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Makin v IAC Pacific Ltd [2003] VUSC 7; Civil Case 140 of 1998 (1 February 2003)

IN THE SUPREME COURT
OF THE REPUBLIC OF VANUATU
(Civil Jurisdiction)

Civil Case No. 140 of 1998

BETWEEN:

CAPTAIN PAUL A.J. MAKIN
Plaintiff

AND:

I.A.C. PACIFIC LIMITED
Defendant

JUDGMENT

The plaintiff is a commercial airline pilot. The defendant is a company that seeks and contracts with airline pilots for them to fly for airlines, in this case Korean Airlines (KAL).

On 25 February 1996 the plaintiff and defendant signed an agreement. At the commencement of the trial there were claims for money in respect of six specific issues arising out of the contract:-

1. Failure of the defendant to pay the plaintiff the monthly good faith payment.
   
2. The “nine clear days off in Australia” dispute.
   
3. The training period levy underpayment.
   
4. The 13^th month 5 year incident – free payment.
   
5. Taxation rebate losses.
   
6. Interest on late payment of salary.
   

I will deal with each issue in turn. There are some general comments to be made first.

This case came before the Court of Appeal on 30^th October 2001, judgment was given on 1^st November, (Civil Appeal Case 14 of 2001). At page 6, paragraph 5 the Court of Appeal stated:-

“It seems that both parties to these proceedings are intent on taking every technical point...The tactics which both parties are adopting, presumably in an effort to complicate and frustrate the aims of the other will serve merely to delay the inevitable and cause each party additional expense in the meantime.”

That state of affairs has continued. Further, when deciding matters of costs and taxation extra time will inevitably have to be spent as a result of this.

These tactics mean a disproportionate amount of Court time and resources are used on a case and taken from other cases. The new Civil Procedure Rules are now in force. The overriding objective of the Rules forbids such practices. There are costs sanctions.

There are three International Air Crewing Companies, IAC Pacific, which contracted with the plaintiff, IAC Australia which is described as the defendant’s management agent and IAC Korea which contracted with KAL.

The plaintiff and defendant called one witness each, respectively the plaintiff himself and Philip Jarvis. Evidence in chief was given by way of adoption of affidavits followed by cross- examination and re-examination.

The decisions upon the issues finally remaining in dispute depend to a significant degree upon the credibility and reliability of those two witnesses.

The plaintiff alleges an “intentional misrepresentation” by the defendant through Paul Moxham concerning the reduction to be made in salary during the training period. He says when first talking to IAC Pacific he understood there was an agreement with KAL, but later he began to suspect these wasn’t such a contract. When formally put to Mr. Jarvis the latter replied there was. The plaintiff then said “From what I subsequently learned I doubt whether that was correct”. He said as far as he was concerned “9 days off” meant “9 day complete days at home, namely Sydney”. That in reality turned out not to be correct. The 9 days started from completion of duty in Seoul. He said the “13^th month, 5 years incident free payment” disappeared between initial discussions and contract.

Mr. Makin said a US$ 569 monthly good faith payment was withdrawn without any basis in law or merit. Taxation rebates were not returned promptly and late payment of salary caused him interest and fee charges.

In cross-examination it was put to Mr. Makin that some of his answers were deliberately untrue, he would say things to harm IAC and that he had strong animosity towards Mr. Jarvis and IAC. He was questioned about his career and prospects in the years before joining IAC Pacific. It was put that he jumped at the terms on offer and regarded the job, with renewal, as seeing him through to retirement. It was suggested he was advised to consult a lawyer, this was rejected, and signed a contract knowing what he was doing. Mr. Makin stated that in certain documents when he complimented Mr. Jarvis for improving his conditions and that of other pilots that he was being sarcastic and insincere. He agreed he had written to the International Labour Organisation, the Australian Government and other bodies about IAC and had placed an advertisement in the industry magazine Flight International, which bore the name of the Vanuatu Commissioner of Labour. It was suggested that was defamatory of IAC.

Mr. Jarvis gave evidence that it was clear what was fixed and what was being negotiated. He says, as with all prospective pilots, he advised Mr. Makin to seek legal advice. He said the contract was a matter for Mr. Makin if he wished to sign it. There were no misrepresentations or attempts to mislead. Mr. Jarvis said he had worked hard to bring about the improvements Mr. Makin said were or should be in the contract and had indeed achieved them by negotiation with KAL. He said, in essence, Mr. Makin had been difficult to deal with. He had far more correspondence with him than any other pilot, and at times he had been insulting.

Whilst I do not reject the evidence of Mr. Makin, where it differs from that of Mr. Jarvis, I prefer the evidence of Mr. Jarvis. There is the real risk that Mr. Makin’s recollection of conversations several years ago is coloured by his feelings towards Mr. Jarvis and IAC. I do find that, whilst not desperate, he was eager to sign up with IAC given his salary levels, actual work and prospects over the immediately preceding years. I accept it has not always been easy for IAC to deal with Mr. Makin. However, lack of clarity in the original contract document together with IAC’s reactions to dealing with Mr. Makin have led to some of the problems in this case. The tactics employed in these proceedings are the responsibility of both parties.

There were areas in the original contract of 1996 which were not as clear as they could be. It is probable that as a result of the initial discussion phases Mr. Makin came to expect more than was in the contract. However, he did sign the contract. He is an intelligent, mature person, not a youthful or naïve one.

I will deal with each issue in turn and in doing so will further refer to matters of credibility and reliability. I will take first those that can be addressed quickly.

4. The 13 month – 5 year Incident – Free Payment

Just before the plaintiff’s case was opened this claim was abandoned, without notice. It is, in money terms, the biggest of the claims, greater then all the others put together.

The defendant has been awarded costs on this Part of the claim.

5 – 6. Taxation Rebate Loss – Interest on late Payment of Salary

These two claims were conceded by the defendant at the outset. They are respectively for the sums of US$238.93 and US$18.19.

1. Failure of the defendant to pay the Plaintiff the Monthly Good Faith Payment
   

On 25^th February 1996 the plaintiff signed the contract with IAC Pacific, (see pp. 17 – 29, Plaintiff’s Bundle). As a result of correspondence and disagreements IAC Pacific wrote on 23^rd April 1997 to the plaintiff stating, “Your inability to be a team player when coupled with your breaches of Clause 5 (b) ... have resulted in you leaving IAC Pacific no alternative but to terminate the Agreement.”

On 2^nd May Mr. Makin replied stated he wanted to continue his flying career with KAL and acknowledging that “IAC Pacific Ltd has honoured my contract in the spirit and to the letter at all times.” There were expressions of regret and apology. Mr. Makin referred to the future execution of a deed to reinstate the contract, strict obedience to its terms and an undertaking not to “commence any proceedings against any officer or member of the IAC group of companies.” He agreed a copy of the letter could go to KAL, (exhibit L, affidavit of Mr. Jarvis). This was faxed to IAC.

Jim Morris, Director of Marketing and Strategic planning for IAC Pacific replied on 2^nd May accepting the apology and relying upon the assurances given. A deed was to be drawn up. On the understanding Mr. Makin would sign the Deed, the termination notice would be withdrawn.

The letter concluded, “Finally, as with other MD-80 Captains, effective from 1 April 1997 your gross salary payment under your contract will be US$7,800 per month with the increase in the monthly payment comprising flow on from the CPI increase of 3.3% provided for under the contract which IAC Pacific has with KAL and an additional amount which has been provided as an act of good faith by IAC Pacific. The new monthly salary will apply up to and including payment for March 1998.” (Annex M, affidavit of Mr. Jarvis).

On 28^th May 1997 the Deed of Settlement was signed, (Annex N). The Deed acknowledged the original agreement, the termination of contract and denial of any breach, the discussions and affirmation to continue the agreement, the withdrawal of the termination notice and the undertaking by Mr. Makin to observe strictly and perform the terms of the Agreement.

Mr. Makin covenanted to “not engage in any common talk or mischievous activity” and only discuss matters with IAC Pacific and its staff. There was a whole agreement clause and a mutual release from claims and suits.

Mr. Makin recommenced working for IAC and flying for KAL. In August 1997 a dispute arose about sick leave Mr. Makin intended to take off for an exploratory operation, the provision of a doctor’s report and the position vis à vis KAL.

On 14^th August Mr. Morris wrote to Mr. Makin setting out the company’s position, (Annex O). The letter concluded “Should you fail to cooperate in the manner referred to above you are on notice that from 01 September 1997 the gratuity payment of US$569 per month will cease.”

By a further letter of 19^th September the additional amount of US$569 “by way of a gratuity ... included in the new monthly salary ‘as an act of good faith’ over and above the contracted rate” was withdrawn. No reason was given in the letter for this. Mr. Jarvis in his affidavit (paragraph 31) states this was done as the “Plaintiff had failed to furnish the defendant with a medical certificate.”

The plaintiff says that sum of $569 had become part of the salary package in the contract. It could not be unilaterally withdrawn in that way. The defendant argued it was a discretionary, good faith payment. There was no contractual obligation to pay it. In any event, there was no consideration for such an increase in the plaintiff’s salary. Mr. Jarvis stated in evidence that he did not know why the word “gratuity” was used after payment began. As a layman he saw no distinction between an “act of good faith” and a “gratuity”, to the company there was no distinction. The next salary review would be 1^st April 1998.

To resolve this question the circumstances pertaining in May 1997 must be considered.

The letter of 2^nd May states, “as with other MD-80 Captains ... your gross salary payment under your contract will be US$7,800 per month.” The extra $569 was not peculiar to Mr. Makin. It was being paid to all captains. It was to be part of the “gross salary payment”. The extra was provided “as an act of good faith.” There is no evidence, it was stipulated as being: discretionary, ‘at the discretion of management; with ‘no contractual obligation’; ‘contingent upon good behaviour’ or subject to ‘satisfactory performance’. No statement was made other than it being an increase in salary as an act of good faith by IAC. The letter concluded by calling the total sum “the new monthly salary”.

The Deed of Settlement stated IAC had terminated Mr. Makin’s contract. Mr. Makin denied the breach. Thus, immediately before the Deed was signed there was no contract between the plaintiff and defendant. There was a dispute over the termination of the contract of 25^th February 1996. There was the real potential for legal proceedings between the parties. No mention was made of the $569 in the Deed.

In my judgment the Deed was a new agreement which incorporated the original contract and all its terms but with the variation that the monthly salary was then $7,800 per month, the parties agreed to forego any suits they may have had in relation to the termination, a whole agreement term was added to the original agreement and Mr. Makin agreed to proscribe his activities in certain ways more comprehensively than before, (Clause 2.2 and 2.3).

The first reference to the sum being “ex-gratia” or “gratuitious”, on the evidence, is in the letter of 14^th August. That letter states “It is essential part of our relationship that at all times you co-operate in order to assist us in our dealings with KAL. In recognition of this co-operation ex-gratia or gratuitous amounts are extended to pilots from time to time.

“Should you fail to co-operate ... you are on notice that from 01 September 1997 the gratuity payment of US$569 per month will cease.”

The letter of 19^th September said the “$569 by way of gratuity was included in the new monthly salary ‘as an act of good faith’ over and above the contracted rate.” Notice was given to Mr. Makin it was being withdrawn.

I find the $569 was not an amount payable or with holdable at the discretion of the defendant. It was part of Mr. Makin’s “new monthly salary”. IAC could not withdraw payment of it for the reasons they did. The money was described as being provided in good faith and together with the original salary and CPI increase of 3.3% formed “the new monthly salary”. This is to be compared for example with the discretionary Christmas bonus of $100, (see P 56 Bundle, Letter 18^th December 1996).

The defendants argue that, if successful, the claim under this head should be limited to the six months from time of withdrawal to March 1998. Interest should be at 5%, not the 9.75% claimed by the plaintiff.

The plaintiff claims the sum for the period until the contract was ended. That is a total of 35 months, the amount apparently varied for the periods in question. Interest was claimed at 9.75%.

Little evidence or argument was directed to this particular point.

The amended statement of claim seeks the sum of US$19,721 plus interest, that is for the period October 1997 to August 2000 when the contract finished. (See Schedule A to the claim. Schedule A alleges slight variations in the figure of $569, both down and up.) There is a blanket denial in defence.

There is no specific evidence as to when the contract signed on 25^th February 1996 actually came to an end. According to its terms (paragraph 2) it was to run for five years; that was affirmed in the Deed of Settlement. The claim is limited to the period up to August 2000.

In the contract under Section 8 Payment there is paragraph ‘h’ which is entitled “Annual review” – “It is agreed that the total remuneration due to captains as well as other terms and conditions of this Agreement shall be reviewed on an annual basis.”

The new salary including the $569 applied “up to and including payment for March 1998”. By his letter of 19^th September 1997 (p. 152) Mr. Morris purported to withdraw the payment from 1^st September 1997. He continued “IAC will assess your cooperation with IAC on a yearly basis from September 01 to September 01 each year for the term of the contract. Therefore on September 01, 1998 IAC may make retrospective monthly payments of goodwill should we believe it to be warranted”.

There is no evidence what, if any, review took place. There is no evidence as to what happened concerning this payment in respect of other captains. Mr. Makin in correspondence did not accept the reduction.

In January – February 1998, as a result of the Asian economic crisis KAL sought reductions in payment to IAC in respect of their pilots. Mr. Makin accepted a reduction of 5% by an agreement dated 8^th February 1998. Paragraph 3 states “The parties also agree that notwithstanding the effects of clause 1.1 (the 5% reduction clause) and 1.2 of this agreement the entitlement due to the captain shall be not less than US$7,410 per month.”

The figure $7,410 is $7,800 less 5%. There is no mention of a review or other circumstances peculiar to Mr. Makin.

Accordingly in my judgment the sum of $569 was withheld from Mr. Makin’s salary. There was no legal basis for that withholding. The term of the contract was till 27^th February 2001. The actual claim is to August 2000. There is no evidence Mr. Makin agreed to the withholding of that sum when first occasioned or at any subsequent review. There is no evidence the sum was varied save for the 5% reduction in February 1998. There is no evidence as to when salary levels were restored or the 5% reduction removed.

In the circumstances I find, on the balance of probabilities, that Mr. Makin is entitled to $569 for the months October 1997 to February 1998, that is 5 x $569 = $2,845, together with 30 months (March 1998 to August 2000) at $540.55 per month ($569 less 5%) = $16,216.50, a total of $19,061.50.

2. The “nine clear days off in Australia” Term
   

The plaintiff lives in Adelaide, Australia. KAL operate out of Seoul in Korea. According to the contract, Clause 15 (a) “MD-82 Captains shall have nine (9) days off per month after twenty-one (21) consecutive days actual duty per month. Commuting time to and from his home shall not be included in the 21 actual duty per month”.

Mr. Makin says nine days off means nine clear days starting at 0001 hours on the day after his arrival in the country of his residence. In reality this would be Sydney. Travel to Adelaide, his home, is a matter for him. It ends at 23.59 on the day before his departure from Sydney to return to duty. He says this arrangement is common for aircrew of international airlines.

Mr. Makin states when travelling back to Sydney he is required to travel in uniform, and may be called upon to assist, which occasionally has happened.

Further, the letter of Mr. Jarvis dated 18^th January 1996 (Annex B) states “Base: Anywhere on the Korean network”. Sydney is on the Korean network.

The defendants deny this. They say in the conversations before the contract was made there was no reference to “in Australia”. They accept “nine clear days” was referred to, (letter of Philip Jarvis to Capt. Douglas, 18^th January 1996). This is a matter of credibility. The evidence of Mr. Jarvis is preferred.

Further, Mr. Makin was advised to seek legal advice. The contract itself although not entirely clear in its terms, nowhere states “in Australia” and the main impact is that off duty starts in Seoul. There is reference to a “Flight Base” of Los Angeles in the contract. This is artificial as most captains, including the plaintiff, would not go there before going home for off-duty periods. ‘Per diems’ are paid in respect of this, in effect a perk which cannot reasonably drawn as well as having a Flight Base of Sydney.

Reference is also made in Capt. Moxham’s letter of 18^th February 1996 (Annex E, Jarvis affidavit) to “... and we have managed to increase the MD-82 days free of duty per month, based on a balance of 21 days duty Seoul for the MD-82 with no soft days ...”

The defendants further argue by the Deed of Settlement executed on 28^th May 1997 the defendant is estopped from going outside the terms of the contract.

This issue has already been resolved between KAL, IAC and the captains. Mr. Makin’s flight base is now defined as Sydney. His claim is for payment in respect of the days he should have had free of duty, but didn’t.

There is much correspondence before me on this topic. That correspondence includes argument as to how the two different calculations of the nine days off would and could work in practice. I need not enter into that debate.

First, Mr. Makin signed the original contract of 25^th February 1996. I have stated I prefer the evidence of Mr. Jarvis. In this context this specifically relates to the urging of all captains to obtain legal advice. Mr. Makin chose to sign the contract, whether he did so with or without advice, or even reading it properly, (see for example paragraph 15 (c) of his affidavit) was a matter for him.

Mr. Makin signed the Deed of Settlement on 28^th May 1997. Again whether or not that was with advice or a proper reading of the Deed, was a matter for him. That Deed, as I have found, constituted a new agreement. Clause 1 reinstated the February 1996 agreement as though it had not been in terminated. Clause 3 states that “The Parties hereby acknowledge and agree that the terms and conditions contained in the Agreement comprise the actual terms of the contractual relationship ... and that no other terms or conditions apply to or form part of the Agreement save and except such terms and conditions as may be implied or incorporated under the laws applicable to the Republic of Vanuatu (excluding French Law).

I therefore look to the contract for the resolution of this dispute. That states clearly the flight base is Los Angeles, (Clause 10). Per diems are paid when a captain is away from his flight base, (Clause 11).

Clause 15 (a) does not fully cover the question. It is clear that twenty-one days consecutive duty has to be worked per month. Nine days off per month are granted. This, of course, must be calculated over a year, not calendar month by calendar month. Commuting to and from home is not included in the twenty-one days duty.

It might be suggested the nine days did not start in Sydney, as Mr. Jarvis had to negotiate to get that for KAL. However, that is between KAL and IAC Korea, it is not a matter between IAC Pacific and Mr. Makin.

If the pre-contract letters and conversations are examined there is no reference to ‘in Australia’ for the nine days off. There is in the 18^th January 1996 letter reference to “Base: Anywhere on the Korean Network”. The contract states “Flight Base: Los Angeles”, however artificial that might be.

If Mr. Makin started his nine days off in Los Angeles then it is likely he would end up with the same or even fewer clear days off in Australia.

There is an argument that the parole evidence would support a flight base of Sydney, a destination on the Korean Network. The response is that parole evidence should not be admitted. The contract terms are clear.

The onus of proof is on the plaintiff on the balance of probabilities to establish his claim. That requires him to show his flight base, or place where his days off commence is Sydney. I find that on this issue he has failed to do that. I dismiss it. (D4 – Letter of 7^th November).

3. The Training Period Levy Underpayment
   

There is a training period before Captains take up their duties with KAL. For that period they are paid a reduced salary. Mr. Makin alleges he was told the reduction made by KAL to IAC in this respect was $2,000 per month. In fact there was no reduction and for the period of his training he was underpaid a total $5,372.

The discovery by the defendant of the contract between KAL and IAC Korea showed for his class of captain the reduction was $1,500. The claim was modified to $500 per month for three months. It was alleged there was an intentional misrepresentation by Mr. Moxham of IAC. He has not given evidence.

The defendants replied that if one looks at the figures for the captains of the various category of aircraft the rough average is, indeed, a reduction of $2,000 per month. Some are more, some including MD-82 captains are less.

It was put to the plaintiff, “what Moxham said concerning the training salary was the truth.” The answer was “Yes”. “There was no misrepresentation on amount, the fact is there was a reduction”. “No. The question is not what came out in the contract. He implied the differential was $2,000.” Mr. Makin did not wish to withdraw the claim.

The defendants say this exchange clearly illustrates the mentality of the plaintiff.

There is the Deed of Settlement. The contract clearly states (Clause 8 (a)) “Base Salary during training. Base salary shall be US$3,000 per calendar month, less taxed deducted under Clause 19”. That sum per month has been paid.

Early disclosure of sufficient of the KAL – IAC Korea contract to show the relevant figures might have resolved this issue at a much earlier stage. However, I find the plaintiff has failed to prove his claim on this issue. It is dismissed.

Accordingly I give judgment as follows:-

1. Judgment is entered for the plaintiff in the sum of US$19,061.50 in respect of the monthly good faith payment together with interest at 5% per annum.
   
2. The claim in respect of the “nine clear days off” in Australia is dismissed.
   
3. The claim in respect of the “training period levy underpayment” is dismissed.
   
4. Judgment is given for the plaintiff in respect of the Taxation rebate losses in the sum of US$238.93 together with interest at 5% per annum.
   
5. Judgment is given for the plaintiff in respect of the “reference fee” of US$18.19 plus interest at 5% per annum.
   

For the avoidance of further dispute the rate of interest of 5% per annum is awarded with yearly rests upon 1^st March until payment. The selection of the figure of 5% is made without specific evidence upon what is an appropriate rate of evidence. To hear such evidence would be wholly out of proportion to the difference involved.

I will hear the parties on costs.

Dated at Port Vila, this ..... day of February 2003.

R. J. COVENTRY

Judge