Businesses which operate internationally should consider if their consumer and business standard form contracts might be subject to unfair contract terms (UCT) regime following the decision in Karpik v Carnival plc & Anor [2023] HCA 39.

In our previous article, we covered the recent changes to the UCT regime and in our subsequent webinar, we explored which contracts and terms the regime applies to as well as the penalties for contravention. If you're unfamiliar with the UCT regime, we encourage you to visit these resources to get some background.

In this case, the High Court of Australia found that:

  • even if an entity is based outside Australia, if it engages in trade or commerce in Australia, its non-Australian standard form contracts will be subject to the Australian Consumer Law (ACL)
  • a class action waiver clause used by Carnival was an unfair term (and therefore void by the ACL) as it made it uneconomical for passengers to pursue individual proceedings

Facts

In March 2020, there was a COVID-19 outbreak aboard the Ruby Princess cruise ship during a voyage between Australia and New Zealand which led to 28 deaths and over 700 infections.

Passengers from all around the world, including the United States, purchased tickets for the trip and were subject to different terms and conditions based on where their tickets were purchased.

Representative proceedings were brought against Carnival and submissions were filed by Mr Ho, the representative of the US subgroup of passengers.

Carnival attempted to rely on certain terms under its US Terms and Conditions to stay the proceedings brought by Mr Ho, including:

  • a choice of law clause, applying the general maritime law of the United States;
  • an exclusive jurisdiction clause in favour of the United States District Courts; and
  • a class action waiver clause as follows:

'WAIVER OF CLASS ACTION: THIS PASSAGE CONTRACT PROVIDES FOR THE EXCLUSIVE RESOLUTION OF DISPUTES THROUGH INDIVIDUAL LEGAL ACTION ON YOUR OWN BEHALF INSTEAD OF THROUGH ANY CLASS OR REPRESENTATIVE ACTION. EVEN IF THE APPLICABLE LAW PROVIDES OTHERWISE, YOU AGREE THAT ANY ARBITRATION OR LAWSUIT AGAINST CARRIER WHATSOEVER SHALL BE LITIGATED BY YOU INDIVIDUALLY AND NOT AS A MEMBER OF ANY CLASS OR AS PART OF A CLASS OR REPRESENTATIVE ACTION, AND YOU EXPRESSLY AGREE TO WAIVE ANY LAW ENTITLING YOU TO PARTICIPATE IN A CLASS ACTION ...'

Journey through the Courts

At first instance, the Federal Court of Australia held that:

  • the US Terms and Conditions were not incorporated into Mr Ho's passenger contract, and
  • even if they were, the class action waiver clause was an unfair term under the UCT regime.

On appeal, the Full Court of the Federal Court found that:

  • the US Terms and Conditions were incorporated into Mr Ho's passenger contract, and
  • the class action waiver was not an unfair term (and therefore not void) because:
    • it did not cause significant imbalance in the parties' rights
    • it was reasonably necessary to protect Carnival's legitimate interests as an international corporation which engaged in business across multiple jurisdictions, and
    • it was transparent as Carnival had done everything necessary to bring the term to Mr Ho's attention.

The decision was then appealed to the High Court.

High Court of Australia decision and rationale

The application of s 23 of the ACL outside Australia

The High Court determined that the UCT regime applied to the US passenger contracts, despite:

  • Mr Ho being a Canadian resident
  • the relevant entities in the Carnival group being incorporated in Bermuda
  • Carnival's principal place of business being in California, and
  • the contract was concluded in Canada and paid for in Canadian dollars

The Court noted amongst other things:

'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.'

and

'There is nothing irrational in that norm extending to foreign corporations that choose to carry on business in Australia so that they cannot seek to enforce unfair terms within a standard form consumer or small business contract, irrespective of whether that occurs inside or outside Australia. Parliament is prescribing that a corporation that does business in Australia should be required, if it uses standard terms in a consumer or small business contract, to meet Australian norms of fairness, irrespective of whether the standard terms are in a contract made in Australia or one made overseas' (emphasis added).

Was the class action waiver clause an unfair term?

The High Court held that the class action waiver clause was an unfair term:

Element Findings
The term caused significant imbalance in the parties' rights and obligations arising under the contract (ACL, s 24(a))

The term only benefitted Carnival and existed alongside other unilateral constraints on Mr Ho's ability to exercise his rights under the contract.

Although the term did not impede his individual right to sue or his capacity to exercise that right, it did limit his practical ability to pursue individual proceedings, which were otherwise uneconomical.

In context, it may not have been economically viable for My Ho to bring individual proceedings against Carnival for a 13-day cruise holiday worth ~C$1,800. This finding was made despite no evidence being led as to his ability to cope with the imbalance as his individual circumstances are not relevant to the question.
The term was not reasonably necessary to protect the legitimate interests of the Carnival (ACL, s 24(b))

Carnival did not have a legitimate interest in preventing people from participating in a class action.

This was despite Carnival arguing that:

  • as an international corporation engaged in business across multiple jurisdictions, it had an interest in requiring that:
    • actions brought against it be conducted in the jurisdiction from which it carried on its business; and
    • such actions be brought on an individual, rather than a group basis.
  • the clause would allow it to secure economies of scale by responding to similar claims in the same forum and using the same resources.

No evidence was led as to whether the clause was reasonably necessary to protect the legitimate interests.
Detriment (whether financial or otherwise) would be caused to Mr Ho if it were to be applied or relied on (ACL, s 24(c)) The term deprived Mr Ho of the protection in Part IVA of the Federal Court of Australia Act 1976 (Cth), namely the ability to group claims that might not otherwise be economically viable as individual claims.
Again, this was despite no evidence being led as to Mr Ho's individual circumstances or his ability to bring proceedings in California.
The Court may take into account the extent to which the term is transparent (ACL, ss 24(2)(a) and (3))

The term was not presented clearly nor readily available as:

  • it was only accessible through a link in a booking confirmation email, after a passenger paid for the trip;
  • after clicking that link, the term was contained in one of the three other links to the different passenger contracts; and
  • passengers was required to sign into a passenger portal to determine which of those three contracts applied to them.

This was despite it being legible and the booking confirmation using the words 'IMPORTANT NOTICE' to draw the passengers' attention to the relevant link which contained the term.

Should you require any assistance regarding your standard form contracts, or have any enquiries relating to the ACL (including the UCT regime), please get in touch.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.