Home > News > Extraterritoriality of the Unfair Contract Term Regime – Foreign Companies Beware

Extraterritoriality of the Unfair Contract Term Regime – Foreign Companies Beware

Spread the love

The recent High Court decision in Karpik v Carnival plc clarifies that the unfair contract terms (UCT) regime in the Australian Consumer Law (ACL) also applies to foreign companies that carry on business in Australia.

Background

Carnival plc and its subsidiary, Princess Cruise Lines Limited (Princess), is an American company that operates cruise lines and tours globally.

This case arose from class action proceedings against Princess, as there was an outbreak of COVID-19 on one of their Australian passenger ships which caused many passengers to become ill or pass away.

Mr Ho was a Canadian passenger on this ship, who purchased his ticket outside of Australia. Mr Ho became the group representative for a subgroup of around 700 passengers whose contracts contained Terms and Conditions that were specific for the United States of America.

Relevant clauses include:

  1. Choice of law clause – that the general maritime law of the USA would be applicable;
  2. Exclusive jurisdiction clause – that the Los Angeles District Courts in the USA had exclusive jurisdiction to hear any litigation; and
  3. Class action waiver clause – that the passenger waives their rights to join a class action proceeding against Princess.

(US Terms and Conditions)

The case was heard on appeal from the Full Court of the Federal Court, which unanimously found that: the class action waiver clause was not an unfair term, and allowed the enforceability of the exclusive jurisdiction clause.

The key issues determined by the High Court include:

  1. whether the UCT regime applies to foreign companies, even if the contract was not entered into in Australia and the consumer is not an Australian citizen;
  2. if the UCT regime is applicable – whether it is an unfair contract term; and
  3. whether the exclusive jurisdiction clause should be enforceable.

Outcome

Extraterritorial application of ACL

The court held that although there is a common law presumption against extraterritoriality, it is an interpretive principle only.

The legislation is pertinent in determining whether extraterritoriality applies.

In this case, section 5(1) of the of the Competition and Consumer Act (2010) expressly extends the application of the ACL to corporations that are incorporated in Australia or carrying on business within Australia.

It was emphasised that foreign companies that operate in Australia must comply with Australian standards and legislation, even if the relevant contract was entered into outside of the jurisdiction.

Although Princess is a foreign company, it markets and sells its cruise line tours and packages in Australia, and wishes to enforce the class action waiver clause in the Australian court system.

Accordingly, the common law presumption against extraterritoriality cannot apply and Mr Ho, a non-Australian, can pursue an argument under the ACL.

Class action waiver clause as an unfair term

The court determined that the class action waiver clause was a standard form contract and was “unfair” pursuant to section 24(1) of the ACL, in that:

  1. the waiver caused a significant imbalance between the parties, as it would be cost prohibitive for Mr Ho to commence separate litigation against Princess;
  2. the waiver was not reasonably necessary to protect Princess’ legitimate business interests. The court rejected Princess’ submission that the waiver would pressure defendants into settling unmeritorious claims, and stated that Princess did not explain why the waiver was reasonably necessary; and
  3. Mr Ho would be denied the benefits associated with a class action proceeding if Princess relied upon the class action waiver clause.

Furthermore, the US Terms and Conditions were not readily accessible as:

  1. this document was not provided to Mr Ho until after the cruise tickets were already purchased;
  2. this document was provided amongst two other documents; and
  3. the class action waiver clause was not presented clearly given the significance of the term.

The court acknowledged that there are USA case precedents that have determined class action waiver clauses as not unfair, but advised that the USA jurisdiction has different tests for unfairness, and the cases do not explicitly consider the Australian UCT regime.

Exclusive jurisdiction clause

In the absence of strong countervailing reasons, proceedings will generally be stayed where there is an exclusive jurisdiction clause.

In this case, the court exercised its discretion and found that there were strong reasons to not grant the stay, specifically:

  1. the waiver clause is an unfair term and therefore void so Mr Ho can continue with the class action proceedings;
  2. it would be advantageous for Mr Ho to continue with the Australian class action as the waiver may prevent him from joining a class action in the USA, which would deny him access to cost-effective justice; and
  3. litigation would be fractured if the hearing is heard in Australia and the USA.

Takeaways

Significant penalties apply to standard form contracts entered into from 9 November 2023 that contain UCTs.

Foreign companies that conduct business in Australia are strongly advised to review all standard form contracts (i.e. leases, supply agreements, terms and conditions of trade) to ensure compliance with the UCT regime.

For assistance with reviewing your standard form contracts, or for enquiries about conducting business in Australia, please contact our Corporate & Commercial Lawyers at corporate@mst.com.au.