In its unanimous decision late last year in Karpik v Carnival Plc & Anor [2023] HCA 39 (the Ruby Princess Class Action) the High Court provided significant guidance on the broad application of Australia’s unfair contract terms (UCT) regime under the Australian Consumer Law (ACL), particularly in relation to class action waiver and exclusive jurisdiction clauses.
BACKGROUND
In March 2020, the passenger ship Ruby Princess departed Sydney with approximately 2,600 passengers on board. The voyage was cut short due to a COVID-19 outbreak requiring the immediate return to Sydney. A number of passengers contracted COVID-19 and some of those passengers died. Ms Karpik, a passenger on the Ruby Princess, initiated a class action against Carnival PLC and its subsidiary, Princess Cruise Lines Limited (collectively, Princess), for loss or damage allegedly suffered by passengers and their families due to the COVID-19 outbreak.
Almost 700 passengers on the voyage had entered into contracts for the cruise in the United States under the “US Terms and Conditions” (US Sub-group). These terms included a clause waiving their right to participate in class actions (Waiver Clause) and a clause stipulating that any legal proceedings must be heard in US Courts (Exclusive Jurisdiction Clause).
Princess attempted to avoid the US Sub-group’s claims by relying on the Waiver Clause and the Exclusive Jurisdiction Clause. The Full Court of the Federal Court determined that the US Terms and Conditions did not breach the UCT regime, concluding that the Waiver Clause and Exclusive Jurisdiction Clauses were not unfair, and consequently, it ordered a stay of the Australian proceedings related to the US Sub-group’s claims. Ms Karpik appealed this decision and the High Court unanimously found the clauses to be unfair, overturning the stay and allowing the proceedings to continue.
KEY ISSUES:
The High Court considered several key issues:
- whether the UCT regime applies to contracts formed outside of Australia;
- whether the Waiver Clause was unfair and thus void under the UCT regime; and
- whether the Exclusive Jurisdiction Clause should be enforced as a matter of discretion.
- Did the UCT regime apply to the US Sub-group’s contracts?
The High Court concluded that the UCT regime is not limited to entities incorporated in Australia. The ACL extends to the conduct of foreign entities operating within Australia and made the following points regarding the UCT regime:
- it can apply to contracts governed by foreign law;[1]
- it is not restricted to contracts entered into ‘while’ the foreign company was engaged in business in Australia;[2]
- it is not limited to contract terms affecting the acquisition of goods or services by a consumer in Australia;[3] and
- it applies irrespective of whether the conduct occurs predominately within Australia.[4]
2. Was the Waiver Clause void?
After establishing that the ACL applied to the US Sub-group’s contracts, the High Court was required to consider whether the Waiver Clause was void as an UCT under section 23 of the ACL. Referring to the criteria of unfair outlined in section 24 of the ACL, the High Court determined that the Waiver Clause was void and unenforceable because it:
- created a significant imbalance in the parties’ rights and obligations, as it exclusively benefitted Princess while limiting the rights of the US Sub-group;
- was not reasonably necessary to protect Princess’ legitimate interests;
- caused a detriment to the US Sub-group by denying them protections provided under the ACL; and
- lacked transparency, as the clause was not clearly presented or adequately brought to the attention of the US Sub-group.[5]
3. Should the Exclusive Jurisdiction Clause be enforced?
The High Court found strong reasons not to enforce the Exclusive Jurisdiction Clause. These reasons included:
- it would be more beneficial for the US Sub-group’s claims to be determined in the Federal Court, due to concerns that:
– the Waiver Clause may be enforceable in the United States, potentially preventing the US Sub-group from participating in a class action in the United States; and
– a stay of proceedings could prevent the US Sub-group from accessing justice and the benefits of participating in a class action; and
- enforcing the Exclusive Jurisdiction Clause would ‘fracture the litigation’, with identical proceedings in the United States and Australia. This would result in wasted resources, create the risk of conflicting outcomes across various jurisdictions and may undermine the credibility of the judicial process.
Consequently, the US Sub-group was permitted to continue participating in the Australian class action proceedings against Princess.
KEY TAKEAWAYS FROM THE RUBY PRINCESS CLASS ACTION
The High Court’s decision in the Ruby Princess Class Action has provided several important lessons regarding the application of the ACL and the UCT regime.
Extraterritorial Application of ACL
Corporations conducting business in Australia are required to comply with the ACL, including ensuring that their standard form small business and consumer contracts adhere to the UCT regime. This obligation applies even if these contracts are made outside of Australia, the goods and services are provided outside of Australia, the contract is governed by foreign law or if the contract includes an exclusive jurisdiction clause. Relevant circumstances should be considered when assessing the level of risk associated with application of the UCT regime.
Class Action Waivers
Businesses should generally avoid including clauses in standard from consumer or small business contracts that waive one party’s right to participate in class actions.
Any foreign companies that carry on business in Australia, should have their standard form consumer and small business contracts reviewed and consider removing exclusive jurisdiction and class action Waiver Clauses to ensure compliance with the UCT regime.
An important point from the case is that transparency and fairness should be assessed together when applying the UCT provisions. The more one-sided a provision is, the greater the effort that should be made to ensure the disadvantaged party is notified of and understands the provision prior to entering into the agreement. In the present case, it was particularly relevant that the terms and conditions were only provided through accessing various links after the cruise booking was confirmed.
HOW CAN WE HELP?
Vardon Legal can assist your business with contract review and preparation and provide you with advice on your rights and obligations under the ACL. Please do not hesitate to contact us if you have any questions regarding standard form contracts or whether the UCT regime applies to your business.
[1] Karpik v Carnival Plc & Anor [2023] HCA 39 [46]–[47] (Ruby Princess class action).
[2] Ibid [48].
[3] Ibid [48].
[4] Ibid [49].
[5] Ibid [57].