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Royle, Richard --- "Recent landmark decisions under the Australian Consumer Law" [2019] PrecedentAULA 49; (2019) 153 Precedent 42

RECENT LANDMARK DECISIONS UNDER THE AUSTRALIAN CONSUMER LAW

By Richard Royle

The Australian Consumer Law (ACL) is to be found under schedule 2 of the Competition and Consumer Act 2010 (Cth) (CCA). This Act replaced the Trade Practices Act 1974 (Cth) with effect from 1 January 2011.

I have restricted the review of authorities to the guarantee legislation under the ACL, which is of particular interest to the regular readers of this magazine.

SCENIC TOURS PTY LTD v MOORE (2018) NSWCA 238 (Scenic)

This case deals with a number of key issues in establishing a breach of the guarantee legislation under Division 1 Part 3-2 (ss60 and 61) of the ACL and the relationship between the ACL and state-based laws. This article comes with the caveat that special leave to appeal to the High Court has been sought by both sides on different grounds. The leave application stands part-heard in order that the applicant (plaintiff) can reformulate one ground of his appeal.^[1] The decision of the Court of Appeal is nonetheless sufficiently instructive to warrant consideration before final determination by the High Court.

David Moore was the lead plaintiff in a group representative action (class action) brought against Scenic. Mr Moore and his wife had planned the trip of a lifetime cruising along European rivers from Amsterdam to Budapest. They were attracted by the representations in the glossy brochures of Scenic that promised a relaxing and luxurious cruise aboard a single vessel.

The Court found that Mr Moore had relied on the representations. However, when the couple was scheduled to embark on the river cruise in June 2013, torrential rains caused high water levels in the river. This resulted in riverboats being unable to cruise under bridges, rendering some river locks inoperable, and thus making the rivers non-navigable.

Many cruise operators cancelled their cruises, but Scenic did not. Mr Moore and other passengers were not told of the issues until 48 hours before boarding and were not given the option to cancel. The cruise proved to be a miserable experience, with passengers shuffled around on buses and different cruise vessels. They had limited time on the water and ended up in below-standard hotels, continually having to pack and unpack throughout the trip. It was neither a luxury nor a relaxing experience. Disgruntled passengers from 13 different cruises commenced a class action.

Mr Moore alleged that Scenic had breached all the ACL statutory guarantees, being that:

• the services rendered by Scenic were not rendered with due care and skill (‘the care guarantee’ – s60);

• the services supplied, and any product from the services were not reasonably fit for the purpose made known to the supplier (‘the purpose guarantee’ – s61(1));

• the services supplied did not achieve the result made known to the supplier it may reasonably be expected to achieve (‘the result guarantee’– s61(2)).

Scenic denied liability and argued that the ‘services’ it contracted to provide were merely the right to go on a tour and that Scenic’s terms and conditions permitted it to substitute and vary the tour as necessary so long as it was to the ‘nearest possible standard’.

Scenic’s defence included an argument on causation that the plaintiffs’ damage was caused by the flooding and unseasonable weather rather than any breach by Scenic.

At first instance, the trial judge (Garling J) found inter alia, that:

• The service for which the passengers contracted, commenced at the time of booking and continued until after the disembarkation. This meant that the obligation upon Scenic included providing information and managing the booking, and extended to providing information about any disruption to the cruise and an obligation to offer an opportunity to cancel where feasible.^[2]

• The ‘service’ provided by Scenic should not be read down or qualified by any contractual terms and conditions in existence.^[3]

• There was a ‘reasonableness’ requirement in the guarantee which imposed a qualitative assessment that must be part of the overall evaluation of the services and their fitness for purpose.

In relation to damages, recovery was sought for breaches of guarantees pursuant to s267(4) of the ACL. In normal circumstances, s275 of the ACL ensures that state laws (including the Civil Liability Act 2002 (NSW) (CLA)) were picked up, thus modifying and restricting damages that were otherwise recoverable at common law. It was accepted that the proper law of the contract was NSW. However, two important issues arose.

First, Mr Moore was seeking damages for disappointment and distress. His Honour had to consider whether such damages were caught by the definition of ‘personal injury damages’ under Part 2 of the CLA.

Section 3 of the CLA defines non-economic loss as including pain and suffering and loss of amenities of life. The Court of Appeal in Insight Vacations Pty Ltd v Young concluded that:

‘I prefer the characterisation that grief, anxiety, distress and disappointment are elements of pain and suffering rather than of “loss of amenities of life” within the definition of “non-economic loss” in section 3 of the Civil Liability Act.’^[4]

The trial judge therefore felt bound by this finding. Since disappointment and distress were personal injury damages within the meaning of the CLA, Mr Moore would not be entitled to any such damages because an assessment of the disappointment and distress would be below the 15 per cent threshold imposed by s16 of the CLA.

Secondly, the trial judge considered whether the CLA applied to all actions brought in NSW or simply to events occurring in NSW. In this regard, his Honour followed the rationale of the High Court in Insight Vacations^[5] and concluded that the CLA was not intended to and did not have any extra-territorial effect and therefore Scenic’s guarantee breaches could not rely on s16 of the CLA to restrict the claim.

The Court of Appeal^[6] made a number of important findings:

The characterisation of ‘services’ under the guarantee legislation of the ACL

Justice Sackville (Payne JA and Barrett AJA agreeing) rejected Scenic’s submissions that services to be provided by Scenic were coextensive with or limited by Scenic’s obligations under the contractual terms and conditions which bound passengers. Rather, it was necessary to assess objectively the dealings between the supplier of services (Scenic) and the consumer (Mr Moore) to determine the benefits or facilities the consumer could reasonably expect the supplier to provide in return for the price paid for the cruise.^[7] However, whereas the services to be provided by Scenic to Mr Moore included all the benefits and facilities set out in Scenic’s brochure that had been made available to Mr Moore prior to booking the cruise, the primary judge had erred in finding that the services to be provided by Scenic included informing Mr Moore and other passengers before commencement of the cruise of events that might have an adverse impact on the itinerary.

In Mr Moore’s circumstances, it was open for the primary judge to find that Scenic had failed to comply with the purpose guarantee because the services provided were not reasonably fit for the particular purpose for which Mr Moore acquired them – that is, experiencing a cruise in accordance with the services and itinerary published in Scenic’s brochure.^[8] The Court of Appeal upheld the primary judge’s finding that Scenic also failed to comply with the result guarantee.

However, the Court of Appeal concluded that the primary judge erred in finding that Scenic had failed to act with due care and skill (the care guarantee) because Scenic failed to contact passengers and keep them informed of likely disruption before the commencement of the cruise. The Court of Appeal distinguished any duty to exercise reasonable care when making decisions to proceed with the cruise or exercise care in the face of information available to Scenic, with what was pleaded by Mr Moore:

‘The issue was whether the services supplied or to be supplied by Scenic to Mr Moore in advance of the commencement of Cruise 8 were supplied with due care and skill. The threshold question is therefore what services were supplied or were to be supplied by Scenic to passengers in advance of embarkation.’^[9]

The Court of Appeal held that the services Scenic was to supply did not include providing information prior to embarkation from time to time of likely disruptions to the schedules in itinerary.^[10]

Comment

The Court of Appeal decision provides a timely reminder as to the importance of identifying the actual services which are relied on in making allegations concerning the breach of consumer guarantees under the ACL. Importantly, the contract may assist in informing what services are to be provided. However, in determining what the services are:

‘This enquiry involves an examination of the dealings between Scenic and Mr Moore to determine what benefits and facilities Mr Moore, as a consumer, could reasonably expect Scenic to provide in return for payment of the charges for reservation on cruise 8.’

It is therefore important to identify what information was supplied before the contract was entered into, including representations by a travel agent, brochures, etc. They will determine the nature and extent of services to be provided.

Applicability of s16 of the CLA – does it include distress and disappointment, and does it have extra-territorial jurisdiction?

The Court of Appeal noted that s275 of the ACL has the effect of limiting or precluding liability for a breach of the term of contract for the supply of services. Thus, in normal circumstances, the CLA applies to assessing damages for breaches of the consumer guarantees.

However, the Court of Appeal reversed the trial judge’s decision and found that the CLA does have an extra-territorial operation with regard to s16 of the CLA (the non-economic loss section). This is because s11A(3) of the CLA contains a direction to courts in NSW not to award damages contrary to Part 2 of the Act. As such, s275 of the ACL picked up and applied s16 of the CLA as a surrogate federal law. There was a sufficient geographic connection with NSW because s16 is implicitly expressed to apply to a claim for damages in a NSW Court.^[11]

Comment

The transcript in the special leave application (part-heard) would suggest the High Court is interested in considering this point. The High Court has already indicated that some sections of the CLA do not have extra jurisdictional power.^[12]

It seems problematic that the Civil Liability Acts in each state are not identical so that non-economic loss damages may not be restricted in every extra-territorial claim but will be dependent on the manner in which the particular state Civil Liability Act is drafted.

Further, the Court of Appeal agreed with the primary judge that since s275 of the ACL did pick up s16 of the CLA, the liability pursuant to the ACL to pay damages for distress and disappointment was not established because such distress did not exceed the 15 per cent threshold required under s16.

It is interesting that terms such as ‘distress’ and ‘disappointment’ would come under the category of ‘injury’ under the CLA. The term ‘injury’ is defined under s11 of the CLA to include ‘impairment of a person’s physical or mental condition’. The damages part of the CLA applies to and in respect of an award of personal injury damages. ‘Non-economic loss’ is defined in s3 of the CLA to include ‘pain and suffering’.

The term ‘distress’ is normally defined as ‘severe pressure of pain, sorrow, etc, anguish; ...’^[13] ‘Disappointment’ refers to the ‘failure to fulfil a desire or expectation’. It is arguable whether, in the circumstances, these states of mind are true ‘injuries’ within the meaning of the CLA. It is to be hoped that the High Court will see fit to review this finding.

ACCC v VALVE CORPORATION (NO. 3) [2016] FCA 196 (Valve)

Valve Corporation was an overseas supplier of streamed internet video games. The product was known as ‘Steam’. There were 2.2 million subscribers in Australia who had signed up to a standard agreement where the subscribers nominated the laws of Washington State to apply. Valve was incorporated and operated in Washington State, USA.

The software was faulty, and subscribers did not get what they expected; however, Valve had a ‘no refunds’ policy that contravened the ACL for misrepresentation.

Valve was sued by the ACCC for breaches of the ACL, but Valve maintained that it did not carry on business in Australia, nor was there any ‘conduct’ in Australia. However, Edelman J of the Federal Court found that the representations made on Valve’s website and its chat logs with consumers constituted representations made in Australia.^[14]

Further, Valve argued that the ACL’s consumer law guarantees did not apply because the proper law of the contract was not Australian law. The implication to be drawn from s67 ACL was that the Consumer Law would not apply if the proper law of the contract was someplace other than Australia.^[15]

The applicability of s67 of the ACL

Importantly, Edelman J considered s67 of the ACL which addresses conflict of laws, and found that s67 did not determine the application of consumer guarantees under the ACL.

Section 67 of the ACL states:

‘Section 67 Conflict of laws

If:

(a) The proper law of a contract for the supply of goods or services to a consumer would be the law in any part of Australia but for a term of the contract that provides otherwise; or

(b) A contract for the supply of goods or services to a consumer contains a term that purports to substitute, or has the effect of substituting the following provisions for all or any of the provisions of this division:

(i) The provisions of the law of a country other than Australia;

(ii) The provisions of the law of a State or a Territory;

The provisions of this division apply in relation to the supply of the contract despite that term.’^[16]

His Honour rejected Valve’s submission that s67 should be construed as limiting the operation of Division 1. Rather, he stated that the section ensures there can be no possibility of varying the operation of the guarantee division by contractual terms.^[17]

Valve’s argument that s67 implied that the ACL would not apply if the proper law of the contract was the law of some place other than Australia was also rejected:

‘Section 67 is not a redundant part of this regime. And I do not accept Valve’s submission that s67 has no effect unless it is construed as limiting the operation of Division 1. Rather the section does exactly what it says. It ensures there can be no possibility of varying the operation of this division by contractual terms.’^[18]

His Honour went on to state that the proper test is whether Valve had carried on business in Australia despite having no corporate presence or managers, employees or agents resident in Australia. His Honour referred to six reasons why Valve carried on business in Australia. These were:

1. Valve had many customers in Australia with 2.2 million accounts and earned significant revenue from those Australian customers.

2. Steam content is ‘deposited’ on Valve’s three services that are situated in Australia at the request of the subscriber.

3. Valve had significant personal property and servers located in Australia with a retail value of $1.2m. Valve employees had travelled to Australia to configure and update those servers.

4. Valve incurred thousands of dollars per month of expenses in Australia for ‘rack space and power to its services’. The money was paid into the Australian bank account of an Australian company (Equinix).

5. Valve relied on relationships with third party members of content delivery providers in Australia.

6. Valve entered into contracts with third party service providers who provided content around the world including Australia.^[19]

Thus, Edelman J concluded:

‘For these reasons, even if Valve did not engage in conduct in Australia, the Australian Consumer Law was engaged because it was an incorporated body which was carrying on business in Australia.’^[20]

Relevantly, His Honour referred to the change in the terms of the guarantees which were effectively breaches of warranty under the Trade Practices Act, stating:

‘Given the move away from contractual implication to direct guarantees, it would make little sense if the guarantees applied (at least as regards contracts) only where the proper law of any contract of the supply was that in Australia or a part of Australia.’^[21]

The decision of Edelman J was upheld by the Full Court of the Federal Court.^[22]

Comment

Thus, Edelman J determined that it was not the contract that decided the application of the consumer guarantees under the ACL, rather it was an enquiry as to whether the provider of services was carrying on business in Australia at the material time. This decision has the effect of ensuring that any overseas company that provides services in Australia, even if it has very little presence in Australia, may be subject to the guarantee legislation of the ACL.

CONCLUSION

Both the Valve and the Scenic decisions are of particular interest to those practitioners who represent plaintiffs who have been injured while travelling overseas where they have contracted with travel companies in Australia, such as in cruise ship cases.^[23]

Richard Royle was admitted to the UK Bar in 1983 and has been practising in NSW since 1985. He specialises in tort-related matters, including international torts. EMAIL Rroyle@sirowendixon.com.au.

^[1] See transcript of High Court in David Moore v Scenic Tours Pty Ltd (Gageler & Keane JJ) [2019] HCATrans 108.

^[2] Moore v Scenic Tours Pty Limited (No. 2) [2017] NSWSC 733, [8]-[10] (Moore v Scenic Tours).

^[3] Ibid, [350] and following.

^[4] [2010] NSWCA 137, [78] (Insight Vacations v Young). This was not disturbed in the High Court appeal.

^[5] Moore v Scenic Tours, [908].

^[6] Scenic Tours v Moore [2018] NSWCA 238 (Scenic Tours v Moore).

^[7] Ibid, [174] and [176].

^[8] Ibid, [226] and [237].

^[9] Ibid, [289].

^[10] Ibid, [290].

^[11] Ibid, [387]-[391].

^[12] See Insight Vacations v Young where the High Court found that s5N (the recreational services section) did not have extra jurisdictional effect.

^[13] Definition as stated in the Concise Oxford Dictionary.

^[14] ACCC v Valve Corporation (No. 3) [2016] FCA 196, per Edelman J, [180] (Valve).

^[15] Ibid, [5].

^[16] ‘This division’ refers to the Consumer Guarantee Division.

^[17] Valve, [119].

^[18] Ibid.

^[19] Ibid, [198]-[204].

^[20] Ibid, [205].

^[21] Valve Corporation v ACCC [2017] FCAFC 224, [111].

^[22] Ibid – Special leave application to the High Court was declined.

^[23] See for instance the excellent article on these issues by Kate Lewins (Professor of School of Law, Murdoch University) in (2018) 32 A&NZ Mar LJ with particular reference to the applicability of the ACL to cruise ship passengers.