Damages for disappointed and distressed cruise passengers. The High Court in Moore v Scenic Tours

The views expressed herein are those of the author alone. It is not legal advice and is not intended to be a substitute for legal advice and should not be relied upon as such.

Last week, the High Court unanimously awarded a husband and wife damages for distress and disappointment when their cruise tour was severely disrupted by adverse weather conditions (Moore v Scenic Tours Pty Ltd [2020] HCA 17). Whilst this decision is legally significant in terms of whether damages for distress and disappointment may be awarded for breach of a consumer guarantee, it has potentially widespread implications.

It is a win for consumers entering into contracts whose object is to provide pleasure, relaxation, peace of mind or freedom from molestation. This naturally includes many contracts in the travel industry and may be of particular interest to travellers who have been on cruises that were impacted with coronavirus (COVID-19) infections.

The decision also contains interesting remarks by Edelman J on fundamental but surprisingly vexed issues relating to theories behind damages for breach of contract, namely the “performance interest” and “expectation loss”.

Facts

The facts can be shortly stated.

The couple booked a 10 day European river cruise through Scenic Tour. However, due to high water levels on the Rhine and Main Rivers, the couple travelled hours by bus, and only cruised for three days and on a different vessel to the advertised luxury Scenic Jewel.

In a class action with about 1,500 other passengers, the couple sued Scenic in the Supreme Court of New South Wales. They alleged that Scenic breached various consumer guarantees in the Australian Consumer Law (ACL). The ACL is a Commonwealth law that regulates the supply of services by companies to consumers. Specifically, the couple alleged that:

• Scenic did not render its services with due care and skill (s60);
• the disruptions rendered Scenic’s services (comprising the holiday tours) unfit for the purpose for which the couple acquired them (s61(1));
• the tours were not of a nature and quality as could reasonably be expected to achieve the result that the couple wished to services to achieve (s61(2)); and
• the couple sought damages for disappointment and distress under s267(4) of the ACL. That section enables recovery of damages for loss suffered if it is “reasonably foreseeable that the consumer would suffer such a loss or damage as a result” of a failure to comply with a consumer guarantee.

Legal Issues and Arguments

The couple argued that the Court was permitted to award damages for disappointment and distress because it “reasonably foreseeable”. Their contract with Scenic was aimed to provide enjoyment, relaxation, pleasure and relaxation.

However, Scenic argued that s275 of the ACL picked up State or Territory laws that limited and precluded liability (and the recovery of any liability) in contract law, and applied those laws to the situation where there was a failure to comply with a consumer guarantee.

Scenic contended that the Civil Liability Act 2002 (NSW) (CLA) was an example of such a State law. Specifically, it argued that:

• Pt 2 of the CLA applied to an “award of personal injury damages” and that s16(1) only allowed the award of personal injury damages for “non-economic loss” if the severity of the non-economic loss is at least 15% of the most extreme case. That minimum threshold was not reached in this case;
• Pt 2 of the CLA applied because the claim for disappointment and distress constituted: (i) “personal injury”, which was defined to include “an impairment of a person’s…mental condition” (s11, CLA)); and (ii) “non-economic loss”, which was defined to include “pain and suffering” or “loss of amenities of life” (s3(1), CLA));
• a person’s mental condition is impaired when expectations of pleasure, entertainment or relaxation in holiday cases are unfulfilled or dashed and thus, constitutes "personal injury"; and
• accordingly, s16(1) of the CLA applied (via s267, ACL) to preclude the couple’s claim for damages for disappointment and distress in circumstances where the 15% threshold was not reached.

Procedural History

The Supreme Court (Garling J) concluded that Scenic had failed to comply with the consumer guarantees. He awarded compensation including damages for disappointment and distress in the amount of $2,000.

His Honour found that s275 of the ACL did pick up and apply s16 of the CLA to proceedings in federal jurisdiction, and that a claim for damages for disappointment and distress was one that related to injury of a person under the CLA.

However, as a matter of fact, the couple’s claim was unaffected by s16. This was because they suffered disappointment and distress overseas, and not in NSW.

On appeal, the New South Wales Court of Appeal agreed with Garling J’s conclusion on s16 of the CLA and s275 of the ACL. However, their Honours reached a different view on the operation of s16(1) outside NSW, namely that it applied even if loss was sustained outside NSW. Accordingly, the couple’s award of damages for disappointment and distress was set aside.

High Court

The High Court agreed with the couple’s submission that disappointment at a breach of promise to provide recreation, relaxation or peace of mind was not an “impairment” of the mind. Rather, frustration and indignation as a reaction to a breach of such a contract was a normal rational reaction of an unimpaired mind.

The consequence of this was that damages for disappointment and distress did not constitute “non-economic loss” or “personal injury” for the purposes of the CLA and, in turn, the CLA did not preclude liability for breach of the consumer guarantees in the ACL.

Disappointment and distress as a separate head of loss

In reaching this conclusion, the majority (Kiefel CJ, Bell, Gageler, Keane, Nettle and Gordon JJ) held that Scenic’s submission effectively sought to distinguish between loss, being disappointment and distress for breach of contract to provide a relaxing experience, and loss, being disappointment and distress that is consequential upon personal injury.

That distinction was untenable in light of Baltic Shipping v Dillon (1993) 176 CLR 344. That case is authority for the proposition that disappointment and distress caused by a breach of contract (the object of which is to provide pleasure or relaxation) is a head of loss that is separate and distinct from injured feelings compensable under the head of pain and suffering and loss of amenities of life associated with personal injury.

That is, disappointment and distress is a compensable damage even where there is no physical or psychiatric injury or impairment.

The majority also opined that disappointment and distress were not “non-economic loss” under Pt 2 of the CLA. This was because Pt 2 was concerned with non-economic loss, as a head of loss associated with personal injury. Under common law, “pain and suffering” meant actual physical hurt occasioned by the accident (or its aftermath) and damages for emotional harm were not recoverable unless a psychiatric injury was suffered.

However, here, the couple did not allege that they suffered physical injury or psychiatric illness as a result of the breach of the consumer guarantees. The loss suffered had nothing to do with the mischief at which Pt 2 of the CLA was directed. It followed that Pt 2 of the CLA did not apply to preclude liability for breach of the consumer guarantees.

Edelman J

Edelman J agreed with the majority but considered that damages for distress and disappointment were recoverable under s267(3), and not s267(4), of the ACL. This is in contrast to what the parties presented, and how the majority decided, the case, namely that such damages were recoverable under s267(4).

Edelman J reached this conclusion by analysing the losses from the prism of “performance interest” and “consequential losses”. Such terms are common parlance in the debate amongst, particularly Oxford legal scholars and the UK Supreme Court, about what constitutes “loss”. Professor Robert Stevens (whose theory is centred on “substitutive damages”), Professor Andrew Burrows (to be appointed as the a Justice of the UK Supreme Court), Professor Edwin Peel and Edelman J (both when he was an Oxford academic and now as a Justice) are some of those actors in that debate.

In Edelman J’s view, damages for breach of contract ought not be described as “expectation damages” or “expectation loss”. Rather, they ought to be described as “compensatory damages”, the purpose of which is to restore the injured party to the position they would have been in if the breach had not occurred. Compensatory damages compensate for two components:

• the “performance interest” (being the value of the promised performance, as measured by the difference between the value of what was promise and the value of what was received). This damage is not concerned with loss in any real or factual sense; and
• consequential losses, which is true loss suffered, including economic (financial) losses and some non-economic losses that extend beyond the value of the promised performance and that are within the boundaries of legal responsibility (i.e. remoteness test in Hadley v Baxendale (1854) 9 Ex 341) and for, reasons discussed at the very end of this post, curiously, the assumption of responsibility test in Transfield Shipping Inc v Mercator Shipping Inc [2009] AC 61 (The Achilleas).

Edelman J opined that s267(3) of the ACL provides for recovery of the “performance interest” component of damages. Thus, in contracts for provision of a service involving pleasure or enjoyment, s267(3) provides some compensation for the value of the lost enjoyment benefit because the breach results in a failure to provide the promised benefits.

Section 267(4) allowed for the recovery of further loss or damage, being consequential losses. This section included distress and disappointment.

Implications

This case is a win for travellers and consumers generally. One only needs to think of the “disappointed and distressed” travellers on the cruises that were unfortunately ravaged by COVID-19 infections.

Where there is a breach of a consumer guarantee by, for example, a cruise liner company in relation to a contract whose object is relaxation, enjoyment and pleasure, then damages may include distress and disappointment, even where there is no physical injury or psychiatric harm.

Where, however, the claim is not for distress and disappointment but for damages for non-economic loss such as “pain and suffering” as a result of a “personal injury” (e.g. impairment of a person’s physical condition as a result of a COVID-19 infection), then Pt 2 of the CLA may, prima facie, apply to limit the damages that may be recoverable for breach of a consumer guarantee.

The wrinkle in this situation, however, is that if that damage was suffered outside NSW (e.g. in Japan or in Uruguayan waters), then Pt 2 of the CLA may not apply. The High Court did not resolve this issue, and there are competing views of Garling J at first instance and the Court of Appeal.   

The case also has further implications. Some of the reasoning may be expanded by analogy to other situations, where the claim for damages is not for distress and disappointment but is nonetheless for some other damage that is not consequential upon physical injury or psychiatric illness. In that case, Pt 2 of the CLA may not apply. Certainly, Edelman J alluded to this possibility in his concluding paragraph.

** A side-step into The Achilleas

The reference to the The Achilleas is interesting. That is a decision of the House of Lords, where a weak majority (Lord Hoffman, with whom Lords Hope and Lord Walker agreed) added a gloss to the Hadley v Baxendale remoteness test, namely that a party may not be liable for foreseeable losses that are not of the type or kind for which it can be treated as having assumed responsibility. Lord Rodger and Lady Hale did not agree with this approach but relied on the narrower approach in Hadley v Baxendale.

Lord Hoffman's remarks has been the subject of much discourse in the UK and has become known as the "broad" remoteness test. It has been subsequently applied in Supershield Ltd v Siemens Building Technologies FE Ltd [2010] EWCA Civ 7, John Grimes Partnership Ltd v Gubbins [2013] EWCA Civ 37 and Wellesley Partners LLP v Withers LLP [2015] EWCA Civ 1146 to both "include" and "exclude" losses that otherwise did not or did fall under either of the two limbs in Hadley v Baxendale.

The Achilleas has not been adopted by the High Court, but has been referred to approvingly in intermediate courts in obiter (e.g. Robb Evans of Robb Evans & Associates v European Bank Ltd [2009] NSWCA 67). Thus, Edelman J's citation of The Achilleas might signal his approval of that decision and, potentially, its reception into Australian law (on a future date).