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[1996] HCA 12
High Court of Australia
1996-05-27
Brennan CJ, Kirby JJ, Giles J, Gummow JJ
Original judgment source is linked above.
High Court of Australia Brennan CJ Gaudron, McHugh, Gummow and Kirby JJ Qantas Airways Ltd v Aravco Ltd [1996] HCA 12
27 May 1996 Brennan CJ, Gaudron, McHugh and Gummow JJ.
The question in this appeal is whether s 68 of the Trade Practices Act 1974 Cth (the Act) makes void a contractual term which required the respondent (Aravco) to indemnify the appellant (Qantas) against all liabilities incurred by Qantas arising out of or in any way connected with the performance of services by Qantas to Aravco.
Qantas entered into a contract with Aravco to perform certain services in relation to an aircraft operated by Aravco but owned by BAT Industries Plc (BAT). As a result of Qantas' negligence, the aircraft suffered damage. Subsequently, BAT sued Qantas in the Supreme Court of New South Wales for the damage to the aircraft. Qantas admitted liability for the damage, but, by a cross-claim, it sought indemnity from Aravco for the damages that it had to pay to BAT. Qantas' claim for indemnity was based on cl 4 of its contract with Aravco.
Clauses 4 and 7 of the contract between Qantas and Aravco provided:
7(1) Pursuant to S 68A of the Trade Practices Act 1974 this clause applies in respect of any of the goods or services supplied under this contract which are not of a kind ordinarily acquired for personal, domestic or household use or consumption, provided that this clause will not apply if the customer establishes that reliance on it would not be fair and reasonable.
(2) Liability for breach of a condition or warranty implied into this contract by the Trade Practices Act 1974 other than a condition implied by S 69 is limited to -
(B) In the case of services, any one of the following as determined by Qantas:
(ii) the payment of the cost of having the services supplied again.
By par 9 of its defence to the cross-claim, Aravco pleaded that "there was a statutory implied term of the agreement, by force of s 74(1) of the Trade Practices Act, that such services as [Qantas] might provide to [Aravco] would be rendered with due care and skill". Paragraph 10 of the defence provided:
Such provisions of the agreement as are inconsistent with the statutory implied term pleaded in paragraph 9 hereof, including the indemnity clause upon which [Qantas] relies, are void by operation of s 68 of the Trade Practices Act.
Sections 68 and 74(1) are contained in Div 2 of Pt V of the Act. So far as relevant, they provide:
68(1) Any term of a contract (including a term that is not set out in the contract but is incorporated in the contract by another term of the contract) that purports to exclude, restrict or modify or has the effect of excluding, restricting or modifying:
(a) the application of all or any of the provisions of this Division;
(b) the exercise of a right conferred by such a provision;
(c) any liability of the corporation for breach of a condition or warranty implied by such a provision; or
(2) A term of a contract shall not be taken to exclude, restrict or modify the application of a provision of this Division or the application of section 75A unless the term does so expressly or is inconsistent with that provision or section.
74(1) In every contract for the supply by a corporation in the course of a business of services to a consumer there is an implied warranty that the services will be rendered with due care and skill and that any materials supplied in connexion with those services will be reasonably fit for the purpose for which they are supplied.
Qantas does not dispute that, as a result of s 74, its contract with Aravco contained a warranty that it would exercise due care and skill. Nor does it dispute that in damaging the aircraft it breached that warranty. But it contends that neither its cross-claim nor the defence of Aravco to that cross-claim was relevantly concerned with a breach of that warranty. Qantas points out that Aravco has not sued it for breach of the warranty or pleaded the breach as an answer to Qantas' claim for indemnity.
If Aravco had sued for breach of the warranty, Qantas concedes that, by reason of s 68, cl 4 would not be an answer to Aravco's suit. In that event, however, Qantas contends that, subject to the effect of s 68A [1] of the Act, cl 7 would operate [2] to reduce its liability to "the payment of the cost of having the services supplied again" (s 68A(1)(b)(ii)). The charge for the services supplied by Qantas to Aravco was about $5,000. Consequently, that sum would represent the limit of Qantas' liability if it was sued for breach of the s 74 warranty. Moreover, Qantas points out that, because Aravco was the operator and not the owner of the plane, the damages payable for breach of the s 74 warranty might be less than $5,000. They might be no more than nominal.
If Aravco had pleaded breach of the warranty by way of defence to Qantas' cross-claim so as to avoid circuity of action [3] , Qantas concedes that the breach would be a prima facie defence, forcing it to rely on cl 7 by way of reply.
Qantas contends, therefore, that cl 4 of the contract did not in any relevant respect purport to exclude, restrict or modify or have the effect of excluding, restricting or modifying the s 74 warranty or any of the matters referred to in s 68(1)(a)-(c) of the Act.
At first instance, Giles J upheld Qantas' contention. His Honour ordered entry of judgment for BAT against Qantas for damages to be assessed. A declaration was made that Qantas was entitled to an indemnity from Aravco in respect of the liability of Qantas to BAT pursuant to the judgment against Qantas, the indemnity being in the amount of such damages as might, in due course, be assessed pursuant to further orders of the Court. His Honour said:
The term that [Aravco] will indemnify [Qantas] against liability to third parties is not inconsistent with s 74(1). [Aravco] can still bring proceedings against [Qantas] for breach of the warranty implied pursuant to s 74(1), its loss being the amount of any liability to the plaintiff or possibly any liability which it otherwise incurs in relation to the repair of the damage to the aircraft. That can stand with [Qantas'] entitlement to indemnity from [Aravco] for its, [Qantas'], liability to the plaintiff. The indemnity does not exclude, restrict or modify, or have the effect of excluding, restricting or modifying, the application of s 74(1) in relation to the contract embodied in the Note, the exercise of a right conferred by s 74(1) or any liability of [Qantas] for breach of that warranty.
But a majority of the New South Wales Court of Appeal (Sheller and Powell JJA, Mahoney AP dissenting) allowed Aravco's appeal [4] , holding that cl 4 had the effect of modifying Qantas' liability for breach of the warranty of due care and skill implied by s 74.
In our opinion, the contentions of Qantas are correct and the judgment of Giles J should be restored. The s 74 warranty was not relevant to the claim Qantas made against Aravco. If Qantas' cross-claim succeeded, it would obtain an indemnity from Aravco pursuant to the provisions of cl 4 of their contract. But obtaining that indemnity did not affect Qantas' liability to Aravco for breach of the warranty implied in the agreement by s 74 of the Act. Nor did obtaining that indemnity from Aravco exclude, restrict, modify or have the effect of excluding, restricting or modifying any of the matters set out in s 68(1)(a)-(c) of the Act.
If it had wished to do so, Aravco could have answered Qantas' claim for indemnity under cl 4 with a cross-claim of its own for damages for breach of the s 74 warranty. The damage flowing from the breach of the warranty would have included the amount for which it was liable to reimburse Qantas under the indemnity clause. No doubt Qantas would have pleaded cl 7 by way of defence to the cross-claim so as to limit its liability, forcing Aravco to rely on s 68A(2) and contend that it was not "fair or reasonable" for Qantas to rely on that clause. In that event, the amount payable by one party to the other would ultimately have depended on whether it was fair or reasonable for Qantas to rely on cl 7.
If Aravco had lodged a cross-claim, it may have obtained damages equal to or greater [5] than the amount of the indemnity that it had to pay Qantas under cl 4, provided that the Supreme Court held that it was not fair or reasonable for Qantas to rely on cl 7. On the other hand, if that Court held that it was fair or reasonable for Qantas to rely on cl 7, Qantas would have recovered an indemnity of $1 million from Aravco on its cross-claim and be liable to Aravco on the latter's cross-claim but only for "the payment of the cost of having the services supplied again" (s 68A(1)(b)(ii)), a figure of approximately $5,000. That result would flow from the operation of cl 7 of the contract, not cl 4. It would be cl 7 that had the effect of restricting or modifying the liability of Qantas for breach of the s 74 warranty, and, ex hypothesi, that restriction or modification would be authorised by s 68A.
However, Aravco did not cross-claim for damages for breach of the s 74 warranty. Nor did it attempt to plead the facts of such a cross-claim by way of defence to Qantas' cross-claim so as to avoid circuity of action [6] . The meaning of pars 9 and 10 of its defence is no doubt obscure, but neither provision alleged any breach of the implied warranty. Aravco contended that this defence asserted that cl 4 had the "effect" of "modifying" the liability of Qantas for breach of the warranty implied by s 74(1) because, without cl 4, Qantas and not Aravco would be solely liable for the damage to BAT's aircraft. But the fallacy of this assertion is obvious. Absent a breach of the statutory warranty, cl 4 entitles Qantas to be fully indemnified by Aravco for all liability arising out of the performance of the services. Yet Aravco has never pleaded a breach of the warranty either by way of cross-claim or as a plea to avoid circuity of action. If it had, cl 4 would not have been a defence or reply although cl 7 might have been a partial answer to the cross-claim or defence. It was therefore essential that breach of the s 74 warranty be pleaded if Aravco was to have a defence to or set-off against Qantas' claim for indemnity.
Sheller JA, with whose judgment Powell JA agreed, said [7] :
In the present case the implied warranty is that Qantas would render the service of taking care of the aircraft with due care and skill. As it happened the aircraft to which this service was to be rendered was not the operator's but a third party's. Qantas was in breach of the warranty by negligently damaging the very subject matter of it. The intention of the statutory warranty was that Qantas, the supplier, should be liable for that breach to Aravco, the consumer. If Qantas failed to care for the aircraft with due care and skill it was under an obligation to compensate Aravco for its failure. However Qantas, upon its breach of the warranty, relied upon cl 4, read down in the way I have suggested, to make Aravco liable to Qantas. Clause 4 applied to require Aravco to compensate Qantas for Qantas' breach. So understood it seems to me plain that the term has the effect of modifying the liability of Qantas for breach of the warranty. Accordingly, in my opinion, cl 4 even so read is void, that is to say devoid of legal effect. 1. Aravco Ltd v Qantas Airways Ltd (1995) 132 ALR 419 at 428; [1995] ATPR 41-437 at 40,914.
With great respect to the learned judges of the Court of Appeal, the matter that makes it "plain that the term has the effect of modifying the liability of Qantas for breach of the warranty" is not readily apparent. As we have pointed out, cl 4 required Aravco to indemnify Qantas for the latter's liability to BAT. But giving effect to that indemnity has no impact on the liability of Qantas to Aravco for breach of the s 74 warranty. If by "Qantas' breach" in the third last sentence of the above quotation, the learned judges of the Court of Appeal were referring to the breach of the s 74 warranty, their Honours were in error. BAT sued Qantas for breach of a common law duty of care that Qantas owed to BAT, not for the breach of the s 74 warranty that Qantas gave to Aravco. If, on the other hand, the majority judges in the Court of Appeal in referring to "Qantas' breach" meant Qantas' breach of its common law obligation to BAT, then, ex hypothesi, cl 4 was seeking an indemnity for that breach and not the breach of the s 74 warranty.
The legal effect of the Act on the present litigation depends entirely on the true analysis of the issues which were joined between Aravco and Qantas. Nothing turns on the construction of the Act once the critical distinction is made between the liability of Aravco to Qantas under cl 4 (which was in issue in the cross-claim) and the liability of Qantas to Aravco for breach of the s 74 warranty (which was not in issue). Section 68 by the express terms of sub-s (1)(c) applies only to liability for breach of the s 74 warranty. It was the failure to make that distinction which led the majority of the Court of Appeal into the error of saying that it was "plain that the term has the effect of modifying the liability of Qantas for breach of the warranty".
What is involved in the way Aravco has pleaded its defence in pars 9 and 10 is no mere matter of form. The reasoning of the Court of Appeal in holding that those paragraphs are an answer to Qantas' claim for indemnity has altered the substantive rights and liabilities of the parties. That reasoning has deprived Qantas of the right to rely on cl 7 as an answer to breach of the s 74 warranty even if, within the meaning of s 68A(2), it is fair and reasonable for Qantas to rely on cl 7. In other words, the reasoning of that Court takes away from Qantas a right that, subject to the issues of fairness and reasonableness, is authorised by s 68A and which is independent of the right that cl 4 purports to confer. Moreover, as Mr Emmett QC, for Qantas, pointed out in argument, the reasoning of the Court of Appeal has different results for Aravco and Qantas depending on whether BAT decided to pursue its rights against Aravco or decided to pursue its rights against Qantas. If BAT had sued Aravco for breach of a contractual duty to return the plane in good order and condition and Aravco had then cross-claimed against Qantas for breach of the s 74 warranty, cl 4 would have been no answer to the cross-claim. However, Qantas could have relied on cl 7. Unless s 68A(2) of the Act struck down cl 7, Qantas' total liability for the damage to the aircraft would have been limited to no more than $5,000. But because BAT elected to sue Qantas instead of Aravco, the reasoning of the Court of Appeal leads to the anomalous result that Qantas could now be liable for damages of approximately $1 million and has no rights against Aravco.
In our opinion, neither the s 74 warranty nor the s 68 restriction had any relevance to the cross-claim that Qantas brought against Aravco. Section 68 did not make void Aravco's liability under cl 4 to indemnify Qantas against its liability to BAT. Qantas was therefore entitled to an indemnity from Aravco for that liability. If Aravco wishes to sue Qantas for breach of the s 74 warranty, it can still do so. Subject to any argument about the effect of the Anshun [8] doctrine, the obtaining of the indemnity has no effect on Aravco's right to sue for breach of that warranty. But if Aravco does sue, it may have to meet a defence based on cl 7.
The appeal should be allowed, the orders of the New South Wales Court of Appeal should be set aside, and the orders of Giles J should be restored. Aravco should pay the costs of Qantas in the Court of Appeal and this Court.
This appeal involves the meaning of provisions in that Part of the Trade Practices Act 1974 Cth (the Act) which is concerned to provide measures of protection to consumers throughout Australia (Pt V). This Court has a choice. It may adopt a narrow construction of the Act. But that would be inconsistent with the wide words used by the Parliament and with the achievement of their apparent purpose. By a simple device, it would permit the neutering of protections afforded by the Act in wide terms.
In my view, it can safely be left to the Parliament, where it so wishes, to restrict the application of the consumer protection provisions of the Act. It has already done so in a number of ways. It has adopted a particular definition of a "consumer", taking into account the price paid for, and the nature of, the goods and services in question (s 4B(1)(a), (b)). It has also provided for the avoidance of certain contractual terms which limit the liability of a supplier of goods or services, unless it is shown that it is not fair or reasonable for reliance to be had on such limitations (s 68A).
Where the Parliament has not so limited the consumer protections enacted by the Act, it is the duty of the courts, in accordance with well-established doctrine, to give effect to the protection. They do so by giving the provisions of the Act a beneficial construction. This is especially appropriate where the Act itself uses broad language designed to achieve a large social purpose far beyond the commercial circumstances of the present dispute.
No disagreement arises about the facts. On 5 April 1992 an aeroplane of BAT Industries Plc (BAT) arrived at Sydney (Kingsford-Smith) Airport. BAT's interest in the plane was not finally determined at the trial. However, it was accepted that it had a right to possession and was entitled to initiate the proceedings which it did. The plane proceeded to the Qantas Executive Jet area, part of the Qantas Jet Base owned and operated by Qantas Airways Ltd (Qantas) (the appellant).
The pilot of the plane, Captain Roger Wilkins, was employed by Aravco Ltd (Aravco) (the respondent). Aravco was the company which operated the aircraft, presumably pursuant to an agreement between itself and BAT. On arrival, Captain Wilkins was handed a document titled "Aircraft Handling Advice Note". He was allegedly told that it indemnified Qantas for the handling of the plane whilst it was in Sydney. He was asked to sign it. He did so. The plane was isolated where it had been parked. On the next day services were performed upon it. Together with the fee for parking, the service charges amounted to approximately $5,000. The plane was scheduled to depart the airport on 8 April 1992. However, on 7 April, whilst another plane was being manoeuvred within the area of the jet base, it collided with the subject plane. The collision caused damage which has not yet been ascertained but which was said to be between $500,000 and $1 million in value.
Two conditions in the document signed by Captain Wilkins must be noted. They are part of what is described as the "Conditions of Business":
7(1) Pursuant to S 68A of the Trade Practices Act 1974 this clause applies in respect of any of the goods or services supplied under this contract which are not of a kind ordinarily acquired for personal, domestic or household use or consumption, provided that this clause will not apply if the customer establishes that reliance on it would not be fair and reasonable.
(2) Liability for breach of a condition or warranty implied into this contract by the Trade Practices Act 1974 other than a condition implied by S 69 is limited to
(B) In the case of services, any one of the following as determined by Qantas:
(ii) the payment of the cost of having the services supplied again.
BAT commenced proceedings in the Supreme Court of New South Wales against Qantas. It claimed damages for Qantas' negligence. Relevantly, Qantas' points of defence admitted the allegation that the damage to BAT's aircraft was caused by the negligence of Qantas. It put BAT to the proof of damage consequential upon that negligence. With its defence, Qantas filed a cross-claim joining Aravco as cross-defendant. Pursuant to the written agreement, evidenced by the Aircraft Handling Advice Note signed by Captain Wilkins, Qantas claimed an indemnity from Aravco for all liability incurred by Qantas to BAT.
Aravco's defence to the cross-claim put various matters in dispute which are not now contested. Relevantly, the defence asserted that the agreement between Qantas and Aravco was a contract for the supply of services to a consumer within the meaning of the Act; that Qantas was a corporation within the Act; that pursuant to s 74(1) of the Act there was implied into the agreement that the services provided by Qantas would be rendered with due care and skill; and that the provisions of the contract affording Qantas the indemnity upon which it sued was void by the operation of s 68 of the Act.
Division 2 - Conditions and Warranties in Consumer Transactions
Application of provisions not to be excluded or modified
68(1) Any term of a contract that purports to exclude, restrict or modify or has the effect of excluding, restricting or modifying:
(a) the application of all or any of the provisions of this Division;
(b) the exercise of a right conferred by such a provision;
(c) any liability of the corporation for breach of a warranty implied by such a provision;
(2) A term of a contract shall not be taken to exclude, restrict or modify the application of a provision of this Division unless the term does so expressly or is inconsistent with that provision Term of Contract
68a(1) Subject to this section, a term of a contract for the supply by a corporation of goods or services other than goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption is not void under section 68 by reason only that the term limits the liability of the corporation for a breach of a warranty to:
(a) in the case of goods, any one or more of the following:
(i) the replacement of the goods or the supply of equivalent goods;
(iii) the payment of the cost of replacing the goods or of acquiring equivalent goods;
(iv) the payment of the cost of having the goods repaired; or
(ii) the payment of the cost of having the services supplied again.
(2) Subsection (1) does not apply in relation to a term of a contract if the person to whom the goods or services were supplied establishes that it is not fair or reasonable for the corporation to rely on that term of the contract.
74(1)In every contract for the supply by a corporation in the course of a business of services to a consumer there is an implied warranty that the services will be rendered with due care and skill and that any materials supplied in connexion with those services will be reasonably fit for the purpose for which they are supplied.
In the Preliminary part of the Act, a definition of a "consumer" is, in effect, provided:
4b(1) For the purposes of this Act, unless the contrary intention appears:
(b) a person shall be taken to have acquired particular services as a consumer if, and only if:
(i) the price of the service did not exceed the prescribed amount
At the relevant time the prescribed amount was, as s 4B(2)(a) enacts, $40,000. The price of the services supplied by Qantas to Aravco (about $5,000) was therefore not in excess of the prescribed amount. Accordingly, Aravco acquired the particular services "as a consumer" from Qantas, a corporation.
In order to focus attention upon those matters which are in contest in this Court, it is useful to list a number of issues (some of them fought below and others of them foreshadowed) which may be put to one side:
In the Supreme Court of New South Wales, the proceedings originally came before Giles J in the Commercial Division. Much of his Honour's reasons were addressed to issues which have now melted away. On Aravco's argument that the terms of condition 4 offended s 74(1) of the Act and thus, by s 68, were (subject to s 68A) void, Giles J demurred. He noted that Qantas accepted that, in so far as condition 4 purported to release it from liability to Aravco or provided that Aravco would indemnify Qantas for liability to Aravco, such provisions would be void, subject to s 68A and condition 7. As to the indemnity in respect of a claim by a third party (BAT) the position was different [12] :
The indemnity does not exclude, restrict or modify, or have the effect of excluding, restricting or modifying the application of s 74(1) in relation to the contract embodied in the Note, the exercise of a right conferred by s 74(1) (assuming that s 68(1)(b) refers to rights flowing from the implied warranty ), or any liability of the defendant for breach of that warranty. On appeal to the New South Wales Court of Appeal, whilst the judges were unanimous in dismissing the other challenges to the decision of Giles J, they divided on this point. Sheller JA (with whom Powell JA concurred) concluded that the provisions of condition 4 offended s 74(1). They were thus void by s 68(1) of the Act [13] : The intention of the statutory warranty was that Qantas, the supplier, should be liable for that breach to Aravco, the consumer. If Qantas failed to care for the aircraft with due care and skill it was under an obligation to compensate Aravco for its failure. However Qantas, upon its breach of the warranty, relied upon cl 4, read down in the way I have suggested, to make Aravco liable to Qantas. Clause 4 applied to require Aravco to compensate Qantas for Qantas' breach. So understood it seems to me plain that the term has the effect of modifying the liability of Qantas for breach of the warranty. Accordingly, in my opinion, cl 4 even so read is void, that is to say devoid of legal effect. Mahoney AP disagreed. He stated the issue thus [14] : [W]hether s 74 avoids a term of a contract which does not affect the legal liability of a corporation arising from the breach of a warranty but merely, indirectly or collaterally, reduces the amount which may be recovered as damages for breach of the warranty. After pointing out that the clause upon which Qantas relied (condition 4) merely provided, in the circumstances of the proceedings, that Aravco should indemnify Qantas against the liability of Qantas to a third party, BAT, Mahoney AP concluded [15] : Prima facie this does not exclude, restrict or modify the effect of the implied warranty: it does not provide that the warranty, if breached, shall not give rise to liability nor (more relevantly) does it provide that any of the damages for which Qantas would otherwise be liable to Aravco for breach of the warranty shall not be recoverable from it. The indemnity, in the relevant sense, provides that Aravco shall pay to Qantas moneys which Qantas is to pay to a third party, irrespective of whether those moneys are moneys which Aravco could recover as part of its damages for breach of the warranty. 1. BAT Industries Plc v Qantas Airways Ltd [1994] ATPR 42,621. 2. Aravco Ltd v Qantas Airways Ltd (1995) 132 ALR 419 at 428; [1995] ATPR 40,905 at 40,914. 3. Aravco Ltd v Qantas Airways Ltd (1995) 132 ALR 419 at 421; [1995] ATPR 40,905 at 40,908. 4. Aravco Ltd v Qantas Airways Ltd (1995) 132 ALR 419 at 421; [1995] ATPR 40,905 at 40,908.
This, then, is the issue which is to be resolved in this appeal. It concerns the operations of ss 68 and 74 of the Act. Does a condition such as condition 4 in the Qantas contract have the effect of "restricting" or "modifying" in an impermissible way the application of the provisions of the Division of the Act dealing with consumer protection (s 68(1)(a)) or any liability of Qantas for breach of a warranty implied by a provision in the Division, notably s 74(1) (s 68(1)(c))? If it does, the provision is void. Qantas may not rely upon it. The majority in the Court of Appeal are right. If it does not, Mahoney AP and Giles J are right and the appeal to this Court must be upheld.
In the course of the argument of the appeal various problems were raised having regard to the way in which the dispute between Qantas and Aravco was pleaded in the Commercial Division of the Supreme Court and the way in which the trial of that dispute was conducted. As those points were not taken by the parties and as they conducted their litigation on the basis described above, it would involve a procedural unfairness if this Court were now, for the first time, to insist upon niceties of pleading. As argued and determined in the Supreme Court a discrete question of the meaning and intended operation of the Act is presented. This Court should now answer that question.
For Qantas, it was argued that, in so far as condition 4 contained an indemnity by Aravco to Qantas for liabilities of Qantas to a third party (BAT), such a provision did not purport to exclude, restrict or modify, nor have the effect of excluding, restricting or modifying the existence of the warranty implied into the contract by s 74 of the Act, the exercise by Aravco of rights conferred by that warranty or the liability of Qantas for breach of it. No offence was done to s 68 of the Act. Although Aravco had not, in a reply to the cross-claim or in separate proceedings, sued Qantas for any such alleged breach of the implied warranty, it was (subject to any procedural estoppel considerations) still open to it to do so. If it did, Qantas would be entitled to invoke s 68A, limiting its liability, in effect, to the cost of the provision of the services (about $5,000). Aravco would then be entitled to seek to rebut such a limitation by relying on s 68A(2) and contending that it would not be "fair or reasonable" for Qantas to rely on condition 4. These were matters for the future. The availability of the remedies to Aravco (and the defence and reply arising therefrom) illustrated the fact that the intended operation of the Act, including s 68A, contemplated the survival of an indemnity provision, such as that here in question where it was confined so that it did not exclude all liability under the implied warranty. That implied warranty still had work to do. It was still available to Aravco to be enforced in separate and distinct proceedings brought by it. So went the arguments for Qantas.
Aravco supported the decision of the majority in the Court of Appeal. The indemnity relied upon in condition 4 had the "effect" of "modifying" the liability of Qantas for breach of the warranty implied by s 74(1) of the Act because, if condition 4 did not exist, Qantas, as between itself and Aravco, would be solely liable for the damage to BAT's plane. It would be liable to Aravco for at least nominal damages for breach of the warranty. Qantas would have no right to recover from Aravco the amount of the liability to BAT. The "effect" of the purported indemnity was therefore, within the language of s 68(1)(c) of the Act, at least such as to "modify" that liability.
Aravco went further than the reasoning of the majority of the Court of Appeal. First, it suggested that it was unnecessary to limit attention solely to the word "modify". The effect of the indemnity was also to "restrict" the liability of Qantas. This, likewise, was forbidden by s 68(1). Additionally, Aravco relied on s 68(1)(a). It urged that this paragraph, read with s 68(2) of the Act, was clearly intended to cover all cases where the effect of the impugned contractual provision was inconsistent with the terms of the warranty implied by s 74(1) of the Act.
Although I accept the arguability of the case for Qantas, I consider that the better view of the intended operation of the Act is that urged for Aravco and found by the majority in the Court of Appeal.
In order to explain how I reach my conclusion, which is a minority one, it may be helpful to list a number of matters which affect my approach to the problem before the Court:
The provision in question forms part of beneficial legislation designed to protect consumers. The Act incorporates a number of very important departures from the previous law [16] . It enacts important protections for consumers which should not be given a narrow construction. The approach to be taken should be "broad and general" [17] . The Act has been described as "a fundamental piece of remedial and protectionist legislation" to be "construed broadly" [18] . The construction given to it should advance the protective purposes as the Parliament may be imputed to have intended. I agree with what Lockhart and Gummow JJ said in Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd [19] : As is the case with Pt IV of the Act, the evident purpose and policy underlying Pt V recommends a broad construction of its constituent provisions, the legislation being of a remedial character so that it should be construed so as to give the fullest relief which the fair meaning of its language will allow. Courts may take into account the heading to Pt V which explains the overall purpose of its provisions as being for consumer protection [20] . Where the Parliament has intended to narrow the operation of the protection it has given effect to that purpose either by confining the application of the Act (eg, s 4B(1)) or by providing express exemptions (s 68A);
So far as the implied contractual terms enacted by a provision such as s 74 are concerned, this Court has made it clear (in the context of s 71 which is not relevantly distinguishable) that the result is a fiction, but a potent one. In Wallis v Downard-Pickford (North Queensland) Pty Ltd [21] Toohey and Gaudron JJ approved the comment of Brennan J in the Federal Court of Australia in Arturi v Zupps Motors Pty Ltd [22] that such a section: takes effect by imposing an obligation upon one of the contracting parties as though the parties had embodied the obligation in their contract. No doubt it is right to say that the obligation is statutorily created But by describing the obligation as an implied condition, s 71 defines the nature of the obligation. It is an obligation which takes effect by a legal fiction, namely, that the parties had made a contract which included the obligation [A] breach of the obligation is not to be treated as a breach of an obligation imposed upon the obligor by the Act dehors the contract, but as an obligation imposed by the contract itself. Thus the obligation implied by s 74(1) of the Act is incorporated, in effect, in the contract for the supply of services between Qantas and its consumer, Aravco. Qantas had no contract with BAT. The implied contractual warranty afforded by s 74(1) is as good as it would be if it had actually been included in the text of the Qantas "Conditions of Business". As between Qantas and Aravco, whatever else existed in their contractual relations, by force of an Act, there was incorporated a warranty that services would be rendered "with due care and skill";
When the meaning of s 68 of the Act is approached, the verbs critical to the present appeal are "restrict" and "modify". The work of the verb "exclude" has already been done, viz to strike down the terms of condition 4 in so far as they purported to require the operator (Aravco) to "hold harmless" Qantas from all liabilities etc suffered by Aravco itself. The word "restrict" and the word "modify" cannot be read in isolation to ascertain their meaning. They are included as part of a trinity of purported contractual terms which are forbidden as having the general "effect" of frustrating the specified operation of the consumer protection provisions of the Act. To "restrict" is to confine something within limits or to limit its operation. To "modify" connotes something softer. It involves the least affectation of the three forbidden effects. It means no more than to restrain, to make less rigorous or severe, to alter without radical transformation or simply to qualify something so affected. The essence of modification is that its subject remains in being but is altered in some way falling short of extinguishment [23] . All that is needed is that there be partial changes in the thing modified [24] . Such changes may enlarge or limit it [25] . The word has a very large denotation. By using it the Parliament has taken a strongly protective stance: rendering void any term of a contract purporting to have any of these effects. Clearly, it has done so to prevent the undermining of the consumer protection provisions of the Act by devices in contracts aimed at circumventing the beneficial operation of the Act's protections;
This view of the ambit of s 68(1) of the Act is given further emphasis by the use of the word "effect". It is not simply the language or expression of the "term of a contract" to which s 68(1) attaches. The Court is obliged to look to the "effect". It is required to ask whether that effect is one, relevantly, of "restricting or modifying" the specified activities. The word thus imposes on the decision-maker a practical approach, not one blinded by legal formulae or written text; and
The breadth of the operation of s 68(1) is also emphasised by the fact that by par (a) what is rendered void is expressed in extremely wide language. Thus, any term of a contract that has the effect of restricting or modifying the application of any of the provisions of the [Consumer Protection] Division of the Act is, by the subsection, rendered void. So is any attempted restriction or modification of the liability of Qantas for breach of a warranty implied, for example, by s 74. Avoiding such provisions is a drastic disturbance of freedom of contract. But it is deliberately drastic for a clear reason. That reason is to preserve the protection of consumers provided by Pt V of the Act from just the kind of "modifications" as were included by Qantas in the fine print of the document thrust into the hands of Captain Wilkins, an air pilot, as he completed his arrival duties at Sydney Airport.
With respect to those of the contrary view, I am of the opinion that the indemnity provided in condition 4 of the Qantas Conditions of Business has the effect of modifying (and probably restricting) the application of the provisions in Pt V Div 2 of the Act and of modifying the liability of Qantas for breach of the warranty implied by s 74(1) of the Act.
Experience in consumer protection legislation teaches that there are various ways in which avoidance of the statutory protections can be attempted. One is by a purported exclusion of liability. Such terms usually fail, as here, because of express provisions of the Act. This outcome has made some suppliers of goods and services to consumers more subtle in their approach. Another way to seek to avoid statutory protections, by no means unknown, is by a purported indemnity provision designed to take away from the party, from whom the indemnity is extracted, rights which that party would otherwise enjoy by force of the consumer protection legislation.
In the United Kingdom's legislation equivalent to the Act, this problem was expressly addressed. Thus, s 4 of the Unfair Contract Terms Act 1977 UK provides:
(1) A person dealing as consumer cannot by reference to any contract term be made to indemnify another person (whether a party to the contract or not) in respect of liability that may be incurred by the other for negligence or breach of contract, except in so far as the contract term specifies the requirement of reasonableness. For Qantas it was put that the decision of the Australian Parliament in s 68, when that section was amended in and after 1978, not to follow this United Kingdom prohibition, illustrates a willingness to allow even "unreasonable indemnity clauses" to operate according to their terms. Such an imputed intention owes more to mythology than to real parliamentary consideration of the point. The terms of s 68, now to be read with s 68A, achieve, in my view, a relevantly similar result. By the use of the wide words of prohibition ("restrict or modify") and the wide operation ("the application of all or any of the provisions of this Division") the particular device of indemnity clauses is sufficiently addressed. Section 68A is the local attempt to satisfy the requirement of "reasonableness", in the United Kingdom Act. It is simply spelt out in more elaborated terms. Far from assisting Qantas' argument, the United Kingdom statutory provision (and the commentary about it in the texts [26] ) demonstrate the way in which, unless restrained by statute, indemnity clauses present a simple path for suppliers, otherwise affected, to march straight out of the Act. The present case is a bad enough illustration. The printed form was simply presented for signature to a pilot intent to park his plane and have it serviced. What might just conceivably be expected from such an employee of a "consumer" could certainly not be expected in the great majority of "consumer" contracts for the supply of goods and services, as defined. The Act is intended to operate in all such cases. This Court should give a construction to the Act which will ensure that it works effectively and in a practical way [27] for the wide range of consumers whose circumstances will not always reflect the commercial character of the parties' dealings in the present case but will be vulnerable to an indemnity device. 1. Thompson, Unfair Contract Terms Act 1977 (1978), p 11. 2. Edgar v Farrow Mortgage Services Pty Ltd (In liq) (unreported; Federal Court; Einfeld J, File No 614/92, 26 August 1992), p 45.
The contract presented to Captain Wilkins contained, as a term, condition 4 which included one device which, it is not contested, foundered on the rock of s 68, viz the promise to "release" and "hold harmless" Qantas. It would be extremely odd, as it seems to me, if the prohibition effected by s 68(1) of the Act were so readily susceptible to circumvention by the mere use of the device of a promise of "indemnity". This would be especially remarkable given that indemnity is a well-known expedient for attempted avoidance of just such protections as the Act was intent to afford to consumers.
Section 68 did not have such a narrow and incompetent operation. By the use of words of such broad operation ("restrict" and "modify"), by focusing on "the effect" rather than the language of the impugned term, and by considering whether that "effect" in any way "restricted" or "modified" the application of any provision of the Division or the liability of the corporation for a breach of a statutory warranty, the Parliament clearly addressed itself to the indemnity device. This Court should say so.
The way to test this conclusion is to consider the operation of the contract absent the term which is impugned. If condition 4 is, in its entirety, excised from the contract, so that the promise of Aravco not only to "release" and "hold harmless" Qantas but also to "indemnify" it is deleted, all that relevantly remains is the implied warranty incorporated in the contract by the force of s 74(1). By that implied term, Qantas is taken to have promised that it would render its services to Aravco with due care and skill. It is common ground that it did not. Accordingly, Qantas was liable to Aravco. Aravco was not liable to Qantas.
Once this position is established, the question is whether condition 4, if it were to operate after judicial surgery, would have "the effect" of "restricting or modifying" the application of one of the provisions of the Division of the Act, viz s 74(1). Clearly enough, it would. For instead of Aravco being entitled, by s 74(1), to enforce, in its entirety, its undiminished claim against Qantas, based on the implied statutory warranty, it is liable, instead, under the promise of indemnity. It must then run the gauntlet of s 68A(1). It must struggle to bring itself within s 68A(2). Similarly, the "effect" of condition 4 is to "modify" the liability of Qantas for breach of the implied warranty to provide its services with due care and skill, as s 74(1) requires. Merely by using the technique of an indemnity, Qantas would then achieve the effect of reducing its liability by shifting the burden of its own want of care and skill to the very party (Aravco) to which, by the Act, its duty was owed. No more vivid illustration could be afforded of the "effect" of the relevant "modification" than by contrasting the entitlement of Aravco under the implied warranty resulting from the application of s 74 with the result which will flow if the indemnity device succeeds. In my view it does not.
As in the past, this Court should reject arguments which favour "form over substance in a way that undermines the operation of" the consumer protection provisions of the Act [28] . Doing so will not only give effect to the statutory provisions. It will prevent ready evasion of the Act. And it will promote the beneficial objects of the Act which the contrary opinion undermines.I would dismiss the appeal with costs.
Qantas Airways Ltd
Aravco Ltd
(1995) 132 ALR 419
(1981) 147 CLR 589
(1969) 121 CLR 432
(1975) 133 CLR 125
(1988) 165 CLR 197
(1980) 49 FLR 455
(1981) 53 FLR 340
(1990) 169 CLR 594
(1991) 172 CLR 32
(1993) 42 FCR 470
(1993) 179 CLR 15
(1994) 179 CLR 388
(1980) 49 FLR 283
(1981) 52 FLR 240
(1985) 7 FCR 195