Easy Travel Ltd v Folauhola [2024] TOCA 22; AC 24 of 2023 (20 November 2024)

IN THE COURT OF APPEAL OF TONGA

CIVIL JURISDICTION

NUKU’ALOFA REGISTRY

[AC 24 of 2023]

[CV 44 of 2021]

BETWEEN

EASY TRAVEL LIMITED

Appellant

AND

FOLIAKI TALA’OFA MEI LANGI FOLAUHOLA

Respondent

Hearing: 13 November 2024

Court: Randerson J, Heath J, Dalton J

Counsel: David Garrett SC for the Appellant
Fanga Afu for the Respondent

Judgment: 20 November 2024

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JUDGMENT OF THE COURT

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The appeal

[1] Easy Travel Ltd appeals against a judgment given by Cooper J, in the Supreme Court, on 20 October 2023.^[1] The appeal challenges the Judge’s dismissal of Easy Travel’s claims against Miss Langi Folauhola, the proprietor of Monu’ia Travel & Tours. Although the business is known as Monu’ia Travel & Tours, we shall refer to Miss Folauhola because she (as proprietor of the business) was the named defendant.

Background

[2] Easy Travel carries on business in Nuku’alofa as a travel agent. Under the accreditation of the International Air Transport Association (IATA), it is authorised to book and issue tickets for international air travel. Air New Zealand (the airline with which the present dispute is concerned) is one of the airlines with which it does business. Miss Folauhola also operates as a travel agency in Nuku’alofa. That business commenced operation in March 2016. Unlike Easy Travel, Miss Folauhola does not have IATA accreditation. While, without accreditation, Miss Folauhola was entitled to take bookings for flights on Air New Zealand, she could not issue tickets.
[3] The purpose of IATA accreditation is to safeguard the financial interests of an airline dealing with an accredited agent. Accreditation is obtained once a travel agent satisfies a list of requirements and posts a security bond in an amount set by IATA, based on the particular agent’s sales. Thus, the amount of the bond is tailored to the nature and size of the business. To obtain its accreditation, Easy Travel was required to post a bond of USD$120,000. That bond provided a fund that an airline could access to recover financial losses suffered as a result of fraudulent (or otherwise unlawful) activities by an accredited agent.
[4] An IATA accredited agent uses a system called SABRE to record bookings and to issue international air tickets. Air New Zealand was one of the carriers in respect of which the SABRE system was used for bookings and ticketing. By permitting Miss Folauhola to use its IATA accreditation code, Easy Travel enabled her to use a booking system to which she would not otherwise have had access without posting a bond to protect the airlines.
[5] In 2016, soon after Miss Folauhola’s started her business, she and Easy Travel entered into (what was described in evidence as) “a business relationship”. The director of Easy Travel, Mr Kent Li described this as a “loose alliance under a mostly verbal agreement between the parties [whereby Miss Folauhola was permitted to use Easy Travel’s IATA number”. By doing so, Miss Folauhola was enabled both to book and ticket Air New Zealand flights in a manner contrary to that airline’s booking policies.
[6] Mr Li explained the nature of the verbal agreement. He described it in very general terms. Mr Li said that its intended effect was to enable “the parties [to] share the commissions due to [Miss Folauhola] from the bookings made by [her] or her agency for using [Easy Travel’s] IATA number”. The proportions in which commissions were to be shared were not fixed at the time the agreement was made. They seem to have been set from time to time at the instigation of Mr Li rather than through a genuine bargaining process with Miss Folauhola. As the person who was lending Easy Travel’s IATA accreditation to Miss Folauhola, Mr Li was in a stronger position to determine how commissions should be shared. The lack of clarity about the commission sharing arrangements is consistent with the fact that the “business relationship” was designed to breach Air New Zealand’s booking policies for the purpose of providing financial gain to both Easy Travel and Miss Folauhola.
[7] In late 2019, Air New Zealand became concerned about Miss Folauhola’s activities. In October 2019, as part of an investigation that it commenced, Mr Ken Walker (the Country Manager for Air New Zealand) visited the offices of Easy Travel. According to the unchallenged evidence of Mr Brent Roxburgh, Air New Zealand’s Head of Pacific Islands, Mr Li was told about the fraudulent activity that Miss Folauhola was undertaking by using Easy Travel’s IATA code. The activity involved Miss Folauhola issuing tickets by using a booking class and fare level on particular Tonga/Auckland/Tonga sectors that were not available at the date of sale. This was described by Mr Roxburgh as a “manipulation of inventory where the original origin and destination used for the availability is not the final origin and destination of the booking”. The “manipulation” undoubtedly resulted in more sales being effected with a consequential increase in the amount of commissions available to be shared.
[8] Mr Li had become aware of irregularities in the way in which Miss Folauhola was calculating commissions well before the events that gave rise to Air New Zealand’s claim against Easy Travel. Mr Li deposed that, on or about 24 May 2018, he had received a penalty notice from Air New Zealand which had arisen from Miss Folauhola’s use of Easy Travel’s IATA code. Although Miss Folauhola paid that penalty in full, Mr Li acknowledges that similar “penalties” were received “several times arising from” Miss Folauhola’s actions. On each occasion she reimbursed Easy Travel for the claim that had been made against it in respect of those calculations. After those events, Mr Li was plainly on notice that Miss Folauhola was operating the booking and ticketing system in an irregular manner.
[9] In the period between July 2019 and December 2019, Miss Folauhola received benefits from that activity totalling TOP$136,410.40. As a result of its investigation, on 23 January 2020, Air New Zealand issued (what is called) an Agency Debt Memo (ADM) against Easy Travel, reflecting losses suffered as a result of its breaches of Air New Zealand’s booking policies. At the time that ADM was issued, Mr Li was well aware of the irregularities giving rise to it. In an email sent to Miss Folauhola on 18 December 2019, Mr Li wrote, in connection with the visit from the Air New Zealand representative:

obviously, u will no longer be able to sell air nz tickets.

I promised not to let u ticket from me when he talked to me last time. now, I have to lie to him that the ticket is issued by la travel [a different agency] from me.

[10] The amount of TOP$136,410.40 was, eventually, paid by Easy Travel. In the Supreme Court proceedings, Easy Travel sought to recover from Miss Folauhola the amount paid to Air New Zealand. Two causes of action were pleaded: deceit and injurious falsehood. Before the proceeding was issued, Miss Folauhola had paid a sum of TOP$1,700 to Easy Travel in May 2020 on account of the ADM claim by Air New Zealand. The question for the Supreme Court was whether, as a matter of law, Miss Folauhola could be compelled to pay the balance.

The Supreme Court proceeding

[11] Easy Travel’s claim was heard in the Supreme Court on 1 and 2 June 2023. Having considered relevant evidence, Cooper J found that Mr Li and Ms Folauhola had, in fact, entered into an agreement (contrary to Air New Zealand’s booking policy) whereby Miss Folauhola would book and ticket air travel using Easy Travel’s IATA code.
[12] Reflecting the way in which counsel had defined the issues for the Court to determine, Cooper J considered first whether the “business relationship” was one of principal and agent. He concluded that it was. He found that Easy Travel was the principal and Miss Folauhola its agent. The Judge went on to hold that Easy Travel (as principal) was liable for the acts of its agent (Miss Folauhola) on the basis that the fraudulent manipulations of the booking system that Ms Folauhola had undertaken were part of the common business enterprise into which both parties had freely entered.
[13] The Judge held that Easy Travel had not established that Miss Folauhola had committed either or both of the torts of deceit or injurious falsehood. The Judge said: “[Mr Li] knew what Miss Folauhola was doing in making the fraudulent bookings and let her carry on so doing”.^[2] There was ample documentary evidence in the form of emails to support this key finding of fact.

Issues on appeal

[14] In its first Amended Statement of Claim, Easy Travel had particularised its allegations of deceit and injurious falsehood as follows:

• (a) Miss Folauhola knew that she had made the bookings using incorrect sums and made representations to Easy Travel to the contrary, which were false. Further, she knew that her false representations would cause loss to Easy Travel.
• (b) Miss Folauhola made false statements about the correct amount for the bookings to Air New Zealand, “via” Easy Travel, knowing that Air New Zealand would seek to recover losses from it, thereby causing it loss. Further, she knew that this would cause loss to Easy Travel.

[15] Mr Garrett SC, for Easy Travel, identified two points on which the appeal was pursued:^[3]

• (a) The Judge erred in finding that a relationship of agency existed between the parties; or
• (b) The Judge failed to give adequate weight to the unchallenged evidence of Mr Roxburgh.

[16] Miss Afu, for Miss Folauhola, opposed the introduction of any challenge to Miss Folauhola’s credibility during the trial on grounds of lateness. Substantively, she resisted the appeal by supporting the Judge’s finding that an agency relationship existed. Further, she refuted the suggestion that Mr Roxburgh’s evidence could be used to support claims of deceit and injurious falsehood.

Analysis

[17] We do not propose to traverse all of the ground covered in counsel’s submissions on appeal. In our view, the claim was misconceived from the outset. We are able to determine the appeal on the application of settled principles of law for which citation of authority is not required.
[18] Our starting point is to remove the distraction of the “agency” point. In our view, the question of agency does not arise in this case. This is a case in which both Easy Travel and Miss Folauhola colluded to breach Air New Zealand’s booking policy. Their agreement was a deliberate device to enable both Easy Travel and Miss Folauhola to make additional money from ticketing commissions to which Miss Folauhola would not otherwise have been entitled to receive because she did not have IATA accreditation. Miss Folauhola’s benefit came from her ability to trade in this way and earn commissions. Easy Travel’s benefit came from sharing the commissions that Miss Folauhola earned.
[19] The arrangement between Easy Travel and Miss Folauhola was a common enterprise. It was an arrangement made at arms’ length between two parties, one of whom would receive a booking system in an unauthorised way in return for sharing commissions with the other. Whether or not, vis-a-vis third parties, such as Air New Zealand, Miss Folauhola was Easy Travel’s agent is irrelevant to determining her liability to Easy Travel for the torts of deceit and injurious falsehood.
[20] The essence of the tort of deceit is to provide a remedy to someone who has been deceived by a false statement made by another person. In this case, the alleged false statement was that Miss Folauhola had represented that she was not using incorrect calculations in relation to the Air New Zealand booking. However, from 24 May 2018 (at the latest) Mr Li knew that Miss Folauhola had been calculating incorrect commissions on flights that she booked and ticketed.^[4] His knowledge is confirmed by his email to Miss Folauhola of 18 December 2019 in which he acknowledged that he had lied to the Air New Zealand representative about Miss Folauhola’s activities. One cannot be deceived if one knows the true state of affairs; a point that Cooper J also made in his judgment.^[5] The deceit claim must fail.
[21] The essence of the tort of injurious falsehood is to enable claims for damages to be made when false statements are made by one person to another and are designed to cause damage. There is no evidence that Miss Folauhola made statements to Air New Zealand in the course of reporting calculations for commission purposes which were intended to damage Easy Travel. As demonstrated by the emails of 24 May 2018 and 18 December 2019,^[6] Easy Travel was well aware of what was being done by Miss Folauhola. The facts do not establish the essential elements of the tort of injurious falsehood.
[22] In any event, even if we had reached the view that there was some conceivable basis on which the torts of deceit or injurious falsehood might be available on the evidence, Easy Travel could not have succeeded on the present claim. In effect, Easy Travel’s claim is for indemnity arising out of a transaction into which it freely entered with the intention of gaining benefits by the false pretence that Miss Folauhola had IATA accreditation to earn commissions through Air New Zealand. As a matter of public policy, an unlawful arrangement of that type would never be enforced by a court of law.
[23] Although we have disagreed with the Judge on the way in which he dealt with the “agency” issue, we consider (for different reasons) that he reached the correct decision.

Costs

[24] The remaining question is one of costs. In our view, Miss Folauhola’s involvement in the “business relationship” rendered her just as culpable (in a moral sense) as Easy Travel. She gained benefits from her illegal activity that she has not been required to disgorge. With no sympathy for Easy Travel’s plight (of which it was its own author), we have decided that the most appropriate order is for costs to lie where they fall in this Court.

Result

[25] For those reasons, the appeal is dismissed. No order for costs is made in this Court, but the order for costs made in the Supreme Court remains and is now enforceable.

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Randerson J

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Heath J

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Dalton J

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^[1] Easy Travel Ltd v Folauhola Supreme Court CV 44/2021, 20 October 2023.

^[2] Easy Travel Ltd v Folauhola Supreme Court Nuku’alofa Registry, CV 44/2021, 20 October 2023 at para 53.

^[3] Three grounds were originally advanced but, in written submissions filed in advance of the appeal, it was conceded that, if an agency relationship existed, Miss Folauhola acted outside its scope.
^[4] See para [8] above.
^[5] Easy Travel Ltd v Folauhola Supreme Court CV 44/2021, 20 October 2023 at para 53.
^[6] See paras [8] and [9] above.