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Ruby Princess class action waiver clauses unfair

Published on March 25, 2024 by Joshua DaleJoshua Dale

A unanimous bench of the High Court of Australia in Karpik v Carnival Plc [2023] HCA 39 has found the class action waiver clause relied upon in the Ruby Princess class action are unfair terms under Australian Consumer Law (ACL). This article looks at the Judgment and potential implications moving forward.

Background

In March 2020 there was mass infection of COVID-19 of passengers onboard the Ruby Princess cruise ship during its round-trip voyage from Sydney Harbour.

The lead applicant, Ms Karpik, commenced a class action in the Federal Court of Australia on behalf of 2,651 passengers against the global cruise operator and its Australian subsidiary (Princess) for losses allegedly suffered by the passengers and their relatives.

Princess sought a stay of these claims on the basis that some of the class members had contracted with the company under the US terms and conditions (the US passengers) and these terms and conditions included a class action waiver clause, a choice of law clause (applying US general maritime law) and an exclusive jurisdiction clause in favour of US district courts. The lead plaintiff for the US passengers was a Canadian passenger, Mr Ho, who booked the cruise through a Canadian travel agent.

The primary judge initially refused Princess’ stay application, but this decision was reversed by the Full Court of the Federal Court on appeal. Ms Karpik appealed to the High Court and was granted special leave.

Four issues before the Court included:

1. Extraterritoriality – whether section 23 of the ACL, which prohibits unfair contract terms in standard form consumer and small business contracts, applied to the contracts of the US passengers;
2. Unfair contract terms – whether the class action waiver clause was void under s23 as an unfair contract term;
3. Enforceability of class action waiver clauses – whether the class action waiver clause was otherwise unenforceable by reason of Part IVA of the Federal Court of Australia Act 1976 (Cth); and
4. Exclusive jurisdiction clauses – whether there were strong reasons for not enforcing the exclusive jurisdiction clause in the contracts of the US passengers.

The High Court held that the regime prohibiting unfair contract terms in the Australian consumer protection legislation (ACL) applies globally to any company carrying on business in Australia, and that class action waiver clauses between foreign companies and foreign citizens can be struck down by a court as part of an Australian class action.

The High Court held that the regime prohibiting unfair contract terms in ACL extended to conduct engaged outside Australia by a body corporate carrying on business within Australia. Australian courts have the power to strike down contractual terms judged to be ‘unfair’ under the ACL. While the High Court accepted this could lead to extreme situations where contracts made outside Australia for transactions with consumers outside Australia would be subject to the ACL, the High Court said this result could be dealt with through other means, such as the forum non conveniens doctrine.

The High Court held that the class action waiver clause in the US terms and conditions was ‘unfair’ when considered under ACL and struck it down as void. This was because:

i. The class action waiver clause appeared in a standard form contract and created a significant imbalance in the rights of the parties;

ii. Princess had the burden, and did not establish, that the clause protected a legitimate interest under ACL; and

iii. The class action waiver clause operated to the detriment of the US passengers and was not transparent. The clause could be viewed only following receipt of the booking confirmation email and accessing numerous webpages.

The High Court held that the claims of the US passengers in this case should not be stayed. Although the US terms and conditions contained an exclusive jurisdiction clause, which all parties accepted was valid, there were strong reasons to decline a stay including:

i. The unenforceability of the class action waiver clause in Australia meant the US passengers had a strong juridical advantage in remaining part of the class action; and

ii. Enforcing the exclusive jurisdiction clause would result in splitting the litigation. This would force the US subgroup to litigate essentially identical claims in the US and would waste resources and run the risk of conflicting outcomes in different courts.

The High Court decision represents a significant increase in the class action risk environment for foreign companies that operate in Australia. It extends the prohibition on unfair contract terms in the ACL to any company that engages in business in Australia, not only in respect of their dealings with Australian consumers, but also foreign consumers.

The High Court accepted that the extraterritorial operation of the unfair contract terms regime could lead to extreme situations where contracts made outside Australia for transactions with consumers outside Australia would be subject to the regime. The High Court referred to mechanisms for avoiding these extreme cases, such as forum non conveniens, but its decision to decline to enforce the exclusive jurisdiction in this case is evidence that these mechanisms will not always be effective.

The decision in Karpik casts doubt on the validity in Australia of class action waiver clauses generally. Any class action waiver clause relied on in a standard form consumer contract will be subject to heavy scrutiny under the ACL as an ‘unfair’ contract term, liable to be found void by a court.

Please note that this article does not constitute legal advice. If you are seeking professional advice on any legal matters, you can contact Carroll & O’Dea Lawyers on 1800 059 278 or via our Contact Page and one of our lawyers will be able to assist you.