A large subgroup of plaintiffs in the Ruby Princess class action who had purchased the cruise whilst overseas, and were therefore subject to different terms and conditions which included a class action waiver, were not permitted to enjoy the spoils of the class action proceedings because of a stay of proceedings ordered by the Full Court of the Federal Court of Australia. This stay has since been lifted by the High Court of Australia.
Our case note in Karpik v Carnival plc (The Ruby Princess) (Initial Trial)  FCA 1280 discussed how the Federal Court of Australia (FCA) decided the class action brought by plaintiffs, in connection with the injuries and losses they suffered as a result of the COVID-19 outbreak on the Ruby Princess cruise, in the plaintiffs’ favour.
Prior to that outcome, and following the Full Court of the Federal Court of Australia’s (FCAFC) decision in Carnival plc v Karpik (The Ruby Princess)  FCAFC 149, Carnival plc (Carnival) had obtained a stay of the proceedings in relation to a subgroup of plaintiffs (the US Subgroup) who had purchased the cruise services while overseas. Carnival successfully argued that the class action waiver the almost 700 US Subgroup members had agreed to when purchasing the services applied.
The class action’s lead plaintiff, Mrs Karpik, appealed the stay of the proceedings relating to the US Subgroup to the High Court of Australia (HCA). The HCA was required to determine whether:
- The presumption against extraterritoriality at common law (the concept Australian laws should not apply to issues outside of those laws’ inherent jurisdictions) applied in this situation. That is, whether the unfair terms provisions of section 23 of the Australian Consumer Law (ACL) (which are Australian legislative provisions) applied to a contract entered overseas.
- Section 23 of the ACL could sever the class action waiver term from the contract the US Subgroup had agreed to, assuming Australian law could apply.
- The exclusive jurisdiction clause, requiring the US Subgroup to litigate in the USA, should be enforced.
The background relating to the Ruby Princess class action is discussed in further detail in our case note relating to the FCA’s decision in Karpik v Carnival plc (The Ruby Princess) (Initial Trial)  FCA 1280.
On 8 March 2020 some 2,700 passengers and 1,100 crew members embarked from Sydney on the Ruby Princess cruise. Three days later, on 11 March 2020, the World Health Organisation declared COVID-19 to be a global pandemic. By the time the cruise returned to Sydney on 19 March 2020, COVID-19 was relatively widespread on the cruise.
Mrs Karpik subsequently commenced representative class action proceedings against Carnival, alleging they breached the ACL by failing to meet the consumer guarantees that the cruise experience was reasonably fit for purpose and engaging in misleading and deceptive conduct by failing to provide a cruise experience which was 'safe to board' (amongst other things). She also asserted that Carnival failed to provide services with due care and skill, and were negligent in their management of the COVID-19 outbreak onboard the cruise.
An issue subsequently arose as to whether those passengers who had purchased the cruise services whilst they were overseas, and were therefore subject to different contractual terms and conditions, could join in on the class action proceedings.
The FCAFC’s decision
The US Terms and Conditions the US Subgroup had agreed to included a class action waiver clause. It also included a 'choice of law' clause nominating the applicable law as the general maritime law of the United States, and an exclusive jurisdiction clause in favour of the Central District of California in Los Angeles.
The majority of the FCAFC, comprising Allsop CJ and Derrington J, found that the class action waiver was not an unfair term, and that the provisions of section 23 of the ACL did not apply to sever that waiver from the contract. The majority also upheld the exclusive jurisdiction clause, and therefore stayed the class action proceedings insofar as they related to the US Subgroup plaintiffs.
In reaching their findings the majority of the FCAFC found that restrictions on the right to sue were not, at face value, unfair. They also reasoned that the waiver was not unfair because, amongst other factors, the waiver did not cause a significant imbalance in the parties’ rights i.e. as it did not impede individual US Subgroup plaintiffs’ ability to bring proceedings (although they would have to bring proceedings individually) and did not create an uneconomical environment to bring such proceedings.
The decision on appeal
In relation to the issues on appeal set out above the HCA unanimously determined that, in this instance, the unfair terms provisions of the ACL applied to the contract that the US Subgroup plaintiffs entered into and that the class action waiver ought to be severed from the contract.
The HCA concluded that the presumption against extraterritoriality did not apply to the class action waiver because section 5 of the Competition and Consumer Act 2010 (the ACL is a schedule to that Act) expressly provided that the ACL extended to conduct engaged in outside Australia by companies incorporated or carrying out business in Australia. The HCA also remarked that there is nothing irrational in extending the application of laws which seek to ensure 'Australian norms of fairness' to foreign corporations that conduct business in Australia.
Having determined that the unfair terms provisions of the ACL can apply, the HCA were then required to consider whether the class action waiver applying to the US Subgroup constituted an unfair term i.e. which should be voided or severed from the contract in accordance with section 23 of the ACL.
The HCA also decided this issue in the plaintiffs’ favour. It reasoned that the waiver caused a significant imbalance in the parties’ rights, as it created a benefit solely for Carnival to the complete detriment of the US Subgroup. It also found, contrary to the FCAFA majority’s reasons, that the waiver did in fact create an uneconomic environment for proceedings as it would require plaintiffs to bring their claims individually when they may not afford or be able to do so.
The Court also determined that the waiver did little to protect the legitimate interests of either party, again noting that it created an uneconomical environment for individual legal proceedings and otherwise because Carnival neither explained nor led evidence on why the waiver was necessary to protect its interests.
There was no dispute that the exclusive jurisdiction clause applied. However, to give effect to that clause, the HCA would have had to confirm the stay of the proceedings ordered by the FCAFC in relation to the US Subgroup.
The HCA declined to exercise its discretion to confirm the stay of proceedings, and instead lifted the stay. It commented that a stay would cause a 'fracture' in litigation (meaning the Australian plaintiffs and the US Subgroup plaintiffs would have to litigate in different countries), when there was little compelling reason to do so and having determined that the class action waiver was an unfair term that should be severed. The Court also highlighted that the US Subgroup were not guaranteed any success in participating in any class action in the USA.
Implications for you
This decision emphasises that the ACL is beneficial legislation which, to a substantial degree, favours consumers and protects their interests as it relates to goods and services they purchase in Australia. It also suggests that Courts will look carefully at whether, in the particular circumstances, class actions waivers constitute unfair terms which should be voided or severed from a contract.