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High Court of Australia |
QANTAS AIRWAYS LIMITED v ARAVCO LIMITED
F.C. FC 96/018
Number of pages - 18
Trade practices
[1996] HCA 12; (1996) 185 CLR 43
HIGH COURT OF AUSTRALIA
BRENNAN CJ(1), GAUDRON(1), McHUGH(1), GUMMOW(1) AND KIRBY(2) JJ
CATCHWORDS
Trade practices - Consumer protection - Supply of services - Contractual indemnity - Implied statutory warranty of "due care and skill" - Whether indemnity has the effect of modifying liability under warranty - Trade Practices Act 1974 (Cth) s 74(1).
Words and phrases "effect" - "modify".
Trade Practices Act 1974 (Cth) ss 68, 68A, 74(1).
HEARING
CANBERRA, 22 April 1996ORDER
1. Appeal allowed.3. The respondent pay the appellant's costs in this Court.revision prior to publication in the Commonwealth Law Reports.
Notice: This copy of the Court's Reasons for Judgment is subject to formal
DECISION
BRENNAN CJ, GAUDRON, McHUGH AND GUMMOW JJ. The question in this appeal is whether s 68 of the Trade Practices Act 1974 (Cth) ("the Act") makes void a contractual term which required the respondent ("Aravco") to indemnify the appellant ("Qantas") against all liabilities incurred by Qantas arising out of or in any way connected with the performance of services by Qantas to Aravco.
Factual background
2. Qantas entered into a contract with Aravco to perform certain services in
relation to an aircraft operated by Aravco but owned
by BAT Industries Plc
("BAT"). As a result of Qantas' negligence, the aircraft suffered damage.
Subsequently, BAT sued Qantas in
the Supreme Court of New South Wales for the
damage to the aircraft. Qantas admitted liability for the damage, but, by a
cross-claim,
it sought indemnity from Aravco for the damages that it had to
pay to BAT. Qantas' claim for indemnity was based on cl 4 of its contract
with
Aravco.
3. Clauses 4 and 7 of the contact between Qantas and Aravco provided:
"4. The Operator agrees regardless of any negligence on the part ofQantas to release, hold harmless and indemnify Qantas from and against all liabilities, claims, damages, losses, costs and expenses of whatever nature, howsoever occurring which may accrue against or be suffered by Qantas arising out of or in any way connected with the performance of the said services unless caused by wilful misconduct on the part of Qantas or any of its servants or agents acting within the scope of their employment."
"7(1) Pursuant to S 68A of the Trade Practices Act 1974 this clauseapplies in respect of any of the goods or services supplied under this contract which are not of a kind ordinarily acquired for personal, domestic or household use or consumption, provided that this clause will not apply if the customer establishes that reliance on it would not be fair and reasonable.
(2) Liability for breach of a condition or warranty implied intothis contract by the Trade Practices Act 1974 other than a condition implied by S 69 is limited to -
...
(B) In the case of services, any one of the following as determinedby Qantas:
(i) the supplying of the services again; or
(ii) the payment of the cost of having the services supplied
again."
4. By par 9 of its defence to the cross-claim, Aravco pleaded that "there was
a statutory implied term of the agreement, by force
of s 74(1) of the Trade
Practices Act, that such services as (Qantas) might provide to (Aravco) would
be rendered with due care and
skill". Paragraph 10 of the defence
provided:
"Such provisions of the agreement as are inconsistent with thestatutory implied term pleaded in paragraph 9 hereof, including the indemnity clause upon which (Qantas) relies, are void by operation of s 68 of the Trade Practices Act."
5. Sections 68 and 74(1) are contained in Div 2 of Pt V of the Act. So far
as relevant, they provide:
"68 (1) Any term of a contract (including a term that is not setout in the contract but is incorporated in the contract by another term of the contract) that purports to exclude, restrict or modify or has the effect of excluding, restricting or modifying:
(a) the application of all or any of the provisions of thisDivision;
(b) the exercise of a right conferred by such a provision;warranty implied by such a provision; or
(c) any liability of the corporation for breach of a condition or
(d) the application of section 75A;is void.
(2) A term of a contract shall not be taken to exclude, restrict ormodify the application of a provision of this Division or the application of section 75A unless the term does so expressly or is inconsistent with that provision or section."
"74 (1) In every contract for the supply by a corporation in thecourse of a business of services to a consumer there is an implied warranty that the services will be rendered with due care and skill and that any materials supplied in connexion with those services will be reasonably fit for the purpose for which they are supplied."
6. Qantas does not dispute that, as a result of s 74, its contract with
Aravco contained a warranty that it would exercise due care
and skill. Nor
does it dispute that in damaging the
aircraft it breached that warranty. But
it contends that neither its cross-claim
nor the defence of Aravco to that
cross-claim was
relevantly concerned with a breach of that warranty. Qantas
points out that Aravco
has not sued it for breach of the warranty or
pleaded
the breach as an answer to Qantas' claim for indemnity.
7. If Aravco had sued for breach of the warranty, Qantas concedes that, by
reason of s 68, cl 4 would not be an answer to Aravco's
suit. In that event,
however, Qantas contends that, subject to the effect of s 68A (1) of the Act,
cl 7 would operate (2) to reduce
its liability to "the payment of the cost of
having the services supplied again" (3). The charge
for the services supplied
by Qantas
to Aravco was about $5,000. Consequently, that sum would represent
the limit of Qantas' liability
if it was sued for breach of the
s 74 warranty.
Moreover, Qantas points out that, because Aravco was the operator and not the
owner of the plane, the damages payable
for
breach of the s 74 warranty might
be less than $5,000. They might be no more than nominal.
8. If Aravco had pleaded breach of the warranty by way of defence to Qantas'
cross-claim so as to avoid circuity of action (4),
Qantas concedes that the
breach would be a prima facie defence, forcing it to rely on cl 7 by way of
reply.
9. Qantas contends, therefore, that cl 4 of the contract did not in any
relevant respect purport to exclude, restrict or modify
or have the effect of
excluding, restricting or modifying the s 74 warranty or any of the matters
referred to in s 68(1)(a) to (c)
of the Act.
10. At first instance, Giles J upheld Qantas' contention. His Honour ordered
entry of judgment for BAT against Qantas for damages
to be assessed. A
declaration was made that Qantas was entitled to an indemnity from Aravco in
respect of the liability of Qantas
to BAT pursuant to the judgment against
Qantas, the indemnity being in the amount of such damages as might, in due
course, be assessed
pursuant to further orders of the Court. His Honour
said:
"The term that (Aravco) will indemnify (Qantas) against liabilityto third parties is not inconsistent with s 74(1). (Aravco) can still bring proceedings against (Qantas) for breach of the warranty implied pursuant to s 74(1), its loss being the amount of any liability to the plaintiff or possibly any liability which it otherwise incurs in relation to the repair of the damage to the aircraft. That can stand with (Qantas') entitlement to indemnity from (Aravco) for its, (Qantas'), liability to the plaintiff. The indemnity does not exclude, restrict or modify, or have the effect of excluding, restricting or modifying, the application of s 74(1) in relation to the contract embodied in the Note, the exercise of a right conferred by s 74(1) ... or any liability of (Qantas) for breach of that warranty."
11. But a majority of the New South Wales Court of Appeal (Sheller and Powell
JJA, Mahoney AP dissenting) allowed Aravco's appeal
(5), holding that cl 4 had
the effect of modifying Qantas' liability for breach of the warranty of due
care and skill implied by
s 74.
12. In our opinion, the contentions of Qantas are correct and the judgment of
Giles J should be restored. The s 74 warranty was
not relevant to the claim
Qantas made against Aravco. If Qantas' cross-claim succeeded, it would obtain
an indemnity
from Aravco
pursuant to the provisions of cl 4 of their contract.
But obtaining that indemnity did not affect Qantas' liability to
Aravco for
breach of the warranty implied in the agreement by s 74 of the Act. Nor did
obtaining that indemnity from Aravco exclude, restrict,
modify or have the
effect of excluding, restricting or modifying
any of the matters set out in s
68(1)(a) to (c) of the Act.
13. If it had wished to do so, Aravco could have answered Qantas' claim for
indemnity under cl 4 with a cross-claim of its own for
damages for breach of
the s 74 warranty. The damage flowing from the breach of the warranty would
have included the amount for which
it was liable to reimburse
Qantas under the
indemnity clause. No doubt Qantas would have pleaded cl 7 by way of defence
to the cross-claim
so as to limit its
liability, forcing Aravco to rely on s
68A(2) and contend that it was not "fair or reasonable" for Qantas to rely
on
that clause. In that event, the amount payable by one party
to the other
would ultimately have depended on whether it was fair
or reasonable for Qantas
to rely on cl 7.
14. If Aravco had lodged a cross-claim, it may have obtained damages equal to
or greater (6) than the amount of the indemnity that
it had to pay Qantas
under cl 4, provided that the Supreme Court held that it was not fair or
reasonable for Qantas to rely on cl
7. On the other hand, if that Court held
that it was fair or reasonable for Qantas to rely on cl 7, Qantas would have
recovered
an indemnity of $1m from Aravco on its cross-claim and be liable to
Aravco on the latter's cross-claim but only for "the payment
of the cost of
having the services supplied again" (7), a figure of approximately $5,000.
That result would flow from the operation
of cl 7 of the contract, not cl 4.
It would be cl 7 that had the effect of restricting or modifying the liability
of Qantas for breach
of the s 74 warranty, and, ex hypothesi, that restriction
or modification would be authorised by s 68A.
15. However, Aravco did not cross-claim for damages for breach of the s 74
warranty. Nor did it attempt to plead the facts of such
a cross-claim by way
of defence to Qantas' cross-claim so as to avoid circuity
of action (8). The
meaning of pars 9 and 10 of its
defence is no doubt obscure, but neither
provision alleged any breach of the
implied warranty. Aravco contended that
this defence
asserted that cl 4 had the "effect" of "modifying" the liability
of Qantas
for breach of the warranty implied by s 74(1) because,
without cl 4,
Qantas and not Aravco would be solely liable for the damage to BAT's aircraft.
But the fallacy of this assertion
is
obvious. Absent a breach of the
statutory warranty, cl 4 entitles Qantas to be fully indemnified by Aravco for
all liability
arising
out of the performance of the services. Yet Aravco has
never pleaded a breach of the warranty either by way of cross-claim
or as
a
plea to avoid circuity of action. If it had, cl 4 would not have been a
defence or reply although cl 7 might have been a
partial
answer to the
cross-claim or defence. It was therefore essential that breach of the s 74
warranty be pleaded if Aravco was to have
a defence to or set-off against
Qantas' claim for indemnity.
16. Sheller JA, with whose judgment Powell JA agreed, said (9):
"In the present case the implied warranty is that Qantas wouldrender the service of taking care of the aircraft with due care and skill. As it happened the aircraft to which this service was to be rendered was not the operator's but a third party's. Qantas was in breach of the warranty by negligently damaging the very subject matter of it. The intention of the statutory warranty was that Qantas, the supplier, should be liable for that breach to Aravco, the consumer. If Qantas failed to care for the aircraft with due care and skill it was under an obligation to compensate Aravco for its failure. However Qantas, upon its breach of the warranty, relied upon cl 4, read down in the way I have suggested, to make Aravco liable to Qantas. Clause 4 applied to require Aravco to compensate Qantas for Qantas' breach. So understood it seems to me plain that the term has the effect of modifying the liability of Qantas for breach of the warranty. Accordingly, in my opinion, cl 4 even so read is void, that is to say devoid of legal effect."
17. With great respect to the learned judges of the Court of Appeal, the
matter that makes it "plain that the term has the effect
of modifying the
liability of Qantas for breach of the warranty" is not readily apparent. As
we have pointed out, cl 4 required
Aravco to indemnify Qantas for the latter's
liability to BAT. But giving effect to that indemnity has no impact on the
liability
of Qantas to Aravco for breach of the s 74 warranty. If by "Qantas'
breach" in the third last sentence of the above quotation, the
learned judges
of the Court of Appeal were
referring to the breach of the s 74 warranty,
their Honours were in error. BAT sued Qantas
for breach of a common law duty
of care that Qantas owed to BAT, not for
the breach of the s 74 warranty that
Qantas gave to Aravco.
If, on the other hand, the majority judges in the
Court of Appeal in referring to "Qantas'
breach" meant Qantas' breach of its
common
law obligation to BAT, then, ex hypothesi, cl 4 was seeking an
indemnity for that breach
and not the breach of the s 74 warranty.
18. The legal effect of the Act on the present litigation depends entirely on
the true analysis of the issues which were joined
between Aravco and Qantas.
Nothing
turns on the construction of the Act once the critical distinction is
made between the liability
of Aravco to Qantas under cl 4 (which was in issue
in the cross-claim)
and the liability of Qantas to Aravco for breach of the s
74 warranty (which was not in issue). Section 68 by the express terms of
sub-s (1)(c) applies only to liability for breach of the
s 74 warranty. It
was the failure to make that distinction which led the majority of the Court
of Appeal into the error of saying
that
it was "plain that the term has the
effect of modifying the liability of Qantas for breach of the warranty".
19. What is involved in the way Aravco has pleaded its defence in pars 9 and
10 is no mere matter of form. The reasoning of the
Court of Appeal in holding
that those paragraphs are an answer to Qantas' claim for indemnity has altered
the substantive rights
and liabilities of the parties. That reasoning has
deprived Qantas of the right to rely on cl 7 as an answer to breach of the s
74 warranty even if, within the meaning of s 68A(2), it is fair and reasonable
for Qantas to rely on cl 7. In other words, the reasoning
of that Court takes
away from Qantas a right
that, subject to the issues of fairness and
reasonableness, is authorised by s 68A and
which is independent of the right
that cl 4 purports to confer. Moreover, as Mr Emmett QC, for Qantas, pointed
out in argument,
the reasoning of the Court of Appeal has different results
for Aravco and Qantas depending on whether BAT decided to pursue its rights
against Aravco or decided to pursue its rights against Qantas. If BAT had sued
Aravco for breach of a contractual duty to return
the plane in good order and
condition and Aravco had then cross-claimed against Qantas for breach of the s
74 warranty, cl 4 would
have been no answer to the cross-claim. However,
Qantas could have relied on cl 7. Unless s 68A(2) of the Act struck down cl 7,
Qantas' total liability for the damage to the aircraft would have been limited
to no more than $5,000. But because
BAT elected to
sue Qantas instead of
Aravco, the reasoning of the Court of Appeal leads to the anomalous result
that Qantas could
now be liable
for damages of approximately $1m and has no
rights against Aravco.
20. In our opinion, neither the s 74 warranty nor the s 68 restriction had
any relevance to the cross-claim that Qantas brought
against Aravco. Section
68 did not make void Aravco's liability under cl 4 to indemnify Qantas against
its liability to BAT. Qantas
was therefore entitled
to an indemnity from
Aravco for that liability. If Aravco wishes to sue Qantas for breach of the s
74 warranty,
it can still do so. Subject to any argument about the effect of
the Anshun (10) doctrine, the obtaining of the indemnity
has no
effect on
Aravco's right to sue for breach of that warranty. But if Aravco does sue, it
may have to meet a defence based
on cl 7.
21. The appeal should be allowed, the orders of the New South Wales Court of
Appeal should be set aside, and the orders of Giles
J should be restored.
Aravco should pay the costs of Qantas in the Court of Appeal and this Court.
KIRBY J. This appeal involves the meaning of provisions in that Part of the Trade Practices Act 1974 (Cth) ("the Act") which is concerned to provide measures of protection to consumers throughout Australia (Part V). This Court has a choice. It may adopt a narrow construction of the Act. But that would be inconsistent with the wide words used by the Parliament and with the achievement of their apparent purpose. By a simple device, it would permit the neutering of protections afforded by the Act in wide terms.
2. In my view, it can safely be left to the Parliament, where it so wishes,
to restrict the application of the consumer protection
provisions of the Act.
It has already done so in a number of ways. It has adopted a particular
definition of a "consumer", taking
into account the price
paid for, and the
nature of, the goods and services in question (11). It has also provided for
the avoidance
of certain contractual
terms which limit the liability of a
supplier of goods or services, unless it is shown that it is not fair
or
reasonable for reliance
to be had on such limitations (12).
3. Where the Parliament has not so limited the consumer protections enacted
by the Act, it is the duty of the courts, in accordance
with well-established
doctrine, to give effect to the protection. They do so by giving
the
provisions of the Act a beneficial construction.
This is especially
appropriate where the Act itself uses broad language designed to achieve a
large social purpose far beyond the
commercial circumstances of the present
dispute.
The relevant facts
4. No disagreement arises about the facts. On 5 April 1992 an aeroplane of
BAT Industries Plc ("BAT") arrived at Sydney (Kingsford-Smith)
Airport. BAT's
interest in the plane was not finally determined at the trial. However, it
was accepted that it had a right to possession
and was entitled to initiate
the proceedings which it did. The plane proceeded to the Qantas Executive Jet
area, part of the Qantas
Jet Base owned and operated by Qantas Airways Limited
("Qantas") ("the appellant").
5. The pilot of the plane, Captain Roger Wilkins, was employed by Aravco
Limited ("Aravco") ("the respondent"). Aravco was the
company which operated
the aircraft, presumably pursuant to an agreement between itself and BAT. On
arrival, Captain Wilkins was
handed a document titled "Aircraft Handling
Advice Note". He was allegedly told that it indemnified Qantas for the
handling of the
plane whilst it was in Sydney. He was asked to sign it. He
did so. The plane was isolated where it had been parked. On the next
day
services were performed upon it. Together with the fee for parking, the
service charges amounted to approximately $5,000. The
plane was scheduled to
depart the airport on 8 April 1992. However, on 7 April, whilst another plane
was being manoeuvred within
the area of the jet base, it collided with the
subject plane. The collision caused damage which has not yet been ascertained
but
which was said to be between $500,000 and $1 million in value.
6. Two conditions in the document signed by Captain Wilkins must be noted.
They are part of what is described as the "Conditions
of Business":
"4. The Operator agrees regardless of any negligence on the part ofQantas to release, hold harmless and indemnify Qantas from and against all liabilities, claims, damages, losses, costs and expenses of whatever nature, howsoever occurring which may accrue against or be suffered by Qantas arising out of or in any way connected with the performance of the said services unless caused by wilful misconduct on the part of Qantas or any of its servants or agents acting within the scope of their employment.
...
7(1) Pursuant to S.68A of the Trade Practices Act 1974 this clauseapplies in respect of any of the goods or services supplied under this contract which are not of a kind ordinarily acquired for personal, domestic or household use or consumption, provided that this clause will not apply if the customer establishes that reliance on it would not be fair and reasonable.
(2) Liability for breach of a condition or warranty implied intothis contract by the Trade Practices Act 1974 other than a condition implied by S.69 is limited to ...
(B) In the case of services, any one of the following as determinedby Qantas:
(i) the supplying of the services again; oragain."
(ii) the payment of the cost of having the services supplied
7. Aravco's defence to the cross-claim put various matters in dispute which
are not now contested. Relevantly, the defence asserted
that the agreement
between Qantas and Aravco was a contract for the supply of services to a
consumer within the meaning of the Act;
that Qantas was a corporation within
the Act; that pursuant to s 74(1) of the Act there was implied into the
agreement that the services
provided by Qantas would be rendered with due care
and skill; and that the
provisions of the contract affording Qantas the
indemnity
upon which it sued was void by the operation of s 68 of the Act.
Legislative provisions
8. The following provisions of the Act are relevant:
"Part V - CONSUMER PROTECTION
Division 2 - Conditions and Warranties in Consumer Transactions
...
Application of provisions not to be excluded or modifiedor modify or has the effect of excluding, restricting or modifying:
68(1) Any term of a contract ... that purports to exclude, restrict
(a) the application of all or any of the provisions of thisDivision;
(b) the exercise of a right conferred by such a provision;implied by such a provision; ...
(c) any liability of the corporation for breach of a ... warranty
(2) A term of a contract shall not be taken to exclude, restrict ormodify the application of a provision of this Division ... unless the term does so expressly or is inconsistent with that provision ...
Term of Contractby a corporation of goods or services other than goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption is not void under section 68 by reason only that the term limits the liability of the corporation for a breach of a ... warranty ... to:
68A(1) Subject to this section, a term of a contract for the supply
(a) in the case of goods, any one or more of the following:acquiring equivalent goods;
(i) the replacement of the goods or the supply of equivalent goods;
(ii) the repair of the goods;
(iii) the payment of the cost of replacing the goods or of
(iv) the payment of the cost of having the goods repaired; or
(b) In the case of services:
(i) the supplying of the services again; or
(ii) the payment of the cost of having the services supplied again.
(2) Subsection (1) does not apply in relation to a term of acontract if the person to whom the goods or services were supplied establishes that it is not fair or reasonable for the corporation to rely on that term of the contract.
...
Warranties in relation to the supply of servicescourse of a business of services to a consumer there is an implied warranty that the services will be rendered with due care and skill and that any materials supplied in connexion with those services will be reasonably fit for the purpose for which they are supplied."
74(1) In every contract for the supply by a corporation in the
9. In the Preliminary part of the Act, a definition of a "consumer" is, in
effect, provided:
"4B(1) For the purposes of this Act, unless the contrary intentionappears:
...
(b) a person shall be taken to have acquired particular services asa consumer if, and only if:
(i) the price of the service did not exceed the prescribed amount..."
Matters not in issue in the appeal
10. In order to focus attention upon those matters which are in contest in
this Court, it is useful to list a number of issues (some
of them fought below
and others of them foreshadowed) which may be put to one side:
1. Condition 1 of the "Conditions of Business" signed by Captain Wilkins
referred to Qantas' performance of services which are "hereunder
referred to
as 'technical services'". It was contended at trial that the exemptions and
indemnity provided by the Conditions of
Business should be limited to
"technical services" and did not extend to the consequences of manoeuvring of
a different aeroplane.
This point, determined against Aravco at trial, has
been abandoned;
2. It was next contended that the liability in question had not accrued or
arisen "out of or in any way connected with the performance
of the said
service" because that phrase was to be limited to the actual performance by
Qantas of work on the subject plane. This
argument was likewise rejected
below and has not been repeated;
3. It was accepted by Qantas at the trial and in the Court of Appeal that, in
so far as the Conditions of Business (condition 4)
purported to release Qantas
from liability to Aravco, those provisions would be void. There is no doubt
that the words of condition
4 are wide enough to cover such a case. It was
therefore accepted that, to that extent, the condition would be void. But
Qantas
contended that it was possible to sever that part of condition 4 which
was void and to save that part (the indemnity) to the extent
that it related
to a liability to, or claim by, a third party, which was not void. In the
courts below, it has been assumed that
condition 4 might be severed in this
way. Sheller JA acknowledged, by reference to authority(13), that the
severability presented
a difficult problem (14). I am content to proceed on
the same basis. I will assume that the offending operation of condition 4
may
be distinguished from the permissible. But, I shall return to this
distinction later; and
4. One question which was not argued concerns whether, in the circumstances
described, the terms and conditions printed on the form
constituted part of
the agreement between the companies (15) has not been explored. Like the
parties, I shall assume that it did.
For Qantas, it was very properly
conceded that the circumstances in which Captain Wilkins was required to sign
the Conditions of
Business form would be relevant to any possible future
application of s 68A of the Act, and in particular s 68A(2) on the ground
that, in the circumstances described, it was not "fair or reasonable" for the
corporation (Qantas) to rely on the term
of the contract
(condition 4). That
question has not been pleaded, still less tried or determined.
Decision in the Supreme Court
11. In the Supreme Court of New South Wales, the proceedings originally came
before Giles J in the Commercial Division. Much of
his Honour's reasons were
addressed to issues which have now melted away. On Aravco's argument that the
terms of condition 4 offended
s 74(1) of the Act and thus, by s 68, were
(subject to s 68A) void, Giles J demurred. He noted that Qantas accepted that,
in so far
as condition 4 purported to release it from liability to Aravco
or
provided that Aravco would indemnify Qantas for liability to Aravco,
such
provisions would be void, subject to s 68A and condition 7. As to the
indemnity in respect of a claim by a third party (BAT)
the position was
different (16):
"The indemnity does not exclude, restrict or modify, or have theeffect of excluding, restricting or modifying the application of s 74(1) in relation to the contract embodied in the Note, the exercise of a right conferred by s 74(1) (assuming that s 68(1)(b) refers to rights flowing from the implied warranty ...), or any liability of the defendant for breach of that warranty."
"The intention of the statutory warranty was that Qantas, thesupplier, should be liable for that breach to Aravco, the consumer. If Qantas failed to care for the aircraft with due care and skill it was under an obligation to compensate Aravco for its failure. However Qantas, upon its breach of the warranty, relied upon cl 4, read down in the way I have suggested, to make Aravco liable to Qantas. Clause 4 applied to require Aravco to compensate Qantas for Qantas' breach. So understood it seems to me plain that the term has the effect of modifying the liability of Qantas for breach of the warranty. Accordingly, in my opinion, cl 4 even so read is void, that is to say devoid of legal effect."
Mahoney AP disagreed. He stated the issue thus (18):
"(W)hether s 74 avoids a term of a contract which does not affectthe legal liability of a corporation arising from the breach of a warranty but merely, indirectly or collaterally, reduces the amount which may be recovered as damages for breach of the warranty".
"Prima facie ... this does not exclude, restrict or modify theeffect of the implied warranty: it does not provide that the warranty, if breached, shall not give rise to liability nor (more relevantly) does it provide that any of the damages for which Qantas would otherwise be liable to Aravco for breach of the warranty shall not be recoverable from it. The indemnity, in the relevant sense, provides that Aravco shall pay to Qantas moneys which Qantas is to pay to a third party, irrespective of whether those moneys are moneys which Aravco could recover as part of its damages for breach of the warranty."
12. This, then, is the issue which is to be resolved in this appeal. It
concerns the operations of ss 68 and 74 of the Act. Does
a condition such as
condition 4 in the Qantas contract have the effect of "restricting" or
"modifying" in an impermissible
way the
application of the provisions of the
Division of the Act dealing with consumer protection (s 68(1)(a)) or any
liability of Qantas
for breach of a warranty implied by a provision in the
Division, notably s 74(1) (s 68(1)(c))? If it does, the provision is void.
Qantas may not rely upon it. The majority in the Court of Appeal are right.
If it does
not, Mahoney AP and Giles J are right and
the appeal to this Court
must be upheld.
13. In the course of the argument of the appeal various problems were raised
having regard to the way in which the dispute between
Qantas and Aravco was
pleaded in the Commercial Division of the Supreme Court and the way in which
the trial of that dispute was
conducted. As those points were not taken by
the parties and as they conducted their litigation on the basis described
above, it
would involve a procedural unfairness if this Court were now, for
the first time, to insist upon niceties of pleading. As argued
and determined
in the Supreme Court a discrete question of the meaning and intended operation
of the Act is presented. This Court
should now answer that question.
Arguments of the parties
14. For Qantas, it was argued that, in so far as condition 4 contained an
indemnity by Aravco to Qantas for liabilities of Qantas
to a third party
(BAT), such a provision did not purport to exclude, restrict or modify, nor
have the effect of excluding, restricting
or modifying the existence of the
warranty implied into the contract by s 74 of the Act, the exercise by Aravco
of rights conferred
by that warranty or the liability of Qantas for breach of
it. No offence was done to
s 68 of the Act. Although Aravco had not,
in a
reply to the cross-claim or in separate proceedings, sued Qantas for any such
alleged breach of the
implied warranty, it was
(subject to any procedural
estoppel considerations) still open to it to do so. If it did, Qantas would
be entitled to invoke s 68A,
limiting its liability, in effect, to the cost of
the provision of the services (about $5,000). Aravco would then be entitled
to
seek to rebut such a limitation by relying on s 68A(2) and contending that
it would not be "fair or reasonable" for Qantas to rely
on condition 4. These
were matters for the future.
The availability of the remedies to Aravco (and
the defence and reply arising
therefrom) illustrated the fact that the
intended operation
of the Act, including s 68A, contemplated the survival of
an indemnity
provision, such as that here in question where it was confined so
that it did not exclude
all liability under the implied warranty.
That
implied warranty still had work to do. It was still available to Aravco to be
enforced
in separate and distinct proceedings
brought by it. So went the
arguments for Qantas.
15. Aravco supported the decision of the majority in the Court of Appeal. The
indemnity relied upon in condition 4 had the "effect"
of "modifying" the
liability of Qantas for breach of the warranty implied by s 74(1) of the Act
because, if condition 4 did not exist,
Qantas, as between itself and Aravco,
would be solely liable for the damage to BAT's plane.
It would be liable to
Aravco for at
least nominal damages for breach of the warranty. Qantas would
have no right to recover from
Aravco the amount of the liability to
BAT. The
"effect" of the purported indemnity was therefore, within the language of s
68(1)(c) of the Act, at least such as to "modify"
that liability.
16. Aravco went further than the reasoning of the majority of the Court of
Appeal. First, it suggested that it was unnecessary
to limit attention solely
to the word "modify". The effect of the indemnity was also to "restrict" the
liability of Qantas. This,
likewise, was forbidden by s 68(1). Additionally,
Aravco relied on s 68(1)(a). It urged that this paragraph, read with s 68(2)
of the Act, was clearly intended to cover all cases where the effect of the
impugned contractual provision was inconsistent with
the terms of
the warranty
implied by s 74(1) of the Act.
17. Although I accept the arguability of the case for Qantas, I consider that
the better view of the intended operation of the Act
is that urged for Aravco
and found by the majority in the Court of Appeal.
Matters of approach
18. In order to explain how I reach my conclusion, which is a minority one,
it may be helpful to list a number of matters which
affect my approach to the
problem before the Court:
1. The provision in question forms part of beneficial legislation designed to
protect consumers. The Act incorporates a number of
very important departures
from the previous law (20). It enacts important protections for consumers
which
should not be given a
narrow construction. The approach to be taken
should be "broad and general" (21). The Act has been described as "a
fundamental
piece of remedial and protectionist legislation" to be "construed
broadly" (22). The construction
given to it should advance the
protective
purposes as the Parliament may be imputed to have intended. I agree with what
Lockhart
and Gummow JJ said in Accounting
Systems 2000 (Developments) Pty Ltd
v CCH Australia Ltd (23):
"As is the case with Pt IV of the ... Act, the evident purpose andpolicy underlying Pt V ... recommends a broad construction of its constituent provisions, the legislation being of a remedial character so that it should be construed so as to give the fullest relief which the fair meaning of its language will allow."
Courts may take into account the heading to Part V which explainsthe overall purpose of its provisions as being for consumer protection (24). Where the Parliament has intended to narrow the operation of the protection it has given effect to that purpose either by confining the application of the Act (25) or by providing express exemptions (26); 2. So far as the implied contractual terms enacted by a provision such as s 74 are concerned, this Court has made it clear (in the context of s 71 which is not relevantly distinguishable) that the result is a fiction, but a potent one. In Wallis v Downard-Pickford (North Queensland) Pty Ltd (27) Toohey and Gaudron JJ approved the comment of Brennan J in the Federal Court of Australia in Arturi v Zupps Motors Pty Ltd (28) that such a section:
"takes effect by imposing an obligation upon one of the contractingparties as though the parties had embodied the obligation in their contract. No doubt it is right to say that the obligation is statutorily created ... But by describing the obligation as an implied condition, s 71 defines the nature of the obligation. It is an obligation which takes effect by a legal fiction, namely, that the parties had made a contract which included the obligation ... (A) breach of the obligation is not to be treated as a breach of an obligation imposed upon the obligor by the Act dehors the contract, but as an obligation imposed by the contract itself."
Thus the obligation implied by s 74(1) of the Act is incorporated,in effect, in the contract for the supply of services between Qantas and its consumer, Aravco. Qantas had no contract with BAT. The implied contractual warranty afforded by s 74(1) is as good as it would be if it had actually been included in the text of the Qantas "Conditions of Business". As between Qantas and Aravco, whatever else existed in their contractual relations, by force of an Act, there was incorporated a warranty that services would be rendered "with due care and skill";
5. The breadth of the operation of s 68(1) is also emphasised by the fact that by par (a) what is rendered void is expressed in extremely wide language. Thus, any term of a contract that has the effect of restricting or modifying the application of any of the provisions of the (Consumer Protection) Division of the Act is, by the subsection, rendered void. So is any attempted restriction or modification of the liability of Qantas for breach of a warranty implied, for example, by s 74. Avoiding such provisions is a drastic disturbance of freedom of contract. But it is deliberately drastic for a clear reason. That reason is to preserve the protection of consumers provided by Pt V of the Act from just the kind of "modifications" as were included by Qantas in the fine print of the document thrust into the hands of Captain Wilkins, an air pilot, as he completed his arrival duties at Sydney Airport.
The effect of the indemnity
19. With respect to those of the contrary view, I am of the opinion that the
indemnity provided in condition 4 of the Qantas Conditions
of Business has the
effect of modifying (and probably restricting) the application of the
provisions in Pt V Div 2 of the Act and
of modifying the liability of Qantas
for breach of the warranty implied by s 74(1) of the Act.
20. Experience in consumer protection legislation teaches that there are
various ways in which avoidance of the statutory protections
can be attempted.
One is by a purported exclusion of liability. Such terms usually fail, as
here, because of express provisions
of the Act. This outcome has made some
suppliers of goods and services to consumers more subtle in their approach.
Another way to
seek to avoid
statutory protections, by no means unknown, is by
a purported indemnity provision designed to take away from the party,
from
whom
the indemnity is extracted, rights which that party would otherwise enjoy
by force of the consumer protection legislation.
21. In the United Kingdom's legislation equivalent to the Act, this problem
was expressly addressed. Thus, s 4 of the Unfair Contract
Terms Act 1977 (UK)
provides:
"(1) A person dealing as consumer cannot by reference to anycontract term be made to indemnify another person (whether a party to the contract or not) in respect of liability that may be incurred by the other for negligence or breach of contract, except in so far as the contract term specifies the requirement of reasonableness."
22. The contract presented to Captain Wilkins contained, as a term, condition
4 which included one device which, it is not contested,
foundered on the rock
of s 68, viz the promise to "release" and "hold harmless" Qantas. It would be
extremely odd, as it seems to
me, if the prohibition effected by s 68(1) of
the Act were so readily susceptible to circumvention by the mere use of the
device
of a promise of "indemnity". This would be especially remarkable given
that indemnity is a well-known expedient for attempted avoidance
of just such
protections as the Act was intent to afford to consumers.
23. Section 68 did not have such a narrow and incompetent operation. By the
use of words of such broad operation ("restrict" and
"modify"), by focussing
on "the effect" rather than the language of the impugned term, and by
considering whether that "effect" in
any way "restricted" or "modified" the
application of any provision of the Division or the liability of the
corporation for a breach
of a statutory warranty, the Parliament clearly
addressed itself to the indemnity device. This Court should say so.
24. The way to test this conclusion is to consider the operation of the
contract absent the term which is impugned. If condition
4 is, in its
entirety, excised from the contract, so that the promise of Aravco not only to
"release" and "hold harmless" Qantas
but also to "indemnify" it is deleted,
all that relevantly remains is the implied warranty incorporated in the
contract by the force
of s 74(1). By that implied term, Qantas is taken to
have promised that it would render its services to Aravco with due care and
skill. It is common ground that it did not. Accordingly, Qantas was liable
to Aravco. Aravco was not liable to Qantas.
25. Once this position is established, the question is whether condition 4,
if it were to operate after judicial surgery, would
have "the effect" of
"restricting or modifying" the application of one of the provisions of the
Division of the Act, viz s 74(1).
Clearly enough, it would. For instead of
Aravco being entitled, by s 74(1), to enforce, in its entirety, its
undiminished claim
against Qantas, based on the implied statutory warranty, it
is liable, instead, under the promise of indemnity. It must then run
the
gauntlet of s 68A(1). It must struggle to bring itself within s 68A(2).
Similarly, the "effect" of condition 4 is to "modify"
the liability of Qantas
for breach of the implied warranty to provide its services with due care and
skill, as s 74(1) requires.
Merely by using the technique of an indemnity,
Qantas would then achieve the effect of reducing its liability by shifting the
burden
of its own want of care and skill to the very party (Aravco) to which,
by the Act, its duty was owed. No more vivid illustration
could be afforded
of the "effect" of the relevant "modification" than by contrasting the
entitlement of Aravco under the implied
warranty resulting from the
application of s 74 with the result which will flow if the indemnity device
succeeds. In my view it
does not.
Conclusion and orders
26. As in the past, this Court should reject arguments which favour "form
over substance in a way that undermines the operation
of" the consumer
protection provisions of the Act (34). Doing so will not only give effect to
the statutory provisions. It will
prevent ready evasion of the Act. And it
will promote the beneficial objects of the Act which the contrary opinion
undermines.
27. I would dismiss the appeal with costs.
1 "68A (1) Subject to this section, a term of a contract for the supply by a
corporation of goods or services other than goods
or services of a kind
ordinarily acquired for personal, domestic or household use or consumption is
not void under section 68 by
reason only that the term limits the liability of
the corporation for a breach of a condition or warranty (other than a
condition
or warranty implied by section 69) to:
...again.
(b) in the case of services:
(i) the supplying of the services again; or
(ii) the payment of the cost of having the services supplied
(2) Subsection (1) does not apply in relation to a term of acontract if the person to whom the goods or services were supplied establishes that it is not fair or reasonable for the corporation to rely on that term of the contract."
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