Cruise Liner’s Overseas contracts subject to Australian Unfair Contract Terms regime
Karpik v Carnival plc [2023] HCA 39
The High Court of Australia has held that Australia’s consumer protection laws, which prohibit unfair contract terms, apply to contracts made overseas between non-Australians and overseas corporations provided the corporation carries on business in Australia.
Background
Passengers and their relatives brought a class action in the Federal Court of Australia against Carnival plc in respect of personal injury and nervous shock sustained as a result of the outbreak of Covid-19 on board the Ruby Princess, which departed Sydney on 8 March 2020 with some 2,600 passengers. Carnival sought to enforce a waiver of class action clause and exclusive jurisdiction clause in favour of the US District Court in LA to exclude 696 passengers, whose bookings were subject to the US terms and conditions (the US subgroup), from the class action. The US Subgroup argued that the waiver of class action clause and exclusive jurisdiction clause were ‘unfair contract terms’ within the meaning of s 23 of the Australian Consumer Law and were accordingly void. The contracts had been entered into in the United States and were contracts between foreign citizens and a Bermudan company with a principal place of business in the US, subject to the exclusive jurisdiction of the US Courts and governed by US law.
The Court of Appeal had held that the waiver of class action clause and exclusive jurisdiction clause were not unfair contract terms, and were therefore not rendered void pursuant to s 23 of the Australian Consumer Law (ACL). Further, the Court of Appeal refused to exercise its discretion not to enforce the exclusive jurisdiction clause. Given its findings, the Court of Appeal did not decide whether s 23 of the ACL had extraterritorial application. The US subgroup was granted special leave to appeal to the High Court.
Judgment
The High Court first dealt with the extraterritorial application of s 23 of the ACL. Section 5 of the Competition and Consumer Act 2010 (the CC Act) provides that the ACL (other than Part 5-3 which relates to country of origin representations) “extends to the engaging in conduct outside Australia by… bodies corporate incorporated or carrying on business within Australia”. Section 4 of the CC Act provides that a “engaging in conduct” is a "reference to doing or refusing to do any act, including the making of, or the giving effect to a provision of, a contract". There was no dispute that Carnival plc was a body corporate carrying on business in Australia selling and marketing cruises, including the subject voyage. There was also no dispute that all of the relevant conduct in entering into the contracts of carriage with the US subgroup occurred outside Australia.
Section 23 does not require the conduct proscribed be ‘in trade or commerce within Australia or between Australia and places outside Australia’, and the majority held that in these circumstances, s 23 applied to the contracts. The majority held: “if a corporation carries on business in Australia, then a price of doing so is that the corporation is subject to and complies with statutes intended to provide protection for consumers”.
Turning next to the class action waiver clause, the High Court held that it was an unfair contract term under the criteria set out in s 24 of the ACL on the following grounds:
It caused a significant imbalance in the parties’ rights in favour of Carnival, because it had the effect of preventing or discouraging passengers from vindicating their legal rights where the cost to do so individually was or may be uneconomical but placed no limits on Carnival (s 24(1)(a));
Carnival failed to tender any evidence to establish that the clause was reasonably necessary in order to protect its legitimate interests (s 24(1)(b));
It would cause the US subgroup detriment if it were relied upon as it would deprive them of the benefits of participating in a class action (s 24(1)(c)); and
It was not transparent as a passenger could only view the clause after receiving a booking confirmation email by clicking a link in the email, navigating the webpage (which had 3 different contracts on it) and signed into Carnival’s website to determine which contract was applicable to them (s 24(2)(a)).
The High Court stopped short of declaring that all class action waiver clauses are fundamentally unfair and found that these types of clause are not contrary to the provisions in the Federal Court Act 1976 regarding representative actions. However, it cautioned against relying upon judgments of US Courts which have held that class action waiver clauses were not fundamentally unfair on the basis that the tests applicable in the US were different.
The US subgroup did not challenge the finding of the Court of Appeal that the exclusive jurisdiction clause was not an unfair contract term. However, the High Court re-exercised the discretion and determined that Carnival should not be allowed to enforce the exclusive jurisdiction clause to stay the proceedings on the basis of strong countervailing reasons. First, the US subgroup might be deprived of the benefits of participating in a class action if proceedings were brought in the US. Secondly, enforcement of the exclusive jurisdiction clause would fracture the litigation, wasting the parties’ resources and running the risk of producing conflicting outcomes in different courts.
Implications
The effect of the judgment is that if a corporation carries on business in Australia, any contract it enters into anywhere in the world could be subject to the unfair contracts regime in section 23 of the ACL, which may have the effect that exclusive jurisdiction clauses or waiver of class action clauses are void and cannot be relied on. The effect in this case was that foreign citizens, who would otherwise be excluded from an Australian class action, were permitted to join the class action.
This finding will have significant implications, particularly for aviation and maritime operators which carry on business in Australia in addition to other overseas locations.
Operators will need to ensure their consumer contracts do not include unfair contract terms, even if the contracting parties are not Australian, and be aware that exclusive jurisdiction clauses and waiver of class action clauses may not be able to be relied on in Australia.
If proceedings are commenced against overseas operators, careful consideration should be given to whether the proceedings could be stayed on the basis Australia is a clearly inappropriate forum.
Finally, operators should consider whether contracts sent electronically can be made more accessible and understandable to ensure there is no suggestion the terms of the contract are unfair on the basis that they are not transparent. In particular, consideration should be given to drawing the consumer’s attention to the effect of any clauses which limit their rights and entitlements before the contract is entered into.