Does your business have contracts which include a class action waiver clause? Depending on the circumstances, the clause may be unenforceable in Australia.
The Federal Court of Australia recently determined that a class action waiver clause was void on the basis that it was an ‘unfair contract term’ in breach of section 23 of the Australian Consumer Law (ACL) (Carnival decision)1 and was, as a result, unenforceable. The Carnival decision is significant because it suggests that the Australian approach to class action waiver clauses may deviate from overseas jurisdictions where clauses of this nature are recognised and enforced, such as the USA.
Although the judgement stressed that a different conclusion may be reached in different circumstances, international product and service providers with distributors and/or customers in Australia should be aware of the potential implications of the Carnival decision where class action waiver clauses have been included in the standard terms and conditions in contracts offered to Australian consumers.
Class action waiver clauses require a party to waive their right to join a class action.
The Ruby Princess cruise ship departed from Sydney in March 2020 for New Zealand and returned just days later following the outbreak of Coronavirus on the ship. Class action proceedings were commenced by passengers (including executors and close family) (collectively the Applicants) against Carnival plc, the time charterer of the vessel, and Princess Cruise Lines Ltd, the owner and operator of the vessel (collectively the Respondents). The Applicants alleged that the outbreak resulted from negligence and a failure to take appropriate measures to ensure that passengers were safe and protected from contracting the virus on the ship. The proceedings included claims that the Respondents breached the ACL stemming from a failure to provide a “safe, relaxing, and pleasurable” holiday as advertised, and for false, misleading, and deceptive conduct by advertising a “safe, relaxing, and pleasurable” holiday.
Each passenger was subject to contractual terms and conditions (being US, UK or Australian terms and conditions) that applied to their booking. The US terms and conditions, which contained a class action waiver clause (the Clause), applied to approximately 25% of passengers (US terms passengers). The Respondents sought to rely on the Clause to permanently stay the claims of the US terms passengers (on the basis that they had waived their right to commence class action proceedings).
The Respondents’ application for a stay of the proceedings was unsuccessful and the class action has been listed for trial in October 2022.
The Applicants contended, among other things, that the Clause was an ‘unfair’ term and, as such, was void under section 23 of the ACL, which provides that a term of a standard form consumer contract is void if it is unfair. A term can be deemed ‘unfair’ if the following criteria are met if it:
- would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
- would not be reasonably necessary to protect legitimate interests; and
- would cause detriment to a party if relied on.2
The Court accepted the Applicants’ arguments.
In coming to the decision that the Clause was unfair and therefore void, the Court noted that:
- the Respondents had no legitimate interest in requiring US terms passengers to commence individual proceedings. Rather, relying on the Clause would cause detriment by preventing the passengers from obtaining the benefit of funded representative proceedings and forcing them to commence their own individual proceeding where the cost of doing so would likely exceed the value of their claim;
- there were thousands of consumer contracts for the cruise. Accordingly, by including the Clause, this caused a significant imbalance in the parties’ rights and obligations, with individual passengers being prevented from exercising their legal rights where they did not have the resources to commence individual proceedings; and
- the Clause was not sufficiently “transparent” because it did not use reasonably plain language and it was not readily available to the passengers at the time of entering into the contract.
What does this mean?
In light of this decision and depending on the circumstances, a class action waiver clause may not prevent class action proceedings from being commenced or prevent group members from joining those proceeding (even if they live overseas).
Standard terms and conditions in use in Australia (particularly if based on terms and conditions used in other markets, such as the USA) should be reviewed to ensure compliance with the ACL, particularly if they contain class action waiver clauses.
Similarly, any terms seeking to limit a consumer’s litigation options (such as requiring mandatory arbitration to occur overseas) for a breach of contract or a breach of the statutory guarantees in the ACL, should also be reviewed to check enforceability.