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Bills Digest No. 12 2002-03
Trade Practices Amendment (Liability for Recreational Services) Bill
2002
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Trade Practices
Amendment (Liability for Recreational Services) Bill 2002
Date Introduced:
27 June 2002
House:
House of Representatives
Portfolio:
Treasury
Commencement:
Royal Assent
Purpose
To amend the Trade Practices Act
to permit companies who supply recreational services to consumers to exclude
their implied contractual liability for death or personal injury where
services are supplied without due care and skill.
Section 74 of the Trade Practices Act 1974 (TPA)
states that in a contract where a corporation supplies services to a consumer
there is an implied warranty that services will be rendered with due care
and skill and that material supplied in connexion with the services will
be reasonably fit for the purpose. The remedy for a breach of the implied
warranty is for the consumer to bring an action to recover damages for
breach of contract.
By virtue of section 68 of the TPA, a provision in a
contract that seeks to exclude the warranty implied by section 74 (such
clauses are commonly referred to as waivers) will be rendered void.
This Bill is intended to permit companies that supply
recreational services to enforce contractual terms which seek to exclude
the warranty of due care and skill implied by section 74.
This legislation is but one measure that has been proposed
to address the rapid increase in public liability insurance premiums.
It has been forecast that premiums will increase on average by around
30 per cent in 2002 following from rises of 15-20 per cent in 2000 and
2001.(1) This average masks some even higher rises for particular
businesses including those supplying adventure tourism services.(2)
In response to growing public concern about the impact
of rising premiums and the need for a coordinated response to the problem,
Commonwealth, State and Territory Ministers met in March 2002 and May
2002 to consider options to deal with the problem. These meetings received
evidence that one of the factors contributing to the increase in premiums
has been the growth in negligence claims. Negligence is a tort, that is,
a civil wrong. At common law, a person may be liable to pay damages for
negligence if it can be shown that they owed the plaintiff a duty of care,
the duty was breached and injury or damages was caused as a result. The
rapid increase in public liability premiums has generated considerable
pressure from insurance companies and community groups for ‘tort law reform’
to restrict both the number and quantum of negligence claims.(3)
One measure that has been endorsed by New South Wales,
Victoria, Queensland and Western Australia is to legislate to give effect
to waivers or disclaimers(4) signed by people proposing to
engage in an inherently hazardous activity. It has been proposed that
a waiver signed in such circumstances would operate as a good defence
against personal injury claims, including actions based in negligence,
where the supplier of such a service has complied with the relevant safety
requirements.(5)
In proceedings involving a claim for negligence the defence
may allege that the plaintiff voluntarily assumed the risks involved in
the activity. This defence is often expressed in the latin maxim ‘volenti
non fit injuria’ –to a willing person no injury is done.
The presence of consent document in the form of a waiver
will naturally assist such a defence, however it is not essential. The
notion of inherent risk recognises that some hazards are a characteristic
of a particular sport. For example, the risk of injury in a legal tackle
in football is a characteristic of a body contact sport and participants
have been found to have accepted this risk.(6)
A waiver will be necessary if the defendant is to be
excused of negligence. The courts will not exclude liability for negligence
simply because an activity involved inherent risks. In Rootes v Shelton(7)
the High Court considered the case of a water skier injured by a collision
with a stationary boat. The skier sued the driver of the towing boat for
negligence. The Court held that the risks of the driver failing to control
the boat with due care and failing to warn the skier were not inherent
in the sport. Chief Justice Barwick stated:
No doubt there are risks inherent
in the nature of water skiing, which because they are inherent may
be regarded as accepted by those who engage in the sport. The risk
of a skier running into an obstruction which, because submerged or
partially submerged or for some other reason, is unlikely to be seen
by the driver or observer of the towing boat, may well be regarded
as inherent in the pastime. …But neither the possibility that the
driver may fail to avoid, if practicable, or, if not, to signal the
presence of an observed or observable obstruction nor that the driver
will tow the skier dangerously close to such an obstruction is, in
my opinion, a risk inherent in the nature of the sport.(8)
At common law people can sign waivers excusing service
suppliers of negligence but the courts will carefully scrutinise them
particularly in situations where there is an inequality in bargaining
power. One text writer has written of a ‘judicial bias against disclaimers’.
This ‘bias’ manifests itself in a reluctance to find that adequate notice
has been given to the party bound and by construing the terms strictly
against the beneficiary of the waiver or disclaimer. Courts have required
evidence that suppliers have done everything reasonable to bring a waiver
to a party’s attention. In addition, if liability for negligence is to
be excluded this must be made explicit.(9)
Details of the measures proposed by state governments
are not publicly available. Nevertheless the context of comments made
by various governments seems to indicate that it is intended to legislate
to strengthen the effectiveness of waivers by protecting them from judicial
scrutiny if they relate to inherently hazardous activities.
While responsibility for tort law rests overwhelmingly
with the States, proponents of reform have argued that Commonwealth action
is necessary to support the process.
In March 2002 the NSW Treasurer Mr Egan said that the
NSW Government had obtained legal advice ‘indicating that any change made
by the States to tort law for personal injury cases would have only a
limited effect unless the Commonwealth amends the Trade Practices Act’.
He suggested that the warranty of due care and skill implied into consumer
contracts with corporations by section 74 of the TPA could allow plaintiff
lawyers to frustrate State tort law reform by pursuing a personal injury
damages claim under contract law rather than through an action in negligence.(10)
Any state law that sought to make waivers enforceable
under contact law for a corporation supplying services to consumers would
be inconsistent with the TPA and therefore invalid under section 109 of
the Constitution.(11)
At the meeting of Ministers in May, the Commonwealth
announced that it would legislate to allow self assumption of risk for
people who choose to participate in inherently risky activities such as
adventure tourism and sports, but would ensure that consumers retained
adequate protection under the TPA.(12) The States also undertook
to introduce mirror legislation where required.(13)
- Proponents of the use of waivers argue their case on the principle
of freedom of contract. They assert that sellers of goods and services
should have the right to stipulate the terms on which they trade. Customers
are free to decide whether to purchase or not.
- Waivers help to control the cost of insurance which would otherwise
be incorporated into the price of goods and services.
- In adventure sports and adventure tourism the risks involved are very
unpredictable. It is unfair for service suppliers to be exposed to liability
in such circumstances. While the courts may eventually rule in favour
of a service supplier and hold that an incident was not foreseeable,
there are substantial costs involved in defending claims. The resultant
uncertainty is also disruptive to business and indeed may deter business
activity in the sport and tourism industry.
- If they are properly administered, waivers can draw the potential
customers attention to the risks involved in a particular activity and
thus help them to look after their own interests.
- Some commentators have argued that the courts do not consistently
apply the law of negligence. Suppliers of services may feel that there
is no recognised standard of care on which they can base their compliance
policies. One option may be to allow a waiver conditional on compliance
with an industry code of safe practice.
- At present the approach of the law to the enforcement of waivers is
inconsistent. Except in Western Australia and the Northern Territory
an unincorporated entity, such as a sole trader or partnership, may
take the benefit of a waiver clause in a contract with a consumer(15)
however identical terms in a contract entered into by a corporation
with a consumer will be rendered void because of section 68 of the TPA.
The basis of this distinction in public policy would seem to be open
to debate.
- In other jurisdictions (eg the Canadian provinces) it is common for
waivers to be enforceable but also subject to consumer protection provisions
in statute and under the common law. For example, such clauses could
not be enforced if they involved unconscionable conduct or if the terms
of the waiver were not drawn to the attention of the consumer. Under
such a regime some of the benefits that accrue to suppliers and the
community from waivers could be obtained while still protecting the
consumer.
- Waivers are often expressed in a legalistic form. Consumers may not
understand the terms and effect of such a provision or alternatively
may not take the time to read it.
- It is reasonable that where a person provides an activity, for example
adventure sport, for profit that they do what they can to limit the
danger to users. A provision excluding liability for negligence may
undermine the incentives for service suppliers to maintain safety standards
so as to avoid liability.
- Waivers impose costs on society. Where an injury is negligently inflicted,
the effect of a waiver may often be to transfer the cost associated
with the treatment onto the community at large through the social security
system.
- Waivers ignore that fact that there is an informational imbalance
between the parties. The supplier is almost always in a better position
to understand the risks and take the necessary precautions. The law
of negligence encourages suppliers to do so.
- Freedom of contract is often a fiction. Contractual terms for consumer
products and services are largely not negotiable. Instead goods and
services are offered on a take it or leave basis.
The Bill inserts a new section 68B into the TPA
with the intention of permitting companies who supply recreational services
to give effect to contractual terms limiting their liability for death
or personal injury caused by their failure to provide services with due
care and skill.
The new section states that a term in a contract to supply
recreational service which operates to exclude, restrict or modify the:
- application of section 74 (which implies a warranty of due care and
skill)
- exercise of rights conferred by section 74 (the right to sue for breach
of contract where services are provided without the required care and
skill)
- liability of a company for a breach of warranty implied by section
74
is not void under section 68 provided that the contract
was entered into after the commencement of this amendment and provided
that it relates to liability for death or personal injury. New section
68B will not, for example, permit suppliers to limit their liability
in relation to property damage incurred as a result of a breach of the
warranty implied by section 74.
New subsection 68B(2) defines recreational services
as a sporting activity or a similar leisure time pursuit or any other
activity that involves:
- significant degree of physical exertion or risk;
- and is undertaken for the purposes of recreation, enjoyment or leisure.
Contrary to claims of the Minister that these measures
are limited to ‘risky activities’(16) and press reports that
this measure would be limited to ‘adventure sports’ or high risk sports
such as white water rafting, it can be seen the definition is broad enough
to cover all sporting and leisure activity. This approach differs from
that proposed by Trowbridge Consulting in its report delivered to the
Ministerial Summit in May 2002. Trowbridge proposed that ‘inherently risky
activities’ should be listed individually in the regulations.
There appears to be broad support in the community for
the notion that the TPA should be amended to allow people to assume greater
responsibility for engaging in inherently risky activities. This proposition
which is embodied in the Bill has the support of State and Territory Governments
as well as the Opposition and the Australian Democrats. Nevertheless it
may also be acknowledged that the possibility of liability for negligence
acts as a discipline on the suppliers of recreational services to ensure
that high standards of safety apply. By allowing operators of recreational
facilities to exclude their liability for negligence how can consumers
be assured that operators will still take all reasonable care to protect
their safety? While it may be accepted that skydiving is a risky activity,
should an operator who fails to pack the parachute correctly be excused
from liability if a person is killed or injured as a result?
The report by Trowbridge Consulting that was presented
at the May meeting of Ministers recommended that any protection from liability
for operators of inherently risky activities should not include ‘gross
negligence’. This term is not recognised in Australian tort law(17)
and consequently the following definitions were suggested:
- an unjustifiable and flagrant failure to observe the standard of care
that a reasonable person would have observed in all the circumstances;
or
- conduct amounting to a reckless disregard for or creation of a serious
risk to the plaintiff.(18)
Trowbridge also stated that operators should not be protected
from liability for negligence unless they have adopted risk management
practices approved by the government or a relevant industry body.
In advocating amendment to the TPA, the Government promised
that the measures to allow the voluntary assumption of risk would contain
safeguards to protect consumers. In particular it stated that:
- ‘the amendments will allow consumers to sue if they are the victims
of gross negligence,’(19) and
- ‘that businesses will be required to have in place reasonable risk
management plans in respect of any activity to which a waiver can apply’.(20)
Neither of these consumer protection safeguards
is contained in the Bill. It is not clear whether this is because of a
drafting oversight or a policy change on behalf of the Government.
It may be that the Government will introduce these measures
as amendments during the second reading debate following the report of
the Panel reviewing the law of negligence (see below). In his second reading
speech, the Hon. Peter Slipper stated that ‘the Commonwealth will further
consider whether any measures need to be adopted to ensure appropriate
consumer protection. ’(21)
In its submission to the Review Panel the Australian
Competition and Consumer Commission (ACCC) expressed concern that proposed
section 68B will actually increase the cost of accidents to society by
distorting incentives to minimise risk. The ACCC stated that in order
to ensure that an appropriate balance was achieved between consumer protection
and supplier certainty the legislation needed to be amended to ensure
that:
- suppliers are still required to exercise a basic level of skill or
care in supplying recreational services;
- suppliers submit to a regime of enhanced safety regulation; and
- suppliers provide adequate disclosure to consumers of the risks associated
with use of their services.(22)
In the situation where the rights of consumers are being
curtailed the Parliament may wish to seek an assurance that insurance
companies will pass on savings to the community.
The writer is not aware of any attempt to quantify the
extent to which the measure proposed in this Bill will lead to a reduction
in premiums however there has been some debate about the impact of other
reform proposals.
The NSW Premier Mr Carr, has cited a study undertaken
by PricewaterhouseCoopers (PwC) suggesting that premiums could fall by
12 per cent as a result his Government’s civil liability reforms.(23)
Industry representatives have however presented a less optimistic outlook.
In evidence to the Senate Economics Committee Inquiry into public liability
and professional indemnity insurance, the President of the Insurance Council
of Australia, Mr Jones, observed that the PwC forecast was made on the
basis that insurance companies were adequately pricing their premiums
now. Mr Jones also expressed the view that ‘the general belief is that
it [the Carr Government’s tort law reforms] will slow price increases
down but will not deliver major savings’.(24)
The ALP has stated that the ACCC should be given powers
similar to those that it exercised in the transition to the new tax system(25)
to prevent ‘price exploitation’ by insurance companies. The Opposition
argues that these measures are necessary to address the ‘serious risk’
that the reforms will result only ‘in higher insurance company profits
rather than reduced premiums for community organisations and small business.’(26)
This call was supported by all State and Territory Attorneys-General.
The Attorney-General rejected the proposal arguing that
it was an attempt to avoid responsibility for the lack of tort law reform
in some states. The Government has responded to this call stating that
it has asked the ACCC to update its "Insurance Industry Market Pricing
Review" report on a six-monthly basis over the next two years. This
monitoring would enable an assessment of whether cost savings are being
passed on.(27)
It may be the case that despite the proposed reforms,
premiums need to rise in order to bring stability back to insurance industry.
In its first monitoring report in March 2002 the ACCC reported that the
insurance industry has suffered underwriting losses(28) greater
than $1 billion in financial years 1998-99–2000-01.(29) The
ACCC also found that the profitability outlook for public liability insurance
was very low.
While the legislation will prevent claims based on the
implied warranties it will not prevent other claims based on other provisions
the TPA.
In making his case for the TPA to be amended NSW Treasurer
Egan(30) cited the NSW District Court case of Griffin v
Byron Bay Sky Diving Centre(31) as an example of a situation
where the TPA overrode an otherwise valid waiver.
In fact the case did not involve the TPA but rather the
NSW Fair Trading Act 1987 (FTA) which largely mirrors the consumer
protection provisions of the TPA. The defendant was a partnership and
hence not subject to the TPA.(32) Nevertheless the case does
have implications for the effectiveness of this Bill.
The case concerned a sky diving student who was injured
during a jump and brought a claim in negligence as well as under the FTA.(33)
The District Court held that the waiver used by the defendant was effective
to exclude liability in tort and contract. However, the Court found the
defendant liable under the misleading and deceptive conduct provisions
of the FTA (the equivalent of section 52 of the TPA) for a representation
to the plaintiff that it was safe to jump and made a damages award
in excess of $1 million.(34)
The Bill would only allow companies to exclude the implied
warranty of due care and skill not any other liability that may arise
under the consumer protection provisions of the TPA such as those relating
to misleading and deceptive conduct, false representations or unconscionable
conduct. In short, assuming that the TPA as amended by this Bill applied
to the case, it would not, on the trial judge’s reasoning, have prevented
the plaintiff in the Griffin case from obtaining the damages that
she received
The use of the TPA to recover compensation for personal
injury is a matter that is being examined by the Government’s negligence
law review panel.
On 2 July 2002 the Minister, the Hon. Senator Coonan,
announced that she had appointed a panel to review the law of negligence.(35)
Relevantly for present purposes the panel has been asked to:
Review the interaction of the Trade Practices
Act 1974 (as proposed to be amended by the Trade Practices
Amendment (Liability for Recreational Services) Bill 2002 with
the common law principles applied in negligence (particularly with
respect to waivers and the voluntary assumption of risk).
In conducting this inquiry, the Panel must:
(a) develop and evaluate options for amendments to
the Trade Practices Act to prevent individuals commencing actions
in reliance on the Trade Practices Act, including actions for misleading
and deceptive conduct, to recover compensation for personal injury
and death; and
(b) evaluate whether there are appropriate consumer
protection measures in place (under the Trade Practices Act, as proposed
to be amended, or otherwise) and if necessary, develop and evaluate
proposals for consumer protection consistent with the intent of the
Government's proposed amendment to the Trade Practices Act.
The Panel has been asked to report on this aspect of
its inquiry by the 30 August 2002. It could be argued that debate on this
legislation should be delayed to allow consideration of the Panel’s report.
- The causes of this phenomenon have been the subject of much debate
and a full analysis is beyond the scope of this Digest. The following
papers are recommended for an analysis of the causes of the recent premium
increases:
David Kehl, ‘Liability Insurance Premium Increases:
Causes and Possible Government Responses’ Current
Issues Brief No. 10, 2001–02, Department of the Parliamentary Library.
Roza Lozusic ‘Public Liability’, NSW Parliamentary
Library Research Service, Briefing
Paper No.7/02.
- In its March 2002 report to Ministers, Trowbridge Consulting stated
that premium increases of 50 to 100 per cent would not be uncommon and
that some policyholders would be asked to pay increases of between 500
per cent and 1000 per cent. Trowbridge also reported that some businesses
were unable to obtain public liability insurance at all.
See Trowbridge Consulting, Public
Liability: Analysis for Meeting of Ministers 27 March 2002.
- NSW (see Civil
Liability Act 2002 (NSW)) and Queensland (see
Personal Injuries Proceedings Act 2002 (Qld)) have passed legislation
that restricts damages awards.
- ‘Waivers’ and ‘disclaimers’ are intended to relinquish or extinguish
a person’s right to claim for personal injury. The terms are used interchangeably
in this digest.
- See Attachment A, Ministerial Meeting on Public Liability, Joint
Communique, 30 May 2002.
NSW Premier Carr has gone further and proposed that risk warnings should
be a good defence against negligence actions in relation to risky entertainment.
See The Hon. B. Carr MP, Civil Liability Bill, Second Reading Speech,
Legislative Assembly, Hansard, 7 May 2002, p. 2085.
- See discussion in Law Reform Commission of British Columbia, Recreational
Injuries: Liability and Waivers in Commercial Leisure Activities,
Consultation Paper No. 70, 1993 p. 16–19.
- (1967) 116 CLR 383.
- At p. 386.
- John G Fleming, The Law of Torts, 9th Ed, 1998 p.
328–330
- The Hon. Michael Egan, ‘Public Liability Insurance’, Media Release,
26 March 2002.
- Section 109 of the Constitution provides that ‘when a law of a State
is inconsistent with a law of the Commonwealth the later shall prevail
and, the former shall to the extent of inconsistency, be invalid.’
- Ministerial Meeting on Public Liability, Joint
Communique, 30 May 2002.
- Western Australia (Section 40 Fair Trading Act 1987 (WA)) and
the Northern Territory (Section 66 Consumer Affairs and Fair Trading
Act 1997 (NT)) have legislation which is based on sections 68 and
74 of the TPA .
- Many of these issues are discussed in greater depth in Law Reform
Commission of British Columbia, Recreational Injuries: Liability
and Waivers in Commercial Leisure Activities, Consultation Paper
No. 70, 1993.
- This is because other State and Territory fair trading legislation
does not include provisions similar to sections 68 and 74 of the TPA.
- Senator The Hon. Helen Coonan, "Trade Practices Act Amendments
will assist sport and tourism providers’, Press
Release 71/02, 27 June 2002.
- For a discussion of the concept see S Stuart Clark and Ross McInnes,
Gross Negligence, Insurance Law Journal, vol 12, p. 250–255.
- Trowbridge Consulting, Public
Liability Insurance: Practical Proposals for Reform, Report
to the Insurance Issues Working Group of the Heads of Treasuries, 30
May 2002, p. 5.
- Senator The Hon. Helen Coonan, ‘Trade Practices Act Amendments Will
Assist Sport And Tourism Providers’ Media
Release 71/02, 27 June 2002.
- Senator The Hon. Helen Coonan, Question without notice: Insurance,
Senate, Hansard, 27 June 2002, p. 2557.
- The Hon. Peter Slipper, "Trade Practices Amendment (Liability
for Recreational Services) Bill 2002, Second Reading Speech, House of
Representatives, Hansard, 27 June 2002, p. 4543.
- ACCC, Submission to the Principles Based Review of the Law of Negligence,
August 2002. This submission is available from the Commissions website
www.accc.gov.au
- PricewaterhouseCoopers, On Tort Law Reforms in Public Liability
Insurance, 28 May 2002.
- Mr Jones, Senate Economics References Committee, Evidence,
8 July 2002, p. 53.
- See Part VB Trade Practices Act 1974.
- The Hon Simon Crean, ‘Premiums Warning Shows Need For Tougher ACCC
Powers’, Press Release, 31 May 2002.
- The Hon. Daryl Williams MP, ‘States and Territories pass the buck
on public liability’, News Release, 77/02, 26 July 2002.
- This is a situation where claims paid out on policies exceed the premiums
raised.
- ACCC, Insurance
Industry Market Pricing Review, March 2002.
- The Hon. Michael Egan, ‘Public Liability Insurance’, Media Release,
26 March 2002.
- Decision of Sorby DCJ, Unreported 24 August 2001.
- While TPA generally applies to corporations, the FTA applies to persons.
- The plaintiff alleged misleading and deceptive conduct (section 42),
unconscionable conduct (section 43) and false representations (section
44).
- This finding was overturned by the NSW Court of Appeal in April 2002
(Palmer (trading as Byron Bay Skydiving Centre) v Griffin [2002]
NSWCA 100) on the basis that the plaintiff had not relied on the representation.
- Senator The Hon. Helen Coonan, ‘Minister Announces Review Panel’ Press
Release 76/02 2 July 2002
Mark Tapley
13 August 2002
Bills Digest Service
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ISSN 1328-8091
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