Court of Appeal Confirms Services to be Provided under Consumer Guarantees Not Limited by Contractual Obligations

By Jack Golding, Lawyer MST Lawyers

Background

Mr Moore had booked and paid for a European river cruise run by Scenic Tours Pty Ltd (Scenic) in 2013. Due to high water levels on European rivers at the time a number of river cruises operated by Scenic (including Mr Moore’s cruise) were seriously disrupted.

The disruption meant that passengers spent very little time cruising and were instead required to spend a significant amount of time travelling by bus and had their planned schedule and sightseeing curtailed.

Prior to Mr Moore booking and paying for the cruise, Scenic had made available to Mr Moore a promotional brochure promising a once in a lifetime luxury river cruise.

However, the contractual terms and conditions which bound Mr Moore provided Scenic with the right to vary a passenger’s itinerary and substitute another vessel or bus for all or part of the cruise.

Mr Moore had sought compensation from Scenic for loss of value and damages for disappointment and distress on the basis that Scenic had failed to comply with the consumer guarantees contained in sections 60, 61(1) and 61(2) of the Australian Consumer Law (ACL). That is, statutory guarantees that the services supplied by Scenic to Mr Moore would be supplied with due care and skill, would be fit for the purpose for which Mr Moore had acquired them and would be of a nature and quality as could reasonably be expected to achieve the result Mr Moore wished them to achieve (Consumer Guarantees).

At trial, the Supreme Court of New South Wales found that Scenic had breached the Consumer Guarantees and awarded Mr Moore compensation of $10,990.00 as compensation under section 267(3) of the ACL (being the full amount paid by Mr Moore for the cruise). Mr Moore was also awarded $2,000.00 as damages under section 267(4) of the ACL for disappointment and distress.  

Scenic sought leave to appeal against the Supreme Court’s decision.

Were the ‘services’ to be provided by Scenic for the purposes of the Consumer Guarantees co-extensive with Scenic’s contractual obligations?

Scenic argued that the ‘services’ to be provided by Scenic for the purposes of the Consumer Guarantees were those that Scenic had agreed to provide and were capable of providing.

It was because Scenic could not control weather conditions and river levels that Scenic argued it had reserved for itself the contractual right to change or vary a passenger’s itinerary and to substitute another vessel or bus for all or part of the itinerary at its discretion.

The Court of Appeal rejected this argument and found that the fact that there was a contract in place between Scenic and Mr Moore did not mean that the Consumer Guarantees applied only to services that were co-extensive with Scenic’s contractual obligations. 

In other words, Scenic could not contract out of the Consumer Guarantees by entering into a contract with Mr Moore which defined the services to be provided in a manner which effectively avoided any obligation on Scenic to comply with the Consumer Guarantees.

To determine where there had been compliance with the Consumer Guarantees, the Court of Appeal stated that the first step was to identify the benefits and facilities that Scenic was to provide to Mr Moore. This required an objective assessment of the dealings between Scenic and Mr Moore to determine the services Mr Moore could reasonably expect to have been provided in return for his payment.

This assessment was not confined to the terms of the contract between Scenic and Mr Moore. Nor was it limited by any contractual limitations on Scenic’s liability for failing to provide the services for which Mr Moore had paid. 

Whether Scenic could control weather or river conditions was given little weight. Scenic was in a much better position than Mr Moore to make a timely judgement as to whether external circumstances such as river conditions were likely to disrupt the services that were to be provided. Mr Moore’s rights under the Consumer Guarantees were separate and distinct from Mr Moore’s contractual rights.

The brochure which Mr Moore read and understood before making payment set out in detail the benefits and facilities that Scenic was to provide. It identified the vessel on which Mr Moore was to enjoy the luxury cruise and promised the “sanctuary of your own private suite or stateroom”. It also specified that Mr Moore could expect to “enjoy a level of inclusive luxury service that is unsurpassed on the waterways of Europe”.

Mr Moore could reasonably expect that Scenic would provide him with the benefits and facilities as described in the brochure. The fact that if the expected benefits and facilities were not supplied Scenic’s contractual liability was or might be severely limited was distinct from the issue of the benefits and facilities Mr Moore could reasonably expect Scenic to supply by reason of his booking and payment.

What was Mr Moore’s particular ‘purpose’ within the meaning of section 61(1) of the ACL?

The Court of Appeal held that it was not necessary for Mr Moore to show that he had a more specific purpose other than simply wishing to experience the services to be supplied by Scenic in accordance with the itinerary published in the brochure.

From the dealings between Mr Moore and Scenic, Mr Moore had implicitly made it known that he was acquiring the services supplied by Scenic for the particular purpose of experiencing the cruise in accordance with the itinerary published in the brochure.

Were the services provided by Scenic fit for Mr Moore’s purpose?

The Court of Appeal found that the services Scenic supplied to Mr Moore “bore remarkably little resemblance to the itinerary set out in the brochure… for which he paid a considerable amount of money”.

Rather, “Scenic provided very little cruising but a great deal of lengthy and often uncomfortable coach travel, coupled with a seriously disrupted schedule and curtailed sightseeing”.

The disparity between the services supplied and those needed to fulfil Mr Moore’s particular purpose meant that the services supplied were not fit for purpose.

Did the services meet expectations?

The Court of Appeal upheld the finding of the Supreme Court that by booking the cruise Mr Moore was impliedly communicating that he expected the result from the services which Scenic assured him in the brochure that he would receive.

By failing to provide services of a nature and quality that might reasonably be expected to achieve that result, Scenic breached the Consumer Guarantees.

Were the services supplied to Mr Moore with due care and skill?

At trial, the Supreme Court found that the services for Mr Moore’s cruise were not provided with due care and skill because Scenic had failed to provide information to passengers on an ongoing basis as to circumstances that would reasonably be likely to cause disruptions to the scheduled itinerary. The Supreme Court also found that the services to be provided by Scenic extended to promptly notifying passengers of a decision to cancel the cruise because of circumstances beyond Scenic’s control.

The Court of Appeal disagreed and held that the failure to keep passengers informed of likely disruptions and the decision not to cancel the cruise did not constitute a failure to comply with the Consumer Guarantee to exercise due care and skill.

Was Mr Moore precluded from claiming damages for disappointment and distress?

Scenic argued that even if there had been a failure to comply with the Consumer Guarantees, Mr Moore was precluded from claiming damages for disappointment and distress. This arguement was based on section 275 of the ACL which picked up and applied section 16 of the Civil Liability Act 2005 (NSW) (CLA). This section precludes claims for damages for non-economic loss which do not exceed the threshold of 15 per cent in the most extreme cases.

The Court of Appeal accepted this argument and found that section 16 of the CLA (as applied by section 275 of the ACL) precluded Scenic’s liability to Mr Moore for damages for non-economic loss (i.e. disappointment and distress) caused by Scenic’s breach of the Consumer Guarantees. This was the case even though Scenic’s breaches occurred outside Australia.

What does the decision mean?

The Court of Appeal’s decision confirms that a party will not be able to rely on contractual provisions to avoid or limit the application of consumer guarantees under the ACL. Determining whether there has been a breach of those guarantees involves an objective assessment of the dealings between the parties and not an assessment of the terms of the contract.

The decision also clarifies the circumstances in which a claimant under the ACL is entitled to damages for disappointment and distress.

If you would like to discuss any aspect of this article further, please do not hesitate to email Mark Skermer or Jack Golding or call +61 3 8540 0200.