Australia: Interpreting Inconsistent Contract Terms And Multi –Document Contracts

The issue of how a contract should be construed when it contains inconsistent provisions was recently examined in Leonie's Travel Pty Ltd v International Air Transport Association [2009] FCA 280. The case also considered the way matters contained in extrinsic material can be treated as misleading and deceptive conduct under the Trade Practices Act 1974 (the TPA).

FACTS

In these proceedings a group of travel agents challenged the calculation of commissions they were paid. Central to the dispute was whether the agents were entitled to be paid on the assumption that an amount paid by passengers as a fuel surcharge should have been called into account when calculating the payments to the agents.

Leonie's Travel Pty Ltd (representing the travel agents) (Leonie's Travel), brought proceedings against, amongst others, Qantas Airways Limited (Qantas). Leonie's Travel claimed:

• Breach of contract, in that since May 2004, Qantas failed to pay base commission to travel agents on the fuel surcharge component of ticket prices.
• Contravention of section 52 of the TPA, in that, requiring agents to include the fuel surcharge within the 'taxes, fees and charges' descriptor on airline tickets, was misleading because, in fact, the fuel surcharge was not a tax, fee or charge.

BREACH OF CONTRACT CLAIM

Contractual Documents

The central document in the dispute was the standard form Passenger Sales Agency Agreement (Agency Agreement) which incorporated additional provisions from external documents to form part of the contract between the agent and the airlines.

Clause 2.4 of the Agency Agreement deals with the relationship between the express terms of the Agency Agreement and those incorporated and provides:

Also of significance is clause 9 of the Agency Agreement ('Remuneration'), which provides:

At the cornerstone of the dispute was the Agents' remuneration, which was dealt with in far more detail in the Sales Agency Rules than in the actual Agency Agreement, and formed part of the contract between agents and airlines as it was incorporated in an external document. Section 9 of the Sales Agency Rules ('Conditions for Payment of Commission or Other Remuneration') provides:

Critical to this case is the meaning of the phrase 'fares applicable'. The applicant contended, and Qantas disputed, that the fuel surcharge was a component of the applicable fare for the purposes of calculating commission.

The Court was required to construe the provisions having regard to the entire contract between Qantas and Leonie's Travel, and the interaction between clause 9 of the Agency Agreement and section 9 of the Sales Agency Rules, which is incorporated into the Agency Agreement. Ultimately, the question for the Court was: are they inconsistent and, if so, what did the parties intend and how should any inconsistencies be resolved?

Previous Cases

In resolving inconsistent provisions in and between contract documents, there are some general rules from previous cases. These include the following principles taken from GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR1 at 306 (GEC):

• If specifically tailored terms contradict standard terms, the specifically tailored terms will prevail over the standard terms.
• Effect is given to that part of an agreement 'which is calculated to carry into effect the real intention of the parties as gathered from the instrument as a whole, and that part which would defeat it must be rejected'.

Also from Ford Motor Company of Australia Limited v Arrow Crest Group Pty Ltd [2002] FCA 1156 at 8:

In this case, the judgment went on to assess whether either or both the primary contractual document, and another incorporated into it, were a standard form document, as specific documents are always given priority over standard form agreements.

The judgment then raised the question of whether there was, in truth, a conflict between the two contractual provisions at all. In that respect, the judge referred to the England and Wales Court of Appeal decision in Pagnan SpA v Tradax Ocean Transportation SA [1987] 3 ALL ER 565 (Pagan), where it was concluded:

In that regard, if the clauses cannot be read together, there is inconsistency and a special condition is to prevail over the other clause in the printed form. If, however, they can be read together, they should be and there is no inconsistency.

The Decision

Justice Moore stated the starting point is whether the terms of clause 9 of the Agency Agreement, viewed in isolation, confer a contractual right on an airline to determine the manner and amount paid to an agent as remuneration. If the answer is yes, the next question is whether, section 9 of the Sales Agency Rules limits the remuneration rights of an airline, and does not do so in a way that causes 'conflict, contradiction or inconsistency'.

Clause 9 imposes an obligation on the airline to remunerate the agent and impliedly confers a right on the agent to receive payment. However, both the obligation and the right concerns remuneration 'in a manner and amount' communicated by the airline to the agent. Justice Moore stated that the clause was intended to give the airline flexibility in relation to how agents are remunerated.

Section 9.4 of the Sales Agency Rules, addresses situations where the method of remuneration is made up of a percentage of the value of the transaction. Significantly, section 9.4.1(a) speaks of the commission being 'calculated only on the amount of the fares applicable' and section 9.4.1(b) goes on to identify the amounts that are not to be taken into account when calculating the commission. The use of the word 'only' makes it significantly less obvious that the section was intended to be a contractual direction to an airline to accept the deduction of commission calculated in a particular way, under the airline's otherwise general contractual right to determine the manner and amount of remuneration. As a result, section 9.4 limits what the agent can deduct when complying with its contractual obligations to remit to the airline amounts paid to the agent for air transportation.

With all that said, there was no conflict, contradiction, or inconsistency as the Agency Agreement obliges an agent to remit to the airline moneys received with the qualification that commission or other remuneration to which the agent is entitled can be deducted. A commission or other remuneration is the amount arising from the airline's determination of the method and amount in accordance with clause 9 of the Agency Agreement. Section 9.4 of the Sales Agency Rules simply identifies what is not to be taken into account when the agent calculates commission.

Therefore, the clauses in the Agency Agreement and the incorporated clauses from the Sales Agency Rules were able to be 'sensibly read together'.

Accordingly, there was no breach of contract by Qantas in the way it denied the travel agents the right to claim commission on the fuel surcharge.

TRADE PRACTICES ACT CLAIM

The second limb of the applicant's claim was a claim that Qantas engaged in misleading and deceptive conduct in contravention of section 52 of the TPA. This claim can be summarised as follows: Qantas, in 2004 notified its group of agents that it was introducing a fuel surcharge and that it would appear under a special box in the 'tax/fee/charge' box on all tickets.

The Decision

This conduct was held to be misleading and deceptive given that, in truth, the fuel surcharge was not a tax, fee or charge. The words 'Tax/Fee/Charge' (that appear on paper tickets), and the words 'Taxes/Charges' (that appear on electronic tickets) are generally understood to mean, in the context of an air ticket, a sum of money collected by an agent for payment to a government authority. This was clearly not the case with the fuel surcharge component.

Justice Moore stated that it is the publication of the ticket to the passenger that perfects or completes the misleading or deceptive conduct.

Justice Moore concluded that it is likely that members of the travelling public who had purchased tickets issued on behalf of Qantas might have been led to believe that amounts designated as 'taxes/fees/charges' or 'taxes/ charges' were only made up of components of the character described in the terms and conditions. One such amount is the fuel surcharge, which was not of that character. His Honour went on to say that it is likely that some members of the travelling public would have wrongly assumed that the amounts that had been designated as 'taxes/fees/charges' or 'taxes/charges' do not include an amount that would be paid to Qantas rather than to a government authority or some other third party.

SUMMARY

In drawing useful lessons from the recent case of Leonie's Travel, drafters need to keep in mind the real meaning of inconsistency when considering inconsistent provisions to a contract.

Inconsistency means that two clauses cannot sensibly be read together and, in fact, might qualify one another. Where clauses merely deal differently with the same or a similar issue they may not necessarily be inconsistent, such that both may be used to interpret the document, leading to unintentional consequences.

Finally, this case is also a useful reminder that while a party may have contractual freedom to determine rights and obligations, parties must be ever watchful of misleading and deceptive conduct.

© DLA Phillips Fox

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This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.