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COVID-19: Dealing with conflicting terms in the tourism supply chain

BAILIWICK LEGAL:
While many businesses are having to deal with customer rights and obligations in the fall out of the current global COVID-19 situation, things become more complicated when you add a middleman.

Within the tourism and hospitality sector, travel agents (and other operators acting in the capacity of a travel agent) play an important role in connecting service providers (e.g. tour and experience providers, hotels and carriers) with their customers. However, when adding an intermediary to the mix, which will have its own business priorities and policies, the possibility for conflict, particularly in times of crisis, increases

The role of an agent and relationship of agency                             

Generally, in a relationship of agency, the agent acts on behalf of one party (the principal) with another party (third party) in a commercial transaction.

An agent has certain duties, by law, when acting on behalf of a principal, these include:

  1. To follow the principal’s instructions;
  2. To exercise reasonable care and skill; and
  3. To maintain fiduciary obligations (to act in the best interest of the principal).

An agent carries out the principal’s instructions and may possess special skills and knowledge that the principal relies upon. An example of this is where a person instructs a real estate agent to sell their property. Although acting on instruction to sell the property, the real estate agent will also add his or her own skills and knowledge to assist the principal to sell their home for the best price. This is comparable to a travel agent, who will use their skill to market and sell the principal’s tourism product to the consumer.

A principal also has duties to its agent, which include:

  1. Reimbursement for expenses related to the agency;
  2. To pay any fees; and
  3. Compensation for losses that occur as a result of the agency relationship.

Generally, an agent may be liable to a third party, the consumer, where:

  1. The agent has acted without authority; or
  2. The principal has not been disclosed.

Role of parties in a tourism supply chain

In the tourism and hospitality industry, an agent may act in different capacities in the supply chain to distribute a tourism product, and this gives rise to different legal implications.

There may also be more than one intermediary in the supply chain.

It is important to note that there is no legal definition of a ‘travel agent’, and no one size fits all solution to determine the relationship between each party within the supply chain.

In determining which duties apply and to whom, a court will look at the facts specific to each scenario, which will include the scope of authority (including express contractual terms) and the conduct of the parties, to ascertain whether a true agency relationship exists and between whom.

In a tourism context, there is the potential that a ‘travel agent’ is acting as an ‘agent’ for:

  1. A tourism service provider (e.g. hotel);
  2. A consumer (e.g. guest);
  3. Both; or
  4. Neither.

“[I]n acting as middleman between potential travellers and persons or corporations in the business of supplying travel and tourism products, e.g. Airlines, it is not always clear when an agent is acting for one, the other, both or merely for himself or herself… [I]t is not possible to generalise in this area and regard must be had to the particular circumstances of the case at hand.” [1]

When the terms between a travel agent and tourism provider differ, which prevails?

Generally, when a consumer makes a booking, they will receive notification of the terms of their booking, such as itinerary, cancellation policy and liability of the service provider.

In a situation whereby an agent makes a decision with a consumer, which detrimentally effects the tourism service provider, and this is in direct conflict with that service provider’s own terms, what recourse does the service provider have?

I use the following example to demonstrate this dilemma:

  • You are a hotel and have a policy that all bookings cancelled within 7 days of arrival forfeit the price of 1 nights stay. This is clearly reflected in your terms and conditions, and you have made the decision to enforce this policy.
  • Your customer has booked through a travel agent.
  • You customer has cancelled their booking.
  • Your travel agent has notified you that, due to the current COVID-19 pandemic, it will be applying its own policy to offer a full refund for all bookings made for the next month.

One of the first things to look at is the contract in place with your travel agent. The contract may:

  1. Define the legal relationship between you, the agent and customer;
  2. Set out the rights and responsibilities between you and the travel agent, and the consumer. This may include apportioning liability between you and the travel agent for different matters; and
  3. Provide exclusions of liability (including through a force majeure clause).

There may be no written contract, or a written contract may be silent on some of the above matters. If this is the case, you will need to carefully consider in what capacity you and your travel agent are acting.

If your travel agent is acting strictly as ‘your’ agent, then by offering a refund, which is contrary to the policy you have adopted, it may be that the agent is acting outside their authority and consequently you may not be liable for any loss incurred by the agent (if you have already received payment). You may also be entitled to further payment from your travel agent if they have failed to follow your instructions, causing loss to you.

It should be noted that if you are aware that the consumer has received terms in line with the agent’s policy, and you have taken no steps to rectify this, it may be that you have waived your right to any recourse against either the agent or consumer.

Also to be taken into consideration is the legal concept of contractual frustration. Generally, if a contract is frustrated, meaning that subsequent to its formation, and without fault of either party, the contract is incapable of being performed due to an unforeseen event (or events), then any loss generally lies where it falls.  This may apply to your contract, between agent and supplier, and or with a consumer.

Flexibility in resolving any disputes

The legal relationship between parties, both contractually and through the common law concept of agency, can be complex and at times uncertain. In unprecedented times such as those we are currently experiencing, uncertainty can increase (as many legal principles have not been properly explored by the courts in these circumstances) and all businesses in the tourism supply chain are facing high levels of stress.

Whilst it is very helpful to understand your legal position, it is also important to consider how you can practically resolve any disputes that arise, particularly where customers have prepaid a part of or all of the costs. This may be through ongoing discussions with other businesses in your supply chain, and your customers. Each business will have its own financial restraints in the solutions that may be available, however you may wish to consider alternatives to the remedies available in your contractual terms or use a collaborate approach to assist your consumers.

For further information in relation to the rights and responsibilities of your tourism or hospitality business or other assistance with COVID-19 related matters, please contact Bailiwick Legal on (08) 9321 5451 or by email kim@bailiwicklegal.com.au. For further information about our legal services, please visit our website: https://www.bailiwicklegal.com.au/

[1] Cameron v Qantas Airways Limited (1995) 55 FC 146, per Beaumont J.

The above information is a summary and overview of the matters discussed. This publication does not constitute legal advice and you should seek legal or other professional advice before acting or relying on.