High Court hands down judgment in the Karpik v Carnival plc class action on unfair contract terms issues

Yesterday, the High Court handed down its judgment in Karpik v Carnival plc [2023] HCA 39 (the Ruby Princess class action) in which the Court overturned the Federal Court’s decision to stay the US subgroup of appellants’ proceedings against Carnival and endorsed the extra-territorial operation of section 23 of the Australian Consumer Law (ACL) in line with submissions made by the ACCC and the Attorney General.

The High Court held that section 23, which provides that an unfair term in a standard-form consumer contract is void, applies to all standard-form consumer contracts provided that one of the parties is incorporated in Australia or carries on business in Australia (i.e. in line with the extended operation of the ACL in section 5(1) of the Competition and Consumer Act 2010 (Cth) (CCA)) and no additional territorial connection is required.

The High Court’s reasoning is likely to extend to the extra-territorial operation of the unfair contract terms (UCT) provisions in the ASIC Act, in which section 12AC extends the application of the Act “to the engaging in conduct outside Australia by bodies corporate incorporated or carrying on business within Australia”.

The key takeaways are summarised below.

Background

The Ruby Princess class action involves claims under the ACL against Carnival for loss or damage allegedly suffered by passengers on a Ruby Princess cruise in March 2020 during which many passengers contracted Covid and some died. Carnival brought an interlocutory application for a stay of the claims by the US subgroup of appellants on the basis that the contract governing the parties obligations contained an exclusive jurisdiction clause in favour of the United States District Courts for the Central District of California. Carnival argued that a class action waiver clause contained in the contract prevented the US subgroup from bringing representative proceedings in Australia.

The relevant issues considered by the High Court were:

1. whether section 23 of the ACL applies to the contract – that is, whether section 23 of the ACL has extraterritorial operation; and
2. if yes, whether the class action waiver clause was unfair.

Extra-territorial operation of section 23 of the ACL

The High Court confirmed that when interpreting the extra-territorial reach of legislation, it is necessary to first consider whether the legislation itself “expressly or impliedly addresses the territorial reach of its subject matter.” It is only in circumstances where this is not clearly made out that the common-law presumption against extraterritoriality may apply.

Accordingly, in considering whether section 23 of the ACL operated extra-territorially, the HCA looked to section 5(1) of the CCA which extends certain parts of the CCA and ACL to the “engaging in conduct outside Australia by bodies corporate incorporated or carrying on business in Australia”. The High Court:

1. concluded that “it is evident that Parliament has addressed the question of the extraterritoriality of various parts of the CC Act and the ACL” (at [37]) and so there was no need to apply the common-law presumption against extraterritoriality;
2. rejected the argument raised by Justice Derrington in the Federal Court that section 5(1) only extends the operation of the ACL to the extent that “conduct” has occurred and so does not apply to section 23 which “incorporates no element of conduct”. The High Court held that the making of the contract is the relevant conduct which triggers the operation of section 23;
3. interpreting section 23 of the ACL to operate extra-territorially is in line with the “Australian norms of fairness” and the consumer protection objectives of the CCA and ACL. In particular, the High Court noted that “if a corporation carries on business in Australia, than a price of doing so is that the corporation is subject to and complies with statutes intended to provide protection for consumers”, regardless of whether the contracts offered by the entity were made in Australia or overseas.

The High Court provided further reasons for rejecting each of the additional territorial limits proposed by Carnival as follows:

As Carnival clearly carried out business in Australia, the High Court found that section 23 applied to the contracts governing the US subgroup of appellants.

Was the class action waiver clause an unfair term?

The High Court overturned the decision of the Federal Court and clearly found that the class action waiver clause was unfair because:

1. it caused a significant imbalance in the parties’ rights under the contract as its operation was “to impose limitations on passengers” without restricting “the options of the carrier”;
2. the clause was not reasonably necessary to protect the legitimate interests of Carnival. The High Court rejected Carnival’s argument that it was a legitimate business interest for Carnival to face “a number of individual claims” rather than a class action because “when claims are aggregated in a class action, faced with even a small chance of a devastating loss, defendants may be pressured into settling questionable claims”;
3. if relied on, the clause would cause detriment to consumers because they “would be denied the benefits” of participating in representative proceedings; and
4. the term was not transparent because of the manner in which it was presented.

We would be very happy to discuss any of the above with you.