Why sometimes it makes more sense to cancel than to operate
Background
- Scenic Tours promoted in its 2013 marketing material “once in a lifetime cruises” along the grand waterways of Europe, with guests expected to “enjoy a level of inclusive luxury service that is unsurpassed on the waterways of Europe”.
- A number of cruises were disrupted due to once-in-a-century flooding. Scenic opted to operate modified itineraries rather than cancelling.
- Instead of cruising for 10 days, many hours were spent on a bus and cruising was restricted to 3 days.
- A class action was brought on behalf of around 1,500 passengers, claiming that Scenic failed to satisfy consumer guarantees that are implied in every consumer contract pursuant to Australian Consumer Law.
Failure to satisfy Consumer Guarantees
The NSW Supreme Court found that Scenic failed to satisfy Australian Consumer Law guarantees:
- services are to be reasonably fit for purpose: the substitution of a land alternative was not reasonable or appropriate for the purposes they were services, being a relaxing and luxurious river cruising experience.
- services are to be of a nature and quality as might be reasonably expected to achieve the result desired by the customer: by making a booking based on marketing literature, customers were impliedly making it known that the result they desired was to experience a cruise with the benefits promised.
Damages
After multiple hearings and appeals over many years, damages were awarded against Scenic as follows:
- ~$8.4million for the reduction in the value of services that were actually delivered to customers – many customers were awarded in excess of $10,000.
- ~$10million for disappointment and distress – customers were awarded between $6,000 – $12,000.
Implications
The rulings set a precedent with implications that could significantly impact the travel industry. Customers might now have claims for damages due to:
- changed itineraries and missed ‘once in a lifetime experiences’ due to adverse weather conditions known prior to departure
- political instability during a journey causing distress
- construction works at a resort and closed amenities
What to do
- Booking Conditions
Although it is not possible to contract out of the Australian Consumer Law guarantees, there are some options available to limit liability and exposure where trips need to be amended or cancelled for reasons outside of an operator’s control.
For instance, a well drafted force majeure provision should permit an operator to cancel with a corresponding obligation to provide a limited cash refund only
- Cancel or get the client to confirm the changes
If you become aware of a significant modification to the advertised itinerary prior to travel, it may make sense to cancel and to rely on your force majeure provision to limit exposure.
If that doesn’t make sense, you should at least notify customers of the change and get them to affirm the changes (potentially with an agreed reduction in value).
This will limit exposure to future claims.
- Marketing Material
Marking material should be constantly reviewed to ensure services are not being over-promised.
- Supplier Agreements
Where the operator does not control the services being delivered, supplier agreements should be put in place to flow down the risk of customer claims for ‘disappointment and distress’ caused by supplier faults.
