Thanks to anyone who participated in this thread.
I have respectfully tried to let QF see the light, armed with your suggestions. After asking to escalate, QF still does not want to back down:
I have reviewed your file and my response with my Manager. Having considered all the circumstances carefully, we feel that the action I have taken was appropriate on this occasion. While we appreciate you may be disappointed by this, we are afraid we cannot take any further action.
My gut feeling is that they expect passengers to back down. Beyond submitting an enquiry with the ACCC, what other recourse are available to me? I have already talked to the Department of Infrastructure, who claimed "does not have the jurisdiction over lost baggage and compensations.".
The prejudice amounts to A$500.