Navigating the High Court’s decision in the Ruby Princess case and the ripple effects for unfair contract laws

This decision provides businesses with practical guidance on how Australia’s unfair contract laws will be applied at a critical moment in time given the recent introduction of hefty civil penalties (refer to our Insight: Labor delivers on its promise of penalties for unfair contract terms).

Important lessons from this case:

• Broad territorial application: Any corporation that carries on business in Australia will need to comply with the Australian Consumer Laws (ACL) and should ensure that its standard form consumer and small business contracts comply with the Australian unfair contracts regime. This is the case even if those contracts are entered into outside Australia, the goods and services are acquired outside of Australia, the governing law of the contract is a foreign jurisdiction or there is an exclusive jurisdiction clause in favour of Courts of a foreign jurisdiction.
• Re-think class action waivers: Businesses should refrain from using any clause in a standard form consumer or small business contract that waives the other party’s rights to participate in a class action. Indeed, we would suggest that businesses give close scrutiny to any form of waiver by the other party in such a contract and whether it will be lawful.

Background

The Ruby Princess passenger ship made headlines in 2020 when it departed from Sydney with some 2,600 passengers on board only to return to Sydney shortly after, following a COVID-19 outbreak on board. Ms Karpik, a passenger on the Ruby Princess, commenced a class action against Carnival plc and its subsidiary, Princess Cruise Lines (collectively, Princess) to claim for loss or damage allegedly suffered by the passengers or their relatives as a result of the COVID-19 outbreak.

Mr Ho, a Canadian passenger, represented a “US subgroup” in the proceedings. The “US subgroup” comprised 696 passengers that entered into contracts with Princess based on the “US Terms and Conditions”. The “US Terms and Conditions” contained a clause whereby the US passengers waived their rights to bring a class action against Princess (the ‘class action waiver clause’). Princess sought to avoid the claims in the proceedings insofar as they related to Mr Ho and the US subgroup by relying on the class action waiver clause. In response, Ms Karpik asserted that the class action waiver clause was void under the unfair contract laws of the ACL.

In considering this case, the High Court answered the following questions:

1. Did Australia’s unfair contract laws apply to Mr Ho’s contract?

The High Court held that the unfair contract laws did apply to Mr Ho’s contract notwithstanding that it was made outside Australia.

Relevantly, the High Court held that section 5 of the Competition and Consumer Act 2010 (Cth) extends the application of the ACL to conduct outside Australia by bodies corporate either incorporated in Australia or carrying on business within Australia.

In other words, if a corporation carries on business in Australia, that is enough to attract the application of the ACL. This will be the case even if:

• the corporation is a foreign corporation;
• the contract affects the acquisition of goods or services outside Australia;
• the governing law of the contract is a foreign jurisdiction;
• the contract contains an exclusive jurisdiction clause in favour of Courts in a foreign jurisdiction; and
• there is no other territorial connection to Australia.

The High Court said that the legislature’s intentions on this subject were readily apparent and it should be unsurprising that a cost of doing business in Australia is the need to comply with Australian laws intended to provide protection for consumers.

Whilst Princess tried to argue that this would lead to absurd results using the example of a company that manufactures cars in Europe and sells them in Australia being subject to Australian unfair contract laws in relation to sales of its cars in European countries, the High Court shut down this suggestion on the basis that any such action may not reach judgment for other reasons e.g. a stay based on the Australian Court being the inappropriate forum.

2. Was the class action waiver clause unfair?

Having found that the ACL applied to Mr Ho’s contract, the High Court went on to further hold that the class action waiver clause in Mr Ho’s contract was unfair and, therefore, void under the ACL. This was based on the High Court’s findings that:

• the class action waiver clause would cause a significant imbalance in the parties’ rights under the contract because it operated in a one-way manner to impose limitations on passengers and it discouraged passengers from vindicating their legal rights where the cost to do so individually was or may be uneconomical;
• Princess failed to prove, as it was required to do, that the class action waiver clause was reasonably necessary to protect its legitimate interests. The High Court found that there could be no legitimate interest in Princess seeking to prevent people from vindicating their rights under a contract by way of class action in circumstances where the costs to do so individually may be uneconomical;
• there was a clear detriment to Mr Ho given he would be denied the ability to participate in a class action; and
• the class action waiver clause was not transparent because, even though it was plainly legible, Mr Ho had to click through links to an email to find the clause and given the imbalance and detriment, the Court considered that there should have been a greater degree of transparency.

Interestingly, when it came to the issue of transparency, the High Court noted that the greater the imbalance or detriment inherent in the term, the greater the need for the term to be expressed and presented clearly. Conversely, the Court considered that where a term has been readily available to an affected party, and is clearly presented and plainly expressed, the imbalance and detriment it creates may need to be of a greater magnitude. Therefore, it would seem the High Court was acknowledging the possibility that a term that might otherwise be considered unfair may be saved by clear and transparent disclosure. Although, with the new penalties at play, the risk of any such approach would need to be carefully considered.

If you have a question about standard form contracts or whether the unfair contract laws apply to your business, contact the Addisons Competition, Consumer & Antitrust team.

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