Not so Scenic: Disappointing holiday leads to High Court win

Introduction

There is always a risk of poor weather disrupting a long-planned holiday. But when the weather radically affects a consumer’s enjoyment of their holiday, are they entitled to damages from their tour operator? In a recent decision,¹ the High Court of Australia has said ‘yes’, and awarded damages to a consumer for a disappointing European cruise.

This High Court decision significantly impacts on the liability of our tourism operators that are already under unprecedented financial hardship due to the economic consequences of COVID-19.

Background

In a familiar scenario, in 2012 Mr Moore and his wife spent a considerable amount of their savings on a European holiday with Scenic Tours (Scenic), an Australian based tour operator. The holiday included a “once in a lifetime cruise along the grand waterways of Europe” on board a vessel that was boasted as featuring “all inclusive luxury”.²

Mr Moore, who had never been to Europe, had specifically chosen a river cruise as a means of seeing numerous locations without having to repack, and ensuring that he was not required to sit for long periods as he suffered from a spinal injury.³

Unfortunately, the cruise did not proceed as promised. Due to heavy rain, the Rhine and Main rivers were subject to unusually high water levels that resulted in the Moore’s cruising for only three of the 10 scheduled days (and, in part, on a less luxurious vessel). The majority of the days were spent travelling on busses, far from the luxury that Mr Moore was expecting.⁴

Mr Moore’s claim: the Australian Consumer Law

Under the Australian Consumer Law (ACL), contracts of services between consumers and suppliers are subject to certain consumer guarantees. These include that:

• the supplier will exercise due care and skill in supplying the services;
• the supplier will provide services that are fit for a known purpose; and
• such services will be of a nature and quality that might reasonably be expected to achieve the consumer’s desired result.⁵

Upon his return to Australia, Mr Moore commenced proceedings against Scenic for breach of these consumer guarantees. He claimed damages both for the difference in value between the service he paid for and the service received, as well as for his disappointment and distress in receiving a tour that was radically different to what he expected.⁶

Mr Moore argued that the purpose of his contract with Scenic was to provide “enjoyment, relaxation, pleasure and entertainment”, and it would be expected that a failure to provide that service would result in the loss or damage he claimed.⁷

An exception to recovery: the Civil Liability Act

One of the key issues in this case related to the application of the Civil Liability Act 2002 (NSW) (CLA), as that Act regulates personal injury damages for non-economic loss in New South Wales (being the law that governed the contract between Mr Moore and Scenic).

Although the consumer guarantees are Commonwealth law, the ACL will apply any law that limits or excludes liability in the relevant State or Territory.⁸

Scenic argued that section 16 of the CLA was one such law that would prevent Mr Moore from recovering the damages he claimed. This is because Scenic characterised Mr Moore’s disappointment and distress as a form of “pain and suffering” and “loss of amenities of life” – which the CLA defines as non-economic loss.⁹   Therefore, even if Scenic had contravened the ACL, it argued that Mr Moore could not recover damages for his resulting disappointment and distress.

The litigation below

At first instance, Justice Garling of the New South Wales Supreme Court found for Mr Moore. Mr Moore was awarded $10,990 in compensation for loss of value of the services, and $2,000 for disappointment and distress, plus interest. In making this decision, Justice Garling held that s 16 of the CLA would apply if Mr Moore’s loss had occurred in New South Wales, but it had no applicability because the loss occurred in Europe.

On appeal by Scenic, the New South Wales Court of Appeal agreed that Scenic breached two of the consumer guarantees in the ACL. While the Court agreed that s 16 of the CLA prevented Mr Moore from recovering damages for his disappointment and distress in New South Wales, it also decided that this section applied to loss that occurred in Europe. Therefore, Mr Moore’s award of damages for disappointment and distress was set aside.

The High Court

Mr Moore then appealed to the High Court, Australia’s final court of appeal and the apex of the Australian court hierarchy. The Court was required to determine whether section 16 of the CLA:

(1) was picked up by the ACL and applied to Mr Moore’s claim;

(2) if so, whether it excluded damages for disappointment and distress; and

(3) if so, whether it was geographically limited to loss occurring inside New South Wales.

On the first question, the High Court held that, on a plain language of the ACL, the ACL picks up and applies s 16 of the CLA.

On the second question, the High Court found in Mr Moore’s favour. In doing so, the High Court rejected Scenic’s argument that Mr Moore’s claim for damages for disappointment and distress was either a form of “injury”, “pain and suffering” or “loss of amenities of life”.¹⁰

Rather, the High Court accepted that feelings of frustration and indignation are natural and rational reactions to a party’s failure to provide a pleasurable and relaxing holiday.

The Court also clarified that this type of damage was not a claim for “non-economic loss” which, under the CLA, is associated with losses arising from a personal injury.¹¹ In this case, Mr Moore had not suffered any personal injury (either physical or psychiatric).

As the High Court determined that section 16 of the CLA did not prevent Mr Moore recovering damages for his disappointment and distress, the Court was not required to determine the third question as to any geographical limitation.

Take away

In a time of unprecedented disruption to the travel industry, the decision serves as a timely reminder as to operators’ potential liabilities should they fail to comply with the consumer guarantees and provide customers with a lesser service than agreed.

Although the damages for Mr Moore’s disappointment and distress were modest (being $2,000 (plus interest)), the financial implications for Scenic may be more severe. This is because Mr Moore commenced a representative proceeding for over 1,500 of Scenic’s customers affected by the same river conditions between May and June 2013. The High Court has remitted for determination by the Supreme Court of New South Wales whether each of those customers can also recover damages for their disappointment and distress.

While the High Court’s decision turned on a specific provision of the New South Wales law, it is of relevance for tour operators nationally, as the Court has unanimously held that claims for disappointment and distress arising from cancelled or significantly altered tours can be made under the ACL.

Of particular relevance to tour operators are the lower Courts’ findings that Scenic did not comply with the consumer guarantees, notwithstanding its standard terms and conditions as to unforeseen events. Rather, as Scenic was shown to have known about the water levels for some time, its standard terms did not remedy its failure to provide the service that Mr Moore expected to receive.

It is also important to remember that the consumer obligations under the ACL cannot be excluded or limited by the terms of the contract. Tour operators and holiday providers should therefore carefully consider their obligations under the ACL and how best to discharge them in times of major disruption. For example, if you are aware of circumstances well in advance of a tour that are likely to affect your ability to provide your advertised services, you should be proactive in:

(1) considering whether tours or other advertised services can go ahead;

(2) communicating with customers well in advance of the tour’s commencement and ensuring that customers have sufficient time to consider their options;

(3) offering an opportunity to reschedule or cancel the tour; and

(4) taking steps to ensure, as far as possible, a like-for-like replacement service consistent with the consumer’s expectation.

Where a like-for-like replacement cannot be guaranteed, operators should also consider proactively offering other benefits that may serve to mitigate affected customers’ disappointment and distress (as well as costly disputes).