Late last year, the High Court in Karpik v Carnival Plc & Anor [2023] HCA 39 clarified that the unfair contract terms regime set out in the Australian Consumer Law (UCT regime) has extraterritorial reach – and can apply to contracts made with foreign corporations that conduct business in Australia even if their contract was made outside of Australia and with foreign customers.
For a refresher on recent developments in relation to the UCT regime, click here.
On 8 March 2020, the Ruby Princess departed Sydney with around 2,600 passengers. During the voyage, there was a COVID-19 outbreak requiring the trip to be cut short and the ship to return to Sydney. Ms Karpik, a passenger, sued Carnival PLC and its subsidiary (together Carnival) for damages as a representative of the passengers and their relatives in class action proceedings in Australia.
Carnival sought a stay of the proceedings relating to some of the passengers, who had entered their contract outside of Australia. Known as the ‘US sub-group’, some passengers had agreed to “US Terms and Conditions”, which included a term waiving their right to join a class action (waiver clause) and requiring any proceedings be commenced in US Courts (exclusive jurisdiction clause).
In response, Ms Karpik asserted the UCT regime applied to US sub-group contracts and that the waiver clause was unfair and therefore void under the UCT regime (so the proceedings against the US sub-group passengers should not be stayed).
The Federal Court determined the waiver clause was not incorporated into the US sub-group contracts and was not enforceable in Australia and declined to stay the proceedings. [1]
On appeal, the majority of the Full Court of the Federal Court found that the US Terms and Conditions were incorporated into the US sub-group contracts and the waiver did not contravene the UCT regime (i.e. the waiver clause was not an unfair term under the UCT regime and could be enforced).
However, the Full Court did not decide whether the UCT regime applied outside of Australia, as it enforced the exclusive jurisdiction clause and ordered a stay the Australian proceedings in respect of the US sub-group’s claims against Carnival after having found that the exclusive jurisdiction clause and waiver clauses were not unfair.
This decision was appealed by Ms Karpik, abandoning the appeal over the exclusive jurisdiction clause and instead focusing on the Full Court’s finding that the waiver clause was not unfair.
The key issues considered by the High Court were:
The High Court found that the UCT regime applied to the US sub-group’s contract and stated:
“parliament prescribed that a corporation that does business in Australia should be required, if it uses standard terms in a consumer or small business contract, to meet Australian norms of fairness, irrespective of whether the standard terms are in a contract made in Australia or one made overseas”. [2]
The High Court also said:
“[i]f a corporation carries on business in Australia, then a price of doing so is that the corporation is subject to and complies with statutes intended to provide protection for consumers”. [3]
After finding that the UCT regime applied to the US sub-group’s contracts, the High Court was satisfied the waiver clause was unfair and therefore void under the UCT regime because:
The High Court also found that the waiver clause was not transparent, particularly because of the imbalance and detriment it caused. [5]
After reaching the conclusion that the waiver clause was void under the UCT regime, the High Court was required to reconsider whether the US sub-group’s claim should be stayed in Australia, taking to account that the US sub-group had not waived their right to participate in class actions (because the waiver clause was determined unfair and void).
Ultimately, the High Court refused to enforce the exclusive jurisdiction clause because consequences would include that:
As a result of the High Court’s decision, the US sub-group can continue to participate in the Australian class action proceedings against Carnival.
The High Court’s decision in Karpik provides critical clarity following the recent introduction of significant penalties for breach of the UCT regime.
Corporations that carry on business in Australia must ensure their standard form small businesses and consumers contracts comply with the UCT regime - even if contracts are entered into outside Australia, the goods and services are provided outside of Australia, or there is a foreign jurisdiction clause in the contact.
For consumers, be aware that you may be able to reply on protections provided by the Australian Consumer Law, even if you have contracted overseas, or the terms of the contract suggest otherwise – providing the supplier is either incorporated in Australia or carrying on business within Australia.
If you have any questions or queries regarding the changes to the unfair contract terms regime, contact Marcus Pullen.
Disclaimer: Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not act in reliance on the information provided in this without first obtaining legal advice.
[1] Karpik v Carnival Plc (The Ruby Princess) (Stay Application) [2021] FCA 1082
[2] [2023] HCA 39, [40]
[3] [2023] HCA 39, [38]
[4] [2023] HCA 39, [57]
[5] [2023] HCA 39, [58]