Application of ACL to Contract Made Outside Australia

In Karpik v Carnival plc [2023] HCA 39 the High Court considered whether the Unfair Contract Terms (“UCT”) provisions of the Australian Consumer Law would apply to a contract made outside of Australia, and if so, whether a contractual clause purporting to waive an ability to participate in class actions would be rendered void as an UCT. The High Court unanimously answered ‘yes’ to those questions. Further, the High Court unanimously declined to enforce a contractual clause which purported to give exclusive jurisdiction to certain Californian courts, finding that there were strong reasons not to enforce such a clause in this case – including for reasons of access to justice, and to avoid the fracturing of proceedings.

Background

In March 2020, the cruise ship Ruby Princess departed Sydney. During the voyage there was an outbreak of COVID-19, causing the cruise to be cut short, and resulting in the deaths of some passengers. [1]. The appellant, Ms Karpik, commenced representative proceedings against the cruise providers (Carnival plc, and its subsidiary Princess Cruise Lines Ltd), seeking remedies on account of alleged torts and breaches of the Australian Consumer Law (“ACL”). [2].

This appealed concerned an interlocutory application made by Princess, seeking a stay of the claims in the representative proceedings insofar as they related to a Mr Ho – a Canadian passenger on the cruise, whose contract was made outside Australia. [3]. Princess sought the stay on the basis that: (1) there was a “class action waiver clause” in Mr Ho’s contract; and (2) there was an “exclusive jurisdiction clause” in Mr Ho’s contract, which provided for claims to be made only in California, in the United States. [4].

Related to the application for a stay, there were essentially three issues in dispute in the courts below, and on this further appeal to the High Court:

1. whether the ‘Unfair Contract Terms’ (“UCT”) provisions of the ACL applied extraterritorially to Mr Ho’s contract (which was made outside of Australia);
2. if the UCT provisions did apply to Mr Ho’s contract, whether they operated to render void the “class action waiver clause” relied on my Princess in support of its application for a stay; and
3. whether the “exclusive jurisdiction clause” should be enforced, so that Mr Ho could only seek redress in Californian courts.

At first instance, a single judge of the Federal Court held that the UCT provisions applied to Mr Ho’s contract and would render void the class action waiver clause. Further, that the exclusive jurisdiction clause should not be enforced. [7]. On appeal, the Full Federal Court did not decide on the extraterritorial application of the UCT provisions, but held that the class action waiver clause was not in any event an ‘unfair contract term’. Further, that the exclusive jurisdiction clause should be enforced. [8].

In this further appeal, the High Court unanimously held in favour of the appellant in relation to each of the three issues outlined above – endorsing the primary judge’s conclusions and consequent rejection of Princess’ stay application. [9].

Why the UCT provisions applied extraterritorially

The High Court noted that whether the UCT provisions (in Part 2-3 of Ch 2 of the ACL) applied to Mr Ho’s contract, being a contract made outside of Australia, involved a question of statutory construction. [18]. Although there is a common law ‘presumption’ against extraterritoriality, it is an interpretive principle only, and a statute may expressly or impliedly rebut it. [19].

In this case, the critical provision was s 5 of the Competition and Consumer Act 2010 (Cth), which extends the ACL (including its UCT provisions) to “engaging in conduct outside Australia by … bodies corporate incorporated or carrying on business within Australia”. [36]. As the High Court said, “[i]f a corporation carries on business in Australia, then a price of doing so” is being subject to the ACL’s protections for consumers. [38]. There was no basis for any “additional territorial” limits governing the application of the UCT provisions, as Princess had alleged. [44]-[45], [49].

For the purposes of the appeal, there was “no dispute that Princess was carrying on business in Australia selling and marketing cruises”, including the Ruby Princess voyage the subject of the proceedings. [42]. Accordingly, the UCT provisions applied to Mr Ho’s contract.

Why the UCT provisions rendered the class action waiver clause void

The High Court held that the Full Federal Court had erred in concluding that the class action waiver clause was not void as an unfair contract term (as defined by s 23 of the ACL). [51].

Section 23 of the ACL operates to render void a term of a ‘consumer contract’ or ‘small business contract’ if the term is ‘unfair’, and the contract is a ‘standard form contract’. Here, the contract was relevantly a ‘consumer contract’(because it was a contract for the supply of services to an individual, per s 23(4)), and a ‘standard form contract’ (as defined by s 27).

Section 24 of the ACL provides that a term will be ‘unfair’ in circumstances which may be summarised as where:

1. the term would cause a “significant imbalance in the parties’ rights and obligations” under the contract;
2. it is “not reasonably necessary in order to protect the legitimate interests” of the party advantaged by the term, and;
3. it would “cause detriment (financial or otherwise) to a party” if it were applied or relied on. [27].

A court must also take into account whether the term is “transparent” (i.e. expressed in plain language and presented clearly and readily, per s 24(3)). [28].

Applying those considerations, the High Court concluded that the class action waiver clause was relevantly ‘unfair’, and rendered void  by s 23 of the ACL. [51]. In particular, that was because it:

(a) “imposes limitations on passengers but in no way restricts the operations of the carrier”;

(b) would have the effect of “preventing or discouraging passengers from vindicating their legal rights”;

(c) Princess had not explained or provided any evidence as to why the clause was reasonably necessary to protect its legitimate interests; and

(d) it would cause detriment if relied on, in that “Mr Ho would be denied the benefits” of the representative proceedings. [53]-[57].

Why the exclusive jurisdiction clause was not enforced

The High Court observed that courts retain a “discretion whether to stay a proceeding the subject of a foreign exclusive jurisdiction clause” (citing Akai (1996) 188 CLR 418). [66]. Generally, absent strong countervailing reasons, the existence of such a clause will warrant a stay of proceedings not within the exclusive jurisdiction. [66].

However, in this case the High Court considered that there were strong countervailing reasons for not granting a stay. These were essentially that:

1. there was a “strong juridical advantage” for Mr Ho in remaining part of the class action. Enforcement of the exclusive jurisdiction clause may deny him (and others in his position) “access to justice as well as the associated benefits of a class action”. [68]; and
2. enforcement of the exclusive jurisdiction clause would “fracture the litigation”, forcing Mr Ho (and others in his position) to “commence individual proceedings in the United States when essentially identical claims for the vast majority of passengers will be heard in the class action in the Federal Court [of Australia]” – which would waste parties’ resources and run the risk of conflicting decisions which could bring the administration of justice into disrepute. [69].

In the result, because the class action waiver clause was void as an UCT, and because the exclusive jurisdiction clause would not be enforced, “Mr Ho’s claims against Princess in the Federal Court of Australia should not be stayed”. In other words, the interlocutory relief sought by Princess was denied. [70].

Note: This is an amended version of a case note which first appeared in the Queensland Law Reporter.