Ruby Princess case contracts concern

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This proceeding is a class action in relation to passengers aboard the ill-fated Ruby Princess who contracted COVID-19, some of whom subsequently passed away. The claims are brought in negligence and for contravention of the statutory guarantees and misleading or deceptive conduct provisions contained in the Australian Consumer Law (ACL).

The appellants (being the respondents to the proceeding at first instance) contended that the class members fall into one of three separate cohorts based on the terms and conditions that were applicable to their respective contracts. One of those cohorts, the respondents contended, were bound by what were referred to as the ‘US terms & conditions’ (comprising 696 out of a total of 2,651 passengers) (US Terms Group). Those terms and conditions contained an ‘exclusive jurisdiction’ clause (requiring any proceedings to be brought in Los Angeles), a United States ‘choice of law’ clause, and a ‘class action waiver’ clause in the following terms:

(C) WAIVER OF CLASS ACTION: THIS PASSAGE CONTRACT PROVIDES FOR THE EXCLUSIVE RESOLUTION OF DISPUTES THROUGH INDIVIDUAL LEGAL ACTION ON YOUR OWN BEHALF INSTEAD OF THROUGH ANY CLASS OR REPRESENTATIVE ACTION. EVEN IF THE APPLICABLE LAW PROVIDES OTHERWISE, YOU AGREE THAT ANY ARBITRATION OR LAWSUIT AGAINST CARRIER WHATSOEVER SHALL BE LITIGATED BY YOU INDIVIDUALLY AND NOT AS A MEMBER OF ANY CLASS OR AS PART OF A CLASS OR REPRESENTATIVE ACTION, AND YOU EXPRESSLY AGREE TO WAIVE ANY LAW ENTITLING YOU TO PARTICIPATE IN A CLASS ACTION.

On the basis of those terms, the respondents sought a permanent stay of the claims of members of the US Terms Group.

At first instance, the primary judge held that, in relation to the sample class member chosen from the US Terms Group, the US terms & conditions were not in fact incorporated into his contract. His Honour further held, in any event, that even if the US terms & conditions were incorporated into his contract:

• the class action waiver clause was an ‘unfair’ term under s 23 of the ACL; and
• the court would not, as a matter of discretion, enforce the exclusive jurisdiction clause.

In this appeal the Full Court, by majority, overturned the primary judge’s decision, and ordered that the claim of the US Terms Group sample class member be stayed (and also remitted to the primary judge the question of the effect of its decision on the claims of the other members of the US Terms Group).

Justice Derrington wrote the main judgment. Much of his Honour’s judgment was devoted to the question whether the US terms & conditions were actually incorporated into the contract of the US Terms Group sample class member. His Honour concluded, by applying long-standing principles of contract law, that they were so incorporated (a conclusion with which the other members of the Full Court agreed). His Honour then turned to consider other issues, most notably whether the class action waiver clause was unenforceable as being an ‘unfair term’. His Honour held that it was not an unfair term, and was enforceable. His Honour’s judgment is lengthy, and difficult to summarise in a few short paragraphs, but his Honour found that the clause was not ‘unfair’ by reference to the criteria set out in s 24 of the ACL, namely, that:

• it did not cause a significant imbalance in the parties’ rights and obligations; and
• the appellants had a legitimate interest in avoiding the ‘burden’ of a class action.

In doing so, his Honour did not seek to hide his disdain for class actions in general. For example, his Honour said:

[257] … it may be that, overall, a plaintiff could secure a better outcome by pursuing a personal action than by being a member of a class action where recovery is often significantly eroded by the entitlements of both the litigation funder and the class action lawyers. Additionally, it might be accepted that the benefits of a class action in circumstances such as the present where the class members are spread around the world might be more chimerical than real. The cost of liaising with group members across the globe will invariably lead to substantially greater costs and expenses which will increase the fees charged by the lawyers and deducted from any proceeds paid by [the appellants]…

[261] … The US Supreme Court also recognised that class actions in general have the potential to impose in terrorem settlements on defendants. Such risks also exist in the Australian jurisdiction. The enormity of the claim sought to be imposed on a defendant by a single action together with the costs of defending it provide a significant incentive for a defendant or its insurer, to attempt to settle rather than face the ruinous sequelae of an adverse judgment.

[267] … It suffices to observe that the class action procedure can be abused to oppress defendants by reason of the enormous costs which tend to be billed by the claimants’ legal practitioners and the large portion of recoveries required by funders, each of which necessarily increases the amount for which the action might be resolved.

Further, his Honour held that the class action waiver clause (the practical effect of which was that those class members who were bound by the clause had committed themselves to opt out of this proceeding before the proceeding had even commenced) was not inconsistent with Part IVA of the Federal Court of Australia Act 1976 (Cth).

Chief Justice Allsop agreed with Derrington J that the class action waiver clause was enforceable in this particular instance, primarily because:

• the contract was governed by United States law; and
• such clauses have repeatedly been held to be enforceable in the United States.

His Honour also held that such a clause was not contrary to the policy underlying Part IVA. However, he reserved for another day the question whether such a clause would be ‘unfair’ if contained in a contract that was governed by Australian law. Indeed, his Honour said (at [13]):

There might be little doubt that in many cases of Australian consumer contracts it would be unfair and unjust for standard form contracts, as contracts of adhesion, to seek to impose a waiver of the operation of Pt IVA or any other statute of a State or Territory of similar character. Here, [the sample class member], who is not an Australian consumer, has entered a contract with an exclusive jurisdiction clause, a proper law clause, and a class action waiver clause valid and enforceable under the proper law. I see no aspect of the terms of Pt IVA that are offended.

Justice Rares dissented. His Honour considered that the class action waiver clause was repugnant to the policy of Part IVA, and therefore unenforceable. In particular, although Part IVA contemplates that class members may choose to opt out of a representative proceeding, it only permits that to occur after they have been provided with a court-approved notice, and are therefore in a position to make a properly informed choice – it does not contemplate class members opting out before that time, a fortiori, before any proceeding has even been commenced (which was the practical effect of the class action waiver clause). In other words, on its proper construction, Part IVA does not permit parties to ‘contract out’ of its provisions. Thus, his Honour said (at [74], emphasis in original):

A construction of Pt IVA that permitted enforcement of a class action waiver clause would negate, first, the legislative intention to enhance access to justice and the efficiency of the exercise of the judicial power of the Commonwealth, and secondly, the right of a group member to decide whether to exercise the right to opt out of a representative proceeding after it has commenced.

As such, his Honour held that the clause was unenforceable, quite apart from any question as to whether the clause was an ‘unfair term’ within the meaning of the ACL. It also followed that the court should not enforce the ‘exclusive jurisdiction’ clause.

Carnival plc v Karpik (The Ruby Princess) [2022] FCAFC 149

Federal Court of Australia, Allsop CJ, Rares and Derrington JJ
2 September 2022

Appellants’ Solicitors: Clyde & Co
Respondent’s Solicitors: Shine Lawyers
Respondent’s Funder: N/A

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