Overview
In a landmark decision, the High Court in Karpik v Carnival Plc [2023] HCA 39 has held that foreign entities carrying on business in Australia are subject to the Australian Consumer Law (ACL) even if their contracts with consumers are governed by foreign law, and even if services are to be delivered wholly outside of Australia.
The decision clarifies that foreign tour operators, wholesalers, airlines and cruise operators selling products to Australian consumers do so subject to their obligations and the rights of consumers under the ACL.
Facts
- Ms Karpik commenced class action proceedings against Carnival plc arising out of the outbreak of Covid-19 on the Ruby Princess.
- A number of passengers entered into contracts for the cruise in the United States subject to US Booking Conditions. Under the US Booking Conditions, passengers waived their rights to participate in a class actions and the courts of California had exclusive jurisdiction over the contracts.
- Carnival claimed that passengers who booked under the US Booking Conditions could not participate in the class action brought in Australia on the basis that under the US Booking Conditions, passengers waived their rights to participate in class actions and the courts of California had exclusive jurisdiction over the contracts.
Issues & Decisions
- Does Australian Consumer Law have extraterritorial application?
In a unanimous decision, the High Court held that the application of the ACL is not limited to the conduct of entities incorporated in Australia – it also applies to foreign entities carrying on business in Australia. The High Court said that this was a ‘cost of doing business’ in Australia. In practical terms, foreign entities selling products to Australian consumers (even under foreign contracts) are carrying on business in Australia and are subject to the ACL.In reaching this view, the High Court confirmed that the unfair contract terms regime of the ACL:
– can apply to contracts governed by foreign law; and
– is not limited to contract terms for the acquisition of services to be delivered in Australia – in other words, it applies to the acquisition of a tour or a cruise to be delivered wholly outside of Australia. - Was the class action waiver an unfair contract term?
The High Court held that the class action waiver was an unfair term on the basis that:
– it caused a significant imbalance in the parties’ rights and obligations in that it was solely for Carnival’s benefit and imposed limitations on consumers;
– it was not reasonably necessary to protect Carnival’s legitimate business interests; and
– it would cause detriment to consumers because it denied them the opportunity to participate in the class action.
- Even if the class action waiver was unenforceable, did the courts of California have exclusive jurisdiction over the action?
Carnival claimed that Australian courts did not have jurisdiction to hear the claims of passengers who booked under the US Booking Conditions because the courts of California had exclusive jurisdiction under the contract.The High Court determined that there were strong reasons not to enforce the exclusive jurisdiction clause because the US passengers would be denied the efficiencies and benefits of participating in the class action, and because it would be undesirable for identical proceedings to be conducted in Australian and the US as it could result in inconsistent outcomes.
The High Court concluded that passengers who booking the cruise subject to the US Booking Conditions could participate in the Australian class action.
Implications
The implications for foreign tour operators, wholesalers, airlines and cruise operators selling products to Australian consumers are wide-reaching.
The decision makes it clear that the booking conditions of foreign businesses will be subject to the unfair contract terms regime under the ACL. Significant penalties (up to the greater of $50million and 3 x the entity’s turnover per contravention) apply to businesses that include unfair terms in their standard form contracts with consumers. Please see our Insight update on recent amendments to the unfair contract terms regime here: https://fronteralaw.com.au/significant-penalties-for-unfair-contract-terms-from-november-2023-are-you-prepared/
The decision also means that consumer guarantees under the ACL are highly likely to be incorporated in contracts with Australian consumers. Consumer guarantees cannot be excluded under contract and consumers can claim significant damages including for disappointment and distress if the guarantees are not met. Please see our Insight update on the failure to comply with consumer guarantees here: https://fronteralaw.com.au/courts-order-scenic-tours-to-pay-18-4million-in-damages-for-weather-affected-cruises/
What to do
We strongly suggest that foreign operators selling products and services to Australian consumers:
- have their Booking Conditions legally reviewed to assess the fairness of terms. It may be appropriate for foreign operators to develop Booking Conditions for specific application within the Australian market; and
- receive guidance on general obligations under the ACL, particularly in relation to mandatory consumer guarantees.
We have extensive experience advising Australian and foreign businesses within the tourism industry on their obligations under the ACL. Please get in touch with us if you require assistance.
