Richards v. Air India Ltd.: Travel Agents and Letters of Credit

Ceylinco Investments Ltd, operating as Chalais Travel and Tours, was an authorized passenger sales agent of Air India. As an IATA accredited agent, it did not directly pay the airlines for the tickets it sold, but instead used the IATA Bank Settlement Plan (BSP).  This payment method was based on the agent reporting ticket sales to the BSP on a weekly basis and BSP withdrawing the amount owed by the agent to the airline from the agent’s bank account.

Since this payment process was based on the self-reporting of sales by the agent and involved a delay in payment for the tickets sold, Air India required its agents to designate it as a beneficiary of an irrevocable standby Letter of Credit.  The agreement between Ceylinco and Air India dealt with a Letter of Credit in the amount of $100,000.   

After sixty-two disputed ticket incidents arose, Air India requested the payments owed by Ceylinco in the total amount of $117,791.  Following Ceylinco’s failure to respond to the requests, Air India drew the maximum amount allowed pursuant to the Letter of Credit.  Ceylinco disputed that it was in arrears for sixty-two tickets and sued Air India for the amount drawn stating that Air India breached their agreement.  Furthermore, Mr. Richards, the sole shareholder of Ceylinco, claimed that he suffered consequential losses arising out of Air India’s breach.  Air India counterclaimed for the outstanding amount owed of $17,791.

The Court found that the relationship between Ceylinco and Air India was one of trustee and beneficiary.  It based this finding on the Supreme Court of Canada’s decision in Air Canada v. M&L Ltd.  It made the factual finding that most of the passengers did travel on the disputed tickets.  It was found that the tickets were booked and money was collected from the passengers, but that the tickets were reported as voided on the BSP reports. 

The Court found that Ceylinco acted dishonestly in reporting that the tickets were voided.  The Court held that Air India had justifiably drawn the $100,000 pursuant to the Letter of Credit and ordered that Air India be paid the outstanding balance owed on the tickets of $17,791 plus interest.

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