COURT OF APPEAL FOR ONTARIO

DATE: 20000427

DOCKET: C29170

ABELLA, GOUDGE AND MACPHERSON JJ.A.

B E T W E E N : )
) Mr. Bruce C. North, Q.C.

UNITED AIRLINES ) for the plaintiff/appellant
)

Plaintiff )
(Appellant) )
)

• and - )
  ) Mr. Timothy J. Law

OBSESSION TOURS INC., REGGAE ) Sushama A. Bole
ALICIA KIEDA and RICK SJOERDS ) for the defendants/respondents
)

Defendants )
(Respondents) ) Heard: April 5 and 6, 2000
)

On appeal from the judgment of Potts J. dated September 17, 1997.

GOUDGE J.A.:

[1] United Airlines appeals from the judgment of Potts J.
dismissing its action against Obsession Tours Inc. (“Obsession”)
and its two officers, directors and shareholders Ms. Kieda and
Mr. Sjoerds.

[2] Obsession was a wholesale travel agency selling tickets to
retail travel agencies which, in turn, dealt directly with the
traveling public.

[3] On June 14, 1994 Obsession signed an agreement with U.S.
Africa Airways (USAF), a start-up airline, allowing Obsession to
sell tickets to retail agencies for flights arranged by USAF to
go from Toronto to South Africa. These flights were priced at
discount rates called net fares.

[4] The travel industry in Canada makes use of a clearing house
known as the Bank Settlement Plan (“BSP”). When a member of the
public buys a ticket from a retail agency, that agency keeps the
amount to which it is entitled and remits the remainder to
Obsession. Obsession then does the same, keeping its entitlement
and remitting the balance to the clearing house, BSP, which
forwards it to the ticketing airline. If the ticketing airline
is not the carrier airline, the appropriate amount is transferred
on to the carrier.

[5] As a start-up airline, USAF was not qualified in 1994 to use
the BSP. United Airlines was so qualified and in a contract
between itself and Obsession agreed that Obsession could write
tickets for these flights using United’s name and ticket stock.
The terms of this contract are found in the standard form
Passenger Sales Agency Agreement which Obsession signed on April
24, 1994, and which constituted its contract with United.

[6] Between May and November 1994 Obsession sold seventy-one of
these round trip flights on United ticket stock. The dispute in
this law suit is whether Obsession withheld more than it was
entitled to from its remittances to BSP.

[7] United’s position was that this question was governed
exclusively by its contract with Obsession, and pursuant to the
terms of the Passenger Sales Agency Agreement, and the travel
agent’s handbook incorporated into it, Obsession could retain no
more than 7% of the ticket price. United argued that it was
unaffected by the agreement between Obsession and USAF pursuant
to which, United alleged, Obsession had in fact retained much
more than 7%, indeed something in the 20-25% range.

[8] Obsession’s position was that its contract with United
contemplated the very kind of contract that it had with USAF and
in any event that it had in fact retained no more than it was
entitled to, under its contract with United.

[9] The position of the appellant was put this way in the
opening paragraph of its factum in this court:

The claim against the defendant Obsession Tours Inc.
(“Obsession”) was based on the allegation that
Obsession had deducted excessive amounts for its
commission from the money received by Obsession from the sale of tickets sold on United ticket stock. The
claim against the defendants Kieda and Sjoerds alleged that they were the sole officers, shareholders
and directing minds of Obsession, that the funds
received by Obsession from the sale of United
Airlines’ tickets constituted trust funds, and that
such trust funds were used for corporate purposes as
opposed to being held in trust as was required by an agreement between United and Obsession.

[10] The case was pleaded and tried on this basis, namely whether
Obsession had retained more than its entitlement. It was not
argued on the basis that United had received less than it should
have and that this was the fault of Obsession.

[11] Potts J., decided that the contract between United and
Obsession contemplated and indeed permitted the contract between
Obsession and USAF and that Obsession did not breach its
obligation to United by acting in accordance with its contract
with USAF.

[12] The trial judge went on to find that the United-Obsession
contract permitted Obsession to retain 9% and that the net amount
Obsession had in fact retained was less than this so that in any
event Obsession did not breach its contract with United.

[13] In my view, to decide this appeal it is not necessary to
determine whether Obsession could rely on its contract with USAF
to calculate the amount it was entitled to retain without thereby
breaching its contract with United.

[14] This is so because I agree with Potts J. that in any event
Obsession retained no more than it was entitled to under its
contract with United. Therefore setting aside the contract with
USAF altogether, Obsession did not breach its contract with
United.

[15] In argument, the appellant conceded that whether the United-
Obsession contract allowed Obsession to retain 7%, or 9% as the
trial judge found, it was to the full retail fare value of these
tickets that this percentage must be applied. The total retail
fare value of the seventy-one tickets in question was $127,215.

[16] The debate then is whether Obsession was entitled under its
contract with United to retain 7% of this sum as argued by United
or 9% as found by the trial judge

[17] In my view the finding of the trial judge was correct.
Resolution 016a is contained in the travel agent’s handbook and
is, therefore, a term of the Passenger Sales Agency Agreement.
It deals specifically with the commission which the travel agent
is entitled to retain and fixes it at 9%. Certain limited
exceptions are specified but none, it is conceded, are applicable
here.

[18] Rather, United points to the general language at section 9
of the travel agent’s handbook, which provides that United may
pay commissions to an agent and that the rate will be as
authorized by the airline from time to time and communicated to
the agent.

[19] I do not think that this general language could be used to
supercede the specific provisions of resolution 016a. Even if it
could, however, the facts in this case do not sustain the
application of section 9. In arguing that section 9 has been
complied with here the appellant pointed only to debit memos
which it sent to Obsession. While setting out amounts said to be
owed by Obsession for previously issued tickets, these memos did
not, in my view, clearly communicate to the agent an authorized
commission rate. Moreover, the language of section 9 would
appear to require any such communication to be prospective, not
after the travel agent has acted to sell the ticket and make the
remittance.

[20] I therefore agree with the trial judge that Obsession was
entitled to retain 9%. Applied to $127, 215 this amounts to
$11,449.35.

[21] The trial judge clearly found as a fact that from the sale
of these seventy-one tickets Obsession actually retained only
$10,502.50. This finding of fact was entirely reasonable on the
evidence and one with which I would not interfere.

[22] Obsession therefore did not retain more from the sale of
these seventy-one tickets than it was entitled to under its
contract with United. There was no breach of contract and the
appellant’s claim was properly dismissed.

[23] The appeal is dismissed with costs.

Released: April 27, 2000

“S.T. Goudge J.A.”

“I agree R.S. Abella J.A.”

“I agree J.C. MacPherson J.A.”