MG CHARTER LTD v. BEIJING CAISSA INTERNATIONAL TRAVEL SERVICE CO. LTD
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HCA 1635/2012
and HCCL 7/2014
(Consolidated)
[2022] HKCFI 3672
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 1635 OF 2012 AND
COMMERCIAL ACTION NO 7 OF 2014 CONSOLIDATED
_______________
BETWEEN
| MG CHARTER LIMITED | Plaintiff | |
and | ||
| BEIJING CAISSA INTERNATIONAL TRAVEL SERVICE CO, LTD | Defendant | |
(Consolidated by the order of the Honourable Madam Justice Mimmie Chan dated 2 March 2015)
_______________
Before: Hon Linda Chan J in Court
Dates of Hearing: 11 - 13, 19 July 2022
Date of Judgment: 7 December 2022
________________
J U D G M E N T
________________
1. In these actions the plaintiff, MG Charter, Limited (“P”), claims against the defendant, Beijing Caissa International Travel Service Co., Limited (“D”), for breach of the contract entered into between them on 30 April 2012 (“Contract”). Under the Contract, D agreed to purchase specified number of seats on the “Third Rotation” and “Fourth Rotation” of flights on Beijing-Male route (“Route”) operated by MEGA Airline during the period from 1 July 2012 to 31 December 2013.
2. P claims RMB201.3 million as payment of Contract sum, alternatively, RMB85.9 million as damages for breach of the Contract, and RMB25.7 million as damages for breach of exclusivity obligation under the Contract. D denies any obligation to pay primarily on the grounds that the conditions precedent to the third and fourth reservation forms for the specified flights had not been fulfilled; the third reservation form was terminated by mutual agreement; and P did not provide the services under the Contract.
A. FACTUAL BACKGROUND
3. Save where otherwise stated, the following facts and matters are not in dispute.
A1. Parties
4. P is a Hong Kong company. It engages in the business of provision of international charter flight and tourism packaging. P was an affiliate of MEGA Global Air Services (Maldives) Private Limited (“MEGA”) which operated MEGA Airline. Mr George Gustaf Weinmann (“Weinmann”) was a director of and had substantial interest in both companies[1]. P was the exclusive sales agent of MEGA, responsible for selling all the seats on a wholesale basis to other tourist agents which, in turn, sold the seats to other agents or customers.
5. Since P’s inception, Weinmann has been its sole director. Weinmann has over 20 years’ experience in aviation industry, having worked for Boeing in various functions including the establishment team of Boeing Ventures. From 2004 to 2010, he was involved in a variety of aviation business and consulting projects in the Mainland including assisting in the operational set up and raising start-up capital for a proposed low-cost airline serving centre at Chonqing, Wuhan and Changsha. He evaluated several domestic airline start-ups and aviation schools approved by the Civil Aviation Administration of China (“CAAC”).
6. MEGA was a company registered in Maldives in April 2010. It operated as a start-up airline with headquarters in Male, the capital of Maldives. Weinmann had 45% beneficial interest and was the co-founder, director and CEO of MEGA. The other shareholder of MEGA (with 55% shareholding) was a company beneficially owned by 2 Maldivian citizens who were the other 2 directors of MEGA.
7. From January 2011 to May 2017, MEGA continued to operate flights between Maldives and the Mainland/Hong Kong. In particular, during the period from 22 July 2011 to May 2017, MEGA operated uninterrupted flights on the Route except for a brief period in December 2011 when some flights were routed through Gan (the other international airport in Maldives). In early May 2017, MEGA ceased its commercial flight operations and the company was put into voluntary liquidation on 27 February 2018.
8. D is a company established and registered in Beijing, the Mainland. It is a travel agent with licence to provide international tourism services to customers in the Mainland. D is a company within the HNA Group, which includes Hainan Airline Shareholding Company Ltd (“Hainan Airline”)[2]. At the material times of the Contract, Mr Chen Jie (“Chen”) worked in the sales department of D; Ms Tan Yanjie (“Tan”) worked in the quality supervision department while Mr Chen Xiaobing was D’s president (“President Chen”).
A2. Discussions on Route
9. From mid to late 2011, there was political and civil unrest in the capital of Maldives which adversely affected the tourism industry. In November 2011, Hainan Airline began to operate flights on the Route and all the seats were sold through D. The operation ceased in February 2012 due to poor market conditions whereupon MEGA became the only airline operating flights on the Route. At that time, MEGA had already commenced the First Rotation of scheduled flights, and planned to commence the Second Rotation in May 2012.
10. By March-April 2012, the civil unrest largely came to an end and demand for flights on the Route began to recover. To fulfil the customers’ demands, D had to purchase the seats on MEGA flights on the First Rotation from other agents.
11. In around March to April 2012, representatives of P and D held discussions on block sale of seats on the Route. The discussions continued and cumulated into the meeting held in Beijing on 30 April 2012 between P (represented by Weinmann and his wife, Ms Wang Beibei (“Wang”)), and D (represented by President Chen, Tan and Chen). During the discussions, the parties exchanged views on the market situation including their expectation that the poor market condition would gradually recover in the long-term and if Hainan Airline were to recommence its flights on the Route, it would lead to an oversupply of seats. P informed D that:
(1) P is MEGA’s exclusive sales agent but is a separate and independent entity;
(2) P’s business is to sell seats on MEGA flights on a wholesale basis to travel agents. It did not have the ability and resources to sell seats or packaged tours directly to customers;
(3) P’s existing network of travel agents had already taken up the seats on the First Rotation and the Second Rotation to be commenced soon;
(4) If P were to arrange for MEGA to set up a Third Rotation, it would be almost exclusively for D. As for the Fourth Rotation to be commenced later, D would have to take up a majority of seats;
(5) To secure the seats, P would have to enter into binding commitments with MEGA for the Third Rotation and Fourth Rotation, thereby assuming a significant risk; and
(6) The most important things for P would be to obtain certainty and exclusive commitments from D.
12. During the discussions, D informed P that:
(1) D could arrange or procure Hainan Airline to recommence flights on the Route for 3-5 flights a week (i.e. about 2 to 3-4 rotations); and
(2) For D to provide certainty and exclusive commitment to P, favourable terms and significant discounts and concessions must be given to D.
A3. Contract, Third RF, Fourth RF and MEGA’s RF
13. Against the above background, on 30 April 2012:
(1) P and D executed the Contract which consisted of (a) Customer Contract (“CC”); (b) Supplemental Agreement (“SA”); and (c) P’s Standard Terms and Conditions (“STC”);
(2) P and D executed a reservation form for the Third Rotation of the Route from 1 July 2012 to 31 December 2013 whereby D agreed to purchase the specified number of seats on 6 flights per month subject to seasonal variations (“Third RF”);
(3) P and D executed another reservation form for the Fourth Rotation of the Route from 10 January 2013 to 31 December 2013 whereby D agreed to purchase the specified number of seats on 6 flights per month subject to seasonal variations (“Fourth RF”); and
(4) In turn, P and MEGA executed a reservation form in respect of MEGA’s Third Rotation and Fourth Rotation of the Route (“MEGA’s RF”).
14. Under the CC, the parties agreed, inter alia, that P would sell and D would buy the seats or packages on the flights specified in the reservation forms (clause IIA).
15. The Third RF provides inter alia as follows:
(1) Season: “July 1st 2012 to December 31st, 2013. The actual start date shall be by mutual agreement between July 1 and July 16th and the Season end date may be anytime between December 15 and 31st, 2013 by mutual agreement”.
(2) Schedule: 6 times per month and subject to seasonal variations.
(3) Airline and Aircraft: MEGA; Boeing 767-300ER, 12 business class, 42 premium economy class and 196 economy class seats or similar aircraft[3].
(4) Seats and Pricing: “Hard Block: RMB1,238,000 per Flight for 0 Business class seats at / per seat, 42 Premium economy class seats at RMB6,000 per seat, and 170 Standard economy class seats at RMB5,800 per seat. This price includes current passenger taxes and fees”.
(5) Payment Terms: “Payment due to [P’s] Hong Kong account at HSBC (as in Terms and Conditions) by Wednesday each week for all flights occurring the following week (beginning on Monday). The flight payment amount agreed in this Reservation Form is after tax (if any) and after deducting bank charge amount…”
(6) Promotion: “No minimum charge for first [Route] (only charge for actual passengers carried). Both parties agree to discuss the market situation periodically and through mutual consultation the parties may agrees [sic] to cancel up to total 17 [Beijing-Male] round trip flights within the Season … If no specific stopping period is agreed by a majority of the agents, then [P] will assume no stop and keep the flight schedule unchanged. When the contract is finished and both parties agree not to continue the operation, then [D] should pay the one-way ferry cost at RMB2000/seat.”
(7) Deposit: “3 times the seat price for all seats payable to [P] by May 5th, 2012”.
(8) Conditions: “The terms of this Reservation Form are conditional on all seats for this Season being sold and deposits paid by May 5th, 2012 and all parties who contracted seats continuing to operate the flight in good faith for the length of the contract...”
16. The terms of the Fourth RF are materially the same as the Third RF save for the following matters:
(1) Season: “January 10th, 2013 to December 31st, 2013. The actual start date shall be by mutual agreement within 5 days of the first day of the Season and the season end date may be anytime between December 15 and 31st, 2013 by mutual agreement”.
(2) Seats and Pricing: “Hard Block: RMB886,000 per Flight for 6 business class seats at RMB9,000 per seat, 42 Premium economy class seats at RMB6,000 per seat, and 100 Standard economy class seats at RMB5,800 per seat”, inclusive of current passenger taxes and fees.
(3) Promotion: Both parties agree to discuss the market condition periodically and through mutual consultation the parties may agree to cancel up to total 12 Beijing-Male round trip flights within the Season.
17. Under the SA, P agreed to provide D with additional seats on the Third Rotation and Fourth Rotation viz.: (1) 26 standard economy seats from 1 July 2012 to 31 December 2012 for free; (2) 26 standard economy seats from 1 January 2013 to 31 December 2013 at RMB47,600; and (3) 5 standard economy seats from 1 January 2013 to 31 December 2013 for free.
18. Taking into account the seats which D agreed to purchase under the Third RF and the Fourth RF (together “RFs”) and the seats to be provided to D under the SA:
(1) For each flight in the Third Rotation, 238 seats (or 95.2%) would be allocated to D; and
(2) For each flight in the Fourth Rotation, 153 seats (or 61.2%) would be allocated to D.
19. In MEGA’s RF, P agreed to buy, and MEGA agreed to undertake all reasonable measures to provide and sell, flight services as requested by P on inter alia the following terms:
(1) Schedule: 6 flights per month in the Third Rotation and 12 flights per month in the Fourth Rotation.
(2) Pricing: 36 return flights for year 2012 and 145 return flights for year 2013 both at US$197,011.95 per round trip.
(3) Payment Terms: P should settle payment within 15 days of each flight. Permitted cancellations are allowed as per Other Terms. Any other cancellation or no shows may be subject to per flight charges or penalties.
(4) Other Terms: “Both parties agree to discuss the market situation periodically and through mutual consultation the parties may agrees [sic] to cancel up to total 17 [Beijing-Male] round trip per Flights within the Season … If no specific stopping period is agreed by a majority of the agents, then [MEGA] will assume no stop and keep the flight schedule unchanged. When the contract is finished and both parties agree not to continue the operation, then [P] should pay the one-way ferry cost at USD78,750.”
A4. Incident and non-payment of deposit
20. On 2 May 2012, there was a delay of at least 12 hours of a MEGA flight on the Route (“Incident”). Thereafter:
(1) On 4 May 2012, D requested P to sign a draft letter of undertaking (“LOU”), which referred to the Contract, the agreed flight reservation plans and various undertakings to ensure that MEGA had obtained all necessary approvals for carrying out operations in the Mainland.
(2) In response, MEGA (at the request of P) issued a letter dated 8 May 2012 to Chen, confirming that it had obtained all necessary operating and safety permits from all relevant aviation regulatory authorities, including EASA (European) standards as applied by Maldives Civil Aviation Authority (“MCAA”), and pointing out that over 99% of all the flights were operated without any long delay, and there was no cancellation due to technical reason in the past year (“MEGA Confirmation Letter”).
(3) On 24 May 2012, Tan emailed a Notice Letter to Weinmann, which referred to the Incident (“Notice Letter”), the LOU not having been signed by P and requested P to “provide relevant supporting documents including any approval documents” for its review before 31 May 2012. In the penultimate paragraph, D stated that “we will not start to carry out the deposit plan according to the deposit clause in the MG Chartered Flight Reservation Form and will also re-consider Your Company’s sincerity in our cooperation”.
(4) Weinmann replied by email on the same day, assuring Tan that it maintained valid approvals and authority from CAAC and MCAA and promised to provide further details about the certification and safety records.
(5) On 28 May 2012, P requested to meet with D on 29 May 2012 in Beijing to discuss the issues set out in the Notice Letter, but D was only available on 8 June 2012.
(6) At the meeting held in Beijing on 8 June 2012 attended by Chen, Tan, Weinmann and Wang (“8 June Meeting”), P provided copies of MEGA’s licences and permits for D’s review. P did not agree to sign the LOU.
(7) In her email dated 15 June 2012 to Wang, Tan requested a further meeting with Weinmann to follow up on the discussions at the 8 June Meeting.
21. Although the deposit stipulated in the Third RF became due on 5 May 2012, no payment was made by D.
A5. 27 June Meeting and Termination Notice
22. A further meeting was held between Chen, Tan, Weinmann and Wang in Beijing on 27 June 2012 (“27 June Meeting”). At this meeting:
(1) the parties discussed the state of the tourist market in Maldives;
(2) D proposed to terminate the Contract and if the market condition improve, D would consider continuing the cooperation with P and in the meantime, D would not “hang onto the reserved seats under the Contract’s Reservation Forms”;
(3) D asserts that P agreed to terminate the Third RF. This is disputed by P; and
(4) No agreement was reached regarding the termination of the Fourth RF.
23. In her email sent to Tan on 29 June 2012 at 6:26pm (“29 June Email”), Wang said as follows:
“Since we have been discussing the [Third RF and Fourth RF] launch which we signed on April 30, 2012, base [sic] on friendly cooperation, Mega agree the following points:
1) Suspend the [Third RF] and agree to further discuss the potential for Hawaii and/or Japan cooperation instead.
2) Postpone the [Fourth RF] first Deposit from July 1, 2012 to July 15th, 2012. In the mean time [sic], both parties will continue [sic] discuss about a potential amendment on the [Fourth RF].
We have some interest from other parties to join the [Fourth RF] from [Beijing] in 2013 for the additional seats. We will give you more details soon.”
24. By email sent to Wang on 29 June 2012 at 6:46pm, Tan enclosed a “Termination Notice” to P (“Termination Notice”) in these terms:
“Due to the influence of Chinese economic environment and current situation of Maldives’ tourism market, our company decides to terminate the MG Charter Contract from Beijing to Male signed on April 30, 2012 after our deep consideration according to our meetings held on June 8, and June 27, 2012. We hope the termination won’t affect our future cooperation on other flight routes taking off from Beijing (Male is included). Our company would be very glad to do further negotiations with you to strengthen our cooperation in the bright future.”
25. In her email to Tan dated 9 July 2012, Wang stated that “we are happy to talk with you on how we move forward on Maldives routes and also new routes opportunities” and enclosed a reply letter in these terms (“9 July Letter”):
“This is to reply [sic] your Termination Notice dated June 29, 2012. We refuse to accept the Termination Notice. In addition, we demand that your company continue to fully perform the obligations under the MG Charter Customer Contract and duly honor all payment obligations as per the Contract.”
26. In the meantime, D and Hainan Airline entered into an “Air Charter Contract” dated 5 July 2012 (“Hainan Agreement”) which provides, inter alia, as follows:
(1) D agreed to “charter” (i.e. underwrite) all the seats on an aircraft operated by Hainan Airline on the Route for 3-5 flights per week for the period from 1 November 2012 to 29 October 2013 (“Chartered Flights”) at RMB1,084,000 per flight (clauses 1, 2);
(2) D would set the sales policy according to the market condition and report to the marketing department of Hainan Airline for approval (clause 1(4));
(3) During the period when the Agreement is in force, if D’s profit exceeds RMB 5 million, the surplus would go to Hainan Airline (clause 2(1)(5));
(4) D guarantees that during the period of the Agreement, the executed volume of flights is not lower than 85% of the planned execution volume. If D fails to reach the target or terminate the Agreement before its expiry, Hainan Airline is entitled to charge penalty at the rates set out in clause 4(2);
(5) D is responsible for selling tickets of the Chartered Flights and may entrust Hainan Airline or other parties to act on its behalf in selling tickets (clause 5(5));
(6) D needs agents and travel agency to take part in selling tickets on the Chartered Flights and shall bear the expenses associated with such promotion (clause 5(11)); and
(7) Upon execution of the Agreement, D shall not sign other charter agreement in respect of Route with other airlines (clause 5(12)).
27. There is no dispute that:
(1) By the time the Third RF was due to commence on 1 July 2012, MEGA had 2 aircrafts available for its use namely, 8Q-MEG and 8Q-MEH.
(2) MEGA had the capacity to provide the flights specified in the Third RF.
(3) In August 2012, MEGA added a third aircraft, Boeing 757-200, 8Q-MEI.
(4) None of the flights specified in the Third RF was flown in 2012, and only 43 flights specified in the Third RF were flown in 2013.
A6. Commencement of actions
28. On 10 September 2012, P commenced HCA 1635/2012 against D for breach of the Contract up to the date of the writ.
29. In November 2012, the Chartered Flights commenced operation. This resulted in an oversupply of seats and a reduction in the prices of flight tickets on the Route.
30. None of the flights covered by the Fourth RF was flown during in 2013.
31. On 22 April 2014, P commenced HCCL 7/2014 against D for breach of the Contract after 10 September 2012.
B. ISSUES
32. It is P’s pleaded case that:
(1) The Contract consisted of the CC, SA and STC[4];
(2) P and D executed the RFs[5];
(3) In breach of the Contract and the RFs, D failed to pay the Contract sum of RMB 201,322,800[6]. Alternatively, D is liable to pay damages in the amount of RMB 85,994,308.56 for breach of the payment obligations under the Contract and the RFs[7];
(4) Further, P claims damages for D’s breach of exclusivity obligation in the sum of RMB 25,662,333.65[8]; and
(5) P also claims contractual interest at the greater of People’s Bank of China interest rate for one year loan in RMB or one year LIBOR plus 8% p.a. compound daily on the amount payable under the Contract[9].
33. In the Re-Re-Amended Consolidated Defence (“Defence”) D raises many defences some of which are not supported by the material facts pleaded or are inconsistent with other averments pleaded. As far as I understand it, D contends that:
(1) The STC was not incorporated into the Contract[10];
(2) On the true construction of clause IIC of the CC and clause IIA of the STC alternatively, it is the implied terms of the Contract that (a) P shall upon reasonable request made by D produce the original or supply copies of the necessary permissions, licences, consents, clearances and approvals in respect of the flights to be used to perform the Contract; and (b) if MEGA lacked the necessary aircraft and/or licences and approvals, D would be entitled to terminate the Contract[11];
(3) D was not obliged to pay any deposit as it had not agreed on the list of flights to be performed by MEGA or elected to pay the deposit to P. The RFs would only become effective upon P’s receipt of the deposit which never happened. The RFs did not form part of the Contract[12];
(4) The RFs are subject to conditions precedent that (a) “all seats for the season being sold”, (b) D paid the deposit by 5 May 2012, and (c) “all parties who contracted seats continuing to operate the flights in good faith for the length of the contract”, none of which was fulfilled[13];
(5) The Third RF was terminated by mutual agreement reached on 27 June 2012[14];
(6) The RFs were terminated by D on 29 June 2012 in accordance with clause IV(A) of the CC or, alternatively, “under the general law”. Alternatively, the Fourth RF was cancelled by D under clause XIV of the STC on 28 June 2012 “by reason of the military coup and riots in Maldives which was a force majeure event[15];
(7) P was not entitled to claim the contractual sum because (a) it had no legitimate interest in maintaining the Contract and/or the RFs beyond D’s termination on 29 June 2012; (b) P could not provide the flights and P admitted that MEGA had by September 2012 “relinquished any slots to CAAC”; and (c) it was an express or implied term of the CC that P was only entitled to payment if it had arranged and provided the flights in question[16];
(8) P did not operate the Third Rotation in 2012 and treated the CC and the Third RF as having come to an end. P suffered no loss or damage as the amount payable by P to MEGA for each flight was the same as the price payable under the CC[17];
(9) D entered into the Hainan Agreement after P informed D that MEGA had agreed to suspend the Third RF, and P is estopped from re-imposing the Third RF[18]; and
(10) The interest clause is a penalty clause[19].
34. In the List of Issues prepared by Mr Christopher Chain (appearing with Ms Tiffany Chan), counsel for P, 10 issues are identified based on the pleadings filed by the parties.
35. However, D (which was not legally represented during the period from 27 January to 19 June 2022) ignored the court’s directions and failed to provide its comments on the List of Issues (or, indeed, the draft agreed facts and draft agreed chronology). Worse still, in his Opening submissions, Mr Lawrence Ma, counsel for D, raised many new allegations which have never been pleaded in the Defence[20] and made submissions on the 8 issues he wanted to argue. At the request of this Court, Mr Ma revised his Opening submissions on 9 and 10 July 2022 by removing those submissions which dealt with the new allegations. It was only after Day 3 of the trial, after completion of cross-examination of witnesses, that Mr Ma finally provided all his comments on P’s Quick Reference Bundle (“QRB”)[21] and identified the issues which remain in dispute.
36. Taking into account the comments made by Mr Ma in the QRB, the parties agree that the following issues require determination of the court:
(1) Whether on a proper interpretation of the Contract and the RFs, D was obliged to pay the deposit and weekly payment for the seats specified in the RFs (Issue 1);
(2) Whether D breached its payment obligations under the Contract and the RFs (Issue 2);
(3) Whether D breached the exclusivity obligation under the Contract (Issue 3);
(4) Whether on a proper interpretation of the Contract, the “Implied Term” (as defined in §59 below) exists (Issue 4);
(5) Whether the Contract and the Fourth RF were validly terminated by D on the grounds of (a) P’s failure to comply with the Implied Term; and (b) “an amendment or cancellation of a fundamental term going to the root of the [Fourth RF]” (Issue 5(a) and Issue 5(b));
(6) Whether the Third RF was terminated by mutual agreement of the parties reached on 27 June 2012 (Issue 6);
(7) Whether receipt of deposit is a condition precedent to the RFs, and upon non-receipt of deposit, the RFs “are not effective and binding upon the parties” (Issue 7);
(8) What are the remedies for D’s breach of payment obligations under the Contract and the RFs (Issue 8);
(9) What are the remedies for D’s breach of exclusivity obligation under the Contract (Issue 9); and
(10) Whether P is entitled to compound interest in accordance with clause VII(F) of the STC on its claims for contractual sum and/or damages arising out of D’s failure to make payment for the RFs (Issue 10).
C. DISCUSSION
37. At trial, D no longer disputes that the STC formed part of the Contract.
C1. Issues 1, 2 and 7: Contractual obligation to pay
38. The principles governing interpretation of contract have been reiterated by the Court of Appeal in Law Ting Pong Secondary School v Chen Wai Wah [2021] 3 HKLRD 185, §§47-49 which in turn referred to Court of Final Appeal’s judgment in Eminent Investments (Asia Pacific) Ltd v DIO Corp (2020) 23 HKCFAR 487, §§43-46. They may be summarised as follows:
(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. The overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean (§47).
(2) The process of interpretation is a unitary exercise and the court does not consider the words in a vacuum but always in the context of the background, even if the words are unambiguous and sensible (§48).
(3) Where there are conflicting interpretations, account should be taken of the natural and ordinary meaning of the provision in question, the purpose of the contract and of the provision, other relevant provisions, the facts and circumstances known or assumed by the parties at the time that the contract was executed, the quality of the drafting of the instrument, and commercial common sense (§49, citing Eminent §44).
(4) It does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each (§49, citing Eminent §45(a)).
(5) The court must be alive to the possibility that one side may have agreed to something which with hindsight did not serve its interest, or that a provision may be a negotiated compromise or that the negotiators were not able to agree more precise terms (§49, citing Eminent §45(b)).
39. Mr Chain also relies on the following principles:
(1) Evidence of pre-contractual negotiations may be admitted to establish that a fact which may be relevant as background was known to the parties.
(2) In interpreting a contract all parts of it must be given effect where possible, and no part of it should be treated as inoperative or surplus (Lewisonon the Interpretation of Contracts, 7th ed, §7.24 ).
(3) Documents executed contemporaneously with or shortly after the primary document to be construed may be relied upon as an aid to construction, if it forms part of the same transaction as the primary document. Where the transaction is in truth one transaction, all the contracts may be read together for the purpose of determining their legal effect (Lewison §3.06).
40. Mr Chain contends that on the Contract and the RFs, there is clearly an obligation for D to pay the deposit and weekly advance payments, relying on the following provisions:
(1) Clause VI(H) of the CC provides that upon execution and dating, each of the CC and RFs “will constitute valid and legally binding and enforceable obligations of” the parties.
(2) Clause VII(E) of the STC provides that “[D] shall pay to [P] any and all sums payable under this Contract in the currency and manner and by the due date specified in this Contract” and time for payment is of the essence.
(3) The “Deposit Terms” of the RFs provide a fixed date for payment of deposit.
(4) Clause XVII(A) of the STC further provides that “failure to pay Deposit is a failure to perform a material obligation of the Contract”.
(5) The “Payment Terms” of the RFs further specify that weekly advance payments must be made each Wednesday for all flights occurring the following week. In particular:
(a) Whilst specific schedule of flights was not set out, there was a specifically agreed total number of flights, range of start dates and total duration, and as commonly known to both parties, a “Rotation” of MEGA flights was in a 5 days/4 nights pattern (Weinmann WS §65).
(b) There was therefore a very limited number of schedule options to choose from (i.e. only 3 options for the Third Rotation[22]; and only 2 options for the Fourth Rotation[23]).
(6) As D’s payment obligations (whether deposit payments or advance payments) are not stipulated to be conditional on any additional prior performance by P, the payment terms are more than sufficiently certain and fully enforceable. A contract will only be void for uncertainty if it is legally or physically impossible to give to the agreement any sensible content (Durham Tees Valley Airport Ltd v Bmibaby Ltd [2011] 1 Lloyd’s Rep 68 at 81, §§58-59 per Patten LJ; 86-87, §§88-91, per Toulson LJ).
41. It is not in dispute that D’s obligation to make payments is, on the terms of the Contract, subject to the following conditions precedent (collectively “CPs”):
(1) Clause III(A) of the CC:
“The Deposit must be received by [P] within ten business days of the date of a [RF] for the applicable Season unless otherwise specified in the [RF]. A [RF] will become effective only upon [P’s] receipt of the Deposit for the allocation Season”. (underlined added)
(2) “Conditions” in the RFs:
“The terms of this Reservation Form are conditional on all seats for this Season being sold and deposits paid by May 5th, 2012 and all parties who contracted seats continuing to operate the flight in good faith for the length of the contract. [P] may occasionally buy back unsold seats at the effective average price per seat (considering also any promotions) for its own use with advance notice to [D]. If the Carrier’s reservation and departure control system is used, a fee will be applied for each booking. The prices herein are conditional on strict confidentiality. Breaching confidentiality causes serious harm to [P].” (underlined added)
42. Mr Ma submits that D did not have any obligation to pay any amount under the Contract and the RFs for 2 reasons:
(1) The ordinary and natural meaning of the CPs is that the RFs only become effective when P received the deposit on the date stipulated. This construction is consistent with (a) the nature of the flight chartering business; (b) the Contract states that time is of the essence; (c) the flight flies off on rotation and expires at the time the scheduled flight is flown which, he says, is the reason why P is eager to sell all the seats in the flights; and (d) the RFs are structured in such a way so as “to prevent any travel agent to use the executed [RF] as a leverage to delay deposit payment”, and ensure that the RFs are not binding on P unless the deposit is paid by D. As D never paid the deposit, the RFs have not become effective.
(2) Clause VI(H) is “inconsistent with” clause III(A). Applying “the principle in Forbes v Gilt”, effect should be given to the real intention of the parties, as reflected in clause III(A), and reject clause VI(H) which would defeat clause III(A). Reliance is placed on certain passages in Forbes v Git [1922] 1 AC 256; Lewison, §9.73; Walker v Giles (1848) 6 CB 662; Yien Yieh Commercial Bank Ltd v Kwai Chung Cold Storage Co Ltd [1989] 2 HKLR 639, 650.
43. In response, Mr Chain argues that:
(1) There is no conflict or inconsistency between clause III(A) and clause VI(H) as the CPs are condition precedents to further performance of the Contract, rather than condition precedents to contract as Mr Ma suggests. The distinction is explained in Lewison §16.09.
(2) Clause VI(H) provides that the Contract and RFs are binding upon signing. As contractual documents ought to be read and interpreted as a whole, clause III(A) (and the “Conditions” in RFs) should be interpreted consistently with clause VI(H), such that they impose CPs as to further performance of the RFs (as opposed to contract).
(3) The CPs are clearly for P’s exclusive benefit and can be waived (and were waived) by P unilaterally without notice to D. The principle was stated in this way:
(a) In Irwin v Wilson [2011] 2 P&CR 8, §24, per Sir William Blackburne:
“A party may waive a condition or provision in a contract which is solely for that party’s own benefit and is severable. In such a case the other party is denied the right to treat the condition as unsatisfied and is obliged to complete notwithstanding the loss of that advantage. The question is one of construction of the contract. It turns on whether the stipulation is in terms or by necessary implication for the exclusive benefit of the party, and the answer is derived from consideration of the contract as a whole in the light of the surrounding circumstances….”
(b) In Irish Bank Resolution Corporation Ltd v Cambourne Investments Inc [2012] IEHC 262, 14th June 2012, §48, per Charleton J:
“The test as to whether a contract term is for the sole benefit of one party is therefore twofold: the condition must of its nature be exclusively for the benefit of one party and, in addition, it must be severable from the contract. If the condition is so bound up with the proper performance of the contract that the unilateral waiver of it by the party in whose favour it is said to be alter the entitlements of the other party to the contract so that a different bargain may then be said to be present, then exclusive benefit cannot characterize the clause.”
(4) The CPs are clearly for the exclusive benefit and protection of P in circumstances where it is common knowledge of the parties that (a) P entered into the Contract to obtain certainty of commitment from D; (b) upon entering into the Contract P shoulder immediate and greater financial risk than D; and (c) P has no ability to sell the Third Rotation to anyone else besides D. In such context, P as the vulnerable party is granted the flexibility to either hold D to its contractual obligations, or to attempt to re-negotiate with a third party.
(5) D’s contention that the CPs should be interpreted as an “option” which D could choose to “activate” the RFs by paying the deposits is absurd and unreasonable given that D has been conferred the benefit of the right to the blocked seats by the Contract itself, and not by the CPs – the CPs themselves provide no benefit to D.
(6) D’s construction is contrary to the “prevention principle”. P should be taken as a willing seller, and D a willing buyer who would want to pay the deposit. The Contract should not be interpreted as one which confers on D an escape mechanism to the Contract which D can deploy by choosing to breach its obligation to pay the deposit.
(7) Further, the CPs are severable from the Contract and the RFs. The condition to pay the deposits does not affect D’s entitlements to seats on the Third Rotation or Fourth Rotation. If P waives such condition, the bargain between the parties for the sale and purchase of seats remains exactly the same.
44. In my view, the CPs are conditions precedent to the formation of contract, non-fulfilment of which prevent the RFs from becoming effective. This accord with the natural and ordinary meaning of clause III(A), which provides that “A Reservation Form will become effective only upon [P’s] receipt of the Deposit for the allocation Season”. It is also consistent with the “Conditions” in the Third RF, which states that the terms of the Third RF “are conditional on” the Third Deposit being paid by May 5th, 2012[24].
45. I do not agree with Mr Chain’s submissions that the CPs are for P’s exclusive benefit or that they can be waived by P unilaterally for the following reasons:
(1) The CPs operate both ways. If the CPs are complied with, the RFs become effective for the benefit of both parties: P would be able to secure the sale of a majority of the seats in the Third and Fourth Rotations at the stated prices, while D would be able to lock-in the specified seats in the Third and Fourth Rotations at the prices stated in the RFs. Conversely, if the CPs are not complied with, both parties are released from any obligation to perform the RFs. It follows that the CPs are not provisions which can be waived by P unilaterally.
(2) In any event, Mr Chain’s argument does not sit well with clause VI(A) of the CC, which provides that any variations of the terms of the CC must be made by an instrument in writing executed by both parties. If P were allowed to waive the condition stipulated in clause III(A), it would be tantamount to allowing P to vary clause III(A) without the written consent of D.
(3) The “prevention principle” has no application to the RFs as they have not become effective.
(4) Insofar as P seeks to rely on the “common knowledge” of the parties in support of its argument that the parties intended that the CPs are for P’s exclusive benefit, such “knowledge” is inadmissible as clause VI(B) provides that the CC (together with the SA) “constitutes the entire agreement and supersedes all prior oral or written arrangement, contract, understandings and communications”.
(5) Although Clause XVII(A)(i) of the STC states that “failure by either party to perform any of the material obligations of the Contract including payment of Deposit” shall constitute a breach of the Contract, such clause must be read in conjunction with (a) clause III(A) of the CC, which provides that the RFs will become effective only upon P’s receipt of the Deposit; and (b) clause II(A) of the CC, which provides that “in the event of conflict or inconsistency in the terms and contents between this Contract and a particular Reservation Form, the latter shall prevail”.
46. I do not agree with Mr Ma’s submissions that there is internal inconsistency between clause VI(H) and clause III(A) such as to engage the Forbes v Git principle. As explained in Forbes v Git [1922] 1 AC 256, at 259, the principle only applies when there is inconsistency between the clauses:
“The principle of law to be applied may be stated in a few words. If in a deed an earlier clause is followed by a later clause which destroys altogether the obligation created by the earlier clause, the later clause is to be rejected as repugnant and the earlier clause prevails. In this case the two clauses cannot be reconciled and the earlier provision in the deed prevails over the later. Thus if A covenants to pay £100 and the deed subsequently provides that he shall not be liable under his covenant, that later provision is to be rejected as repugnant and void, for it altogether destroys the covenant. But if the later clause does not destroy but only qualifies the earlier, then the two are to be read together and effect is to be given to the intention of the parties as disclosed by the deed as a whole. Thus if A covenants to pay £100 and the deed subsequently provides that he shall be liable to pay only at a future named date or in a future defined event or if at the due date of payment he holds a defined office, then the absolute covenant to pay is controlled by the words qualifying the obligation in the manner described.” (underlined added)
47. Similarly, in Lewison, §9.73, the principle is stated in this way:
“If a clause in a contract is followed by a later clause which destroys the effect of the first clause, the later clause is to be rejected as repugnant and the earlier clause prevails. If, however, the later clause can be read as qualifying rather than destroying the effect of the earlier clause, or if the contract itself indicates which is to have priority, then the two are to be read together, and effect given to both.
It sometimes happens that two clauses in a contract are found to be in some measure inconsistent. This is particularly the case where the contract is based upon a standard form which the parties have not negotiated to which special clauses or conditions have been added. Provisions are inconsistent if they cannot sensibly be read together.
In Walker v Giles[25], Wilde CJ said:
‘And as different parts of the deed are inconsistent with each other, the question is, to which part effect ought to be given. There is no doubt, that, applying the approved rules of construction to this instrument, effect ought to be given to that part which is calculated to carry into effect the real intention, and that part which would defeat it should be rejected.’” (underlined added)
48. Properly construed, the effect of clause III(A) and the CPs is as follows:
(1) Upon execution, the CC and the RFs and all the provisions therein became binding and enforceable upon P and D (clause VI(H)).
(2) If D wanted to lock-in the specified seats at the prices stated in the RFs, it had to pay deposits of (a) RMB 3,714,000 (“Third Deposit”) to P by 5 May 2012[26]; and (b) RMB 886,000 (“Fourth Deposit”) to P by 1 July 2012. This is the combined effect of clause III(A) of CC and the “Seats and Pricing” and “Deposit Terms” in the RFs.
(3) During the periods from the date of the RFs to the last dates for payment of deposits (“Deposit Periods”), there was no obligation for P to arrange and lock-in any seats specified in the RFs for D.[27]
(4) If D did not pay the Third and Fourth Deposit (together “Deposits”) before expiry of the Deposit Periods, the RFs would not become effective, and neither party had to perform the terms under the RFs. In the case of the Third RF, the Deposit Period was only for 5 days. P would know by 5 May 2012 whether it was necessary to arrange and lock in the seats specified in the Third RF.
49. For the above reasons, in respect of Issues 1, 2 and 7, I hold that:
(1) Upon execution, the Contract and all the terms therein became binding and enforceable against P and D.
(2) The RFs would only become effective upon payment of the Deposits.
(3) There was no obligation for D to pay the Deposits within the Deposit Periods.
(4) As D never paid the Deposits, the RFs have not become effective. Neither P nor D has to perform the terms under the RFs including making weekly advance payments to P accordance with the RFs.
C2. Issue 3: Exclusivity obligation
50. P relies on clause XV of the STC (“Exclusivity Clause”) and clause IV(B) of the CC which provide as follows:
“XV. Exclusivity of the Cooperation.
[D] undertakes that it and its subsidiaries, directors, and staff will not cooperate with any other entity to conduct business in respect of the specific routes agreed in Appendix A [i.e. RFs] during each relevant Season without the prior written consent of [P], plus, in the case of early termination due to breach of the Contract by [D], an additional six months’ period commencing immediately upon the termination date. In the case of termination due to the non-performance of [P], no such limitation on [D] will apply. This paragraph shall not be construed to mean [D] may not act as a common travel agent for booking regular scheduled flights available directly from airlines to the general public for individual travelers but not including large group fares available exclusively to high volume travel agents.”
“IV(B). Termination shall not relieve either party of its obligations to make payment for services rendered or to maintain confidentiality or exclusivity under this Contract…”
51. Mr Chain submits that the wording of the Exclusivity Clause is clear and its meaning is undisputed.[28] The only question is whether D acted in breach of the Clause. In this regard:
(1) Chen put forward no evidence whatsoever.
(2) The evidence of P’s factual witnesses is largely uncontested. This includes Weinmann WS §§68, 93 to 94, 98, 105-114, Wang WS §§12-24, and Ms Louise Huang (“Huang”) WS §11-21.
(3) Such testimony, together with available documentary evidence (much of which was disclosed by D), overwhelmingly demonstrates D’s breach of the Exclusivity Clause.
52. In my view, the evidence shows that:
(1) In early June 2012, D proactively pushed and procured Hainan Airline to recommence operations of flights on the Route, evidenced by the email chain commencing 12 June 2012.
(2) On 5 July 2012, the Hainan Agreement was entered into[29].
(3) Subsequently, D actively solicited other travel agents to purchase seats on the Chartered Flights, instead of MEGA’s flights. This is evidenced by:
(a) The email from D to Ctrip dated 25 September 2012;
(b) The emails from CYTS to P dated 20 August 2012 and 10 September 2012, confirming that D had made an approach to CYTS; and
(c) The email from Sunshine to P dated 9 September 2012, confirming that D had made an approach to Sunshine and other travel agents.
(4) D publicly offered the Chartered Flights for sale, instead of MEGA flights seats pursuant to the Contract. This is evidenced by:
(a) D’s website; and
(b) P’s staff, Mr Benny Lam, was able to purchase a ticket on a Chartered Flight on 3 November 2012. D’s line of cross-examination that this ticket did not contain D’s name is utterly meaningless, given that it is undisputed that all the seats on the Chartered Flights were sold to D.
53. The fact that D sold, and solicited other travel agents to sell, tickets on the Chartered Flights, is indisputable. This is reinforced by the terms of the Hainan Agreement, which show that D was the only agent which had the right to sell the seats on the Chartered Flights.
54. In §26 of the Defence, there is a plea that in reliance on the 29 June Email, D entered into the Hainan Agreement, and P is estopped from unilaterally imposing the Third RF. However, D adduces no evidence to substantiate this plea.
55. Mr Ma does not advance any submissions to contradict the evidence set out in §§51-53 above. Nevertheless, he contends that:
(1) D was at the recipient end of the communication that Hainan Airline was to resume the Route in November 2012.
(2) Although it might be D’s intention to do business with Hainan Airline in June 2012, it was only a plan.
(3) In light of P’s refusal to provide CAAC approvals to D from 4 May to June 2012, D acted reasonably in preparing for termination of the Contract and finding alternative supplier to replace P.
(4) D’s plan to do business with Hainan Airline was then still subject to confirmation of flight capacity with Hainan Airline.
(5) D did not sign the Hainan Agreement until 5 July 2012, 6 days after it had exercised the right to termination the Contract.
(6) Weinmann appears to suggest that D had a “secret plot to ditch P and to do business with Hainan Airline”[30] because of the “unexpectedly swift recovery of the Maldives tourism market”[31].
(7) It is not in dispute that after the Incident, D expressed concerns over P’s safety and whether MEGA had all the necessary approvals, requested P to sign the draft LOU, and issued the Notice Letter requesting P to provide MEGA’s approval documents on 23 May 2012 and the 8 June Meeting was held at which P attempted to show some approvals documents to D.
(8) If Weinmann’s suspicion were true, D must have formed the intention to go with the Hainan Airline and to “ditch” P on as early as 4 May 2012, 4 days after the Contract was signed.
56. In respect of the above points:
(1) The assertions in §55(1)-(4) above are pure conjectures. No evidence has been adduced by D in support of these assertions.
(2) Although Mr Ma seeks to challenge Weinmann’s evidence in §§47(e) and 93 his WS, such challenge is not based on D’s evidence. Nor has Mr Ma cross-examined Weinmann’s evidence on this aspect.
(3) As for D’s concerns raised after the Incident and the requests for provision of relevant approval documents, it is clear from the undisputed evidence set out in §§20-24 above that after P had provided copies of MEGA’s licenses and permits for D’s review at the 8 June Meeting, no further request was made by D. At trial, it is the unchallenged evidence of Weinmann that after being shown the copies of the approval documents at the 8 June Meeting, D did not request for any further documents relating to MEGA.
57. In any event, I do not think that the points made by Mr Ma (even if established) go anywhere near to show that D has any defence to P’s claim for breach of the Exclusivity Clause.
58. For the above reasons, I find that in entering into the Hainan Agreement and selling the seats on the Chartered Flights from 1 November 2012, D acted in breach of the Exclusivity Clause.
C3. Issue 4 and 5(a): Implied Term
59. In his oral Opening[32] Mr Ma confirms that the implied term which D still contends is as follows (“Implied Term”):
“P shall, upon reasonable request made by D, supply copies or legible images of the necessary Slot Clearance Approval in respect of the flights operated by MEGA to be used in relation to the Contract.”
60. At trial, it is no longer in dispute that at all material times, MEGA had the requisite Slot Clearance Approvals for MEGA’s flights to operate on the Route (“Slot Approvals”). If the Implied Term exists, the only factual issue is whether D had requested for copies of the Slot Approvals and, if so, whether P failed to provide them to D.
61. Mr Chain submits that even if, which is denied, the Contract contains the Implied Term, P did not act in breach of it as D never requested for copies of the Slot Approvals.
62. First, in all the written requests sent to P, D did not request for provision of the Slot Approvals (copies or otherwise). These include:
(1) D’s request dated 4 May 2012 for a LOU;
(2) Mr Ma’s suggestion that the words “information such as airways and take-off/landing times” (in §2 of the LOU) was a reference to Slot Approvals[33] is wholly without basis. Even if one were to adopt Mr Ma’s suggestion, at most, it was a request for P to give an undertaking that such information had been submitted by MEGA to CAAC. The fact remains that D did not request P to provide any Slot Approvals; and
(3) D’s further letter of 23 May 2012.
63. As regards the 8 June Meeting, D’s own evidence does not support the contention that it requested for copies of any Slot Approvals in that:
(1) Chen’s evidence is that D requested for originals of all licenses and approvals, particularly those concerned with safety, but did not request for any specific license or approval[34].
(2) In the “minutes” of the 8 June Meeting prepared by D (the accuracy of which P disputes), it was recorded (§1) that D had requested for “all original documents relating to safety for inspection and approval, in order to ensure the safety of [MEGA’s] flights”. There was no mention of any request for Slot Approvals.
64. Similarly, D’s own evidence on the 27 June Meeting does not support the contention that it requested for copies of Slot Approvals:
(1) Chen WS does not mention any request for Slot Approvals made at the 27 June Meeting[35]; and
(2) In the “minutes” of the 27 June Meeting prepared by D (the accuracy of which P disputes), there was no mention of any request for Slot Approvals.
65. As D bears the evidential burden to prove that P acted in breach of the Implied Term (assuming it exists), its failure to adduce any evidence to show that D has requested P to provide copies of any Slot Approvals is fatal to this defence.
66. Indeed, the fact that D never requested P to provide any Slot Approvals (whether originals or copies) is reinforced by the following evidence:
(1) Weinmann is subject to extensive cross-examination as to whether D requested P to provide copies of the Slot Approvals. His evidence remains unshaken. He explains that for MEGA’s flights to operate on the Route, it had to obtain Slot Approvals from CAAC without which the flights could not be flown. The regulatory status and landing times of MEGA flights was a matter of public record, which D could verify with CAAC. The Slot Approvals were in the form of text messages which could readily be seen within the system accessible to all operators and was not confidential to P or MEGA. Had D requested for copies of the Slot Approvals, P could readily have provided them to D.
(2) It is the unchallenged evidence of Weinmann that after the 8 June Meeting, no further request was made by D regarding any regulatory approvals.
(3) In MEGA Confirmation Letter sent to D, MEGA confirmed that all necessary approvals for the flights to operate on the Route had been obtained. No further request was made by D after this Confirmation.
(4) The Termination Notice did not refer to the Implied Term or, indeed, any alleged failure on the part of P in providing any Slot Approvals to D.
67. There is not a shred of evidence in support of D’s case that P acted in breach of the Implied Term (assuming it exists). It follows that there was no basis for D to terminate the Contract in reliance on the breach of the Implied Term.
68. In his oral Closing, Mr Ma belatedly accepts that D never requested P to provide any Slot Approvals specifically. It seems to me that this is a tacit acceptance that P did not act in breach of the Implied Term even assuming it exists.
69. For completeness, I do not consider that the conditions for implying the Implied Term are met.
70. D’s case is that the Implied Term exists upon proper interpretation of the Contract. However, in his Opening and Closing, Mr Ma has not identified which clauses in the Contract may be interpreted as the Implied Term.
71. In any event, the onus is on D to demonstrate that the conditions for implying the Implied Term into the Contract are satisfied. The conditions are stated in Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381 at §59:
“… for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”
72. The Implied Term falls foul of the following conditions:
(1) It is neither reasonable nor equitable. As stated in §60 above, it is not in dispute that MEGA did have the Slot Approvals for the flights to operate. Mr Ma has not been able to explain why the Implied Term is reasonable or equitable in circumstances where the parties entered into the Contract to set out their respective rights and obligations in great details.
(2) The Implied Term is not necessary to give business efficacy to the Contract for the reasons explained by Weinmann (see §66(1) above). If the RFs became effective but MEGA did not have the requisite Slot Approvals, it would mean that none of the flights specified in the RFs could be flown, and P would be in breach of the Contract and the RFs. It was not necessary for D to request for copies of the Slot Approvals at all.
(3) The Implied Term is not so obvious that it goes without saying nor is it capable of clear expression. This is illustrated by the fact that D’s case on the implied term kept changing. It is only until his oral Closing that Mr Ma makes clear what D contends to be the Implied Term.
73. For the foregoing reasons, I hold that the conditions for implying the Implied Term into the Contract are not satisfied. Even if, contrary to my view, the Implied Term forms part of the Contract, there is no evidence to show that P acted in breach of the Implied Term.
C4. Issue 5(b): Amendment of Fourth RF
74. This is an issue added by Mr Ma to Issue 5 in the QRB. The issue as formulated by Mr Ma is unintelligible. Nor has it been pleaded in the Defence. In any event, if and to the extent that Mr Ma suggests that there was any agreement between the parties to amend or terminate the Fourth RF, such suggestion is contradicted by Chen’s oral testimony that no agreement was reached between the parties regarding the termination of the Fourth RF.
C5. Issues 6: Whether P agreed to terminate Third RF on 27 June 2012
75. The issue only arises if, contrary to my holding, D was under an obligation to perform the terms of the Third RF. The burden is on D to prove that P agreed to terminate the Third RF on 27 June 2012. In my view, D fails to discharge such burden.
76. The contemporaneous documents exchanged between the parties show that P did not agree to terminate the Third RF:
(1) In the 29 June Email sent to Tan, Wang referred to the parties’ discussion on the RFs and P’s agreement to “suspend” the Third RF and to further discuss the potential for other cooperation. There was no reference to any agreement to terminate the Third RF at all.
(2) Similarly, in the Termination Notice sent to P after the 29 June Email, D did not refer to any agreement to terminate the Third RF. If the parties had reached the alleged agreement to terminate the Third RF, the same would have been mentioned by D in the Termination Notice. I do not accept Chen’s characterisation, under cross-examination that the Termination Notice was only a “reply letter between customers” to ensure that the parties would cooperate in the long term.
(3) In response to the Termination Notice, P sent the 9 July Letter and 2 emails to D dated 11 and 14 September 2012 to make clear that it did not accept the Termination Notice and would continue to hold D to the Contract. It is not in dispute that D received these correspondence and never suggested that the Third RF had been terminated on 27 June 2012. Had P agreed to terminate the Third RF, one would expect D to say so after received P’s correspondence.
(4) No credible explanation has been provided by D as to why it did not refer to the alleged agreement to terminate the Third RF in any of the correspondence exchanged between P and D.
77. D relies on 2 documents in support of the alleged agreement to terminate the Third RF namely, an internal “minutes” of the 27 June Meeting prepared by D and the 29 June Email. I do not think that either of these documents support D’s allegation:
(1) The internal “minutes” were prepared by D and its contents were not known to P until the same were disclosed in these proceedings. Chen does not give any evidence on the “minutes”. The person who prepared the “minutes” (Tan) does not come forth to give evidence for D. This is despite the fact that in his WS, Weinmann already pointed out the inaccuracy of these “minutes”. That being the position, I do not think that any weight should be given to the contents of these “minutes”.
(2) In the 29 June Email, Wang stated that P agreed to “suspend” the Third RF and agreed to further discuss the potential for cooperation on other routes. It did not refer to any agreement to terminate the Third RF.
C6. Issue 8: Remedies for breach of payment obligations
78. In light of my holding that there was no obligation for D to pay the Deposits or make any payments in accordance with the RFs (section C1 above), P’s claim for contractual sum of RMB 201,322,800[36] must fail.
79. Although P has an alternative claim for damages for breach of the Contract and the RFs in the amount of RMB 85,994,308.56, such claim is premised on D’s “failure to make payments in breach of the Contract, the [Third RF] and the [Fourth RF]”. Apart from breach of Exclusivity Clause (discussed in section C7 below), no other breach is pleaded in respect of this claim. As D had no obligation to make any payments under the Contract or the RFs, P’s alternative claim cannot succeed.
C7. Issue 9: Remedies for breach of Exclusivity Clause
80. P’s claim for D’s breach of the Exclusivity Clause may be summarised as follows:
(1) In breach of the Exclusivity Clause, D entered into the Hainan Agreement on 5 July 2012[37];
(2) From June 2012 until the expiry of the Contract on 30 April 2015, D (a) conducted business with Hainan Airline in relation to the Route by offering to the public seats on the Chartered Flights instead of MEGA flights which D had agreed to purchase from P; (b) induced other travel agents to move their block seat requirements from P and purchase capacity from Hainan Airline; and (c) otherwise conducted business with Hainan Airline instead of P[38];
(3) By reason of D’s breach, the market had become over-supplied with seats on the Route. The travel agents to which P had sold seats on the First and Second Rotations on the Route[39] (collectively “Agents”) informed P in October 2012 and beyond that they were encountering significant difficulties in on-selling those seats to consumers. In face of the risk that the Agents would likely be unable to pay for the seats on the First and Second Rotations, in mitigation of further loss, P agreed to give discounts to the Agents in the aggregate amount of RMB 21,997,814.37. Further, some flights on the First and Second Rotations had to be cancelled or rescheduled[40] (“Loss of Profit Claim”); and
(4) As a result of the Third Rotation flights not being flown, MEGA increased the cost per flight for the First and Second Rotations for 76 flights from July to December 2012 by US$7,558.01 per flight at a total increased cost of US$574,408.76[41] (equivalent to RMB3,624,519.28[42]) (“Additional Cost Claim”).
81. Mr Chain submits that a wronged party acting in reasonable mitigation is not under any obligation to do anything other than in the ordinary course of business (Chittyon Contracts, 34th ed., Vol. 1, §§29-098, 29-099). P’s various mitigation efforts are detailed in Wang WS §§12-38 and Huang WS §§11-23 which evidence is corroborated by contemporaneous documents. Their evidence (which has not been challenged at trial) shows that:
(1) As regards the First and Second Rotations, P was informed by the Agents that if P did not give discounts and special offers on those Rotations, the Agents would not be able to survive and would have to cease their business (which would also be to the detriment of P). Therefore, P offered the “Special Offers” (described in Wang and Huang WS) as requested; and
(2) As for the Third and Fourth Rotations, P did everything it reasonably could to negotiate lower costs of flights with MEGA, whilst attempting to maximize its profits by re-selling the seats on the Third and Fourth Rotations (in extreme, difficult, last minute circumstances) which D had failed to pay for and take up.
82. As for quantum, Mr Chain submits that P has made out the Loss of Profit Claim given that:
(1) There is no serious basis to challenge the calculations set out at Wang WS §§44-46; and
(2) The factual basis for these calculations, as set out at Wang WS §§12-26 and in Huang WS, has not been challenged at all in cross-examination.
83. D denies that P has suffered any loss or damage[43] and raises the following defence:
(1) Hainan Airline’s resumption of flights on the Route was not arranged or procured by D. Any oversupply of seats (which is not admitted) was not caused by any action on the part of D[44]; and
(2) P was not entitled to be put in a better position than if the Contract had been performed. Under the MEGA Agreement dated 31 December 2010, P was obliged to pay MEGA US$197,011.95 for each flight, which was equivalent to (or more than) the RMB sums allegedly payable by D. P has not suffered any loss or damage[45].
84. The first pleaded point (§83(1) above) is not pursued by D at trial. This is not surprising as no evidence has been adduced by D to contradict P’s evidence set out in §§51-52 above. Nor has Mr Ma cross-examined P’s witnesses on their evidence in this respect.
85. Although in the SOC, the Loss of Revenue Claim is made for the period from June 2012 to 30 April 2015, in their WS, Wang and Huang both state that P gave discounts and Special Offers to the Agents during the period from September 2012 to May 2013 (when the situation of oversupply in the market appeared to improve)[46] for MEGA flights scheduled for the period from November 2012 to 21 May 2013[47].
86. In her WS §46 Wang sets out the details of the Loss of Profit Claim by reference to the documents disclosed by P. In short:
(1) Under the contracts entered into between P and the Agents, the total amount payable to P for each flight under the First and Second Rotations was RMB 1,521,600;
(2) P gave Special Offers for 75 flights within the First and Second Rotations and received RMB 92,122,185.63 from the Agents;
(3) Without the Special Offers, the 75 flights would have generated RMB 114,120,000; and
(4) The difference between RMB 114,120,000 and RMB 92,122,185.63 represents the loss suffered by P.
87. As the above evidence is not challenged at trial, I find that in respect of the Loss of Profit Claim, P has suffered loss in the amount of RMB 21,997,814.37.
88. In relation to the Additional Cost Claim, it is premised on the Third Rotation flights not being flown. As D was not under any obligation to purchase the seats on the Third Rotation (as I so find), there is no basis for P to claim that the increased cost was caused by D’s breach of the Exclusivity Clause. It is unnecessary to deal with the second pleaded point (set out in §83(2) above).
C8. Issue 10: Interest
89. In his written Closing, Mr Chain confirms that P only seeks contractual interest on the claims arising from D’s breach of payment obligations. This accords with Clause VII(F) of the STC, which stipulates that contractual interest is to apply to “late payment until the payment is made”. As P fails in the claims based on breach of payment obligations, it is unnecessary to consider whether P is entitled to claim interest at the contractual rate.
90. For the damages claim for breach of exclusivity, P claims pre-judgment interest at the standard commercial rate (prime lending rate +1%). Mr Ma does not dispute that this is the appropriate rate if the court finds that D is liable to pay damages to P.
D. CONCLUSION
91. For the reasons discussed above, I hold that:
(1) D had no obligation to pay the Deposits within the Deposit Periods. As D never paid the Deposits, the RFs have not become effective and neither party has to perform the obligations under the RFs (Issues 1, 2 and 7).
(2) D acted in breach of the Exclusivity Clause under the Contract (Issue 3).
(3) The Contract does not contain the Implied Term. In any event, there could be no breach of the Implied Term as D never requested P for copies of the Slot Approvals (Issues 4 and 5(a)).
(4) It is not open to D to run an unpleaded defence based on alleged amendment to the Fourth RF. In any event, P never agreed to amend or terminate the Fourth RF (Issue 5(b)).
(5) P did not agree to terminate the Third RF on 27 June 2012 (Issue 6).
(6) P’s claim for contractual sum or damages for breach of payment obligations under the Contract and the RFs cannot succeed in light of my holding under Issues 1, 2 and 7 (Issue 8).
(7) D is liable to pay damages in the amount of RMB 21,997,814.37 to P for breach of the Exclusivity Clause (Issue 9).
(8) Interest on damages for breach of the Exclusivity Clause is at HSBC prime lending rate plus 1% (Issue 10).
92. Accordingly, judgment is entered against D for RMB 21,997,814.37 together with interest at HSBC prime lending rate plus 1% from May 2013 up to the date of judgment and, thereafter, at judgment rate.
93. As for costs, there be a costs order nisi that D do pay to P the costs of and occasioned by the actions including all costs reserved on a party and party basis, to be taxed if not agreed, with certificate for 2 junior counsel.
94. Although P is not wholly successful in all its claims, it seems to me that this is not a case where there should be an apportionment of costs. This is because substantial time and costs were wasted as a result of the approach adopted by D in seeking to take issue with every conceivable points and raise a whole array of defences many of which are not supported by any evidence and/or abandoned at trial. The position is exacerbated by D’s failure to comply with this Court’s directions on trial and Mr Ma’s attempt to raise new and unpleaded issues in his written Opening Submissions.
95. I consider that P is justified in engaging 2 counsel, in light of the many issues raised by D in the Defence, including expert issues. It is only until trial that D abandons those issues which require the evidence of expert witnesses.
| (Linda Chan) | |
| Judge of the Court of First Instance | |
| High Court |
Mr Christopher Chain and Ms Tiffany Chan, instructed by Holman Fenwick Willan, for the Plaintiff
Mr Lawrence Ma, instructed by Reed Smith Richards Butler LLP, for the Defendant
[1] Being 100% shareholding in P and 45% interest in MEGA, both held through a corporate vehicle
[2] D does not admit that it is part of the HNA Group in §2 of the Defence. However, in the internal email dated 25 October 2012 between D and Hainan Airline concerning price adjustment of the Chartered Flights, D was described as “an internal enterprise within the group”
[3] That is, a total of 250 seats
[4] Re-Amended Consolidated Statement of Claim (“SOC”) §9
[5] SOC §§14-18
[6] SOC §§24-24B
[7] SOC §§25-27
[8] SOC §§28-30
[9] SOC §§30A-31
[10] Defence §7
[11] Defence §§8-10
[12] Defence §§17-22
[13] Defence §23
[14] Defence §23(e)
[15] Defence §23(d), (f)
[16] Defence §23A
[17] Defence §24
[18] Defence §26
[19] Defence §26A
[20] Such as “Implied Terms of Good Faith”, “Implied Term to Provide Approvals”, “Statutory Implied Term of Reasonable Care and Skill”, “Providing Approvals Condition Precedent”
[21] Which comprises (1) Dramatis Personae, (2) Glossary, (3) Chronology, (4) List of Issues in Dispute and (5) Statement of Facts (Arranged by List of Issues in Dispute)
[22] SOC Annex A
[23] SOC Annex B
[24] At trial, D no longer relies on the other conditions viz., “all seats for this Season being sold” or “and all parties who contracted seats continuing to operate the flight in good faith for the length of the contract” stipulated in the “Conditions” in the RFs
[25] (1848) 6 CB 662
[26] The due date for payment of the Third Deposit could be varied by an instrument in writing executed by P and D in accordance with clause VI(A) of CC. There is no suggestion that the parties reached any agreement to vary the date for paying the Third Deposit.
[27] No reliance is placed on the phrases “all seats for this Season being sold” or “and all parties who contracted seats continuing to operate the flight in good faith for the length of the contract” stipulated in the “Conditions” in the Third RF
[28] As made clear in P’s oral opening, P’s position is that the Contract was never terminated, in particular not terminated in June 2012, and the Exclusivity Clause remained valid at all material times.
[29] Admitted in §21 of QRB
[30] Weinmann WS §93
[31] Weinmann WS §47(e)
[32] Transcripts [Day 3/p.26/line 23-p.27/line 3], cf. QRB-18
[33] Transcripts [Day 3/p.31/lines 20-25]
[34] Chen WS §§4.9-4.12; Transcripts [Day 3/p.62/line 14 to p.63/line 17]; Statement of Facts §37
[35] Chen WS §§4.13 to 4.14
[36] SOC §§24-24B
[37] SOC §28
[38] SOC §§28A-29
[39] Being China International Travel Service Ltd Head Office, China CYTS Tours Holding Co Ltd (“CYTS”), Beijing Sunshine Holiday International Travel Service Co. Ltd (“Sunshine”) and Beijing Ctrip International Travel Service Co. Ltd (“Ctrip”)
[40] SOC §30(a)-(c), (e)
[41] SOC §30(d), (e)
[42] At exchange rate of US$1 = RMB6.31 in 2012
[43] Defence §26
[44] Defence §24(b)
[45] Defence §24(c)
[46] Wang WS §§25, 45-46; Huang WS §22
[47] Wang WS §26; Huang WS Annex