The decisions usefully consider the operation of the recreational activities and non economic loss provision of the Civil Liability Act 2002 (NSW) (“CL Act”) and their interplay with the Trade Practices Act 1974 (Cth) (“TP Act”) (now known as the Competition and Consumer Act 2010 (Cth)).
This article considers the key points to take away from the recent High Court of Australia and New South Wales Court of Appeal judgments in Insight Vacations v Young ( HCA 16 and  NSWCA 137). The decisions usefully consider the operation of the recreational activities and non economic loss provision of the Civil Liability Act 2002 (NSW) (“CL Act”)  and their interplay with the Trade Practices Act 1974 (Cth) (“TP Act”) (now known as the Competition and Consumer Act 2010 (Cth)). They also consider the meaning of “non-economic loss” in the CL Act and in particular, damages for “disappointment” arising from breach of contract.
Summary of key points
- Any term in a contract for a cruise, or other non-physical holiday, purporting to limit liability in reliance of s 5N of the CL Act will be void and of no effect.
- Section 5N, in any event, only applies to allow contracts for the supply of recreational services within New South Wales to limit liability.
- Exclusion clauses need to be carefully worded and thought out.
- Damages for disappointment flowing solely from breach of a contract (and in the absence of or unconnected to any other injury) fall within the caps on damages in the CL Act.
- During 2005 Mrs Young purchased a European tour package from Insight Vacations pursuant to a contract which included a provision that the contract was governed by the law of New South Wales. The contract contained a clause exempting Insight from liability for claims arising out of any incident where a passenger occupied a motor coach seat that had been fitted with a seatbelt in circumstances where the passenger fails to wear their seatbelt. Whilst travelling by coach between Prague and Budapest, Mrs Young got out of her seat to retrieve an item from the overhead luggage compartment. Unluckily for Mrs Young, at that very moment, the coach braked suddenly, causing Mrs Young to fall and suffer injury. Mrs Young sued for damages for breach of the warranty, implied by s 74(1) of the TP Act,  that the services supplied under the contract would be rendered with due care and skill.
- Mrs Young succeeded in her claim in the District Court of New South Wales and received judgment for $22,371.00.
- Insight appealed to the New South Wales Court of Appeal both on liability and damages. On liability, Insight relied on the exclusion clause to preclude liability. On damages, Insight argued that the District Court had erred in distinguishing between damages for “disappointment” and “hurt feelings”.
- Insight argued that the supply of the service of transportation by coach was a supply of "recreational services" within the meaning of s 5N of the CL Act. Section 5N of the CL Act provides that a term of a contract for the supply of recreational services may exclude or restrict liability from breach of an implied warranty. Insight argued that s 5N was picked up and applied, as a surrogate federal law, by s 74(2A) of the TP Act, with the consequence that the exemption clause could be, and was, given effect, and was not rendered void by s 68 of the TP Act.
- Insight's appeal to the New South Wales Court of Appeal was allowed on damages (which were reduced) but by majority (Basten JA and Sackville AJA; Spiegleman CJ dissenting) Insight's liability appeal was dismissed. Insight’s appeal on the liability issue to the High Court of Australia was also dismissed, with the High Court agreeing in a unanimous judgment with the majority of the New South Wales Court of Appeal.
The exclusion clause issue 
- Subject to limited exceptions, s 68 of the TP Act renders invalid any clause of a contract purporting to exclude the warranty of due care and skill implied by s 74(1) of the TP Act.
- One exception is s 68B of the TP Act  which allows an exclusion clause in a “recreational services” contract. The problem, however, is that the TP Act definition of “recreational services”, and the CL Act definition of “recreational services” do not correlate (there is a “linguistic mismatch” as Basten JA observed in the Court of Appeal). The TP Act definition is limited to sporting activities or other activities that involve a significant degree of physical exertion or risk – perhaps not encompassing the usual holiday cruise or European tour (as Insight discovered).
- A second exception, and one which Insight purported to rely upon, is s 74(2A) of the TP Act. This provision picks up and applies, as surrogate federal law, State law that by its own terms limits or precludes liability for breach of an implied warranty. However, the Court of Appeal and the High Court held that s 5N of the CL Act is not so picked up because it does not, of itself and by its own terms, apply to limit or preclude liability. Rather, it only permits parties to certain contracts to limit or preclude liability by a contractual term. By contrast, s 16 of the CL Act is picked up and applied by s 74(2A) because, in its own terms, it limits liability in cases of non-economic loss (by prescribing a scale or formula to calculate damages).
- As s 5N of the CL Act did not fit within the scope of the s 74(2A) “exception”, the exclusion clause in the contract (made in purported reliance of s 5N) was invalid, being in contravention of s 68 of the TP Act. It would appear, therefore, that any term in a contact for a cruise, or other non-physical holiday of this kind, purporting to limit liability in reliance of s 5N of the CL Act will be void and of no effect.
- Even if s 5N had been picked up and applied by s 74(2A), it did not apply to Mrs Young's claim. Section 5N refers to "a term of a contract for the supply of recreational services", which the High Court held must be read as being subject to a geographical limitation deriving from the context of the CL Act. The relevant geographical limitation is the place of supply of recreational services. Therefore, s 5N only applies to contracts for the supply of recreational services within New South Wales. Mrs Young's contract, being for a holiday in Europe, therefore could not fall within s 5N. Importantly, if a contract is capable of falling within the purview of s 68B of TP Act, it will have extra-territorial application.
- The High Court held that the exemption clause itself would not have applied to Mrs Young's claim in any event. The exemption clause could only apply when a passenger actually occupied a seat on the motor coach, not when the passenger had left her seat to move about the coach (as passengers were permitted to under contract). Because she was not sitting in her seat when she fell, she was not required to be wearing a seatbelt and therefore the exemption clause could not apply. This highlights the importance of careful contractual drafting.
The damages issues
- The damages issues was not subject to the High Court appeal, but it was the subject of unanimous decision in the New South Wales Court of Appeal. The Court of Appeal considered the characterisation of loss for “distress” and “disappointment”, and whether these were types of “personal injury damages” within the meaning of s 16 of the CL Act (and thus limited pursuant to the table in s 16).
- The Court of Appeal held that there is no distinction between damages for “distress” and damages for “disappointment”. Further, damages for disappointment (flowing from the inability of Mrs Young to continue her trip due to being injured in a motor coach accident) constituted “damages that relate to the … injury of a person” within the definition of “personal injury damages” in s 11 of the CL Act. Importantly, damages for disappointment on their own (i.e. in the absence of any other injury) also constitute “non-economic loss” within the meaning of s 16(1) of the CL Act. Section 11A(2) of the CL Act plainly contemplates that damages for “non-economic loss” (as defined in s 3) can be awarded as compensation for personal injury in a claim brought in contract. Damages for disappointment fall within the description of damages for loss of amenities, and is therefore compensation for loss of amenities of life. Therefore, damages for disappointment flowing solely from breach of a contract (and in the absence of or unconnected to any other injury) fall within the caps of s 16 of the CL Act and is limited accordingly.
- Because s 16 of the CL Act is valid (it being picked up and applied by s 74(2A) of the TP Act), damages within the meaning of s 16 which flow from a breach of s 74(1) of the TP Act are subject to the cap in s 16 of the CL Act. Damages for “disappointment” are therefore subject to the cap in s 16 of the CL Act.
This article was written by Anthony Highfield, Partner and Rachel Deane, Senior Associate.
 There are equivalent provisions to s 5N in Victoria (s 32N of the Fair Trading Act 1999 (VIC) and reg 5 of the Fair Trading (Recreation Services) Regulation 2004 (VIC)) and Western Australia (s 5J of the Civil Liability Act 2002 (WA). There is no equivalent in Queensland, South Australia, Northern Territory, Tasmania or Australian Capital Territory.
Below are the other articles published in this newsletter which may be of interest to you:
- Aviation November 2011 Newsletter
- Commonwealth Laws invalidate State OH&S Laws whilst “In Flight”
- Passengers Behaving Badly
- Case Note: Aircraft Technicians of Australia Pty Ltd v St Clair; St Clair v Timtalla Pty Ltd  QCA 188
- Rotor Heads: CASA Investigates Reality TV Star
- Limited Rights for Third Parties under Contracts of Insurance
- Insight Vacations v Young – liability for injury in recreational activities
- News In Brief
- New Federal Act to promote resolution of disputes prior to filing of proceedings
- Proposed amendments to Aviation Transport Security Act 2004 (the ATSA)
- Proposed amendments to the Air Navigation Act 1920
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Important disclaimer: The material contained in this publication is of a general nature only and is based on the law as at 10 November 2011. It is not, nor is intended to be, legal advice. If you wish to take any action based on the content of this publication we recommend that you seek professional advice.