STA Travel (NZ) Limited (in liquidation)

[2022] NZHC 1398

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-1759

[2022] NZHC 1398

UNDER

Part 19 of the High Court Rules 2016 and s 284 of the Companies Act 1993

IN THE MATTER

of an application pursuant to s 284 of the Companies Act 1993 for directions in relation to the distribution of refunds paid, or due to be paid to, STA Travel

AND IN THE MATTER

of STA TRAVEL (NZ) LIMITED (in

liquidation)

IN THE MATTER

of an application by DAVID SEAN WEBB and COLIN DAVID OWENS as liquidators of STA TRAVEL (NZ) LIMITED (in

liquidation) Applicants

Hearing:	2 February 2022
Appearances:	J McMillan and N Thompson for the Applicants J Burt for Refunded Customers
Judgment:	30 May 2022
Reasons:	14 June 2022

REASONS JUDGMENT OF ROBINSON J

Solicitors/Counsel:

Dentons Kensington Swan, Auckland Mr J Burt, Barrister, Auckland

RE STA TRAVEL (NZ) LTD (IN LIQ) [2022] NZHC 1398 [30 May 2022]

[1]    The applicants (Liquidators) are the Liquidators of STA Travel (NZ) Limited (in liquidation) (STA Travel). They were appointed administrators of STA Travel when it was placed into voluntary administration on 24 August 2020. They were appointed Liquidators of STA Travel at the watershed meeting on 28 September 2020.1

[2]    STA Travel carried on business as a travel agency. As a result of the Covid-19 pandemic some STA Travel customers had their flights and other travel arrangements cancelled. Upon cancellation many of those customers became entitled to a refund from the airline or other travel provider.

[3]    In circumstances described more fully below, STA Travel has received refund monies from (or on behalf of) various airlines in respect of some of those cancelled travel arrangements. The Liquidators anticipate that STA Travel may receive further refunds from airlines and other travel providers.

[4]    The Liquidators apply pursuant to s 289 of the Companies Act 1993 (Act) for directions as to how they should distribute refund monies paid to STA Travel. In particular, they seek directions as to whether the refund monies are:

(a)held by STA Travel on trust for the particular customers in relation to whom each refund has been paid, and are therefore payable to those particular customers; or

(b)the property of STA Travel and are to be combined with all realisations in the liquidation and distributed to creditors of STA Travel as a whole in accordance with schedule 7 of the Act.

[5]The Liquidators seek ancillary orders to address:

(a)the distribution of refunds received in relation to STA Travel customers who have already received compensation from their banks or other

1      The applicants as administrators convened the watershed meeting in accordance with s 289AU of the Companies Act 1993.

financial institutions in respect of the cancelled travel arrangements; and

(b)the Liquidators’ costs.

[6]    At the time of making the application the Liquidators were holding refund monies in the amount of $428,817. The Liquidators are able to identify the individual customers to whom those refund monies are owed.

[7]    In order to ensure that the competing interests were properly represented, the Court appointed Mr Burt to represent the interests of those STA Travel customers who would benefit from a direction that STA Travel holds refund monies on trust for the particular customers for whom they were paid. Counsel for the Liquidators, Mr McMillan and Ms Thompson, represented the interests of the general body of STA Travel’s creditors. This ensured the different interests were properly represented and the competing arguments were fully explored. Although the Liquidators argued the position in favour of the general body of creditors, they emphasise that their primary objective is to ensure that they distribute the refund monies properly. Beyond that they are ultimately neutral.

[8]    On 30 May 2022 the Court made directions that the Liquidators hold the refund monies on trust for the particular customers to whom those monies relate; and that the Liquidators costs could be met from those refund monies to the extent that those costs were not covered by amounts the Liquidators receive from the Consumer Travel Reimbursement Scheme (CTRS).2 The reasons for those directions are set out below.

Factual background

[9]    STA Travel was an established travel agency specialising in youth travel. It is part of an international group of companies and is wholly owned by STA Travel Holding AG, incorporated in Switzerland. STA Travel operated in New Zealand for about 34 years. It had 11 stores throughout the country. They have now been closed.

2      Re STA Travel (NZ) Ltd [2022] NZHC 1229.

[10]   STA Travel acted as an agent for airlines and other travel providers, selling their services to customers. Customers would deal directly with STA Travel, and STA Travel would make travel arrangements (e.g. booking flights and accommodation) for those customers with the airlines and other travel providers.

IATA

[11]   Some (but not all) of the airlines STA Travel’s customers had booked flights with were members of the International Air Transport Association (IATA). As its name suggests, IATA is a trade association of airlines operating around the world. STA Travel was an accredited IATA agent.

[12]   IATA acts as a clearing house for payments made to and from its member airlines. IATA members use a centralised Billing and Settlement Plan system to process payments and share information (BSP system). So instead of every agent having an individual relationship with every member airline, information and payments are consolidated through the BSP system.

Bookings

[13]   When STA Travel booked travel for its customers those customers would pay the booking monies to STA Travel. Customers made these payments into an account styled “client fund account”. STA Travel would pay those monies onto the relevant travel providers, usually net of STA Travel’s commission.

[14]   Customers who booked flights with an IATA member airline would pay the booking monies to STA Travel in the usual way. However, STA Travel would periodically transfer all monies due to all IATA members through the BSP system in one remittance. In his affidavit Mr Owens says he understands this to have occurred weekly. Through the centralised BSP system each member airline would periodically receive one consolidated payment in respect of all sales made by all agents in a particular country or region. STA Travel was required to report all sales and refunds at the end of each reporting period.

[15]   As a result of the Covid-19 pandemic (and for various other reasons) the STA Travel group experienced financial distress in New Zealand and internationally. Following the collapse of its Swiss parent STA Travel was placed into voluntary administration on 20 August 2020. It has not traded since.

Refund monies – receipts

[16]   Also as a result of the Covid-19 pandemic many of STA Travel’s customers have had their travel arrangements cancelled. Mr Owens explains that cancellations ordinarily entitle the relevant customers to a refund, which airlines and other travel providers would pay to customers through STA Travel.3 Again, the refund monies were usually paid into the client fund account.

[17]   From the time STA Travel went into administration until the date of the application it has received refund monies totalling $428,817 from airlines. Other airlines have told the Liquidators they will pay refund monies of approximately

$241,783 directly to customers. The Liquidators remain in negotiations with other airlines; and some have not responded to the Liquidators’ enquiries. Some refund monies are payable by airlines currently undergoing their own insolvency processes, such as Virgin Australia.

[18]   All of the refunds received to date have been from airlines that are members of IATA.

[19]   The Liquidators have identified that $19,154 of the refunds received relate to customers who have also obtained a “charge-back” from their credit card provider. That is, those customers’ banks (or other financial services providers) have reversed the customer’s payment for travel services. So, STA Travel has received a refund that is payable to those customers, but those customers are not “out-of-pocket” as a result

3         It is important to record that STA Travel is not a member of the Travel Agent’s Association of New Zealand (TTANZ). TTANZ is a self-regulating body representing travel agents, travel brokers, and the tourism industry in New Zealand. TTANZ’s members are bonded and must meet strict financial standards. TTANZ members contribute to a fund which in some circumstances may provide a remedy to customers of a member agency that fails.

of the cancelled travel because they have been compensated by their credit card provider. As noted at paragraph [5] above, the Liquidators seek ancillary orders in relation to the refund monies they hold in respect of those customers.

Refund monies – claims

[20]   From the records available to them the Liquidators calculate that when STA Travel was placed into administration on 20 August 2020 it was due to receive refunds of $1,529,664 from airlines and $647,891 from other travel providers (total

$2,177,555). However, at the time of making the application the Liquidators had received claims from 1,560 customers for refunds of $5,555,597.

[21]   In his supporting affidavit Mr Owens explains that there are two main reasons for this discrepancy.

[22]   First, although refund monies received by STA Travel prior to its administration were paid into the client fund account, not all of those refund monies were paid to customers. STA Travel paid some refund monies to customers, but it also made payments from that account to STA Travel’s suppliers, trade creditors, and related companies. STA Travel also transferred money from the client fund account to its own operating account when it needed additional funds to pay its own operating expenses. Some of the refund monies have been co-mingled and depleted.

[23]   Secondly, some customers were paying for their tickets under a lay-by scheme STA Travel operated in conjunction with a related company, STA Travel International Limited (STIL). STIL received customer monies from STA Travel, but did not pay all those monies on to the airlines. In those cases customers are claiming refunds, but there is nothing for the airlines to refund. Instead there is an inter-company receivable owing by STIL to STA Travel. But STIL is also in administration and the Liquidators do not expect to receive a distribution from STIL.

[24]   For completeness I note that other customers who were due refunds in a total amount of $245,506 withdrew their claims after their banks reversed their payments to the airlines (via STA Travel).

Correspondence with IATA and others

[25]   In the course of their investigations (both as administrators and as liquidators) the Liquidators have corresponded with IATA, and directly with some IATA member airlines. This has been to identify customer refunds due, and to try to arrange payment of those refunds. In its letter of 11 September 2020 IATA advised the Liquidators (who at that time were administrators of STA Travel) that it would no longer be processing payments to or from STA Travel through the centralised BSP system. However, IATA advised:

Conversely, if the appointed Administrator can provide an undertaking that such funds processed in order to refund the passengers will be settled to those passengers without any deductions, then IATA may consider to process [sic] the funds as per the BSP Billings.

[26]   The Liquidators did not consider it appropriate at that stage to provide that undertaking to IATA that refund monies paid in order to refund passengers would be paid directly to those passengers. Instead, the Liquidators advised IATA that it would seek this Court’s directions as to the capacity in which they held refund monies, and how they should distribute those refund monies.

STA Travel creditor position

[27]   Mr Owens explains that for various reasons the investigation into STA Travel’s financial position has not been straightforward. Amongst other things, its systems and administrative functions were controlled by overseas STA entities which are also insolvent and subject to administration procedures in their different jurisdictions. Key people are also based overseas. These and other factors have combined to make it difficult for the Liquidators to gather information and documentation.

[28]   However, the Liquidators calculate that as well as the claims of $5,555,597 in respect of customer refunds there are other claims by: Trade creditors for $5,003,154; employees for $466,039; and the Inland Revenue Department for $32,250.

Contractual framework

[29]   STA Travel had a contractual arrangement with its customers; and a separate contractual arrangement with airlines and other travel service providers. But it was not a party to the underlying contract for travel services between the customers and the various airlines/travel service providers.

STA Travel and customers

[30]   The Liquidators have provided an example of the terms and conditions of contract between STA Travel and its customers. These are in the form of a booking receipt and standard form terms and conditions (booking conditions).

[31]   The booking conditions describe the agency relationship between STA Travel and the airlines or other travel providers. Amongst other things the booking conditions provide:

Agency

We are STA Travel (NZ) Limited (STA Travel). We sell products and services as an agent on behalf of airlines, wholesale companies and other service providers including accommodation and transportation services (Third Party Suppliers). STA Travel’s role is to assist you to plan your travel arrangements, facilitate your bookings, and arrange payment and refunds as applicable. STA Travel is not a provider of any travel products/services and has no responsibility for product or services provided or not provided by any Third Party Suppliers. We give and make no warranty or representation regarding the standard of any services or products supplied by the Third Party, Suppliers and no person has authority to make any such representation or warranty on behalf of STA Travel. If for any reason, any Third Party supplier is unable to provide the products/services you purchased through STA Travel, your remedy lies against that Third-Party supplier and not STA

(Emphasis added).

[32]In relation to cancellation, the Booking Conditions provide:

Cancellations and changes

Your contract with your Third-Party Suppliers may allow our suppliers to cancel or amend bookings. We will ensure that you are promptly notified of any significant changes but accept no liability through any changes or costs incurred which may result. If we make an error in your booking, which gives rise to a need to significantly change your booking, we will inform you as soon as reasonably possible if there is time before your departure. You will have the choice of either accepting the change of arrangements, accepting an

offer of alternative travel arrangements of comparable standard from us, (we will refund any price difference if the alternative has a lower value), or cancelling your booking arrangements and receiving a full refund.

If a significant change is made for reasons beyond our control, then, to the fullest extent permitted by law but otherwise, we are not liable to compensate you. These include: war, threat of war, riots, civil disturbances, terrorist activity, industrial disputes, natural and nuclear disasters, fire, epidemics, health risks, and changes due to rescheduling or cancellation of flights by an airline or alteration of the airline or aircraft type; closed or congested airports or ports, hurricanes and other actual or potential severe weather conditions, active government or public authorities or other circumstances amounting to force majeure and/or acts of god.

[33]   The booking conditions did not require customer booking monies or refunds to be kept in a separate bank account. Nor do they expressly provide that STA Travel holds those funds on trust, either for the airlines/travel service providers or for the customer.

STA Travel and IATA member airlines

[34]   The contractual relationship between STA Travel and airlines that are members of IATA is governed by the IATA “Travel Agent’s Handbook” (Handbook).

[35]   Clause 7 of the Handbook provides that booking monies paid by customers to STA Travel are held on trust for the airline carrier:

7.    EXCEPT AUSTRALIA AND GERMANY4 - MONIES DUE BY AGENT TO CARRIERS - REMITTANCE

…

7.2        All monies collected by the agent for transportation and Ancillary Services sold under this Agreement, including applicable remuneration which the Agent is entitled to claim there under, are the property of the Carrier and must be held by the Agent in trust for the Carrier or on behalf of the Carrier until satisfactory accounted for to the Carrier and settlement made;

7.3        the Agent shall not pledge, cede, promise or otherwise transfer to a third party any claims to monies due to the Agent or to the Carrier, but not yet collected, for transportation and Ancillary Services sold under this Agreement, including applicable remuneration, which the Agent is entitled to claim hereunder;

4      An alternative (but for present purposes identical) clause applies in respect of travel arranged by agents in Australia and Germany.

7.4        in the event that the Agent becomes the subject of bankruptcy proceedings, is placed in receivership or judicial administration, goes into liquidation or becomes subject to a similar legal process affecting the normal operation of the Agent, then notwithstanding the normal remittance procedures under this Agreement, all monies due to the Carrier or held on behalf of the Carrier in connection with this Agreement shall become immediately due and payable.

[36]In terms of refunds, clause 8 of the Handbook provides:

8.2 REFUNDS

The Agent shall make refund only in accordance with the Carrier’s tariffs, conditions of carriage and written instructions, and against receipt. The Agent shall only refund traffic documents issued by such Agent.

STA Travel and non-IATA member airlines/other travel providers

[37]   The Liquidators have not been able to locate any written contractual terms in place between STA Travel and non-IATA airlines or other travel providers. However, the Liquidators’ evidence is that STA Travel’s role for those airlines and other travel providers was essentially the same as it was with IATA airlines.

[38]   As noted, all the refunds the Liquidators have received to date were paid by or on behalf of IATA airlines. The Liquidators also explain that only a very small portion of the additional refunds they expect to receive are payable by non-IATA airlines or any other travel providers.

Summary of submissions

[39]   Mr Burt submits that in these circumstances STA Travel holds refund monies it receives on trust for the particular customers to whom those refund monies relate. He submits that the contractual terms and commercial context demonstrate the parties’ intention to create an express trust in respect of those refund monies. Alternatively, Mr Burt submits that an institutional constructive trust arises. Either way, he says the refund monies are not STA Travel’s property and are not available for distribution to the general pool of STA Travel’s creditors.

[40]   Conversely, Mr McMillan and Ms Thompson argue there is neither an express trust nor an institutional constructive trust. They say that STA Travel holds both the

legal and the beneficial interest in the refund monies, and has only a contractual obligation to pay refund monies to customers. As such, they argue the refund monies are the property of STA Travel and should be distributed to STA Travel’s creditors in accordance with the Seventh Schedule of the Act. In particular, they point out that:

(a)Clause 7.2 of the Handbook expressly provides that STA Travel holds customer monies payable to airlines on trust for the airlines. Comparatively, clause 8 of the Handbook could have expressly provided that STA Travel holds refund monies on trust, but it does not.

(b)The Handbook does not require STA Travel to hold refund monies in a separate account.

(c)STA Travel did not in fact hold refund monies on trust. Instead, those monies were co-mingled and used to pay third parties including STA Travel’s own suppliers and trade creditors.

Legal principles

[41]There is no dispute between counsel as to relevant legal principles.

Express trust

[42]   It is well established that in order to create a valid express trust three things must be certain: the intention to create a trust; the object of the trust; and the subject- matter of the trust.5

[43]   In the present case there is certainty of both subject-matter and objects. The Liquidators are able to identify the refund monies that STA Travel has received; and the particular customers to whom each refund relates. The question is whether there is a certainty of intention to create a trust.

5      Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [62.4.2.1].

[44]   The authors of Equity and Trusts in New Zealand helpfully introduce the topic as follows:6

A valid trust will exist if it can be shown that the putative trust’s creator intended to establish what equity calls a trust. No particular form or words are required: so the word “trust” need not be used. Any language that shows an intention to create a trust will do. Moreover the use of the word “trust” will not always manifest an intention to create a trust in the equitable sense.

It should be noted that while a settlor does not actually need to know it is technically a trust that he or she is creating, he or she will be taken to intend the legal consequences that would be apparent to a lawyer.

(footnotes omitted).

[45]   The fact that STA Travel was an agent for the airlines that paid refund monies (and any other airlines and/or travel providers who might yet do so) is relevant, but not determinative. An agent may hold funds on trust for its principal, but that is not a necessary consequence of the agency relationship. Whether the agent is also a trustee can turn on the contractual terms and other arrangements between principal and agent. The authors of Bowstead and Reynolds on Agency say that:7

It is clear in this context and in general that the existence of a contractual relationship of debtor and creditor between the parties does not prevent the existence of a simultaneous trust relationship, or a fiduciary relationship of a less onerous nature, involving nevertheless that certain money or property is held on trust. Thus it may be provided expressly between principal and agent that money received is so held. At other times the intention to create a trust may be inferred; the matter turns on the objective interpretation, according to general principles, of the intentions of the parties.

…

The present trend seems to be to approach the matter more functionally and to ask whether the trust relationship is appropriate to the commercial relationship in which the parties find themselves; whether it was appropriate that money or property should be, and whether it was, held separately, or whether it was contemplated that the agent should use the money, property or proceeds of the property as part of the agent’s normal cashflow in such a way that the relationship of debtor and creditor is more appropriate. There are a great number of cases. At the same time, there is no absolute rule that the absence of a duty to keep the principal’s property separate is fatal to there being a trust.

(footnotes omitted).

6      At [62.4.2.2].

7      Peter Watts and FMB Reynolds (Eds) Bowstead and Reynolds on Agency (22nd Ed, Sweet & Maxwell, London, 2021) at [6-041].

[46]   An intention to create a trust can be inferred. Contractual language, the commercial context and the purpose for which funds are paid and received will be relevant.

[47]   Counsel refer to the similar case of Bethell v Papanui Properties Ltd. 8 The liquidators of Arrow Construction Ltd (Arrow) also sought directions as to whether it held funds on trust for particular parties; or whether those funds could be distributed to all Arrow’s creditors. Arrow acted as agent for principals of construction projects, arranging contracts between those principals and trade contractors. Arrow received and reviewed payment claims from trade contractors, then issued invoices to the principals each month. The principals paid Arrow, which was required to pay the trade creditors.

[48]   The Court concluded that Arrow held funds paid by the principals subject to an implied express trust for the trade creditors. The Court reached that conclusion because:

(a)The contractual terms showed that Arrow received the funds merely as a conduit, or paying agent. The commercial context, the purpose for which Arrow had invoiced for payment and received the monies showed that the funds were only to be used to pay the trade contractors.9

(b)The contracts stated that Arrow had no liability to trade creditors for amounts due from the principals.10

(c)It did not matter that there was no express contractual term requiring Arrow to hold monies on trust, or in a separate account. Arrow received the funds for payment to the trade creditors. It could not be implied that Arrow was entitled to use those funds as part of its own cashflow.11

8      Bethell v Papanui Properties Ltd [2019] NZHC 3169.

9 At [35], [39], and [62].

10 At [7].

11     At [46]–[49] citing Westpac v Savin [1985] 2 NZLR 41, at 45.

(d)Arrow was never entitled to receive the money it was to pay on to the trade contractors. It could not have sued the principals for these sums if the construction clients had paid the trade creditors directly.12

[49]   Mr Burt also relies on the recent judgment of Gendall J in Ruscoe v Cryptopia Ltd (in liq) holding that:13

(a)  At common law express trusts of personal property can come into existence orally or as a result of conduct including simply by force of the circumstances as between relevant parties.

(b)  It is not really necessary, even in a commercial context, that the settlor or other party involved in the relationship understand what a trust is, if the conduct including the arrangements between the parties objectively suggest that a trust was the appropriate legal consequence.

Institutional constructive trusts

[50]   Mr Burt submits in the alternative that the Liquidators hold the refund monies subject to an institutional constructive trust in favour of the customers. Mr McMillan disagrees. He says it is not unconscionable for STA Travel either to receive or retain the refund monies. Although this means customers will not receive the refund monies, that is a consequence of STA Travel’s insolvency, not because of any improper conduct by STA Travel that gives customers a proprietary claim to the refund monies.

[51]   Counsel referred to Angove’s Pty Limited v Bailey in which the United Kingdom Supreme Court observed (obiter) that:14

The exact circumstances in which a restitutionary proprietary claim may exist is a controversial question which has given rise to a considerable body of judicial comment and academic literature. For present purposes it is enough to point out that where money is paid with the intention of transferring the entire beneficial interest to the payee, the least that must be shown in order to establish a constructive trust is (i) that that intention was vitiated, for example because the money was paid as a result of a fundamental mistake or pursuant to a contract which has been rescinded, or (ii) that irrespective of the intentions of the payer, in the eyes of equity the money has come into the wrong hands, as where it represents the fruits of a fraud, theft, or breach of fiduciary duty against a third party. One or other of these is a necessary condition, although it may not be a sufficient one.

12 At [56].

13     Ruscoe v Cryptopia Ltd (in liq) [2020] NZHC 728; [2020] 2 NZLR 809, at [157].

14     Bailey v Angoves Pty Ltd [2016] UKSC 47, [2016] 1 WLR 3179 at [30].

[52]    The UKSC disapproved earlier decisions in Neste Oy v Lloyd’s Bank Plc15 and In Re Japan Leasing (Europe) plc16 holding or commenting that liquidators held funds on trust for particular creditors. Lord Sumption set out the traditional view that an institutional constructive arises by operation of law and is declared but not discretionary.17 He then commented:

Bingham J’s point of departure in Neste Oy was that the recipient of money may be liable to account for it as a constructive trustee if he cannot in good conscience assert his own beneficial interest in the money as against some other person of whose rights he is aware. As a general proposition this is plainly right. But it is not a sufficient statement of the test, because it begs the question what good conscience requires. Property rights are fixed and ascertainable rights. Whether they exist in a given case depends on settled principles, even in equity. Good conscience therefore involves more than a judgment of the relative moral merits of the parties. For that reason it seems to me, with respect, that Bingham J’s observation in Neste Oy that any reasonable and honest director would have returned the sixth payment upon its receipt begs the essential question whether he should have returned it. It cannot be a sufficient answer to that question to say that it would be “contrary to any ordinary notion of fairness” for the general creditors to benefit by the payment. Reasoning of this kind might be relevant to the existence of a remedial constructive trust, but not an institutional one. The observation of the editors of Bowstead and Reynolds and of Nicholas Warren QC in Japan Leasing that a proprietary claim should be recognised whenever the claim is “sufficiently strong and differentiable from other claims” to warrant giving it priority over other claims in an insolvency, seems to me to be open to the same objection.

(emphasis in original).

[53]   Counsel for the Liquidators rely on those comments to support their submission that no institutional constructive trust arises here; and that the Court should be wary of arguments that a constructive trust has disrupted the well established principles of insolvency law.

Discussion

Express trust

[54]   Mr Burt submits that certainty of intention by the IATA airlines to create a trust is evident from clauses 7.2 and 8 of the Handbook. He points out that clause 7.2

15 [1983] 2 Lloyd’s Rep 658.

16     [1999] BPIR 911.

17     At [27] citing Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, at 714–715.

requires STA Travel to hold on trust “all monies collected by [STA Travel] for transportation and Ancillary Services sold under this agreement”. He says this wording is sufficiently broad as to include refund monies received from airlines and payable to customers, as well as purchase monies received from customers and payable to airlines. Similarly, Mr Burt says it is significant that the trust endures until monies are “satisfactorily accounted for to the carrier”, rather than until the monies are paid to the carrier. He says this is consistent with clause 8 which requires STA Travel to pay refund monies to customers only “against receipt”.

[55]   In that regard, Mr Burt submits that the words “against receipt” impress any refund monies paid to STA Travel with a trust for a single purpose, namely to discharge the paying airline’s contractual obligation to refund a customer.

[56]   As noted, Mr McMillan submits that clause 7.2 deals only with funds STA Travel received from customers as payment for transportation services. And only clause 8 deals with refunds. He makes the point that clause 8 (like clause 7.2) could have expressly required STA Travel to hold monies on trust, but it does not.

[57]   Mr McMillan argues that Mr Burt places too much emphasis on the words “upon receipt”. Mr McMillan says clause 8 merely requires STA Travel to obtain a receipt from customers when they pay the refund, but this does not necessarily require them to make that payment immediately upon receiving the refund from IATA.

[58]   There is merit in each of these arguments, but ultimately I do not consider the contractual words themselves are determinative. These words need to be interpreted and applied in the context of the contractual and commercial relationship between the relevant parties.

[59]   Significantly, a customer’s right to receive a refund, and an airline/travel provider’s corresponding obligation to pay a refund, arise out of the contract for travel services between the customer and the airline/travel provider. STA Travel is not a party to those contracts. For commercial reasons STA Travel may be involved in the refund process, but it is not a party to the contracts pursuant to which the refunds become due and are paid. As such:

(a)STA Travel has no contractual right enforceable against the airlines/travel providers to receive refund monies. And the airlines/travel providers have no contractual obligation to pay refund monies to STA Travel. In their dealings with IATA and other airlines the Liquidators have been trying to arrange customer refunds, but they do not (and could not) assert a contractual right to receive those refunds. Moreover, the Liquidators’ evidence is that some airlines have paid refund monies to customers directly. STA Travel can make no complaint when the airlines discharges its obligations to its customers in that way.

(b)Similarly, STA Travel has no contractual obligation to refund customers in respect of cancelled travel. Although the booking conditions provide that STA Travel’s role is (amongst other things) to “…arrange payment and refunds as applicable,” they also clear that whenever an airline/travel provider cannot provide the travel services a customer has purchased, the customer’s remedy lies against the airline/travel provider, not STA Travel.

[60]   In this context STA Travel receives refund monies from the airlines purely as a conduit for the purpose of paying those monies on to the particular customer(s) for whom they have been received. It is significant that the airlines/travel providers will remain contractually liable to their customers unless and until those customers receive the refund monies to which they are entitled. In those circumstances I do not consider the parties intended that STA Travel was entitled to use those refund monies for its own purposes. In my view the better inference is that the parties intended STA Travel to hold the refund monies on trust to pay the particular customers for whom those monies were received. Just as STA Travel had no enforceable right to receive the refund monies, nor does it have a right to retain them.

[61]   Mr McMillan pointed out that prior to liquidation STA Travel used refund monies it had received for its own purposes. He submitted this was evidence that the parties never intended STA Travel to hold those monies on trust. I do not accept that submission. There is no evidence that IATA and/or the airlines which paid refund

monies to STA Travel ever agreed that STA Travel could use those monies for its own benefit, or knew that it was doing so. Evidence that STA Travel used funds for its own purposes suggests that it may have acted in breach of trust, rather than that no trust exists.18

[62]   For these reasons I am satisfied that an intention to create an express trust can be inferred from the commercial context and the relationship between the relevant parties. I do not consider the express terms of the Handbook are inconsistent with that analysis.

[63]   As noted, all refund monies STA Travel has received to date have been paid by IATA member airlines. However, given STA Travel’s role in arranging travel and refunds I am also satisfied from the limited evidence available that STA Travel will hold on trust for the relevant customers any future refunds it may receive from non- IATA member airlines and/or other travel service providers. If fresh evidence comes to light during the course of the liquidation that casts doubt on this analysis then leave is reserved for the Liquidators to apply further.

Institutional trust

[64]   While I am satisfied that an express trust is to be inferred, I do not consider that an institutional constructive trust arises here. There is no doubt that the airlines intended to pay the refunds to STA Travel. The airlines did not pay the refund monies to STA Travel by mistake, or otherwise pay refund monies into the wrong hands. STA Travel was entitled to receive those refund monies. There is no suggestion that by receiving and retaining the funds STA Travel has acted in breach of trust or any other fiduciary duty.

Ancillary orders

[65]   As noted, the Liquidators sought ancillary orders in relation to refund monies it has received for customers who have already received compensation from their banks or other financial institutions in relation to the cancelled travel. Mr Owens says

18     No directions have been sought in relation to refund monies received by STA Travel and used for its own purposes prior to liquidation.

this has largely been achieved by way of a “charge-back” on some customer’s credit card facilities. The Liquidators have received refund monies of $19,154 that fall into this category. They seek directions that in those circumstances they are able to pay the refunds to the relevant bank or other financial institutions that have effectively compensated STA Travel customers.

[66]   In general terms it may be unlikely that a customer could retain compensation it has received from a third party in respect of cancelled travel, whilst also receiving and retaining a refund from the travel provider. Customers would likely have contractual obligations to pass on the refund to the bank/financial institute that has provided compensation; and/or the third party bank financial institution may have rights of subrogation.

[67]   The nature and scope of the compensating third party’s entitlement to be reimbursed by its refunded customers will depend (at least in part) on the terms of the contractual and other arrangements between each customer and the compensating bank/financial institution.

[68]   However, for reasons beyond the Liquidators’ control there is presently insufficient evidence of each affected customer’s particular position to enable the Court to make the direction sought. In those circumstances the Court reserves leave for the Liquidators to apply further in respect of this issue if they consider that becomes necessary.

Costs

[69]   The Liquidators seek orders permitting them to deduct from the refunds their actual fees and disbursements in relation to the application and the recovery and distribution of the refunds, at least to the extent that the Liquidators’ fees and disbursements are not met by the CTRS.

[70]   The Liquidators rely on the findings of McGechan J in Re Newsmaker International Ltd (in liq):19

19     Re Newsmaker International Ltd (in liq) HC Napier M153/86, 24 February 1994, at 6.

Essentially, it has been recognised that when a liquidator is forced to carry out work in relation to assets held on trust, for the benefit of the beneficiaries concerned, the Court has an inherent jurisdiction to allow reasonable costs against those assets. There is an underlying and obvious equity. He who saves trust assets for the benefit of beneficiaries, properly can ask those beneficiaries to meet his proper expenses. It has been made clear that jurisdiction does not extend to general expenses of a winding up: the activity concerned must relate to trust assets in direct fashion.

[71]   In applying that principle, McGechan J permitted the Official Liquidator to deduct only half of the disbursements which related to the trust assets, and did not award costs on the application. McGechan J considered that the Official Liquidator’s efforts had been directed at determining who owned trust assets, rather than preserving and administering trust assets.

[72]   In the present case, however, the evidence shows that the Liquidators have actively taken steps to recover, preserve, and administer refunds. This has required the Liquidators to deal with IATA and various other airlines and travel service providers. At the same time, the Liquidators have taken an appropriately neutral approach to ownership of the refunds. It was entirely appropriate for the Liquidators to seek the Court’s direction. The Court was assisted by having the arguments presented as they were. The position the Liquidators took for the purposes of presenting those arguments in no way detracted from their ultimate neutrality.

[73]   I also note that another, more recent case where insolvency practitioners seeking the Court’s directions have been permitted to deduct from the trust assets the total amount of their reasonable fees and disbursements. In Bennett & O’rs v Ebert Construction ltd (in rec and liq) Churchman J permitted the applicant receivers to deduct their fees, costs and expenses from the fund and the costs of the application on an indemnity basis.20 Similarly, in Ruscoe v Cryptopia Limited (in liq) Gendall J ordered that the costs of counsel for the Liquidators, the costs of counsel for the account holders, and the costs of counsel for the creditors be deducted from the trust assets.21

20     Bennett & O’rs v Ebert Construction Ltd (in rec and liq) [2018] NZHC 2934, at [140].

21     Ruscoe v Cryptopia Ltd (in liq), above n 13, at [212]–[213].

[74]   In the circumstances I direct that to the extent that the Liquidators’ fees and disbursements in relation to the application and the distribution of the refund costs are not met by funds from the CTRS, the Liquidators shall be entitled to deduct the costs, including any funding advanced to the Liquidators that is required to be reimbursed, from the refund monies before distributing the refunds.

Robinson J