In a recent decision (Ferme & Ors v Kimberley
Discovery Cruises  FCCA 2384), an Australian
Federal Circuit Court judge has applied the Australian Consumer Law
(ACL) to strike down "unfair" ticket
terms under which cruise passengers forfeited their fares if the
cruise was cancelled.
In March 2012 Kimberly Discovery Cruises Pty Ltd (the
Company), the Respondent, cancelled cruises on board its
cruise ship, Discovery One due to Tropical Cyclone Lua
then operating off the Western Australian coast.
In purported reliance on its terms and conditions, it refused to
refund the fares paid by passengers who had already travelled to
Western Australia to join the cruise. The terms and conditions
purported to forfeit the fare paid if the Company was required to
"vary the itinerary or cancel the Cruise if the carrier
considers that this is necessary as a result of some Unexpected
Event or prevailing inclement weather conditions."
Under the ACL, a term of a consumer contract is void if the term
is unfair and the contract is a standard form
The ACL provides that a term is unfair if
it would cause a significant imbalance in the parties rights
and obligations arising under a contract; and
it is not reasonably necessary in order to protect the
legitimate interests of the party who would be advantaged by the
it would cause detriment (whether financial or otherwise) to a
party if it were to be applied or relied on.
The ACL also provides that in making a decision about fairness,
the Court must also consider the extent to which the term is
transparent, and the contract as a whole.
The Company tried unsuccessfully to argue that the contracts
with the passengers were not standard form contracts. The
contracting process was the same as in many industries. Standard
terms and conditions appeared on the company's web site and
were posted to every passenger. The Court was not satisfied that
the passengers were given any opportunity to negotiate these terms
and conditions. While the company said it would have been willing
to negotiate, it could not produce evidence of ever having done
The judge then considered whether the term was unfair within the
meaning of the ACL. Of particular relevance was the issue of the
point in time that this was to be assessed.
The Company sought to rely on the steps it took after the event
to accommodate the passengers by providing flights, tours and
accommodation, measures it said went beyond what it was
contractually obliged to do. Moreover, it used the forfeited fares
to fund these additional measures.
The judge concluded that the relevant time for considering
unfairness was the time the contract was entered into, and to
ignore actions taken after the contract was entered into.
In concluding that there was a significant imbalance, the judge
"There is nothing in the
contract that obliges the respondent to repatriate any passengers
should the cruise be cancelled. The argument relied upon the good
will of the respondent towards its customers, something that might
wax and wane."
In considering whether the term was reasonably necessary to
protect the legitimate interests of the Company, the judge
concluded that an objective approach was required and (under the
ACL) the respondent must provide some basis for determining that
the impugned term passes the test of reasonable necessity. The
judge found that the Company had not provided sufficient evidence
of the cost actually incurred prior to cancellation and had
concentrated instead on evidence of the costs it had incurred after
In relation to the third consideration, namely detriment, the
Company argued that the passengers in fact benefited from the
forfeiture because it provided the funds to allow the Company to
take remedial measures. The judge quickly rejected this argument on
the basis (as previously mentioned) that the contract did not
require the company to take these steps.
The case is a valuable illustration of the need to take care in
the drafting of standard terms to avoid unfairness. In particular,
where amounts paid under a contract are deemed forfeited before the
substantial part of the contract is performed, a respondent should
be able to demonstrate that the forfeiture is reasonably necessary
compensation for costs already incurred.
This is particularly the case if and when the
unfair contract provisions in the ACL commence to apply to
small businesses, and not just consumers.
This publication does not deal with every important topic or
change in law and is not intended to be relied upon as a substitute
for legal or other advice that may be relevant to the reader's
specific circumstances. If you have found this publication of
interest and would like to know more or wish to obtain legal advice
relevant to your circumstances please contact one of the named
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