UK: Aviation: Service Of Proceedings On A General Sales Agent Was Ineffective

If a foreign company does not provide an address for service of proceedings upon it, service is only permissible at a place within the jurisdiction where the company 'carries on its activities' or has a place of business.

But what is meant by 'carries on its activities'? A recent judgment involving the Papua New Guinea national airline, whose only presence within the jurisdiction was through a general sales agent, sheds some light on this important issue.

The background

In Noble Caledonia Ltd v Air Niugini Ltd, the claimant tour operator issued proceedings in relation to a cancelled flight booked with the defendant, the national airline of Papua New Guinea. The flight was supposed to carry 45 of the claimant's clients from Singapore to Port Moresby in Papua New Guinea to connect with a cruise around Indonesia. The flight was delayed and then cancelled, and the clients consequently missed the cruise. The claimant paid in excess of Ł649,000 in refunds, the cost of repatriation of clients to the UK, and other costs and expenses. It sought to recover these sums from the defendant airline.

The booking had been arranged by the claimant through Flight Directors Scheduled Services Limited (FD), the defendant's general sales agent in the UK, which had an office near Gatwick Airport. The claimant served the claim form on the general manager of FD, but FD refused to accept service on behalf of the defendant. The claimant argued FD was the defendant's London based agent.

The issue

The defendant was a company incorporated under the laws of Papua New Guinea. As such, service at FD's office would only be valid if that was a place at which the defendant carried on its activities, or was its place of business within the jurisdiction, pursuant to Rule 6.9 of the Civil Procedure Rules (CPR). Could the activities carried on by FD be attributed to the defendant?

The legal relationship between FD and the defendant

The relationship between the defendant and FD was covered by a General Sales Agency Agreement (the Agreement) which provided, amongst other things that:

  • FD carried on its activities in its own name;
  • FD could not vary or modify the defendant's terms and conditions and was limited to selling tickets at the prices and on the terms set by the defendant;
  • FD had no power, discretion or authority to bind the defendant to different terms and whilst it could book tickets electronically on the defendant's system, the bookings were confirmed and tickets issued to customers by the defendant;
  • FD were allowed to act as sales agents for other airlines - which it did - and the defendant could carry on business in the UK through its own representative or organisation - which (as it happens) it did not do; and
  • FD was remunerated by commission on sales only. There were no fixed regular payments made by the defendant to FD, nor any contribution to or reimbursement of FD for the costs of its staff, office or any other overheads.

The claimant's position

The claimant's evidence related substantially to the activities of Ms Joyce, the Head of Sales and Marketing for FD, who was also the principal account manager for the defendant, as well as two other airlines. The claimant argued that her activities were essentially the activities of the defendant.

In particular:

  • Ms Joyce's business cards bore the name and logo of the defendant and gave an address of Air Niugini GSA (albeit the remainder of the address and the phone number provided was that of FD), an email address of VJoyce@airniugini.co.uk and a website www.airniugini.co.uk.
  • Facebook entries for Air Niugini UK and Ireland showed Ms Joyce wearing a uniform bearing the defendant's logo and running a stall at an exhibition promoting the defendant.
  • Emails following enquiries made via the website airniugini.co.uk were received back from Airniugini@flightdirectors.com with reference to Air Niugini UK - General Sales Agent.
  • In emails, Ms Joyce referred to herself as the Sales Manager at Air Niugini and referred to 'we' when describing what flights the defendant was able to provide.
  • In a meeting with the claimant after the flight was cancelled, Ms Joyce referred to herself as the UK representative of Air Niugini, provided her business card bearing the defendant's name and logo, and presented herself as a senior executive of Air Niugini, referring to the defendant as 'her company' and to its CEO as 'our CEO'.

The defendant's position

The defendant relied on the criteria set out in Adams v Cape Industries Plc [1990] used to determine whether an overseas corporation has a 'presence' within the jurisdiction being, in a nutshell:

  1. whether it has established and maintained its own branch office from which it has been carrying on its business; or
  2. whether it has had a representative carrying on its business at or from some fixed place of business within the jurisdiction for more than a minimal period of time.

With regard to (ii) above, Cape Industries provides that the relationship between the overseas corporation and the representative is to be considered against certain criteria including:

  • who acquired and paid the costs of the place of business and staff;
  • how the representative was paid (commission or regular payments);
  • whether any part of the premises or staff were specifically reserved for the overseas corporation's business;
  • whether the overseas corporation's name was displayed at the premises or on stationery so as to indicate that the representative was a representative of the overseas corporation;
  • what business the representative transacts exclusively on its own behalf and whether the representative could make contracts in the overseas corporation's name or otherwise bind it; and if so,
  • whether specific authority in advance of doing so was required.

The defendant argued that nothing in the relationship between the defendant and FD satisfied the above criteria so as to make FD the defendant's representative. Nothing that FD had done could be described as activities of the defendant or outside of the usual activities of a general sales agent in the airline sector. FD acted as a general sales agent only - as it did for several other airlines - carrying on its own business rather than that of the defendant. All the staff working in FD's office were employed by FD and were carrying on its business, and (save for one junior sales executive) all sales managers, executives and reservation personnel worked on promoting or servicing more than one airline. Indeed Ms Joyce's evidence was that she had liaised with the claimant previously over booking seats for it on other airlines.

It was accepted that some 'loose' language might have been used by Ms Joyce in referring to herself as sales manager for the defendant and to 'our CEO' etc but that all her emails came from her FD email address.

The High Court's view

Mr Justice Gilbart held that while an agent may bind his principal, it by no means follows that the business of the agent can be described as that of the principal. An agent need not be an agent for only one principal, but may be an agent for many.

Whilst there was no direct authority on 'carries out its activities' as referred to in CPR 6.9, the judge agreed that the criteria set out in Adams v Cape Industries Plc applied. Context was highly important in determining whether FD was a representative of the defendant carrying on its (the defendant's) business from FD's offices. The practice in the airline and general service agency world also had to be considered. Evidence from the defendant and FD indicated the arrangement between them was one of a number of such arrangements made by FD and other principals as a general service agency.

The terms of the Agreement between FD and the defendant limited FD's ability to enter contracts and deprived them of any realistic discretion on pricing and contract terms. FD was paid on a commission basis only. The defendant did not acquire FD's premises for its purposes; it did not reimburse FD for the costs of its staff or contribute to financing its business; no FD staff were reserved exclusively to the defendant's business; FD sold flights for the defendant but they were booked on the defendant's system.

Gilbart J held that that the activities of FD and Ms Joyce were not activities of the defendant but were activities carried out to promote the defendant by its agent. To a lay person, Ms Joyce may have been holding herself out as the personification of the defendant in the UK, but the court had no doubt that the claimant's senior executives knew that FD was no more than the UK sales agent. As such, service upon FD was ineffective and the defendant had to be served out of the jurisdiction.

Comments

It is easy to see why the judge made the comments about the perception of a lay person. The terminology used by Ms Joyce in her references to the defendant was, to say the least, 'loose' and together with her social media activities could be considered misleading to those unfamiliar with how such general service agencies work. A relevant factor here was therefore the claimant's specialist knowledge of the travel/ airline industry. Would the decision have been the same if a different (lay) claimant had made a booking?

When doing business through an agent, the less freedom of manoeuvre the agent has in terms of negotiating contracts, the less likely they will be found to be carrying out their principal's activities for the purpose of establishing a presence within the jurisdiction. Aviation companies should take note if the intention is not to establish that presence.

It should also be noted that, had the defendant installed one of its own employees in the FD office, this would be likely to pass the 'place of business' test under CPR 6.9, however junior that employee and even if that employee had no authority to offer altered prices or terms and conditions (ie, the same or less authority to effect bookings/ changes than Ms Joyce). Such fine lines ...

Equally, if contracting with an airline (or indeed any foreign (currently non-EU only - but that may well change, of course) counterparty), it is worth thinking from the outset about the potential need to serve proceedings if things go wrong, and asking for the airline/ counterparty to appoint a service agent if there is no obvious UK base (office or place of business).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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