Diners Club Pty Ltd v Ansett Australia Limited [2008] VSCA 30

Court of Appeal (Vic)|2008-02-28|Before: MAXWELL P, CHERNOV JA and CAVANOUGH AJA

CONTRACT - Construction - Agreement between airline and charge card provider to credit members of airline loyalty ('frequent flyer') program with points for purchases made using charge card - Loyalty program conferred power on airline to suspend program at any time without notice - Program suspended before expiry of agreement - Whether express or implied term requiring airline to conduct loyalty program for the life of the agreement - Whether express or implied term that charge card provider would not be liable to pay for points credited which could not be redeemed - Effect of clause requiring notice to charge card provider that airline would cease to operate loyalty program - Whether failure to give notice of suspension of loyalty program breached agreement - Whether loss occasioned if notice not given under agreement - Whether evidence admissible of employees' understanding of nature and purpose of agreement.

2 In 1991, and again in 1999, Ansett and DC entered into what was called a 'Participation Agreement'. Ansett agreed to credit DC cardholders who were also members of the GR program with 1.5 GR points for each dollar spent on the DC card (and paid for within the terms of trading set by DC). DC agreed to pay Ansett an agreed amount for each GR point thus credited. In this proceeding, Ansett claims amounts totalling $9,632,793 which it says are due to it by DC under the Participation Agreement.[1]

3 DC disputes any obligation to pay the moneys claimed by Ansett. Its principal defence is that the suspension of the GR program following the Ansett collapse breached a term of the Participation Agreement that Ansett would continue to operate the GR program for the life (five years) of the Participation Agreement. DC alleges that the suspension was a fundamental breach of the Participation Agreement, entitling DC to terminate the Participation Agreement and claim loss of bargain damages from Ansett. A claim for $46 million is made, both as a set-off and as a counterclaim.

4 DC's loss is said to have been suffered as follows. Soon after Ansett's collapse, DC entered into an arrangement to participate in the Qantas frequent flyer program but could only negotiate an arrangement under which DC cardholders received one Qantas frequent flyer point for each dollar spent on the DC card. As a result, DC contends, it lost the competitive advantage which it had previously enjoyed over American Express and other card issuers. Over time, DC cardholders reduced their expenditure on their cards or cancelled the cards altogether.[2]

5 The trial judge rejected DC's contention that the Participation Agreement contained either an express or an implied term obliging Ansett to conduct a frequent flyer program for the life of the Participation Agreement, subject only to the provisions of cl 9(b).[3] The central issue in the appeal, as DC defined it, was whether his Honour was correct to do so. In my respectful opinion, he was. My reasons are as follows.**

**6 This case concerns the contractual relationship between Ansett and DC. But resolution of the issues in dispute requires a clear appreciation of two other important relationships, that between Ansett and its GR members and that between DC and its DC cardholders.

7 I deal first with the relationship between Ansett and GR members. A person who joined the GR program did so subject to the terms and conditions of the program. As DC acknowledged in its submissions, GR members were 'bound by the program rules'. At the time of the 1999 Participation Agreement - indeed, from the inception of the program in 1991 - the terms and conditions of the GR program gave Ansett the absolute discretion:**

(a) to change or vary the terms and conditions of the program at any time without notice;

(b) to suspend or terminate the program at any time; and

**8 As between DC and its cardholders, the relevant agreement was that a DC cardholder would earn GR points by making purchases on the DC card, at the rate of 1.5 points for each dollar of expenditure. Self-evidently, the only GR points which DC cardholders could earn were GR points subject to the terms and conditions of the GR program. Like every other member of the GR program holding GR points, a DC cardholder would hold points subject to the absolute right of Ansett to cancel some or all of those points and - relevantly for present purposes - to suspend or terminate the program at any time without notice.

9 The commercial advantage to DC of its participation in the GR program was obvious. It enabled DC to offer a DC cardholder the opportunity to earn GR points, which made the holding (and use) of a DC card more attractive. To enjoy that benefit, however, a prospective customer would need not only to become a DC cardholder and use the card for purchases but also to become a member of the GR program. As I have said, the only basis on which a person could become a member of the GR program was on the terms and conditions of that program.

10 In fact, as the judge noted, the marketing materials which DC provided to prospective applicants for a DC card said, 'Global Rewards is a reward program for frequent air travellers ... Ansett Australia may vary or terminate the program at any time, without notice.'[5] DC was well aware - and wanted prospective cardholders to be aware - that the GR program could be terminated at any time, without warning. But the position of DC cardholders would have been no different had the marketing materials contained no such statement. The unalterable fact was that any GR points earned by a DC cardholder were held by the cardholder subject to Ansett's power to terminate the program without notice.**

**11 As noted earlier, DC's principal contention was - and is - that the Participation Agreement contained a term, express or implied, obliging Ansett to conduct the GR program for the life of the Participation Agreement (subject to the express right of Ansett to terminate the Participation Agreement under cl 9(b) in the event that it ceased 'to operate or participate in' the GR program).

12 In my opinion, the DC argument is based on a fundamental mischaracterisation of the Participation Agreement. Ansett did not promise to maintain a frequent flyer program to which DC cardholders could have access. Rather, Ansett promised to give DC cardholders special access to an existing frequent flyer program, which Ansett was already operating according to published terms and conditions. The judge's findings in this respect were clearly correct.[6] The commercial purpose of the Participation Agreement was to define the terms on which Ansett would give DC cardholders that special access to the program (or any program which might succeed it.)[7] Hence, under cl 3 DC agreed 'to participate in GR in accordance with this Agreement.'

13 Had it been the intention of the parties that Ansett bind itself to maintain a frequent flyer program for the life of the Participation Agreement, then the language of the agreement would have been quite different. The giving of a guarantee to keep the GR program in existence would, of course, have been wholly inconsistent with the unequivocal declaration by Ansett, in the terms and conditions of the GR program, that it reserved the right to stop the program at any time. Whether Ansett would, if asked by DC, have given such a guarantee is a matter of speculation and, for present purposes, irrelevant. What matters is that no such bargain was struck, and no term could be implied which would alter the character of the bargain.

14 In its submissions on the appeal, DC laid emphasis on the judge's findings that:

(a) DC's 'overriding purpose' in entering into the Participation Agreement was to increase the number of people holding its card and to maximise the amount which its cardholders charged to their cards;[8] and

(b) Ansett's purpose in entering into the Participation Agreement was to increase its ticket sales.[9]**

Those purposes, DC submitted, could only be achieved if Ansett conducted 'a meaningful frequent flyer program'. Conversely, those purposes would be defeated if, as happened, Ansett indefinitely suspended the GR program and prevented participating DC cardholders from redeeming points which had been credited to them.

**15 So much may be accepted. So too can it be assumed that neither Ansett nor DC had any subjective expectation, at the time of entry into the Participation Agreement, that the GR program would cease to operate during the life of the Participation Agreement. Both expected, no doubt, that Ansett - and the GR program - would continue to operate into the indefinite future. But none of those matters could justify, let alone require, construing the Participation Agreement as if it imposed on Ansett a quite different obligation from that which it actually imposed.

elevated clause 1.3 of the program rules [empowering Ansett to terminate the GR program] to the status of an overriding term of the Participation Agreement, and then resorted to ignoring inconsistencies between clause 1.3 and the agreement itself.

inverted the commercial arrangements between the parties. Properly understood, the program rules governed only Ansett's rights vis a vis its members (who got something - Awards - for nothing, and took the risk that Ansett might suspend or terminate Global Rewards or change the program rules), and were not intended to and did not bind Diners, which had a specially negotiated agreement under which it paid millions of dollars per month in consideration of Ansett conducting a real and effective frequent flyer program.

**17 These contentions must be rejected. The judge did not 'invert' the commercial arrangements, or 'elevate' the power of termination under the GR program into a term of the Participation Agreement. His Honour simply recognised that DC was agreeing to participate in a program the existence of which was governed by an independent set of rules. In this sense, the Participation Agreement was subordinate to, or a derivative of, the GR program. Clearly enough, if the program ceased there would be nothing to participate in.

18 As I have said, what Ansett agreed with DC was to give DC cardholders entry to the GR program on a special basis. Unlike other members of the GR program, DC cardholders would be credited with points, not for making purchases of airline tickets from Ansett or one of its partners but for making purchases on the DC card, being purchases from which DC itself would earn 'substantial' commission income.[10] Ansett's giving of that promise enabled DC to offer that special GR access to prospective DC cardholders as an incentive to their becoming cardholders, and to existing DC cardholders as an incentive to their making greater use of their DC cards for purchases. As DC said in its opening at the trial, the ability of members to earn 1.5 GR points for every dollar spent on a DC card was 'the key reason why people became Diners members, and the key driver behind Diners' turnover'.

19 DC therefore agreed that it would make a payment to Ansett, not in consideration of Ansett promising to maintain the program but in consideration of Ansett's crediting of each GR point earned by a DC cardholder. His Honour correctly so found.[11] Clause 5(a) could not have been clearer as to what the respective obligations were:**

For every Qualifying Purchase, Ansett will credit the Member with one and a half Points per dollar spent and the Participant will pay Ansett the Defined Percentage for each Point credited in respect of the amount of every Qualifying Purchase.

"Points" means GR Points accrued by Members based on their consumption of goods and services supplied by Ansett and participants in GR.

"Qualifying Purchase" means a purchase charged to a charge card issued to a Member by the Participant and billed on the Member's monthly statement of account, excluding fees, liquidated charges, credit balances and government taxes, provided that the payment for the amount charged for the month is received in full by the Participant within payment terms applicable.

**20 The express promise which Ansett made to DC was that it would credit points for qualifying purchases. Nothing in the agreement purported to be a guarantee that the GR program would continue. On the contrary, as discussed below, cl 9(b) of the agreement expressly recognised the possibility that it might not.

21 Senior counsel for DC argued, nevertheless, that there were sufficient 'indicia' to be found in the express terms to show that Ansett assumed a contractual obligation to keep operating the GR program. Reliance was placed, as it was at the trial, on recital A:**

Ansett conducts a frequent flyer award program called Global Rewards ('GR') under which Members accrue points ('Points') based on their consumption of goods and services supplied by Ansett and participants in GR and can then exchange those Points for Awards.

According to DC's submissions, the highlighted words indicated that Ansett was obliged to conduct the GR program (or an equivalent) for the life of the Participation Agreement. By so describing the GR program, it was said, Ansett must be taken to have promised that the ability to exchange (redeem) points would continue to exist for the life of the agreement. The argument was supported by reference to the definition of 'Awards' as '... goods, services and other benefits for which Points accrued by Members can be exchanged.'

**22 In my view, the submission is untenable. The terms of the recital and of the definition accurately described the essential features of the GR program as it existed. The recital recognised the separate existence of GR as a program conducted by Ansett, on terms and conditions elsewhere laid down 'under which' GR members had certain entitlements. The recital is entirely consistent with the character of the agreement as being one which defined DC's participation in - and hence the access of its cardholders to - that separate program.

23 Reference was then made to the obligation imposed by cl 5(a), 'for every Qualifying Purchase, Ansett will credit the Member with one and a half Points'. Senior counsel for DC accepted that there was a conceptual - and temporal - distinction between 'crediting' points and 'redeeming' them. He argued, nevertheless, that the points which Ansett agreed (by cl 5(a)) to credit were points which were - and would remain until they expired - redeemable. In other words, by agreeing to credit the points, Ansett (impliedly) agreed to maintain a program in which the points would be redeemable.

24 Again, with respect, the contention is untenable. The obligation here assumed by Ansett was of the essence of the Participation Agreement, and emblematic of its character as I have described it. That is, Ansett promised DC that, for every dollar which a DC cardholder spent using a DC card, Ansett would credit that cardholder's account in the GR program with 1.5 GR points. The crediting of those points, obviously, would take place within, and subject to the terms of, the GR program. The points once credited were as durable - and as perishable - as the terms and conditions of the GR program provided.

25 For the same reasons, I would reject DC's alternative contentions that:

(a) there was an express or implied term of the Participation Agreement that Ansett's right to payment under cl 5 for points that had not been exchanged for awards was, subject to cl 9(b), conditional upon Ansett continuing to conduct the GR program at the time when payment fell due; and

(b) there was an implied term of the agreement that if, by reason of acts or omissions of Ansett (other than termination of the agreement pursuant to cl 9(b)), it became impossible for DC members of the GR program to exchange points for awards, then the obligations of DC under cl 5 to make payments to Ansett in respect of unexchanged points would immediately cease, and Ansett would repay amounts paid by DC pursuant to cl 5 in respect of points credited to members which could not be exchanged for awards.**

It will be apparent from what I have already said that there is nothing in the agreement to support the express term contended for, and no basis for implication of either of the implied terms.

26 DC also relied on cl 8(c), which obliged Ansett to

organise group marketing discussions between [DC] and all other participants in GR relating to the conduct of GR with an aim to ensuring that GR is providing maximum benefit to all involved in it.

This clause was said to reflect a common assumption that Ansett would conduct the GR program throughout the term of the agreement. The obligation imposed by cl 8(c) was said to be inconsistent with the view that 'Ansett had the right simply to suspend GR at will'.

27 As I have already said, it is doubtless correct that, when the agreement was made, both sides assumed that the GR program would exist for the life of the agreement. But cl 8(c) says nothing, expressly or impliedly, about Ansett's ability to terminate the program. The clause could operate perfectly well in relation to the GR program for so long as it existed. But, like the rest of the agreement, it would have no work to do should the program cease. As noted earlier, the Participation Agreement was necessarily subordinate to the GR program. There could be no participation in a non-existent program. DC's notice to prospective cardholders underlined this commercial reality.

**28 On DC's argument, the obligation of Ansett to continue the GR program was subject to the power conferred on Ansett by cl 9(b), which provided, 'Ansett may terminate this Agreement by giving one month's notice that it is ceasing to operate or participate in GR.' DC argued at trial, and again on the appeal, that if Ansett wished to cease to operate the GR program during the life of the Participation Agreement, it could only do so by giving one month's notice under cl 9(b), and abiding by the post-termination obligations set out in cl 9(d). Unless that notice was given, so the argument went, the GR program had to be continued. Ansett having given no such notice, its suspension of the program was a breach of the agreement, and DC's loss of bargain damages were to be assessed by reference to the benefits it would have derived had the GR program continued for the life of the agreement.

29 It is important to be clear about exactly what cl 9(b) does - and does not - do. As the judge said,[12] the clause concerns - and only concerns - the termination of the Participation Agreement. It says nothing whatsoever about when, or how, Ansett may 'cease to operate or participate in' GR. Nothing in cl 9(b) purports to limit, less still to remove, Ansett's ability to do so. The clause simply assumes the existence of that ability.

30 In particular, cl 9(b) does not purport to prevent Ansett from ceasing to operate the GR program unless it has first given notice to DC of its intention to do so. Had that been the parties' intention, quite different language would have been needed. Once again, a promise of that kind on Ansett's part would have directly contradicted - and, for the life of the agreement, negated - Ansett's absolute right under the GR program terms and conditions to terminate the program without notice to anyone. How that conflict might have been resolved is not a question which needs to be determined, though it must be doubted whether Ansett would have been willing to give up that right.

31 Clause 9(b) gives Ansett a power to terminate the Participation Agreement if a certain event happens, that is, Ansett ceases to operate the GR program or ceases to participate in the GR program. The clause does not oblige Ansett to terminate the Participation Agreement if it ceases to operate the GR program. Ansett is simply given the power to do so. But the position would have been no different had Ansett been bound to terminate the agreement in those circumstances.

32 Nor is the position affected by cl 16, which is in these terms:**

(a) Each of Ansett and the Participant must use its best endeavours to ensure that if changes to the structure, ownership or operation of GR occur:

(i) that the relationship established by this Agreement is maintained;

(ii) that to the maximum extent possible the parties derive the same benefit under the new arrangement; and

(iii) that the new arrangement is documented, to the maximum extent possible, in the same or similar terms and conditions to those contained in this Agreement.

(b) Nothing in this clause 16 will restrict Ansett assigning its rights and obligations under this Agreement in accordance with the terms of clause 15(b), but Ansett will remain bound by this clause 16 in respect of the ongoing relationship between the Participant and the assignee.

(c) Without limiting the generality of clauses 16(a) and 16(b), if GR is to become part of or be replaced by a substitute or successor loyalty program operated by an alliance, joint venture or other entity then Ansett must use its best endeavours to ensure that the exclusivity obligations under clause 11(a) of this Agreement are observed in respect of the Australian operation of that program.

33 Plainly, these terms are directed at the preservation of the relationship established by the agreement, including in circumstances where Ansett assigns its rights and obligations under the agreement in accordance with cl 15(b). They say nothing one way or the other about the capacity of Ansett to terminate the GR program. The reason is simple. The agreement was not concerned with - was not intended to affect - Ansett's ability to terminate the GR program, an ability which it derived from the GR program itself.

**34 Let it be assumed - contrary to my view - that Ansett was obliged under cl 9(b) to give one month's notice of its intention to suspend the GR program, and to keep the GR program in operation until the end of the notice period. In breach of that obligation, Ansett gave no such notice and suspended the program with effect immediately. What loss has DC suffered?

35 Had Ansett given the notice which (on this hypothesis) it was required to give, and had thereby terminated the agreement, cl 9(d) would then have applied. It says:**

Termination of this Agreement does not affect any obligation incurred by the parties as at the date of termination, including without limitation any obligation with respect to transactions effected by Members on or before the date of termination. In particular the Participant acknowledges that Members have a right to claim Points under GR up to six months after a transaction takes place and that Ansett may take a further one month to process any claim. The Participant will honour Awards issued in accordance with clause 6 for a period not exceeding twelve months following termination of this Agreement.

This clause imposed no new or different obligation on Ansett. It simply confirmed that its accrued obligations - and DC's - were unaffected by termination. Ansett was obliged to credit points for qualifying purchases already made, and DC was obliged to pay for points credited. (The second sentence of the clause was concerned only with the time it might take for points to be claimed by cardholders and credited by Ansett). The crediting, when it took place, would be crediting to the GR program as it existed. If the program had ceased by the time the crediting was to take place, the obligation would be impossible of performance.

[made] clear that the obligation on Ansett to honour accrued Points was to survive any early termination of the Participation Agreement under clause 9(b).

But Ansett had no obligation to DC 'to honour accrued Points'. Ansett's obligations with respect to accrued GR points were obligations which it owed to GR members. Those obligations were defined - and limited - by the terms of the GR program. Under the Participation Agreement, all Ansett was obliged to do was to credit points earned by DC cardholders through their use of their cards. It was DC, not Ansett, which under cl 9(d) agreed to 'honour', for 12 months after termination, 'Awards issued in accordance with cl 6'. (Clause 6 contemplated that DC itself might supply goods and services to DC/GR members as awards. The terms of the GR program also provided for that possibility.)

inconceivable that the parties would have agreed that Diners should have to pay for points that would be rendered inutile in the event that Ansett indefinitely suspended the Global Rewards.

This submission reflects another - equally fundamental - mischaracterisation of the bargain which DC had entered into. What DC sought, and obtained, through the Participation Agreement was the ability to offer to (prospective) DC cardholders the opportunity to earn GR points by spending money using the DC card. DC was not 'paying for points'. DC cardholders were. Like all other GR members, they were paying for points by making purchases and were, no doubt, upset and disappointed when the GR program abruptly came to an end and their accumulated points were 'rendered inutile'. Inevitably, as senior counsel for DC informed the Court, much of that dissatisfaction was directed at DC, though DC was in no way responsible.

**38 As noted earlier, DC relies on the judge's finding that its purpose in entering into the Participation Agreement was 'to increase the number of the people holding its card and to maximise the amount which its cardholders charged to their cards.' Those benefits flowed to DC right up to the moment of suspension of the GR program. Until that moment, the incentive of earning GR points operated to deliver to DC new cardholders and higher expenditure on DC cards. Every point which Ansett was obliged to credit, and for which DC was obliged to pay, was a point which reflected an expenditure actually made by a DC cardholder using the card, that is, an expenditure which generated income for DC. That was what DC was paying for. In no contractual sense was DC paying for the awards which were available to DC cardholders when, in their capacity as GR members, they redeemed the points which they had thus earned. The fact that Ansett used funds paid by DC under the agreement to defray the expenses of the GR program could not affect this conclusion.

39 Once this is understood, DC's further arguments about total failure of consideration and unjust enrichment of Ansett can be seen to be unsustainable. DC got exactly what it agreed to pay for. Ansett discharged the contractual obligations which it had assumed.[13] For the same reasons, there is no basis for reading DC's payment obligations as conditional upon Ansett's continuing to conduct the GR program at the time payment fell due. Contrary to DC's submissions, this result is neither harsh nor commercially absurd. If there was harshness, it lay in the fact that GR members suddenly lost their ability to redeem the points they had earned by their DC card purchases, but that was an incident of the - quite separate - relationship between GR members and Ansett.

40 I am unable to see that DC would have been in any better position had Ansett given notice under cl 9(b) that it was ceasing to operate the GR program and terminating the Participation Agreement. During the one month's notice period, DC would hardly have sought to recruit new cardholders, or to encourage existing cardholders to make purchases, in order to earn points in a program which Ansett had already announced it was ceasing to operate. On the contrary, DC would presumably have been at pains to advise cardholders that the program was about to end. Upon the suspension of the program, as senior counsel for DC put it, 'the building of loyalty stopped dead'. The same would have occurred if notice of impending cessation had been given. That being so, Ansett's failure to give the one month's notice (assuming it to have been obliged to do so) occasioned no loss.**

41 DC called evidence called at the trial, from various employees and former employees of DC and Ansett, to the effect that they understood that the payments made by Diners to Ansett pursuant to the Participation Agreement were in payment for seats, or parts of seats, on flights. The learned trial judge held that this evidence was not admissible

as evidence of surrounding circumstances known to both parties. It is evidence of the understanding of persons who were not involved in the negotiation or entry into the participation agreement ... or is evidence of the uncommunicated subjective understanding or intention of the only person who was.[14]

42 On the appeal, DC argued that the evidence should not have been rejected, that it was 'both cogent and consistent' and provided the basis from which the court could draw

probative inferences about the respective corporate intentions of Ansett and Diners at the time of entry into the [P]articipation [A]greement.

Each of the employees and former employees of Diners and Ansett who gave the rejected evidence was experienced in the relevant industries - running an airline and a charge card business, in which involvement with frequent flyer programs had become indispensable by the time of the entry into the Participation Agreement. The rejected evidence was thus, in substance, evidence from reliable witnesses of what corporations such as Ansett and Diners would have known about and expected from the operation of the Participation Agreement.

The rejected evidence was also of significance and understanding the commercial purpose of the Participation Agreement.

**43 The evidence was rightly treated as inadmissible. It was certainly relevant for the purposes of construction to understand the commercial context in which the Participation Agreement was entered into.[15] Reference has already been made to its commercial purposes. But it could never have been relevant to know what any employee of Ansett or DC thought the agreement was or what they thought DC was paying for. However senior the employee was, and however intimately involved with the contract negotiations, his/her subjective beliefs and intentions are irrelevant. To suggest the contrary is to ignore basic principles of contract law.[16]

44 In any event, the subjective perceptions about which these witnesses spoke simply reflected a misunderstanding of the agreement. There is not a single word in the Participation Agreement which suggests that what Ansett was agreeing to provide, and DC was agreeing to pay for, was 'seats on flights'. As I have already said, the agreement was a quite specific one, about the crediting of frequent flyer points in respect of purchases made with the use of a DC card.**

45 Under cl 6(c)(iii) of the Participation Agreement, Ansett agreed to indemnify and hold Diners harmless

against all liability, losses, damages, costs, expenses, actions and claims incurred by or brought against the Participant [DC] which may result from or arise in any manner out of ... (iii) any changes to GR caused by Ansett or any third party unrelated to the Participant.[17]

**46 The judge held that cl 6(c)(iii) was to be read as an indemnity only in respect of third party claims against DC and not as an indemnity in respect of loss and damage that DC might itself incur as a result of the conduct of Ansett.[18] His Honour went on to find that, in any event, the indefinite suspension of the GR program did not involve any 'change' to that program, since the suspension was effected by Ansett's exercise of an existing power under the program.[19] DC submitted that each of these conclusions was incorrect, arguing that 'the compelling commercial construction of cl 6 was thus that if Ansett elected to act so as to damage or destroy the value of the Participation Agreement, it had to indemnify Diners for the resulting losses'.

47 For reasons already given, the agreement was concerned with participation by DC in an existing program. The agreement did not affect - expressly or impliedly - Ansett's exogenous right to terminate the program. In my view, the phrase 'changes to GR' in cl 6(c)(iii) was concerned only with alterations made to the program while it continued. Clause 9(b) dealt separately with what would happen if the program**

48 This construction is consistent with the character of the agreement as a whole. Even if (contrary to my view) cl 6 could have been read as obliging Ansett to indemnify DC for any losses resulting from a cessation of the GR program before the end of the Participation Agreement, that construction would have had to be rejected as being inconsistent with the agreement as a whole and, in particular, with the obligations imposed by its central provisions.[20]**

**49 Grounds 9-11 proceed on the assumption that the agreement did contain the principal term contended for by DC and that the summary cessation of the GR program was a 'fundamental breach' of that term, entitling DC to terminate the agreement and sue for loss of bargain damages. For the reasons already given, that assumption is unsound. It is unnecessary to deal further with these grounds.

51 I have had the benefit of reading the draft reasons for judgment of the learned President and agree that for the reasons he gives the appeal should be dismissed. I would only deal with the following. One of DC's arguments below and before us was that cl 5(a) of the Participation Agreement[21] obliged Ansett to credit card users with utile points (and not points which gave such users mere opportunity to redeem them) in return for the payment by DC to Ansett of 0.6 per cent of the amounts purchased by the use of the DC charge card. Thus, it was said, if points could not be redeemed because of the termination of the GR program, DC was entitled to

52 This argument was also rejected by the learned primary judge, rightly, I think. I consider that, on its proper construction, the Participation Agreement placed the following relevant obligations on each of Ansett and DC. Ansett was required to credit to each user of a DC card 'points' in proportion to the amount so spent by the user. The 'points' were effectively defined as those provided by Ansett in accordance with its GR program, so that the 'rights' that were conferred upon members under that program were only potential entitlements, in the sense that their conversion to airline tickets depended on the continuing operation and the terms of the GR program. In return, DC was required to pay Ansett 0.6 per cent of the total amount spent by users of the DC charge cards. There is nothing in the language of cl 5(a), or in any other term of the Participation Agreement, that confined DC's obligation to pay the 0.6 per cent to the situation where Ansett provided utile 'points' to the users of DC cards. In other words, the obligation to pay the 0.6 per cent arose as soon as the 'point' was credited to the user and was not dependent upon the conversion of the 'points' so credited to entitlement to any particular flight or to any other 'reward' at all.

53 Before and after 12 September 2001 Ansett credited to card users 'points' in accordance with the amounts spent by them by use of the DC card, thereby discharging its obligation to DC under cl 5(a). The fact that Ansett later refused to convert such credited or accrued 'points' into airline travel or other rewards in accordance with the GR program does not alter the fact that Ansett had discharged its obligation to DC under the Participation Agreement in the circumstances to which reference has been made.

54 There are no words in the Participation Agreement that give the 'points' the character for which DC contends and, for the reasons given by the President, those words cannot properly be implied into the document. The construction that produces the result that Ansett's obligation under the Participation Agreement will**

**be discharged once it credits points to the card holder under the existing terms and conditions of the GR program is, contrary to DC's contention below and before us, not uncommercial such as to militate against the construction for which Ansett contends. A commercial benefit to DC of such a transaction would be that its cards would be used such as to earn it commission from traders who accepted the card in place of another form of payment. It would also increase its goodwill amongst its members, given that they would, in the ordinary course, recover 'points' under the GR program while it was extant. The fact that, upon Ansett suspending or ultimately in effect cancelling its scheme, the DC cardholders might attribute some blame to DC for this and complain that they used the card on the basis that they will become entitled to free air travel, which has been denied to them, does not of itself make the Participation Agreement uncommercial or one that necessitates the implication of the term contended for by DC.

55 As the President has pointed out, DC's argument that cl 9(b) of the Participation Agreement indicates that the parties intended that the program operate for the length of its term unless terminated in accordance with this clause, does not give sufficient recognition to the material difference between the work done by the Participation Agreement on the one hand and the GR program on the other. It seems to me that, as between Ansett and DC, Ansett's entitlement to terminate the Participation Agreement upon notice in accordance with cl 9(b) does not mean that, as between Ansett and the card users who had points credited to them, Ansett could not change the relationship as envisaged in the GR program. Clause 9(b) is concerned only with the relationship between Ansett and DC and says nothing of relevance about Ansett's entitlement to conduct the program effectively at its discretion.

56 Consequently, as I have said, I would also dismiss the appeal.**

**57 I agree with the President that the appeal should be dismissed. Subject to the following, I agree with his Honour's reasons for judgment which I have read in draft.

58 DC submits that the effect of cl 9(b), read in the context of the Participation Agreement as a whole, is that Ansett was not entitled to '[cease] to operate or participate in GR' without giving DC one month's notice. The President rejects that submission completely.[22] My response to it is to say that if any such inhibition was imposed on Ansett by the Participation Agreement it could only persist for as long as the Participation Agreement remained on foot; and that even if the Agreement should be construed as restricting Ansett in the manner postulated for so long as the Agreement remained on foot, it would avail DC nothing in the events which have happened. In my opinion, Ansett did not '[cease] to operate or participate in GR' within the meaning of cl 9(b) at any time while the Participation Agreement was on foot.

59 The Participation Agreement stopped being on foot on 23 October 2001 when DC gave Ansett a notice under cl 9(c)(ii). Previously, on 14 September 2001, Ansett had purported to suspend GR indefinitely. DC submits that the suspension should be regarded as a cessation for the purposes of cl 9(b). It bases this submission in part on the proposition that Ansett had no power merely to suspend GR. However, the terms and conditions of GR expressly confer on Ansett a right of suspension and I can see nothing in the Participation Agreement which expressly or impliedly denied or negated that right.

60 The position might be different if DC could show that the relevant act by Ansett on 14 September 2001 was not genuinely limited to a suspension, or that at some stage prior to the termination of the Participation Agreement on 23 October 2001 the suspension of GR had turned into a cessation. However the findings of the trial judge are to the contrary. His Honour said:**

... The Global Rewards program was suspended on 14 September 2001 and has never been reinstated.

The withdrawal by Air New Zealand of its letter of comfort exposed the insolvency of Ansett. On 12 September 2001, Ansett's directors resolved to place it in voluntary administration.
At the time administrators were appointed to Ansett, Ansett had issued invoices to Diners for Global Rewards points credited to the Global Rewards accounts of Diners cardholders, in respect of purchases on their Diners cards in the period 1 July 2001 to 25 August 2001. These invoices have not been paid.
At 2 am on 14 September 2001, Ansett's administrators suspended Ansett's operations and grounded its aircraft. As part of this general suspension of its operations, Ansett's Global Rewards program was suspended.
On 17 September 2001, Ansett's initial administrators resigned and Mark Korda and Mark Mentha were appointed voluntary administrators of Ansett and other companies in the Ansett group in their place.
Also on 17 September 2001, Ansett staff processed the final credits of Global Rewards points to the accounts of Diners cardholders. These points related to purchases on Diners cards in the period 25 August to 11 September 2001.
Shortly after their appointment, Mr Korda and Mr Mentha decided that the Global Rewards program should remain suspended and not be terminated. They wished to investigate and pursue various options in relation to the Global Rewards program, including the possibility that the Global Rewards program could be reinstated as part of the sale of Ansett's airline business. As a result, the Global Rewards program remained suspended during attempts by the administrators to sell Ansett's airline business. These attempts were ultimately unsuccessful. Notwithstanding this, the Global Rewards program has never been formally terminated. It remains in indefinite suspension.
...
By letter dated 23 October 2001, Diners gave notice to Ansett that it terminated the participation agreement with immediate effect. ... At the time it terminated the participation agreement, Diners had made no assertion that Ansett was in breach of the participation agreement in any way, and had not called upon Ansett to continue to operate the Global Rewards program.
As I have said, at the time of this termination, and to this day, the Global Rewards program was suspended only. It has never been terminated. Diners recognised this at the time it terminated the participation agreement. For example, it issued a press release the day before it terminated the participation agreement, which stated:

The Ansett Administrators confirm that Ansett has responsibility for the [Global Rewards] program. The Administrators also confirm that Global Rewards points and services have been suspended while options are explored.

Diners Club will notify members if the suspension is lifted.

Further, at the time Diners terminated the participation agreement, it was the intention of the administrators to sell Ansett's airline business and to seek to have the purchaser either reinstate the Global Rewards program or accord some recognition to the accumulated Points of Global Rewards members.
At the time of termination, there were four parties who had expressed an interest in purchasing Ansett's airline business, including Singapore Airlines (a Star Alliance member) and Tesna Pty Ltd. No agreement, conditional or otherwise had been reached with any of them. In the result, only Tesna made an offer. After acceptance of that offer, there were discussions between the administrators and representatives of Tesna as to the form of the new frequent flyer program to be introduced by Tesna. The form of the frequent flyer program proposed by Tesna did not involve reinstatement of the Global Rewards program or any automatic recognition of accrued Global Rewards Points. The only way in which any recognition was to be afforded to accrued Points was if a Global Rewards member purchased airline tickets and flew with Tesna.
The proposed sale of Ansett's airline business to Tesna did not proceed. Accordingly, the administrators closed down all of Ansett's airline operations.

61 As Ansett pointed out, these findings of the trial judge were amply supported by the evidence and were not challenged by DC on the appeal. They establish that, as at 23 October 2001, Ansett had not ceased to operate or participate in 'GR', which is defined in the Participation Agreement as:

"Global Rewards", being any loyalty or frequent flyer program offering rewards or points for airline travel in Australia or overseas:

(a) which is operated by Ansett or a holding company or a subsidiary of Ansett; or

(b) which is established as a result of the Alliance between Ansett, Air New Zealand Limited and Singapore Airlines Limited as a successor or substitute to the program operated by Ansett on the date of this Agreement.

As well as trying to bring about the reinvigoration of GR as a whole through the involvement of other parties, Ansett had been continuing itself to administer an aspect of GR by crediting points for past transactions.

**62 As to cl 6 ('Indemnification'), it seems to me that the suspension of GR arguably was a 'change' to GR within the meaning of cl 6(c)(iii).[23] A true cessation would arguably be an even bigger 'change' to GR. However, I think it is clear from cl 9(b) that, at least if one months' notice be given, Ansett is thereafter completely free, even as against DC, to cease to operate or participate in GR at all. The greater includes the lesser. It would be more than odd to construe cl 6(c)(iii) as negating Ansett's freedom, as recognised in cl 9(b), to cease (or suspend) GR. I consider that the solution lies in the conclusion of the trial judge that cl 6 is confined to indemnification against third party claims.

63 If the suspension of GR amounted to a 'change to GR' for the purposes of cl 6, then it may also have amounted to a 'change to the structure, ownership or operation of GR' within the meaning of cl 16 ('Enduring relationship') of the Participation Agreement, but DC does not and could not suggest that Ansett did not use its 'best endeavours'[24] to achieve the objects set out in that clause (at least for so long as the Participation Agreement remained on foot).

64 In my view, there is no available interpretation of the Participation Agreement under which Ansett was in breach of any express or implied term.

65 I would decline to express any view as to whether, on the assumption (to which I would not accede) that Ansett was obliged to give DC one month's notice of its intention merely to suspend GR, DC suffered any loss in consequence of Ansett's omission to give it such notice.[25] In passing, I note that altogether apart from DC's complaints about having to make payments to Ansett in respect of 'inutile points', DC asserts that it suffered loss through being afforded less time to find a replacement for GR than the time to which it was allegedly entitled under cl 9(b).

66 I agree with the orders proposed by the President.

[1] There is also a claim under a separate 'master merchant agreement' but, as explained in the reasons for judgment of the trial judge, that part of the claim has been stayed pending the outcome of an arbitration: Ansett Australia Limited v Diners Club Pty Ltd [2007] VSC 102, [5].

[3] See [28]-[31] below.

[7] The agreement defined 'GR' to mean, relevantly 'any loyalty or frequent flyer program offering rewards or points for airline travel in Australia or overseas (a) which is operated by Ansett or a holding company or subsidiary of Ansett'.

[13] Cf Stocznia Gdanska SA v Latvian Shipping Co [1998] UKHL 9; [1998] 1 All ER 883, 896 (Lord Goff).

[15] Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 462 [22] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).

[16] Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, 352 (Mason J); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, 179 [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); IATA v Ansett [2008] HCA 3, [53] (Gummow, Hayne, Heydon, Crennan and Kiefel JJ).

[20] Cf Ansett v IATA [2006] VSCA 242; (2006) 60 ACSR 468, 479 [47] - 480 [52].

[21] The terms of cl 5(a) and the relevant definitions are set out in [19] of the President's reasons.

[22] See [28]-[30] of the President's reasons.

[23] Cf [47] of the President's reasons.

[25] Cf [34]-[40] of the President's reasons.

At a glance

Court

Decision date

Before

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Judgment (120 paragraphs)

Parties

Cases Cited (3)