result that the Court varied the amount of funds restrained permitting the release of that amount to Mahoe.
(5) On 24.4.96 Mahoe brought an application to set aside a default judgment in these proceedings. Bergman in his supporting affidavit [Ex. 149 paras 3(1), (8), (9), (10), (11), (12), and 7] gave reasons justifying Mahoe’s delay. These included: the DCA order “literally causing panic” as it was the only helicopter used by Mahoe, there was no panic and Mahoe was in fact happy with the order [Bergman T 288 -289] as he had induced it by his collusion with Anita; Bergman had to travel overseas to negotiate and secure new helicopters, which was a time consuming task because it involved numerous discussions and negotiations, a plain lie, in that in fact the contract with Nefteyugansk [Ex. 155] was in place before the DCA order and negotiations for new helicopters which were already secured could not have been a basis for delay - Bergman after maintaining that lie throughout most of his evidence eventually admitted the truth [Bergman T 287 - 288]. The damage however had been done - the Court accepted the reasons for the delay and set aside the judgment, resulting in this trial.
(6) The Plaintiff alleges Bergman knew what he was doing was false and by his perjury would induce the Court to make orders it probably would not otherwise made. It claims this is an abuse of process as well as a fraud on the Court. For those reasons it claims an order for indemnity of costs should be made against Bergman.
The law on indemnity costs in general
The Court has discretion to award indemnity costs against an unsuccessful litigant if the “special” circumstances of the case justify the making of the order - Mbaeroko Timbers Co. Ltd (ibid). In Reef Pacific Trading Limited v. Price Waterhouse High CC 164/94 Kabui J 12.11.99, his Lordship referred to a number of judgments in other jurisdictions in which indemnity costs were dealt with. In Fountain Selected Meats Pty Ltd v. International Produce Merchants Pty Ltd (1988) 81 ALR at 397 at page 400, per Woodward J. the principle adduced was that indemnity costs could be awarded where there was “some special or unusual feature in the case to justify the court exercising its discretion in that way” (see also Preston v. Preston [1982] 1 All ER 41 at 58]. Also such costs could be awarded where charges of fraud had been made and not sustained or where such allegations had been made knowing them to be false or irrelevant to the issues between the parties (Andrews v. Barnes [1888] UKLawRpCh 112; (1888) 39 Ch D 133). Indemnity costs had also been imposed where a case had been pursued with a ‘high-handed presumption’ (Australian Guarantee Corp Ltd v. De Jager [1984] VicRp 40; [1984] VR 483, 502). Other instances included where an applicant properly advised would have known that he had no chance of success, such as where the action had been commenced or continued for some ulterior motive, or wilful disregard of known facts or established law. In Reef Pacific Trading Limited v. Price Waterhouse (ibid) Kabui J. found that the allegations of fraud made by the Plaintiff against the Defendant was without basis, false and bound to fail from the outset. He found the Plaintiff to be a notorious litigant and ordered indemnity costs against it.
In Re Talk Finance and Insurance Services Pty Ltd [1994] 1 Qd R 558, indemnity costs were ordered where deliberately false issues regarding the signatures and execution of company documents were made. The principles governing the award of indemnity costs were conveniently summarized in Colgate Palmolive Co v. Cussons Pty Ltd [1993] FCA 536; (1993) 118 ALR 248 256-257 by his Lordship, Sheppard J.:
“(i) The ordinary rule is that, where the court orders the costs of one party to litigation to be paid by another, the order is for payment of those costs on a party and party basis.
(ii) The court ought not usually make an order for the payment of costs on some basis other than the party and party basis unless the circumstances of the case warrant the court in departing from the usual course.
(iii) The tests for such departure include:
(a) “as and when the justice of the case might so require” Andrews v. Barnes [1888] UKLawRpCh 112; (1887) 39 Ch. D 133
(b) “some special or unusual feature in the case to justify the court in departing from the ordinary practice”. Preston v. Preston [1982] 1 All ER 41
(iv) The categories in which the discretion may be exercised are not closed.
(v) Judges are not necessarily obliged to exercise their discretion to make an order for indemnity costs.
(vi) Costs are always in the discretion of the trial judge, and provided that the discretion is exercised having regard to the applicable principles its exercise will not be found to have miscarried unless it appears that the order which has been made involves a manifest error or injustice.
(vii) The question must always be whether the particular facts and circumstances of the case warrant the making of an order for payment of costs other than on party and party basis. Circumstances warranting the exercise of the discretion to award indemnity costs include:
(d) the making of allegations of fraud knowing them to be false, and the making of irrelevant allegations of fraud;
(e) evidence of particular misconduct that causes loss of time to the court and the other parties;
(f) the fact that the proceedings were commenced for some ulterior motives;
(g) the fact that the proceedings were commenced in wilful disregard of known facts or clearly established law;
(h) the making of allegations that ought never to have been made or the undue prolongation of a case by groundless contentions;
(i) an imprudent refusal of an offer to compromise;
(j) an award of costs on an indemnity basis against a contemnor.”
Should indemnity costs be made against Bergman.
I have carefully considered the submissions presented by Mr. Sullivan on this question. They are virtually irrefutable. But for the stance taken by Bergman the length, extent and expense to which this case had gone must be placed to a large extent on Bergman’s shoulders. Even if this case had come to Court it could have been considerably shortened and less expense incurred on the part of Aerolift if Bergman had not made allegations that ought never to have been made or had not made groundless contentions. When it became obvious Bergman could no longer keep up with payments for the lease of the Helicopter on behalf of Mahoe NZ he colluded with the DCA to have the Helicopter grounded on patently false grounds, which had no basis. But even when it was clear on the evidence before him that the Helicopter was a converted T he pursued a stance in this Court knowing full well what the real and true facts were. The Plaintiff has been put to unnecessary and unwarranted expense, which could have been avoided if Bergman had not wilfully disregarded known facts, made allegations that ought never to have been made, made groundless contentions resulting in a prolongation of the case and taken such an obstinate and high handed stance in dealing with Aerolift. He must take responsibility for his actions and conduct, and made to pay costs on an indemnity basis in any event.
Costs against the DCA
Mr. Sullivan submits the DCA should also be made to pay costs on an indemnity basis. He submits there was collusion to procure a ground for Mahoe NZ’s termination of the Agreement. He submits Anita abused his position as DCA and acted as Bergman’s henchman. But for his breach of duty to fairly, competently and impartially administer the civil aviation laws of Solomon Islands and international convention binding Solomon Islands, this Court would not have been troubled with this action. Mr. Sullivan submits his maintenance of an untenable position until almost the end of the trial excerbated the position. He submits Anita’s conduct was in all circumstances oppressive and arbitrary and patently lacked good faith. He relied on the case of Rookes v. Barnard [1964] UKHL 1; [1964] AC 1129 (HL) where it was held exemplary damages might be ordered in favour of a victim where a servant of the government is guilty of oppressive, arbitrary or unconstitutional conduct. In such circumstances, learned Counsel submits indemnity costs can be awarded. I see no reason to differ from this common sense approach. The issue however, is in establishing to my satisfaction that the conduct of the DCA amounted to oppressive, arbitrary or unconstitutional conduct. Respectfully I am unable to so find. This is one of those unfortunate circumstances in which the DCA had allowed himself to get so close or become too familiar with an investor who had a vested interest in Helicopter operations in this country to the extent it had clouded his objectivity and ability to make a rational decision in the face of obvious facts presented to him. His close association with Bergman had impaired his ability to make a professional judgment when required. His conduct may have amounted to dereliction of duties but not oppressive, arbitrary or unconstitutional. He had simply not done what was expected of him as a servant of the government and as a consequence had caused unnecessary costs, inconvenience and expense which could have been avoided had he exercised care and diligence in the discharge of his duties. I am satisfied costs should be ordered against the DCA but on solicitor and client basis with certification for overseas Counsel.
Perjury
In his closing submissions Mr. Sullivan submitted that the file in this matter be referred to the Director of Public Prosecutions (“DPP”) with the view to prosecuting Bergman for committing perjury. I do make such order but direct that Counsel be responsible for the compiling of the relevant materials pertaining to the allegation of perjury for the DPP to consider. Counsel’s costs in so doing are to be costs included against Bergman.
Funds restrained by the Court
At the beginning of this case certain funds were restrained by order of this Court (see Judgment of this Court delivered on 16th January 1996). The amount restrained according to that judgment was USD157,340. This case now concluded I am satisfied those funds rightly belong to Aerolift plus interest acquired from the deposit less taxes and any Government dues and costs. I order that the funds be released to Aerolift.
ORDERS OF THE COURT
(A) Mahoe SI:
(B) Mahoe NZ:
(C) The Director of Civil Aviation:
(D) Bergman:
(E) Perjury:
(F) Funds restrained:
THE COURT.
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