Qantas Airways Ltd v Aravco Ltd

[1995] HCATrans 381

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney   No S136 of 1995

B e t w e e n -

QANTAS AIRWAYS LIMITED

Applicant

and

ARAVCO LIMITED

Respondent

Application for special leave to appeal

DAWSON J
GAUDRON J
McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 15 DECEMBER 1995, AT 12.33 PM

Copyright in the High Court of Australia

MR A.R. EMMETT, QC:   If it please, your Honours, I appear with my friend, MR A.J. MEAGHER, SC, for the applicant.  (instructed by Ebsworth & Ebsworth)

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR D.J. FAGAN, for the respondent.  (instructed by Holman Webb).

DAWSON J:   Mr Emmett.

MR EMMETT:   Your Honour, this question does raise a matter of principle, that being the extent to which the Trade Practices Act permits a supplier of goods or services, in effect, to pass on to the consumer liabilities to third parties, with the intention of then relying upon the limitation of liability, which section 68A recognises as a possibility under the Trade Practices Act.

The scheme of the legislation is that section 74 in this case imposes an obligation on a supplier of services a duty to take due care in the provision of those services.  There are similar implied warranties in relation to the supply of goods.  Section 68 then says that you may not, in effect, contract out of those provisions, subject only to section 68A.  What the applicant sought to do in this case was to say to the acquirer of the services, “You will indemnify me in respect of claims by third parties”.  That, of course, in our submission, does not in any way deal with the implied warranty under section 74, namely that the acquirer of those services is entitled to say, “You have not discharged your duty to provide those services in accordance with your obligation to take care.  I will, therefore, sue you for damages because you have caused some loss to me by reason of your breach of duty.  The damage in this case is your claim for an indemnity”.

Now, in this case that second stage has not occurred, that is, there has been no claim by the acquirer of the services for breach of the indemnity.  What it sought to do was to cut off that process at an earlier stage by saying, “Your claim ‑ ‑ ‑

DAWSON J:   The owner of the aircraft which was damaged sued Qantas because Qantas did the damage.

MR EMMETT:   Yes.

DAWSON J:   Qantas said, “Well, we are entitled to an indemnity from you, Aravco, because of the contract between us”.  Aravco says, “That is no longer there because of the application of the Trade Practices Act”.

MR EMMETT:   That is the question ‑ ‑ ‑

GAUDRON J:   But would it matter?  Assume it is there, would not the parties be chasing their tails?

MR EMMETT:   No, not quite.

GAUDRON J:   I know it is not pleaded and there is a problem about that, but would not Aravco’s damage be precisely the sum, or at least the sum, that Qantas was entitled to recover under the indemnity, so that, at the end of the day they would cancel out and you would get a nil sum?

MR EMMETT:   That is right, and if that were as far as it went, then that would be the result, but that is not as far as it goes because of the intervention of section 68A which says that a supplier can limit its liability for that claim for breach of warranty, but there is nothing that strikes down, in terms, the claim to be indemnified, so long as it is a claim for indemnity in respect of a third party.

Could I give to your Honours some diagrams which are an attempt to explain just the sort of thing that your Honour Justice Gaudron was putting to me?  We have tried to make this more general because the principle applies quite apart from the fortuitous circumstance that BAT happened to have some contractual arrangement with Aravco.  Let it be assumed that Qantas causes damage to a third party, in this case it, by chance, happened to be done to the aircraft, but it causes damage.  That third party may conceivably sue Qantas direct, or it may sue Aravco, because what Qantas was doing was as agent for Aravco. 

For example, if, instead, the claimant being the owner of the aircraft, it was Ansett who happened to have an aircraft nearby which was damaged, if Ansett made the claim on Aravco, because Qantas was acting as Aravco’s agent in moving the aircraft around, Aravco might then say to Qantas, “I want to claim under my warranty for damages”.  Qantas would say, “Yes, you have a right under section 74 to sue me for damages, however, I rely on section 68A and my limitation of liability.  I am not liable to you for more than the cost of resupplying the services”, subject, of course, to the operation of subsection (2) which says if it is unreasonable to rely upon the limitation, that is a different matter.

GAUDRON J:   It would be, would it not, in a case such as the present?

MR EMMETT:   It might be.  That is an issue that has not yet been resolved. 

DAWSON J:   But where does this carry us?

MR EMMETT:   Because that would be the next step.

DAWSON J:   Yes.

MR EMMETT:   If your Honours upheld the appeal and reinstated the judgment of Mr Justice Giles, Qantas would say to Aravco, “You are liable to indemnify me for this liability.

GAUDRON J:   And Aravco would then say ‑ ‑ ‑

MR EMMETT:   And Aravco would say, “Yes, but you are in breach of your warranty and that is why I am liable”.  Qantas would say, “Oh, yes, but I rely upon the limitation of liability”.  It may be that the court in those circumstances would say, “It is not reasonable to rely on the limitation”.  That is simply not an issue that has yet arisen.  The effect of the Court of Appeal’s judgment is to deprive Qantas, at least, of having the opportunity of litigating that question, whether it is reasonable to rely upon clause 7 of the handling agreement, so as to limit its liability.

Can I just go through the diagram just to indicate:  so that, third party might make a claim on Aravco; Aravco then says to Qantas, “You were in breach of your warranty.  I want damages in respect of that claim”.  This is on the assumption that section 68A has no application.  Alternatively, which is the way in which it worked, third party says to Qantas, “You are liable”; Qantas says to Aravco, “I claim indemnity under the liability”; Aravco says, “Well, I seek damages for breach of the warranty”, therefore, as your Honour Justice Gaudron said, they would set off.  The net result is Qantas bears the $1 million either way.  The way in which the applicant says the matter would ‑ ‑ ‑

GAUDRON J:   It seems a very strange result that a party can be worse off with the benefit of an implied term than if there were no such implied term at all.

MR EMMETT:   No, that is not the consequence, with respect.  That is what we want to endeavour to explain..

GAUDRON J:   Well, you may not be but it seems odd that Aravco, having the benefit of an implied term, is worse off than if it had none at all.

MR EMMETT:   With respect, it is not.

GAUDRON J:   Could be, or might be ‑ ‑ ‑

MR EMMETT:   No, it could not be, not on the analysis that these diagrams attempt to show.  The second analysis involves an assumption that section 68A does apply and the construction contended for by Qantas prevails.  In those circumstances, the third party might make a claim against Aravco; Aravco then sues under its warranty for damages; Qantas says, “I rely upon the limitation”.  So, Qantas’ position is limited to the $5,000, the cost of resupplying the services.  Alternatively, if the third party makes a claim on Qantas direct, Qantas calls on the indemnity against Aravco. Aravco then says, “I sue on the warranty”; Qantas again says, “I rely upon the limitation”.  The result is the same, if our construction is accepted.  You then, however, go to what the Court of Appeal did.  Let it be assumed that the third party sues Aravco; Aravco sues on the warranty; Qantas relies upon the limitation pursuant to section 68A, subject, of course, to unreasonableness, if the Court determines that it ought not to be able to rely on that.

If, however, the matter proceeds in the way which it did, on the Court of Appeal’s assumption:  third party makes a claim against Qantas; Qantas cannot seek anything from Aravco because the Court of Appeal struck down the indemnity before it would operate, so that you never get to the stage ‑ ‑ ‑ 

DAWSON J:   That is the point, is it not, Mr Emmett?  All that we are concerned with here is a decision that the indemnity clause in the contract was a term which excluded, or restricted, or modified the implied term under section 74.  Now, that was the decision.  Where is the point of principle of general application there?

MR EMMETT:   Because, if the reasoning which prevailed is correct, one can never ‑ that is, a supplier ‑ pass on to his consumer liabilities for third parties.

DAWSON J:   It depends on the particular form of the indemnity clause in this case. 

MR EMMETT:   No, with respect, that is the point.  It does not depend upon the particular words.  The effect of the reasoning is that no ‑ it does not matter what words you use, you cannot pass on to an acquirer of services or goods a liability which you have to the third party in order ‑ ‑ ‑

DAWSON J:   That may be the effect of the Trade Practices Act.

MR EMMETT:   That may be, but that is the question.

DAWSON J:   Yes.

MR EMMETT:   That involves the construction of the provisions of the Trade Practices Act ‑ ‑ ‑

DAWSON J:   That is true.

MR EMMETT:   ‑ ‑ ‑ which, in our submission, is a point of principle that your Honours should look at.  It is a matter that affects not just this sort of situation but any contract ‑ ‑ ‑

DAWSON J:   Well, this situation is not exactly a common situation, is it, I would have thought?

MR EMMETT:   Well, it could be that one often finds in agreements for chattel leases and the like, a provision whereby the provider of the services seeks an indemnity from the user.  The effect is that you can never get the benefit ‑ ‑ ‑

DAWSON J:   You may be right that it is a common situation but it is not in my experience.  That does not mean anything very much, but I have never struck it before.

MR EMMETT:   This form of indemnity is a common device to endeavour to pass on to ‑ putting aside the Trade Practices Act, I would have thought your Honour must have seen often a situation where a supplier seeks to be indemnified in respect of any claim by a third party, arising out of the performance of the services, and one can find any number of decisions and reports about that sort of arrangement, and this is just that.  The only complication is that the Trade Practices imposes an extra contractual obligation to perform the services with care and says that you cannot contract out of them, except to the extent that you limit your liability in accordance with section 68A.  That really is the issue and, in our submission, it is a matter of principle that does not turn just on the particular words of this indemnity nor on the particular fact circumstance of this case.

GAUDRON J:   What do you contend for, that there should be a hearing with respect to the limitation of liability, or that there should not be because the indemnity stands in any event; it does not conflict with the statutory provision?

MR EMMETT:   No, not at all.  That is our proposition; that we are entitled to the indemnity.  The only thing that would conflict with the statutory obligation is something that said, “You can’t claim against us at all in respect of that indemnity”.  But we do not say that.  All we say is, “We want to limit our liability for breach of the warranty, as provided in clause 7”.  We do not say there should not be an inquiry.  If we are correct in our contention, then the next step would be, we assume, a claim by Aravco against Qantas under the warranty, and the damages are the liability which Aravco has under the indemnity and, in that case, we would plead clause 7 of the contract note and then a question may arise as to whether or not there would be an application of section 68A(2).  I suppose one would reserve the possibility there may be an ancient argument as to whether it is too late for them to do that but that is really not, in our submission, a matter that need concern your Honours.

GAUDRON J:   It is not a point you take?

MR EMMETT:   No.  I do not know whether we take it later on but unless your Honour is putting terms - if your Honours proposed to put conditions, I would have to get some instructions about that.

GAUDRON J:   If it is a point of principl,e it seems a ridiculous idea for it to be determined by reference to the way the pleadings have ‑ ‑ ‑

MR EMMETT:   Your Honours, we would not rely on Anshun if we were successful and Aravco then sought to claim under the warranty.  I am not sure that Anshun would apply in those circumstances anyway, but I am instructed to say that that point would not be taken, so there would then be a live question as to whether or not we are entitled to rely on the limitation.  That is really the issue.  May it please your Honours.

DAWSON J:   Thank you, Mr Emmett.  Mr Jackson.

MR JACKSON:   Your Honours, may we say just one thing about the substance of the matter.  In our submission, the critical feature is that the implication of the warranty does more than just provide a remedy to the consumer if there is a breach of the warranty.  Your Honours, could I seek to illustrate what I am saying in that regard by looking simply at the situation which would obtain if the services were provided in circumstances where, as against a third party, the supplier was the agent of the consumer and, indeed, in the case of motor vehicles, there may be a statutory agency.

Your Honours, in those circumstances, if the services were rendered by the supplier to the third party, without due care and skill, the third party is entitled to sue both the supplier and the principal, the consumer.  As between those parties, that is the principal and the agent, the consumer and the supplier, the existence of the implied obligation to render the services with due care and skill would mean that any claim to indemnity by the supplier against the consumer, in respect of the loss to the third party, because it was brought about by the supplier’s failure to render the services in accordance with the terms of the implied warranty, must fail.

DAWSON J:   You say one cancels the other out.

MR JACKSON:   Yes, your Honour.

DAWSON J:   That is what was held below, of course, yes.

MR JACKSON:   Yes.  Your Honour, what we would submit is that any contract which purported to override the situation, as between these two parties, would have to be inconsistent with the legislatively implied warranty.

DAWSON J:   But Mr Emmett says the fact that one can reduce one’s liability introduces a new feature in the case.

MR JACKSON:   Yes, but, your Honour, could I just say in relation to that, if one looks at section 68A and, in particular, to section 68A(1), and to paragraphs (a) and (b), they seem to make it perfectly apparent that what is being said is that the limitation of liability may be a limitation of liability as to the position between the consumer and the supplier.  They are not looking to the situation as between the third party and the supplier, and they are touching on the situation ‑ may I just say this:  your Honours will see it speaks of the expression:

only that the term limits the liability of the corporation for a breach of a condition or warranty ‑

and it seems to be speaking about the liability, by way of damages, for breach of the condition being limited to relief of the kind there referred to.  They are not dealing with the situation to which I was referring, that is the situation of the liability of the supplier to a third party which the supplier then seeks to put on to the consumer.  It is dealing with another and more limited, situation. 

So, your Honours, what we would submit in that regard is that section 68A is simply dealing with that class of case, namely, what is the limitation of, in effect, the damages for which the supplier may be liable to the consumer.  It is not dealing with the situation at all in a way that would affect, otherwise, the ambit of the implied warranty and its effect because, your Honours, the implied warranty provides, subject to such small limitation as is provided in section 68A, for the allocation of responsibility amongst supplier and consumer and, if one is in a situation where the supplier, who is obliged to render the services to us with due care and skill, is then able to say, “Even though I didn’t do that, I am still entitled to recover from you the loss occasioned by a third party because I didn’t do so”, inevitably, your Honours, cuts down or modifies or restricts the ambit of the warranty which is implied. 

Your Honours, that is why I commenced, in a sense, by saying that the warranty is not there just to provide remedies, it provides also for a standard of conduct and it provides, consequentially upon that, for a determination of which party is to have responsibility because of the failure to comply with that standard and, your Honours, that can be reflected in a couple of ways:  one is, in relation to the position against third parties, not touched at all by section 68A; another is, as to damages between supplier and consumer, which may be. 

Your Honours, I could also say that there remain, of course, at least two questions about section 68A.  If your Honours look first of all at paragraphs 68A(1)(a) and (b), there is a question whether there can be a limitation of liability intelligibly ‑ as we put in our written submissions ‑ in circumstances where the services cannot, in any realistic sense, be supplied again, and the second thing is, your Honours, where they could not intelligibly be dealt with in the manner referred to in (a) or (b) ‑ ‑ ‑

GAUDRON J:   Why does that not simply bring in subsection (2)?  I would have thought, in such a case, you might go to subsection (2) rather than say 1(b) does not apply.

MR JACKSON:   Your Honour, that is a possible view.  What I was going to submit is that there are really two things.  Section 68A(2) seems to suggest that one first looks to wee whether 68A(1) could apply.  If section 68A(1) could apply, it then becomes a question of whether it is fair or reasonable for there to be reliance upon it.  If section 68A(1) does not apply at all, then one does not have to get to the issue contemplated by

68A(2).  Your Honour, no doubt there are different possible ways of looking at it, but the opening words ‑ or the contemplation of section 68A(2) seems to, with respect, assume first that 68A(1) might apply.  Your Honours, those are our submissions.

DAWSON J:   Yes.  Mr Emmett.

MR EMMETT:   We would only say, your Honours, that what was contended for by my learned friend, really gives section 68A(2) much less work to do and the presence of that is a recognition, in our submission, via the Parliament of the possibility that there may be circumstances where it is not appropriate for the limitation to apply, which is a reason supporting our construction that at least the supplier should have the opportunity of at least attempting to limit his liability.

DAWSON J:   Thank you, Mr Emmett.  We will give our decision after lunch and the Court will adjourn until 2 o’clock.

AT 12.58 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.00 PM:

DAWSON J:   There will be a grant of special leave in this matter.

AT 2.00 PM THE MATTER WAS CONCLUDED