Air NZ sues over fuel disruption

Air NZ is seeking millions of dollars in damages from Z Energy over its failure to supply jet fuel during two weeks in 2017 which led to cancelled flights.

The national carrier’s lawyer, Nathan Gedye QC, told the High Court in Auckland the airline had to cancel flights, and suffered losses, when the 168-kilometre fuel pipeline from the Marsden Refinery in Northland ruptured.

While the pipeline was out of action September 16-30, Z Energy provided 30 per cent of the jet fuel Air NZ needed to operate its domestic and international flights.

Air NZ treasurer Paul Kelway told the court yesterday he believed that after the pipeline was closed, Z Energy prioritised keeping petrol stations fully stocked to avoid a backlash from motorists ahead of the the October general election, perhaps encouraged to by the National-led Government.

Air NZ has no written contract with Z Energy but Gedye said there was an ‘‘implied’’ contract that meant Z Energy had to supply jet fuel continuously.

Victoria Heine, representing Z Energy, denied there was such an obligation, but if there was it was limited to requiring Z Energy to make reasonable efforts to fulfil it, and that its ability to do so had been frustrated by the damage to the pipeline, which was an event outside its control.

Air NZ was seeking damages of $4.1 million, Gedye said.

The airline had already settled a damages claim with BP, Gedye said. The fuel companies supplying airlines knew relying on a single oil pipeline, and limited storage of jet fuel supplies at the airport, posed a supply risk, he said. Evidence included substantial reports commissioned by the fuel companies and the Government, he said.

Air NZ also wrote to the energy minister in 2003 about the vulnerability of the fuel pipeline and to urge action.

Despite the airline’s concerns, and its reliance on about 14.5 million US gallons (54.9 million litres) of jet fuel a month, there was no contract for the fuel supply by Z Energy.

Instead, the terms of fuel supply were negotiated through emails but they did not include some of the terms of supply, including any duty on Z Energy to continuously supply fuel.

But that duty was ‘‘implied’’, Gedye told the court.

‘‘The whole point of this contract was to fuel up the planes so they could fly every day,’’ he said.

Any other arrangement would have been ‘‘commercially absurd’’, he said. The vulnerabilities to the pipeline were known, and were not outside of fuel companies’ control.

Kelway said he had repeatedly raised the need for plans for a rapid reaction from fuel companies to maintain supply in the event of disruption.

‘‘From at least the early 1990s, vulnerabilities to the supply of fuel to Auckland airport were known, and discussed from time to time,’’ he said. ‘‘These issues should have been considered and a contingency plan should have been in place,’’ Kelway said.

Heine said Z Energy had been pressing Air NZ to enter into a written agreement for 10 years.

She said Air NZ was alleging Z Energy would be liable for a disruption of fuel supply for any reason, including reasons beyond Z Energy’s control, such as a tsunami. But around the world fuel supply agreements generally contained a ‘‘qualified’’ duty that did not hold fuel suppliers liable for events outside their control.

‘‘Z itself incurred costs of around $5m [because of the pipeline damage] which has not proved recoverable,’’ she said.

‘‘Vulnerabilities to the supply of fuel ... were known.’’

Air NZ treasurer Paul Kelway