G.C. Nanda & Sons (HK) Ltd v. Air India Ltd

HCA 11957/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 11957 OF 1998

______________________________

Coram: Recorder Ronny Wong S.C. in Court

Dates of hearing: 2 to 6 and 9 September 2002

Date of Judgment: 4 November 2002

_______________

JUDGMENT

_______________

Background

1.The Plaintiff ["G.C. Nanda"] is a travel agency operating in Hong Kong for at least 25 years. It specialises in the Hong Kong to India route. It acted as consolidator (wholesaler/distributorship) for Air France and British Airways in respect of their flights to India in the 80s. It also acted as consolidator for other airlines including United Airlines; Qantas; Thai and the Defendant ["Air India"]. It markets a number of Indian tourism products including "Palace on Wheels".

2.G.C. Nanda was first operated by Mr. Inder Nanda. Mr. Sunil Nanda ["Mr. Nanda"], son of Mr. Inder Nanda, took over the operation in about 1981. At all material times, Mr. Nanda and his wife ["Mrs. Nanda"] were in control of G.C. Nanda.

3.Air India operates flights between Hong Kong and India. It maintains an office in Hong Kong ["the Hong Kong Office"]. Mr. A. Vaish ["Mr. Vaish"] was the Manager of the Hong Kong Office in 1978. He was succeeded by Mr. Arun Barman ["Mr. Barman"] who held office until September, 1992. Mrs. Dhanoo Khusrokhan ["Mrs. Khusrokhan"] took over from Mr. Barman and was in charge of the Hong Kong Office until the arrival of Mr. Yogesh Mathur ["Mr. Mathur"] in April, 1996.

4.G.C. Nanda acted as consolidator for Air India since 1978. In about 1991, Air India appointed New Way Travels Limited ["New Way Travels"] as an additional consolidator. The then Managing Director of New Way Travels was Mr. Lincoln Linn ["Mr. Linn"]. Mr. Linn was a former employee of Air India. He left New Way Travels in 1992 and took over the management of Travel Focus (Hong Kong) Limited ["Travel Focus"] in January, 1993. Air India terminated New Way Travels' consolidatorship and appointed Travel Focus as consolidator.

5.Air India offered to their consolidators fares at a special rate. The consolidators were given a basic commission on their sale of air tickets at that special rate. The consolidators sold to various sub-agents who were required to sell to the ultimate consumers at a minimum selling price ["MSP"] fixed by Air India. On top of the basic commission, the consolidators were also given a productivity linked incentive commission ["PLI"]. Apart from the consolidators, Air India had 23 second tier agents in 1996. Air India offered to these agents fares at a rate higher than those offered to the 2 consolidators. These agents were likewise given a commission on the sales that they generated.

6.The relationship between Air India and G.C. Nanda turned sour after the arrival of Mr. Mathur in April, 1996. Mr. Nanda accused Mr. Mathur of favouring Travel Focus and sanctioning breaches of the MSP via another travel agency in the name of Armaan Travel Service Limited ["Armaan Travel"] which had hitherto been blacklisted by Air India. Evidence of the breach was presented to Mr. Mathur on 3rd July, 1996 who simply dismissed it as a mistake. Mr. Nanda took his case to the Head Office of Air India. A revenue accounting audit of the Hong Kong Office was conducted between 17th to 20th December, 1996. Relationship between Mr. Nanda and Mr. Mathur did not improve. On 23rd May, 1997, Mr. S. Ranganathan (General Manager - Finance in Air India's Santa Cruz office) visited Hong Kong with the view of resolving the differences between the parties. He had little success. Relationship between Mr. Nanda and Mr. Mathur remained strained.

7.On 29th December, 1997, Mr. Mathur wrote to Mrs. Nanda and suggested that a group of 18 passengers who left for India on 23rd December, 1997 ["the 23rd December Group"] with tickets purchased through G.C. Nanda "is not, in fact, a genuine GIT". The "categoric confirmation" of Mrs. Nanda was sought. Following exchange of further correspondence between the parties, by letter dated 21st January, 1998 ["the Letter of Termination"], Mr. Mathur informed G.C. Nanda that "In view of this deliberate act on your part depriving us payment of the correct higher fare, we are constrained to withdraw all special fares offered to you to India" with effect from 1700 that day. By letter dated 18th June, 1998, solicitors acting for Air India notified solicitors acting for G.C. Nanda that Air India "may withdraw all destinations worldwide forthwith". This action was commenced shortly thereafter on 20th July, 1998.

The issues before me

8.There are 3 broad issues before me.

9.The first issue relates to the validity of the Letter of Termination.

(1) Air India says that the Letter of Termination is valid as G.C. Nanda violated applicable rules of the International Air Transport Association ["IATA"] in relation to fares offered to members of the 23rd December Group. If the Letter of Termination is invalid, Air India says that they are entitled to terminate G.C. Nanda's consolidatorship by 1 month's notice and G.C. Nanda's damages should be assessed on that basis.

(2) G.C. Nanda says that IATA rules are not applicable and the arrangements for the 23rd December Group were within the practice sanctioned by Mr. Mathur. G.C. Nanda further says that by virtue of express agreements between the parties, their distributorship was only terminable upon service of 6 months' notice. Alternatively, on the basis of implied term, the applicable period was between 3 months to 1 year.

10.The second issue relates to Air India's claim for refund of alleged overpayment of PLI :

(1) Air India says that PLI was to be paid on the basis of "flown revenue" which means the net receipt of Air India after deducting the basic commission and other revenue charges. Air India further says that they are entitled to recover over payments made in the past by virtue of mistake.

(2) G.C. Nanda says that in the context of the relationship between the parties, flown revenue means gross receipt of Air India. There was no mistake on the part of Air India and this claim was put forward by Mr. Mathur in response to the complaints levied by G.C. Nanda against him.

11.The third issue relates to G.C. Nanda's claim that Air India acted in breach of an implied term "that the Defendant would confer equal treatment to all its Consolidators in the course of transacting the Defendant's air passenger tickets" [See para. 3 of the Amended Statement of Claim] :

(1) G.C. Nanda says Air India acted in breach of this implied term in relation to :

(1) the grant of ad hoc fares;

(2) the withholding of confirmation for passengers booked through G.C. Nanda;

(3) the withdrawal of access hitherto granted by Air India to its reservation system;

(4) the appointment of Armaan Travel as the third consolidator on 3rd January, 1998;

(5) the charging of G.C. Nanda of the deportation costs incurred in respect of one Raviprakash;

(6) the offloading of a group of passengers booked through G.C. Nanda on 24th January, 1998;

(7) the transfer of G.C. Nanda's group tours to Travel Focus who offered cheaper fares and

(8) the grant of more favourable treatments to Travel Focus on reservation, excess baggage and fares.

(2) Air India denies the existence of such implied term and further denies that G.C. Nanda had been subjected to any unequal treatment.

Witnesses and their credibility

12.The 2 principal protagonists are Mr. Nanda and Mr. Mathur. Mr. Nanda is highly intelligent and most eloquent in his presentation of G.C. Nanda's case. He has full grasp of the issues between the parties but tends to embellish his evidence with the view of strengthening G.C. Nanda's position. He says he reached express agreement with Mr. Barman on the service of 6 months' notice of termination. This alleged agreement is not reflected in the pleadings exchanged between the parties. I reject his evidence on such agreement. When he was confronted with the letter dated 3rd September, 1996 sent by Mr. Mathur to him on the issue of PLI, he described that letter as a "fabrication" on the basis that the letter was the only one signed by Mr. Mathur "with regards". Such attempt on his part is regrettable. It does not enhance his credibility. Although I do not reject the entirety of his evidence, I approach his evidence with caution.

13.Mr. Mathur is from the old school. It is not difficult to see why his cautious approach did not find harmony with the aggressive style of Mr. Nanda. He was obviously embarrassed by Mr. Nanda's propensity to exert pressure via his contacts in Air India's Head Office and it is likely that such embarrassment coloured his judgment leading to the Letter of Termination. In relation to other aspects of the case, he tried his best to assist by giving concise and firm evidence. I am impressed by his strong denial that he showed any preference to Travel Focus in his dealings with the 2 consolidators.

14.Mrs. Nanda and Mr. S. Chowdhuri ["Mr. Chowdhuri"] constitute the next group of lay witnesses. Mr. Chowdhuri is the Customer Relations Manager/Airport Manager of Air India. The major area of difference between them relates to what transpired in the old Kai Tak Airport when the group of passengers booked through G.C. Nanda was offloaded on 24th January, 1998. Having seen and observed both of them in the witness box, and bearing in mind the inaccuracies in the sloppy survey which Mr. Chowdhuri conducted on the 23rd December Group, I prefer the testimony of Mrs. Nanda.

15.Both sides sought to place "expert" evidence before me.

(1) Section 58(1) of the Evidence Ordinance provides that

"Subject to any rules, where a person is called as a witness in any civil proceedings, his opinion on any relevant matter on which he is qualified to give expert evidence shall be admissible in evidence".

(2) I have to consider 2 aspects : the relevance of the evidence and the competence of the witness to give it.

(3) G.C. Nanda called Mr. Francis Bagaman ["Mr. Bagaman"]. Mr. Bagaman has been in the travel business for 38 years. He was a Director, Honorary Treasurer and Deputy Chairman of the Travel Industry Council for the years between 1993 to 1997. He was also a Founding Committee Member of the Society of IATA Passenger Agents ["SIPA"]. From 1993 to date, he is the Chairman of SIPA. I have no doubt that he has extensive knowledge of IATA and its relevant rules and I accept his competency in that area. He was however asked to give evidence on whether Air India should confer equal treatment to its consolidators and the applicable length of notice for termination of a consolidator who held office for over 20 years. With no disrespect to Mr. Bagaman, I am unable to detect from his impressive track record relevant expertise in these areas and he failed to identify any concrete example in the course of his long experience to support his contentions.

(4) Air India called Mr. Linn. Given G.C. Nanda's allegation of wrongful preference in favour of Travel Focus, it is difficult to accept Mr. Linn's protestation that he has no personal interests in these proceedings. Mr. Linn worked in the Reservation Department of Cathay Pacific and as Sales Manager of Pakistan International Airline and Air India. He accepted in cross examination that he did not have any managerial experience. It is therefore difficult to see what relevant expertise Mr. Linn has. He ventured the opinion that 1 month's notice is sufficient to terminate a consolidatorship. When pressed, he could not identify any basis for his contention. I reject his evidence in toto.

The Letter of Termination

16.On 9th July, 1997, G.C. Nanda asked Air India to reserve seats for 5 groups of passengers. One of the five groups consisted of 20 passengers departing Hong Kong for Delhi on flight AI 313 on 23rd December, 1997 and returning from Delhi to Hong Kong on flight AI 314 on 30th December, 1997. These reservations were duly confirmed by Air India.

17.On 15th December, 1997, G.C. Nanda furnished Air India 18 names. Amongst these names were Mr. and Mrs. Tsui; Mr. and Mrs. Wilson; Mr. and Mrs. Chima; Mr. and Mrs. Gandhi with 2 children and others.

18.By an Exchange Order dated 19th December, 1997, G.C. Nanda requested Air India to provide them with tickets for the 18 named passengers. Apart from one adult who was charged a net fare of $20, each of the adults in this group was charged a net fare of $3,720. Each child in the group was charged a net fare of $2,500.

19.Air India issued tickets in the names of the 18 passengers. Typed on each ticket was a "Tour Code" IT7AI3G0N11. In respect of the return trip from Delhi to Hong Kong, each ticket provided that the same was not valid before 28th December, 1997 and not valid after 27th January, 1997.

20.There is before me an itinerary in respect of an India Tour with sightseeing in Delhi; Neemrana; Jaipur and Agra for the period between 23rd to 31st December, 1997. The itinerary was sent by one Fancy Ng of G.C. Nanda to one Raveena of Air India.

21.Mr. Mathur became suspicious after having sight of the composition of the 23rd December Group as Indians would not normally join tours for sightseeing in India. Mr. Chowdhuri allegedly made inquiries with passengers that made up that group prior to their departure. According to a note compiled by Mr. Chowdhuri, the Tsuis were "Taking Satelite Tour"; the Wilsons were heading for "Palace on Wheels" and the Gandhis were "Visiting parents in [Delhi]". I accept G.C. Nanda's case that the destinations depicted in this note are inaccurate.

22.It was in these circumstances that Mr. Mathur wrote to G.C. Nanda the letter dated 29th December, 1997 referred to in paragraph 7 above. The letter adverted to the Gandhis returning separately and asserted that the group "is not, in fact, a genuine GIT".

23.G.C. Nanda answered the allegation by letter dated 30th December, 1997. G.C. Nanda explained that "It is common practice for group passengers who travel outbound together and avail of ground arrangements to often return on different dates for a wide variety of reasons.... The option of allowing flexible individual return dates is in fact, the initiative of your office...Our holiday makers depart together, utilise Destination India ground arrangements, and are entitled to return separately should they so desire." It is clear from the tenor of this letter that G.C. Nanda thought that Air India's complaint was premised on the failure of the Gandhis to return to Hong Kong on the same day with the rest of the group and they answered accordingly.

24.Mr. Mathur was apparently dissatisfied with this answer. He wrote on 31st December, 1997 to Mr. V.J.Casshyap ["Mr. Casshyap"], then Regional Manager of Far East, Southeast Asia and Australasia. He referred to the Vigilance enquiry initiated by G.C. Nanda and he asserted that G.C. Nanda was the "basic culprits...caught cheating us by paying us the lower GV fare for a 'fictitious' group...". He asked for permission to despatch a letter drafted by him to G.C. Nanda. By fax dated 2nd January, 1998, Mr. Casshyap urged Mr. Mathur to tone down his draft and further suggested that he should "work out a standard procedure with both the consolidators with regard to the issuance of tickets on the GV fares".

25.Mr. Mathur pressed on. By letter to G.C. Nanda dated 5th January, 1998, he asserted that the group in question "is not conforming to GV regulations notwithstanding the market practice of permitting passengers to return separately after the conclusion of the original tour". He further pointed out that "The itinerary submitted by you under the 'India Tour' for this group is fictitious". He asked G.C. Nanda to reimburse $10,510 being the difference between fare on "GV" basis and the "YE Fare" [Economy class fare].

26.G.C. Nanda replied on 6th and 7th January, 1998. They were still labouring under the impression that the allegation against them was a failure to ensure that their group returned to Hong Kong together as a group. G.C. Nanda asked Air India to provide them with evidence to demonstrate that they knowingly violated the market practice.

27.On 9th January, 1998, Air India notified the 3 consolidators [G.C. Nanda; Travel Focus and Armaan Travel] the requirements in respect of Group tickets on GV fare basis. With "immediate effect", all passengers in the group must follow the same itinerary and separate return was permissible only after conclusion of the tour. This was followed by another letter dated 14th January, 1998 when the consolidators were further informed that "you are required to confirm in writing that it is a genuine GIT with land arrangements".

28.Mr. Nanda apparently conducted his own investigation into the 23rd December Group. By letter dated 16th January, 1998, he told Mr. Mathur that "the 4 passengers...have opted not to avail themselves of the ground arrangements once in India and have simply joined the group to facilitate their own plans to visit India". Mr. Nanda was presumably referring to the 4 Gandhis and he was still concerned to tackle the allegation that they did not return to Hong Kong with the rest of the group.

29.Mr. Mathur found this explanation "totally unsatisfactory". By the Letter of Termination, Air India withdrew all special fares offered to G.C. Nanda to India with effect from 1700 on 21st January, 1998. On or about 16th June, 1998, Air India managed to secure payment of the sum of $10,510 referred to in paragraph 25 above by claiming on a performance guarantee provided by G.C. Nanda.

30.Air India's case before me is that in order to qualify for GV fare, the passengers in question must be travelling in a group and the group must satisfy the relevant requirements laid down in the IATA Resolutions. The relevant conditions include that the passengers must tour India together as a group. It will be seen from the above review of the relevant exchanges between the parties that this case was not spelled out in explicit terms by Air India at the material time. Little opportunity was given to G.C. Nanda to tackle the current allegation head on.

31.Mr. Mathur's real grievance stems from the itinerary of the tour. He assumed that the itinerary referred to in paragraph 20 above was applicable to all members of the 23rd December Group. The document itself contains no such suggestion and there is little direct evidence as to the circumstances whereby the itinerary was sent from Fancy Ng of G.C. Nanda to Raveena of Air India. What is significant is that at no time did Mr. and Mrs. Nanda seek to assert in the correspondence between December 1997 and January, 1998 that the group in question stayed together as a group in India. On the contrary, they were at pains to point out that their "packages/tours are modular and allows passengers easy options for extensions and alterations of their chosen packages to facilitate their holidays".

32.It is therefore common ground between the parties that the 23rd December Group broke up on arrival in India. The issue then is whether this violates any fare basis agreed between the parties.

33.In his letter dated 29th December, 1997, Mr. Mathur referred to the 23rd December Group as being not "a genuine GIT". In his subsequent letter dated 5th January, 1998, he complained that the group did not conform "to GV regulations". Air India produced before me 2 sets of definitions. Air India failed to identify the source of the first set of definitions. It is therefore unclear whether these definitions were the ones in force in 1997. In relation to GIT fares, this set of definitions provides that the maximum stay from Hong Kong to India should be 28 days. The second set of definitions consists of extracts from the Ticketing Handbook of IATA for the period between 1st June, 2000 to 31st May, 2001. It defines "GV" as "Group - Inclusive tour" and "IT" as "Inclusive Tour". "Inclusive tour" is in turn defined to mean "A pre-arranged tour for groups or individuals consisting of air travel and surface arrangements, other than solely public transportation, which is designed to encourage air travel". Whilst there is no clear evidence that these definitions were the ones in force in December, 1997, they do accord with the evidence of Mr. Bagaman as to his understanding of these terms.

34.According to Mr. Nanda, "GV" stands for group visitors. They are not tourists. They depart together and they may or may not return together. "GIT" refers to a group travelling together for the entire itinerary including tour arrangements such as accommodation and sight-seeing. According to Mrs. Nanda, there is no difference between GV and GIT. They both mean discounted group fares. Mr. Mathur also seeks to equate GV with GIT but when cross examined on the fare structure put forward by Air India on 16th April, 1997 which made a distinction between the 2 he could not offer any comment on the basis that the matter is "technical". He relies on the letters "IT" in the Tour Code endorsed on the tickets to say that the 23rd December Group was in fact a GIT Group. He could not however explain the basis why the tickets were not valid after 27th January, 1998 in relation to the return leg. Mr. Bagaman told me that under IATA rules, GV fare means that the group had to travel together and come back together. In view of the fierce competition between the airlines, the market practice is that the group will still be regarded as a GV group if they depart together and there is some ground arrangement in place for members of the group. As far as GIT is concerned, the group has to stay together as a group but the ticket has to be specifically endorsed to that effect. I accept the evidence of Mr. Bagaman on this issue.

35.There is no specific endorsement on the tickets in question to suggest that the tickets were issued on GIT basis. There is no evidence before me to suggest that the fares paid were GIT as opposed to GV fares. I find that the tickets were issued on GV basis. I further find that there was no requirement for passengers in such GV group to remain together in India. It follows from these findings that there was no breach on the part of G.C. Nanda as to justify the Letter of Termination.

36.Para. 10-045 of Bowstead and Reynolds on Agency 17th Edition indicates in respect of such wrongful termination that :

"The damages will normally be calculated by reference to what would have been earned by way of commission if the term of the agency had run its full course, or if reasonable notice had been given, as appropriate in the circumstances, less expenses which would have been incurred, and subject to the duty to mitigate damages".

37.Mr. Nanda says belatedly that there was an express agreement for service of a 6 months' notice in order to terminate the consolidatorship. I reject this testimony as an attempt to bolster up this part of the case. In the absence of an express agreement, Mr. Nanda says that 1 year is a reasonable period. Mr. Bagaman says 3 months and Mr. Linn says 1 month. For reasons outlined in paragraph 15 above, I am not prepared to accept their views.

38.I apply the following principles in ascertaining the length of proper notice in this case :

(1) The reasonableness of the period of notice depends upon the circumstances existing when the notice is given.

Ogilvy & Mather (New Zealand) Ltd. v. Turner [1996] 1 NZLR 641 at 646

(2) The Court should take into account the expenditure and time incurred by the agent and the desirability of a period for readjustment.

Para. 10-037 of Bowstead and Reynolds on Agency 17th Edition

(3) The period must be sufficiently long to enable the recipient to :

(1) deploy his labour and equipment in alternative employment;

(2) carry out his commitments;

(3) bring current negotiations to fruition and

(4) wind up the association in a businesslike manner.

Crawford Fitting co. v. Sydney Valve & Fittings Pty. Ltd. (1988) 14 NSWLR 438 at 444D

39.In the context of this case, I take into account the following :

(1) The relationship between G.C. Nanda and Air India commenced in 1978;

(2) At the date of termination, G.C. Nanda occupied an office of 1,500 sq. ft. with a staff force of 16.

(3) Apart from Air India, G.C. Nanda had acted in the past as consolidators for numerous other airlines. No attempt was made to adduce evidence in relation to the termination of those consolidatorships. The overall impression I have is that the bond between an airline and its consolidator is not a strong one.

(4) At the date of termination, 95% of G.C. Nanda's business was dependant on Air India.

(5) There is no other evidence of substantial investment by G.C. Nanda into this relationship. According to G.C. Nanda's letter dated 3rd August, 1996, its proposal to invest $250,000 to $300,000 for promoting Air India's flights was not pursued.

(6) United Airline was a strong competitor of Air India. G.C. Nanda had a long history of association with United Airline. United Airline was a ready alternative market for G.C. Nanda to re-deploy their expertise in the Indian route. United Airline eventually took on G.C. Nanda. I have not been furnished with particulars on the formation of that relationship.

40.For these reasons, I am of the view that a 3 months' notice would be reasonable in the circumstances of this case.

41.G.C. Nanda did not place before me any figure in relation to their turnovers for the period between February, to April 1998. According to the "Supplementary Voluntary Particulars" which they filed on 5th September, 2002, they premised their claim on the basis of their performance in 1996 and 1997. Air India made no criticism of this approach. Given the fact that the notice was served on 21st January, 1998, I am of the view that the appropriate period is between February to April. On the basis of the 1996 figures, their loss of commission and PLI for the period between February to April would be $764,951.46. On the basis of the 1997 figures, their loss would be $606,306.12. The average for the 2 years amounts to $685,628.79. Some of these figures are based on the old PLI Rates. Doing the best I can, I would make an award in the round sum of $670,000 in favour of G.C. Nanda in respect of Air India's wrongful termination. Air India would have to repay G.C. Nanda the sum of $10,510 which they obtained on or about 19th June, 1998.

Air India's claim for refund of PLI

42.G.C. Nanda says that the agreement to pay PLI was first entered into between Mr. Barman and Mr. Nanda in March, 1989. Air India allegedly agreed to pay PLI calculated according to G.C. Nanda's turnover or gross sales of Air India's air passenger tickets.

43.The level of PLI was repeatedly revised during the tenure of Mrs. Khusrokhan :

44.On each of those letters signed by Mrs. Khusrokhan, the PLI was said to be based on Air India's "flown revenue". Apart from specifying the level of PLI, Air India also furnished G.C. Nanda "body targets" to serve as guidelines which Air India would like G.C. Nanda to generate for them. According to 2 letters both dated 21st March, 1996, different body targets were given to G.C. Nanda and Travel Focus. The tenor of these letters suggests that it was Air India who had the say in determining the level of PLI and the timing of its variation.

45.Air India issued cash payment vouchers in favour of G.C. Nanda in respect of the PLI. The "Method of Calculation" was identified in each voucher. The same was based on the gross revenue of Air India. The PLI so paid was said to be "in accordance with headquarters clearance".

46.On 24th April, 1996, Mrs. Khusrokhan explained to Mr. Ranganathan the incentive paid by Air India to its consolidators. Mr. Ranganathan was informed that "The 2 Consolidators are given commissionable market fares and when they achieve a certain level of productivity they are given PLB based on their revenue generating capacity". Mrs. Khusrokhan further pointed out that "...most airlines provide their field stations with flown revenue information. [Air India] in Hongkong are not in a position, with our depleted [strength] to assess the flown revenue. However, we firmly believe that we pay PLB on the flown revenue as more than 95% of the tickets which are issued by [Air India] are point to point tickets to India and [vice versa]. Most of these are closed on [Air India] and are marked Non-endorsable, Non-reroutable, Non-refundable, etc".

47.By a telex dated 29th August, 1996, Mr. Nair (Accounts Manager of Air India's Hong Kong Office) was told by Mr. Subbu (Assistant Financial Controller of Air India's Head Office) that PLI was only payable on applicable net flown revenue earned by Air India and commissions and refunds should be deducted in arriving at such net flown revenue. Mr. Nair was instructed to recover excess payments made in preceding periods.

48.Mr. Nanda says that this review was instigated by Mr. Mathur in response to his complaints. I reject that. As indicated by the earlier telex of 24th April, 1996, Head Office was already looking into the incentives paid to consolidators during the tenure of Mrs. Khusrokhan.

49.By letter dated 3rd September, 1996, Mr. Mathur informed Mr. Nanda of the decision of his Head Office. He outlined in that letter the method of computation as instructed by his Head Office. He told Mr. Nanda that he was directed to effect recovery of excess payments. At one stage of his evidence, Mr. Nanda described this letter as a "fabrication". I reject that and I accept Mr. Mathur's evidence that he duly despatched this letter of 3rd September, 1996.

50.By a debit note dated 21st November, 1996, Air India sought to debit G.C. Nanda $89,981.24 in respect of excess payment of PLI for the period between April 1996 to August, 1996. A reference was made in this debit note to the letter dated 3rd September, 1996. By a receipt dated 22nd November, 1996, Air India acknowledged payment of $89,981.24. The alleged payment was made by setting off the sum of $89,981.24 against the PLI payable to G.C. Nanda for October, 1996.

51.G.C. Nanda seeks to recover the sum of $89,981.24 in respect of PLI for the period between April 1996 to August, 1996 and a further sum of $35,883.13 being PLI underpaid for the period between September 1996 to March 1997. The basis for the latter claim is that the agreement between Air India and G.C. Nanda in respect of PLI was a yearly agreement and Air India had no right to vary that agreement in the middle of the year. Air India counterclaims for $650,160.55 being the alleged excess payments for the period between April, 1990 to March, 1996.

52.Air India says that they are entitled to recover the alleged excess payment on the basis of mistake. The applicable principles are to be found in Goff & Jones on The Law of Restitution 5th edition p. 175 onwards :

(1) The old distinction on the basis of Aiken v. Short (1856) 1 H. & N. 210 is between a mistake of fact which, if true, would make the person paying liable to pay the money and which, if true, would merely make it desirable that he should pay the money. Recovery is permissible for the former but not the latter type of mistake.

(2) The revised test proffered by Goff & Jones (above cited at p. 180) is that "if a person pays money to another under a mistake of fact which caused him to make the payment, he is prima facie entitled to recover it as money paid under a mistake of fact". He will however be denied restitution if he had paid the money voluntarily.

53.In respect of PLI paid before September, 1996, I am of the view that there was no mistake on the part of Air India. The telex from Mrs. Khusrokhan to Mr. Ranganathan dated 24th April, 1996 is telling. The Hong Kong Office was not supplied with flown revenue information. Mrs. Khusrokhan was content to pay in the way she did for reasons which she explained in that telex. The payments were voluntary. For these reasons, I dismiss Air India's counterclaim and hold that G.C. Nanda is entitled to recover the sum of $89,981.24 in respect of the period between April to August, 1996.

54.As far as the period after August, 1996 is concerned, I reject G.C. Nanda's case that Air India is only entitled to revise the PLI at the end of each financial year. Air India made unilateral revisions when they introduced additional flights and 747s into Hong Kong. They determined the level of PLI. The 3rd September, 1996 letter from Mr. Mathur referred to "discussions" with Mr. Nanda on this issue. G.C. Nanda therefore had adequate notice of the revision. I reject their claim for the additional sum of $35,883.13 in respect of the period between September 1996 and March, 1997.

Alleged breach of the implied term of equality

55.G.C. Nanda pleads only an implied term in their amended Statement of Claim. Mr. Nanda sought to elevate that into an express agreement in the course of his evidence. No attempt was made to amend the pleadings to reflect such assertions. I am bound by the pleadings and would consider this part of the case solely on the basis of the alleged implied term.

56.The test for the implication of a term is well known. For a term to be implied, the following conditions 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 and

(5) it must not contradict any express term of the contract.

Per Lord Simon in B.P. Refinery (Westernport) Pty. Ltd. v. Hastings Shire Council [1978] 52 ALJR 20

57.The term to be implied must be one without which the whole transaction would become "inefficacious, futile and absurd".

Per Lord Scarman in Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd. [1986] 1 A.C. 80 at 105

58.Because of the diversity of G.C. Nanda's allegations, the implied term pleaded is very wide. Mr. Nanda says that it is essential for Air India to treat the 2 consolidators equally as Air India is a Government body and preference given to 1 consolidator would raise question of improper motive. He further says that the implied term extends only to major issues such as pricing and confirmation and not to minor issues such as the provision of posters or time-table. He does not agree with the suggestion of Air India that the appointment of the 2 consolidators was for Air India's benefit.

59.In response to interrogatories served by G.C. Nanda, Mr. Mathur answered on 21st March, 2001 that the senior management of Air India did assure G.C. Nanda of equal treatment between the consolidators in Hong Kong and that he was instructed to treat the consolidators equally when he was acting as manager of the Hong Kong Office. When cross examined on these answers, Mr. Mathur explained that equal treatment was the basic philosophy of Air India but equal treatment was not part of the contractual agreement between G.C. Nanda and Air India.

60.My task is to look at the situation in 1993 when Travel Focus was first appointed. I reject Mr. Nanda's suggestion that the appointment of Travel Focus was attributable to the close association between Mr. Mathur and Mr. Linn. Mr. Mathur was not then the Manager of the Hong Kong Office. I am of the view that Air India regarded the appointment as in their best interests.

61.G.C. Nanda accepted, albeit reluctantly, deprivation of their status as the sole consolidator. I am of the view that they so accepted because of the primary assumption between the parties that the same commission, fare structure and confirmation facilities would be available to each so that there was a level playing field for both to compete on in the overall interests of Air India and the consolidators. Given the sensitivity of pricing and service in the airline market, a consolidator given more onerous terms would soon find himself out of work. The admitted assurances of Air India constitute not merely its unilateral philosophy but reflect the common expectation of the parties which is fundamental to the subsistence of the relationship. For these reasons, I am of the view that the absence of an implied term in relation to equal treatment on pricing and confirmation would render the distributorship inefficacious, futile and absurd.

62.In the context of this plea, the first complaint of G.C. Nanda relates to the so-called "ad hoc fare". This phrase is ambiguous. It connotes 2 different types of fare. First, Air India offered discount rates to special groups. Secondly, when there was a drastic decline in the market, Air India lowered their fares in order improve its load.

63.This issue of ad hoc fares is traceable to a telex from Mr. Mathur to Mrs. Khusrokhan (who had by then returned to India) dated 7th October, 1996 seeking approval for grant of special fare to 32 staff members of Hong Thai Travel Agency ["Hong Thai"]. Mr. Mathur indicated that further approval would be sought for staff members of another agency Wing On. Mrs. Khusrokhan replied on 10th October, 1996 granting approval for only 15 tickets. By further telex dated 28th October, 1996, Mrs. Khusrokhan told Mr. Mathur that he should comply with guidelines laid down by the Commercial Director and seek approval in respect of such group.

64.On 28th November, 1996, Mr. Mathur confirmed with G.C. Nanda ad hoc special fare for a group of 14 passengers. It is not clear whether this group falls within the first or the second category of ad hoc fare.

65.By letter dated 16th April, 1997, Mr. Mathur pointed out to Mr. Nanda that "In order to prevent any possible scope for any unguarded favouritism/discrimination amongst the two Consolidators, you are requested to invariably send us in writing any special 'ad hoc' fares for special groups not covered by present fare levels. Our Pricing Board in Headquarters requires relevant information, as per enclosed format, before considering our proposal. Therefore, please make it convenient to furnish us the required information as per this format. We would follow the principle of 'first come first served basis'". G.C. Nanda has not placed a single form before me in relation to their application (if any) for 'ad hoc' fares for special group. There is no evidence before me to indicate what justification they furnished in support of such application. In the absence of such evidence, any criticism of preference does not hold water. Given the stance of Mrs. Khusrokhan in relation to Hong Thai and the procedure laid down by Headquarters, I am not prepared to conclude that fares for ad hoc special groups were available simply on the asking of Mr. Mathur.

66.As far as seasonal ad hoc fares are concerned, Mr. Mathur said G.C. Nanda was informed of their availability. G.C. Nanda placed reliance on a group booked on 24th September, 1997 for departure on 2nd November, 1997. The fare quoted to them was $3,200. They were told that Mr. Mathur was trying to negotiate better fare with the Head Office. In the meantime G.C. Nanda was assured that there was no change in the fare quoted. The group cancelled its reservation on 22nd October, 1997. G.C. Nanda was informed on 24th October, 1997 of a new group fare at $3,000. I am of the view that this episode lends credence to Mr. Mathur's evidence. G.C. Nanda was informed of the availability of reduced group fare on 24th October, 1997 for departure on 2nd November, 1997. I am not prepared to infer that Air India deliberately delayed in informing G.C. Nanda of the availability of such fare so as to frustrate its sales. G.C. Nanda further relied on correspondence between Mr. Mathur and Mr. Casshyap. The bulk of such correspondence took place in 1998 after the termination of G.C. Nanda's consolidatorship. They lend no weight to G.C. Nanda's allegation of breach during the subsistence of their consolidatorship.

67.For these reasons, I reject G.C. Nanda's claim that there was a breach of the implied term in relation to the availability of ad hoc fares.

68.As far as confirmation of seats are concerned, I accept the evidence of Mr. Mathur that all confirmations were handled by the computer in the Head Office. G.C. Nanda makes no allegation of bias amongst staff in the Head Office. I reject G.C. Nanda claim for breach of the implied term under this head.

69.As far as the remaining allegations are concerned, I find it hard to see how they fall within the formula "in the course of transacting the Defendant's air passenger tickets" in the implied term pleaded. The terms of the ticket would be highly relevant in determining what treatment should be afforded. To the credit of Mr. Nanda, he really confined himself to pricing; to seat confirmation and to the episode on 24th January, 1998.

70.I now turn to the unpleasant episode on 24th January, 1998 when passengers booked through G.C. Nanda were offloaded without immediate alternative arrangement. This episode took place after the Letter of Termination on 21st January, 1998. I have no doubt that the bitterness surrounding the Letter of Termination coloured the attitude of the parties. I accept the evidence of Mrs. Nanda that Mr. Chowdhuri was initially unreceptive. However, accommodation was eventually provided and the passengers flew off the following day. Air India certainly fell short in public relations but I am not prepared to hold that they acted in breach of any implied term in the consolidatorship.

Conclusion

71.I award in favour of G.C. Nanda

(1) $670,000 in respect of Air India's wrongful termination of its consolidatorship;

(2) $10,510 in respect of Air India's wrongful claim for the difference between GV and economy fares;

(3) $89,981.24 in respect of Air India's wrongful deduction of PLI for the period between April to August, 1996.

72.I award in favour of G.C. Nanda interest :

(1) in respect of $670,000

(1) at 11% p.a. on _ thereof from 1st March 1998 to the date of this Judgment and thereafter at the judgment rate until payment.

(2) at 11% p.a. on another third from 1st April, 1998 to the date of this Judgment and thereafter at the judgment rate until payment.

(3) at 11% on the final third from 1st May, 1998 to the date of this Judgment and thereafter at the judgment rate until payment.

The reason for this split is because of the manner whereby PLIs were paid at the time of breach.

(2) in respect of $10,510 at 11% p.a. from 19th June, 1998 to the date of this Judgment and thereafter at the judgment rate until payment.

(3) in respect of $89,981.24 at 11% p.a. from 22nd November, 1996 to the date of this Judgment and thereafter at the judgment rate until payment.

73.I dismiss

(1) G.C. Nanda's claim for damages in respect of the alleged breach of the implied term of equality.

(2) Air India's counterclaim for alleged overpayment of PLI.

74.I make an order nisi for costs in favour of G.C. Nanda, to be taxed if not agreed.

Representation:

Mr. Chan Chi Hung instructed by Messrs. W.K. To & Co. for the Plaintiff

Mr. Rimsky K.K. Yuen instructed by Messrs. Jesse H.Y. Kwok & Co. for the Defendant