International Resort Chain Not Liable for COVID-19 Cancellation of Holiday - Appeal Upheld

Please note that the information contained in this article is a case note and is not intended to constitute legal advice. A case study of Somerville v Club Méditerranée Australia Pty Ltd GEN 20/43068 and Somerville v Club Méditerranée Australia Pty Ltd [2021] NSWCATAP 194.


Salerno Law

Salerno Law regularly provides legal advice to corporate and commercial clientele operating within the travel and tourism sector, including advice about the legal impact of Coronavirus 2 (SARS-CoV-2) and its associated disease (“COVID-19”).


The Impact of COVID-19 on the Tourism Industry

The global outbreak of COVID-19 has resulted in the underlying policy and terms and conditions that travel and tourism companies rely upon throughout the course of conducting their enterprise, having to undergo radical change and restructure to either include a “pandemic” clause or amend their pre-existing “force majeure” clause to be more robust.


Somerville v Club Méditerranée Australia Pty Ltd GEN 20/43068

In a recent landmark case, Salerno Law was instructed to act on behalf of the Respondent in the New South Wales Civil and Administrative Tribunal (“NCAT”) proceedings whereby Mr Somerville (“the Applicant”) was seeking a refund for an “all-inclusive” holiday that he had booked for himself and his family with Club Méditerranée Australia Pty Ltd (“the Respondent”).

The relevant context and history of Somerville v Club Méditerranée Australia Pty Ltd GEN 20/43068 are as follows:

  1. In February 2020, the Applicant paid a deposit of $70,873 (“travel funds”) to his travel agent for the purposes of booking a holiday (including return airline flights) from Australia to Bali;

  2. The travel funds were then forwarded to the Respondent who would book the land portion of the holiday and also make arrangements for the flight portion of the holiday (“airline tickets”) with Virgin Australia;

  3. $45,051 was the amount referable to the land portion of the holiday;

  4. $25,822 was the amount referable to the airline tickets;

  5. Upon receipt of the confirmed airline tickets, the Respondent provided the tickets to the Applicant’s travel agent who in turn, provided them to the Applicant;

  6. As a result of the COVID-19 pandemic, on 24 March 2020, the Australian Government implemented a “do not travel” ban on Australians travelling overseas under the Biosecurity Act 2015. This prohibition was aligned with the Australian Government’s decision to raise the “Smart Traveller Advice” to level 4, being “DO NOT TRAVEL OVERSEAS”;

  7. On 20 April 2020, Deloitte were appointed as administrators of Virgin Australia pursuant to the provisions of Section 436A of the Corporations Act 2001;

  8. On 29 May 2020, the Respondent issued a cancellation notice for the holiday to the Applicant’s travel agent and provided notice that due to the travel restrictions, the Applicant’s holiday was unfortunately cancelled;

  9. On 11 June 2020, the Respondent issued the Applicant a full refund for the land portion of the holiday (in the amount of $45,051);

  10. The Respondent could not issue a refund for the flight portion of the holiday (in the amount of $25,822), as these funds had already been provided to Virgin Australia, and the airline tickets had already been issued to the Applicant;

  11. In circumstances where Virgin Australia was in voluntary administration, they were not in a position to refund the airline tickets to the Applicant, and instead had provided a redeemable “credit” to the Applicant for the same value as the tickets in accordance with Virgin Australia’s policy; and

  12. On 13 October 2020, the Applicant commenced proceedings against the Respondent seeking payment in the amount of $25,822, being the flight portion of the holiday.

This matter was heard before Senior Member G Ellis SC in the NCAT and by way of written submissions, the Respondent relied on the following arguments as outlined in the below paragraphs extracted from Somerville v Club Méditerranée Australia Pty Ltd GEN 20/43068:

[30] Following the Respondent's 29 May 2020 cancellation, on 11 May 2020 a refund of the land portion of $45,051 was provided but the $25,822 paid for airfares could not be refunded as Virgin Australia had already been paid by the Respondent. It appears that, after the Applicant commenced proceedings on 13 October 2020, on 18 November 2020 Virgin Australia exited voluntary administration and the Applicant currently has an ongoing, current credit of $25,822. The Respondent's solicitor noted that neither the Applicant nor his travel agent appeared to have attempted to obtain a refund from Virgin Australia, the Respondent had made such an attempt but had been unsuccessful.

[31] The Respondent's case was that Peterson v Moloney (1951) 84 CLR 91 provided support for the proposition that an agent, who is authorised to act for a principal, will have authority to create a legal relationship between that principal and a third party. In this case, it was said that the Respondent, had the authority to act as the Applicant's agent to create a contract between him and Virgin Australia.


[32] Reliance was placed on clause 7 of the Respondent's Terms and Conditions. It was submitted that clause provided the Respondent with the "express actual authority" to deal on his behalf with Virgin Australia, based on the judgements in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 and Garmac Grain Cp Inc v HMF Faure and Farclough Ltd and Bunge Corpn [1966] 1 QB 650.


[33] The position of the Respondent was that he (the Applicant) did not deal with the Respondent until his letter dated 15 June 2020 as all prior dealings were done on his behalf by the travel agent. Any suggestion that the Respondent had not paid Virgin Australia for the airline tickets was disputed and the date of 12 November 2020 on the printed documents was said to be the date of retrieval and not the date of issue of the tickets. Likewise, any suggestion of recent invention was disputed.


[34] The Respondent denies that international air travel arrangements can be considered to fall within a "Club Med holiday". In the alternative to clause 7, the Respondent relies on the force majeure clause (clause 8) in the Respondent's Terms and Conditions.


[35] Reference was also made in the Respondent's submissions to what was said to be the public policy implications of requiring the Respondent to refund money for airline tickets that had been paid for and issued by that airline which, it was said, would render an agent liable for conduct beyond its control. Further, it was noted that, if the Applicant obtained a refund from the Respondent, he would still have his credit with Virgin Australia. After referring to what has happened to Virgin Australia, it was contended that, if the Applicant wished to pursue a refund for the amount referable to airfares, he should pursue Virgin Australia rather than the Respondent.


[36] It was also noted that the Applicant's claims under the doctrine of frustration and the Australian Consumer Law had not been particularised and that there was no evidence led in support of such claims.


On 4 March 2021, Member Ellis handed down his decision, with the salient features of the decision being as follows:


[53] Consistent with the decision in Flight Centre Travel Group Limited t/a Aunt Betty v Goel [2021] NSWCATAP 44 at [61], the Tribunal finds that the contract made by the travel agent on behalf of the Applicant with the Respondent was never for the supply of air transport by the Respondent and that, as the provision of services which the Respondent was to supply was limited to making the reservations in a competent manner, the provisions of section 60 (which provides a guarantee of due care and skill) and section 61 (which provides a guarantee of fitness for purpose) were not breached by the Respondent.


[54] It is clear that the position of the Respondent was the same as that of a travel agent who sells airline tickets as an agent for the airline and not in its owner right: ACCC v Flight Centre Travel Group Limited (2016) 261 CLR 203. The fact that the Respondent was not an airline was an obvious fact and is a matter which is important in determining both the factual circumstances and the legal consequences: Clark v Electrical Home Aids Pty Ltd [2017] NSWCATAP 63 at [84, 90].


[55] As it was clear and as it was well-known, to both the Applicant and his travel agent, that the Respondent was not providing air transport for the Applicant, it follows that the Respondent was the agent of Virgin Australia in relation to that aspect of the Applicant's holiday. In other words, the Respondent was the agent of Virgin Australia in the same manner as the travel agent was the agent of the Applicant. Consequently, although the travel agent and the Respondent communicated with each other, the contract in relation to the air transportation component of the holiday, was between the Applicant and Virgin Australia.


[56] Accordingly, even if it can be said that the terms and conditions provided to the Applicant on or shortly after 28 February 2020 were provided after a contract was formed, clause 7 did no more than state the then existing position of the Applicant: “The passenger ticket in use by a carrier providing transport for a guest on a Club Med holiday will, when issued, constitute the sole contract between the guest and the carrier for that transportation.” Since that clause did no more than state the nature of the then-existing legal relationship, it cannot be said to be an unfair term that is caught by section 23 of the ACL.


[57] Since Virgin Australia is not a party to these proceedings, contract-based claims in relation to the failure to refund the amount paid by the Applicant in relation to the air transportation component of the holiday do not require consideration. For the same reason, it is not necessary to consider the application of either the ACL or the Frustrated Contracts Act 1978.


[58] It is noted that the current Virgin Australia policy, as included in the Respondent's evidence suggests the Applicant is entitled to a credit with Virgin Australia, meaning that he can, in future, avail of flight to the value of $25,822 without paying any further amount. That policy appears to stand in the way of a claim that, as between there has been a total failure of consideration as in relation to the Applicant and Virgin Australia. However, it is not necessary to resolve that issue in these proceedings.


[59] The Applicant's claim relates solely to the airfare component of his intended holiday, being an amount of $25,822 which has not been refunded. That aspect was the subject of a contract between the Applicant and Virgin Australia. There has been no basis established for the Applicant's claim against the Respondent. Accordingly, the proceedings are dismissed.


Somerville v Club Méditerranée Australia Pty Ltd [2021] NSWCATAP 194

The decision handed down by Senior Member G Ellis SC in Somerville v Club Méditerranée Australia Pty Ltd GEN 20/43068 was appealed by the Applicant and subsequently, this matter was heard before a two-member Appeal Panel on 1 June 2021.


The Appeal Panel considered three grounds of appeal from the Appellant; with the second and third ground for appeal being dependant on a favourable outcome of the first ground of appeal.


First Ground of Appeal


The first ground of appeal was that Senior Member G Ellis SC failed to consider the Appellant’s submissions that the Appellant was entitled to a refund of money paid under Clause 5 of the Respondent’“ Terms and Conditions which include:


It is unlikely that we will have to cancel your Club Med holiday after booking but we reserve the right to do so if required or deemed necessary by us. In this event, we will inform you or your travel agent as soon as practicable and you will have the choice of having a refund of monies paid to us for your Club Med holiday or accepting an offer or an alternative date or alternative Club Med…


The Appeal Panel considered the decisions handed down in Dranichnikov v Minister for Immigration and Multicultural Affairs [2003] HCA 26; (2003) 77 ALJR 1088 and MZAES v Minister for Immigration and Border Protection [2015] FCA 1133 whereby the Appeal Panel reiterated that:


a failure to respond 'to a substantial, clearly articulated argument relying upon established facts was at least' a failure to accord an Applicant natural justice. A failure of that kind has also been described as a constructive failure to exercise jurisdiction.”


And that:


Such a failure will constitute an error of law. If an error of law were to be established, it would also be necessary for the Appeal Panel to consider whether the matter should be reconsidered. It would not be appropriate to do so if it would inevitably result in the making of the same order as that made by the Tribunal.


as per Stead v State Government Insurance Commission (1986) 161 CLR 141; [HCA 54].


An examination of the Appellant’s submissions-in-chief highlighted the fact that the submissions clearly relied on s5 of the Respondent’s Terms and Conditions, which were alsAppellant’sto in the Appellant’s application to the Tribunal.


Importantly the Appeal Panel found that the Appellant’s submissions in reply contained a change in the Appellant’s case. In those submissions (and in particular paragraphs 29-34, 47, 52 and 54 thereof), the Appellant submitted that the Respondent’s Terms and Conditions did not form part of the contract between the Appellant and the Respondent as they were not provided to the Appellant prior to the formation of that contract. …


[20] In circumstances where the Appellant’s primary submission was that the Respondent’s Terms and Conditions did not form part of the contract between the Appellant and the Respondent, the Appeal Panel is not persuaded that the Tribunal erred in failing to consider the effect of Clause 5 of those Terms and Conditions. This is particularly so when the Tribunal appears to have approached its task on a basis consistent with the Appellant’s case that the Respondent’s Terms and Conditions did not form part of the contract between the Appellant and the Respondent.


[21] … an examination of the Appellant’s submissions in reply indicates that such an argument was not only made but was central to the Appellant’s case …


[22] For all the above reasons, the first ground of appeal is not made out.


Second and Third Grounds of Appeal


The Appeal Panel found that as the second and third grounds of appeal were contingent on the success of the first ground of appeal, and in circumstances where the first ground of appeal failed, the result was that the Appellant was not entitled to the refund he sought. Thus, it was not necessary to consider the second and third grounds of appeal (which relate to the quantum of the refund).


For the reasons set out above, on 30 June 2021, the Appeal Panel ordered that the appeal be dismissed.


Summary

The Australian tourism sector has been disrupted on an unprecedented level due to the COVID-19 global economic crisis. The constant emergence of newly passed state and commonwealth legislation, regulation and policy has been rushed through parliament in an effort to mitigate and prevent further damage caused by the pandemic.


As governments on a global scale introduce restrictions on travel with complicated conditions, countless businesses within the tourism sector have been placed on the backfoot with their own terms and conditions forced to play catch up with state-made policy.


The overall result is the undeniable conflict between businesses within the tourism sector having to take measures to comply with travel restrictions and consumers asserting their rights under the Australian Consumer Law.


Salerno Law’s team of travel and tourism lawyers have a diverse range of experience and can offer outstanding legal advice in areas relating to the regulation of the tourism industry, policies and governing agencies, activities and attractions, passenger transport and traveller accommodation.


Should you require any legal advice or assistance in relation to any area of law pertaining to the travel and tourism sector or in relation to the policy or complications of COVID-19, please contact the team at Salerno Law.


Contact Emma Salerno, Cliff Savala and Thomas Malios for more information.


DISCLAIMER: This article is only meant to give you general information and should not be relied on as legal advice. Speak to one of our lawyers for more information.


Salerno Law is managed by Emma Salerno, Managing Partner and CEO, who has a wealth of experience from operating her own businesses across Australia as well as a range of in-house and commercial experience both in Australia and overseas.