You're a foreign business. You sell to foreign small businesses or consumers. Your standard form contract says the law of the contract is that of your home country. You don't need to care what the Australian Consumer Law says.
Wrong, says the High Court, which was asked to consider how far the Australian Consumer Law (ACL) (other than Part 5-3, which deals with country of origin representations) applies to conduct outside Australia by bodies corporate incorporated in or carrying on a business within Australia. This includes the newly reformed unfair contract terms (UCT) regime, which came into effect on 9 November 2023 and introduced significant penalties into the regime (Karpik v Carnival plc [2023] HCA 39).
The decision in the Ruby Princess case has allowed almost 700 additional individuals to join the Australian class action against Carnival plc and its subsidiary, Princess Cruise Lines Limited (collectively, Princess).
This article is concerned specifically with the ACL related aspects of the decision: extraterritoriality of the ACL, and whether the class action waiver clause was unfair under the ACL.
COVID-19 goes cruising
Carnival plc's cruise ship, the Ruby Princess departed Sydney on 8 March 2020 with about 2,600 passengers on board. During the voyage, there was an outbreak of COVID-19, leading to the deaths of some passengers.
Mr Patrick Ho, a Canadian passenger on the voyage, is the US sub-group representative in the proceedings. His contract was made outside of Australia and contained an additional set of US Terms and Conditions which formed part of the contract between Princess and almost 700 passengers. They contained:
- 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.
Princess sought a stay of the proceedings. The key issues for these purposes were whether the class action waiver clause operated to bar the representative proceedings for those passengers to whom the US Terms and Conditions applied and, if so, whether that clause could be challenged as unfair under the ACL, notwithstanding the choice of law and exclusive jurisdiction clauses.
How far does the unfair contract terms regime go?
The High Court found that the ACL (other than Part 5-3) extends to the engaging in conduct outside Australia by bodies corporate incorporated or carrying on a business within Australia:
- "Engaging in conduct": A reference to "engaging in conduct" in the context of the Competition and Consumer Act 2010 (Cth) (CCA) is a "reference to doing or refusing to do any act, including the making of, or the giving effect to a provision of a contract". That is, for example, simply the act of making a contract is enough to satisfy the requirement that the relevant entity be "engaging in conduct".
- "Carrying on a business": While the phrase is not defined in the CCA, "carrying on business" in the context of the CCA usually involves a series or repetition of acts undertaken for the purpose of profit. The High Court in the present case found that if a corporation is carrying on business in Australia, the ACL (other than Part 5-3) applies to its conduct engaged in outside Australia regardless of whether that corporation is a domestic or foreign corporation.
There were two key reasons for the High Court's decision. First, the common law presumption against extraterritoriality is not a fundamental common law right and cannot precede the question of statutory interpretation. Here, the statute expressly departs against the common law expectation against extraterritoriality (in section 5(1) of the CCA). As a matter of policy, section 23 of the ACL addresses the relative imbalance in bargaining position between contracting parties to a standard form consumer or small business contract. The High Court said that it is "unsurprising" to find that if a corporation carries on business in Australia, then the price of doing so is that the corporation is subject to, and complies with, statutes intended to provide protection for Australian consumers and small businesses. Nor is the UCT regime limited to conduct that affects or is capable of affecting the acquisition of goods or services by a consumer in Australia.
Secondly, the High Court pointed to the specific limitation of section 23 in targeting only standard form consumer or small business contracts, ie. the scope of protection is "not at large". The High Court said there is "nothing irrational" in the Parliament legislating to have the Australian standard of fairness (the protection of consumers and small businesses entering into standard form contracts) extend to standard form contracts made by corporations that choose to carry on business within Australia, whether the contract is made in Australia or overseas.
Princess had argued that this view of the ACL would bring about absurd results: the foreign consumer (small business) affected by that foreign contract can bring action within Australia against the foreign corporation (so long as the latter satisfactorily carries on a business in Australia).
The High Court was swift to reject this argument as being an "overstated" problem by noting that it overlooks the practical realities of private international law and factual circumstances. For example, it would be open to the foreign corporation in Princess' example to argue that Australia is an "inappropriate forum" to hear the matter, which will then be decided on the facts of that case. In other words, there is a hurdle to jump between what "can" be done (ie. bringing a case in Australia in relation to a foreign contract involving foreign parties) and what "will" be done (ie. whether the Australian court will agree that it is the right forum to hear the issue).
Class action waiver clause is unfair
Having concluded that the ACL (and therefore the UCT regime) applies extraterritorially, the High Court found that the class action waiver clause in the US Terms and Conditions was unfair because:
Significant imbalance: The class action waiver clause created a significant imbalance because it operated as one of a number of constraints applying to Mr Ho and not Princess. While the clause did not impede the existence of Mr Ho's right or capacity to sue, it did prevent or discourage passengers from vindicating their legal rights where the cost of doing so individually may be uneconomical.
Legitimate business interest: Princess identified its interest as facing a number of individual claims rather than a class action, particularly because when claims are aggregated, defendants may be pressured into settling questionable claims even if there is only a small chance of loss. The High Court rejected this on the basis that that does not help show that Princess has a legitimate interest in seeking to prevent people from participating in a class action.
Detriment: The relevant detriment to Mr Ho was that he would be declined the benefits of the class action provisions contained in Part IVA of the Federal Court of Australia Act 1976 (Cth).
The High Court placed notable weight on the transparency of the relevant contract as a whole, finding that the class action waiver clause was only visible to Mr Ho after he received a booking confirmation email and navigated through various websites. It observed that the greater the imbalance or detriment in the term, the greater the need for that term to be expressed and presented clearly.