Court rejects class action waiver clause

The Federal Court has found a class action waiver clause void because it was an unfair contract term and therefore unenforceable.

Justice Angus Stewart ruled the waiver clause was in breach of s23 of the Australian Consumer Law (ACL).

The case involved passengers on board the cruise ship Ruby Princess, which left Sydney on 8 March 2020 and returned, ahead of schedule, on 19 March, after visiting several New Zealand ports. Many passengers on board contracted Covid-19 and some died.

Shine Lawyers instigated the class action against Carnival plc and Princess Cruise Lines Ltd. The lead applicant is passenger Susan Karpik and the action was filed on behalf of three groups – passengers, executors and close family members.

Ms Karpik alleged she and other group members suffered various losses and damage because the cruise companies were negligent and in breach of their duties of care by:

• allowing the voyage to proceed
• failing to adequately protect passengers from the risk of Covid-19
• failing to warn passengers of the risk of contracting Covid-19 and
• not implementing adequate measures to protect passengers from that risk.

She also alleged misleading or deceptive conduct and a breach of consumer guarantees under the ACL because passengers did not receive the pleasurable holiday they had envisaged.

Of the 2,651 passengers on board, 696 contracted on US terms and conditions (T&C), 159 on UK T&C and the rest on Australian T&C.
 

Non-exclusive jurisdiction

The US T&C contained an exclusive jurisdiction clause that selected the US District Courts for the Central District of California as the court in which any claim must be brought. They also contained a class action waiver clause by which passengers agreed not to participate in any representative proceeding and a clause that applied US maritime law.

The UK T&C contained a non-exclusive jurisdiction clause in favour of English courts and a clause providing for the application of English law.

Shine split the US and UK passengers into two subgroups and filed points of claim for each, with Canadian resident Patrick Ho as the US sub-group representative and UK resident Julia Wright as the UK sub-group representative.

The cruise companies sought to have the claims for the US and UK subgroups stayed on the basis the Federal Court was “a clearly inappropriate forum” for the overseas passengers claims to be heard.

There was evidence Mr Ho booked through a Canadian travel agent but received no documentation until more than a month later.

Justice Stewart found Mr Ho’s contract was formed when he booked with the travel agent, so the booking confirmation email he received more than a month later was too late to be incorporated into his contract.
 

Terms unusual, onerous

Regardless, the US T&C were nonetheless not incorporated because clicking on a link provided in Mr Ho’s email did not display the US T&C but a selection of different possible contract terms.

Justice Stewart ruled that, because the exclusive jurisdiction and class action waiver clauses were unusual or onerous, reasonable steps were required to bring those specific clauses to Mr Ho’s attention and Princess failed to do so.

For the rest of the US sub-group members, Justice Stewart found it was inappropriate to decide the question of incorporation of the US T&C as a common question, because the circumstances in which each passenger made their booking were likely to be different.

Ms Karpik challenged the validity and enforceability of the US T&C on the basis they were unfair under Pt 2-3 of the ACL and unjust under s7 of the Contracts Review Act 1980 (NSW).

The class action waiver clause was also challenged as either void or unenforceable because of Pt IVA of the Federal Court of Australia Act 1976 (Cth), the regime for representative proceedings.

Ms Karpik also contended that the cruise companies’ reliance on the class action waiver clause would constitute unconscionable conduct contrary to s23 of the ACL.

Save for accepting the challenge to the class action waiver clause as being unfair under Pt 2-3 of the ACL, the court rejected challenges to the validity or enforceability of the US T&C.
 

Fracture litigation

Justice Stewart then considered whether, if he had found the US T&C to be incorporated and if he had not found the class action waiver clause to be void for unfairness, he would have granted a stay of Mr Ho’s claim in reliance on those clauses.

He found, on the exclusive jurisdiction clause, there were strong reasons not to enforce the clause, principally because a stay would fracture the litigation with essentially identical claims being brought in the Federal Court and stayed claims being brought in the US.

That would be wasteful of parties’ and judicial resources and run the risk of producing conflicting outcomes in different courts, which would bring the administration of justice into disrepute.

On the question of whether the court was “a clearly inappropriate forum”, to determine the overseas passengers’ claims, Justice Stewart ruled that was not the case.
 

Substantial connection

He said their claims had a substantial connection with NSW as many of the alleged breaches of duty of care concerned conduct or omissions in Sydney.

The ACL claims would be decided in accordance with Australian law and the claims of the 1,796 passengers who contracted on the Australian T&C would continue in the Federal Court, regardless of whether the US or the UK sub-group members formed part of the class action.

He found many issues to be determined were common to all group members and continuing the US or UK sub-group claims was not “oppressive, vexatious or an abuse of process”.

Law firm Addisons’ commentary on the case said the decision was significant because “it suggests the Australian approach to class action waiver clauses may deviate from overseas jurisdictions where clauses of this nature are recognised and enforced, such as the USA”.

The class action trial is scheduled for October 2022.

Karpik v Carnival plc (The Ruby Princess) (Stay Application) [2021] FCA 1082 (10 September 2021)

Commentary from Addisons.

Shine Lawyers launches the class action.