The new unfair contract laws started on 9 November 2023.

Businesses have invested heavily in ensuring that their standard contract forms comply with the new laws. The success of that investment will largely turn on how the Courts will interpret and apply these new laws.

In a recent decision of Karpik v Carnival plc (HCA 2023), the High Court considered the application of unfair contract laws to a contract entered into with a Canadian resident for an Australian cruise.

Brief Facts

Ms Karpik was one of 2,600 passengers on the ill-fated ‘Ruby Princess’ cruise. In March 2020, the cruise was cut short because a number of its passengers had contracted COVID-19. Some passengers even died.

Ms Karpik was the lead plaintiff in class action proceedings in the Federal Court of Australia against Carnival plc and its subsidiary, Princess Cruise Lines Limited (Princess) and (Class Action). The Class Action asserted claims against Princess in tort and under the Australian Consumer Law (ACL) for loss and damage allegedly suffered by passengers of the ‘Ruby Princess’.

Mr Ho, a Canadian resident was a member of the Class Action group.

Princess sought a stay of Mr Ho’s claims against it in the Class Action proceeding on the grounds that his contract incorporated US Terms and Conditions that included an exclusive jurisdiction clause in favour of a US Court and a class action waiver clause.

Ms Karpik argued that s23 of the ACL applied to Mr Ho’s contract and that the class action waiver clause in his contract was void because it was unfair under s23 of the ACL.

s23 of the ACL provides that “a term if a consumer contract…. is void: (a) the term is unfair, and (b) the contract is a standard form contract”.

Princess’ application failed at first instance. The judge did not agree that the US Terms and Conditions were incorporated into Mr Ho’s cruise contract and said that even if they were, he was satisfied that the ACL applied to Mr Ho’s contract and the class action waiver clause was void as an unfair term.

On appeal, the Full Court of the Federal Court unanimously held that the US Terms and Conditions did apply to Mr Ho’s contract and that the class action waiver clause was not unfair. The Full Court did not consider whether s23 of the ACL could apply to contracts entered into outside of Australia.

Ms Karpik appealed to the High Court of Australia.

The key issue for the High Court to determine was whether the ACL can apply to a contract made outside of Australia?

Judgment

The High Court held that the ACL does extend to consumer and small business contracts entered into outside Australia by Australian and foreign corporations that carry on business in Australia.

The High Court determined that Mr Ho’s contract was made outside of Australia and was performed in Australia. The entry into the contract outside of Australia triggered the operation of ss5(1)(c) and (g) of the Competition and Consumer Act 2010 (Cth) (CC Act) to extend the operation of s23 of the ACL to Mr Ho’s contract.

Princess raised two arguments to defeat the application of the CC Act.

Firstly, it argued that the exclusive jurisdiction clause in Mr Ho’s contract precluded the application of s23 of the ACL. The High Court rejected this argument and said that this construction was contrary to the objective of Pt 2-3 of Ch 2 of the ACL and would have the consequence that parties could contract out the ACL by including a foreign jurisdiction clause in a contract.

Secondly, it argued that there should be a territorial and temporal limitation applied to the application of the CC Act to contracts entered into overseas. It submitted that the CC Act should only apply to contracts entered into “while” the foreign company is engaged in business in Australia and that s23 should only apply to a term of a contract that affects or relates to goods or services acquired by a consumer in Australia. In other words, Princess argued that as Mr Ho’s contract was entered into and his cruise rights and entitlements were acquired in Canada, the CC Act should not apply. The High Court rejected this argument as being contrary to the plain words of the legislation and said that interpreting the legislation in that way would require reading into provisions of the CC Act words that were not there.

There was no dispute between Princess and Ms Karpik that the US Terms and Conditions applied to Mr Ho’s contract. The next question for the High Court to determine was whether the class action waiver clause was unfair. In so doing, the Court considered the following:

1. Whether the class action waive clause would cause a significant imbalance in the parties’ rights under the contract.
2. Whether the term was reasonably necessary to protect the legitimate interests of the party who would be disadvantaged by the term.
3. Whether, if applied or relied upon, the clause would cause detriment to Mr Ho.

The High Court concluded that the class action waiver clause term was unfair because the term was not presented clearly or readily available to Mr Ho. The evidence was that the class action waiver clause appeared in a contract that was only able to be accessed after Mr Ho had received the booking confirmation email, clicked on a link to access a separate webpage that contained three different contracts. He then had to sign into a separate webpage to determine which of the three contracts applied to him.

The High Court ordered that Ms Karpik’s appeal should be allowed and that Mr Ho’s claims against Princess should not be stayed.

Implications

This decision demonstrates that the Court will construe the provisions of the CC Act in favour of protecting consumers in order to further the objectives of the CC Act. If your business enters into standard form contracts with consumers and small businesses that reside overseas the unfair contract laws will apply to those contracts.

Transparency is a key cornerstone of the unfair contract laws. If, like Princess, your business has critical exclusion clauses buried in paperwork that is not straightforward to access, your contracts and onboarding processes require immediate and urgent review.