A recent decision of the Federal Court of Australia ATS Pacific Pty Ltd v Commissioner of Taxation  FCA 341 (15 April 2013) raises significant issues for sellers of packaged tours. The Court found that a term could be implied into the contract between the entity selling the package and the travel agent purchasing it to the effect that the seller of the package would ensure that when tourists came to Australia and for example arrived at a hotel, they would be provided with a room which they believed they had paid for in advance. The seller of the package had argued that there was no such promise and that all it provided was booking and arranging services.
There was no express term to ensure provision of a holiday. The seller of the package emphasised that its service fees were not commensurate with the risk it would be undertaking if it assumed the responsibility for providing or ensuring the supply of holidays to the tourists who were the end consumers. The seller of the package asserted that it would not assume and expose itself to the risk of non-performance by a third party when it did not expressly say that it will and when the only fee charged, as so identified, was a fee for arranging for the provision of the holidays.
The Court however was still prepared to find that there was an implied term that the seller of the package agreed to ensure that the holiday would be provided to the end consumer despite the absence of a written promise to this effect. The Court held that it was apparent that the written terms and conditions did not represent the totality of the contract between the seller of the package and the travel agent. The contract was not effective if limited to the written terms and conditions. Similarly, it was “so obvious that it ‘goes without saying’ that” the travel agents would not have entered into a contractual relationship with the seller of the package, and paid for the holidays in advance of their provision to their client, unless operating on a belief that they were being supplied with a promise that the holiday would be provided to their clients as the end consumers.
The case involved characterising for GST of what the seller of the packages had agreed to do. Because the holiday in question was consumed in Australia, the sale of the holiday was found to be subject to GST and not GST free as an export to an overseas travel agent – although the supply of arranging services as agent could be so characterised as part of what was supplied by the seller of the packages.
The case raises important questions for local vendors of package tours to foreign travel agents and in particular their exposure for any non-delivery of the package or part of it to the end consumer by the third party who actually provides the service to the tourist (such as a hotelier). Vendors of package tours would be well advised to review the terms and conditions under which they sell packages to ascertain their exposure for non-performance by the end service provider such as a hotelier.