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Air NZ loses jet fuel disruption claim against Z Energy

Air NZ loses jet fuel disruption claim against Z Energy

By Gavin Evans

June 7 (BusinessDesk) - Air New Zealand has lost its bid for compensation from Z Energy for losses during the September 2017 fuel shortages in Auckland.

The national carrier had gone to the High Court seeking compensation from both BP and Z, arguing the firms had an obligation to ensure adequate fuel supply for its jets.

Air NZ subsequently settled with BP, but in March it argued in the High Court that its 2016 fuel agreements included an implied obligation that Z Energy should meet all the airline’s daily fuel requirements on an on-going basis.

It also argued that, if Z Energy was only required to use its best endeavours to meet the airline's needs, that those efforts during the 10-day shutdown of the fuel pipeline between Marsden Point and the Wiri fuel terminal near Auckland Airport were insufficient.

But Justice Geoffrey Venning has rejected those arguments, citing the airline’s uncomplaining approach to rationed supplies during previous shortages, its full knowledge of the increasingly tight fuel supply situation at Auckland airport, and its publicly stated view that there was a trade-off to be made between risk of supply disruption and additional investment in storage.

Air NZ believed those risks were manageable but only if fuel suppliers acted quickly when supply issues did arise.

Justice Venning found the 2016 emails between the firms – which specified little more than price, delivery point, and term – did constitute a contract, given the long supply history between the firms and Z’s predecessor company.

And they were agreed after several years of industry discussion about fuel security into Auckland, the risks of a failure on the refinery to Auckland pipeline – the RAP – and constraints at the Wiri Oil Services Ltd – WOSL – facility near the airport. Air New Zealand had been an active participant in those discussions.

“The implied term Air NZ argues for would place the entire risk of failure in the RAP with Z,” Venning says in the judgment delivered last week.

“With the known risks of disruption and the informed reluctance of Air NZ - and other airlines - to pay extra for the fuel to support the additional expenditure to ensure continuity of supply, it would be unreasonable to place the entire risk of failure on Z without any qualification.

“The term Z argues for, in the alternative, would ensure Z has an obligation to make reasonable endeavours to continue the supply in the event of such a disruption, but if it satisfies that obligation, then both Air NZ and Z would share the losses and additional costs of disruption to supply.”

Air NZ said it had accepted rationing of fuel in the past but had never accepted there was no obligation on its fuel suppliers to ensure supply. The costs to it from the 2017 shutdown had also been much higher than during other shortages.

It disputed that Z Energy’s actions at the time constituted even a best-endeavours approach to its obligations to the airline.

Air NZ said Z Energy could have had more fuel in place at Wiri and Auckland Airport, and could have declined to have taken one of the smaller tanks at the airport’s joint user hydrant installation – JUHI - out of service for maintenance prior to the unexpected shutdown of the RAP.

During the emergency, the company should have acted faster to enable jet fuel to be trucked from Marsden Point to the airport.

Justice Venning dismissed the claim on the JUHI tank, shut for maintenance in July that year. Nor was it realistic, he said, for Air NZ to claim there should have been more storage available, given tank construction would take two to three years

“It is apparent from the background that it was not for Z or the fuel companies alone to make such capital investment decisions to provide for further storage at Wiri or at Auckland Airport.”

Justice Venning observed that on Saturday, Sept. 16, the day the refinery identified the scale of damage to its pipeline and the potential for a two-week outage, Z initiated a full crisis response with other industry partners aimed at preserving existing jet fuel stocks and finding ways to move others around the country.

The option of building a truck gantry at the refinery was identified that day and construction was largely complete by Sept. 18.

“Approval then had to be obtained for the use. Work safety issues had to be addressed. A trial run took place on 21 September and the gantry was operational from 22 September,” Venning noted.

He dismissed Air NZ’s claim for an inquiry into damages and awarded costs against it.


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