Judgment date: 11 June 2010

Insight Vacations Pty Ltd v Young [2010] NSWCA 137

New South Wales Court of Appeal1

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 and not a State law that 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) unless the plaintiff is engaged in "recreational services" as defined in s 68B.
  • Damages for disappointment are not recoverable as a separate head of damage but come under the ambit of damages for non-economic loss under s 16 of the CLA.

Background

The plaintiff, Stephanie Young, purchased a twenty day European package tour from the defendant. As part of the tour the plaintiff was a passenger on a motorcoach travelling from Prague to Budapest. Whilst the plaintiff stood to take a highlighter from her hand luggage in an overhead compartment the coach driver slammed the breaks to avoid colliding with another vehicle causing the plaintiff to fall and sustain injuries. At the time of the accident the coach was on a motorway in Slovakia.

The plaintiff brought proceedings against the defendant in the District Court of NSW alleging that it was liable for the negligence of the coach driver either in tort or contract.

District Court Decision

Rolfe DCJ found in favour of the plaintiff in respect of her claim in contract 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. Section 74(1) provides as follows:

"In every contract for the supply by a corporation in the course of a business of services to a consumer there is an implied warranty that the services will be rendered with due care and skill..."

The defendant relied on two exclusion clauses in the contract which provided, inter alia, that it would be relieved from liability for any injury in circumstances where the plaintiff was a passenger on a motorcoach and not wearing a seatbelt. The exclusion clauses are set out as follows:

"3 In the absence of their own negligence, neither the Operators nor their agents or co-operating organisations shall be responsible for any cancellations, delays, diversions or substitution of equipment or any act or omission whatsoever by air carriers, transportation companies, hotels or any other persons providing any of the services and accommodations to passengers including any results thereof, such as changes in services or accommodations necessitated by same. Nor shall they be liable for any loss or damage to baggage or property, or for injury, illness or death, or for any damages or claims whatsoever arising from loss, negligence or delay from the act, error, or negligence of any person not its direct employee or under its exclusive control. The Operators are not responsible for any criminal conduct by third parties. 4 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 exclusions were 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).

His Honour considered the proviso to s 68 contained in s 68B 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 provides as follows:

"A term of a contract for the supply by a corporation of recreational services is not void under section 68 by reason only that the term excludes, restricts or modifies, or has the effect of excluding, restricting or modifying:

(a) the application of section 74 to the supply of the recreational services under the contract; or
(b) the exercise of a right conferred by section 74 in relation to the supply of the recreational services under the contract; or
(c) any liability of the corporation for a breach of a warranty implied by section 74 in relation to the supply of the recreational services under the contract..."

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 argued that the exclusion clauses were permitted by s 5N of the CLA which provides as follows:

"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) 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."

His Honour held that s 5N was inconsistent with s 68B as the definition of "recreational services" set out in the TPA was narrower than the definition set out s 5N because the TPA definition does not include services that are incidental to a leisure time pursuit. By reason of the constitutional inconsistency between s 5N and s 68B, his Honour held that s 5N was ineffective and that therefore the exclusion clauses were rendered void by s 68.

By reason of this finding his Honour did not deal with the plaintiff's alternative claim in tort.

His Honour awarded the plaintiff damages in the sum of $22,371 for breach of contract which consisted of a sum of $11,500 in respect of non-economic loss representing 18% of a most extreme case under s 16 of the CLA. The remainder of the award consisted of a sum of $8,000 in respect of disappointment and interest on that sum in the amount of $2,871.

Court of Appeal Decision

Leave was granted for the defendant to appeal in respect of the trial judge's findings in respect of liability and also in respect of the award of $8,000 and interest thereon for disappointment.

The court found it was not in doubt 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. The court noted that s 5K(b) defined "recreational activity" as including "any pursuit or activity engaged in for enjoyment, relaxation or leisure".

Spigelman CJ, Basten JA and Sackville AJA unanimously agreed that the exceptions contained in s 68B had no application to the facts of the case because the type of tourist travel the plaintiff was engaged in did not fall within the definition of "recreational services" contained in s 68B(2).

Basten JA rejected the defendant's ability to rely on the exclusion in clause 3 of the contract for the same reason expressed by Spigelman CJ, this being that the defendant had failed to prove that the driver was not under its "exclusive control".

Accordingly, it was unanimously agreed that liability of the defendant would be determined by whether the defendant was entitled to rely on the exclusion in clause 4 of the contract.

Sackville AJA considered whether s 74(2A) applies s 5N(1). His Honour determined that question by considering whether s 74(2A) applies a State law that by its own terms limits or precludes liability for breach of the implied statutory warranty or whether it also applies a State law that authorises the inclusion of a contractual provision that limits or precludes liability for such a breach. Agreeing with Basten JA, Sackville AJA held that s 74(2A) only applies 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) is 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 limits or precludes the full contractual liability for breach and not a State law which purports 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 or 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) limits or precludes liability for breach of the implied warranty.

Basten JA and Sackville AJA both held that s 5N(1) does 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 clause 4 of the contract purports to deny liability for the breach of the warranty where a passenger in a motor coach is injured while not wearing a seat belt and that it therefore fell within the ambit of s 5N(1). As his Honour held that s 74(2A) does not pick up or apply s 5N(1), his Honour held that clause 4 of the contract was rendered void by s 68(1)(c) of the TPA.

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.

In a dissenting judgment Spigelman CJ held that the defendant was entitled to rely on clause 4 of the contract and therefore found in favour of the defendant. His Honour held that s 74(2A) picks up a State law that "applies" to limit or preclude liability and that s 5N(1) applies 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". Therefore, an exclusion clause authorised by s 5N is not a term of a contract that purports to exclude, restrict or modify the application of s 74(1) within the meaning of s 68, and accordingly s 68 does not render such a term void.

Despite divergence in relation to the issue of the relationship between s 74(2A) and s 5N, the Court of Appeal were unanimous on the issue of the ability to recover damages for disappointment. The Court held that grief, anxiety, distress and disappointment are all elements of pain suffering and fall within the statutory definition of non-economic loss contained in s 16 of the CLA and are not recoverable as a separate head of damage. Thus the plaintiff's damages were reduced to $11,500.

Implications

Although the court unanimously held that the definition of recreational services in s 68B was irrelevant to the facts of this case, if the Court had found that the plaintiff was engaged in a recreational activity clause 4 of the contract would not have been rendered void by s 68.

A contractual term under s 5N(1) will not exculpate a recreational service provider from liability for breach of an implied warranty under s 74(1) and will be rendered void by s 68 unless the plaintiff is engaged in "recreational services" as defined in s 68B.

The TPA does not apply to recreational service providers which are not corporations. However there is a State equivalent of s 68, namely s 40M of the Fair Trading Act 1987 (NSW) which refers directly to s 5N of the CLA thereby permitting limitations on liability by way of a term of a contract. An equivalent provision in the TPA would have rendered s 68 subject to the operation of laws given effect by s 74(2A). As pointed out by Basten JA this would have avoided the problem to be decided in this case, namely the inter-relationship between ss 68 and 74(2A).

Damages for disappointment are not recoverable as a separate head of damage but come within the ambit of non-economic loss under s 16 of the CLA. Evidence of disappointment will be considered by a court when making an award under s 16 of the CLA.

This case acts as a timely reminder that damages for personal injury under the CLA may be awarded for a claim brought in contract or tort. The CLA specifically contemplates this in s 11A(2).

1 Spigelman CJ, Basten JA and Sackville AJA

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