On 8 September 2021 Justice Stewart of the Federal Court refused to stay a class action proceeding brought in respect of the Ruby Princess, which had departed Sydney in March 2020 but had been cut short following a large covid-19 outbreak. The class based its claims on common law negligence and a breach of the statutory guarantees that the cruise services would be fit for purpose and provide a safe, relaxing and pleasurable holiday. The judgment considered numerous issues that are relevant to class action proceedings and choice of forum clauses.
Karpik v Carnival plc (The Ruby Princess) (Stay Application) [(2021) FCA 1082] is the first case to consider whether a contractual class action waiver is enforceable under Australian law. Stewart held that the class action waiver in this case was not contrary to the class action regime in the Federal Court of Australia Act 1976 (the FCA). However, it was void as an unfair contract term under sections 23 and 24 of Schedule 2 of the Competition and Consumer Act 2010 (the ACL), although it was not shown to be unconscionable under section 21 of the ACL.
This case provides important guidance on how an Australian court will deal with a large consumer class action involving claimants from multiple jurisdictions with different contractual terms, including a class action waiver condition.
Ms Karpik was a passenger on the Ruby Princess and commenced class action proceedings against Carnival plc (the time charterer of the Ruby Princess) and Princess Cruise Lines Ltd (the owner and operator of the Ruby Princess), advancing claims in negligence and under the ACL. Group members in the proceeding included:
- executors of the estates of those who died as a result of the covid-19 outbreak; and
- those who suffered a recognised psychiatric injury, mental harm or nervous shock as a result of the severe illness or death of a family member or loved one, resulting from the covid-19 outbreak.
The respondents contended that the passengers were each subject to one of three different contractual terms and conditions. Those not travelling under the Australian terms and conditions were:
- passengers contracting under the US terms and conditions ("US sub-group members"); or
- passengers contracting under the UK terms and conditions ("UK sub-group members").
The US terms and conditions contained a class action waiver clause and an exclusive jurisdiction clause in favour of Californian courts. The UK terms and conditions contained a clause granting the UK courts non-exclusive jurisdiction and a choice of law clause that applied:
- EU Regulation 392/2009 on the liability of carriers of passengers by sea in the event of accidents; and
- the Athens Convention relating to the Carriage of Passengers and their Luggage by Sea 1974.
The respondents sought a stay in respect of the US and UK sub-group members on the grounds that their claims were an abuse of process – the Australian Federal Court was clearly an inappropriate forum to hear the claims – and that the US sub-group members were bound by a class action waiver clause and an exclusive jurisdiction clause.
Class action waiver clause
Stewart held that the US terms and conditions were not incorporated into the terms of the contract of the US sub-group's potential representative, Mr Ho, primarily because notice of the terms had been given only months after Ho had entered into the contract and booked the cruise. Despite this, Stewart went on to consider whether the class action waiver in the US terms and conditions could be enforced in Australia.
The applicant's argument that the clause was contrary to the class action regime in part IVA of the FCA was rejected. The clause was construed as an obligation to opt out of any class action of which the relevant person would otherwise be a group member. This construction was held to be consistent with the structure of the FCA, allowing group members freedom of choice as to participation in proceedings; Australia's federal class action regime operates on an opt-out basis.
The applicants were successful in arguing that the class action waiver clause was void as an unfair contract term under clause 23 of the ACL. The US cases considered by Stewart held that a waiver in the same or similar form is enforceable and not fundamentally unfair because it does not affect the passenger's substantive right to bring a claim, only the procedural vehicles available, and a plaintiff does not have a fundamental right to bring a class action lawsuit.(1) However, Stewart opined that:
- Princess Cruise Lines had no legitimate interest in passengers commencing only individual proceedings against it;
- the clause caused significant imbalance between passengers and Princess Cruise Lines; and
- the clause was not transparent.
Where claims arose that would be economically unviable to pursue individually and raised issues in common with other passengers, the reasonably foreseeable effect of the clause would be to adversely affect or even remove a passenger's access to justice. Princess Cruise Lines' interest in including the clause was held to be precisely to create this imbalance, preventing passengers from vindicating their rights under the contract.
Stewart considered that the class action waiver might also be unconscionable and contrary to section 21 of the ACL if the effect would be to deny access to justice and render the passenger's contractual rights illusory. In this proceeding, the applicant had not provided evidence to show that access to justice would be denied. Therefore, it was not held unconscionable for Princess Cruise Lines to rely on the class action waiver clause.
Stay of proceedings
The US terms and conditions contained an exclusive jurisdiction clause in favour of US courts. As a result (although the US terms have been found not to be in contractual effect), the Court moved to consider whether the claims of the US sub-group members should be stayed, if the US terms and conditions were to take effect.
The respondents successfully argued that a US court would most likely be able to apply the ACL to a claim brought by the US sub-group members. However, Stewart considered the US sub-group members to have a significant juridical advantage in pursuing their claims in Australia through representative proceedings because the class action waiver would likely be enforced in the United States.
It was of particular weight that even if the US sub-group's action was stayed, the action in respect of Australian passengers would continue, resulting in fractured litigation. Stewart also considered that there are public policy considerations in favour of ACL claims being heard in Australian courts. It is desirable, but not a necessary requirement of the Competition and Consumer Act 2010, for the normative standards and remedies in the ACL to be applied and interpreted in Australia. If the ACL were applied in overseas courts, aspects of the law may be lost in translation and any judgment may not form part of the Australian body of law.
These factors, in addition to the fact that the cruise started and finished in Sydney – creating a substantial connection to New South Wales – were relevant to the Court's rejection of the respondents' argument that the Federal Court was clearly an inappropriate forum.
For the aforementioned reasons, the Court departed from the conventional US approach.
However, a class action waiver in different circumstances, or contained in a contract that is not a standard form consumer contract, may be enforceable in Australia. A pre-emptive agreement to opt out of a class action is not inconsistent with the FCA class action regime.
The determinations of "unfair" and "unconscionable" class action waivers will be highly fact-dependent and require suppliers of mass goods or services to carefully consider their contractual terms and arrangements, if they are seeking to give effect to class action limitations or waivers.
If a waiver were enforced, the relief from the court would likely be an order amending the group definition or excluding certain members from the group.
The Karpik decision shows that Australian courts are prepared to deny a stay, even in the face of exclusive jurisdiction agreements favouring another location, if there is a public interest in enforcing Australian competition and consumer laws.
For further information on this topic please contact Andrew Salgo or Georgina Barnes at Baker McKenzie by telephone (+61 2 9225 0200) or email ([email protected] or [email protected]). The Baker McKenzie website can be accessed at www.bakermckenzie.com.
(1) For an example, see Archer v Carnival Corporation and PLC WL 6260003 (CD Cal, 2020).