AIR NATIONAL CORPORATE LIMITED V THE DIRECTOR OF CIVIL AVIATION HC WN CIV-2011-485-135

AIR NATIONAL CORPORATE LIMITED V THE DIRECTOR OF CIVIL AVIATION HC WN CIV-2011-485- 135 2 February 2011IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2011-485-135UNDER the Judicature Amendment Act 1972IN THE MATTER OF an application for judicial reviewAND IN THE MATTER OF an application for interim reliefBETWEEN AIR NATIONAL CORPORATE LIMITEDApplicantAND THE DIRECTOR OF CIVIL AVIATIONRespondentHearing: 2 February 2011Appearances: S S Cook and A N Birkinshaw for the applicantK I Murray and J F Parnell for the respondentJudgment: 2 February 2011REASONS FOR ORAL JUDGMENT OF CLIFFORD JIntroduction[1] On 28 January, the respondent ("the Director"), acting under s 17 of the Civil Aviation Act 1990 ("the Act") suspended the air operator certificate held by the applicant ("Air National"). That certificate is necessary for Air National to conduct its business of charter flights within New Zealand. That business involves the operation of what are described as medium and large aircraft. Air National contracts to Air New Zealand, through, as I understand it, Eagle Airways. Air National also provides flight services to Air New Zealand itself and a number of other large customers. I have been told that a total of some 65 flights would be affected by the initial ten day suspension period.[2] On 31 January Air National commenced these judicial review proceedings challenging the Director‟s decision. At the same time it applied without notice, but on a Pickwick basis, for orders to reverse the effect of the Director‟s decisionpending the outcome of its substantive judicial review application, and the appeal that it had also filed in the District Court.[3] Following a telephone conference held yesterday morning Dobson J declined to make the without notice orders sought by Air National, but ordered that AirNational‟s application be heard on notice this morning. As directed, affidavits in opposition were filed on behalf of the Director late yesterday afternoon, and further affidavits in reply on behalf of Air National was filed this morning.[4] I heard Air National‟s application this morning. At the end of that hearing Iindicated that I would grant Air National‟s application on the basis that:(a) as had been accepted by the Director, relief was necessary to preserveAir National‟s position; and(b) that in terms of the wide discretion given to the Court to consider allof the circumstances, having regard to the strength of Air National‟sclaim that those safety concerns did not call for the exercise by the Director of the summary power under s 17 to suspend, and balancing– in a way which essentially involves an assessment of the strength of that claim as it relates to the matters identified by the Director as giving rise to his concerns as to safety – public safety issues against the private interests of Air National, I was persuaded that AirNational‟s case that relief as sought was appropriate.[5] I adopted as a relevant test of the strength or weakness of the claim, the proposition that for the Director to act under s 17 there needed to be matters which gave rise to a real or imminent risk to safety.[6] At the end of very brief oral reasons, I indicated that I would provide written reasons for that oral judgment later this afternoon. At that time Mr Murray for theDirector asked for my decision to be stayed, as he may receive instructions to appeal. My decision was stayed until the giving of these oral reasons and – if necessary – for a short period thereafter, subject to further application by Mr Murray.[7] I now set out in more detail the reasons for my oral decision.Background[8] In his formal notice of suspension of 28 January the Director made hisdecision suspending Air National‟s air operator certificate on the basis that an audit being conducted by the Civil Aviation Authority ("the CAA") had discovered false training records relating to the training of two pilots in 2010. In addition, the Director considered that Air National‟s training manager had been conductingcompetency checks on other pilots when not qualified to do so: the Director said thatAir National‟s training manager‟s competence had not been checked by a flight examiner who met certain CAA requirements. These matters were also seen by theDirector as reflecting systemic safety issues. The Director suspended Air National‟sair operator certificate in the interests of aviation safety.[9] In its written memorandum Air National applied for interim relief under s 8 of the Judicature Amendment Act 1972 on the basis that:(a) Its statement of claim for judicial review, and the affidavits filed in support of this application, establish that there is a serious issue to be tried.(b) The balance of convenience favours Air National:(i) the Director‟s decision to suspend its licence for the initialperiod of ten days, and possibly beyond that, will cause Air National irrecoverable financial loss, reputational damage, and may well put it out of business;(ii) at the same time, the circumstances which the Director relies on do not present any realistic or imminent threat to public safety and, moreover, Air National is prepared to enter into binding undertakings in favour of the Director which further reinforce that proposition; and(iii) finally, the overall justice of the situation favours Air National, particularly given that the Director acted to suspend AirNational‟s air operator certificate without giving Air National an opportunity to be heard on the underlying allegations.[10] In arguing the case before me, Mr Sheridan presented submissions which adopted what is called by McGechan the "second approach" as set out in Carlton & United Breweries Ltd v Minister of Customs,1 namely that the Court inquires first as to whether it is necessary to grant interim relief to preserve the position of the applicant and then whether, having regard to a range of relevant considerations, the Court in its wide residual discretion considers it appropriate to grant the relief sought.[11] The approach was, in ENZA Ltd v Apple and Pear Export Permits Committee,2 expressed as follows:Amongst the circumstances of a case that the Court often considers in respect of s 8 are the strengths and weaknesses of the plaintiff‟s case, thecompeting advantages and detriments to the parties, the status quo, the balance of convenience, public repercussions as well as private, and the overall justice position.[12] I set out my reasons, following that approach, in terms of Air National‟sapplication, the affidavits that have been filed and the submissions I heard.1 Carlton & United Breweries Ltd v Minister of Customs [1986] 1 NZLR 429.2 ENZA Ltd v Apple and Pear Export Permits Committee HC Wellington CP266/00, 18 December 2000.Necessity[13] For the Director, Mr Murray accepted that, in terms of s 8, relief as sought byAir National was "necessary" as Air National claimed. I agree. It is not necessary therefore that I further consider that issue.Strength of Air National's case[14] In his notice suspending Air National‟s air operator‟s certificate theDirector first referred to what he referred to as "evidence of the falsification oftraining records". He stated:The CAA audit has uncovered evidence of the falsification of training records prepared by Mr Andrew Cliff (CAA No 57145), Air National‟sSenior Person Flight and Ground Operations. The evidence shows Mr Cliff has documented and signed off training in the Westwind aircraft simulator that was not actually conducted as described in order to show completion of the training programme. This relates to the training of pilots Richard Wright and Sean Morelli on 20 December 2010. These actions misrepresent the competency of the pilots who received the training and creates a serious safety risk. I regard these misrepresentations as serious safety breaches and a breach of trust and that immediate action is necessary in the interests of aviation safety. These actions also demonstrate that this Air National Senior Person cannot be relied upon to present a truthful representation of the status of the operation and its personnel.[15] Under section 12 of the Act Air National is responsible to ensure activities are carried out safely in accordance with relevant prescribed safety standards and practices. It is clear to me that deliberate or negligent preparation of false training records can raise serious issues capable, as the Director states, of creating serious safety risks.[16] Mr Cliff has filed an affidavit explaining the circumstances in which the admittedly false internal record was prepared. Very much in summary, Mr Cliff was supervising simulator flight training for two Air National pilots on a Westwind II aircraft in San Diego, USA. Neither of those pilots have yet qualified to fly that aircraft, and that aircraft is itself not currently being flown by Air National.[17] Mr Cliff explains in his affidavit that the error arose in the following circumstances:(a) The simulator training session in San Diego had been intended to bebased on a flight route known as "NZAA Oceanic Departure NWV Auckland". Mr Cliff, and the two pilots, prepared for the simulatorsession on this basis. As part of the preparation for that session, Mr Cliff completed part of the record of the simulator session prior to that session occurring.(b) On the day, the operator of the simulator was not able to provide the NZAA Oceanic Departure NWV Auckland route due to computer difficulties. Instead, another route was adopted for the purpose of the training session. On the completion of the session Mr Cliff completed his notes, recording performance observations. He failed to correct the flight reference.[18] Mr Cliff explains:On 7 January 2010, I telephoned Peter Underwood of CAA to touch base with him for the new year and update him on the training programme. I told him that the training went well but explained that it had been necessary to change the routes flown because of the issues with programming the simulator with Southern Hemisphere routes. To the best of my recollection,I said something along the lines of "I had to change a couple of the planned routes because we had a few problems with the simulator".I recall that Mr Underwood did not express any concern about this and saidsomething like "OK, just send me an email on the training". I toldMr Underwood that I would outline the changes in a written report and he said that this was fine.[19] In his affidavit, Mr Cliff further explains that the training programme approved by the CAA requires him to accompany pilots on the first two actual oceanic flights of the Westwind II aircraft, and accordingly there is no particular incentive for Mr Cliff to falsify simulator training on the same route. The training record forms part of a wider set of documents. Prior to completion of the training Mr Cliff would have reviewed all records and would have corrected the internal document that the Director became aware of as a result of the audit inspection. Onthat basis, Air National characterises this as a clerical error, not one which justifiesthe Director‟s suspension decision either in terms of its own significance or asevidencing – as the Director contends – systemic safety issues.[20] The second specific matter the Director referred to as the basis of his suspension decision was his contention that Mr Ross Haverfield, Air National‟straining manager, had not been checked for competency on the Jetstream J32 aircraft by a flight examiner (in this case a Mr Oberschneider) who met Civil Aviation rule requirements. Mr Haverfield himself had therefore been flying aircraft in breach of the rules, and had been conducting competency checks on other pilots when not qualified to do so.[21] Air National disputes the basis for the Director‟s second original contention. It says that Mr Oberschneider came to check Mr Haverfield‟s competency because the Civil Aviation Authority ("CAA") recommended that Air National contract withMr Oberschneider‟s employer, Flight Test (NZ) Limited.[22] At the hearing before me this morning, Mr Murray provided furtherclarification of the reasons for the Director‟s contention. He referred me toparagraph 8(b) of Mr Hughes‟ affidavit. There, the position was explained that Flight Test (NZ) Limited was not recognised to provide this type of service to Air National. Responding to that clarification, Air National in its further affidavits regarded that as a technical matter. There is no suggestion that flight Test (NZ) Limited was not qualified to undertake this work, merely that it had not beenrecorded as such in Air National‟s documentation.[23] The third, and as matters transpired perhaps the most significant, basis for theDirector‟s decision involves concerns the Director has at a systemic level relating toAir National‟s record in and approach to safety issues. In his notice of 28 January, the Director referred to the fact that Air National had an "elevated risk profilebecause of the number of serious findings by the CAA over recent years". TheDirector went on to acknowledge that Air National had implemented specific corrective actions to address those findings, but was concerned there was littleevidence to indicate a systemic and proactive approach by Air National to reduce risk.[24] In affidavits from its Chief Executive, Mr Gray, Air National responded to theDirector‟s concerns as to Air National‟s approach to safety and risk management. Referring to details set out in the a letter provided by Air National‟s solicitors BuddleFindlay to the Director on 30 January, Mr Gray identifies ways in which Air National has responded to issues as to safety raised by the CAA, notes that – in terms of a most recent audit - Air National is working with the CAA to address identified issues and further states that, as the CAA itself recognised in its 28 January letter, Air National undertook prompt and satisfactory remedial action to a variety of issues identified in February 2009. Mr Gray says that Air National has invested a great deal of time and money in its safety and risk management systems, and that the matters identified by the Director do not provide evidence of systemic risk sufficient to justify his suspension decision.[25] Affidavits were filed by and on behalf of the Director yesterday afternoon. The Director Mr Douglas and Mr Richard Hughes, General Manager Airlines, provided affidavits. Neither of Mr Douglas nor Mr Hughes had read the affidavits filed on behalf of Air National and therefore did not respond to them directly. Rather, they provided further detail as to the reasoning behind the Director‟ssuspension decision.[26] In particular, both affidavits emphasise what they consider to be an unsatisfactory history of the management of safety operations by Air National. In that context I think the correct understanding of the specific matter of the falsification of records can, in effect, be seen from CAA‟s perspective as equivalentto the "straw that broke the camel‟s back". The Director deposed that the "history of CAA‟s monitoring of Air National has been characterised by unsatisfactory performance by Air National on frequent occasions during that history necessitating in-depth audits, or investigations following particular incidents". The Directorreferred to one incident in 2007 and one in 2009. The incident in 2009 resulted inthe revocation of the Air Transport pilot licence of Mr Carter, who is Air National‟scurrent operations manager. The Director also referred to the significance ofchanges to senior persons at Air National in recent times, a matter which obviously gave rise to issues between Air National and the CAA, particularly when a Mr Blizma resigned in September 2010. Mr Blizma raised safety concerns with theCAA regarding Air National‟s operation. At the time of Mr Blizma‟s resignation AirNational voluntarily grounded its entire operation for a period of six days.[27] In addition, the Director referred to the fact that on 25 January 2011 he had received a visit from the Comptroller and Auditor-General and her assistant Auditor- General. The Auditor-General raised various concerns that had been brought to heroffice‟s attention with the Director. These included the question of falsification ofdocuments, and matters which would appear to relate to issues which the Director himself had referred to in his own affidavit. In addition, and as the Director himselfstated "the Auditor-General also raised concerns about the stance adopted by the CAA and its oversight of Air National and questioned whether CAA staff were overly helpful in responding to issues at the airline".[28] Subsequently the Director had his attention drawn to the falsification ofdocuments already referred to. The Director in his affidavit deposes that he "viewedthe falsification evidence as a very serious development in the audit, as it goes to the heart of the trust that is required and expected by all participants operating safely in the civil aviation system. It raised doubts about the honesty, integrity andeffectiveness of Air National‟s safety systems". On that basis, he made his decision to suspend Air National‟s air operator certificate.[29] In his affidavit, Mr Hughes, the General Manager Airline, outlined the levelof interactions between CAA and Air National which reflected Air National‟selevated risk profile, as assessed by the CAA. He appended a letter of 21 April 2009, which followed a special purpose audit in April of that year and set out issues for concern and provided a framework for the documentation of follow-up. In addition, he referred to a number of specific incidents, including those relating to Mr Carter (already mentioned) who as a pilot flew with an expired medical certificate, a pilot who was hired to fly BAE146s in circumstances which raised concerns as to his competency and issues which arose out of Mr Blizma‟sresignation.[30] Mr Hughes referred to the results of the audit as regards the falsified documents and the question of the qualifications of Mr Haverfield already referred to. He also referred to a matter not mentioned by the Director in his suspension letter, namely the circumstances in which a Mr Dorran employed by Air National as a BAE146 pilot operated without a valid airport identity card, an essential security check.[31] In its reply affidavits filed this morning Air National provided further material relating to what it saw as the response it had made over time to concernsraised by the Director and to the Director‟s more general proposition that recentevents emphasised the systemic problems Air National continued to face. Air National refuted those propositions.[32] On the basis of that evidence, Air National‟s proposition was that it had a strong case that the Director‟s decision was both irrational, in terms of the reviewunder administrative law, and also wrong, in terms of its right of appeal. Its general submission was that, given the period of time over which Air National had been interacting with CAA satisfactorily that the two matters relied on by the Director simply were not sufficient to justify the exercise of the summary power under s 17. They did not show a real and imminent safety risk to the public.[33] Mr Cook relied on the decision of Hammond J in Coromandel Peninsular Watchdog Inc v Hauraki District Council in support of the proposition that a real risk to the safety of the public had to be identified.3[34] Mr Murray‟s submission was that the case most on point was International Heliparts NZ Ltd v Director of Civil Aviation.4 In terms of this part of the exercise he submitted that that case indicated that an assessment of the strengths and weaknesses of the substantive case may not be important or necessary where public safety was involved. I think that in International Heliparts, involving as it did the actual discovery of a failed part, safety issues would have been at the forefront ofJustice Gendall‟s mind. Moreover, I do not see how, unless absolute deference is to3 Coromandel Peninsular Watchdog Inc v Hauraki District Council [1997] 1 NZLR 557.4 International Heliparts NZ Ltd v Director of Civil Aviation [1997] 1 NZLR 230.be paid to the Director where issues of safety are raised – which I do not think is the correct approach – the Court can consider the exercise of its discretion in terms of s 8 without assessing the strengths and weaknesses.[35] On strengths and weaknesses, Mr Murray‟s submission is the Air National‟s substantive case was very weak. The respondent‟s affidavits disclose that suspensionwas well within the bounds of reasonableness, and questions of procedural fairness obviously were subsidiary to public interest in aviation safety.[36] As regards balancing Air National‟s private interests against the publicinterest and safety, he submitted Air National had an appalling history of non- compliance with minimum safety standards and that suspension action was inevitable on discovery of the falsified training record. In terms of the significance as to suspension itself, he said that the public interest was in maintaining suspension so that appropriate enquiries could be made into these matters following which, if appropriate, the suspension could be lifted, continued or amended.[37] Before assessing the strengths and weaknesses of Air National‟s case, I thinkit appropriate to consider the nature of the power given to the Director by s 17 and, therefore, what are likely to be appropriate circumstances for its exercise.[38] Section 17 in effect applies for the Director to act in his summary way to suspend. Subsection (6) of s 19 reflects this. The Director is specifically relieved from disclosing any information on the basis of which a suspension decision under s 17 is to be made prior to taking that action.[39] In my view, the provisions of the section and the Act more generally, reflect that such an interim decision is one made in response to significant safety concerns where the risks are high, even if the Director„s information may not be complete. The ten day suspension period provides the Director with the opportunity to clarify any concerns he or she may have, and to decide on a more considered basis as to the appropriate and more permanent response. I think, in those circumstances, thereneeds to be a reasonably high threshold, albeit respecting the Director‟s expertise in safety matters, before action is taken under s 17.[40] By contrast, s 15A provides for investigations on notice by the Director into the affairs of the holders of aviation documents where that is considered necessary in the interests of civil aviation security. Section 18 then provides for the Director to revoke or impose permanent conditions on aviation documents. Section 11 gives persons affected by proposed adverse decisions, including those that the Director proposes taking after a s 15 or s 15A investigation, certain rights. Pursuant to s 11(2)a person is to be given 21 days‟ notice of the Director‟s intention, may make submissions, and the Director‟s action does not take effect prior to 28 days from thedate of that notice.[41] These two alternative procedures in my view emphasise that the s 17 power to suspend or impose conditions is given to the Director to respond to pressing safety issues. That is, ones which raised immediate concerns of such significance that it is not appropriate for the more measured process provided by ss 15, 15A in conjunction with s 11 to be followed.[42] As discussed in this morning‟s hearing, and as accepted by Mr Murray, I think what the Act envisages is a situation of some urgency where there is a pressing need for a summary power to suspend. As noted, Mr Cook for Air National put the position as being that there is a real and imminent risk of danger to the safety of the public.[43] I have concluded that, in terms of this part of the analysis, that Air National has a strong case for judicial review in terms of the reasonableness of the Director‟sdecision, and a stronger case on appeal. I have reached this conclusion for three essential reasons:(a) I think there is a strong argument that, by themselves the specific incidents identified by the Director would not justify summary action under s 17. In reaching this conclusion I have relied particularly on Mr Cliff‟s affidavit as to the significance of the records error.(b) As regards the Director‟s concern as to "systemic" issues, I amparticularly mindful that over time Air National has responded toissues raised by the Director and, generally, would appear to have done so in a satisfactory manner.(c) Given that course of engagement, the nature of the specific matters the Director has identified as being the ones he relied on and the response to those matters by Air National, I consider there is considerable force to its arguments that they do not represent systemic issues of the nature which should properly be responded to by summary action under s 17.(d) On that basis, I also consider that it is strongly arguable that the rational and reasonable approach by the Director to the issues raised by the audit would have been, as he did, to initiate a s 15A inquiry. I think it is very arguable that summary action under s 17 was not required and was inappropriate.[44] I am also, to be absolutely clear about matters, concerned at the conjunction between the Auditor-General expressing to the Director concerns about the way CAA had responded to Air National over time, and the decision taken last Friday to suspend under s 17.[45] I record that I discussed at some length with counsel whether in consideringthe issue of the strength of Air National‟s case, I should do so, as Mr Murray suggested, solely by reference to its judicial review proceedings, or also having regard – in an appropriate way to the fact that the position it seeks to preserve includes that of the benefits of its District Court appeal. I note that I do not accept Mr Murray‟s submission that in these circumstances the strength of Air National‟scase should be assessed solely by reference to judicial review considerations. Clearly they are relevant. But I also think it is relevant that Air National seeks to preserve the benefit of its right of appeal to the District Court, which affords it abroader base for challenging the Director‟s suspension decision that does its judicialreview proceeding. I have therefore assessed the strength of its case in that context.[46] I have also considered the harm that suspension would cause Air National. I think Air National clearly established that part of its case. Air National has pointed to significant financial costs and losses in the short term. Although some flights have been able to be subcontracted, Air National is particularly concerned as to theeffect of the Director‟s decision on its reputation, including with its long-standing (20 years) client Air New Zealand. Air National also emphasises that, notwithstanding the concerns the Director has expressed, Air National has carried on its business for 20 years without having been involved in any incidents involving injury to passengers, or damage to any aircraft or any third party property, as a result of any failure by Air National to maintain safe operating systems.[47] It goes without saying, however, that if Air National had not to my mind established a strong substantive case on the question of the safety significance of the matters acted on by the Director, those private interests would not have prevailed. However, I consider that such a case does exist and therefore relief as applied for is appropriate.[48] In reaching this conclusion I am very mindful of Mr Murray‟s submissions asto the expertise and responsibilities of the Director and issues of public safety in aviation. I have carefully considered those submissions. However, I consider, in the overall discretion provided by s 8, that the interim relief sought by Air National is appropriate.[49] There is therefore an order for relief as applied for, subject to the conditionsset out at paragraph 43 of Mr Gray‟s affidavit of 31 January."Clifford J"Solicitors: Buddle Findlay, Auckland for the plaintiff/applicant.L D MacIntosh, Civil Aviation Authority, Wellington.