Court in the act

This article originally appeared in TravelWeekly Ausralia

Judges hearing the travel agents' appeal of the fuel surcharge case have taken a more critical look at overrides and the travel trade in general, as Justin Wastnage writes

The trouble with dismantling something is that it is often impossible to get all the parts back together again. The baffling and complex jigsaw of master contracts, agency sales agreements, rule books, and guidelines make the Australian travel distribution system appear particularly tempting to pull apart.
This month a panel of appeal court judges in Sydney's Federal Court attempted to do just that. The system of overrides was examined in some detail.
The appeal brought by a thousand-odd independent travel agents is the last ditch bid to claw back unpaid commission on fuel surcharges. The original June judgment found that Qantas had misled the public in describing part of its overheads as a tax or charge, since the public would assume this went to a third party or government. However, the trial judge, Justice Michael Moore said that Qantas was within its contractual rights to withhold commissions on this surcharge.
Although far from the testosterone-fuelled verbal stoushes of Hollywood trials, the appeal was a lively affair. The panel of three judges took Qantas to task over its interpretation that fuel was somehow a divisible part of providing air transportation.
Many Australian agencies use the International Air Transport Association's (IATA) billing and settlement plan (BSP) to receive commission from the airlines on sales. But carriers offer extra remuneration through an override, paid either to the head office or franchisee. This quirk is contained in a seemingly innocuous clause in the agency sales agreement.
Qantas barrister James Lockhart SC argued in court that this clause gave airlines carte blanche to pay agents whatever they liked however and whenever they liked, so long as they communicated the changes. But one judge in particular, Justice Steven Rares, took exception to this argument, calling it "commercially not sensible". Justice Rares said the clause was redundant, as the "carefully constructed global" BSP rules already set out how commission was paid. The only reason to add an extra clause, Justice Rares suggested, was "to do something outside the ordinary". Or something dodgy, some would say.
By using the clause and defining part of its fuel costs as a surcharge, Qantas was able to withhold as much as one-third of the commission due to agents, claimed Justin Gleeson SC, who represented the agents.
Qantas denies pulling the wool over agents' eyes, Lockhart saying there were "many other ways" the airline could reduce its payments to agents. Qantas argued that fares and ticketing is a complex affair and it relies on agents to explain the various rules and tariffs to the public. In return, agents were rewarded either in commission or in bonus payments. "It would make no commercial sense to alienate agents," Lockhart said.
But, at times rattled, Lockhart was unconvincing when trying to defend the fuel surcharge. Justice Rares probed Lockhart several times on how Qantas could justify splitting out such an essential part of flying a plane as fuel, while a second judge, Justice Bruce Lander, posed the hypothetical situation where Qantas could call its entire cost of operation a "surcharge" and thus avoid paying commission altogether. Lockhart sheepishly admitted it could.
The Qantas defence rests on the fact that agents know the published fare in the global distribution systems is not the same as the total cost the passenger pays.
In the legal world two wrongs do sometimes mean a right. Airlines around the world all thought they could get away with the same trick. In total some 350 airlines have charged either fuel surcharges or insurance levies since the early 2000s, under the anonymous codes YQ or YR. IATA itself is divided over whether airlines have the right to use this to re-coup operating costs, with Michael Feldman IATA's former global director of passenger services reminding airlines in a memo tendered in court that "those codes should be reserved for charges that go wholly to third parties". Yet the IATA Australian regional manager Jeff Murdoch advised he had "no problem with Qantas using YQ for fuel surcharge," Lockhart said.
The agents' legal team appears to have convinced at least one appeal court judge of its arguments, but the devil is often in the arcane detail of contracts. Although the case has rumbled on since 2007, the final decision is not expected until February or March. But if the appeal court judges question the very validity of overrides, the ramifications could be felt for years to come. The carefully dismantled agency sales agreement may never be put back together again in quite the same way.