Victorian Civil and Administrative Tribunal|2007-07-27|Before: Ms J

Free v Jetstar Airways Pty Ltd (Civil Claims) [2007] VCAT 1405 (27 July 2007)

Contract - "consumer contract" - "unfair term" - airline ticket booked on internet website - term requiring a purchaser who requests a change to a passenger name to pay a fare difference - applicant applied for refund of money paid for a change of passenger name - term "unfair" - whether VCAT may so decide in a consumer and trader dispute - whether conduct "unconscionable" - Fair Trading Act 1999 ss. 3, 8, 32X, 32 Y, 32ZA, 32ZC.

Free v Jetstar Airways Pty Ltd (Civil Claims) [2007] VCAT 1405

On 14 September 2006 the applicant Elizabeth Winifred Free booked two tickets for flights on an airline operated by the respondent, Jetstar Airways Pty Ltd ("Jetstar"), from Melbourne to Honolulu on 11 May 2007 and from Honolulu to Melbourne on 18 May 2007. She made the booking by accessing Jetstar's internet website. She booked the tickets in the names of herself and her sister, and by selecting a special "Jet Saver" fare offered by Jetstar: a fare of $437.39 per person for return travel. This was a very cheap fare, offered by Jetstar as an introductory sale for the route. On the same day Ms Free paid $874.98 for the two fares.
Shortly before 7 March 2007 Ms Free's sister told her that she would be unable to travel on the booked flights. Ms Free wanted her niece to be able to use the ticket which had been booked in her sister's name. She telephoned Jetstar on 7 March 2007 to request a change to the name for the ticket. She was informed, correctly as matters turned out, that Jetstar would only allow a change to the passenger name on the ticket if she were to pay a "change fee" of $75.00 per person per flight, plus whatever was the difference between the fare which was applicable on the day that the change was made and the fare which she had actually paid.
After correspondence between Ms Free and Jetstar, in which Ms Free protested about being asked to pay the fee and any higher fare and in which Jetstar referred to its terms and conditions for the sale of Jet Saver tickets, for Jetstar alleged that those terms and conditions entitled it to require the additional payments before changing the name in which a passenger's ticket was booked, Ms Free eventually on 29 March 2007 paid what was demanded and the change of booking name from her sister to her niece was effected. She paid $788.93.
On 26 March 2007, three days before making that payment, Ms Free filed her application and commenced this proceeding. In her application she claimed $975.00. Evidently that was the sum she believed she would have to pay. In fact it was $788.93.
In section 8 of her application form, Ms Free ticked several boxes, to answer the question on the form, "what do you want VCAT to decide and order?". One box was for "Payment of money". Another was for "Unfair term(s) in a consumer contract entered into after 8/10/2003". Another again was for "Misleading or deceptive conduct, false representation and unconscionable conduct".
The proceeding came on for hearing before me on 9 May 2007. Ms Free appeared in person and gave evidence. Her sister Sally Free gave some brief evidence. Jacqueline Skewes, Jetstar's manager for customer relationships, represented Jetstar and gave evidence.
As the hearing proceeded, it became clear that Ms Free was indeed alleging, as her application had indicated, that contractual terms on which Jetstar was relying were "unfair" terms in a "consumer contract" within the meaning of those expressions in Part 2B of the Fair Trading Act 1999 and were void for that reason, with the result that Jetstar was never entitled to demand the additional payment that she had made. It also became clear that she was alleging that in demanding the additional payment Jetstar had engaged in unconscionable conduct within the meaning of that phrase in section 8 of the Fair Trading Act.
A ruling that a term in a contract is an "unfair term" and void for that reason can have momentous consequences for a respondent, and perhaps for other persons who supply goods or services in the same industry, if a standard form contract is involved, even if the amount claimed by the applicant is small. So it is VCAT's usual practice, whenever an applicant ticks the box on the application form to make an allegation of an "unfair term", to list a directions hearing in the proceeding so that the Tribunal can ascertain whether it is really the applicant's intention to make the allegation of an "unfair term" in the technical sense as defined in Part 2B of the Fair Trading Act, and, if that is the applicant's intention, that the respondent gets fair notice that the Tribunal is going to be asked to make a ruling which may have momentous consequences for that respondent. Unfortunately that usual practice was not followed in this case. The proceeding was listed for a final hearing without there first having been the directions hearing. So, at the end of the final hearing, I reserved my decision but also made orders that permitted Jetstar to file and serve any written submission of law on the "unfair term" issue by 8 June 2007 and permitted Ms Free to file and serve any written submission in reply by 22 June 2007.
Jetstar did file a written submission by 8 June 2007. It was not really a submission of law. It did not attempt to explore the comparatively novel question of what constitutes an "unfair term" for the purposes of the Act or to present any argument about whether the terms relied upon by Jetstar were "unfair". Nevertheless, it was a helpful summary of the facts of which evidence had been given during the hearing, none of which was really in dispute, and an equally helpful summary of Jetstar's contentions. Ms Free did not file any written submission in reply.

It is now necessary to set out in greater detail how Ms Free booked the two tickets.
Jetstar's internet website contained a booking form. The form set out various available fares including the Jet Saver fare. Ms Free selected that fare. At the foot of the form was a box beside which were words that commenced: "I have read and accept the airline's Fare Rules and Conditions of Carriage". A prospective customer must click on the box, electronically, in order to complete the booking. Ms Free did that.
In the body of the form there was another box which enabled a prospective customer to view the Fare Rules and other information about fares. Ms Free viewed those before she completed the booking.
The "Jet Saver Fare Rules" displayed on the internet website, as far as they seem to have been relevant to this proceeding, were as follows:
- - JETSAVER FARE RULES
- - 2.1 Subject to availability and payment of all applicable amounts, changes can be made to your Booking as follows. Changes to the origin and destination of travel are not permitted.
- - 2.2 Your new fare will be at least the amount of the fare you originally purchased, and may be more. At the time your Booking is changed you must pay the difference (if any) between the fare you originally purchased and the fare available on the date of the change. This will apply to all date, time and name changes.
- - 2.3 Date, time and Passenger name changes may be made by telephoning Jetstar Telephone Reservations ... A change fee* is payable for each change, for each passenger flight segment change ...
- - *Current Jetstar fees and a summary of fare types can be found at jetstar.com/faretypes.html.
At the foot of the window that displayed the "Jet Saver Fare Rules" on the website there was a box marked "OK" on which the prospective customer had to click electronically in order to proceed to the next section of the website and in order to complete a booking.
As the last sentence quoted above in the "Jet Saver Fare Rules" indicated, a prospective customer could view the "Current Jetstar fees and a summary of fare types" at a specific internet address. I infer that Ms Free viewed those, because she presented to me at the hearing a page headed "Fare Types" (which, according to Ms Skewes' evidence, was part of the Jetstar material available on the internet) as being part of the contractual term that she was alleging was unfair. The "Fare Types" page was divided into four columns. The first identified several topics. The second was headed "Jet Saver" and contained information about each topic. The third and fourth columns contained similar information about other types of fare.
So far as is relevant to this proceeding, the first two columns read as follows:

Flight Date or Time or passenger Name Change via Telephone Reservations, GDS, GSA or at Airports.

International flights to/from Australia ... operated by Jetstar: Up to 24 hours prior to departure, $75AUD per passenger per flight plus any fare difference to re-book.

Once Ms Free completed her booking electronically, the "Jet Saver Fare Rules" set out above and the part of the "Fare Types" page set out above became terms of the contract into which she entered with Jetstar for the purchase of the two tickets. Their effect was this. If she wished to change a ticket to one for a flight on a different date or to one for a flight at a different time, or if she wished to change the name in which a ticket had been booked for a flight, she would only be able to do so by paying:
1. The difference between the fare for the ticket originally purchased and the fare which was applicable for a ticket for the same flight route on the day that the change was made by Jestar, plus
2. A "change fee" of $75.00 per change per "passenger flight segment".
The terms to the above effect were the terms which Ms Free identified as being the "unfair" terms.
The additional $788.93 paid by Ms Free on 29 March 2007 consisted of:

(a) $600.93 being the difference between the cost of the Jet Saver ticket purchased for her sister on 14 September 2006 and the cost of the same type of ticket on 29 March 2007, when the name in which that ticket was booked was changed at her request from her sister's to her niece's; plus

(b) $150.00 as a "change fee" being $75.00 for the Melbourne-Honolulu "flight segment" and $75.00 for the Honolulu-Melbourne "flight segment"; plus

Ms Skewes referred me to Jestar's "Conditions of Carriage" which also, in section 6, specified that a booking was not transferable but the "applicable fare rules may permit you to change your booking". There was no evidence, however, as to whether and if so how those "conditions of carriage" were ever brought to Ms Free's attention when she booked the ticket, other than by means of a reference to them in the sentence referred to in paragraph 11 above, so as to incorporate them into the contract between Ms Free and Jetstar. So I disregard them. At all events, since they do little more than to refer to the "applicable fare rules", they do not seem to add anything to the terms I have already mentioned.

Part 2B of the Fair Trading Act 1999, introduced into the Act in October 2003, is headed "Unfair Terms in Consumer Contracts".
Section 32Y, so far as it is relevant to this proceeding, provides:

(1) An unfair term in a consumer contract is void.

(2) ...

(3) The contract will continue to bind the parties if it is capable of existing without the unfair term ...

A term in a consumer contract is to be regarded as unfair, if contrary to the requirements of good faith and in all the circumstances, it causes a significant imbalance in the parties' rights and obligations arising under the contract to the detriment of the consumer.

In section 3, "consumer contract" is defined as follows:

"consumer contract" means an agreement, whether or not in writing and whether of specific or general use, to supply goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption, for the purposes of the ordinary personal, domestic or household use or consumption of those goods or services;

Section 32X is headed "Assessment of unfair terms". So far as it is relevant to this proceeding, it commences:

"Without limiting section 32W, in determining whether a term of a consumer contract is unfair, a court or the Tribunal may take into account, among other matters, whether the term was individually negotiated, ... and whether the term has to object or effect of -".

Then follow thirteen sub-paragraphs, numbered (a) to (m). I do not set out any of them because I consider that none of them has application to this proceeding.

In the Act, "the Tribunal" means VCAT: see the definition in section 3.
In Director of Consumer Affairs Victoria v AAPT Ltd [2006] VCAT 1493 Justice Morris P. in his capacity as President of VCAT analysed section 33W and the definition of "consumer contract' in section 3. The analysis was made in the context of an application by the Director for declarations that various terms in contracts entered into by AAPT Ltd for the supply by it of mobile phone services were unfair terms prohibited by Part 2B, and for injunctive relief.
As to the definition of "consumer contract", his Honour observed that it contained two limbs and expressed these conclusions:
- (a) The first limb is that the goods or services the subject of the agreement are required to be of a kind ordinarily acquired for personal , domestic or household use or consumption. The test for the presence of this requirement is an objective test.
- (b) The second limb is that the supply of the goods or services the subject of the agreement is required to be for the purposes of the ordinary personal, domestic or household use or consumption of those goods or services. The test for the presence of this requirement involves ascertainment of the intention of the parties as to the use to which the consumer is to put the goods or services. It involves more than ascertainment of the supplier's purpose in agreeing to supply them.
- (c) Moreover there is an agreement to supply goods or services for the requisite purposes (as expressed in the second limb) if the goods or services are supplied substantially for those purposes. They do not have to be the only purposes.
As to section 32W, his Honour expressed these conclusions:
- (a) In the phrase "significant imbalance", "significant" means "important" or "of consequence". It does not mean "substantial".
- (b) The phrase "contrary to the requirement of good faith" performs an adjectival role, so that it assists in the assessment of whether a contractual term causes a "significant imbalance" in the parties' rights and obligations, to the detriment of the consumer. It does not amount to a separate element which has to be proved before the term may be regarded as unfair. What has to be proved is the "significant imbalance".
Whether or not the decision of a Supreme Court judge, in a capacity which is President of VCAT in a VCAT proceeding rather than in a Supreme Court proceeding, is imperatively binding upon other VCAT members (about which I express no opinion), I respectfully regard his Honour's analysis as most persuasive and I treat it as a correct statement of the law.

It is clear that the contract between the parties for Ms Free's purchase of the two tickets was a "consumer contract". Jetstar did not attempt to argue otherwise. Airline services are of a kind ordinarily acquired for personal use, just as they are of a kind ordinarily acquired for commercial use too. That is a notorious fact. Equally notorious is the fact that Honolulu is a holiday or tourist destination. It was the intention of the parties, undoubtedly, that Ms Free might use the airline service, made available to Ms Free when she booked the tickets, for purposes of personal consumption.
The terms which were to the effect set out in paragraph 17 above, and which Ms Free alleges is "unfair", were not individually negotiated. They were formulated by Jetstar and contained in information on its internet website. There was no opportunity for Ms Free to negotiate for their omission or for their modification. Her choice was only to make a booking in the way made available on the website, which involved incorporation of the terms into a contract, or not to make a booking.
That the terms were not individually negotiated is a matter that I have taken into account, as expressly permitted by section 32X, when considering whether they are unfair. Obviously, a term is less likely to be found to be unfair if it has been individually negotiated than if it has not been.
In two ways, the terms are indiscriminate. First, they are expressed to operate not only in a case when the customer is requesting a change to a different flight on another date or to a different flight at another time on the same date, but also in a case when the customer is requesting only a change to a passenger name on the flight originally booked. In each case, the terms operate to impose a requirement to pay not only the "change fee" of $75.00 per flight but also to pay the relevant fare difference. Secondly, in the second case when the requested change is to a passenger name only, the terms operate not only where the customer's proposed transfer of the ticket is part of a commercial transaction for financial gain but also when the customer's proposed transfer of the ticket is not part of any such transaction but is for personal reasons.
When a customer requests a change to a different flight, the customer is in effect requesting Jetstar to provide a different service: a seat on another flight. As at the date when the request was made, that seat was available to any purchaser at a particular price. Had there been no previous booking, the customer would have had to pay that price in order to secure the seat. Once Jetstar accedes to the request, the seat that the customer originally booked becomes vacant. Jetstar may or may not be able to re-sell it. In such a case, there is nothing potentially unfair about contractual terms requiring the customer to pay the difference between the fare for the seat originally booked and the fare for the seat secured on the different flight as at the date when the change is made.
But the terms are indiscriminate. When a customer does no more than request Jetstar to change the name in which a passenger's ticket has been booked, there is no change of the flight. The seat originally booked remains sold. There is no potential detriment to Jetstar when it accedes to the request; instead, there is a windfall for Jetstar because the contractual terms operate to entitle it to require the payment of a higher price than the price for which the seat was sold originally, and a detriment to the customer because the contractual terms operate to require the customer to pay a higher fare than the fare originally agreed upon. Such a state of affairs is, on the face of things, contrary to the requirements of good faith. Potentially, there is a significance imbalance in the parties' rights and obligations arising under the contract because, in the manner described, there is a windfall to Jetstar, to the detriment of the customer, the consumer.
I have said that "potentially" there is a significant imbalance because Jetstar, in its evidence at the hearing and in its written submission, asserted that there were good reasons for Jetstar requiring a customer who requested a passenger name change to pay the fare difference. The written submission described those reasons as being:

"(b) [to] prevent its tickets being resold to other consumers by unauthorized and unlicensed resellers;

(c) to [to] prevent travel agents and others from purchasing large blocks of discounted seats, so that seats are available for the airline's customers on a range of flights, including close to the scheduled departure date ..."

In fact those reasons were given in the written submission as reasons for the airline industry adopting a general principle of non-transferability of tickets, but they have obvious application to the terms in question.

It is reasonable for Jetstar to seek to prevent re-sale, in the ways described in the written submission, of discounted tickets for financial gain. But the term in question does more than that. It is indiscriminate in the second way described above. It catches not only the person whose request for a name change is made with a view to achieving a financial gain but also the person who, like Ms Free, requests a name change for family or other personal reasons and with no view to achieving a financial gain.
Accordingly, in my opinion, the terms in question, to the extent that they require payment of a fare difference when a name change is requested, cause a significant imbalance, to the detriment of purchasers from Jetstar, in the rights and obligations of the parties under the contract of sale, are "unfair" within the meaning of that word in part 2B of the Act, and so are void by virtue of section 32Y(1).
On the other hand I see nothing unfair in Jetstar requiring payment of a "change fee" to compensate it for the administrative work involved in effecting a change in the booking, whether it be a change of flight date, change of flight time or change of passenger name. There was no evidence of how the "change fee" of $75.00 per flight segment was arrived at but there does not seem to be anything obviously unreasonable about the figure.
By virtue of section 32Y(3) the contract will otherwise be binding if it is capable of existing without an unfair term. It is. Deletion of the words "and name" from paragraph 2.2 of the "Jet Saver Fare Rules" and deletion of the word "or Passenger Name Change" from the first column on the "Fare Types" page would remove the unfair term and the parties would remain otherwise bound by the remaining terms of the contract.
What I have just written assumes that words or phrases in a contractual provision can be regarded as a "term" and can be evaluated as being unfair and therefore void without the whole contractual provision having to be regarded as unfair and therefore void. In the AAPT case (above) Justice Morris P. pointed out that the Act does not define the word "term" and expressed the opinion (in paragraph 13) that in the context of Part 2B the word seemed to required "some element of integrity, that is an element that can stand alone or be identified as a separate part of a contract". While the words that I have said could be deleted from the contractual provision are meaningless if they stand alone, it would be possible to paraphrase the contractual provision so that there was a discrete part of it which imposed the requirement for payment of the fare difference when a passenger name change was requested. So I consider that the assumption is valid.

What I have written so far also assumes that in a case like the present, where a consumer has brought a proceeding under Part 9 of the Act asking the Tribunal to determine a consumer and trader dispute, it is open to the Tribunal to decide whether a term in a consumer contract is an unfair term and so void and to grant the consumer relief accordingly.
Section 32 ZA provides that the Director (of Consumer Affairs) may apply to the Tribunal for an injunction against any person who in the Director's opinion is using an unfair term in consumer contracts. Section 32 ZC provides that the Director may apply to the Tribunal for an order declaring that a term of a consumer contract is an unfair term, and that the power to make such a declaration is exerciseable only by a presidential member of the Tribunal. Nothing in Part 2B expressly confers upon a consumer the right to apply for such an injunction or for such a declaration or for any other relief in a proceeding commenced by the consumer to allege that a term in a consumer contract is an unfair term. So it is arguable that a consumer has no such right. Jetstar has not put that argument. Nevertheless I propose to make some observations about the matter.
Before Part 2B was introduced into the Act in October 2003, the Tribunal already had power, in a consumer and trader dispute as defined in Part 9, to declare that a term of a contract is void. That power was conferred by section 108(2)(d). It still is. Nothing in section 32 ZC or anywhere else in Part 2B expresses any limitation on that power when the issue is whether a term is void under section 32 Y(1) because it is an unfair term. That state of affairs supports the conclusion that the function of section 32 ZC is to give the Director a legal standing that the Director would not otherwise have to apply for a declaration that a term in a contract between a consumer and a trader is void, and that the section does not mean that is the Director alone who may apply for such a declaration. The function of section 32 ZA is similar.
The present case is a consumer and trader dispute as defined in Part 9. Ms Free has not asked the Tribunal to make a declaration that a term is unfair and so void, and there is no need for the Tribunal to make such a declaration once it reaches the conclusion that a term is unfair and so void in the course of the chain of reasoning that leads to the granting of the relief sought by her, namely, an order for the payment of money. It may be that it would be inappropriate for such a declaration to be made when the claim made is for compensation or damages and the purpose of the proceeding is not to obtain a construction (that is to say, a legal interpretation of the meaning) of a contract which would determine the future rights and obligations of the parties: Slee v Warke [1949] HCA 57; (1940) 86 CLR 271at 280.
The law available to the Tribunal when it determines a consumer and trader dispute includes the Fair Trading Act generally. There are other sections in the Act which provide that a contract "is void", or that a provision in a contract "is void", if it excludes, restricts or modifies rights or liabilities conferred by the Act: section 32 LA (liability for damages for breach of an implied condition or warranty), section 32 R (the supplier's right of indemnity against a person by whom antecedent negotiations were conducted who made a representation or gave a warranty) and section 81 (a right to cancel a contract sales agreement, a telephone marketing agreement or a non-contact sales agreement during a cooling-off period). It would be most odd if the Tribunal could decide, on an application to it by a consumer, that a contract or term was void by virtue of one of those provisions, and grant relief to the consumer accordingly, yet could not decide on a similar application that a term was void by virtue of section 32 Y(1) because it was an "unfair term".
For those reasons I consider that it is clear that the Tribunal in determining a consumer and trader dispute may decide the issue of whether a term is an "unfair term" and so void, and may grant relief that is predicated upon such a decision, whether or not the Tribunal formally declares that the term is unfair and so void.

As I have already decided that a term which I have identified in the contract between the parties is an unfair term and is void, and as I will be making a monetary order in favour of Ms Free for that reason, it is probably unnecessary for me to consider the other principal allegation made by her, that Jetstar has contravened section 8 of the Act by engaging in unconscionable conduct. Nevertheless I propose to deal with the matter briefly.
In my view there is nothing in the allegation at all. Section 8 deals with conduct: what a party to a contract has said or has done before, or at the time that, the other party enters into the contract. There was no conduct of that kind by Jetstar that could possibly be considered unconscionable. All that Jetstar did was to make available on an internet website a means for a prospective customer to book tickets and to accept her booking when she made it electronically. Ms Free's real complaint is that Jetstar proceeded to hold her to the terms of the contract instead of waiving them. So in reality her complaint is about those terms, not about any relevant conduct by Jetstar. I have already dealt with that complaint.

Ms Free's payment of $788.93 consisted of the three components identified in paragraph 19 above. The first was $600.93 being the fare difference. I have decided that in demanding the payment of that component Jetstar was enforcing a contractual term which was void because it was an unfair term. The second was $150.00 as the "change fee". Jetstar was entitled to require payment of that component and Ms Free is not entitled to recover it. The third was $38.00 for the "in flight extras"; Ms Free admitted that she had requested those. Jetstar was entitled to require payment of that third component and Ms Free is not entitled to recover it.
Jetstar did not seem to me to dispute that Ms Free had made her payment under protest, even though there was no direct evidence of a protest at the time of payment; there was, however, evidence of her previously having expressed objection to paying what was demanded of her. I find that she did make the payment under protest.
Because her payment of the first component of $600.93 was made as a consequence of because a contractual term that I have decided is void, Ms Free is entitled to recover that sum.
There will be an order that that respondent shall pay the applicant $600.93.

Fair Trading Act 1999

Free v Jetstar Airways Pty Ltd

At a glance

Court

Decision date

Before

Source

Judgment (29 paragraphs)

Free v Jetstar Airways Pty Ltd (Civil Claims) [2007] VCAT 1405 (27 July 2007)

Parties

Legislation Cited (1)

Cases Cited (1)