Express Law No. 319

14 December 2023

High Court finds in favour of broad extraterritorial operation of unfair contract terms regime in the Australian Consumer Law

Karpik v Carnival plc [2023] HCA 39 (6 December 2023)

Implications

This unanimous decision of the High Court indicates the breadth afforded to the extraterritoriality provision in the Competition and Consumer Act 2010 (Cth)(CCA) and, by implication, other similarly drafted regulatory statutes.

The decision affirms that use of a choice of law or exclusive jurisdiction clause in favour of a foreign law or jurisdiction will not oust the Australian Consumer Law (ACL) unfair contract term regime if that regime otherwise applies.

The Court’s analysis of the relevant class action waiver clause indicates its willingness to characterise such clauses as unfair contract terms within the meaning of the ACL, particularly in circumstances where the clause may not be incorporated in a sufficiently clear and transparent fashion.

AGS acted for both the Attorney-General of the Commonwealth and the Australian Competition and Consumer Commission (ACCC) as interveners in the High Court proceedings.

Background

These proceedings concern a cruise from Sydney by the vessel The Ruby Princess during March 2020 that was cut short by a COVID-19 outbreak. Ms Karpik commenced representative proceedings under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (the FCA Act) against the owners and operators of The Ruby Princess.

The High Court appeal concerned the US subgroup of appellants, and namely, whether those appellants’ claims ought to be stayed in light of the US-specific contractual terms and conditions, which included a class action waiver clause, an exclusive jurisdiction clause in favour of California courts and a choice of law clause in favour the general maritime law of the US. The appeal turned on 4 questions:

1. Whether s 23 of the ACL, which provides that unfair terms in standard form consumer contracts are void, has extraterritorial operation when read with s 5(1)(g) of the CCA, such that it applies to contracts between a foreign corporation which carries on business in Australia and a person outside Australia.
2. Whether the class action waiver clause is unfair per s 23.
3. Whether the class action waiver clause is otherwise unenforceable by reason of Pt IVA of the FCA Act.
4. Whether there are strong reasons for not enforcing the exclusive jurisdiction clause.

The majority of the Full Federal Court did not decide the first question on extraterritorial application but found that the class action waiver clause was not unfair. Ms Karpik appealed to the High Court.

The ACCC and Attorney-General made submissions to the High Court on the first and third questions, respectively.

Reasoning

The High Court unanimously allowed Ms Karpik’s appeal.

In answering the first question, the Court reaffirmed key principles of statutory interpretation.

1. The first step is to consider whether the legislation ‘expressly or impliedly addresses the territorial reach of its subject matter’: [19].
2. The common law ‘presumption’ against extraterritoriality is merely an interpretive principle, and only comes into play where a statute does not make clear its intended territorial reach: [44].
3. Section 5(1) of the CCA extends certain ACL provisions – including the ‘norms of conduct’ imposed by s 23 – to the engaging in conduct outside Australia by domestic or foreign corporations carrying on business in Australia. Engaging in conduct includes the making of, or the giving effect to, a provision of a contract. It is not necessary for the contract to be entered into within Australia, nor for the contractual provision to be confined to the acquisition of goods or services by a consumer in Australia: [48]. Such a construction is consistent with the CCA being beneficial consumer protection legislation: [41].

In particular, the Court rejected an argument advanced by the respondents that in interpreting the scope of the extraterritoriality provisions of the CCA, it is necessary to first consider whether the Act would apply in accordance with choice of law rules before construing the CCA according to its terms: [20]-[24].

The Court also rejected the argument, considered persuasive in the Full Federal Court below, that the application of the ACL to contracts entered into overseas between foreign corporations and consumers would be unreasonably broad and risk ‘absurd’ results: [40], [44]-[49]. The Court considered there was ‘nothing irrational’ in s 23 having a broad ambit, as foreign corporations that choose to carry on business in Australia can be expected to abide by Australian norms of fairness, and because the operation of s 23 is limited to a subset of consumer contracts: [39]-[40]. The Court concluded (in line with the ACCC’s submissions on this point) that cases with tenuous connections to Australia would be adequately controlled by practical considerations and the application of the ‘inappropriate forum’ test: [50].

On the second question, the Court held that the class action waiver clause was unfair, satisfying each requirement of s 24(1) of the ACL: it caused a significant imbalance in rights; there was no legitimate interest in a cruise operator seeking to prevent people from participating in a class action; it was a detriment to be denied the benefits of the class action regime; and the waiver was not transparent: [53]-[58]. Relevantly, the Court held the waiver was not transparent because actually viewing the term required clicking through various links and navigating through multiple contracts, in circumstances where the imbalance and detriment inherent in the term required a greater degree of transparency: [58].

On the third question, the Court heldthat the class action waiver was not contrary to Pt IVA of the FCA Act. It did not frustrate the purposes of the Act, which already accommodates people removing themselves from the regime at multiple points over the lifetime of a dispute, including before litigation has begun: [61]-[64].

Finally, in re-exercising the discretion to stay the US subgroup’s proceeding in light of the exclusive jurisdiction clause, the Court decided not to grant the stay. The Court considered that remaining in the class action was a strong juridical advantage for the US subgroup, and there was a strong interest in preventing the fracture of the litigation: [68]-[69].

Read the High Court’s decision in: Karpik v Carnival plc [2023] HCA 39 (6 December 2023)