Monday, May 16, 2011

Failed attempt to exclude liability in the High Court

In Insight Vacations Pty Ltd v Young [2011] HCA 16 the plaintiff, Mrs Young, decided to go to Europe for a holiday with her husband.  She bought a European tour package from Insight Vacations.  While travelling by coach from Prague to Budapest, Mrs Young got out of her seat to get something from a bag she had stowed in the overhead luggage shelf.  The coach braked suddenly.  Mrs Young fell backwards, and she suffered injury.

When she returned to Australia, she sued Insight, arguing that it had breached an implied term of her holiday contract that the services supplied by Insight would be rendered with due care and skill.  The term was implied into her holiday contract by section 74 of the Commonwealth's Trade Practices Act 1974

Mrs Young succeeded in the District Court of NSW and was awarded $22,371 plus costs.  Insight appealed, unsuccessfully to the NSW Court of Appeal, and then to the High Court of Australia. 

One may wonder what it was about such a small case that warranted the intervention of Australia’s highest court?  At issue was the interaction between the beneficial provisions of the Trade Practices Act (which implied the “due care and skill” term into the contract), and section 5N of the NSW Civil Liability Act 2002.

At trial, Insight defended the claim relying upon an exemption clause in the holiday contract that was in the following terms:

“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.”

Ordinarily, this attempt to exclude liability for breach of the “due care and skill” term implied by section 74 of the Trade Practices Act would be void, by virtue of section 68 of that Act.  However, Insight sought to rely upon an exception to the ordinary rule.  That exception provides that where a State law would operate to limit or exclude liability for breach of a term of the contract, that State law operates also to limit or exclude liability for breach of the term implied by the Trade Practices Act.

Insight argued that this exception applied, because section 5N of the NSW Civil Liability Act 2002 provided that:

“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 [in certain categories] that results from breach of an express or implied warranty that the services will be rendered with reasonable care and skill.”

However, the High Court disagreed.  It said that section 5N was not a law that “applies to limit or exclude liability for the breach”.  It was simply a law that permitted parties to provide for such a limit or exclusion in their contract.  It did not, itself, work an such limitation or exclusion.

Moreover, the High Court held that section 5N does not apply to a contract for the provision of services outside of NSW.  This is a significant geographical restriction on the operation of section 5N, and means that a tour operator’s capacity (or indeed any other provider of recreational services) to limit its liability is severely restricted in respect of interstate and international recreational services.

Somewhat perversely the High Court then went on to find that whatever the interaction between the Commonwealth Trade Practices Act and the NSW Civil Liability Act, the exemption clause in the holiday contract didn’t apply in any event.  That is because its operation was limited to those times when the plaintiff occupied her seat.  It did not apply to times when the plaintiff stood up to move around the coach, or to retrieve items from an overhead shelf, or to go to the lavatory.

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