ON THE LIABILITY OF TRAVEL AGENTS:
CONSTRUCTION, IMPLIED TERMS AND

VICARIOUS PERFORMANCE

Andrew Phung *

INTRODUCTION AND FACTS

It has never been controverted that a party can, save in exceptional
circumstances, delegate performance of the contract to another. I It is, however,
equally well-established that that party will be liable for any breach of contract
that occurs as a result. 2 In Wong Mee Wan v. Kwan Kim Travel Ltd, 3 a Privy
Council decision on appeal from the Court of Appeal of Hong Kong, the Board
examined the boundaries of such liability in a context of great practicality; first,
because the situation was a common one concerning the liability of a travel agent
and, secondly, because of the pragmatic lessons that result from the decision in
the case itself. The use of the device of the implied term by the Board will be
explored briefly.

The facts could not be more straightforward. The plaintiff was in fact, the

• Associate Professor, Faculty of Law, National University of Singapore. I would like to
express my deepest appreciation to my wife, Dr.Phang Sock Yong, Senior Lecturer, Department
of Economics and Statistics, National University of Singapore, for her very helpful comments
and suggestions. All errors, however, remain mine alone.

1 See Chitty on Contracts, Vol. 1 (27th.ed., Sweet & Maxwell, 1994) at para. 19-046 at
987. See also Davies v. Collins [1945] 1 All E.R. 247. Cf Investors in Industry Commercial
Products Ltd v. South Bedfordshire District Council [1986] 1 All E.R. 787 at 807-808.

On the other hand, the strict primary liability of a carrier to exercise due diligence under the
Hague Rules as embodied in the leading decision of the House of Lords in Riverstone Meat Co.
Pty. Ltd v. Lancashire Shipping Co. Ltd [1961] AC. 807 may, it is suggested, be explained by
the unique statutory regime concerned, as well as the established interpretation thereof.

2 Chitty on Contracts, ibid at para. 19-046 at 987.

3 [1996] 1 W.L.R. 38.

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mother and administratrix of her deceased daughter, who had been killed as a
result of negligence on the part of the employee of the third defendant, who
provided a speedboat service across a lake in the People's Republic of China
(P.R.C.). A collision on the lake had resulted in two deaths by drowning, one of
which involved the plaintiff's daughter. The first defendant, a travel agent with a
registered office in Hong Kong, had contracted with the plaintiffs daughter for a
group package tour in the P.R.C., whilst the second defendant, a travel agency
based in the P.R.C. itself, was apparently responsible for the actual conduct of
the tour. 4 The plaintiff brought actions against all three defendants for breach of
contract and negligence. She succeeded at first instance against all of them, and
only the first defendant appealed to the Court of Appeal, which allowed its
appeal. 5 The Board, however, reversed this decision, allowing the plaintiff s
appeal. In summary, it held that the first defendant had undertaken to supply the
services and that, in the circumstances of the case, there was an implied term that
those services would be carried out with reasonable skill and care. On the facts,
such reasonable skill and care was lacking; in the words of the Board:

"The trip across the lake was clearly not carried out with reasonable
skill and care in that no steps were taken to see that the driver of the
speedboat [who was an employee of the third defendants] was of
reasonable competence and experience and the first defendant is
liable for such breach of contract as found by the trial judge."6

THE CENTRALITY OF CONSTRUCTION

The main issue in the case was this: did the first defendant merely promise to
"arrange" for the tour, thus taking no responsibility for any default by those who
actually provided the services 7 or did it go further, undertaking to provide for the
services, notwithstanding the fact that some of the services would be carried out
by others (here, by the second and third defendants who were located in the

4 Although there was a tour leader employed by the first defendants, it is not unsurprising
that the actual tour guide was employed by the second defendants.

5 See [1994] 1 H.K.C. 308.

6 Supra.n.3 at 46 (emphasis added).

7 Or, as the Board put it, "at most a liability to take reasonable care in the selection of
those who provided the services" - ibid.

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ON THE LIABILITY OF TRAVEL AGENTS

actual country ofthe tour itself). As has been seen, the court decided in favour of
the latter. What is involved here is, of course, no specific doctrine as such, but,
rather, the much broader concept of construction of the terms of the contract
itself, presumably arrived at on an objective basis. 8 In point of fact, however, the
possibility (at least) for uncertainty is potentially great, and the line between a
promise merely to "arrange" as opposed to a promise to undertake wholly may
often be a fine one, not least because the objective of objectivity is not, it is
suggested, wholly attainable in practice as such, given the myriad permutations
of factual circumstances. 9 The net result is a reasonable disagreement based on
differences in perception and interpretation of the same contractual terms and
their general factual matrix. In the instant case, for example, Penlington J.A. (in
the Hong Kpng Court of Appeal) was of the view that "[i[t would .....impose an
intolerable burden if the firm which put the tour package together was to be held
liable for the negligence of a transport operator in another country on the basis of
a breach of a non-delegable primary contractual duty." 10 Lord Slynn of Hadley,
who delivered the judgment of the Board, however, took a different view, stating
that even if the deceased had realized that parts of the tour would be actually
conducted by others (here, the second and third defendants), "[t]hat does not,
however, conclude the question."'!

This is a double-edged argument, since it could be argued, with equal
persuasion, it is submitted, that the fact that the first defendant was based in
Hong Kong gave rise to the inference that it was merely arranging the tour,
since, in the nature of things and, arguably, practice, the actual conduct of the
tour is undertaken by other tour agencies based in the country of the tour itself
(as was, in fact, the case here); any participation by an actual employee was

8 Supra.n.3 at 42. See also Craven et alv. Strand Holidays (Canada) Ltd.et al (1982) 40
O.R.(2d.) 186 (which was in fact cited in the instant case) and Davies v.Collins supra.n.1 at 250
per Lord Greene M.R.

9 Though cf the emphasis by certain writers on the concept of construction in the context
of common mistake: see e.g. Slade, "The Myth of Mistake in the English Law of Contract"
(1954) 70 L.Q.R. 385; Atiyah, "Couturier v. Hastie and the Sale of Non-Existent Goods" (1957)
73 L.Q.R. 340; Atiyah & Bennion, "Mistake in the Construction of Contracts" (1961) 24 ML.R.
421; and Atiyah, "Judicial Techniques and the English Law of Contract" (1968) 2 Ottawa.L.Rev.
337 (reprinted as Essay 9 in Atiyah, Essays on Contract (Clarendon, 1986).

10 Supra.n.5 at 316.

11 Supra.n.3 at 45.

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likely to be minimal (again, as was the situation in the present case). 12 However,
Lord Slynn then proceeded to draw the distinction between "arranging" and
"undertaking" mentioned above, deciding (as has been seen) that the latter had
been intended on the terms of the contract itself. Further, whilst acknowledging
the point from hardship, the learned judge was of the view that the first
defendant in the present case could have protected itself by insurance cover or by
the inclusion of an exception clause in the contract.13

It is, however, respectfully submitted that a close examination of the
contractual terms as set out in the first defendant's brochure reveals that they are
ambiguous at best; they constitute, in essence, the itinerary. 14 It is true that the
Board did refer to the heading of the brochure which read thus: "Kwan Kin
Travel Tours [i.e. the first defendant] everything more comprehensively and
thoughtfully worked out;" it was of the opinion that this heading gave "some
indication that it is the first defendant who has undertaken the task of supplying
the package tours." 15 However, this is hardly conclusive; nor, with respect, is the
Board's reference to the use of the word "we" in the itinerary persuasive since,
contrary to the Board's interpretation, it could indeed be argued that the word
was intended in a colloquial and conversational sense reminiscent of the many
travel itineraries in the region with which the present writer is familiar. 16 The
Board also referred to other particulars in the itinerary which, in its view, did not
indicate a relinquishment of responsibility on the part of the first defendant,
including the right of the same to change the means of transport. Even this last
mentioned point does not, it is suggested, necessarily entail the full assumption

12 The tour group in the present case was accompanied by a tour leader employed by the
first defendant, but, to all intents and purposes, she performed merely liaison duties, the actual
conduct of the tour being arranged (at the material time) by a tour guide employed by the second
defendants who were, of course, based in the P.R.C. itself. See also supra.n.4.

13 The reference was to an "exemption clause"; this, however, suggests an attempt to
obtain total exemption from liability, whereas the term "exception clause" would include
attempts to limit liability as well. Cf Davies v. Collins supra.n.1 at 250-251 per Lord Greene
M.R. on the role of exception clauses as an operative factor - as indicating a tendency against
sub-contracting and consequent personal undertaking, since the ambit of loss to the consumer
would otherwise be unduly extended notwithstanding the limitation of the supplier's liability.

14 See supra.n.3 at 45.

IS Ibid at 46.

16 Ibid

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of responsibility the Board attributed to the first defendant. The Board, further,
pointed to the fact that if no legal remedy was forthcoming against the package
tour operator (here, the first defendant), the plaintiff would have had to have
pursued her claim in a foreign jurisdiction (here, the P.R.C.), together with all
the difficulties such a course of action entailed. I?

Finally, it referred to regulation 15 of the U.K. Package Travel, Package
Holidays and Package Tours Regulations 1992 18 by analogy, which regulation
states, inter alia, that the organiser of a package tour "is liable to the consumer
for the proper performance of the obligations under the contract, irrespective of
whether such obligations are to be performed by that other party or by other
suppliers of services but this shall not affect any remedy or right of action which
that other party may have against those other suppliers of services." 19 However,
this only raises the issue as to whether or not something along these lines ought
to be instituted (in this case in Hong Kong).

Can it not be argued, then, that travel agencies as well as others in a similar
position can simply avoid liability by clearly specifying that it is merely
"arranging" for tours as opposed to undertaking responsibility and liability under
contract? If so, the instant case comes as a poignant lesson for travel agencies
that will not have to be experienced again in the future. The solution is not so
clear-cut; the travel agency concerned would still be liable if it were personally
negligent (in this instance, in the process of selection). 20 It could, of course,
attempt to escape or limit liability by way of an exception clause, but such a
clause would then be subject to both common law and (where applicable)
statutory rules. Indeed, in the instant case itself, the Board suggested the
possibility of expressly including such a clause. However, it should be noted that
any exception clause in the present context would have been subject to both the

17 Quaere whether this was an important (at least subconscious) factor in the Board's
deliberations.

18 S.I.1992/3288.

19 Regn.15(1)(emphasis added). Cj Regn.15(2), the primary part of which was stated by
the Board as follows: "[T]he other party to the contract is liable to the consumer for any damage
caused to him by the failure to perform the contract or im proper performance of the contract. ..",
there follow exceptional circumstances that are both reasonable and self-explanatory in nature.

20 See Clerk & Lindsell on Torts (17th.ed., Sweet & Maxwell, 1995) at para.5-46 at 193.
See also Saper v. Hungate Builders Ltd. [1972] R.T.R. 360.

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common law as well as the Control of Exemption Clauses Ordinance, 2\ which is
modelled almost entirely on the U.K. Unfair Contract Tenns Act 1977. 22 Anyone
even remotely familiar with the law relating to exception clauses will
immediately realize that an exception clause may not easily pass muster,
particularly (as in the present case) where there may be an inordinate difference
in bargaining power, a factor, incidentally, that plays a significant role in the
application of the test of reasonableness under the Act. Indeed, the test of
reasonableness is itself a veritable minefield for a party seeking to take
advantage of an exception clause, if nothing else, because of the high degree of
uncertainty surrounding the application of the test itself.23

The net result appears to be that defendants such as the one here are in a Catch
22 situation, insofar as the aim is to avoid liability altogether. On a policy level,
this may not be undesirable, since consumers are almost always likely to be in a
position of relative weakness. However, as Penlington J.A. pertinently pointed
out at the Court of Appeal stage, it is also unsatisfactory to impose a burden on a
travel agent who is not only physically providing the services in question, but
who is unable to supervise physically such provision. 24There is not, not
unexpectedly, any clear answer either way. It is suggested, however, that the
balance points in favour of the result arrived at in the instant case, but subject to
the reservations expressed below with regard to the ultimate effect of such
insurance coverage vis-a-vis the consumer. As the Board mentioned, parties in
the position of the first defendant could arrange for the requisite insurance
coverage, which could then be factored into the price charged for the tour
concerned. Such an increase in prices need not necessarily disadvantage travel
agencies if such a practice is in fact adopted industry-wide, particularly in light
of the present decision. Would there be an incentive for travel agents to seek out

2\ No.59 of 1989; now Cap.?I, Laws of Hong Kong; noted in Aitken, (1990) 20 H.K.L.J.
381.

22 Cap.50. One notable difference is the power given in s.6 of the Hong Kong Ordinance
to amend Schedules 1 and 2 of the same Ordinance by resolution.

23 See generally, Adams & Brownsword, "The Unfair Contract Terms Act: A Decade of
Discretion" (1988) 104 L.Q.R 94.

24 There was no evidence (from the report at least) that the tour leader employed by the
first defendant was intended to supply anything more than a basis liaison function: see also
supra.n.4 and n.12.

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insurance coverage? 25 It is suggested that there would be in light of the present
decision. It is, however, further suggested that insurance cover might not be, in
the final analysis, in the consumer's favour because the security of insurance
coverage would not encourage travel agents to attempt their level best to source
out other travel agents in the country of performance with the best credentials,
and not, as is conceivably the case, merely the ones with the cheapest rates.
There would, in other words, be no incentive towards the taking of more care
rather than less - the so-called "moral hazard" problem.

It is true, of course, that the consumer is theoretically better off insofar as his
or her remedy is concerned, but one might well argue that the old adage that
prevention is better than cure should be of the first importance, lest the horse be
put before the cart. However, as one writer pertinently observes, this is not so
easy to effect in practice. 26 One possibility is for the requisite adjustment of the
insurance premium in order to avoid covering the entire possible liability,
although it will, in the nature of things, be extremely difficult for the insurer to
gauge the possible extent of liability for each tour package. 27 Another possibility
is that the consumer purchases travel insurance, but the question then arises as to
why the onus should be placed on him or her. The possible counter-argument,
however, is that costs are likely to rise in any event if the travel agent obtains
insurance coverage, since as already mentioned, this additional cost will be
factored into the price charged to the consumer - although this latter approach
may, given the inevitable rise in costs, be psychologically preferable insofar as
the consumer's perception and satisfaction are concerned.

Would one further approach be for travel agents in the position of the first
defendant to obtain indemnities from travel agents and sub-contractors in the
country of performance? It is suggested that this would neither take care of the
increase in prices for the consumer, nor encourage the parties concerned to take
more care - problems already canvassed in the preceding paragraphs. The former

2S Cf Regn.19 of the UK Package Travel, Package Holidays and Package Tours
Regulations 1992 supra.n.18, para. 1 of which reads "[T]he other party to the contract shall have
insurance under one or more appropriate policies with an insurer authorised in respect of such
business in a Member State under which the insurer agrees to indemnify consumers, who shall
be insured persons under the policy, against the loss of money paid over by them under or in
contemplation of contracts for packages in the event of the insolvency of the contractor."

26 See Polinsky, An Introduction to Law and Economics (2nd.ed., Little, Brown and
Company, 1989) at 56-57.

27 Though cf the tour operator itself: see Wilsonv. Best TravelLtd [1993] I All E.R. 353.

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is not likely to take more care because it has the benefit of an indemnity upon
which to fall back. The latter is likely to take out insurance and, if so, this is
hardly likely to encourage the taking of more care unless the insurance premium
is adjusted, and this, as has been seen, is extremely difficult for the insurer to
effect. 2~ Also, the resulting increased costs will also be passed on to the
consumer; indeed, even ifno insurance is taken out, the latter will, afortiori,
levy higher charges vis-a-vis the former which would, of course, be passed on, in
turn, to the consumer.

In addition, the Board also referred to the inclusion of an exception clause. As
was also seen however, this approach is not clearly to the advantage of the travel
agency concerned, since the clause would be necessarily subject to scrutiny by
the courts along common law as well as statutory lines. It is suggested, however,
that this is the lesser of two evils, for in a scenario such as occurred in the
present case, the defendant would be in an even more intractable position. For all
the lack of certainty, the defendant might still be able to escape liability should
the exception clause pass muster, and, in any event, would have already covered
its losses via insurance, as just discussed above.29

IMPLYING TERMS

Whilst the Board held that the first defendant had undertaken to supply the
requisite services, it had to determine the scope of that duty. As has been seen, it
was of the view that a term would be implied to the effect that the services
would be carried out with reasonable skill and care, and that such skill and care
had not been exercised in the circumstances of the case. Such a term was,
presumably, implied "in fact" under the strict test of necessity. 30 Given, however,
the various possible interpretations canvassed above, it is suggested that the
successful implication in the present case was not as clear an inference as the
Board would want believed. It is suggested that it might have been preferable for

28 See ibid. & text.

29 Cf Wilson v. Best Travel Ltd. supra.n.27.

30 As to which, see the oft-cited cases of The Moorcock (1889) 14 P.D. 64 and Shirlaw
v. Southernroundries (1926) Ltd. [1939] 2 K.B. 206 affd. [1940] A.C. 701. See also, supra.n.3
especially at 4.

It is true that the language of the Board may suggest a broader term implied "in law",
but the earlier part of the judgment (where the general principle to be applied is mentioned)
suggests otherwise: see generally supra.n.3 at 44 & 47.

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the Board to have implied a term "in law" instead. 31The potential problem, of
course, is that in all future cases, a term would be, at least potentially, implied in
contracts in this category. It is, however, suggested that this would pose no real
obstacle in principle, if the distinction between merely "arranging" and "wholly
undertaking" were accepted in the first instance. Somewhat ironically perhaps,
the Board did canvass the broad problem as to whether or not such an
implication would impose an "intolerable burden" on the first defendant, an
approach that is actually more consistent with the implications of terms "in
law."32 It could, of course, be argued that this point is inconclusive insofar as the
courts have to consider broad considerations of reasonableness even with respect
to terms implied "in fact," although reasonableness is necessary but not
sufficient in and of itself for the successful implication of a term under this
particular category.

CONCLUSION

The present decision is, it is suggested, of critical importance to travel agents,
as future strategies are mapped out to deal with possible liability. As has been
seen, however, the suggestions proffered by the Board, presumably to restore a
balance to the overall situation, are not without problems, and which are
therefore necessarily present even where industry practice might already
incorporate them. The overall impact of insurance or indemnities is not as clear
as it is assumed to be, and the inclusion of exception clauses by the travel agent
is at best uncertain, and very much dependent on the ultimate interpretation of
the court in the case itself.

31 Notwithstanding possible misgivings about the entire category itself: see Phang,
"Implied Terms in English Law - Some Recent Developments" [1993] JB.L. 242.

32 See supra.n.3 at 47. See also supra.n.IO.

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