COVID-19 and other disruption events – Can the ACL come to a service provider’s rescue?

Key points

• Service providers that are unable to comply with their contractual obligations because of COVID-19 or other disruption events may be able to rely on a force majeure clause or the doctrine of frustration to relieve them of their contractual obligations – but what about their obligations to comply with statutory consumer guarantees (Consumer Guarantees) under the Australian Consumer Law (ACL)?¹ Is a service provider still liable for breaches of Consumer Guarantees in such circumstances?
• Sections 267(1)(c) of the ACL (Section 267(1)(c)) provides that suppliers of services will not be liable for breaches of certain Consumer Guarantees where the breach has been caused by the actions of another party², or by a cause independent of human control that occurred after the services were supplied³.
• This article examines the application of section 267(1)(c) to the evolving changes caused by the coronavirus pandemic and other disruption events, particularly in light of the High Court’s recent narrow interpretation of section 267(1)(c) in Moore v Scenic Tours Pty Ltd [2020] HCA 17.

In previous articles we examined how contracting parties impacted by COVID-19 may find relief by relying on a force majeure clause in their contract or through the common law doctrine of frustration. In addition to rights under contract, service providers will also generally owe their customers Consumer Guarantees under the ACL in relation to the services that they provide,⁴ which cannot be excluded under their contracts.⁵

These Consumer Guarantees are as follows:

• Section 60 – that services are rendered with due skill and care;
• Section 61(1) – that the services will be reasonably fit for the purpose for which they are acquired by the consumer (as made known to the supplier);
• Section 61(2) – that the services will be able to achieve the result desired by the consumer (as made known to the supplier); and
• Section 62 – that the services will be supplied within a reasonable time period.

In this article we consider whether service providers may be able to rely on section 267(1)(c) if they are unable to comply with applicable Consumer Guarantees as a result of COVID-19 or some other disruption event.

What relief does section 267(1)(c) provide?

Section 267(1)(c) relieves a supplier of services from being held responsible for their failure to comply with certain Consumer Guarantees if their failure occurred because of:

• An act, default, omission or representation made by any person other than the supplier (or their agent or employee);⁶ or
• A cause independent of human control that occurred after the services were supplied.⁷

Relevant Consumer Guarantees

Section 267(1)(c) applies solely to the following Consumer Guarantees:

• Section 61(1) – that the services will be reasonably fit for the purpose for which they are acquired by the consumer (as made known to the supplier);
• Section 61(2) – that the services will be able to achieve the result desired by the consumer (as made known to the supplier); and
• Section 62 – that the services will be supplied within a reasonable time period.

Importantly, section 267(1) does not provide relief to service providers for a breach of the Consumer Guarantee contained in section 60 of the ACL, which requires services to be rendered with due skill and care.

The decision in Moore v Scenic Tours Pty Ltd [2020] HCA 17 (Scenic)

While the provisions in section 267(1)(c) appear to provide a useful defence for tour operators and other service providers that have been unable to comply with their Consumer Guarantees as a result of an unforeseeable event, the court in Scenic took a somewhat narrow approach to the application of section 267(1)(c).⁸

The facts of Scenic

Mr Moore booked a European river cruise  with  Scenic Tours Pty Ltd (Scenic Tours), which promised to be a ‘once in a lifetime’ cruise with ‘all-inclusive luxury’. Having recently undergone spinal surgery, Mr. Moore had booked this particular cruise on the basis that he would not have to stand for long periods and would be able to visit many cities without repacking his bags.

Unfortunately, the cruise was disrupted when heavy rainfall and flooding raised the levels of the Rhine and Maine rivers, preventing many of Scenic Tour’s cruise ships from proceeding on their planned route. Mr. Moore was forced to travel mostly by bus as a form of alternative transport, and otherwise experienced less-than-luxurious conditions.

Mr. Moore commenced representative proceedings in the NSW Supreme Court, claiming damages and restitution for disappointment and distress as well as a breach of Consumer Guarantees (specifically sections 60, 61(1) and 61(2)) of the ACL.⁹

Defence to Consumer Guarantees argument

As part of its defence, Scenic Tours argued that section 267(1)(c)(ii) precluded it from any liability for a failure to comply with Consumer Guarantees, as the failure was a result of a “cause independent of human control” – namely, bad weather. This defence was considered, and rejected, by the NSW Supreme Court and the NSW Court of Appeal,¹⁰ and was not pursued in the High Court.

There were two primary reasons why the courts did not accept this defence:

a. Timing

Section 267(1)(c)(ii) requires the “cause independent of human control” to occur after the services are supplied. According to the Supreme Court and the Court of Appeal in Scenic, the services commenced when Mr. Moore booked his ticket (and a cabin had been reserved for him) and continued intermittently until he disembarked the ship in Australia.

The court stated that ‘throughout that period, and particularly in the lead up to and during the cruise, the services were being supplied’.¹¹ The court took the view that as Mr. Moore was relying on failures that occurred ‘both prior to and during’ the cruise, this limb of section 267(1)(c)(ii) of the ACL was not satisfied. The Court of Appeal commented that this provision required there to be some comparison between the nature and quality of services that were promised, and the ‘totality of post-embarkation services’ that were actually supplied. In light of this, the court said that the services did not actually ‘terminate’ until the passengers disembarked the ship.¹²

b. Causation

Section 267(1)(c)(ii) requires the “cause independent of human control” to be the sole reason for the failure. In the opinion of the Supreme Court in Scenic, the adverse weather conditions were not the only cause for Scenic Tours’ failure, with the court noting that Scenic Tours had also breached their guarantee by failing to cancel or delay the cruise, by transferring passengers by bus for long periods, and by docking passengers in sub-par locations. As a result of these ‘various individual failures’, the court held that this limb of section 267(1)(c)(ii) could not succeed.¹³

How does section 267(1)(c) apply where services are cancelled or modified as a result of existing or new coronavirus restrictions?

Where holidays, tours, flights and other services have been cancelled or postponed as a result of COVID-19 after bookings have been made, but before any ‘substantive’ services have been provided,  it is likely that an ‘intervening event’ would be considered the sole cause of any failure for a supplier to comply with Consumer Guarantees, and one that necessarily occurred after the services were supplied (per section 267(1)(c)(ii)). It is also likely that any cancellation or modification of services in response to a government directive would be classified as an “act of a person other than the supplier” in accordance with section 267(1)(c)(i). As such, service providers can likely rely on the provisions contained in section 267(1)(c) if they have failed to comply with the relevant Consumer Guarantees.

Suppliers should keep in mind, however, that the provisions under section 267(1)(c) do not apply to a breach of section 60 of the ACL, which requires service providers to render services with due skill and care. Accordingly, if service providers continue to perform their obligations after an intervening event (but, for example, in a modified way to comply with a government directive), they must still provide their services with due skill and care in accordance with the Consumer Guarantees despite the effects of any intervening event (such as COVID-19).

Takeaways

• Where the provision of services is highly dependent on external factors (such as weather) which are likely to unduly affect the quality of services, service providers ought to strongly consider providing their customers with an option to cancel or postpone, or else ensure that any ‘back up plan’ adheres to the same standards of quality as the services originally booked by the consumer; and
• Where a service provider’s services are affected by a government regulation, they will be excused from complying with their Consumer Guarantees as to fitness for purpose and timeliness of delivery, but this relief will not extend to their obligation to provide services with due skill and care.

This article was written by Teresa Torcasio, Partner and Zoe Vise, Law Graduate.

¹ Competition and Consumer Act 2010 (Cth) sch 2 (“ACL”).
² ACL, s 267(1)(c)(i).
3 ACL, s 267(1)(c)(ii).
⁴ ACL, ss 60, 61 and 62.
⁵ ACL, s 64.
⁶ ACL, s 267(1)(c)(i).
⁷ ACL, s 267(1)(c)(ii).
⁸ Note that the High Court in Scenic did not discuss section 267(1)(c)(ii) directly but rather affirmed previous decisions; see Scenic NSWSC below n 9 and Scenic NSWCA below n 10.
⁹ Moore v Scenic Tours Pty Ltd (No 2) [2017] NSWSC 733 (‘Scenic NSWSC’).
¹⁰ Scenic Tours Pty Ltd v Moore (2018) 361 ALR 456 (‘Scenic NSWCA’).
¹¹ Scenic NSWSC above n 9, [444].
¹² Scenic NSWCA above n 10, [309].
¹³ Scenic NSWSC above n 9, [449].