Class action waivers - full sail or in the doldrums?

The Full Court of the Federal Court in Carnival plc v Karpik (The Ruby Princess) [2022] FCAFC 149 has considered whether contracts which purport to exclude a right to participate in a class action are enforceable under Australian law.

The Court held that a class action waiver clause contained within a contract governed by US law, and subject to a US exclusive jurisdiction clause, is not inherently unlawful, is not contrary to the statutory purpose of the Federal class action regime provided for in Part IVA of the Federal Court of Australia Act 1976 (Cth), and is therefore enforceable.

Background

The appeal before the Full Court was in the context of class action proceedings brought against the vessel owners and time charters (Operators) of the cruise ship Ruby Princess over their handling of a deadly COVID-19 outbreak in 2020.

The representative proceedings allege that the Operators negligently failed to protect passengers from the risk of COVID-19 and that they engaged in misleading or deceptive conduct and breached their consumer guarantees under the Australian Consumer Law (ACL).

The Operators sought to stay the claims of nearly 700 passengers (US sub-group) on the basis that their passage contracts contained an exclusive jurisdiction clause requiring any claims to be brought in a federal court in California, and a class action waiver clause by which the passengers agreed not to participate in any representative proceeding (clauses). Mr Ho (the passenger) was the representative for the US sub-group.

The primary judge held that the clauses were not incorporated into the contract and were in any event unenforceable. The Operators appealed. The crucial issue on the appeal was whether the waiver clause was an unfair contract term under s23 of the ACL.

Decision

The Full Court (Allsop CJ and Derrington J; Rares J dissenting) overturned the primary judge, finding that the clauses were incorporated into the contract.  The issues were then:

  • whether the class action waiver clause was an unfair contract term; and
  • whether the class action waiver clause was inconsistent with the public policy/purpose underlying the Federal class actions regime.

The majority had differing views on the issue of unfairness.

Allsop CJ’s approach centred around the contract. Having regard to the exclusive jurisdiction clause, his Honour found difficulty finding class action waivers unenforceable considering their widespread acceptance under US law. His Honour said it would not be unfair to hold the North American resident to his obligation, under US law, not to participate in the Australian class action.

Derrington J assessed the enforceability issue directly through the lens of the ACL. His Honour commented that the alteration to the passenger’s rights were not done in an arbitrary or substantial nature. The appellants had a legitimate interest in ensuring all claims were brought as individual claims in the US, and there was no evidence the waiver impeded the passenger’s ability to advance his claim in this way.  A ‘legitimate interest’ existed in favour of enforceability as the Operators were “able to secure economies of scale by responding to similar claims in the same forum, utilising the same lawyers, experts and processes” (at [262]). The protection of this legitimate interest did not cause detriment to the passenger as it merely dictated the process to which proceedings could be commenced as opposed to impeding or altering his substantive rights.

The majority held that there was no inconsistency between the class action waiver and the statutory purpose of the Federal class action regime. By contrast, Rares J considered a class action waiver clause would undermine the legislative intent of providing statutory ‘opt out notices’ to potential class action group members, and as such the regime prevented persons from contracting out of being group members before the commencement of a representative proceeding.

The case also raised important issues about the extra-territorial effect of the ACL, including the unfair contract terms regime.  Those questions were not finally resolved, with the Court grappling with whether and how sensible limits could be placed on the jurisdiction.  They are beyond the scope of this update. 

Furthermore, the majority considered the extra-territorial application of s 23 of the ACL. After grappling with how the common law presumption against extra-territorial effect should be applied in the circumstances, the judges expressly declined to offer any final view on the matter because of their conclusion that the clauses were not unfair.

Implications

Despite the majority of the Full Court arriving at the same conclusion, their differing approaches present an imprecise method to which class action waivers should be addressed in future proceedings.

Considering the various interpretations of public policy by the Full Court, it is likely that this case will require clarification from the High Court. The opinions offered in relation to the legislative intent of the Federal class action regime in conjunction with the extra-territorial application of the ACL, provide the necessary grounds upon which a further appeal might be founded.

An application for special leave to appeal the decision to the High Court has been filed and we will continue to follow the developments of this case.

This article was co-authored by Jack Kelly, Graduate.

Read other items in Marine Brief - October 2022

 

Read other items in the Australian Insurance Brief – November 2022

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