Qantas's third argument
51 In May 2004 Qantas published on its "Industry Sales Site" a series of frequently asked questions in relation to the fuel surcharge it announced on 11 May 2004. The eighth question was posed in these terms "[w]ill an agent earn commission on the fuel surcharge?" and the answer provided was "[b]ase commission will be paid on the fuel surcharge for Australian domestic itineraries only". The clear import of this announcement was that Qantas's position was that base commission would not be paid on the fuel surcharge for international itineraries. I think this statement can reasonably be viewed as an announcement by Qantas that it did not intend to pay commission to agents on the fuel surcharge component of international itineraries.
52 In any event, whether notice had been given was not really in issue in these proceedings. It is to be recalled that clause 9 of the Agency Agreement provides:
... for the sale of air transportation and ancillary services by the Agent under this Agreement the Carrier shall remunerate the Agent in a manner and amount as may be stated from time to time and communicated to the Agent by the Carrier. Such remuneration shall constitute full compensation for the services rendered to the Carrier.
Paragraph 13 of the applicant's further amended statement of claim provided:
13. In or about May and June 2004, each of the Second to Seventh respondents:
(a) implemented the fuel surcharge in accordance with the determination pleaded in paragraph 12 above; and
(b) notified the Applicant and each group member to the effect that:
(i) it was implementing a 'fuel surcharge' as an added component of the price of the applicable fare for all travel; and
(ii) that the said `fuel surcharge' was required to, and would, appear under a specified code in the "TAX/FEE/CHARGE" box on all tickets issued using IATA standard traffic documents.
In paragraph 13 of its defence Qantas admitted this allegation, and referred to par [6] of the affidavit of Steven Lewis, dated 21 March 2007. That paragraph referred to an exhibit that contained copies of notifications given by the second to seventh respondents regarding the introduction of fuel surcharges which, in relation to Qantas, was a printout of the webpage containing the frequently asked questions referred to earlier. The pleadings did not involve, expressly, a concession by the applicant that agents were notified for the purposes of clause 9 of the Agency Agreement. However, the concession that they were notified of matters through the webpage enables, fairly readily, the conclusion that they were notified for the purposes of that clause. I conclude they were.
53 The question then becomes whether this stated intention that, in relation to international flights, base commission was not payable on the fuel surcharge, involved the exercise of a contractual right that affected the right of agents to receive commission in a particular amount. It is to be recalled that Clarke LJ concluded in British Airways plc that the contractual right of an airline conferred by a provision in the same terms as clause 9 of the Agency Agreement did not include a right to alter the detailed provisions in the Sales Agency Rules under consideration in that matter (which contained a clause broadly similar to section 9 of the Sales Agency Rules in this matter). However, there are differences in the terms of the two sets of Sales Agency Rules that are significant and, for my part, I would approach the matter differently as a matter of analysis.
54 Ultimately, of course, the Court's task is to construe these provisions having regard to the entire contract between Qantas and the applicant, including all aspects of the contract that are in writing together with the context, in the broadest sense, in which the contract arises: see International Air Transport Association v Ansett Australia Holdings Limited (subject to deed of company arrangement) (2008) 234 CLR 151 at [8] per Gleeson CJ and at [53] per Gummow, Hayne, Heydon, Crennan, and Kiefel JJ. At base, the issue I am presently considering involves the interaction between clause 9 of the Agency Agreement and section 9 of the Sales Agency Rules, which is incorporated into that agreement. Are they inconsistent and, if so, what did the parties intend and how should any inconsistency be resolved?
55 It is convenient to refer to some general principles. As to inconsistent contractual provisions generally, the following observations of Finn J in GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited (2003) 128 FCR 1 at [306] are apt:
There is a large body of case law dealing with how a contract should be construed when it contains inconsistent provisions, having regard to the nature and cause of the inconsistency: see generally Cheshire and Fifoot, Law of Contract, 213 (8th Aust ed); Chitty on Contracts, vol 1, para 12-076 (28th ed); Lewison, The Interpretation of Contracts, para 8 - 08ff (2nd ed); Farnsworth, Contracts, s7.11 (3rd ed). It is unnecessary here to outline in detail the various "rules" of construction that have evolved to resolve inconsistencies. These rules reflect the types and causes of inconsistencies: if specially tailored terms contradict standard terms, the specially tailored terms will prevail over the standard terms: cf Re Theodorou [1993] 1 Qd R 588; "[i]f a later clause cannot be reconciled with an earlier one creating an obligation, then if it altogether destroys the obligation it must be treated as void": Australian Guarantee Corporation Ltd v Balding (1930) 43 CLR 140 at 151; if the terms of a document incorporated into an agreement conflict with expressly agreed terms in that agreement, the expressly agreed terms prevail: Modern Building Wales Ltd v Lemmer and Trinidad Co Ltd [1975] 1 WLR 1281 at 1289; etc. The common thread in the cases is that effect is given to that part of an agreement "which is calculated to carry into effect the real intention of the parties as gathered from the instrument as a whole, and that part which would defeat it must be rejected": Chitty on Contracts, para 12-076.
56 As to conflict between express and incorporated terms and how they should be construed, Finkelstein J observed in Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd [2002] FCA 1156 at [8]:
... Finding an inconsistency is not a novel situation when standard terms are incorporated into an agreement. The proper approach is to disregard those incorporated terms that conflict with the expressly agreed terms. In Modern Buildings Wales Ltd v Limmer & Trinidad Co Ltd [1975] 1 WLR 1281 (at 1289) Buckley LJ said, "if any of the imported terms in any way conflict with the expressly agreed terms, the latter must prevail over what would otherwise be imported": see also Hamilton and Co v Mackie and Sons (1889) 5 TLR 677; T W Thomas and Company Ltd v Portsea Steamship Co Ltd [1912] AC 1.
The question of whether either or both the primary contractual document and another incorporated into it, are a standard form document will inform the interaction between the two as to how they should be construed. If the primary contractual document is plainly a reflection of terms the parties discussed and decided upon, and the incorporated document is a standard form document, it would almost always be appropriate to give pre-eminence to the former and not the latter. That approach would be less compelling if, as is the present case, both the primary contractual document and the incorporated document are both in standard terms.
57 There is, of course, the anterior question of whether there is, in truth, a conflict between two contractual provisions at all. This issue was addressed by the England and Wales Court of Appeal in Pagnan SpA v Tradax Ocean Transportation SA[1987] 3 All ER 565. After reviewing the authorities on the question of inconsistency, Bingham LJ (with whom Woolf LJ agreed) concluded (at 575):
It is not enough if one term qualifies or modifies the effect of another; to be inconsistent a term must contradict another term or be in conflict with it, such that effect cannot fairly be given to both clauses.
Similarly, Dillon LJ was of the view that the first task in construing seemingly inconsistent contractual provisions is to consider whether the clauses "can sensibly be read together". As his Lordship said (at 578):
What is meant by inconsistency? Obviously there is inconsistency where two clauses cannot sensibly be read together, but can it really be said that there is inconsistency wherever one clause in a document qualifies another clause? A force majeure clause, or a strike and lock out clause, almost invariably does qualify the apparently absolute obligations undertaken by the parties under other clauses in the contract; so equally with an extension of time clause, for instance in a building agreement. So equally, with a lease, the re-entry clause qualifies the apparently unconditional demise for a term of years absolute, but no one would say they were inconsistent.
In my judgment the first task is to see if the clauses can sensibly be read together. If they cannot, there is inconsistency and the special condition is to prevail over the other clause in the printed form. But, if they can be read together, they should be and there is no inconsistency.
The approach of the Court of Appeal in Pagnan SpA has been cited by Australian courts on at least two occasions: National Gallery of Australia v Jane Douglas [1999] ACTSC 79 at [37]; Queensland Alumina Ltd v Alinta DQP Pty Ltd & Anor [2006] QSC 391 at [90] - [92].
58 The starting point, in my opinion, is whether the terms of clause 9 of the Agency Agreement, viewed in isolation, might be thought to confer a contractual right on an airline to determine the manner and the amount to be paid to an agent as remuneration and the correlative right in the agent to be paid that remuneration. If the answer is yes, the next question is whether, as a matter of construction, section 9 of the Sales Agency Rules (which forms part of the Agency Agreement), at least in relation to remuneration by commission, identifies more precisely the rights of an airline and agent, and potentially limits the rights of an airline, and does not do so in a way that engages clause 2.4 of the Agency Agreement as a "conflict, contradiction or inconsistency". In my respectful opinion, it is not a question (as Clarke LJ put it), of whether or not clause 9 of the Agency Agreement confers a right to vary rights conferred by section 9 of the Sales Agency Rules.
59 Clause 9, in terms, imposes an obligation on the airline to remunerate the agent and impliedly confers a right on the agent to receive payment. However, both the obligation and the right concerns remuneration "in a manner and amount" communicated by the airline to the agent. Fairly clearly this clause recognises a right in the airline to determine the manner of remuneration and the amount of remuneration. It was submitted by the applicant that if an airline decides to remunerate by commission (treating, for present purposes, this as payment of a percentage of the amount paid by a passenger for a ticket), it is thus determining the manner of remuneration. It was submitted that in that context the right to determine the amount is simply a right to determine the rate of commission as a percentage and nothing more. I do not accept this submission. It is true that the evidence discloses that in the airline industry generally, and in relation to Qantas's operations in particular, there was widespread use of the payment of commission as a percentage and nothing more. However, if, as I consider the case, clause 9 confers a right to determine the manner of remuneration then it need not be payment as commission simply by reference to a percentage of the amount paid for the ticket. If so, then the determination of the amount would be informed by what has been determined as to the manner of remuneration. The clause, as I view it, is intended to give the airline flexibility in relation to how agents are remunerated and, ultimately, what they are paid for the work they do selling tickets on behalf of the airline.
60 For the purposes of this analysis, it is appropriate to focus a little more carefully on what "commission" means. That is because that gravaman of the applicant's case is that section 9.4.1 confers on an agent a right to be paid commission in the manner set out in the section that could not be modified by the airline. The claim has proceeded on the assumption that "commission" comprehended payment of a percentage of the value or amount of any particular transaction. The Handbook contains a resolution concerning what is "commission". Resolution 824a is brief. It simply records that for the purpose of the Passenger Agency Conference Resolutions, where applicable, the term "commission" shall be deemed to include any form of remuneration. This appears to indicate that the use of the word "commission" in any resolution, including the Sales Agency Rules (Resolution 816), should not be treated only as a reference to an amount constituting a percentage of the amount of any transaction effected by the agent. However, in section 9 of the Sales Agency Rules there is repeated reference to payment of "commission or other remuneration" which rather suggests that the word "commission" in the section does not comprehend any form of remuneration. Otherwise the words "other remuneration" would be otiose. "Commission", in that section, is intended to be a reference only to remuneration by way of an amount that is a percentage of the value or amount of the transaction. However, for the purposes of clause 7.3 of the Agency Agreement (set out at [9] above) the word "commission" in the final sentence should, in all probability, be taken to be a reference to commission and any other form of remuneration. Accordingly, clause 7 imposes an obligation on an agent to collect on behalf of the airline amounts payable for the air transportation, to hold those amounts on trust and remit them to the airline. This obligation to remit is a qualified one in that the agent is entitled to deduct from the remittance the "applicable commission" to which the agent was entitled. Looking at the express terms of the Agency Agreement only, that amount is the amount flowing from the determination of the manner and amount by the airline exercising the right conferred by clause 9 of the Agency Agreement.
61 Section 9 of the Sales Agency Rules also deals with remuneration. The provision (set out at [11] above) that falls for consideration in these proceedings, in terms, concerns both commission and other remuneration, and section 9.1 (including the heading) make no reference to rates (of commission) unlike section 9.1 in the UK Sales Agency Rules considered in British Airways plc. What then are the rights, if any, conferred on Qantas by section 9.1 of the Sales Agency Rules in the present case? While section 9.1 does not do so with absolute clarity, it is tolerably clear that it confers a right on an airline to determine (by referring to notions of authorising) the commission or other remuneration to be paid to agents. This is probably no more than a repetition of the right conferred by clause 9 of the Agency Agreement. Indeed the second sentence of section 9.1 of the Sales Agency Rules exhorts (in the sense of recommends) the airline to notify changes to the commission or other remuneration well in advance. This probably imposes an obligation on the airline to give reasonable notice of any change but the precise contractual effect of the sentence need not be determined. What is clear, however, is that section 9.1 of the Sales Agency Rules is entirely consistent with clause 9 of the Agency Agreement, which contemplates that the airline could determine the manner and amount of remuneration that must be stated and communicated to the agent. Understandably, both the clause and the section require the airline to give agents due notice of any decision the airline may have made about the manner and amount of remuneration. The critical question is then whether the right of the airline to determine the manner or the amount of remuneration, having regard to clause 9 of the Agency Agreement and section 9.1 of the Sales Agency Rules, is limited by other provisions of the Sales Agency Rules.
62 The opening words of section 9.4.1(a) of the Sales Agency Rules make it tolerably clear that section 9.4 addresses situations where the method of remuneration determined by the airline is payment of a percentage of the value of the transaction. But does this section confer a right on an agent to be paid and only paid in accordance with its terms, notwithstanding the airline's apparent right more generally to determine the method and amount of payment? In my opinion, it does not. Firstly, section 9.4 appears to me to be have been intended to identify the amounts that are not to be taken into account in making the calculation of commission. Significantly, in my opinion, the opening words of section 9.4.1(a) speak of the commission being "calculated only on the amount of the fares applicable". The word "only" is presumably used to emphasise that any other amounts forming part of the transaction (those amounts identified in section 9.4.1(b) after the words "shall exclude") are not to be brought to account in the calculation of commission. The use of the word "only" makes it significantly less obvious to me that the section is intended to be a contractual direction or command to an airline to accept the deduction of commission calculated in a particular way, notwithstanding the airline's otherwise general contractual right to determine the manner and amount of remuneration. On this approach, section 9.4 limits what the agent can deduct when complying with its contractual obligation to remit to the airline amounts paid to the agent for air transportation. The 2008 Sales Agency Rules are expressed slightly differently and do not, in the equivalent provision, include the word "only". Also, section 9.1 is headed "RATE OF COMMISSION OR AMOUNT OF REMUNERATION ". While these features of the 2008 Sales Agency Rules lessen the force of my reasoning, I do not think they undermine my ultimate conclusion.
63 Secondly if, as I consider is the case, clause 9 of the Agency Agreement together with section 9.1 of the Sales Agency Rules confers, in terms, a contractual right to determine the method and amount of remuneration paid to an agent, it might be expected that clear language would have been used to limit or modify that general right in particular circumstances. It has not been. Moreover, it seems a very curious result if it was intended that an airline would have a general right that could be exercised to make a payment by a method other than purely by commission (perhaps a hybrid of a lump sum per transaction together with some form of commission) and, if by commission only, to determine the rate of the commission and vary it from time to time, but the airline could not alter the mechanism for calculating the commission. It is not obvious what the rationale would be for conferring a general right on an airline to determine the manner and amount of remuneration which, on giving notice, could be deployed in a multiplicity of ways to reduce the remuneration in relation to any particular transaction yet constraining the exercise of that right if, and only if, a particular method of remuneration had been adopted by the airline.
64 In addition there is the stated intention in clause 2.4 of the Agency Agreement giving paramountcy to the actual terms of that agreement embodied in its text rather than terms incorporated by reference. It is true that the Agency Agreement incorporates, by reference, the Sales Agency Rules. However that incorporation is itself subject to the qualification in clause 2.4 of the Agency Agreement. That provision declares that in the event of any "conflict, contradiction or inconsistency" between the Agency Agreement and provisions in the incorporated documents with which the agent must comply, the Agency Agreement would prevail. The reach of the clause in the present case might be approached in one of two ways.
65 The first is that, in truth, there is no conflict, contradiction or inconsistency. That is because, as already discussed, the Agency Agreement obliges an agent to remit to the airline moneys received with the qualification that commission or other remuneration to which the agent is entitled can be deducted from the amount to be remitted. The commission or other remuneration is the amount arising from the airline's determination of the method and amount in accordance with clause 9 of the Agency Agreement. Section 9.4 of the Sales Agency Rules simply identifies what is not to be taken into account when the agent calculates commission and thus when the agent calculates the amount that can be retained.
66 On another approach, which I do not favour, section 9.4 of the Sales Agency Rules might be viewed as conferring a right on an agent to payment of commission in the manner provided for in the section and thus a right to retain the amount calculated in that way when remitting monies to the airline as provided in clause 7 of the Agency Agreement. This was the approach of the Court of Appeal in British Airways plc. However on that basis clause 2.4 is engaged because there is, in my opinion, a conflict, contradiction or inconsistency. It is not simply a question of identifying clauses in an agreement and determining whether they are inconsistent in the way discussed by Dillon LJ in Pagnan SpA in the passage quoted at [57] above. That is because the Agency Agreement has itself spoken about the interaction of its express terms and terms incorporated by reference. I do not think the expression "conflict, contradiction or inconsistency" should be construed narrowly. It manifests an intention to give paramountcy to the express terms of the Agency Agreement.
67 I have little doubt that the formulation and adoption of these contractual arrangements proceeded on the basis that any particular airline would not make a decision about the method and amount of remuneration payable to IATA agents in a commercial vacuum. The airline would doubtless need to consider what its competitors were doing and would need to ensure that agents are promoting and selling their product with sufficient interest and enthusiasm in a competitive market. These and other matters are doubtless intended to inform the way in which an airline exercises the right conferred by clause 9 of the Agency Agreement and section 9 of the Sales Agency Rules and it was not intended that there would be a capricious or arbitrary exercise of the right in a way that would damage the airline's commercial interests.
68 In my opinion, in May 2004, Qantas exercised its contractual right to determine the manner and amount of agents' remuneration, by determining that the manner is calculated, and percentage commission payable, on the total price (speaking generally, and refraining, at this stage, from entering into the debate as to what constitutes the ticket price) less the amount payable to Qantas as the fuel surcharge. It gave notice that this was the manner in which commission, as a form of remuneration, was to be calculated, and accordingly, agents were entitled to retain only commission calculated in this way. By this method it was determining the amount and method of agent's remuneration. For this reason, the applicant's contractual claim fails.
69 However, for completeness, I now turn to consider Qantas's first and second arguments.