Australia: High Court uncaps damages for disappointment and distress in cruise ship class action

Introduction

The High Court's decision in the class action of Moore v Scenic Tours Pty Ltd¹ has significant implications for businesses that provide services aimed at enjoyment, relaxation, pleasure and entertainment.

These include services provided by travel agents, hotels, cruise ship operators, airlines, event and wedding planners, spa-operators and businesses offering other travel and recreational services.

In this update, we provide an overview of the decision, review how damages for disappointment and distress are assessed, discuss whether liability can be limited for this type of loss, and consider the broader implications for service providers.

Key takeaways

• The effect of the decision is to remove the cap on damages for disappointment and distress arising from breach of contract or the consumer guarantees in the Australian Consumer Law
• Claims for disappointment and distress are not personal injury damages
• Any reasonably foreseeable losses for disappointment and distress caused by a failure to comply with the consumer guarantees are recoverable by consumers
• Given the subjective nature of the assessment of damages for disappointment and distress, it will be difficult for service providers to quantify the amount for which they could be liable
• Service providers cannot exclude, restrict or modify liability for such losses
• The decision has increased the risks to service providers of class actions

Brief background

In 2012, Mr Moore and his wife booked a European river cruise holiday with Scenic Tours. The two week packaged holiday was described as "a once in a lifetime cruise" in "all inclusive luxury".

Mr Moore and his wife chose Scenic's river cruise because they wanted to see different locations in Europe without having to unpack their belongings more than once. The river cruise also suited Mr Moore because he found it difficult to spend extended periods of time sitting down, particularly in confined spaces, following spinal surgery. The tour was paid for 12 months in advance with what Mr Moore described as his "life savings".

The tour commenced in Paris on 31 May 2013. The river cruise along the Rhine, Main and Danube Rivers was scheduled to depart from Amsterdam on 3 June 2013 on board the Scenic Jewel and to conclude two weeks later in Budapest. The cruise was severely disrupted by adverse weather conditions that resulted in high water levels on the Rhine and Main Rivers.

Instead of cruising for ten days as scheduled in the itinerary, Mr Moore's experience was of many hours spent travelling by bus; he cruised for only three days. The cruise also began on board a different vessel to the luxurious Scenic Jewel. By the time the cruise concluded in Budapest, the Moores had changed ship at least twice.

The holiday tour fell far short of the "once in a lifetime cruise" in "all inclusive luxury' that Mr Moore was promised by Scenic.²

Mr Moore's claim for damages for disappointment and distress

A class action was commenced by Mr Moore in the Supreme Court of New South Wales on behalf of 1,500 passengers of 13 Scenic cruises that were disrupted by the adverse weather conditions.

It was not in issue before the High Court that Scenic's attempts to perform its contractual obligations resulted in breaches of consumer guarantees in the Australian Consumer Law (the ACL).

Those consumer guarantees included supplying the cruising service with due care and skill, supplying a tour which was fit for the purpose, and supplying a tour of a nature and quality that passengers could reasonably expect.

Mr Moore claimed damages in respect of loss suffered by him as a result of Scenic's breaches. The alleged loss included, among other things, disappointment and distress for breach of contract to provide a pleasant and relaxed holiday.³

That type of loss was recognised as a compensable loss in the High Court's decision in Baltic Shipping Co v Dillon which related to the sinking of the cruise ship MS Mikhail Lermontov in the Marlborough Sounds in New Zealand in 1986.⁴

What was the issue before the High Court?

The issue before the High Court was whether section 16 in Part 2 of the Civil Liability Act 2002 (NSW) (the CLA) applied to preclude Mr Moore from recovering damages for disappointment and distress for a failure to comply with the consumer guarantees in the ACL.

What did the High Court decide?

The High Court determined that section 275 of the ACL, a Commonwealth law, picked up and applied Part 2 of the CLA. Part 2 of the CLA applies to awards of personal injury damages whether the claim is brought in tort, in contract, under statute or otherwise.

However, the High Court accepted Mr Moore's argument that his claim for disappointment and distress was not a type of personal injury damages. That meant that his claim for disappointment and distress was not regulated by Part 2 the CLA.⁵ Rather, Mr Moore's claim for disappointment and distress was regulated by the common law principles relating to the assessment of damages for that type of loss.

Until the High Court's decision, it had been unclear whether Baltic Shipping applied independently of the civil liability regime. The position in New South Wales and other jurisdictions with a similar civil liability regime was that damages for disappointment and distress constituted non-economic loss in relation to personal injury. Under those legislative schemes, recovery for such losses were precluded unless the severity of that loss exceeded the threshold amount.⁶

Relevantly, section 267 of the ACL provided that Mr Moore could "recover damages for any loss or damage suffered" by him "because of the failure to comply with" the consumer guarantees "if it was reasonably foreseeable" that Mr Moore "would suffer such loss or damage as a result of such a failure."

Mr Moore's claim for $2,000 in damages for disappointment and distress, which was awarded at trial, was reinstated by the High Court.⁷ The claims for damages by the other class members have been remitted to the trial judge for determination.

How are damages for disappointment and distress calculated?

A consumer may recover damages against a supplier for any loss or damage suffered by the consumer because of a failure to comply with a consumer guarantee if it was reasonably foreseeable that the consumer would suffer such loss or damage as a result of such a failure.⁸ For a breach of contract that is not also a failure to comply with a consumer guarantee, the type of loss must be not unlikely to result from the breach.

Given the nature of the services being provided by Scenic Tours, it was reasonably foreseeable that Mr Moore would suffer the disappointment and distress that he did.

The trial judge observed that Mr Moore's claim of $2,000 for disappointment and distress was "modest" and that he would have been prepared to award a greater amount.⁹

The trial judge referred to several cases where up to double the cost of the holiday or fare was awarded as damages for disappointment and distress.¹⁰

We set out below the approach taken by courts¹¹ when assessing damages for disappointment and distress:

• Damages for disappointment and distress are assessed 'at large' or, in other words, are not capable of precise calculation.
• The amount of damages must be fair and reasonable compensation for the disappointment and distress caused.
• Each case must be assessed according to the subjective disappointment and distress which a person has suffered having regard to all of the facts and circumstances.
• The amount awarded should not reflect the situation of other parties in other actions, even if the situation is similar.
• Only if an award is grossly disproportionate will it be set aside – in deciding whether there is a disproportion, it is not resolved by reference to some norm or standard derived from a consideration of amounts awarded in other cases.

In addition to damages for disappointment and distress, the High Court said¹² that damages for what might broadly be described as mental harm consequent upon a breach of contract are also available at common law in categories where the harm is:

• 'pain and suffering' consequent upon physical injury; and
• 'vexation and discomfort" consequent upon physical inconvenience.

Damages for these types of losses are assessed in a similar way to the approach detailed above.

The effect of the High Court's decision is to uncap liability for breaches of contract and the consumer guarantees for 'disappointment and loss' for services aimed at pleasure or relaxation, and for 'vexation and discomfort' consequent upon physical inconvenience. 'Pain and suffering' consequent upon physical injury will continue to be regulated by Part 2 of the CLA.¹³

Could Scenic Tours have excluded its liability?

No.

While the ACL permits a supplier of goods and services to which the consumer guarantees apply to limit liability for failures to comply with the consumer guarantees, those limitations only apply to good and services that are not goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption.

The type of services that Mr Moore contracted for were clearly of a kind ordinarily acquired for personal, domestic or household use or consumption.

A term of a contract is void to the extent that it purports to exclude, restrict or modify liability for the failure of goods and services of a kind ordinarily acquired for personal, domestic or household use or consumption to comply with the consumer guarantees.¹⁴

What does this mean for businesses providing consumer services?

Courts will now assess damages of this type of loss according to the statutory and common law principles discussed above. Given the subjective nature of that assessment, it will be difficult, if not impossible, for service providers to quantify the amount for which they could be liable.

Importantly, for the reasons discussed above, service providers will not be able to exclude, restrict or modify liability for such losses.

We expect to see a surge in claims for disappointment and distress, pain and suffering, and vexation and discomfort by consumers due to the recent disruption to global travel caused by the COVID-19 pandemic: the disappointment and distress of a failed holiday, pain and suffering caused by the physical injury of contracting COVID-19,¹⁵ and vexation and discomfort due to being quarantined and detained in hotels and on cruise ships for extended periods.

The question will be whether it was reasonably foreseeable that consumers would suffer these types of losses as a result of a failure to comply with the consumer guarantees. Given the large number of consumers who have received services and experienced one or more of these type of mental harm, the risk of service providers facing class actions has never been more acute.

Footnotes

¹ Moore v Scenic Tours Pty Ltd [2020] HCA 17.
² Moore v Scenic Tours Pty Ltd [2020] HCA 17 at [6]-[7].
³ Sections 60, 61(1) and 61(2) of the ACL.
⁴ (1993) 176 CLR 344.
⁵ Baltic Shipping Company v Dillon (1993) 176 CLR 344.
⁶ See section 16(1) of the CLA: "No damages may be awarded for non-economic loss unless the severity of the non-economic loss is at least 15% of a most extreme case."
⁷ Mr Moore was also awarded $10,990 in compensation for loss of value under section 267(3) of the ACL.
⁸ Section 267(4) of the ACL.
⁹ Moore v Scenic Tours Pty Ltd [No 2] [2017] NSWSC 733 at [919].
¹⁰ Moore v Scenic Tours Pty Ltd [No 2] [2017] NSWSC 733 at [914].
¹¹ See Moore v Scenic Tours Pty Ltd [No 2] [2017] NSWSC 733 at [912]-[913];
Planet Fisheries Pty Ltd v La Rosa (1968) 119 CLR 118 at [11]; Rogers v Nationwide News Ltd (2003) 216 CLR 327 at [69].
¹² Moore v Scenic Tours Pty Ltd [2020] HCA 17 at [69].
¹³ Moore v Scenic Tours Pty Ltd [2020] HCA 17 at [42] and [75].
¹⁴ See section 64 of the ACL.
¹⁵ Aubrey v The Queen (2017) 260 CLR 305.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.