Judgment date: 11 May 2011

Insight Vacation Pty Limited v Young [2011] HCA 16

High Court of Australia1

In Brief

  • Section 74(1) of the Trade Practices Act 1974 (Cth) (TPA) implies a warranty into contracts that services will be rendered with due care and skill.
  • A term of a contract that modifies the warranty implied by s 74(1) will be rendered void by s 68 of the TPA.
  • Section 74(2A) of the TPA only applies a State law that in its own terms restricts or precludes liability for breach of the statutory warranty, not a State law that merely authorises a contractual term which precludes or limits liability for a breach of the implied warranty. A contractual term under s 5N(1) of the Civil Liability Act 2002 (CLA) falls into the latter category and is therefore not picked up and applied by s 74(2A).

Background

The plaintiff, Stephanie Young, purchased a European Tour package from the defendant, Insight Vacation Pty Limited, in February 2005. In October 2005, the plaintiff, while travelling by coach from Prague to Budapest, got out of her seat to get something from her bag, when the coach braked suddenly causing the plaintiff to fall backwards and suffer injury. The contract between the parties included the following exclusion clause that the defendant sought to rely on:

"Where the passenger occupies a motorcoach seat fitted with a safety belt, neither the Operators nor their agents or co-operating organisations will be liable for any injury, illness or death or for any damages or claims whatsoever arising from any accident or incident, if the safety belt is not being worn at the time of such accident or incident."

The plaintiff argued that the exclusion clause was rendered void by s 68(1)(c) of the TPA which renders void any term of a contract that purports to exclude, restrict or modify or has the effect of excluding, restricting or modifying liability of a corporation for breach of a warranty implied by the TPA, including the warranty implied by s 74(1) that "services will be rendered with due care and skill ...".

In response the defendant argued that s 68B applied, which provides that a term is not void under s 68 by reason of the fact that it excludes, restricts or modifies the application of s 74 to "recreational services".

Section 68B(2) contains the following definition of "recreational services":

"recreational services means services that consist of participation in:

(a) a sporting activity or a similar leisure-time pursuit; or

(b) any other activity that:

(i) involves a significant degree of physical exertion or physical risk; and

(ii) is undertaken for the purposes of recreation, enjoyment or leisure."

The defendant also argued that the exclusion clause was permitted by s 5N of the CLA which provides:

"5N Waiver of contractual duty of care for recreational activities

(1) Despite any other written or unwritten law, a term of a contract for the supply of recreation services may exclude, restrict or modify any liability to which this Division applies that results from breach of an express or implied warranty that the services will be rendered with reasonable care and skill.

(2) Nothing in the written law of New South Wales renders such a term of a contract void or unenforceable or authorises any court to refuse to enforce the term, to declare the term void or to vary the term.

(3) A term of a contract for the supply of recreation services that is to the effect that a person to whom recreation services are supplied under the contract engages in any recreational activity concerned at his or her own risk operates to exclude any liability to which this Division applies that results from breach of an express or implied warranty that the services will be rendered with reasonable care and skill.

(4) In this section, recreation services means services supplied to a person for the purposes of, in connection with or incidental to the pursuit by the person of any recreational activity.

(5) This section applies in respect of a contract for the supply of services entered into before or after the commencement of this section but does not apply in respect of a breach of warranty that occurred before that commencement.

(6) This section does not apply if it is established (on the balance of probabilities) that the harm concerned resulted from a contravention of a provision of a written law of the State or Commonwealth that establishes specific practices or procedures for the protection of personal safety."

Section 5K of the CLA contains an inclusive definition of "recreational activity" which provides, relevantly:

"5K Recreational activity includes:

...

(b) any pursuit or activity engaged in for enjoyment, relaxation or leisure ..."

The defendant relied on s 74(2A) of the TPA to render s 5N effective. Section 74(2A) provides as follows:

"If:

(a) there is a breach of an implied warranty that exists because of this section in a contract made after the commencement of this subsection; and

(b) the law of a State or Territory is the proper law of the contract, the law of the State or Territory applies to limit or preclude liability for the breach, and recovery of that liability (if any), in the same way as it applies to limit or preclude liability, and recovery of a liability, for breach of another term of the contract."

District Court Decision

The primary judge, Rolfe DCJ, found in favour of the plaintiff and awarded her damages in the sum of $22,371 (although an allowance for "disappointment" was subsequently overturned on appeal), on the basis that the defendant breached its duty to act with reasonable diligence, care and skill in carrying out the services under the contract as implied by s 74 of the TPA.

In finding for the plaintiff, his Honour held that s 5N of the CLA was inconsistent with s 68B of the TPA as the definition of "recreational services" in the TPA was narrower and did not include services that are incidental to a leisure time pursuit. By reason of the inconsistency between s 5N and s 68B, his Honour held that Commonwealth law prevailed and that s 5N was ineffective. Therefore the exclusion clause was rendered void by s 68.

Court of Appeal Decision

The Court unanimously agreed that liability of the defendant would be determined by whether the defendant was entitled to rely on the exclusion clause.

The Court found that the plaintiff was engaged in a recreational activity and that the defendant was supplying the plaintiff with "recreation services" for the purposes of s 5N of the CLA. However the Court also unanimously agreed that the type of tourist travel the plaintiff was engaged in did not fall within the definition of "recreational services" contained in s 68B(2) of the TPA and therefore s 68 would under the exclusion clause be void, unless s 74(2A) had some application.

Sackville AJA considered whether s 74(2A) applied to render s 5N(1) effective. Agreeing with Basten JA, Sackville AJA held that s 74(2A) only applied State laws that by their own terms limit or preclude liability for breach of the implied warranty. His Honour further held that s 74(2A) was contingent on a breach of an implied warranty and not merely an allegation of breach of an implied warranty. As such s 74(2A) only applies a State law which limited or precluded the full contractual liability for breach, and not a State law which purported to negate the very existence of the statutory warranty.

Having found that s 74(2A) does not pick up a State law that does not purport to exclude or authorise a term excluding the implied statutory warranty, but merely one which limits or precludes liability for breach of the warranty, Sackville AJA went on to consider whether s 5N(1) limited or precluded liability for breach of the implied warranty. Basten JA and Sackville AJA both held that s 5N(1) did not purport to exclude the warranty implied by s 74(1) or permit parties to a contract to exclude the implied warranty. Rather, their Honours held that s 5N(1) allows a contract to include a term that excludes or limits liability for breach of the implied warranty.

Sackville AJA found that the exclusion clause purported to deny liability for the breach of the warranty where a passenger in a motor coach was injured while not wearing a seat belt, and that it therefore fell within the ambit of s 5N(1). However, his Honour held that s 74(2A) did not allow s 5N(1) to operate and the statutory warranty in s 74 continued to apply. The exclusion clause was rendered void by s 68(1)(c) of the TPA.

In a dissenting judgment, Spigelman CJ held that the defendant was entitled to rely on the exclusion clause and therefore found in favour of the defendant. His Honour held that s 74(2A) picks up a State law that "applied" to limit or preclude liability and that s 5N(1) applied to limit or preclude liability, within the meaning of s 74(2A), by stating that a term of a contract limits or precludes liability "despite any other written or unwritten law". Accordingly the primary judge's finding that the defendant was liable to the plaintiff for breach of the implied warranty under s 74(1) was upheld.

High Court Decision

The unanimous Court identified four questions for determination as follows:

  1. Is s 74(2A) of the TPA a law which picks up and applies, as surrogate Federal law, the State laws which meet the description given in that sub-section?
  2. If "yes" to 1, is s 5N of the CLA a law which meets the description given in s 74(2A) and is thus picked up and applied?
  3. If s 5N does meet the description given in s 74(2A), does it apply to a contract, such as that in issue in this case, for the supply of recreation services where the supply is to occur outside NSW?
  4. If s 5N is engaged, and if in consequence the defendant may rely on its exemption clause, does that clause operate, on its proper construction, as an answer to the plaintiff's claim?

In relation to the first two questions, the Court held that although s 74(2A) of the TPA does pick up and apply certain State laws as surrogate Federal laws, s 5N of the CLA was not a law of a kind picked up and applied by s 74(2A). The Court held that s 5N does not itself provide any exclusion, restriction or modification of liability, rather it permits parties to contract for the exclusion, restriction or modification for liability. In coming to this conclusion the High Court found as follows:

"Both s 68A and s 68B dealt directly with a term of a Contract (where the term meets certain criteria). By contrast, s 74(2A) dealt with a State or Territory law which satisfies relevant criteria. In these circumstances, s 74(2A) should not be construed as picking up and applying as a surrogate Federal law a provision, such as s 5N of the Civil Liability Act, which in its terms does not limit or preclude liability for breach of Contract. In terms, s 5N does no more than permit the parties to certain Contracts to exclude, restrict or modify certain liabilities and limit the operation of any other part of the written law of NSW that would otherwise apply to avoid or permit avoidance of such a term. That is not a law of the kind described in s 74(2A) of the TPA. Section 68 therefore operated to render the exemption clause void in so far as the clause applied to the warranties implied by s 74."

The Court stated that this in itself would be reason enough to conclude that the appeal should be dismissed. However the Court also went on to state that s 5N of the CLA did not apply to the particular contract in any event as the reference to "a term of a Contract for the supply of recreation services" should be read as subject to a geographical limitation to its application, and that although the contract was governed by the law of NSW, it was to be performed wholly outside the State.

Finally the Court also held that notwithstanding the other issues referred to above, in any event the exclusion clause only applied "where the passenger occupies a motor coach seat fitted with a safety belt". In the opinion of the Court the purported exclusion clause should therefore be read as referring only to times when the passenger was seated, and not to times when the passenger stands up to move around the coach or to retrieve some item from an overhead shelf as occurred on this occasion.

For the above reasons the appeal was dismissed with costs.

Implications

The High Court agreed with the Court of Appeal and found that while s 74(2A) of the TPA picks up and applies certain State laws as surrogate Federal laws, s 5N of the CLA was not a law of a kind picked up and applied by s 74(2A).

In any event, the High Court found that s 5N only applied to contracts for the supply of services geographically in NSW, and while the contract was governed by NSW law the Insight travel tour was overseas and thus s 5N had no application in the circumstances of this case.

The High Court also confirmed that it will interpret words in exclusion clauses in accordance with their ordinary meaning and thus found that the clause would not have applied in any event as the clause only applied to times when a passenger occupied a seat, and not to times when a passenger stands up to retrieve some item from an overhead shelf.

It will be very interesting to see whether State based proportionate liability provisions will be picked up by s 74(2A) of the TPA and applied as surrogate Federal law, at least to breaches of statutory warranties, such as the supply of services with due care and skill.

1 French CJ, Gummow, Hayne, Kiefel and Bell JJ