Ansett Australia v Diners Club [2007] VSC 102
In the Commercial List of the Supreme Court of Victoria, Hargrave J gave judgment for an airline under a frequent flyer participation agreement, holding that the agreement contained no express or implied term obliging the airline to keep its program running, that the card issuer's payment obligation arose on the crediting of points and that their later worthlessness was no total failure of consideration [54], [107], [133], [183], [239], [242].
What the court decided
From 1991 until its collapse, Ansett operated a frequent flyer program, known as Global Rewards, in which members could earn points by using Diners cards [2]. Under clause 5(a), Ansett would credit 1.5 points for each dollar spent on qualifying purchases and Diners would pay for each point credited [52]. The Defined Percentage payable by Diners was set at 0.6% for each dollar spent on a qualifying purchase [149]. From inception the program rules let Ansett suspend or terminate the program at any time, without notice and in its absolute discretion [25].
At 2 am on 14 September 2001 Ansett's administrators suspended its operations, including the Global Rewards program [34]. By letter dated 23 October 2001 Diners terminated the agreement under clause 9(c)(ii), an insolvency provision requiring no breach [39]. Ansett sued for unpaid invoices totalling $9,632,793 [9]. Diners' principal defence was an alleged term that Ansett would continue to operate the program, so that the suspension was a fundamental breach [12].
His Honour accepted that the foundation of the agreement was the continuation of the program or a successor, since otherwise there was nothing to participate in [106]. But the agreement used no promissory language, and the program could not exist independently of its own terms, including the unfettered right to suspend or terminate [108], [111]. Clause 9(b) concerned Ansett's right to terminate the agreement rather than the program; Ansett "may, not must" give notice under it [114]. Nor could the term be implied, being neither necessary for business efficacy nor so obvious that it went without saying [133], [134], [135].
The alleged term making payment for unexchanged points conditional on the program continuing also failed, whether express or implied [142], [151], [183]. To credit points meant to give the benefit of an entry in an account, subject to the program's terms and conditions [145]. That term was also inconsistent with clause 9(d), which preserved obligations incurred as at the date of termination [146], [147]. A further alleged term requiring repayment for unredeemable points also failed [166], [167], [171], [180], [181], [182]. By crediting the points Ansett had provided the contracted consideration, and their later worthlessness was not a total failure of consideration [239].
Although unnecessary, his Honour expressed his view on the assumption that the alleged term existed [184]. On that view clause 9(c)(i) modified, but did not oust, the common law right to terminate, so that a material breach capable of remedy required a 30 day notice [205]. Following Lord Reid in Schuler AG v Wickman Machine Tool Sales Ltd, remedy meant "cure so that matters are put right for the future" [208]. His Honour accepted that this statement governed the meaning of clause 9(c)(i) [210]. Notice was required whether or not there was a realistic possibility of remedy within the notice period [216]. The postulated breach was theoretically capable of remedy [217]. It was common ground that Diners served no clause 9(c)(i) notice before terminating [189]. So, on that assumed view, irreparable harm gave Diners no right to terminate for breach without notice [219].
A claimed indemnity under clause 6(c)(iii) failed, as clause 6 covered only third party claims and in any event the suspension was no change to the program [228], [234]. His Honour said a term, for example letting either party terminate, should be implied to cover Ansett ceasing to operate or participate in any frequent flyer program [119]. He left undecided whether such a term existed, as it would give Diners only another "no fault" basis to terminate and no loss of bargain damages [120]. There was judgment for Ansett and the counterclaims were dismissed, with interest and costs to be heard later [242].
Why it matters
A participant aware of an unfettered right to suspend another party's loyalty program will not readily find a promise to keep it running in a fixed term and termination clause. A payment expressed to be for a defined act, such as crediting points, will not readily be recast as payment for the ultimate benefit. The Court of Appeal dismissed Diners' appeal, agreeing that there was no such term, and neither endorsed nor disturbed the trial views on termination for breach (2008) VSCA 30. Maxwell P (Chernov JA agreeing) added that even if notice under clause 9(b) was required its absence caused no loss; Cavanough AJA, otherwise agreeing, reasoned instead that Ansett had not ceased to operate or participate in the program while the agreement was on foot and expressed no view on loss (2008) VSCA 30.
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.