Frustratingly Unclear? The Interplay Between Common Law, Statute and the ACL in Assessing Consumer Rights in a Time of Crisis
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The article was first published in:
(2020) 48(2) Australian Business Law Review, 169-179
Assessing Consumer Rights in a Time of Crisis
Jane and Paterson
Frustratingly Unclear? The Interplay Between
Common Law, Statute and the ACL in Assessing
Consumer Rights in a Time of Crisis
Alex Jane and Jeannie Marie Paterson*
The spread of COVID-19 and subsequent government regulation have substantially
impacted service-providing industries. State and federal regulations concerning
social gatherings and travel have, in many instances, rendered performance of
contracts illegal, economically unworkable or futile. This article considers the
remedies available to consumers for service contracts affected by the COVID-19
crisis, with a particular focus on the response of the airlines, and the commonly
offered option of credit vouchers. In these unprecedented circumstances, it examines
the complex interaction of contract law, including the doctrine of frustration and
accompanying statutory incursions on remedy, and consumer rights under the
Australian Consumer Law. The article calls for a consistent approach by service
providers and the Australian Competition and Consumer Commission that gives
consumers a consistent and fair remedy, without the need to resort to the labyrinthine
interplay of common law and statute.
INTRODUCTION
The COVID-19 crisis has undeniably presented considerable challenges for consumers and businesses
alike. Both government restrictions and a fall in demand have affected most industries, resulting in
businesses and consumers cancelling upcoming events and services.1 These effects have led to
considerable economic uncertainty and raise many new challenges for the law, including the focus of
this short article – consumer protection law. This article focuses on unpacking the respective rights of
consumers and airlines in responding to cancelled flights, although the discussion has a more general
application to service-providing industries. In particular, when is a consumer entitled to a refund and
when can an airline offer something less? The article does not provide a clear legal answer for consumers
or businesses – as it does not exist. In this respect, the discussion highlights the existing legal uncertainty
around the responses that have been offered by airlines and other service providers to service disruptions
and consumers’ rights to refunds. The uncertainty largely arises because consumer rights to refunds are
not just dictated by the Australian Consumer Law (ACL),2 nor are they merely found in the relevant
contract. Rather, they are likely to depend on a range of different factual considerations and the
convoluted interplay of general law and statute.
Many of the core provisions in the ACL build from a base in the common law, drawing on doctrines in
tort, contract and equity, while giving them new force through streamlined requirements, mandatory
* Alex Jane: JD Candidate, Melbourne Law School. Jeannie Marie Paterson: Professor, Melbourne Law School. Our thinks to
Ken Kiat, JD Candidate at Melbourne Law School, for editing assistance. All errors remain our won.
1
“Coronavirus Has Led to a Rash of Consumer Complaints, from Holidays to Health Insurance. Here’s What Refunds You Can
Expect”, ABC News, 8 April 2020 .
2
Competition and Consumer Act 2010 (Cth) Sch 2.status or a richer array of remedies.3 One of the aims of consumer law generally, and the ACL in
particular, is to provide greater certainty for consumers in enforcing their rights to goods and services
that are safe, fit for purpose and provided on fair terms.4 Yet, the underlying basis of consumer
transactions in contract remains centrally relevant to assessing the parties’ respective rights and
obligations in most cases. In some situations, this mix of common law, contractual and statutory rights
will produce a complex array of possible arguments about the correct legal outcome of disputes about
failed, delayed or non-existent performance of a consumer transaction. This issue has been brought to
the fore in the COVID-19 crisis, which has caused the cancellation and disruption of services in a way
that has not been seen since war times. The effects of war produced much of the jurisprudence around
the common law doctrine of frustration5 and also triggered the introduction of a statutory response to the
consequences of a frustrated contract.6 The current crisis raises questions about the extent to which these
cancelled contracts may be frustrated and what consumers’ rights will be if they are. The more general
message of this article is that in the unprecedented circumstances birthed by COVID-19, it is neither
practicable nor fair to require consumers to decipher this labyrinthine application of the law. Rather,
what is required is clear messaging and a uniform approach from service providers and the Australian
Competition and Consumer Commission (ACCC). Sometimes a clear statement of agreed rights is more
useful to all parties than recourse to the more nuanced, but largely inaccessible, response provided by
the strict application of common law and statute.7
TRAVEL RESTRICTIONS AND AIRLINE TICKET REFUNDS
The federal government has placed a ban on international travel, with very limited exceptions. 8 This has
resulted in major airlines suspending all international flights. 9 At a domestic level, many airlines have
cancelled various routes and reduced capacity across the country. Recent government support has aided
in the reinstatement of some of these domestic flights.10 Nevertheless, federal and State travel restrictions
continue to prohibit the possibility of travel for many consumers.11 This state of affairs has raised the
question of what rights consumers have in relation to cancelled airline travel. As usefully laid out by
Choice, airlines are offering different responses to flight cancellations, which include a refund, a refund
less a cancellation fee, or a travel voucher for the value of the ticket that can be taken on the same or
3
See, eg, Elise Bant and Jeannie Marie Paterson, “Limitations on Defendant Liability for Misleading Conduct under Statute: Some
Insights from Negligent Misstatement” in Kit Barker, Ross Grantham and Warren Swain, The Law of Misstatements: 50 Years On
from Hedley Byrne v Heller (Hart Publishing, 2015) 159.
4
See, eg, Jeannie Marie Paterson, “The New Consumer Guarantee Law” (2011) 35 Melbourne University Law Review 252.
5
See, eg, Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32. See also generally William Finlayson
Trotter, The Law of Contract During and After War: With Leading Cases, Statutes and Statutory Rules and Orders (Butterworths,
4th ed, 1940).
6
Frustrated Contracts Act 1978 (NSW); Frustrated Contracts Act 1988 (SA); Australian Consumer Law and Fair Trading Act
2012 (Vic) Pt 3.2.
7
Elise Bant and Jeannie Marie Paterson, “Consumer Redress Legislation: Simplifying or Subverting the Law of Contract” (2017)
80 Modern Law Review 895.
8
Such as exceptions for foreign nationals and Australians that are leaving for essential work in critical industries, humanitarian or
compassionate grounds, and travel in the national interest: Department of Home Affairs, “Leaving Australia”
.
9
“Qantas, Jetstar Flight Cuts Amid the Coronavirus Pandemic and How They Will Affect You”, ABC News, 19 March 2020
.
10
Jordan Hayne, “Virgin and Qantas Are Boosting Their Domestic Flights, Here’s What It Means for You”, ABC News, 18 April
2020 .
11
See, eg, at the time of writing, Queensland Health, Border Restrictions Direction (No 4) (10 April 2020)
. Subsequently replaced by Border Restrictions Direction (No 5).
2different route but for the same, or lesser, value and within a limited amount of time.12 Especially in the
light of the Virgin administration,13 and also given the uncertainty as to whether consumers will be able
to travel any time in the near future, or have the means to do so, there are real questions over the utility
of a travel voucher over a refund.
The ACCC has provided some limited guidance as to the remedies available to consumers affected by
cancelled flights. On its website, it indicates that consumers will “receive a refund or other remedy, such
as a credit note or voucher, in most circumstances”.14 Beyond this, it merely states that consumers may
have remedies under consumer guarantees or beyond the ACL – that is, under the terms and conditions
of their ticket. It also indicates that an individual may have rights under the general law, contract or State
legislation. The ACCC’s guidance is vague for a reason: this area of law is incredibly complex and
uncertain. To explore further the intertwining applicability of general law and statute in this context, and
to illustrate the complexity of any response, the following scenarios are considered:
(1) The airline cancels flights due to the government ban on international travel.
(2) The consumer cancels flights as the contemplated travel is prohibited by State prohibitions on non-
essential travel.
(3) The airline cancels flights of permitted travellers due to economic pressures and falling demand
resulting from the COVID-19 crisis.
(4) The consumer cancels a flight, though legally permitted to fly, because of COVID-19-related
financial pressures or because the purpose for their trip no longer exists.
Australian airlines have responded with varied remedies for affected consumers in these different
scenarios. At the time of writing, in Scenarios 1 and 3, Qantas had taken a lenient approach, offering
consumers the choice between a voucher and a cash refund. Jetstar asked ticketholders to contact it
directly, and has indicated that they will have the option of receiving a credit voucher15 – it does not
explicitly state that consumers will also be able to choose a cash refund, though this may be available.16
Tiger Air was initially issuing credit vouchers to affected consumers; however, its position was not
explicitly stated on its website.17 The airlines’ varied and changing responses highlight the industry’s
difficulty in providing a timely and appropriate approach to passenger refunds in unprecedented times.
In Scenarios 2 and 4, prospective passengers may only receive a credit voucher.18 This may depend on
which airline the consumer booked with, or the specific terms of the consumer’s ticket.19 At the time of
writing, these vouchers typically contained certain restrictions. For example, Qantas vouchers had to be
for travel booked, and used, before 31 December 2021.20 Jetstar vouchers had to be used for travel within
12 months of the booking date.21 Whether these responses accurately reflect the legal rights of
consumers, or conversely constitute a goodwill gesture by airlines, going beyond their legal obligations
12
Jodi Bird, “Can You Get a Refund or a Credit from Your Australian Airline? Here’s What to Do If Your Flight Has Been
Cancelled Because of COVID-19” (Choice, 3 April 2020) .
13
Nassim Khadem, “Virgin Australia Forced into Voluntary Administration, As Deloitte Says ‘There Are No Plans to Make
Redundancies’”, ABC News, 21 April 2020 .
14
ACCC, “COVID-19 (Coronavirus) Information for Consumers” .
15
Jetstar, “Travel Alerts: Customer Options” (22 April 2020) ; Qantas, “Booking Changes and Other Options” (14 April 2020)
.
16
Jetstar, n 15; Qantas, n 15.
17
Tiger Air, “Travel Alerts” (21 April 2020) .
18
Jetstar, n 15; Qantas, n 15; Tiger Air, n 17.
19
Virgin Australia, “COVID-19 (Coronavirus) Customer Hub” .
20
Qantas, “Coronavirus (COVID-19) Travel Updates” (8 May 2020).
21
Jetstar, n 15.
3requires an analysis of the terms of consumers’ contracts for travel with the airline, the doctrine of
frustration, in some States the statutory regimes applying to the consequences of frustration, and
consumer rights under the ACL.
FRUSTRATION
The spread of COVID-19 has created unprecedented social, political and economic challenges for
society. The common law doctrine of frustration operates to deal with such exceptional events. 22 It will
ordinarily apply in circumstances where performance under terms of the contract would be “radically”23
or “fundamentally”24 different from that contractually promised. If the doctrine of frustration does not
apply to at least some of the disruptions birthed by COVID-19, it is perhaps unlikely to envision when
it would apply. However, as the scenarios above indicate, there are a variety of reasons why a flight
ticket may be cancelled, affecting both airline and consumer, and it is important to consider the
application of the doctrine of frustration to these different scenarios. This is because the impact of the
legal doctrine of frustration will substantially affect what remedies are available to consumers in the
event of COVID-19-related cancellations, and the availability of something more than a travel voucher.
Scenario 1 – Prohibited Flights
The clearest case of frustration applying to a contract for airline travel is where the government has
prohibited travel. This is because performance under the contract is predicated upon conduct that is
illegal.25 In wartime, contracts were frustrated as there was a legal prohibition on dealing with the
enemy.26 In Scenario 1, frustration is particularly clear as the international travel ban explicitly prohibits
airlines from performing their side of the bargain.
Scenario 2 – Prohibited Travel
The authors suggest the contract for airline travel is also frustrated in Scenario 2. This case is not as
straightforward as Scenario 1. The passenger’s performance under the contract amounts to paying the
required fare, which it has done, and the airline might be seen as continuing to make available the
capacity for the passenger to travel. The passenger, however, is not permitted (by law) to do so. So,
although in a very technical sense, the performance may take place, in that a seat continues to be offered
to the passenger, the very purpose of the contract, to fly, is precluded.27 The circumstances are perhaps
similar to Brisbane City Council v Group Projects Pty Ltd,28 in which land owned by a developer was
resumed by the Crown. Brisbane City Council had granted development approval to the developer and
in return the developer made improvements to adjacent land. Before the High Court, Stephen J (with
Murphy J agreeing) held the contract had been frustrated and that the developer was no longer under an
obligation to make these improvements. The acquisition of the land had “wholly destroyed” the
developer’s purpose in undertaking the obligations to the Council.29
22
Bank Line Ltd v Arthur Capel & Co [1919] AC 435, 459; Davis Contractors v Fareham Urban District Council [1956] AC 696,
715; Lauritzen AS v Wisjmuller BV (The “Super Servant Two”) [1990] 1 Lloyd’s Rep 1, 8.
23
Davis Contractors v Fareham Urban District Council [1956] AC 696, 729, affd Codelfa Construction Pty Ltd v State Rail
Authority (NSW) (1982) 149 CLR 337, 357.
24
Davis Contractors v Fareham Urban District Council [1956] AC 696, 723, affd Codelfa Construction Pty Ltd v State Rail
Authority (NSW) (1982) 149 CLR 337, 407.
25
See, eg, Ertel Bieber & Co v Rio Tinto Co Ltd [1918] AC 260; Metropolitan Water Board v Dick Kerr & Co Ltd [1918] AC
119; Denny Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265.
26
Ertel Bieber & Co v Rio Tinto Co Ltd [1918] AC 260.
27
See, eg, Gamerco SA v ICM/Fair Warning (Agency) Ltd [1995] 1 WLR 1226.
28
Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143.
29
See also Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143, 158 (Stephen J), 164 (Murphy J agreeing).
4Scenario 3 – Cancelled Flight
In Scenario 3, the airline could have flown the route and accommodated those passengers still allowed
to travel for essential reasons, but cancelled for reasons relating to its own circumstances under the
COVID-19 restrictions. Travel restrictions have inhibited airlines from honouring many flights and led
to widespread cancellations.30 The cancellations arise because airlines are under substantial economic
pressures dealing with restrictions and dwindling demand. Given that the performance of both the
prospective passenger and airline’s side of the bargain may still be fulfilled, it is unclear whether airlines
could rely on frustration in the event of cancellation and yet continue to operate other domestic routes.
A mere increase in costs does not led to a contract being frustrated if the contract can still be performed
through other means.31 However, the current situation is not one where the airlines may simply complete
the contract by taking a different route – such as, for example, to avoid a geographical area affected by
conflict.32 In most cases, its passengers cannot travel and the planes would be flying substantially empty.
Thus, given the comprehensive restrictions, the contemplated performance is not merely more
expensive; it is arguably rendered radically different.33 This may be sufficient to mean that the flight
contract is indeed frustrated. In Codelfa Construction Pty Ltd v State Rail Authority (NSW),34 the
imposition of an injunction prohibited a party from undertaking construction at night and on Sundays.
Although performance was still possible, this state of affairs fundamentally altered performance as
contemplated by the parties and therefore frustrated the contract.35
Scenario 4 – Consumer Chooses Not to Fly
Scenario 4 deals with instances where there are no legal restrictions on travel, but consumers nonetheless
want to cancel their flight for personal reasons related to COVID-19. Cancellation in these circumstances
may be prompted by a number of factors, largely outside the control of the consumer. The economic
impact of COVID-19 is being felt by many Australians.36 As a result, flights booked after travel
restrictions are lifted may provide little practical benefit to consumers. A holiday that was affordable at
the start of 2020, may no longer be feasible in the wake of COVID-19. Alternatively, the purpose of the
travel may have disappeared with, sadly, weddings, birthdays and other significant events cancelled in
the wake of the pandemic or relevant businesses or activities shut down.
Frustration might be argued in this situation given the destruction of the very basis of the contract, akin
to Krell v Henry.37 In Krell, the parties contracted for the booking of a hotel room to watch the royal
coronation, which was later cancelled. The Court held that the contract had been frustrated as having a
view of the coronation was “regarded by both parties as the foundation of the contract”.38 However,
unlike Krell, in airline contracts the prospective passenger’s purpose is rarely communicated (if ever) to
30
Robyn Ironside, “Virgin Australia Axes Every Route But One”, The Australian, 9 April 2020
; “Coronavirus Has Led to a Rash of Consumer Complaints, from Holidays to Health
Insurance. Here’s What Refunds You Can Expect”, n 1.
31
See, eg, British Movietonews v London and District Cinemas [1952] AC 166; Tennants (Lancashire) Ltd v CS Wilson & Co Ltd
[1917] AC 495, 510.
32
See, eg, Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93; Ocean Tramp Tankers Corp v V/O Sovfracht (The Eugenia)
[1964] 2 QB 226.
33
Compare Austin v Sheldon [1974] 2 NSWLR 661; Empresa Exportadora De Azucar v Indistria Azucarera Nacional SA (The
“Playa Larga” and “Marble Islands”) [1983] 2 Lloyd’s Rep 171, 187.
34
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337.
35
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 363, 381.
36
Shane Wright and Eryk Bagshaw, “‘Worst Since 1932’: Two Million Aussies Face Unemployment Queue”, The Sydney Morning
Herald, 23 March 2020 .
37
Krell v Henry [1903] 2 KB 740.
38
Krell v Henry [1903] 2 KB 740, 750.
5airlines in the bargaining process. Therefore, the consumer’s purpose for travel could not be said to be
the basis of the contract in the minds of both parties. It seems unlikely that the contract would be
frustrated in these circumstances. The words of Latham CJ in Scanlan’s New Neon Ltd v Tooheys Ltd
may be pertinent here:
When a man agrees to buy a pair of boots for himself, both parties expect that he will be able to wear
them. If he has an accident, so that he can no longer wear boots, he nevertheless still has to pay for them.
If a man buys or hires a motor car, both parties know that he expects to be able to drive it. The stoppage
of the sale of petrol, which would make it impossible for him to drive it, does not excuse him from his
obligation to pay the purchase money or the hire for the agreed period.39
With the contract continuing on foot, cancellation by the passenger would be governed by terms of the
contract – and may not ordinarily attract a refund, unless the more flexible and expensive ticket options
were purchased. While, at least at the time of writing, airlines are offering credit vouchers to those with
tickets booked for flights to 31 July 2020, it is uncertain how far that leniency will be extended to those
with flights later in the year, or even into 2021.
This reveals a real concern with many service-providing contracts. It may seem inequitable for a contract
to continue on foot where, through no fault of their own, a consumer can no longer derive any benefit
from the transaction. Afterall, airline contracts are in standard form and hence are presented to the
consumer on a “take it or leave it” basis. This power imbalance renders it impossible for consumers to
bargain for certain terms or make their purpose for contracting known to the airline. This reveals the
potential harshness of the general law when dealing with consumers. The ACL ostensibly operates to
address some of these inequities – whether it does so effectively is discussed below.40 Prior to this,
however, it is necessary to consider the common law and statutory consequences of frustration.
CONSEQUENCES OF FRUSTRATION
In circumstances where it appears that the airline-passenger contract is frustrated, absent any limiting
factor, the consequences of frustration are dictated by general law or, in New South Wales, South
Australia and Victoria, by statute.41 Under general law, the consequence of frustration is that money paid
towards a contract that has not been performed must be refunded, as there has been a total failure of
consideration in regard to the promised service.42 This position would entitle consumers to a refund in
at least Scenarios 1–3. The same position generally follows under legislation, albeit that the party to
whom the money has been paid, in this case the airline, may be entitled to retain some of the money paid
to cover reasonable expenses in preparing to perform the contract.43
The consequences of frustration may be limited by the express terms of a contract.44 In most airlines’
conditions of carriage, terms stipulate what is to happen if the airline has to cancel a flight due to reasons
“outside their control”.45 Jetstar defines “Event Beyond Our Control” as:
39
Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169, 191.
40
See, eg, Competition and Consumer Act 2010 (Cth) Sch 2 – Unfair Contracts Regime and Consumer Guarantees.
41
Frustrated Contracts Act 1978 (NSW); Australian Consumer Law and Fair Trading Act 2012 (Vic) Pt 3.2; Frustrated Contracts
Act 1988 (SA).
42
See, eg, Muschinski v Dodds (1984) 160 CLR 583, 618–619 (Deane J).
43
Frustrated Contracts Act 1978 (NSW) ss 10–15; Australian Consumer Law and Fair Trading Act 2012 (Vic) Pt 3.2; Frustrated
Contracts Act 1988 (SA) s 7(1).
44
Imperial Smelting Corp Ltd v Joseph Constantine Steamship Line Ltd [1942] AC 154, 163.
45
See, eg, Qantas, “Conditions of Carriage” (Qantas Conditions of Carriage); Jetstar, “Conditions of Carriage” (January 2020)
(Jetstar Conditions of Carriage); Tiger Air, “Conditions of Carriage”
(Tiger Conditions of Carriage).
6[W]eather events, air traffic control issues, industrial action by a third party, security issues or any other
unusual and unforeseen circumstance which we cannot control and the consequences of which we could
not have avoided.46
Other airlines rely on similar provisions (hereafter referred to as the “Consequences of Frustration
Term”).47 The term is broadly expressed and seems likely to have general application to the
consequences of the COVID-19 crisis as an “unusual” or “unforeseen” circumstance. Hence, the airlines’
Conditions of Carriage may apply to COVID-19 contingencies. If so, then this means that the airlines’
contracts, not the common law or statutory responses to frustration, will dictate the consequences of
Scenarios 1 and 3. According to the Qantas Conditions of Carriage,48 Qantas will provide a refund, while
Jetstar49 and Tiger50 may only offer a travel credit.
In Scenarios 2 and 4, where the consumer has cancelled a flight, some airlines would not ordinarily grant
a refund.51 This is dependent on the terms of the ticket. 52 However, if the contract has been frustrated,
and no terms of the ticket explicitly deal with this scenario, then a refund would be required. For
example, in the event of passenger cancellations, Tiger’s Fare Rules state:
Cancellations: other than as expressly provided for in these fare conditions and under the Australian
Consumer Law, fares, charges and travel extras are non-refundable.53
This term applies to circumstances in which the consumer changes their travel plans, and possibly
governs Scenario 4. However, the term does not clearly cover situations where the consumer’s reasons
for cancelling the flight are truly beyond their control, as in Scenario 2, and the contract is frustrated. If
this is correct, the consumer is likely to be entitled to a cash refund under the contract (possibly less a
reasonable cancellation fee as a contribution to the cost of preparing to perform the contract).54 The
provision of a voucher in these circumstances fails to appropriately compensate the consumer in line
with the principles of frustration. This result is somewhat surprising as it means that consumer-cancelled
flights may result in a more beneficial position for consumers than those subjected to airline
cancellations.
APPLICATION OF THE ACL?
Unfair Terms?
The next line of inquiry in determining the rights of consumers to claim a refund, and indeed demand
more than a travel voucher, in the event of flight cancellations is Pt 2-3 of the ACL, the unfair contract
terms law, applicable to standard form consumer contracts. 55
Scenarios 1 and 3 – Credit Voucher
As discussed above, assuming the Consequences of Frustration Term applies to Scenarios 1 and 3,
airlines may restrict the rights of consumers to recover in circumstances where their flight is cancelled
to a credit voucher. But is this restriction unfair? Under the ACL, a term will be unfair if it: (1) causes a
46
Jetstar Conditions of Carriage, n 45.
47
See, eg, Qantas Conditions of Carriage, n 45; Tiger Conditions of Carriage, n 45.
48
Qantas Conditions of Carriage, n 45, cl 13.
49
Jetstar Conditions of Carriage, n 45, cl 9.2.
50
Tiger Conditions of Carriage, n 45, Art 12.
51
Bird, n 12.
52
Some “fare bundles” may give a customer the right to a refund. See, eg, Jetstar, “Jetstar Fares and Bundles”
.
53
Tiger Air, “Fare Conditions” .
54
As dictated by State frustration legislation.
55
Competition and Consumer Act 2010 (Cth) s 27.
7significant imbalance between the parties’ rights and obligations; (2) is not reasonable to protect the
legitimate interests of the advantaged party; and (3) causes detriment (financial or otherwise). 56 Given
conditions attached to some credit vouchers (such as timeframe and single-useability), it is clear that this
response causes detriment when issued in place of a cash refund. The Consequences of Frustration Term
may also cause an imbalance in the parties’ rights. This will arise where airlines cancel the flight due to
COVID-19 restrictions and purport to offer only a credit voucher (as with Jetstar 57 or Tiger58) – as
opposed to the option of a refund (as with Qantas and Virgin) – but do not offer anything to consumers
who cancel flights.59 This is despite the cancellations occurring in precisely the same circumstances –
that is, due to travel restrictions or economic pressures arising from the COVID-19 crisis. This provides
the airline with a “beneficial option” that is not similarly afforded to the consumer.60 In determining
whether the imbalance is “significant” it may be helpful to consider whether the term alters the
consumers’ rights under the general law.61 As noted above, frustration would likely result in the
consumer receiving a cash refund, possibly minus a reasonable cancellation fee. Therefore, a clause that
restricts a consumer’s remedy to a credit voucher only in event of cancelled flights beyond the control
of the airline significantly diminishes this right.
Nevertheless, the Consequences of Frustration Term may not be unfair if it represents a measure
reasonably necessary to protect a legitimate interest of the airlines.62 Airlines may argue that issuing a
voucher in these circumstances is necessary to compensate them for expenditure incurred in preparing
for performance. It is expensive to run airlines and a fleet of planes and crew need to be assembled.
Vouchers may assist in ensuring that airlines retain a level of liquidity in face of mass cancellations
outside their control. This may seem like a proportionate response in circumstances such as bad weather,
where the prospective passenger may be able to use the voucher in close proximity to cancellation.
Currently, it is unclear whether credit vouchers will be useable in the immediate future, if at all by
consumers. This suggests restricting consumers to a voucher in circumstances where the consumer
simply cannot travel is an unfair term. Reasonable cancellation fees attached to a cash refund may be
more viable as a proportionate way of protecting the legitimate interests of the airline in circumstances
where the possibility of future travel is uncertain.
A useful contrast here is Ferme v Kimberley Discovery Cruises Pty Ltd.63 In this case, Kimberley
Discovery Cruises Pty Ltd cancelled a cruise because of a tropical cyclone and sought to rely on a clause
stipulating that it would not provide refunds in the event of the cruise being cancelled for reasons beyond
its control. The Federal Circuit Court held that the no-refunds clause was an unfair term. The cruise
company had failed to prove it was reasonably necessary in order to protect the legitimate interests of
Kimberly Discovery Cruises Pty Ltd. Jarrett J observed:
56
Competition and Consumer Act 2010 (Cth) s 24.
57
That is, unless the consumer has purchased a ticket bundle that allows for a refund.
58
Bird, n 12.
59
Bird, n 12.
60
Director General of Fair Trading v First National Bank plc [2002] 1 AC 481, [17] (Lord Bingham); [2001] UKHL 52, applied
in ACCC v ACN 117 372 915 Pty Ltd (in liq) [2015] ATPR 42-498, [950] (North J); [2015] FCA 368; ACCC v JJ Richards &
Sons Pty Ltd [2017] ATPR 42-558, [19] (Moshinsky J); [2017] FCA 1224.
61
Jeannie Marie Paterson, “The Australian Unfair Terms Law: The Rise of Substantive Unfairness as a Ground for Review of
Standard Form Consumer Contracts” (2009) 33 Melbourne University Review 934.
62
Competition and Consumer Act 2010 (Cth) s 24(c); Director of Consumer Affairs Victoria v AAPT Ltd [2006] VCAT 1493, [50]
(Stuart Morris J); Director of Consumer Affairs Victoria v Trainstation Health Clubs Pty Ltd [2008] VCAT 2092, [175]
(Harbison J); Director of Consumer Affairs Victoria v Backloads.com Pty Ltd [2009] VCAT 754, [248]–[250] (Harbison J).
63
Ferme v Kimberley Discovery Cruises Pty Ltd [2015] FCCA 2384.
8If there was evidence of that nature and if the forfeiture term provided for a “sliding scale” of the amount
that would be retained by the respondent in the event that the respondent cancelled a cruise, it might be
the case that such a term would be reasonably necessary.64
If a term is deemed “unfair”, it will be void.65 Thus, if the Consequences of Frustration Term is void in
airline contracts for COVID-19-affected consumers, the issue cyclically returns to the common law. The
contracts will be frustrated, ensuring that consumers are entitled to a cash refund, possibly minus an
amount representing reasonable costs accruing to the airline in connection with the cancellation. If the
term is upheld, airlines would able to follow the terms in the contract – and in some instances, only issue
a credit voucher to consumers. In such circumstances, airlines offer of cash refunds constitutes an act of
goodwill, beyond the obligations required under the contract.
Scenario 2 – Consumers’ Rights to a Refund Where They Cannot Fly
In Scenario 2, the contract would appear to be frustrated and moreover, in most cases, the Consequences
of Frustration Term providing for a credit voucher would not apply. For the reasons discussed above,
attempts to restrict consumer rights to obtain a refund would likely be unfair and void.
Scenario 4 – Consumer Chooses Not to Fly
What is the likely outcome where a consumer cancels their flight, without the contract being frustrated,
as in Scenario 4? Here, most airlines leave the availability of a refund to the terms of the contract.
Typically, the right to a refund for a cancelled flight depends on the kind of fare purchased – a flexible
fare allowing changes or a cheaper fare that does not. Is the restriction on refunds in these cases also an
unfair term? Possibly. It might be argued that the airline should not preclude a consumer from cancelling
when it itself is not restricted in this way. Instead, airlines should allow a refund, but may deduct a
reasonable amount for its costs incurred in preparing to perform the contract and for administration of
the process,66 which is what some airlines in any event do. On the other hand, rights on cancellation are
one of the key differences between different classes of airline ticket. So perhaps the “no refunds” stance
is part of the subject matter of the contract and exempt from unfair terms review. Alternatively, the term
may be judged not unfair, given the lack of refund rights is counterbalanced by a reduction in price.
Certainly, in Jetstar Airways Pty Ltd v Free, the Supreme Court of Victoria remitted a matter to the
Victorian Civil and Administrative Tribunal as the Tribunal had ignored that differing fare types may
balance the rights and obligations of the parties.67
Consumer Guarantees
In addition to the unfair contract terms law in Pt 2-3 of the ACL, the Consumer Guarantees regime in
Pt 3-2 may be applicable to bring relief to consumers in cases of cancelled flights.68 In 2019, Jetstar was
found to have contravened the prohibition against misleading conduct under the ACL.69 They had made
representations that “Starter” and “Plus” fare bundles were not refundable.70 Jetstar conceded that these
64
Ferme v Kimberley Discovery Cruises Pty Ltd [2015] FCCA 2384, [73] (Jarrett J). See also Turner v MyBudget Pty Ltd [2018]
FCA 1407, [67] (Lee J).
65
Competition and Consumer Act 2010 (Cth) s 23(1).
66
See also Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28, declining to review
for unfairness late payment fees.
67
Jetstar Airways Pty Ltd v Free (2008) 30 VAR 295, [133]–[135]; [2008] VSC 539.
68
ACL s 62 provides that there is a guarantee as to a reasonable time for the supply of services, where the time for supply is not
fixed by the contract or determined in an agreed manner. We do not consider this section provides assistance in the case of most
flight cancellations, which involve contracts with a set date for performance.
69
ACCC v Jetstar Airways Pty Ltd [2019] FCA 797.
70
ACCC v Jetstar Airways Pty Ltd [2019] FCA 797, [3].
9representations were misleading as consumers could get potential refunds under the Consumer
Guarantees regime.
In the provision of services to consumers in trade or commerce, suppliers are subject to a range of
guarantees including that services must be fit for purpose71 and undertaken with due care and skill.72
These guarantees only appear to grant remedies to consumers in instances in which the service provided
was deficient in some way. They do not apply to the current circumstances where no service has been
supplied at all. Ordinarily, consumers would have remedies for breach of the original contract in the
event the service was not delivered. However, as illustrated above, the contract does not provide a clear-
cut remedy for consumers, given the uncertainties introduced by the possible application of the doctrine
of frustration. The Consumer Guarantees may be used to ensure consumers are kept up-to-date with
changes due to the COVID-19 situation, but do not ensure a cash refund.73
It is possible that the Consumer Guarantees would have some impact in circumstances where airlines
offer only a credit voucher in response to COVID-19-affected flights, such as in Scenarios 1 and 3.74
The supply of a voucher is not equivalent to a cash refund or the resupply of services. The flight vouchers
contain terms that require use within a year of the original booking date. Further, most vouchers can
only be used in one transaction, with any extra credit taken by the airline. Relatedly, the price of flights
post-travel restrictions may not resemble the price of the initial booking. They may, in fact, have to pay
much more in order to retrieve the same service.
Consumers who have received credit vouchers for cancelled flights, may argue that the vouchers
themselves do not offer a service that is fit for purpose. The timeframe for use contained in some of the
offered vouchers may only give consumers a very short window to travel after restrictions are lifted.
Other external considerations such as financial capability, obtaining leave from work and family
commitments may also preclude effective use of the vouchers. It is therefore possible that a one-year
timeframe (from the time of booking) is insufficient. Even if this does not amount to a contravention of
a Consumer Guarantee, it appears patently unfair. The ACL’s regulation of gift vouchers allows for a
timeframe of three years for use.75 This may be a more appropriate benchmark for airlines to ensure
consumers have some flexibility moving forward.
NEED FOR A CLEAR WAY FORWARD
The differing remedies available in Scenarios 1–4 highlight the varying effects of the COVID-19
pandemic on airlines and consumers alike. It suggests that airlines may be appropriately dealing with
cancellations in some circumstances but falling short in others. This may be due to the immense
economic pressures put upon the airline industry at this time, or due to the inability of businesses,
regulators and consumers to successfully navigate the complex general law, statutory and consumer
protection principles that govern these transactions. Ultimately, what belies this discussion is that in such
uncertain and unprecedented circumstances as the COVID-19 crisis, there needs to be clear, consistent
and fair messaging to consumers. The current approach of airlines and the general direction from the
ACCC provide little assistance. With the future prospects of travel being so uncertain, both the airlines
and the ACCC should not nit-pick over complex factual and legal discrepancies, nor require consumers
to do so, but rather they should adopt a flexible, lenient and unified approach to cancellations and
refunds. This may take the form of giving all prospective passengers affected by COVID-19 a choice
between a cash refund, less a reasonable cancellation fee, or a voucher with flexible conditions. This is
a necessary step towards protecting consumer welfare in these uncertain times. The lessons from this
71
Competition and Consumer Act 2010 (Cth) s 61.
72
Competition and Consumer Act 2010 (Cth) s 60.
73
Compare Scenic Tours Pty Ltd v Moore (2018) 339 FLR 244; [2018] NSWCA 238 (appeal to the High Court on a different
point see Moore v Scenic Tours Pty Ltd (2020) HCA 17).
74
Competition and Consumer Act 2010 (Cth) s 64A(2).
75
Competition and Consumer Act 2010 (Cth) s 99B.
10particular application of contract and consumer law to COVID-19-affected consumer transactions are
broad: a clear consistent response is fairer than one that relies on individual consumers to argue their
case.
POSTSCRIPT
Since the time of writing, due to customer feedback, some airlines have changed the conditions
attaching to credit vouchers. This has included extended expiry dates (some up to 2 years) and the
ability to use a voucher across multiple bookings for some airlines.76 As Virgin has gone into
voluntary administration, this has complicated the process for Virgin and Tiger customers. 77
The ACCC recently ensured that Flight Centre refunded consumers that had previously been charged
with hefty cancellation fees.78 Their advice concerning airline cancellations has not substantially
changed, though they have called for vouchers to have expiration dates that are long enough to permit
flexibility for consumers.79
The extension of the voucher expiry date is a welcome change, that provides greater flexibility for
consumers. However, airlines appear to still be maintaining a distinction between consumer-cancelled
flights, and those cancelled by the airline. As noted this distinction may not be justified in law, and is
problematic for reasons stated above.
76
Jetstar, “Travel Alerts” .
77
See, Tiger, Conditional Credits, .
78
ACCC, “Flight Centre to Refund Cancellation Fees” .
79
ACCC, “COVID-19 (Coronavirus) Information for Consumers” .
11Minerva Access is the Institutional Repository of The University of Melbourne Author/s: Jane, A; Paterson, J Title: Frustratingly Unclear? The Interplay Between Common Law, Statute and the ACL in Assessing Consumer Rights in a Time of Crisis Date: 2020 Citation: Jane, A. & Paterson, J. (2020). Frustratingly Unclear? The Interplay Between Common Law, Statute and the ACL in Assessing Consumer Rights in a Time of Crisis. Australian Business Law Review, 48 (2), pp.169-179 Persistent Link: http://hdl.handle.net/11343/267345 File Description: Accepted version
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