In MG Charter Ltd v Beijing Caissa International Travel Service Co., Ltd [2025] HKCA 1129, the Court of Appeal overturned a trial Judge’s decision on contractual interpretation, opening the path for the trial Judge to revisit the Plaintiff’s claim under a contract for block sale of flight seats, ranging from around RMB 85 million to around RMB 200 million in quantum.
Specifically, the Court of Appeal overturned the Judge’s decision that a deposit payment clause operated as a condition precedent (“CP”) to contract formation, holding instead that it was a CP to performance, the non-fulfilment of which constituted a breach of contract.
Background
The Plaintiff was an exclusive sales agent of MEGA Airline, responsible for selling seats on a route from Beijing, China to Male in the Maldives on a wholesale basis to other tourist agents, which, in turn, sold the seats to other agents or customers (§3).
From March to April 2012, representatives of the Plaintiff and the Defendant held discussions on the block sale of seats on the route. The Plaintiff informed the Defendant that if the Plaintiff were to arrange for MEGA to set up a “Third Rotation” of flights, it would be almost exclusively for the Defendant, and for the “Fourth Rotation” of flights later, the Defendant would have to take up a majority of the seats.
The discussion led to the parties entering into a contract and signing reservation forms for the Third Rotation and the Fourth Rotation (§§6-7). Under these arrangements, the Defendant committed to purchase “hard block” seats i.e. seats committed to be paid for on each flight, as opposed to seats which were on a flexible commitment basis.
However, despite the provisions for payment of deposits under the reservation forms, the Defendant did not pay such deposits (§14).
The trial Judge held that the provisions for payment of deposit were CPs to formation, rather than CPs to performance. She held that there was no obligation for the Defendant to pay the deposits, and as the Defendant never paid the deposits, the Reservation Forms did not become effective, and the Defendant did not need to perform the terms under the Reservation Forms. Accordingly, she dismissed the Plaintiff’s claim for the contractual sum of over RMB 200 million or alternatively damages for breach of contract (§§19, 24).
Court of Appeal’s Decision and Key Takeaways
The Court of Appeal overturned the trial Judge’s decision and held that “[t]he payment condition of the deposit is only a condition precedent to the performance of the defendant or a promissory condition on the part of the defendant, the breach of which constituted a breach by the defendant of the Contract” (§42).
The following points from the Court of Appeal’s judgment are worth highlighting.
CP to formation vs performance: The Court of Appeal highlighted that it was “important to understand the term condition precedent in contract”, distinguishing between (1) CPs to contract formation (which must be fulfilled before any binding contract is concluded at all) and (2) CPs to performance (creating binding contracts but suspending performance of it or an obligation under it until fulfilment of the CP) (§§36-38).
Promissory CPs: Specifically, while a CP is sometimes a CP to the formation of a contract (i.e. it must be fulfilled before any contract is concluded at all), there can be a bilateral contract subject to a CP with an immediate obligation on one of the parties to perform the condition. As that party has promised to perform the condition, the condition may be described as promissory (§§36-38).
Holistic interpretation: The Court of Appeal emphasised that interpretation required considering all provisions together, and it considered various terms of the contract that pointed towards a valid and binding contract (§§43-46). As explained at §46 “to rely solely on the wording of ‘Conditions’ in the Reservation Form, and clauses II(A) and III(A) of the Customer Contract to say that a valid and binding contract had not come into existence, would mean the Court would have to ignore the term relating to supply of ‘Hard Block seats’ to the defendant in the Third RF or the Fourth RF and also the other terms of the Contract which expressly provided that a valid and legally binding agreement has come into existence and non payment of deposit constitutes breach of contract. This is incorrect as all the terms of the Contract should be looked at and properly considered in the interpretation exercise.”
Reasonableness: The Court of Appeal also held that the interpretation found by the trial Judge would be unreasonable on the facts, as “it would mean the defendant had a unilateral option to decide whether to ‘activate’ the Reservation Forms by choosing whether to pay the Deposits (all whilst the plaintiff had already incurred substantial risk and commitment to ensure that it could perform the Reservation Forms)”. The more unreasonable the result, the more unlikely it is that the parties can have intended it (§§46-47).
Factual matrix: The Court of Appeal also held that its decision was supported by the undisputed factual background (which showed that the Plaintiff had to source the seats from MEGA Airline which would be provided exclusively to the Defendant and the Plaintiff would have to enter into binding commitments with MEGA Airline, thereby assuming a significant risk), which the Judge had not referred to when she came to the view that there was no binding agreement. The Court of Appeal also highlighted that an entire agreement clause should not prevent the use of extrinsic evidence to ascertain the meaning of an express term in the contract (§49).
Conclusion
Ultimately, the Court of Appeal allowed the appeal and declared that the Defendant was obliged to pay the deposits and weekly payments, and that it had breached these obligations. The case was remitted to the trial Judge for fresh determination on the appropriate remedies (§54).
This case underscores the importance of construing contracts as a whole, whether in the aviation industry or otherwise, taking into account (1) all the terms of the contract, (2) commercial reasonableness, and (3) factual matrix.
Judgment of [2025] HKCA 1129 is available at: https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=175470&currpage=T
Judgment of [2022] HKCFI 3672 is available at: https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=149218&currpage=T
Mr Christopher Chain SC and Ms Jasmine Cheung instructed by Holman Fenwick Willan, for the Plaintiff before the Court of Appeal.
Mr Christopher Chain SC and Ms Tiffany Chan instructed by Holman Fenwick Willan, for the Plaintiff before the Court of First Instance.
