NEW ZEALAND BLOOM LIMITED V CARGOLUX AIRLINES INTERNATIONAL SA HC AK CIV-2011-404-007008

NEW ZEALAND BLOOM LIMITED V CARGOLUX AIRLINES INTERNATIONAL SA HC AK CIV-2011- 404-007008 [19 March 2013]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2011-404-007008[2013] NZHC 521BETWEEN NEW ZEALAND BLOOM LIMITEDPlaintiffAND CARGOLUX AIRLINESINTERNATIONAL SADefendantHearing: 13 March 2013Counsel: P R Jagose and J W Upson for Applicant/DefendantB D Gustafson and J D Ryan for Defendant/PlaintiffJudgment: 19 March 2013In accordance with r 11.5 I direct the Registrar to endorse this judgment with the delivery time of 11.30 am on the 19th day of March 2013.RESERVED JUDGMENT OF COLLINS JIntroduction[1] Cargolux Airlines International SA (Cargolux) appeals a judgment ofAssociate Judge Abbott in which he dismissed Cargolux's application to strike outNew Zealand Bloom Ltd's (NZ Bloom) proceeding.1[2] In its statement of claim NZ Bloom seeks damages under s 82 of the Commerce Act 1986 (the Act) from Cargolux for its breach of s 27 of the Act. NZ Bloom claims that Cargolux was involved in an illegal cartel that lessened competition in the air freight market in New Zealand.1 New Zealand Bloom Ltd v Cargolux Airlines International SA [2012] NZHC 3012.[3] Cargolux claims that NZ Bloom's proceeding is barred by the three year limitation provision contained in s 82(2) of the Act.[4] The ultimate issue I have to resolve is whether or not Associate Judge Abbottwas right when he dismissed Cargolux's strike-out application.Background[5] Cargolux is an airline freight company. Its headquarters are in Luxembourg. It carries on business throughout the world transporting freight to and from various locations, including between Auckland and Los Angeles. Cargolux is registered as an overseas company in New Zealand under the Companies Act 1993.[6] While Cargolux is a significant participant in the international air freight market, it has a relatively small role in carrying cargo to and from New Zealand.[7] NZ Bloom grows and exports flowers. It is based in Auckland. From 18 July 2004 to 17 December 2006 NZ Bloom engaged Cargolux to fly its flowers from Auckland to the United States.2[8] NZ Bloom pleads that it paid Cargolux $314,265.24 for freighting its products between 18 July 2004 and 17 December 2006.Fuel surcharge[9] Cargolux is a member of the International Air Transport Association (IATA). In August 1997 members of IATA, including Cargolux resolved that IATA would develop and publish a fuel surcharge index for its members. Under this arrangement airlines such as Cargolux would impose a fuel surcharge when fuel prices reached a certain threshold.[10] In November 1999 fuel prices reached the trigger point contained in IATA'sfuel surcharge index. IATA sought approval from American regulatory authorities to2 Via its freight forwarding agent SA Delmas Vieljeux New Zealand Ltd.implement the fuel surcharge but this was declined. IATA then ceased publishing its fuel surcharge index for fear of being exposed to anti-trust liability.[11] Notwithstanding IATA's fears of transgressing anti-trust laws, Lufthansa commenced publishing a fuel index at the time IATA ceased to do so. The Lufthansa fuel surcharge index was the same as the one which IATA had published.[12] In September 2001 Cargolux reached an understanding with Lufthansa and other air cargo carriers to:(1) exchange information to enable them to apply fuel surcharges; and(2) impose fuel surcharges in accordance with the Lufthansa fuel surcharge index.[13] From September 2001 to February 2006 Cargolux imposed fuel surcharges inaccordance with Lufthansa's fuel surcharge index. Cargolux imposed the fuel surcharge on goods it carried for NZ Bloom between 18 July 2004 and February 2006.Security surcharge[14] In addition, soon after the terrorist attacks in the United States on 11 September 2001 international air carriers, including Cargolux, reached agreement with Lufthansa and other competing airlines to impose a security surcharge which Lufthansa had calculated. Between October 2001 and February 2006 Cargolux imposed the security surcharge on products it carried, including on the goods it transferred for NZ Bloom between 18 July 2004 and February 2006.[15] On 16 February 2006 the Commerce Commission gave Cargolux notice that it was investigating cartel conduct amongst air cargo carriers that were providing air cargo services to and from New Zealand.[16] The Commerce Commission subsequently determined that Cargolux breached provisions of the Act that prohibited conduct that reduced competition in the New Zealand air freight market. Cargolux accepted it was liable and negotiated a penalty with the Commerce Commission.[17] In a judgment released on 5 April 2011 Potter J sanctioned a $6 million penalty under s 80 of the Act, which the Commerce Commission and Cargolux had negotiated.Relevant legislative provisions[18] Section 27 of the Act prohibits entities such as Cargolux from entering into contracts, arrangements or understandings that are likely to have the effect of substantially reducing competition in a market.[19] Section 30 of the Act deems that a contract, arrangement or understanding will be likely to have the effect of substantially lessening competition in a market if it has the purpose of, or is likely to, control the price of goods or services that are supplied by parties to the contract, arrangement or understanding who compete with each other.[20] Section 82(1) of the Act provides that anyone who breaches s 27 is liable for damages for any loss or damage caused by them lessening competition.[21] Section 82(2) of the Act provides that:An action under subsection (1) may be commenced within 3 years after the matter giving rise to the contravention was discovered or ought reasonably to have been discovered. However, no action under subsection (1) may be commenced 10 years or more after the matter giving rise to the contravention.33 The rationale for the 3 year limitation period is to provide certainty within the commercialcommunity: Commerce Commission v Carter Holt Harvey Ltd [2009] NZSC 120, [2010] 1NZLR 519 at [31].Pleadings[22] On 2 November 2011, NZ Bloom issued its proceeding against Cargolux. Thus, for the purposes of the "3 year enquiry" under s 82(2) of the Act, the crucial date is 2 November 2008. In its proceeding NZ Bloom pleads that the fuel surcharge and security surcharge imposed by Cargolux constituted an agreement that had the effect of substantially lessening competition in the market. NZ Bloom seeks anunspecified sum of damages under s 82(1) for Cargolux's breaches of s 27 of the Act.[23] On 12 December 2011 Cargolux filed its statement of defence. In thatdocument Cargolux pleaded as an affirmative defence that NZ Bloom's proceedingwas brought out of time and therefore barred because NZ Bloom knew, or ought reasonably to have known prior to 2 November 2008 that Cargolux had contravened s 27 of the Act.[24] On 12 December 2011 Cargolux also filed its application to strike out NZ Bloom's statement of claim on the basis that NZ Bloom's proceeding wasbrought:(1) ten years or more after the agreement which constituted the contravention of s 27 of the Act; or(2) more three years after the agreement which constituted the contravention of s 27; and/or(3) more than three years after the agreement giving rise to the contravention of s 27 ought reasonably to have been discovered.[25] To support its application Cargolux filed an affidavit annexing 20 media reports from New Zealand, Australia and the United States relating to the air cargo cartel that Cargolux participated in. Those media reports commenced with a Reuters report dated 14 February 2006 through to a Fairfax New Zealand "Stuff" report dated18 December 2008.[26] On 6 March 2013, more than four months after Associate Judge Abbott had delivered his judgment, NZ Bloom filed a reply to the affirmative defence contained in the statement of defence. In its reply to the affirmative defence NZ Bloom pleads:It had no knowledge of the matters giving rise to the contravention before 4 April 2011.It also pleads that it could not reasonably have expected to have discovered the matters giving rise to the contravention prior to an article being published in the New Zealand Herald on 15 December 2008.[27] On 6 March 2013, NZ Bloom also filed an affidavit from Mr Ballard, the managing director of NZ Bloom, in which he says:(a) The plaintiff had no knowledge of the defendant's involvement incartel activity relating to the imposition of fuel and security charges on air cargo transported on routes to and from New Zealand until 5 April 2011 when New Zealand news media carried reports of the settlement of a claim by the Commerce Commission against the defendant for anti-competitive behaviour; and(b) Notwithstanding that cartel activity by its very nature is secretive, the plaintiff accepts that it should have been put on enquiry as to cartel activity relating to the imposition of fuel and security charges on air cargo transported on routes to and from New Zealand from 15 December 2008, being the date the New Zealand Herald reported that the Commerce Commission filed proceedings against the defendant with respect to imposition of fuel charges, affecting the price of cargo both into and out of New Zealand.Ten year "backstop" limitation[28] Cargolux submitted to the Associate Judge that its contravention of s 27 of the Act occurred in October 2001, which was the most recent date it entered into the offending arrangements with Lufthansa and other competitors.[29] However, the Associate Judge held that the prohibition in s 27(2) of the Actagainst "giving effect" to a contract, arrangement or understanding was triggered when Cargolux entered into its contract with NZ Bloom in July 2004. Thus, his Honour concluded that the ten year "backstop" limitation provisions of s 82(2) of the Act was not engaged.[30] The Associate Judge's decision on this point was not challenged on appeal.Were the proceedings commenced more than three years after Cargolux'scontravention of s 27 of the Act was discovered or reasonably discoverable?[31] The issue which is pursued on appeal is whether the Associate Judge erred when he concluded that Cargolux had not demonstrated that the contravention of s 27 of the Act was discovered or ought reasonably to have been discovered by NZ Bloom more than three years before it issued its proceeding.Associate Judge's decision[32] For present purposes it is sufficient to draw attention to just three aspects ofthe Associate Judge's decision, namely:(1) The Associate Judge's statement of the relevant test for determining if NZ Bloom's proceeding was barred by the limitation provisions of s 82(2) of the Act;(2) The Associate Judge's application of the test for determining if the proceeding was barred by s 82(2) of the Act;(3) The Associate Judge's treatment of the factual issue he was invited todetermine.The test for determining if s 82(2) of the Act has been breached[33] Mr Jagose, counsel for Cargolux, quite properly endorsed the Associate Judge's statement of the test for determining if a contravention of the Actwas discovered or was reasonably discoverable within the context of s 82(2).[34] In his judgment the Associate Judge set out the following principles that governed this aspect of his enquiry. He said:44 New Zealand Bloom Limited v Cargolux Airlines International SA, above n 1, at [37].The law in relation to reasonable discoverability is probably still developing. The concept features in the Limitation Act 2010 and has been considered recently in cases dealing with s 43(5) of the Fair Trading Act 1986.5Nevertheless, the concept has been considered sufficiently in other similar contexts to provide guidance on the principles to be applied in the context of s 82 of the Act. Those principles include:6(a) The concept of reasonable discoverability introduces an objective element, with the test being:7... how a person carrying on a business of a relevant kind would act if he had adequate but not unlimited staff and resources and were motivated by a reasonable but not excessive sense of urgency.(b) The concept requires the exercise of reasonable, not exceptional, diligence.8(c) It is not enough to show that a plaintiff might have discovered a breach by pursuing an enquiry in some collateral matter; a defendant must show that there has been something to put the plaintiff on enquiry in respect of the matter in question, and that if enquiry had been made it would have led to the discovery of the real facts.9(d) The "matter giving rise to the contravention" refers toconduct in contravention of the Act rather than the legal consequences of those facts (such as loss).10(e) Time will begin to run at the point when reasonable enquiries would have led to knowledge of the relevant facts.11 In the s 82 context this means the giving rise to the contravention, rather than when it obtains the facts needed to prove its claim.12[35] Thus, the key issue the Associate Judge was required to focus upon was whether a reasonable exporter using international air cargo services, with no particular advantages or disadvantages, should reasonably have discovered before5 By the Supreme Court in Commerce Commission v Carter Holt Harvey Ltd [2009] NZSC 120,[2010] 1 NZLR 379 and by this Court in Houghton v Saunders (2011) 2 PRNZ 509 (HC) andHunt v Macartney HC Auckland CIV-2010-404-1881, 25 August 2010.6 See Hook v Gulf Harbour Town Centre Ltd (in liq) HC Auckland CIV-2002-404-1931, 2 March2007 at [38]-[43] for a review of authorities which provide helpful guidance.7 Paragon Finance plc v DB Thakerar & Co (a firm) [1999] 1 All ER 400 (CA) at 418, cited withapproval in Amaltal Corp Ltd v Maruha Corp [2007] 1 NZLR 608 (CA) at [155].8 Amaltal, above n 7, at [159]-[161] (although in Amaltal the Court of Appeal was having toconsider reasonable discoverability in the circumstances of the fraud exception under s 28 of theLimitation Act 1950).9 Laws of New Zealand Limitation in civil proceedings at [306], approved in Amaltal, above n 7,at [152]-[154] and applied to s 82 in Hook, above n 6, at [68].10 Murray v Eliza Jane Holdings Ltd (1993) 6 PRNZ 251 (CA). See also Hook, above n 6, at [40]and [43], citing Stratford v Phillips Shayle-George (2001) 15 PRNZ 573 (CA).11 Stratford v Phillips Shayle-George, above n 10.12 Hook, above n 6, at [73].2 November 2008 that Cargolux was engaged in international air cargo price fixing which affected the New Zealand market.Application of the test by the Associate Judge[36] Mr Jagose respectfully submitted that the Associate Judge erred by not correctly applying the test which his Honour had set out in his judgment.[37] In his judgment the Associate Judge said that Cargolux was required to satisfy him that there was:(1) "no basis on which NZ Bloom could contend lack of awareness of theessential factual components of the contravention";13 and(2) "what NZ Bloom's representatives knew and when, what it couldhave done with the resources available to it, and what such enquiries could have revealed".14[38] The gravamen of Mr Jagose's submission was that the Associate Judge failed to apply the objective test he was required to apply when determining if NZ Bloomought reasonably have discovered Cargolux's contraventions of s 27 of the Act prior to 2 November 2008.Associate Judge's approach to the factual issue[39] Ultimately the Associate Judge concluded that "reasonable discovery is essentially a factual question"15 and that he did not think the evidence before him enabled him to determine when NZ Bloom ought reasonably to have discoveredCargolux's breaches of s 27 of the Act.[40] Mr Gustafson emphasised that this final aspect of the Associate Judge'sdecision was entirely orthodox and unimpeachable.13 New Zealand Bloom Ltd v Cargolux Airlines International SA, above n 1, at [46].14 At [50].15 At [50].Approach which I am required to take[41] Cargolux appeals a judgment from a defended hearing conducted before the Associate Judge. Rule 2.3(4) of the High Court Rules provides that such appeals areconducted by way of a "rehearing'. Section 26P(1)(b) of the Judicature Act 1908provides that on review I "may make such order as may be just".[42] As the hearing of this appeal by way of review is conducted as a rehearing:(1) Cargolux bears the burden of persuading me that Associate JudgeAbbott's decision was wrong. It is only if I consider that AssociateJudge Abbott's decision was wrong that I should interfere with it.16(2) I am not obliged to defer to the decision of Associate Judge Abbott. If I think the Associate Judge was wrong then I should say so unequivocally.17The correct approach to the limitation test[43] In Murray v Morrel & Co Ltd,18 the Supreme Court explained the onus faced by a defendant who applies to strike out a claim on the basis of a limitation provision. Tipping J held that to succeed the defendant must satisfy the Court that the plaintiff's cause of action is so clearly statute-barred that the plaintiff's claim canproperly be regarded as frivolous, vexatious or an abuse of process.19 If the defendant demonstrates that the proceeding was commenced after the period allowed for the particular cause of action, the plaintiff will need to show there is an arguable case for relief from the limitation provisions.[44] In Commerce Commission v Carter Holt Harvey Ltd,20 the Supreme Court interpreted s 43(5) of the Fair Trading Act 1986, which is similar to s 82(2) of the Act. Tipping J explained that if there is any doubt about when a plaintiff was16 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.17 At [3] and [16].18 Murray v Morrel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721.19 At [33].20 Commerce Commission v Carter Holt Harvey Ltd [2009] NZSC 120, [2010] 1 NZLR 379.actually aware of the loss of damage they claim to have suffered then the enquiry moves to whether the plaintiff ought reasonably to have been aware of the loss of damage. In making that enquiry the Court will consider whether a reasonable person, in the position of the plaintiff, ought to have been aware of the loss ordamage. His Honour said "no further refinement is required on either of theseaspects of the matter".21[45] Section 43(5) of the Fair Trading Act 1986 deals with loss or damage frombreaches of the legislation. In the present case the focus is upon Cargolux'scontravention of s 27 of the Act. Loss or damage is not relevant to the issues in this case. However, the reference to loss and damage in s 43(5) of the Fair Trading Act 1986 does not deflect from the relevance of the approach taken by the Supreme Court in Commerce Commission v Carter Holt Harvey Ltd to the enquiries which the Associate Judge was charged with making in the present case.[46] The language of s 82 contemplates "discoverability" being established onalternative bases:(1) Either NZ Bloom's actual knowledge of when it became aware offacts giving rise to a breach of s 27 of the Act by Cargolux; or(2) NZ Bloom being vested with constructive knowledge of those facts.Did the Associate Judge apply the test he was required to apply?[47] In his judgment the Associate Judge focused upon what NZ Bloom's staffknew and when they acquired their relevant knowledge. The Associate Judge concluded that it would be necessary for a Court to have further information before it would be possible to determine when NZ Bloom actually had knowledge ofCargolux's contraventions of s 27 of the Act.[48] Mr Jagose points out that the Associate Judge did not proceed to apply the objective test he was required to apply to the reasonable discoverability limb of21 At [29].s 82(2) of the Act. Instead, the Associate Judge conflated the enquiry and applied a subjective test to determining when NZ Bloom ought reasonably have known ofCargolux's contraventions of s 27 of the Act.[49] In my assessment Mr Jagose was right when he criticises the Associate Judge's approach to the issue of NZ Bloom's constructive knowledge of Cargolux's contraventions of s 27 of the Act. The enquiry into when NZ Bloomought reasonably to have known of Cargolux's contraventions did not require anyassessment of what NZ Bloom staff knew and when they acquired their knowledge. Instead, this aspect of his task required the Associate Judge to assess whether areasonable entity in NZ Bloom's position would have been on notice prior to2 November 2008 that Cargolux may have been involved in illegal price fixing when charging NZ Bloom for its freight services.The Associate Judge's disposition of the factual issue he was required todetermine[50] I have respectfully concluded the Associate Judge did not apply the correcttest to determine when NZ Bloom ought reasonably to have known of Cargolux'scontraventions of s 27 of the Act.[51] However, that does not mean the appeal must succeed.Evidence of NZ Bloom's actual knowledge[52] NZ Bloom's pleading and Mr Ballard's affidavit cannot be impeached at thispoint of the proceeding. At this juncture, no court could conclude that NZ Bloomhad actual knowledge of Cargolux's contributions of s 27 of the Act prior to2 November 2008.2222 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].Evidence of NZ Bloom's constructive knowledge[53] The significant issue is whether, at this juncture there is sufficient evidence to enable a court to determine that NZ Bloom ought reasonably have known ofCargolux's contraventions of s 27 of the Act prior to 2 November 2008.[54] I have concluded the Associate Judge was correct when he decided that it was not possible for him to be sufficiently satisfied that NZ Bloom had constructiveknowledge of Cargolux's contraventions of s 27 of the Act prior to 2 November2008.[55] In reaching this conclusion I am very mindful that:(1) There is evidence of international and domestic media reports since February 2006 of allegations of price fixing in international air cargo markets.(2) All the reports prior to February 2007 refer to cartel activity on international supply routes implicating Cargolux as a party to price fixing agreements.(3) This publicity was followed by a report in November 2007 that the Commerce Commission was investigating price fixing in relation to fuel surcharges. However, the Commerce Commission did not disclose the airlines it was investigating.(4) In March 2008, the New Zealand Herald reported on a global airline conspiracy to push up freight costs, and on 17 July 2008 the same newspaper reported that the Commerce Commission was investigating allegations of price fixing in the air cargo market, and that the Commerce Commission would file proceedings if it concluded there had been a breach.[56] In my view, notwithstanding this information, it is not possible to be sufficiently satisfied on the state of the evidence that NZ Bloom ought reasonably tohave been aware of Cargolux's contraventions of s 27 of the Act prior to 2 November 2008. In my view, the fact that there is some publicity which might have alerted a reasonable exporter utilising international cargo services of the possibility of price fixing falls short of establishing that a reasonable entity in NZ Bloom's position would have known of Cargolux's contraventions of s 27 of the Act prior to2 November 2008.[57] Before I could be satisfied to the requisite standard that NZ Bloom hadconstructive knowledge of Cargolux's contraventions I would wish to evaluate evidence traversing the following issues:(1) whether other exporters in New Zealand of a similar size and structure to NZ Bloom was aware of international airline freight price fixing prior to 2 November 2008;(2) the extent to which freight forwarding agents knew of the concern that airline freight companies were involved in price fixing prior to 2 November 2008;(3) if freight forwarding agents knew of the possible contraventions of s 27 of the Act by a company such as Cargolux, whether they were informing exporting clients of the possibility their freight charges were possibly the subject of price fixing arrangements.Conclusion[58] Associate Judge Abbott was right when he dismissed Cargolux's strike-out application. Therefore, the appeal from Associate Judge Abbott's decision isdismissed.[59] Cargolux has not established at this stage that NZ Bloom's proceeding isbarred by s 82(2) of the Act. Cargolux may, however, continue to pursue this aspect of its defence at the trial and adduce such evidence it wishes to support its defence.[60] Costs are reserved and will be fixed as part of the ultimate decision on costs when the proceeding is determined.____________________D B Collins JSolicitors:Chapman Tripp, Wellington for Applicant/DefendantClaymore Partners Ltd, Auckland for Defendant/Plaintiff