A unanimous bench of the High Court of Australia in Karpik v Carnival Plc  HCA 39 has found that the class action waiver clauses relied upon in the Ruby Princess class action are unfair terms under the Australian Consumer Law (ACL).
The judgment concerns a class action brought against Carnival Plc in connection to an outbreak of COVID-19 on the Ruby Princess cruise ship in March 2020. The class members seek, among other things, compensation for loss and damage arising from breaches of the ACL.
A significant number of passengers (the US Passengers) had contracted for the cruise in the United States, agreeing to terms which contained:
- a choice of law clause applying US general maritime law;
- an exclusive jurisdiction clause in favour of the United States District Courts for the Central District of California in Los Angeles; and
- a class action waiver clause.
Carnival relied on these terms to argue that the claims brought by the US Passengers should be stayed. While this application was refused at first instance, the Full Court of the Federal Court found that the terms in the US contracts were enforceable and declared that the US Passengers’ claims should be stayed. Ms Karpik, the lead applicant in the proceeding, appealed to the High Court.
The High Court identified the following four issues for determination:
- whether section 23 of the ACL, which prohibits unfair contract terms in standard form consumer and small business contracts, has extraterritorial operation so as to apply to the US contracts;
- if section 23 does apply, whether the class action waiver clause is void as an unfair contract term;
- whether the class action waiver clause is otherwise unenforceable by reason of Part IVA of the Federal Court of Australia Act 1976 (Cth) (FCA Act); and
- whether there are strong reasons for not enforcing the exclusive jurisdiction clause in the contracts of the US Passengers.
In its unanimous decision, the High Court held that:
- section 23 of the ACL does apply to the contracts of the US Passengers;
- the class action waiver clause is void under section 23 for want of fairness;
- the class action waiver clause is not separately unenforceable by reason of Pt IVA of the FCA Act; and
- there are strong reasons for not enforcing the exclusive jurisdiction clause.
We will consider the reasoning in support of each of these conclusions in turn.
The High Court determined that section 23 of the ACL applies to the contracts of the US Passengers, even though those contracts were made outside Australia. The Court stressed that the so-called common law “presumption” against the extraterritorial operation of Australian statutes is properly understood as an interpretive principle only. In every case, the starting point is whether, applying the ordinary rules of statutory construction, Parliament intended for statutory provisions to have extraterritorial effect.
Here, the express words and object of section 23, read with provisions concerning the scope of the ACL in section 5, supported the view that section 23 was intended to apply to all entities carrying on business in Australia. It follows that the protections afforded by the ACL do apply to contracts governed by foreign law, regardless of whether the contract is, for example, entered into while the foreign company is engaged in business in Australia or whether the contract affects the acquisition of goods or services in Australia.
Unfair contract terms
Given the Court’s finding that section 23 applies to the US contracts, it was necessary to consider whether the class action waiver clause was void. The Court considered the factors relevant to unfairness listed in section 24 of the ACL and concluded that the waiver clause was unfair because it:
- caused a significant imbalance in the parties’ rights, as the waiver clause exclusively benefitted Carnival at the passenger’s expense;
- was not reasonably necessary to protect Carnival’s legitimate interests;
- imposed a detriment on the passengers, as it deprived them of the protections afforded by the ACL; and
- was not transparent because, although the terms themselves were legible, they were only provided through a series of steps after the booking was confirmed.
As to transparency (which is a mandatory consideration that the courts must take into account in unfair contract term proceedings), the Court clarified that:
- an assessment of transparency is part and parcel of considering whether a term is unfair, not an independent enquiry;
- the greater the imbalance or detriment inherent in the term, the greater the need for the term to be expressed and presented clearly; and
- conversely, where a term has been readily available to an affected party, and is clearly presented and plainly expressed, the imbalance and detriment it creates may need to be of a greater magnitude in order for that term to be found unfair.
Incompatibility with Part IVA of the FCA Act
The High Court rejected Carnival’s contention that the class action waiver clause is inconsistent with Part IVA of the FCA Act, given the Act expressly contemplates group members being able to take steps to remove themselves from a class action, including, most obviously, by opting out of the class action.
Exclusive jurisdiction clause
In respect of the final issue, the High Court found that there were strong reasons for not enforcing the exclusive jurisdiction clause. These reasons were essentially twofold:
- it was advantageous for the US Passengers’ claims to be determined in the Federal Court given that the class action waiver clause may be enforceable in the United States and the US Passengers may otherwise be denied access to justice as well as the associated benefits of a class action if a stay was ordered; and
- enforcing the exclusive jurisdiction clause would ‘fracture the litigation’, with duplication of proceedings in the United States and Australia being wasteful, running the risk of producing conflicting outcomes, and bringing the administration of justice into disrepute.
The High Court’s judgment in Karpik provides useful guidance in respect of the extraterritorial application of the ACL to companies carrying on business in Australia, the barriers respondents face in seeking to rely on class action waiver clauses, and a hesitant approach to the enforcement of exclusive jurisdiction clauses where their operation would inhibit access to justice or be productive of multiplicity.
Beyond these general observations, we explore three implications of the decision.
Common law presumption against extraterritoriality
This is the second decision of the High Court this year to consider the common law ‘presumption’ against the extraterritorial operation of Australian statutes. In the first decision, BHP v Impiombato (2023) 405 ALR 402, the plurality (Gordon, Edelman and Steward JJ) observed that “this Court has never taken a uniform or mechanistic approach to applying the presumption” and that “the presumption has never been understood such that it needs to be applied to all elements or words in a statute”.
The decision in Impiombato was cited 12 times in Karpik. As outlined above, the High Court was at pains to emphasise that the ‘presumption’ is an “interpretive principle only” and “is not a fundamental common law right”. Their Honours stated that “it may have little or no role to play where … the statute expressly departs from those common expectations. In sum, the application or consideration of the presumption cannot precede the question of interpretation – being whether the statute expressly or impliedly addresses the territorial reach of its subject matter”.
These decisions serve as a reminder that the “presumption” does not carry the weight of binding principle and is only a tool in the construction exercise, informed always by a consideration of the text, context and purpose of the particular provision in question.
Further class actions?
A potentially significant implication of the decision in Karpik is its green light for class actions to be brought for contraventions of section 23 of the ACL in respect of contracts made outside Australia where one of the parties carries on a business in Australia. The High Court rejected any reading down of this interpretation, such as importing a requirement that section 23 does not apply to contracts that are performed or are to be performed predominately
outside Australia. This would be, it was said, contrary to the plain text of the statute.
The High Court attempted to allay any potential ‘floodgate’ arguments caused by this interpretation by drawing a distinction between the fact of bringing a claim and the fact of any such claim proceeding to judgment. The Court outlined three reasons which may prevent such a claim, if brought, from proceeding to judgment or being enforced:
- the proceeding may be stayed pursuant to rule 10.43A(2)(b) of the Federal Court Rules 2011 (Cth) on the basis that an Australian court is an “inappropriate forum” for the proceeding;
- whether section 23 of the ACL, properly construed, applies in a particular situation is distinct from the separate question of whether a foreign court would apply section 23 when adjudicating a dispute relating to that situation; and
- even if an Australian judgment was given based on Australian law, the extent to which it would be enforced overseas is matter for foreign law.
Two points are of significance here.
First, these three reasons are all defensive mechanisms that a court (including a foreign court) could rely upon to prevent a claim proceeding to judgment or enforcing such a judgment; they are not bars to the commencement of a proceeding. The onus is therefore squarely on the respondent to make an application to prevent any claim from proceeding.
Secondly, the language of rule 10.43A(2)(b) mimics the “clearly inappropriate forum” test the High Court approved in Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538. In that case, the High Court outlined that a stay on the grounds of a court being an inappropriate forum will usually only be granted when:
- continuation of the proceeding would be “oppressive” and “vexatious” to the defendant (adjectives which, it was found, are not to be narrowly construed); and
- the defendant can identify “some appropriate foreign tribunal to whose jurisdiction the defendant is amenable and which would entertain the particular proceedings at the suit of the plaintiff”.
Importantly, the fact that there is a “more appropriate forum” is not sufficient to make out that the Australian court is an “inappropriate forum”. Indeed, the authorities are clear that the onus to show that the Australian court is an inappropriate forum is on the respondent and the stay will only be granted in “a clear case”.
In the light of the above, it may be that plaintiff solicitors and funders seek to take advantage of the decision in Karpik and commence class actions which only have a tangential territorial nexus to Australia.
Unfair contract terms and penalties
Recent reforms in respect of unfair contract terms in the ACL provide a further dimension to the Karpik decision. As of 9 November 2023, unfair contract terms in all standard form small business and consumer contracts are prohibited. Persons or corporate bodies that propose, apply or rely on (or purport to apply or rely on) such terms in affected standard form contracts are now also subject to penalties. For a body corporate, the penalties are the greater of:
- $50 million;
- three times the value of the benefit of the conduct; or
- 30% of the entity’s adjusted turnover during the breach turnover period for the conduct.
Penalties also apply for individuals knowingly concerned in a contravention. This is significant because not only does Karpik indicate that class action waiver clauses are likely to be considered unfair, but the inclusion of these clauses in standard form contracts now brings with it the added risk of significant penalties.
This publication is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this publication. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.