Jetstar Airways Pty Ltd v Free
[2008] VSC 539
•3 December 2008
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
No. 8040 of 2007
| JETSTAR AIRWAYS PTY LTD | Appellant |
| v | |
| ELIZABETH WINIFRED FREE | Respondent |
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JUDGE: | CAVANOUGH J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 28 February, 3 March 2008 | |
DATE OF LAST SUBMISSION: | 14 March 2008 | |
DATE OF JUDGMENT: | 3 December 2008 | |
CASE MAY BE CITED AS: | Jetstar Airways Pty Ltd v Free | |
MEDIUM NEUTRAL CITATION: | [2008] VSC 539 | |
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FAIR TRADING – Statutory regulation of unfair terms in consumer contracts – Term in standard form airline contract requiring purchaser wishing to substitute a new passenger to pay an administrative fee and to pay the difference between the fare originally purchased and the fare available on the date of change – Held by VCAT to be an “unfair term” – Appeal on questions of law – Statutory interpretation – Role and meaning of “contrary to the requirements of good faith” – Relevant considerations in assessing whether a term “causes a significant imbalance in the parties’ rights and obligations arising under the contract to the detriment of the consumer” – Appeal allowed – Matter remitted for rehearing – Fair Trading Act 1999 Part 2B and ss 1, 8, 105, 108 and 163 – Victorian Civil and Administrative Tribunal Act 1998 s 148.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr M O’Bryan | Blake Dawson Waldron |
| For the Respondent | Mr T Walker | Consumer Affairs Victoria |
HIS HONOUR:
Introduction
This is an appeal under s 148 of the Victorian Civil and Administrative Tribunal Act 1998 from an order of the Victorian Civil and Administrative Tribunal (“VCAT”) which was based on a finding that a particular condition of sale of an airline ticket was an “unfair term” for the purposes of Part 2B of the Fair Trading Act 1999 (“the FTA”). Appeals under s 148 are confined to questions of law. The respondent denies that this appeal raises questions of law (as distinct from questions of fact) but I am satisfied that it does, for reasons I will explain in due course. Indeed I consider that the appeal raises important and difficult issues of law, being questions as to how VCAT or a court is to assess whether a term in a consumer contract is an “unfair term” as defined. This is the first time since the introduction of Part 2B in October 2003 that its provisions have fallen for consideration by this Court. The Director of Consumer Affairs Victoria has come in to defend the appeal on behalf of the respondent pursuant to s 105 of the FTA.
For present purposes, the critical provisions of Part 2B of the FTA are ss 32W and 32X, which are as follows:
32W What is an unfair term?
A term in a consumer contract is to be regarded as unfair if, contrary to the requirements of good faith and in all the circumstances, it causes a significant imbalance in the parties' rights and obligations arising under the contract to the detriment of the consumer.
32X Assessment of unfair terms
Without limiting section 32W, in determining whether a term of a consumer contract is unfair, a court or the Tribunal may take into account, among other matters, whether the term was individually negotiated, whether the term is a prescribed unfair term and whether the term has the object or effect of—
(a)permitting the supplier but not the consumer to avoid or limit performance of the contract;
(b)permitting the supplier but not the consumer to terminate the contract;
(c)penalising the consumer but not the supplier for a breach or termination of the contract;
(d)permitting the supplier but not the consumer to vary the terms of the contract;
(e)permitting the supplier but not the consumer to renew or not renew the contract;
(f)permitting the supplier to determine the price without the right of the consumer to terminate the contract;
(g)permitting the supplier unilaterally to vary the characteristics of the goods or services to be supplied under the contract;
(h)permitting the supplier unilaterally to determine whether the contract had been breached or to interpret its meaning;
(i)limiting the supplier's vicarious liability for its agents;
(j)permitting the supplier to assign the contract to the consumer's detriment without the consumer's consent;
(k)limiting the consumer's right to sue the supplier;
(l)limiting the evidence the consumer can lead in proceedings on the contract;
(m)imposing the evidential burden on the consumer in proceedings on the contract.
In my view, the appeal gives rise to two principal legal issues, together with a number of sub-issues. The two principal issues relate to the proper construction of s 32W. First, what is the role of the expression “contrary to the requirements of good faith” in s 32W? Does it, as VCAT held, merely identify a factor to be taken into account in determining whether a contractual term causes a “significant imbalance in the parties’ rights and obligations arising under the contract”? Does it thus play a merely adjectival or subordinate role in the section? Does it play a merely adjectival or subordinate role in another sense, as suggested by the respondent[1]? Or, on the other hand, does it add an extra element to the concept of an unfair term beyond the element of “significant imbalance”, as the appellant submits? In any event, what does it mean? Those questions in turn may raise a question about the meaning and effect of the word “significant” in the phrase “significant imbalance”. Second, in determining whether “contrary to the requirements of good faith and in all the circumstances” a contractual term causes “a significant imbalance in the parties’ rights and obligations arising under the contract“ (within the meaning of s 32W), what kinds of matters are required or permitted to be taken into account? In particular, to what extent, if any, must or may regard be had to other terms of the contract (especially as to price), to the precontractual conduct of the parties, or to any alternative options available to the consumer at the time of the contract? Must the matter be assessed as at the time of the contract without regard to any subsequent actual events, or may it be assessed as at a later time taking into account any actual detriment to the consumer that has arisen as a result of the existence or operation of the term? As will be seen, I consider that s 32X throws considerable light on all of these issues. Other parts of the statutory scheme also need to be considered and I will refer to them in due course. The legislative history and local and overseas authorities are also relevant. In the end, I conclude that VCAT’s decision in favour of the consumer in this case was affected by errors of construction of s 32W in relation to both of the principal issues just mentioned, and that the decision should be set aside accordingly and the matter remitted to VCAT for reconsideration. But first I turn to the basic facts of the case and to the course of the proceedings below.
[1]See below.
The basic facts of the case and the course of the proceedings below
The following account is principally derived from VCAT’s reasons for decision. Some additional matters which were the subject of uncontroversial evidence have also been included in this section.
On 14 September 2006 the respondent Elizabeth Free booked and paid for two return air tickets from Melbourne to Honolulu with the appellant (“Jetstar”) on its internet website. Prior to making the bookings Ms Free had viewed Jetstar’s “Fare Rules” as published on its website. The bookings were for travel 8 months later, in May 2007. One ticket was booked in her own name, the other in her sister’s name. Two seats were allocated accordingly. Ms Free had selected a special “Jetsaver” fare offered by Jetstar: a fare of $437.39 per person for return travel, including all taxes and charges. The component representing the “Jetstar Base Fare” was only $82 return. This was a very cheap, introductory fare.
In early March 2007 Ms Free’s sister told her that she no longer wished to travel on the booked flights because she had study commitments resulting from a scholarship award. Ms Free decided that she would like to take her 11 year old niece on the trip to Honolulu instead, using the ticket which had been booked in her sister’s name. On 7 March 2007 she contacted Jetstar to try to make the change. She was told that Jetstar would only allow a change of name on the ticket if she were to pay a “change fee” of $75 per flight, plus the difference between the fare previously paid and the fare applicable on the day the change was made. Jetstar referred Ms Free to its “Fare Rules” which did in fact provide for the imposition of those requirements, and which, as mentioned above, Ms Free had viewed on Jetstar’s website prior to booking. Nevertheless, according to Ms Free’s evidence, when she was told that as at 7 March 2007 the total of the extra charges would be approximately $900, she was shocked and amazed. She asked for the charges to be waived on the basis that she was taking her niece instead of her sister. This was refused. Jetstar later informed VCAT that it takes into consideration any special circumstances surrounding a customer’s need to change their travel plans, such as a death or illness in the family; and that Jetstar had considered Ms Free’s circumstances but had not found any such special circumstances as would support waiving any of the Fare Rules on compassionate grounds.
On 26 March 2007 Ms Free commenced a proceeding at VCAT seeking relief from Jetstar’s requirements. Three days later, under protest, Ms Free paid the (further) amounts that Jetstar required as at that day, being $150 for the “change fees” in respect of the two flights plus $600.93 for the then fare difference, together with a sum of $38 for “in flight extras” which Ms Free had requested (she makes no complaint about that charge), a total of $788.93. (Presumably the relevant fare difference had decreased to a corresponding extent since 7 March 2007). The payment enabled Ms Free’s niece to accompany her on the flights to and from Honolulu on 11 and 18 May 2007. According to her evidence, Ms Free had been required to go to considerable lengths to raise the extra money. Her mother had tried to sell things on Ebay to help fund it. Her sister put some of her scholarship money towards it. Ms Free herself cashed in some of her long service leave.
In the meantime, Ms Free’s VCAT proceeding was still on foot. It progressed as indicated in the following passage from Senior Member Vassie’s subsequent reasons for decision:[2]
5.In section 8 of her application form, Ms Free ticked several boxes, to answer the question on the form, ‘what do you want VCAT to decide and order?’. One box was for ‘Payment of money’. Another was for ‘Unfair term(s) in a consumer contract entered into after 8/10/2003’. Another again was for ‘Misleading or deceptive conduct, false representation and unconscionable conduct’.
6.The proceeding came on for hearing before me on 9 May 2007. Ms Free appeared in person and gave evidence. Her sister Sally Free gave some brief evidence. Jacqueline Skewes, Jetstar’s manager for customer relationships, represented Jetstar and gave evidence.
7.As the hearing proceeded, it became clear that Ms Free was indeed alleging, as her application had indicated, that contractual terms on which Jetstar was relying were ‘unfair’ terms in a ‘consumer contract’ within the meaning of those expressions in Part 2B of the Fair Trading Act 1999 and were void for that reason, with the result that Jetstar was never entitled to demand the additional payment that she had made. It also became clear that she was alleging that in demanding the additional payment Jetstar had engaged in unconscionable conduct within the meaning of that phrase in section 8 of the Fair Trading Act.
8.A ruling that a term in a contract is an ‘unfair term’ and void for that reason can have momentous consequences for a respondent, and perhaps for other persons who supply goods or services in the same industry, if a standard form contract is involved, even if the amount claimed by the applicant is small. So it is VCAT’s usual practice, whenever an applicant ticks the box on the application form to make an allegation of an ‘unfair term’, to list a directions hearing in the proceeding so that the Tribunal can ascertain whether it is really the applicant’s intention to make the allegation of an ‘unfair term’ in the technical sense as defined in Part 2B of the Fair Trading Act, and, if that is the applicant’s intention, that the respondent gets fair notice that the Tribunal is going to be asked to make a ruling which may have momentous consequences for that respondent. Unfortunately that usual practice was not followed in this case. The proceeding was listed for a final hearing without there first having been the directions hearing. So, at the end of the final hearing, I reserved my decision but also made orders that permitted Jetstar to file and serve any written submission of law on the ‘unfair term’ issue by 8 June 2007 and permitted Ms Free to file and serve any written submission in reply by 22 June 2007.
9.Jetstar did file a written submission by 8 June 2007. It was not really a submission of law. It did not attempt to explore the comparatively novel question of what constitutes an ‘unfair term’ for the purposes of the Act or to present any argument about whether the terms relied upon by Jetstar were ‘unfair’. Nevertheless, it was a helpful summary of the facts of which evidence had been given during the hearing, none of which was really in dispute, and an equally helpful summary of Jetstar’s contentions. Ms Free did not file any written submission in reply.
[2]Free v Jetstar Airways Pty Ltd (Civil Claims) [2007] VCAT 1405 (27 July 2007), paras 5-9.
A ruling that a contractual term is an “unfair term” can indeed have momentous consequences, as Senior Member Vassie remarked. Jetstar asserts now that the term in question here is a standard term of Jetstar’s tickets for both international and domestic travel, and that VCAT’s decision was accordingly significant for Jetstar’s business operations. For that reason, and because of the novelty of the provisions in question, it is indeed unfortunate that there was no directions hearing below and, moreover, that neither party was legally represented below and that the Director of Consumer Affairs was not involved at that stage. In fairness to Senior Member Vassie, two things should be remembered: first, that he raised with Ms Skewes, the company representative who was appearing for Jetstar, the potential repercussions of the case and the fact that no directions hearing had been held, but Ms Skewes responded that she was happy for the case to proceed that day[3]; and, second, that the legal issues that have arisen in this appeal were not the subject of submissions before Senior Member Vassie.
[3]VCAT transcript p 11-12.
The Fare Rules and other conditions of carriage and their transparency
There was no finding below that the relevant provisions of the Fare Rules were in any way hidden or unclear. It is now submitted[4] on behalf of Ms Free that the term in question was not brought clearly and prominently to her attention and that she did not “fully understand” that she may be charged the fare increment if the name of a passenger under the booking was to be changed, but these matters (of fact) were effectively litigated below and must be taken to have been found against Ms Free, at least to the extent of a finding that she ought to have known of the existence of the condition, notwithstanding her evidence[5] that sale tickets commonly sell out extremely quickly and that one needs to move swiftly to secure them. Had Senior Member Vassie thought that the relevant term was in any way hidden or unclear, he would surely have said so, but he did not. Senior Member Vassie’s reasons explain the situation as follows:
[4]Supreme Court transcript pp 206-207 and respondent’s written submissions, para 1.12(a).
[5]VCAT transcript p 21.
11.Jetstar’s internet website contained a booking form. The form set out various available fares including the Jet Saver fare. Ms Free selected that fare. At the foot of the form was a box beside which were words that commenced: “I have read and accept the airline’s Fare Rules and Conditions of Carriage”. A prospective customer must click on the box, electronically, in order to complete the booking. Ms Free did that.
12.In the body of the form there was another box which enabled a prospective customer to view the Fare Rules and other information about fares. Ms Free viewed those before she completed the booking.
13.The “Jet Saver Fare Rules” displayed on the internet website, as far as they seem to have been relevant to this proceeding, were as follows:
- JETSAVER FARE RULES
- 2.1 Subject to availability and payment of all applicable amounts, changes can be made to your Booking as follows. Changes to the origin and destination of travel are not permitted.
- 2.2 Your new fare will be at least the amount of the fare you originally purchased, and may be more. At the time your Booking is changed you must pay the difference (if any) between the fare you originally purchased and the fare available on the date of the change. This will apply to all date, time and name changes.
- 2.3 Date, time and Passenger name changes may be made by telephoning Jetstar Telephone Reservations ... A change fee* is payable for each change, for each passenger flight segment change ...
- *Current Jetstar fees and a summary of fare types can be found at jetstar.com/faretypes.html.
14.At the foot of the window that displayed the “Jet Saver Fare Rules” on the website there was a box marked “OK” on which the prospective customer had to click electronically in order to proceed to the next section of the website and in order to complete a booking.
15.As the last sentence quoted above in the “Jet Saver Fare Rules” indicated, a prospective customer could view the “Current Jetstar fees and a summary of fare types” at a specific internet address. I infer that Ms Free viewed those, because she presented to me at the hearing a page headed “Fare Types” (which, according to Ms Skewes’ evidence, was part of the Jetstar material available on the internet) as being part of the contractual term that she was alleging was unfair. The “Fare Types” page was divided into four columns. The first identified several topics. The second was headed “Jet Saver” and contained information about each topic. The third and fourth columns contained similar information about other types of fare.
16.So far as is relevant to this proceeding, the first two columns read as follows:
Flight Information
Flight Date or Time or passenger Name Change via Telephone Reservations, GDS, GSA or at Airports.Jet Saver International flights to/from Australia ... operated by Jetstar: Up to 24 hours prior to departure, $75AUD per passenger per flight plus any fare difference to re-book. 17.Once Ms Free completed her booking electronically, the “Jet Saver Fare Rules” set out above and the part of the “Fare Types” page set out above became terms of the contract into which she entered with Jetstar for the purchase of the two tickets. Their effect was this. If she wished to change a ticket to one for a flight on a different date or to one for a flight at a different time, or if she wished to change the name in which a ticket had been booked for a flight, she would only be able to do so by paying:
a.The difference between the fare for the ticket originally purchased and the fare which was applicable for a ticket for the same flight route on the day that the change was made by Jetstar, plus
b.A “change fee” of $75.00 per change per “passenger flight segment”.[6]
[6]Paragraphs [11]-[17].
Jetstar also had certain other conditions of carriage, of which one in particular (condition 6) might have been pertinent, but these were disregarded by the Senior Member for reasons he explained as follows[7]:
20.Ms Skewes referred me to Jetstar’s “Conditions of Carriage” which also, in section 6, specified that a booking was not transferable but the “applicable fare rules may permit you to change your booking”. There was no evidence, however, as to whether and if so how those “conditions of carriage” were ever brought to Ms Free’s attention when she booked the ticket, other than by means of a reference to them in the sentence referred to in paragraph 11 above, so as to incorporate them into the contract between Ms Free and Jetstar. So I disregard them. At all events, since they do little more than to refer to the “applicable fare rules”, they do not seem to add anything to the terms I have already mentioned.
Jetstar does not complain in this appeal about the fact that the Tribunal disregarded the “Conditions of Carriage”. However, it does submit that the Fare Rules themselves had the effect that a booking was not transferable. Senior Member Vassie’s comments above seem to accept this. Ms Free has disputed it in argument before me, but I think that the relevant provisions of the Fare Rules to which Senior Member Vassie referred, together with Fare Rule 1.1 to which he did not specifically refer[8], in combination, clearly prohibited the transfer of a booking except with Jetstar’s involvement, in that they made fares non-refundable and provided that a name change was always subject to re-booking with Jetstar and to the payment of a change fee plus any applicable fare differential.
[7]Paragraph [20].
[8]Fare Rules 1.1 reads: “This booking is non-refundable. Customers who do not check-in for their booked flight within the required time will forfeit the entire fare paid”.
Nevertheless the Senior Member ultimately held that the requirement under the “Fare Rules” to pay the fare difference (of $600.93) was an “unfair term” of the contract between Ms Free and Jetstar and ordered Jetstar to refund it. Before coming to the Senior Member’s reasons for reaching that conclusion, it is desirable to turn to the statutory scheme in more detail.
The statutory scheme generally
Section 1 of the FTA proclaims that the main purposes of the Act include:
(a)to promote and encourage fair trading practices and a competitive and fair market;
(aa) to protect consumers; [and]
…
(bb) to provide for unfair terms in consumer contracts to be void; … .
The title of Part 2B of the FTA is “Unfair Terms in Consumer Contracts”. It commenced operation on 20 October 2003.
It is common ground now that the contract in question was a “consumer contract” for the purposes of Part 2B, and that Ms Free was a “consumer” as defined.[9] It is useful to note the following further definitions in s 32U of the FTA:
prescribed unfair term means a term that is prescribed by the regulations to be an unfair term or a term to the like effect;
standard form contract means a consumer contract that has been drawn up for general use in a particular industry, whether or not the contract differs from other contracts used in that industry;
unfair term has the meaning given by section 32W.
[9]Below, Senior Member Vassie gave detailed consideration to these aspects and decided that the contract was a “consumer contract” as defined and that Ms Free was a “consumer” as defined.
Section 32V provides that, in general, Part 2B does not apply to contractual terms covered by the Consumer Credit (Victoria) Act 1995; and that it does not apply to contractual terms that are required or expressly permitted by law, but only to the extent required or permitted. The most important sections for present purposes are ss 32W and 32X, which are set out above. Section 32Y is also important. It provides:
32Y Effect of unfair term
(1) An unfair term in a consumer contract is void.
(2) A prescribed unfair term in a standard form contract is void.
(3)The contract will continue to bind the parties if it is capable of existing without the unfair term or the prescribed unfair term.
(4)Subsection (1) applies to any consumer contract entered into on or after the commencement of section 12 of the Fair Trading (Amendment) Act 2003.
(5)Subsection (2) applies to any standard form contract whether entered into before or after the term is prescribed.
It is an offence for a supplier to use in relation to a consumer a standard form contract containing a prescribed unfair term, or for any person to attempt to enforce a prescribed unfair term in a standard form contract: see s 32Z.
By virtue of s 32ZA, the Director of Consumer Affairs may apply to VCAT for an injunction against any person who, in the Director’s opinion, is using, or recommending the use of, an unfair term in consumer contracts or a prescribed unfair term in standard form contracts. VCAT may grant an injunction under s 32ZA on such terms as it considers appropriate. An injunction “may relate not only to the use of a particular term in a consumer contract, but to any similar term or to a term having like effect, used or recommended for use by any person”: s 32ZA(4).[10]
[10]Read literally, s 32ZA(4) may seem to have the extraordinary effect of authorising the grant of an injunction against a non-party who or which has had no notice of the application. Whether it should be so read need not be decided in this case, but the breadth of s 32ZA generally is worth noting.
Under s 32ZB, with certain limited exceptions, the Director may compulsorily acquire information from any person to facilitate the Director’s consideration of a complaint that a term in a consumer contract is an unfair term or that a term in a standard form contract is a prescribed unfair term, or to ascertain whether a person has complied with a relevant VCAT order.
Section 32ZC provides that the Director may apply to VCAT for a declaration that a contract is a consumer contract or standard form contract, or that a term of a consumer contract is an unfair term, or that a term of a standard form contract is a prescribed unfair term. There is also a power under s 32ZD for VCAT to give an advisory opinion on issues of that kind.
Certain related provisions were included in other parts of the FTA by the same amending legislation that introduced Part 2B as from 20 October 2003. Under s 108(2)(d) and (e), in a “consumer and trader dispute” (which this was), VCAT may declare that a term of a contract is, or is not, void; and may order the refund of any money paid under a contract or under a void contract. Section 163 provides that a “consumer document” (which is defined to include a “consumer contract”) must be easily legible, and, to the extent that it is printed or typed, must use a minimum 10 point font, and must be clearly expressed. Provision is also made in s 163 for VCAT to make orders prohibiting the use of non-complying documents, with criminal sanctions for disobedience.
Senior Member Vassie referred to several of the relevant of provisions of the FTA in his reasons for decision. He also referred to the prior decision of President Morris in Director of Consumer Affairs Victoria v AAPT Limited (AAPT),[11] decided on 2 August 2006, in which the relevant provisions had been considered comprehensively in the context of an application by the Director for declarations that various terms entered into by AAPT Ltd for the supply by it of mobile phone services were unfair terms prohibited by Part 2B. To date, AAPT has been treated as the leading decision on Part 2B of the FTA. Indeed Senior Member Vassie adopted the analysis of President Morris in AAPT as his own, saying (insofar as relevant to the issues of construction of s 32W):
[11][2006] VCAT 1493.
29.As to section 32W, his Honour expressed these conclusions:
(a)In the phrase “significant imbalance”, “significant” means “important” or “of consequence”. It does not mean “substantial”.
(b)The phrase “contrary to the requirement [sic] of good faith” performs an adjectival role, so that it assists in the assessment of whether a contractual term causes a “significant imbalance” in the parties’ rights and obligations, to the detriment of the consumer. It does not amount to a separate element which has to be proved before the term may be regarded as unfair. What has to be proved is the “significant imbalance”.
30.Whether or not the decision of a Supreme Court judge, in a capacity which is President of VCAT in a VCAT proceeding rather than in a Supreme Court proceeding, is imperatively binding upon other VCAT members (about which I express no opinion), I respectfully regard his Honour’s analysis as most persuasive and I treat it as a correct statement of the law.
Because Senior Member Vassie effectively incorporated the legal analysis in AAPT into his own reasoning, and because, as I will later explain, I respectfully disagree with important aspects of that analysis, it is desirable to turn now to the relevant parts of the reasons for decision in AAPT.
The decision of President Morris in the AAPT case
In AAPT, President Morris discussed the concept of “unfair term” in Part 2B of the FTA as follows:[12]
[12][2006] VCAT 1493 at [31]–[48] (footnotes renumbered and included as footnotes to this judgment).
The meaning of “unfair term”
31In order to ascertain the meaning of “unfair term” the proper place to start is with the words of the statute.[13]
[13]See Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5, at [70], (2002) 186 ALR 289 at [70], per Kirby J.
The words of section 32W
32It is apparent that a term in a consumer contract is to be regarded as unfair if it causes a significant imbalance in the parties’ rights and obligations arising under the contract. It is apparent that the significant imbalance must be to the detriment of the consumer. And it is apparent that in determining whether a term causes a significant imbalance in the parties’ rights and obligations one must have regard to all the circumstances. What is less apparent is: what is meant by a “significant” imbalance? And what is the role to be given to the words “contrary to the requirements of good faith”?
33The word “significant” simply means “important” or “of consequence”. It does not mean “substantial”. It is not a word of fixed connotation and besides being elastic is somewhat indefinite.[14] However, in its context, it is designed to identify an imbalance, to the detriment of the consumer, which should be regarded as unfair. In this sense the definition is circular. But it is impossible to avoid the notion of fairness in determining whether a term causes a significant imbalance, even though this exercise is designed to ascertain whether a term is unfair.
[14]In Merri Creek Quarry Pty Ltd v Foletta (1951) 82 CLR 347, at 353, Dixon J made the same comment about the word “works”. It is common for a word used in a statute to have a grammatical or semantic meaning that does not readily reveal the legal meaning. See Aharon Barak, Purposive Interpretation in Law, Princeton University Press, 2005 and F A R Bennion, Statutory Interpretation, 3rd Edition, 1997.
34The manner in which the Parliament has referred to the requirements of good faith is curious. The Parliament has not said that a term is to be regarded as unfair if the term is contrary to the requirements of good faith. Rather the manner of expression suggests that if a term causes a significant imbalance in the parties’ rights and obligations arising under a consumer contract, to the detriment of the consumer, this would be contrary to the requirements of good faith. Thus the manner of expression suggests that the phrase is either surplusage or simply performs an adjectival role, designed to assist in the assessment of whether a term in a consumer contract causes an imbalance which is “significant”. It is unlikely that the Parliament intended the words to be surplusage.[15] Hence it is likely that the Parliament intended that the reference to the requirements of good faith play a role in determining whether the nature, or extent, of an imbalance should be regarded as significant.
[15]See Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 382 [71].
35Insofar as the reference to the requirements of good faith performs a role (whether adjectival or substantive), it will be necessary to identify the content of these requirements. It is likely that it will have both a procedural and a substantive component. However I propose to defer this for the moment to see if the history of the provision, or any relevant authorities, suggest that a different meaning to that indicated by the language used. [sic]
The history of Part 2B of the FTA
36In introducing the Fair Trading (Amendment) Bill[16] into the Legislative Council on 21 May 2003, the Minister for Consumer Affairs stated that the Bill:
[16]This Bill contained Part 2B of the FTA.
prohibits unfair terms in consumer contracts, along the lines of similar United Kingdom legislation but with a further provision enabling the Government to prescribe terms in standard form consumer contracts as unfair, which will enable the Government to step in where consumers sign take-it or leave-it contracts, not necessarily because of misleading, deceptive or unconscionable conduct by the trader, but which nevertheless contained terms that tipped the balance unfairly and disproportionately in favour of the trader.
37The reference to similar United Kingdom legislation would appear to be a reference to The Unfair Terms in Consumer Contracts Regulations 1999 (“the 1999 UK regulations”).[17] These regulations replaced The Unfair Terms in Consumer Contracts Regulations 1994 (“the 1994 UK regulations”).[18] Both sets of regulations were made pursuant to the European Communities Act 1972. Clause 5(1) of the 1999 UK regulations provides:
[17]Statutory Instrument 1999 No 2083.
[18]Statutory Instrument 1994 No 3159.
A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.
A schedule to the 1999 UK regulations contains an indicative and non-exhaustive list of terms which may be regarded as unfair. Further, clause 6(1) of the regulations provides, in substance, that:
the unfairness of a contractual term shall be assessed, taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of the contract and to all other terms of the contract or of another contract on which it is dependent.
The similarities between these provisions and section 32W of the FTA are apparent.
38It is necessary to also refer to the terms of the 1994 UK regulations, because it is only those regulations which have been considered at a high judicial level. Section 4 of the 1999 UK regulations provided:
4(1)In these Regulations, subject to paragraphs (2) and (3) below, “unfair term” means any term which contrary to the requirement of good faith causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.
Schedule 2 to the 1994 UK regulations amplified the requirement of good faith:
In making an assessment of good faith, regard shall be had in particular to –
(a)the strength of the bargaining positions of the parties;
(b)whether the consumer had an inducement to agree to the term;
(c)whether the goods or services were sold or supplied to the special order of the consumer, and
(d)the extent to which the seller or supplier has dealt fairly and equitably with the consumer.
Schedule 3 then provided a long list of terms which may be regarded as unfair.
English cases
39In 1989, in deciding Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd,[19] Bingham LJ made a number of pertinent observations about the concept of “good faith”:
[19][1989] QB 433.
“In many civil law systems, and perhaps in most legal systems outside the common law world, the law of obligations recognises and enforces an overriding principle that in making and carrying out contracts parties should act in good faith. This does not simply mean that they should not deceive each other, a principle which any legal system must recognise; its effect is perhaps most aptly conveyed by such metaphorical colloquialisms as “playing fair”, “coming clean” or “putting one’s cards face upwards on the table”. It is in essence a principle of fair and open dealing.
English law has, characteristically, committed itself to no such overriding principle but has developed piecemeal solutions in response to demonstrated problems of unfairness.”
He then offered examples as to particular situations where English law had provided a solution to problems of unfairness: such as in relation to unconscionable bargains, the imposition of exemption clauses and penalty provisions in contracts. But in 1994 there was a more direct response to the problem of unfairness with the making of the 1994 UK regulations.
40In February 2000 the Court of Appeal of England and Wales was required to interpret the 1994 UK regulations in Director General of Fair Trading v First National Bank plc.[20] The judgment of the Court, given by Lord Justice Peter Gibson, concerned a term in a loan agreement that allowed a bank to recover interest on an amount adjudged by the County Court to be owing under the agreement. After posing the question as to whether the relevant term was unfair, Lord Justice Peter Gibson said:
[20][2000] EWCA Civ 27, [2000] QB 672.
“Three elements in the test in the Regulations of unfairness of a contractual term may be noted, viz.
(1)an absence of good faith;
(2)a significant imbalance in the parties’ rights and obligations under the contract; and
(3)a detriment to the consumer.
Good faith has a special meaning in the Regulations, having its conceptual roots in civil law systems. The German Standard Contract Terms Act, providing for the avoidance of a term which is unreasonably disadvantageous to a party “contrary to the requirements of good faith” (see Markesinis: The German Law of Obligations Vol. 1 (1997) p.908), appears to have had a significant influence on the Directive (see Chitty on Contracts, 28th ed. (1999) para. 15-034).”
After referring to the comments of Bingham L.J. in Interfoto Library Ltd v Stiletto Ltd, Lord Justice Peter Gibson quoted from Professor Beale:[21]
[21]Legislative Control of Fairness: The Directive on Unfair Terms in Consumer Contracts, in Beatson and Friedmann: Good Faith and Fault in Contract Law (1995), at 245.
“I suspect that good faith has a double operation. First, it has a procedural aspect. It will require the supplier to consider the consumer’s interests. However, a clause which might be unfair if it came as a surprise may be upheld if the business took steps to bring it to the consumer’s attention and to explain it. Secondly, it has a substantive content: some clauses may cause such an imbalance that they should always be treated as unfair.”
Lord Justice Peter Gibson then said:
“As is aptly said in Anson’s Law of Contracts, 27th ed. (1999), p.293, the good faith element seeks to promote fair and open dealing, and to prevent unfair surprise and the absence of real choice. A term to which the consumer’s attention is not specifically drawn but which may operate in a way which the consumer might reasonably not expect and to his disadvantage may offend the requirement of good faith. Terms must be reasonably transparent and should not operate to defeat the reasonable expectations of the consumer. The consumer in choosing whether to enter into a contract should be put in a position where he can make an informed choice.
The element of significant imbalance would appear to overlap substantially with that of the absence of good faith. A term which gives a significant advantage to the seller or supplier without a countervailing benefit to the consumer (such as a price reduction) might fail to satisfy this part of the test of an unfair term.
Finally the element of detriment to the consumer must be present for the term to be found to be unfair.”
The Director relied upon this decision.
41The decision of the Court of Appeal in the First National Bank case was the subject of an appeal to the House of Lords.[22] The leading judgment in the House of Lords was given by Lord Bingham of Cornhill.[23] He observed that it was plain from the recitals to the directive that one of its objectives was partially to harmonise the law among all member States of the European Union. He thought that the language used in expressing the test was clear and not reasonably capable of different interpretations.[24] Lord Bingham continued:
[22]Director General of Fair Trading v First National Bank plc [2001] UKHL 52; [2002] 1 AC 481.
[23]With the exception of Lord Steyn, the other Lords agreed with Lord Bingham on the construction of the “unfair term” provision.
[24]Counsel for the Director took particular exception to this statement.
“A term falling within the scope of the regulations is unfair if it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer in a manner or to an extent which is contrary to the requirement of good faith.”[25]
[25][2002] 1 AC 481, at 499 at paragraph [17].
He observed that the requirement of significant imbalance is met if a term is so weighted in favour of the supplier as to tilt the parties’ rights and obligations under the contract significantly in the supplier’s favour. He continued:
”The requirement of good faith in this context is one of fair and open dealing. Openness requires that the terms should be expressed fully, clearly and legibly, containing no concealed pitfalls or traps. Appropriate prominence should be given to terms which might operate disadvantageously to the customer. Fair dealing requires that a supplier should not, whether deliberately or unconsciously, take advantage of the consumer’s necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract, weak bargaining position or any other factor listed in or analogous to those listed in Schedule 2 to the Regulations. Good faith in this context is not an artificial or technical concept; nor, since Lord Mansfield was its champion, is it a concept wholly unfamiliar to British lawyers. It looks to good standards of commercial morality and practice. Regulation 4(1) lays down a composite test, covering both the making and the substance of the contract, and must be applied bearing clearly in mind the objective which the Regulations are designed to promote.”[26]
[26][2002] 1 AC 481, at 499 at paragraph [17].
Lord Bingham went on to hold that the term in dispute could not properly be said to be unfair having regard to the statutory test.
42It was suggested that Lord Bingham intended to identify three independent requirements for a term to be regarded as unfair: that it be detrimental to the consumer, that it cause a significant imbalance, and that it be contrary to the requirement of good faith. However the first passage I have cited does not support this. Rather I would take Lord Bingham as indicating that the manner or extent of the imbalance must be contrary to the requirement of good faith. To my mind, this suggests that the “good faith” phrase was regarded as adjectival in operation, rather than imposing a separate requirement. The reference to the “requirement of good faith” in the second quoted passage is a reference, not to a separate requirement of an unfair term, but to the content of the concept of good faith.
43By contrast, Lord Steyn held that the definition of an unfair term had three independent requirements. He thought that the requirement that the term be detrimental to the consumer may not add much; and focused on the other two requirements. He considered that the concept of good faith imposed an objective criterion; and that good faith imported the notion of open and fair dealing. He observed that this requirement was explained in a European Commission publication as “to enforce community standards of decency, fairness and reasonableness in commercial transactions”.[27] In relation to the element of significant imbalance, Lord Steyn noted that this directed attention to the substantive unfairness of the contract. He added:
[27][2002] 1 AC 481, at 499 at paragraph [36].
“It is however, also right to say that there is a large area of overlap between the concepts of good faith and significant imbalance.”
Conclusions on the meaning of “unfair term”
44The history of the FTA and the decisions of the House of Lords in the First National Bank case confirm my view that the expression “contrary to the requirements of good faith” in section 32W of the FTA performs an adjectival role and is designed to assist in the assessment of whether a term in a consumer contract causes an imbalance which is “significant”. As I have indicated, the definition of an unfair term might be thought to be circular, as it is impossible to avoid the notion of fairness in determining whether a term causes a significant imbalance in the parties’ rights and obligations. However, if the balance of the parties’ rights and obligations is thought to be contrary to the requirements of good faith this would be indicative of a significant imbalance. There is no separate requirement of “good faith” in consumer contracts; rather “good faith” is a touchstone which might be employed in determining whether a term in a consumer contract is an unfair term.
45It may be that, in practice, the concept of “good faith” provides limited assistance. If it is a principle of fair and open dealing, it provides direction; but it is not a roadmap to a destination. The same goes for the colloquialisms of “playing fair” and “coming clean”. In the Interfoto case Bingham LJ also suggested that good faith was conveyed by the colloquialism of “putting one’s cards face upward on the table”; but, frankly, I think this takes the concept too far.
46In Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL (Receivers and Managers Appointed) (Administrators Appointed)[28] the Victorian Court of Appeal was reluctant to conclude that commercial contracts were of a class that carried an implied term of good faith as a legal incident, although it observed that it may be sometimes appropriate to import such an obligation to protect a vulnerable party from exploitive conduct which subverts the original purpose for which the contract was made.[29] In this context Buchanan JA briefly touched on what might be the content of an implied contractual duty of good faith. This included acting reasonably, not acting capriciously, not seeking to prevent the performance of a contract or withholding its benefits, and not seeking to further an ulterior purpose for [sic] that which a contractual right or power is conferred. Frankly these examples of what might be the content of a duty to show good faith are of limited assistance. This is especially so in light of the detailed guidance provided by section 32X of the FTA, where a host of specific matters are set out which are designed to, and do, guide a court or the tribunal in determining whether a term of a consumer contract is unfair.
[28][2005] VSCA 228.
[29]The Supreme Court of New South Wales and Finn J of the Federal Court of Australia have been more adventurous (or robust): see Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1 and Alcatel Australia Limited v Scarcella (1998) 44 NSWLR 349. See also Right Honourable Peter Blanchard, Good Faith, Commercial Morality and the Courts, a paper delivered at the 22nd Annual Banking and Financial Service Law and Practice Conference, Cairns, August 2005.
47Sir Anthony Mason has said that he thought it probable that the “concept of good faith” embraced no less than three related notions:
1An obligation on the parties to co-operate in achieving the contractual objects (loyalty to the promise itself);
2compliance with honest standards of conduct; and
3compliance with standards of contract which are reasonable having regard to the interests of the parties.[30]
[30]Sir Anthony Mason, 1993 Cambridge lecture, quoted in Alcatel Australia Limited v Scarcella (1998) 44 NSWLR 349 at 367.
In a subsequent and influential article “Contract, Good Faith and Equitable Standards in Fair Dealing”[31] Sir Anthony expanded upon these notions. In relation to the third notion – which might be called a requirement of fair dealing – he observed:
… within reason and in conformity with the express provisions of the contract, the exercise of power is not [to be] capricious, arbitrary, unconscionable or unreasonable even to the extent of insisting upon, in an appropriate case, taking account of the interests of the other party.[32]
Although these observations provide some general assistance in understanding the content of “the requirements of good faith” it remains the case that the concept can only play a general adjectival role in determining whether a term in a consumer contract is to be regarded as unfair pursuant to section 32W of the FTA.
48Finally, I would observe that I would agree with the observation of Professor Beale[33] that the “requirements of good faith” have a procedural aspect and a substantive content. A term in a consumer contract might cause such a significant imbalance in the parties’ rights and obligations arising under the contract (to the detriment of the consumer) that the term is unfair even if the term is individually negotiated or brought to the attention of the consumer. On the other hand, there will be other terms in consumer contracts which will not be regarded as unfair if, and only if, individually negotiated; or, if, and only if, brought to the attention of the consumer.
[31](2000) 116 LQR 66.
[32](2000) 116 LQR 66 at 77.
[33]Quoted by Lord Justice Peter Gibson in the First National Bank case and set out above.
VCAT’s reasons for finding an “unfair term” in the present case
Senior Member Vassie’s reasons for finding that the contract between Ms Free and Jetstar contained an “unfair term” were expressed as follows:
32.The terms which were to the effect set out in paragraph 17 above, and which Ms Free alleges is [sic] “unfair”, were not individually negotiated. They were formulated by Jetstar and contained in information on its internet website. There was no opportunity for Ms Free to negotiate for their omission or for their modification. Her choice was only to make a booking in the way made available on the website, which involved incorporation of the terms into a contract, or not to make a booking.
33.That the terms were not individually negotiated is a matter that I have taken into account, as expressly permitted by section 32X, when considering whether they are unfair. Obviously, a term is less likely to be found to be unfair if it has been individually negotiated than if it has not been.
34.In two ways, the terms are indiscriminate. First, they are expressed to operate not only in a case when the customer is requesting a change to a different flight on another date or to a different flight at another time on the same date, but also in a case when the customer is requesting only a change to a passenger name on the flight originally booked. In each case, the terms operate to impose a requirement to pay not only the “change fee” of $75.00 per flight but also to pay the relevant fare difference. Secondly, in the second case when the requested change is to a passenger name only, the terms operate not only where the customer’s proposed transfer of the ticket is part of a commercial transaction for financial gain but also when the customer’s proposed transfer of the ticket is not part of any such transaction but is for personal reasons.
35.When a customer requests a change to a different flight, the customer is in effect requesting Jetstar to provide a different service: a seat on another flight. As at the date when the request was made, that seat was available to any purchaser at a particular price. Had there been no previous booking, the customer would have had to pay that price in order to secure the seat. Once Jetstar accedes to the request, the seat that the customer originally booked becomes vacant. Jetstar may or may not be able to re-sell it. In such a case, there is nothing potentially unfair about contractual terms requiring the customer to pay the difference between the fare for the seat originally booked and the fare for the seat secured on the different flight as at the date when the change is made.
36.But the terms are indiscriminate. When a customer does no more than request Jetstar to change the name in which a passenger’s ticket has been booked, there is no change of the flight. The seat originally booked remains sold. There is no potential detriment to Jetstar when it accedes to the request; instead, there is a windfall for Jetstar because the contractual terms operate to entitle it to require the payment of a higher price than the price for which the seat was sold originally, and a detriment to the customer because the contractual terms operate to require the customer to pay a higher fare than the fare originally agreed upon. Such a state of affairs is, on the face of things, contrary to the requirements of good faith. Potentially, there is a significance imbalance in the parties’ rights and obligations arising under the contract because, in the manner described, there is a windfall to Jetstar, to the detriment of the customer, the consumer.
37.I have said that “potentially” there is a significant imbalance because Jetstar, in its evidence at the hearing and in its written submission, asserted that there were good reasons for Jetstar requiring a customer who requested a passenger name change to pay the fare difference. The written submission described those reasons as being:
“(b) [to] prevent its tickets being resold to other consumers by unauthorized and unlicensed resellers;
(c) to [to] [sic] prevent travel agents and others from purchasing large blocks of discounted seats, so that seats are available for the airline’s customers on a range of flights, including close to the scheduled departure date ...”
In fact those reasons were given in the written submission as reasons for the airline industry adopting a general principle of non-transferability of tickets, but they have obvious application to the terms in question.
38.It is reasonable for Jetstar to seek to prevent re-sale, in the ways described in the written submission, of discounted tickets for financial gain. But the term in question does more than that. It is indiscriminate in the second way described above. It catches not only the person whose request for a name change is made with a view to achieving a financial gain but also the person who, like Ms Free, requests a name change for family or other personal reasons and with no view to achieving a financial gain.
39.Accordingly, in my opinion, the terms in question, to the extent that they require payment of a fare difference when a name change is requested, cause a significant imbalance, to the detriment of purchasers from Jetstar, in the rights and obligations of the parties under the contract of sale, are “unfair” within the meaning of that word in part 2B of the Act, and so are void by virtue of section 32Y(1).
40.On the other hand I see nothing unfair in Jetstar requiring payment of a “change fee” to compensate it for the administrative work involved in effecting a change in the booking, whether it be a change of flight date, change of flight time or change of passenger name. There was no evidence of how the “change fee” of $75.00 per flight segment was arrived at but there does not seem to be anything obviously unreasonable about the figure.
41.By virtue of section 32Y(3) the contract will otherwise be binding if it is capable of existing without an unfair term. It is. Deletion of the words “and name” from paragraph 2.2 of the “Jet Saver Fare Rules” and deletion of the word “or Passenger Name Change” from the first column on the “Fare Types” page would remove the unfair term and the parties would remain otherwise bound by the remaining terms of the contract.
42.What I have just written assumes that words or phrases in a contractual provision can be regarded as a “term” and can be evaluated as being unfair and therefore void without the whole contractual provision having to be regarded as unfair and therefore void. In the AAPT case (above) Justice Morris P pointed out that the Act does not define the word “term” and expressed the opinion (in paragraph 13) that in the context of Part 2B the word seemed to required “some element of integrity, that is an element that can stand alone or be identified as a separate part of a contract”. While the words that I have said could be deleted from the contractual provision are meaningless if they stand alone, it would be possible to paraphrase the contractual provision so that there was a discrete part of it which imposed the requirement for payment of the fare difference when a passenger name change was requested. So I consider that the assumption is valid.[34]
[34][207] VCAT 1405 at [32]-[42].
VCAT rejects the “unconscionability” claim
Although noting that it was probably unnecessary to consider Ms Free’s alternative claim of unconscionability under s 8 of the FTA, Senior Member Vassie proceeded to do so briefly. He held that s 8 applies only to conduct prior to or surrounding the making of the contract and not to the contractual terms themselves.[35] He considered that there was no conduct of Jetstar of that kind that could possibly be called unconscionable.
[35]The correctness or otherwise of that interpretation of s 8 of the Act has not been raised in this appeal.
VCAT’s other conclusions and its order
As indicated in paragraphs 41-42 of its reasons[36], VCAT concluded that the term in question was effectively severable. That conclusion is not in dispute. VCAT also held that it had the power to order a refund where payment had been made pursuant to a term that it considered to be void. Once again, that much is not in dispute. VCAT proceeded to make an order that Jetstar pay Ms Free the sum of $600.93, representing the fare differential. That is the order presently under appeal. It is the subject of a stay granted by Master Daly.
[36]Set out above.
The grounds of appeal
Pursuant to leave granted by Master Daly on 17 September 2007, Jetstar appeals on the following grounds as stated in its notice of appeal:
1.The Tribunal erred in law in finding that part of the term of the contract between the parties, which permitted the respondent to change the name in which the ticket was booked subject to paying the difference between the fare originally purchased and the fare available on the date of the change (the Term), was an unfair term within the meaning of section 32W of the Fair Trading Act 1999 (Vic) (FTA) (paragraph 39 of the reasons for decision).
2.The Tribunal erred in law in construing the phrase “contrary to the requirements of good faith” in the definition of unfair term in section 32W of the FTA as having an adjectival operation and in failing to give it an independent operation as a separate element of the definition (paragraphs 29(b) and 30 of the reasons for decision).
3.The Tribunal erred in law in finding that the Term caused a significant imbalance in the parties’ rights and obligations within the meaning of section 32W of the FTA, by merely assessing the benefits and detriments to the parties of the Term as a single term of the contract, and failing to assess the rights and obligations of the parties under the contract as a whole (paragraphs 36 to 39 of the reasons for decision).
4.The Tribunal erred in law in finding that the Term caused a significant imbalance in the parties’ rights and obligations within the meaning of section 32W of the FTA, by failing to take into account the benefit to the respondent from the right granted to the respondent by the Term to change the name in which the ticket was booked (paragraph 36 of the reasons for decision).
5.The Tribunal erred in law in making a finding not supported by any evidence, that the appellant was and is able, practically and legally, to discriminate between its customers, such that:
(a)the Term is applied to customers who wish to change the name in which the ticket was booked for the purpose of a commercial transaction for financial gain; and
(b)the Term is not applied to customers who wish to change the name in which the ticket was booked for personal reasons (paragraphs 34 and 38 of the reasons for decision).
The parties’ submissions
The appellant filed a lengthy, heavily footnoted, submission two weeks prior to the hearing. Ms Free (who was by then represented by the Director under s 105 of the FTA) filed an even lengthier and equally heavily footnoted submission in response. Jetstar filed a relatively modest 4 page reply two days before the hearing. Ms Free then filed a 2 page supplementary submission as to the meaning of s 32W. She filed another (very short) submission on that topic on the second day of the hearing. The written submissions, and the issues generally, were extensively discussed at the hearing. Subsequently, a large combined folder of additional authorities and academic writings relied on by the parties respectively was filed. (My own research has thrown up even more authorities and academic and governmental writings of potential assistance[37]). In summarising the parties’ arguments, I will proceed mainly by reference to their respective principal (original) written submissions.
[37]Without being exhaustive, I note that, in addition to the material referred to by the parties and the further material cited in various places elsewhere in this judgment, the following material has assisted to inform my consideration of the legal issues: N. Reich, Protection of Consumers’ Economic Interests by the EC” (1992) 14 Syd LR 23 at 56-60; J. Burke, Reinventing Contract [2003] Mur UEJL 18 at [193]-[213]; James R Maxeiner, “Standard-Terms Contracting in the Global Electronic Age – European Alternatives” 28 Yale J Int’LL (2003); L. Brown “The impact of section 51AC of the Trade Practices Act 1974 (Cth) on commercial certainty” [2004] MULR 20; A. Robertson, “The Limits of Voluntariness in Contract” [2005] MULR 5, esp Part III(4); N. Reich, “Protection of Consumers’ Economic Interests by EC Contract Law – Some Follow-up Remarks” [2006] Syd L Rev 3 esp Part D; New South Wales Parliament, Legislative Council, Standing Committee on Law and Justice: Report No 32 “Unfair terms in consumer contracts”, 23 November 2006 esp at (xiii), 5, 24, 43-90; NSW Government Response to the Legislative Council Standing Committee on Law and Justice Report on Unfair Terms in Consumer Contracts, April 2007; K. Saunders and Dr E. Lanyon, “Unfair terms in consumer contracts”, Law Institute Journal, Sept 2007, 64; Consumer Affairs Victoria, “Preventing unfair terms in consumer contracts”: Guidelines on unfair terms on consumer contracts, 2007; Productivity Commission Inquiry Report No 45, Review of Australia’s Consumer Policy Framework, 30 April 2008, esp chapter 7.5 and Appendix D; Carter, Peden and Tolhurst, Contract Law in Australia, 5th edition, 2007 at [24-30]- [24-32]; Carter on Contract, Looseleaf Service [25-210]-[25-240].
After some relatively brief points relating to the factual background and to the general legal principles applicable to appeals under s 148 of the VCAT Act, Jetstar’s principal written submissions address the five specific grounds of appeal, in order. By contrast, Ms Free’s principal written submissions address both the facts and the principles of review in much greater detail, and then address the relevant provisions of the FTA in general terms, before finally (and relatively briefly) addressing the specific grounds of appeal. It is desirable to go immediately to Jetstar’s submissions under the five grounds of appeal.
Appellant’s submissions: ground 1
Jetstar’s submissions under ground 1 were very brief. In its written submissions it simply said[38]:
Jetstar submits that VCAT erred in law in finding that the [term in question] was an unfair term within the meaning of section 32W of the FTA. It is submitted that this is a case in which the conclusion reached by VCAT was not reasonably open to it having regard to the facts as found and the proper construction of section 32W of the FTA. The reasons why the conclusion reached by VCAT was not reasonably open to it are elaborated in the other grounds of appeal, which are dealt with in turn.
[38]Footnote omitted.
In its oral submissions[39], Jetstar made it clear that ground 1 was not put forward as having any life of its own. It was merely a precursor to grounds 2-5. In effect, it was abandoned.
[39]Supreme Court transcript 57.
Appellant’s submissions: ground 2
Under ground 2, Jetstar submits that VCAT erred by construing the phrase “contrary to the requirements of good faith” as having an adjectival operation and in failing to give it an independent operation as a separate element of the definition.
That Senior Member Vassie proceeded in that way is evident, Jetstar submits, from his adoption of the corresponding part of the legal analysis in the AAPT case and in particular from his summary thereof at paragraph 29(b) of his reasons for decision, as follows:
The phrase “contrary to the requirement [sic] of good faith” performs an adjectival role, so that it assists in the assessment of whether a contractual term causes a “significant imbalance” in the parties’ rights and obligations, to the detriment of the consumer. It does not amount to a separate element which has to be proved before the term may be regarded as unfair. What has to be proved is the “significant imbalance”.
Jetstar submits that as a result of that construction of s 32W, Senior Member Vassie did not separately consider whether the term in question caused a significant imbalance in the parties’ rights and obligations contrary to the requirements of good faith and in all the circumstances.[40] Jetstar notes that Senior Member Vassie did make reference to the good faith element of s 32W at paragraph 36 of his reasons but, Jetstar submits, it is clear from his construction of the section, and from the context of his reference to the good faith element, that he equated that element with the element of “significant imbalance”. Jetstar says that the Senior Member’s reasons did not separately address or give meaning to the good faith element and that his conclusion (at paragraph 39) that the term in question was an unfair term made no reference to the good faith element.
[40]At this point Jetstar asserts that the alleged failure to take into account all of the circumstances is one of the bases of appeal in grounds 3 and 4, but see my comments below as to the scope of ground 3 as drafted.
Jetstar submits that the Senior Member’s construction of s 32W is wrong in law, and that the phrase “contrary to the requirements of good faith” is a separate element of the definition and must be given an independent operation. Jetstar’s arguments in support of that proposition are put forward by reference to four things: first, a certain principle of statutory construction; second, the meaning of “good faith”; third, surrounding provisions; and, fourth, earlier decisions.
First, Jetstar submits that a court construing a statutory provision will strive to give meaning to every word of the provision[41]. It submits that the effect of VCAT’s reasoning would be that the words “good faith” would have the same role and meaning in the section as the word “significant”, and that the phrase “contrary to the requirements of good faith” would be effectively otiose. On this construction, Jetstar submits, the section would be directed only to the question whether the relevant term causes a significant imbalance in the parties’ rights and obligations. It submits that such a construction fails to give effect to the language used by Parliament; that Parliament expressly added additional requirements to the section; and that a term cannot be regarded as unfair simply because there is a significant imbalance in the parties’ rights and obligations. Jetstar submits that the assessment of whether the relevant term causes a significant imbalance must take account of all of the circumstances, and that the relevant term must cause the significant imbalance in circumstances that can be described as contrary to the requirements of good faith.
[41]Citing Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355 at 382 [71] per McHugh, Gummow, Kirby and Hayne JJ.
Secondly, Jetstar submits that the phrase “the requirements of good faith” has a rich meaning in law; and that the phrase is not equivalent to, nor descriptive of, the words “a significant imbalance in the parties’ rights and obligations”. Jetstar submits that the meaning in law of the phrase “the requirements of good faith” is a clear indication that Parliament intended those words to have an independent operation in s 32W, and that a term is not to be regarded as unfair unless this element of the section is separately satisfied.
Jetstar contends that it is significant that Parliament chose the plural “requirements” (of good faith). It says that this is a clear reference to the various good faith requirements that are imposed by courts exercising equitable jurisdiction in the context of contractual relationships. It points out that the requirements of good faith in contractual relationships have been considered in numerous cases both in Australia and in the United Kingdom. Examples are cited, including Renard Constructions (ME) v Minister for Public Works[42] where Priestley JA observed that:
… the ideas of unconscionability, unfairness and lack of good faith have a great deal in common.
Jetstar also refers to South Sydney DRLFC v News Limited[43] where Finn J said that:
… recent decisions suggest that the implied duty of good faith and fair dealing ordinarily would not operate so as to restrict decisions and actions, reasonably taken, which are designed to promote the legitimate interests of a party and which are not otherwise in breach of an express contractual term.
[42](1992) 26 NSWLR 234 at 268.
[43](2000) 177 ALR 611 at 696.
Jetstar refers also to the relatively recent decision of the Victorian Court of Appeal in Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL (Receivers and Managers Appointed)[44] in which Buchanan JA observed that decisions in other cases interpreted the requirement of good faith as involving acting reasonably, not acting capriciously, not seeking to prevent the performance of the contract or to withhold its benefits and not seeking to further an ulterior purpose or a purpose extraneous to that for which a right or power is conferred. Finally Jetstar refers to the observations of Lord Bingham in the Interfoto case and in the First National Bank case[45] to the effect that good faith in a contractual context means “playing fair”, “coming clean” or “putting one’s cards face upwards on the table” or, in other words, that it is “a principle of fair and open dealing”. Jetstar submits that in the First National Bank case all other members of the House of Lords agreed with Lord Bingham’s description of the requirement of good faith.
[44][2005] VSCA 228 at [28]. Referred to in turn by President Morris in AAPT at para [46]: see above.
[45]Both also cited by President Morris in AAPT, at [39] and [41]-[42] respectively: see above.
Jetstar contends that it is apparent from the foregoing that the requirement of good faith is not primarily directed, if it is directed at all, to the balance in the parties’ rights and obligations under a contract. Rather, Jetstar submits, it is directed to the circumstances of the transaction including such factors as:
(a)whether a contractual term is expressed in clear terms;
(b)whether a party was given adequate notice of a contractual term;
(c)in a suitable context, whether a party was given an opportunity to negotiate the terms of the contract;
(d)whether one party took advantage of the necessitous circumstances of another party; and
(e)whether one party was pursuing an ulterior or extraneous purpose or acting capriciously.
Jetstar submits that the language used by Parliament in s 32W is consistent with that kind of meaning of the phrase. It is important to observe in this context, Jetstar says, that a significant imbalance in the parties’ rights and obligations may, in various circumstances, be consistent with the requirements of good faith. For example, Jetstar submits, an imbalance may not be contrary to the requirements of good faith if both parties acted with full knowledge of the proposed rights and obligations and neither party took advantage of the other party’s necessitous circumstances.
Thirdly, Jetstar submits that Parliament’s intention concerning the phrase “contrary to the requirements of good faith” is also evident from s 32X. It points out that s 32X provides that in determining whether a term is unfair one may take into account, among other things, whether the term was individually negotiated. This section makes it clear, Jetstar submits, that the definition of unfair term is not merely concerned with a significant imbalance in the parties’ rights and obligations, because, Jetstar submits, individual negotiation of a contract is not relevant to the assessment of whether a term causes a significant imbalance – rather, it is relevant to whether the term is contrary to the requirements of good faith in all the circumstances.
Fourthly, Jetstar deals with the First National Bank case and the AAPT case. As to the former, Jetstar refers to the passages in the judgment of Lord Bingham which were in turn referred to in paragraph 41 of the AAPT decision set out above. Jetstar submits that in those passages Lord Bingham discusses the two requirements of the definition of an unfair term separately, and that the discussion indicates that the two requirements have separate meanings (albeit with the potential for overlap). Jetstar points out that Lord Hope, Lord Millett, and Lord Roger all agreed with the reasoning of Lord Bingham.[46]
[46]At 501 [40], 505 [53] and 507 [62].
Jetstar submits that Lord Steyn’s judgment is to the same effect. According to Jetstar, his Lordship recognised that regulation 4 of the corresponding UK legislation contained three elements: a significant imbalance in the parties’ rights and obligations under the contract, detriment to the consumer and that those circumstances arose contrary to the requirement of good faith.[47] Jetstar points out that Lord Steyn expressly agreed with Lord Bingham’s description of the meaning of the phrase “the requirement of good faith”[48] and that Lord Steyn further observed (by way of contrast) that the element of significant imbalance directed attention to the substantive unfairness of the contract.[49] According to Jetstar, Lord Steyn’s statement that there is a large area of overlap between the concepts of good faith and significant imbalance[50] cannot be taken as contradicting his earlier observation that the relevant regulation has three elements. Jetstar says that it is not entirely clear what his Lordship meant by the statement, given his earlier statement concerning the different elements of the regulation and the meaning of the different elements. Perhaps, Jetstar says, Lord Steyn simply meant that a term that causes a significant imbalance in the parties’ rights and obligations under the contract may often be imposed in circumstances that may be described as lacking good faith.
[47]At 499-500 [36] – [37].
[48]At 500 [36].
[49]At 500 [37].
[50]At 500 [37].
Next, Jetstar refers to the fact that Senior Member Vassie followed the earlier decision in AAPT in which President Morris concluded that the phrase “contrary to the requirements of good faith” was designed to assist in the assessment of whether a term in a consumer contract causes an imbalance which is “significant”[51]. Jetstar emphasises, and criticises, the following passage in AAPT:
… if the balance of the parties’ rights and obligations is thought to be contrary to the requirements of good faith this would be indicative of a significant imbalance. There is no separate requirement of “good faith” in consumer contracts; rather “good faith” is a touchstone which might be employed in determining whether a term in a consumer contract is an unfair term”.[52]
[51][2006] VCAT 1493 at [34].
[52]At [44]. Emphasis added by Jetstar.
Jetstar notes that President Morris considered First National Bank but rejected the argument that the House of Lords had concluded that the “significant imbalance” and “good faith” elements of the regulation were separate requirements. Jetstar also says that President Morris wrongly interpreted Lord Bingham’s decision as supporting the construction that the President favoured, namely that the phrase “contrary to the requirements of good faith” is not a separate element of the definition in s 32W and is only intended to assist in the assessment of whether a term in a consumer contract causes an imbalance which is “significant”.[53]
[53]At [42].
Jetstar submits that the reasoning of President Morris in AAPT is wrong in law and that the construction advanced by Jetstar is to be preferred.
Turning back to the present case, Jetstar submits that Senior Member Vassie did not separately address or give meaning to the good faith element, and that his decision therefore contains a legal error. Jetstar further submits that there is nothing in the factual findings of VCAT to suggest that any imbalance in the parties’ rights and obligations caused by the term in question was contrary to the requirements of good faith. (Indeed, Jetstar denies that there was any such imbalance). Jetstar submits that the reasons for decision show that the term in question was prominently displayed, clearly expressed, viewed by Ms Free before she purchased the fare and was not invoked by Jetstar capriciously or for an ulterior or extraneous purpose.
In oral argument (in reply), Jetstar submitted that the effect of the expression “contrary to the requirements of good faith” in s 32W is that a contractual term cannot be regarded as unfair unless, among other things, there is a finding that its inclusion in the contract represents a departure from “commercial morality”[54]; and that there was no such finding in the present case.[55] Indeed Jetstar went so far as to submit that “bad faith” needed to be shown.[56]
[54]Supreme Court transcript 213-221.
[55]Supreme Court transcript 221.
[56]Supreme Court transcript 220.
Appellant’s submissions: ground 3
Under appeal ground 3, Jetstar submits that VCAT erred in law in finding that the term in question caused a significant imbalance in the parties’ rights and obligations, in that VCAT merely assessed the benefits and detriments to the parties of that term as a single term of the contract, and failed to assess the rights and obligations of the parties under the contract as a whole.[57] In this regard Jetstar refers to the following particular aspects of the reasoning of Senior Member Vassie:
[57]Jetstar refers in particular to paragraphs 36 to 39 of VCAT’s reasons.
To my mind, the precise meaning of the “good faith” element in s 32W is by no means as clear as one would wish.[110] At least so far as the Victorian legislation is concerned, I do not share Lord Bingham’s easy confidence in that particular regard.[111] As his Lordship himself noted, although the test laid down by the UK regulations derives from the EEC Directive, the member states of the European Union have no common concept of fairness or good faith.
[110]Compare, as to “good faith” generally, Jobern Pty Ltd v BreakFree Resorts (Victoria) Pty Ltd [2007] FCA 1066 (Gordon J) at [136]-[150], [157].
[111]Nor can I fully agree with the comment frequently made by Mr Zumbo in his various articles to the effect that the UK and Victorian legislation is admirably clear. Compare M. Dean, “Defining Unfair Terms in Consumer Contracts – Crystal Ball Gazing? Director General of Fair Trading v First National Bank plc “ (2002) 65 Modern Law Review 776 at 780.
Nevertheless, the wording of s 32W itself, including the expression “contrary to the requirements of good faith”, is so strikingly close to that of the corresponding provisions of the EEC Directive and of the 1994 and 1999 UK regulations that Parliament should be taken to have intended that the expression should receive a reasonably similar interpretation. The same is also indicated by a report which led to the enactment of Part 2B of the FTA, namely the 2002 Report to the Victorian Minister for Consumer Affairs by the Fair Trading Act Review Reference Panel, especially page 11 thereof, which refers favourably to the approach taken in the UK regulations. Similarly, the Victorian Minister’s Second Reading Speech (quoted in AAPT above) referred to the Bill for the relevant amending Act being “along the lines of similar UK legislation”. Therefore the various judgments in the First National Bank case must be regarded a valuable source of guidance. None of those judgments would support Ms Free’s submission that what Parliament intended by its reference to “good faith” was to authorise VCAT to pursue a broad-based and flexible inquiry leading to such conclusions as it saw fit in relation to the question whether a “significant imbalance” existed. In my view Parliament did not intend, by that reference or otherwise, that VCAT should set sail on an uncharted sea. Detailed guidance is available from s 32W (as a whole) and s 32X, read together. I do not think that this is an instance of the kind referred to by Gummow J in Brennan v Comcare[112], ie, where Parliament intended “to abandon to the courts the task of reaching conclusions not on facts, but on, at best, partly predicated fact-value complexes”.
[112](1994) 122 ALR 615 at 635-636.
I turn to the respondent’s alternative submission in this connection. As will be recalled, this is to the effect that a term contrary to the requirements of good faith “may” involve:
•a denial of the consumer’s legitimate interests;
•such that a substantial benefit contracted for by the consumer is lost;
•in circumstances where the term is not reasonably necessary to protect the supplier’s legitimate interests.
No developed argument was put to support this alternative. It suffers from its own inherent tentativeness. But, moreover, it may call for an inquiry into each individual consumer’s undefined “legitimate interests” and each individual supplier’s undefined “legitimate interests” (including, perhaps, the detailed financial circumstances of each particular consumer and of each particular supplier.). I can see no sufficient warrant for this in the language or history of the relevant provisions.[113] In my view, s 32W is centrally concerned with the fairness of the terms of contracts in themselves, in the light of broad business practices in the relevant industry, and in the light of the circumstances in which each relevant contract was made, and not so much with the multifarious personal interests of individual parties to which their contracts might directly or indirectly relate. Further, the respondent’s argument seems to focus on the time of the consumer’s “loss”, not the time of the contract. In the UK, express provisions make it clear that the time of the contract is the only relevant time. No express equivalent exists in Victoria, but, in my view, the same is clearly implied. I cannot see how a contractual term could be regarded as “fair” at one time but “unfair” at another time under Part 2B of the FTA, bearing in mind that any term is theoretically capable of being declared by regulations to be a “prescribed unfair term”.[114] It is another question whether a party might be criticised, on the ground of unconscionability or otherwise, for seeking to enforce a contractual term at a particular time in the light of intervening events. In Victoria, such a matter may be covered by s 8 of the FTA and perhaps by other parts of the statutory or general law of Victoria, but not by Part 2B of the FTA.[115]
[113]But, again, see Chitty on Contracts, 29th edition 2004 at [15-046]—[15-049] and compare S. Smith, Atiyah’s Introduction to the Law of Contract, 2005 at 322-324; J. Beatson, Anson’s Law of Contract, 28th edition, 2002 at 300-307.
[114]Compare Keldote Pty Ltd v Riteway Transport Pty Ltd [2008] FMCA 1167 at [83]-[86] and cases there cited.
[115]The peremptoriness of VCAT’s rejection of Ms Free’s unconscionability claim may have been influenced by a possible failure to appreciate the full scope of s 8 of the FTA, but, as mentioned above, that matter was not the subject of complaint or argument before me and I say no more about it.
In any event, the acceptance of the respondent’s alternative construction of “contrary to the requirements of good faith” would not save VCAT’s decision. It did not adopt or apply any such construction. Further, contrary to the apparent assumption of the respondent, the proposition that, due to the term in question, a substantial benefit contracted for by her was lost, is controversial to say the least. Ultimately VCAT will need to reconsider the whole matter afresh in the light of any new evidence adduced and any new submissions made, but there must be real doubt about the respondent’s contention that a benefit for which she contracted was a (transferable) cheap flight.
In my view s 32W requires a more conventional understanding of “contrary to the requirements of good faith” than the respondent would suggest. As noted above in First National Bank, Lord Bingham said that good faith in this context is not an artificial or technical concept, nor a concept wholly unfamiliar to British lawyers. He said that it “looks to good standards of commercial morality and practice”.[116] Moreover, contrariety to the requirements of good faith must be shown. In my view this does not mean that “bad faith”, in the most pejorative sense of that expression, must be established.[117] However, I would accept that a contractual term should not be regarded as unfair unless, among other things, the inclusion of the term is found to involve a departure from good standards of commercial morality or practice. On the other hand, as Lord Bingham also said, the (overall) test is a composite one, covering both the making and the substance of the contract, and must be applied bearing clearly in mind the statutory objective (which, I think, is common to both the UK legislation and the Victorian legislation), namely “to protect consumers against unfair and prejudicial terms”.[118] Nor should the decision-maker forget the dictionary meaning of “unfair”, which, relevantly, is defined in the Macquarie Concise Dictionary, 3rd revised edition, as “not fair; biased or partial; not just or equitable; unjust”. As is said by Bennion in the third edition of his respected work on Statutory Interpretation[119] (under the heading “Potency of the term defined”):
Whatever meaning may be expressly attached to a term, it is important to realise that its dictionary meaning is likely to exercise some influence over the way the definition will be understood by the Court. It is impossible to cancel the ingrained emotion of a word merely by an announcement.
So, a departure from good standards of commercial morality or practice may not always be particularly difficult to show. In Victoria, the guidance provided by s 32X (especially sub-paragraphs (a)-(m) thereof) must be kept firmly in mind. It is probably not useful in this appeal to endeavour to pin down any further the notion of contrariety to the requirements of good faith. However it is clear that VCAT neither addressed it as a separately identifiable element of the test of unfairness under s 32W, nor understood it in the sense intended by the statute. These failures were errors of law.
[116][2002] AC 481, 494.
[117]Cf Overlook v Foxtel [2002] NSWSC 17 at [68]-[71].
[118][2002] 1 AC 481, 491, 494.
[119]At 435, citing Richard Robinson, Definition (1952), p 77. President Morris made a similar point in AAPT at [33].
It is no answer for Ms Free to say, as she does, that VCAT’s various findings of fact were open to it. Its findings of primary fact may well have been. But the real question is whether, had VCAT applied the correct test, its ultimate decision might have been different.[120] I am in no doubt that VCAT’s decision might have been different if it had addressed the good faith element distinctly and in the sense intended by the statute (even putting aside any errors it may have made in relation to “significant imbalance” or in relation to any other aspects of s 32W).
[120]See Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 353, 384.
Accordingly, the appeal must be allowed on ground 2 at least.
Determination on ground 3: the need to consider the contract as a whole: other factors
The submissions made by Jetstar by reference to ground 3 arguably travel beyond the terms of that ground as drafted, as I will shortly explain. However the respondent did not take objection on that basis. In any event I consider that, even if confined to the limited way in which it is drafted, ground 3 would have to be upheld. And, in the absence of relevant objection, I would also uphold it on an additional basis that was advanced by Jetstar in its written and oral submissions.
The thrust of ground 3 as drafted is the allegation that VCAT focussed exclusively on the term in question (the name change term) and disregarded other relevant terms of the contract. On the face of it, ground 3 contains no indication that complaint is sought to be made about VCAT ignoring any other relevant circumstances, such as the contemporaneous availability of different kinds of tickets for the same seats on the same flights, with different terms and conditions and higher prices. However Jetstar’s submissions do include a (prominent) complaint to the effect that VCAT ignored evidence that a less restrictive, more expensive kind of fare – the Jetflex fare[121] - was available for routes including the Honolulu route at the time when Ms Free booked her Jetsaver fare, and that the same was advertised on Jetstar’s website side-by-side with the Jetstar fare.[122]
[121]Even more expensive “Star Class” (premium economy) fares were also available: see AB 77-78, 97, but on the appeal Jetstar placed little or no emphasis on that fact: see Supreme Court transcript p 23.
[122]See the summary (above) of Jetstar’s submissions under ground 3.
Notwithstanding what might be gathered from the respondent’s written submissions in relation to ground 3 (especially para (b) thereof)[123], in the end the respondent did not seriously dispute that there was compelling evidence before VCAT that Jetflex fares were available and advertised as just mentioned. It is true that, before VCAT, Ms Free gave evidence that she “wouldn’t have looked at an expensive ticket” (in the sense, I believe, that she would not have been prepared to pay for an expensive ticket), and also that she did not recall seeing any side-by-side display of comparable prices. However, Ms Skewes’ oral evidence on the set-up of the website in this regard was clear.[124] Further, the uncontradicted documentary material (including the attachments) forwarded by Jetstar to VCAT and to Ms Free on 8 June 2007 pursuant to VCAT’s grant of leave to Jetstar to file and serve “any written submission of law on the ‘unfair term’ issue by 8 June 2007”[125], which I would nevertheless treat as part of the evidentiary material before VCAT[126], confirmed that Jetflex fares were available and advertised in the way Ms Skewes indicated.[127]
[123]Set out verbatim above.
[124]AB 79.
[125]VCAT’s reasons, paras 8-9. My emphasis.
[126]Which Senior Member Vassie himself was apparently prepared to do (see paras 8, 9 and 37 of his reasons) and which the respondent has not seriously submitted I should not do.
[127]AB 79, 92, 93, 96, 97, as explained by Jetstar’s counsel, without objection, before me (transcript 25-31).
In any event, as I have said, I would uphold ground 3 as drafted. I accept Jetstar’s submission that, as a matter of law, the decision-maker is required to have regard not only to the term in question but also to the rights and obligations of the parties under the contract as a whole. That requirement is inherent in the language of s 32W insofar as it calls for an inquiry into whether the term in question causes an “imbalance” in the parties’ “rights” (plural) and “obligations” (plural) “arising under the contract”. It is confirmed by the statutory injunction to consider “all the circumstances”.
This does not mean that each and every term of the contract is equally relevant, or necessarily relevant at all. The main requirement is to consider terms that might reasonably be seen as tending to counterbalance the term in question. The task involves an exercise of judgment against a statutory standard, rather than an exercise of discretion.[128] Even so, where any appeal must be limited to a question of law, the assessment of relevance is primarily for the court or tribunal of first instance. Generally speaking,[129] in an appeal limited to a question of law, this Court will not interfere on this account unless satisfied, from the decision-maker’s reasons or otherwise, that:
•the decision-maker did in fact ignore or disregard some other relevant term or terms[130]; and either
•the decision-maker did not appreciate that it was under a duty to consider and balance other relevant terms; or
•the decision-maker’s treatment of other relevant terms was simply not open as an exercise of the power to judge whether the term in question was unfair within the meaning of s 32W of the FTA[131]; and
•had the decision-maker not so erred, the ultimate result might have been different.
[128]See Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [33]-[34]; Dwyer v Calco Timbers Pty Ltd [2008] HCA 13 at [37]-[40].
[129]In the present case there is no need for me to consider whether the attribution of excessive or inadequate weight to a relevant term might amount to an error of law under s 32W; cf, in relation to discretionary administrative decisions, Minister for Aboriginal Affairs v Peko Wallsend Ltd (1986) 162 CLR 24 at 41.
[130]See Harrison v Mansfield [1953] VLR 399 at 404.
[131]S v Crimes Compensation Tribunal [1998] 1 VR 83; Vetter v Lake Macquarie County Council (2001) 202 CLR 439 at 450-452.
In the present case, I am satisfied that VCAT disregarded at least one relevant term, namely a special term as to price, that tended to counterbalance the term in question. It was central to Jetstar’s case below that the fare offered was a special introductory fare and extremely cheap. As I have mentioned, the return fare from Melbourne to Honolulu and back was only $82 plus taxes and charges (a total of $437.39). It is true that VCAT noted this at the beginning of its reasons, but it made no further reference to the fact. It gave no indication of having balanced it against the restrictive term in question. In Europe and the UK, the unfair contracts legislation generally excludes any complaint about an allegedly excessive “up front” price or about alleged inadequacy in the main subject matter offered in return for the price. The same approach may or may not be implicit in the Victorian legislation. However, it is well recognised overseas that a special price reduction can justify what might otherwise appear to be a harsh or strict or “unfair” term. In First National Bank, in the Court of Appeal[132], Peter Gibson LJ said:
The element of significant imbalance would appear to overlap substantially with that of the absence of good faith. A term which gives a significant advantage to the seller or supplier without a countervailing benefit to the consumer (such as a price reduction) might fail to satisfy this part of the test of an unfair term. (My emphasis).[133]
This passage was included in passages quoted by President Morris in AAPT, but otherwise no attention was given in that case to the possible significance of countervailing benefits such as price reductions. It may be that, as a result, Senior Member Vassie did not appreciate that he was under a duty to consider and balance other relevant terms such as a particularly low price. In any event, VCAT’s omission to treat the extreme cheapness of the introductory fare as relevant and to take it into account as part of the necessary balancing exercise was simply not open to it. Either way, error of law has been demonstrated, and ground 3 must succeed for this reason alone.
[132][2008] QB 672, 687C.
[133]See also “Unfair Terms in Contracts, A Joint Consultative Paper”, Law Commission Consultation Paper No 166, Scottish Law Commission Discussion Paper No 19, 2002, para 3.63-3.65; Chitty on Contracts, 29th edition, 2004 at 15-046; J. Beatson, Anson’s Law of Contract, 28th edition, 2005 at 303; S.A. Smith, Atiyah’s Introduction to the Law of Contract, 2005, at 320; P. Nebbia, Reforming the UK Law on Unfair Terms: the Draft Unfair Contract Terms Bill (2007) 23 Journal of Contract Law 228 at 239.
In addition, on the assumptions I have mentioned and having regard to the course of argument and the lack of a pertinent objection, I would also uphold ground 3 on the basis that VCAT failed to have regard to relevant circumstances outside the terms of the contract itself.
The respondent does not deny that it is a mandatory requirement of s 32W that regard be had to “all the circumstances”. Indeed she could hardly have done so while maintaining under ground 2, as she did, that s 32W as a whole mandates a broad-based inquiry into a “fact-value complex”.
Once again, allowing a proper margin of appreciation to the tribunal and speaking generally,[134] the Court needs to be satisfied:
[134]Again, I need not consider whether the attribution of excessive or inadequate weight to a relevant circumstance might amount to an error of law: cf Peko Wallsend, loc cit.
•that the tribunal in fact failed to take into account some relevant circumstance; and
•that, either:
(a)it did so because it misconstrued its obligations under the legislation; or
(b)it arrived at a conclusion as to relevance that was simply not open; and
•that, had the tribunal not erred in this regard, the ultimate result might have been different.
As mentioned above, I am satisfied that VCAT ignored or disregarded the cheapness of the fare insofar as that cheapness was attributable to its introductory nature. I am also satisfied that VCAT ignored or disregarded the evidence that Jetstar routinely offers other, more expensive kinds of fares - and, in particular, Jetflex fares - and that Jetsaver fares are generally cheaper than Jetflex fares for the very reason that Jetsaver fares are less flexible (including being non-refundable). As Jetstar points out, VCAT made no mention of the Jetflex fare.
Once again, either VCAT misconstrued its obligations under s 32W or it arrived at a conclusion as to relevance that was simply not open; and the result might otherwise have been different. The relevance of the distinction between more flexible and less flexible kinds of fares is undeniable, in my view. The “product” being sold is different in each case. It is too simplistic to call it a “seat on a flight”[135]. It is a right to travel on different terms and conditions as specified in each case respectively. Otherwise, stated restrictions could simply be ignored. It is obvious that the more flexible the fare type, the more valuable it is to the consumer and the more the consumer might reasonably be expected to pay for it. That is so even apart from the evidence led by Jetstar as to its business model and its need to adhere to fare restrictions. There was evidence before VCAT (if evidence were needed) that non-transferability is a “normal practice” in the airline industry[136]. Jetstar also gave evidence that one of the purposes of non-transferability was “to promote effective inventory and yield management”, and Jetstar gave a brief explanation of what it meant in that regard.[137] VCAT made no reference to that evidence. The respondent now seeks to deflect this problem by asserting that Jetstar’s evidence lacked detailed economic explanation and justification. However, I do not think that Jetstar needed to mount a major case of the kind appropriate to a proceeding in the Australian Competition Tribunal. In any event, if VCAT was not satisfied with the accuracy of the general assertions made by Jetstar in this regard it should have raised this with Jetstar. It did not.
[135]Compare Diners Club Pty Ltd v Ansett Australia Limited [2008] VSCA 30 at [44] per Maxwell P with whom Chernov JA and Cavanough AJA relevantly agreed.
[136]AB93.
[137]Ibid.
In these circumstances it was not open to VCAT to disregard or ignore the distinction between more flexible and less flexible kinds of fares and the regular and open price differentiation between them in the airline industry. These matters were plainly relevant to the question of “significant imbalance”. (They were also plainly relevant to the question of “good faith.”) VCAT’s failure to have regard to them was a further error of law. Its ultimate decision might otherwise have been different. Among other things, it might well not have characterised the operation of the term in question as a “windfall” for Jetstar, which was a central part of its reasoning. In that regard, VCAT’s focus on the presumably minimal cost of the simple administrative step of changing the name of the passenger was too narrow. Accordingly, for this reason also, ground 3 must be upheld.
Determination on ground 4: the benefit of the right to substitute a passenger
Ground 4 really involves no more than an aspect or extension of the matters just dealt with under ground 3. And, given Jetstar’s success on grounds 2 and 3 and the need for VCAT to rehear the case generally as a result, it is not worthwhile for me to give much separate attention to ground 4. Nevertheless, for completeness, I indicate that I uphold it.
Jetstar is not saying by ground 4 that VCAT somehow overlooked completely the fact that Ms Free obtained the benefit of the right to change the passenger name, or even that VCAT overlooked Ms Free’s entitlement to have the money previously paid credited towards the new fare. Rather, Jetstar’s point is that VCAT failed to treat those benefits as appreciable and significant. Jetstar contends that that failure, in turn, was due to VCAT omitting to have regard to the non-refundability term and to the fact that Ms Free had selected a fare less flexible (and accordingly cheaper) than other fares available at the same time. I do not accept the respondent’s submission that the matters now relied on by Jetstar were not raised before VCAT. They clearly were. As I have said, the non-refundability term (Fare Rule 1.1) was in evidence.[138] Its interrelationship with the availability of the Jetflex fare was expressly relied on by Ms Skewes.[139] For the reasons given above in relation to ground 3, I accept that VCAT erred in the particular way relied on by Jetstar under ground 4, and that this amounted to error of law. Once again, VCAT’s decision might otherwise have been different. For example, once again, VCAT might have been less ready to characterise the sum of $600.93 as a “windfall” for Jetstar. Accordingly, I uphold ground 4.
[138]AB 95, 103.
[139]AB 74, 92.
Determination on ground 5: Discriminating between Jetstar’s customers
Jetstar ranges far and wide in its submissions under ground 5, as summarised above. However ground 5 itself is narrowly drafted. It is a “no evidence” ground, and a very limited one at that. It asserts that there was no evidence that Jetstar was able, practically and legally, to discriminate between customers wishing to change a passenger name for commercial reasons and those wishing to do so for personal or family reasons.
This time, the respondent’s submissions do refer to and rely upon the narrowness of ground 5 as drafted. The respondent also points out that the topic of discriminating between customers was raised “in general terms” by VCAT.
The question is probably academic, because Ms Free’s claim will need to be heard and decided again by VCAT in any event, and I intend to direct that the parties be at liberty (in effect) to begin their cases afresh, but in my view Jetstar should be held in this appeal to the terms of ground 5 as drafted. As the respondent said in oral argument, a good deal of the elaboration relied on by Jetstar in relation to ground 5 came from the Bar table rather than from evidence led by Jetstar before VCAT. There would be potential injustice to Ms Free (going beyond costs) in allowing Jetstar to rely in this appeal, under ground 5, on anything not falling fairly within its terms.
I would not uphold this ground (as drafted). “No evidence” challenges are strictly confined and rarely succeed, especially in relation to a tribunal like VCAT, which, unlike a court, is not bound by the rules of evidence.[140] In any event, I would accept that, in discussions with Jetstar’s representative at the hearing,[141] Senior Member Vassie clearly flagged the possibility that he might proceed on the basis that Jetstar would be able, practically and legally, to discriminate between customers in the way now complained of. Judging by her answers, Ms Skewes may not have fully comprehended the import of the Senior Member’s questions, but the fact is that Jetstar was duly put on notice of the point, and it was a point that, as a matter of common sense and justice, fell to be dealt with by evidence and/or submissions from Jetstar, not by evidence or submissions from Ms Free. Jetstar submits now that the proposition is self-evident. However it did not make that submission below, and I think that it behoved Jetstar to lead some evidence, or at least to make a submission, before VCAT to the effect that it would be impossible, or unreasonably difficult, to discriminate between customers in the way referred to. The words of Lord Mansfield spoken 200 years ago in Blatch v Archer,[142] quoted with approval much more recently by Gleeson CJ in Swain v Waverley Municipal Council,[143] are applicable:
All evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted.
[140]Compare State of Victoria v Subramanian [2008] VSC 9 at [24]-[34].
[141]VCAT transcript p.18, lines 22-29.
[142](1774) 1 Comp 63 at 65 [98 ER 969 at 970].
[143](2005) 220 CLR 517 at 525-526 [17].
Ground 5 does not succeed.
Conclusions and orders
Grounds 2, 3 and 4 have been made out. For the most part, Jetstar has succeeded mainly by reference to considerations of law that were not raised before VCAT. However, putting aside costs, it is not suggested that the entertaining of grounds 2, 3 and 4 by the Court has involved any injustice to the respondent on that account. I am unable to perceive any reason why, as a matter of discretion or otherwise, VCAT’s decision should not be set aside.
Jetstar no longer seeks an order dismissing Ms Free’s claim in VCAT. It is content with an order that the matter be remitted to VCAT to be heard and decided again according to law. Such an order would be appropriate. I think that it should be accompanied by an order pursuant to s 148(7)(c) of the VCAT Act that both parties be at liberty to adduce such further evidence as they may be advised. Such an order is appropriate because – due at least partly to the prior AAPT decision which I have respectfully declined to apply – the proper legal framework was misapprehended on all sides at the original hearing.
In accordance with common practice[144], I would be inclined to order that VCAT be reconstituted for the rehearing, but I will hear any submissions to the contrary.
[144]See the cases collected in Pizer, Victorian Administrative Law, at [V 5107]; Davidson v Fish [2008] VSC 32 at [16].
Costs
My present provisional inclination is to make no order as to costs, partly because this appeal is in the nature of a test case and partly because of Jetstar’s approach to the matter below, particularly its rejection of the offer of a directions hearing before VCAT and its failure to raise before VCAT the legal submissions it has now made to this Court. However, I will hear the parties as to costs generally.
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