Australia: Travel Agents, Fuel Surcharges And Ticket Commissions

Last Updated: 30 July 2009
Article by Andrew Tulloch

In the case of Leonie's Travel Pty Ltd v International Air Transport Association, Qantas Airways Limited & Ors [2009] FCA 280, Justice Moore in the Federal Court of Australia was required to consider a challenge by a group of travel agents to the calculation of commissions they were paid. In particular the dispute centred on whether the agents were entitled to be paid on the assumption that airline fuel surcharges should have been called into account when calculating the payments to the agents.

Background

The proceedings were a representative proceeding under Part IVA of the Federal Court of Australia Act 1976 (Cth), the representative party and applicant being Leonie's Travel Pty Ltd. Proceedings were pursued against a number of international airlines but the parties agreed, for the purposes of simplifying proceedings, to continue against Qantas only.

The claim proceeded on two bases:

  • Firstly, an alleged breach of contract, it being argued that Qantas had failed to pay base commissions to travel agents on the fuel surcharge component of its ticket price even though it was contractually bound to do so.
  • Secondly, it was alleged that Qantas had contravened section 52 of the Trade Practices Act 1974 (Cth) by requiring travel agents to include the fuel surcharge within the 'taxes, fees and charges' descriptor on airline tickets when the fuel charge was not a tax, fee or charge.

The Contractual Claim

The travel agent (Leonie's Travel) and Qantas were parties to a written contract authorising the travel agent to sell Qantas' airline tickets, the agreement being the IATA Passenger Sales Agency Agreement (Agency Agreement). Under the Agency Agreement, various other IATA documents were incorporated in the agreement including the IATA Passenger Sales Agency Rules and the IATA Billing and Settlement Plan Rules. Section 9.4.1(a) of the Sales Agency Rules provides:

Where commission is payable to an agent, it shall be calculated only on the amount of the fares applicable to the air passenger transportation or charter price paid over to the Member. The 'fares applicable' are defined in 9.4.1(b) as 'the fares (including fare surcharges) for the transportation in accordance with the Member's tariffs and shall exclude any charges for excess baggage or excess valuation of baggage as well as all taxes and other charges collected by the Agent'.

Section 9.4.1 (b) then provides:

the 'fares applicable' are the fares (including fare surcharges) for the transportation in accordance with the Member's tariffs and shall exclude any charges for excess baggage or excess valuation of baggage as well as all taxes and other charges collected by the Agent.

Leonie's Travel contended and Qantas disputed that the fuel surcharge was a component of the applicable fare for the purposes of calculating the commission.

In the IATA Ticketing Handbook there are detailed instructions for issuing tickets and particular designator codes used in relation to various 'taxes, fees and charges'. Designator codes known as 'airline own use only' codes are used by airlines to designate other surcharges or levies that are collected by the airline for its benefit only and the YQ and YR code are 'airline own use only'.

When Qantas introduced a fuel surcharge in May 2004, it decided to use the YQ designator code. The fuel surcharge was introduced to compensate for the escalating cost of fuel. Travel agents were informed by Qantas that base commission would be paid on the fuel surcharge for Australian domestic itineraries only and the fuel surcharge was to be shown under the YQ code in the 'taxes, fees and charges' box on tickets.

For their contractual claim, Leonie's Travel relied on the UK decision of Association of British Travel Agents Ltd & Ors v British Airways PLC & Ors (2000) 2 All ER (Comm) 204 in which there was analysis of the phrase 'fares applicable' in an equivalent clause to that in Section 9.4.1(b) of the Sales Agency Rules. The case dealt with what was known as the 'Passenger Service Charge' and how that should be treated in calculating an agent's commission. In his decision in that case, being the leading decision in the Court of Appeal,

Lord Justice Clarke found that the expression 'fares applicable' should not be given too narrow a meaning, as from a passenger's viewpoint he was not interested in how the overall cost was broken down. He concluded that 'the taxes and charges were not intended to refer to contractual charges levied on the airlines by owners or operators of airports, but to refer to taxes and charges imposed by the appropriate government authority'.

Although Justice Moore in the Leonie's Travel case accepted that there was the need for a degree of international uniformity, he saw material differences between the terms of the Sales Agency Rules considered in the British Travel Agents case and those in the present. Justice Moore also regarded the comments of Lord Justice Clarke in British Travel Agents as incidental remarks which held little bearing on the decision in that case.

Qantas argued that even if the fuel surcharge formed part of the applicable fare for the purposes of Section 9.4 of the Sales Agency Rules, commission was not payable on the surcharge because clause 9 of the Agency Agreement had been engaged as a result of the announcement by Qantas that base commission would be paid on the fuel surcharge for Australian domestic itineraries only.

Clause 9 of the Agency Agreement provided:

...for the sale of air transportation and ancillary services by the Agent under this Agreement the Carrier shall remunerate the Agent in a manner and amount as may be stated from time to time and communicated to the Agent by the Carrier. Such remuneration shall constitute full compensation for the services rendered to the Carrier. (emphasis added)

Qantas also argued that the fuel surcharge never formed part of the fare for transportation in accordance with the Qantas tariff and that the fuel surcharge was another charge collected by the agent referred to in Section 9.4.1(b) of the Sales Agency Rules.

Justice Moore found that Qantas exercised its contractual right to determine the manner and amount of agent's remuneration and gave notice of the manner in which the commission was to be calculated. Accordingly, the contractual claim failed.

Trade Practices Act Claim

Leonie's Travel maintained that Qantas had engaged in misleading and deceptive conduct in contravention of section 52 of the Trade Practices Act in requiring group members to include the 'fuel surcharge' in the 'tax/fee/ charge' box on all paper tickets and in the 'taxes/charges' field on receipts through electronic tickets.

Justice Moore noted the fuel surcharge was not a tax, fee or charge imposed by government authorities. The paper ticket has terms and conditions which refer to the 'tax/ fee/charge' box on the ticket under the heading 'Notice of Government Imposed Taxes, Fees and Charges'. The electronic ticket also refers to 'Government and other Taxes and Charges' in its accompanying terms and conditions.

In these circumstances Justice Moore found that Qantas had engaged in misleading and deceptive conduct as it is likely that some members of the travelling public would have laboured under an erroneous assumption that all amounts shown were paid to a government authority or other third party but not to Qantas.

Summary

The decision is of interest for its detailed examination of the arrangements regarding travel agents' commissions. This decision did not deal with the relief that would be provided by reason of the breach of section 52 of the Trade Practices Act. No doubt with the other cost pressures facing the airline industry at present an obligation to pay damages for misleading and deceptive conduct is something the industry would rather do without. It is unlikely though that damages for the section 52 breach will be as substantial as those that would have been payable by the airlines as additional commissions if the breach of contract had been established.

© DLA Phillips Fox

DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit www.dlaphillipsfox.com

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.

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