March 28, 2024

Australia’s top court has emphatically ruled that the protections that the Australian Consumer Law provide to consumers and small businesses are impervious to subversion and in so doing has embedded them into the business environment nationwide.

So-called “class action waiver clauses” are as a result of the ruling now forever illegal in Australia on the ground that compelling consumers to sue individually is unfair, because individual claims in that context are usually economically unviable.

The ruling arose out of the litigation concerning Carnival ship, Ruby Princess which sailed from Sydney on 8 March 2020 for New Zealand and returned on 19 March – 3 days early – due to a Covid outbreak that was underway before leaving Circular Quay.

Its 2,671 passengers were members in a class action that claimed compensation for those that became infected and for disappointment because of onboard restrictions and the shortened itinerary.

The Federal Court had already ruled that because Susan Karpik – the class representative – contracted COVID-19 due to the cruise line’s poor safety measures, she did not have the safe, relaxing and pleasurable cruise holiday that Carnival’s brochure promised she would.

The High Court case was concerned with a further issue: whether North American passengers who joined the cruise in Sydney should be accorded the same status as Australian passengers under Australian Consumer Law given the place where they purchased their tickets and the relevant shipboard events occurred outside Australia.

Carnival argued those passengers should be relegated to courts in California and prevented from joining any class action in Australia or elsewhere, as per the specific terms of their tickets.

To rule otherwise, they said, would yield “absurd and capricious results”.

Joseph Ho – the representative of North American passengers – on the other hand argued that he too should be availed of the benefit of Australian law to void the class action waiver clause in his cruise ticket because it was an “unfair term”.

The cruise line was desperate to show that the ACL unfair terms laws did not apply to his cruise contract or indeed, any conduct performed outside Australia.

To do so they needed to overcome some very explicit language in the legislation that stated exactly the opposite.

As to the facts of the case, there was no dispute that Carnival carried on business in Australia selling and marketing cruises and no dispute that it issued Mr Ho’s ticket and entered into his cruise contract outside Australia.

Carnival’s starting point was at the theoretical level of conflict of laws in cross border disputes.

It asserted the general principal that if the lex causae or lex loci delecti is a foreign law – for example for events on the high seas, the law of the ship’s flag state – a statute in force in the place where the dispute is being determined – the lex fori – cannot apply except in exceptional circumstances.

That may be so the six justices observed, but the enquiry had to first address the proper construction of ACL section 23 – the unfair terms provision – itself.

Brought down to that level, Carnival contended that s 23 can only apply if the proper law of the contract was Australian law. It could not apply – it argued – to Mr Ho’s ticket or those of other North American passengers, issued elsewhere.

Not so, ruled the appeal justices. Competition and Consumer Act section 5 clearly operates to extend the application of the ACL “to conduct outside Australia” to corporations carrying on business in Australia. The Trade Practices Act has applied in the same way.

“There is nothing irrational in extending to foreign corporations that choose to carry on business in Australia that they cannot seek to enforce unfair terms, irrespective of whether that occurs inside or outside Australia”.

That would seem to have been the end to the argument but the cruise giant next contended s 23 should be limited temporally to contracts entered into “while” the foreign company was engaged in business in Australia.

And that s 23 should be construed as applying territorially, ie only to a term of a contract that affects the acquisition of goods or services by a consumer in Australia or to a contract wholly or partly performed in Australia.

These limitations as to time and place were resoundingly rejected as being contrary to the text of s 23 when read with s 5(1) of the CC Act.

“The Act is not concerned with conduct engaged in predominately inside or outside Australia – that is not the criterion adopted.”

Having ruled the ACL provisions doubtless apply, was then class action waiver clause is an unfair term?

The judges observed there was no doubt the clause would cause a significant imbalance in the parties’ contractual rights because it had the effect of preventing or discouraging passengers from vindicating their legal rights where the cost to do so individually was uneconomical.

Carnival contended though in relation to the second element of statutory interpretation, that the waiver “was reasonably necessary to protect its legitimate interests” because – faced with even a small chance of a devastating loss against claims aggregated in a class action – “it might be pressured into settling questionable claims”.

That argument was also rejected because in the justices’ view “there is no legitimate interest in it seeking to prevent people from participating in a class action”.

The court had no hesitation in deciding the third element in Mr Ho’s favour, ie that the clause would cause detriment to him if it were relied on by the cruise line.

Finally, on balance, the clause – the judges ruled – was not transparent  because Mr Ho was only able to view it once he received the booking confirmation email, and only then if he clicked on the link in that email, navigated the resulting webpage and signed into the Cruise Personalizer webpage.

“Given the imbalance and detriment inherent in the term, there should have been a greater degree of transparency”.

Although void under ACL s 23, the class action waiver clause was not void or unenforceable by reason of anything in Pt IVA of the FCA Act itself and was not inconsistent with the structure and policy of Pt IVA.

The final issue for the court to resolve was whether Carnival should be allowed a continuation of the “stay” it had already obtained preventing Mr Ho and his compatriots from participating in Mrs Karpik’s class action because of the exclusive California jurisdiction clause in the US Terms and Conditions.

The North American passengers did not attack the validity or unfairness of that term.

They argued though that the claim should be allowed to proceed in Australia regardless because if it didn’t, the class action waiver clause could be enforced by the California court.

The appeal justices agreed. The likely enforcement of the unfair class action waiver by a foreign court constituted “strong reasons” to allow Mr Ho’s claim to proceed here.

“Passengers have “a strong juridical advantage in remaining as part of the class action in the Federal Court of Australia, as [they] may not be able to participate in a class action in the United States”.

Allowing them to do so would also prevent a “fracture of the litigation”, ie parts of the same dispute being decided by courts in different countries.

The result – in reversing the erroneous decision of the Federal Appeal Court was a powerful endorsement of the reasons of the primary judge – Justice Angus Stewart – and a powerful statement of the might of the Australian Consumer Law.

Karpik v Carnival plc [2023] HCA 39  Gageler CJ, Gordon, Edelman, Gleeson, Jagot JJ, 6 December 2023

Categories: Cruise ship injury , cross border claims

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