By Aritree Barua, Solicitor at Matthews Folbigg Lawyers in our Insolvency, Restructuring and Debt Recovery Group.
In Carnival plc v Karpik (The Ruby Princess) [2022] FCAFC 149, the Full Court of the Federal Court of Australia (“the Full Court”) examined the contractual and consumer law rights of the passengers who were aboard the vessel the “Ruby Princess” on its infamous Sydney-New Zealand-Sydney voyage on 8 March 2020 and considered whether contracts entered into by passengers with Carnival plc (“Carnival”) and its subsidiary, Princess Cruise Lines Ltd (“Princess”), contained unfair terms.
This case arose out of a class action against Carnival and Princess in respect of the loss or damage suffered by the passengers (and their relatives) aboard the Ruby Princess during the COVID-19 outbreak. It was alleged that a number of passengers aboard the Ruby Princess contracted COVID-19 and fell ill or died; while others sustained distress, disappointment and/or psychiatric injury.
This particular case looked at the terms of the contract entered into by Carnival/Princess and Mr Patrick Ho (“Mr Ho”). Mr Ho booked tickets through a travel agent named Rosanna Ho. The booking process included the customer agreeing to an exclusive jurisdiction clause in favour of the United States District Courts in California, Los Angeles, and a class action waiver clause, which waived any right or entitlement of the customer to participate in any class action (“the Clauses”). Mr Ho alleged that these terms formed part of Mr Ho’s passage contract.
At first instance, the judge held that the Clauses had not been incorporated into Mr Ho’s contract. The Judge found that the travel agent who had booked Mr Ho’s cruise did not have the authority to act as Mr Ho’s agent, and that the manner in which Mr Ho’s ticket had been booked therefore did not involve the incorporation of the Clauses. Alternatively, even if the Clauses had formed part of the contract, they were not enforceable because of Australia’s consumer protection laws, including s 23 of the Australian Consumer Law (“ACL”).
Princess and Carnival appealed.
The Issues on Appeal
On appeal, important issues dealt with by the Full Court included:
- Had the Clauses been incorporated into the contract (“the Contract Issue”)?
- If so, were the Clauses unfair terms within the meaning of s 23 of the ACL (“the Unfairness Issue”)?
The Full Court’s Decision – the Contract Issue
With regard to the Contract Issue, the Full Court disagreed with the primary judge and held that the arrangement between Carnival/Princess and Mr Ho were in fact governed by the Clauses. This was based on a finding that there was in fact an agency relationship between the travel agent and Mr Ho.
Agency relationship
Mr Ho had no ability or authority to access POLAR (the booking system), either by himself or through an intermediary, so as to book his own passage. Therefore, he had to engage the services of the travel agent and authorised her to use his personal information to make the booking on behalf of himself and his wife. As a result, when the travel agent inserted Mr Ho’s details into the booking platform, and paid the deposit on his behalf, the Full Court found that she did so as their agent.
This agency relationship was further supported by the terms of the contract. The travel agent was required to be familiar with the terms of the contract, acknowledged receipt of the contract on behalf of the customer, and warranted to Princess that the travel agent was authorised to accept the terms and conditions on the customer’s behalf. These facts assisted the Court in finding an agency agreement.
Knowledge of the terms of the contract
The Full Court held that it was irrelevant that the travel agent and/or Mr Ho may not have been aware of the terms of the contract. The Full Court held that the travel agent’s knowledge of the existence of the terms and conditions and of their content was imputed or attributed to Mr Ho.
Reasonable notice
The Full Court addressed the issue of whether the customer had been given “reasonable notice” of the terms, and whether the party relying on them had done all that was reasonably necessary to bring them to the customer’s attention. The Full Court held that where an ordinary person pays considerable sums on an extended ocean cruise, he or she would expect that their agreement contain extensive terms and conditions regulating their rights and obligations for the duration of the voyage.
While the terms were not printed or annexed to the booking confirmation, this did not necessarily mean that reasonable notice had not been given to Mr Ho. The terms and conditions could easily be located by Mr Ho by reason of the headings used, the large lettering and the emboldened text to the link provided to Mr Ho. All “unusual” clauses were highlighted and specifically drawn to the reader’s attention. Further, provided that Mr Ho sought to make his booking by use of the internet and electronic communication, it must have been within the parties’ reasonable contemplation that Princess would utilise the same systems for providing details and information to Mr Ho.
It was held that provision of the electronic path to the terms and conditions amounted to reasonable notice and therefore Princess had done all that was reasonably necessary to bring the Clauses to Mr Ho’s attention. Therefore, Mr Ho was bound by the US Terms and Conditions including the Clauses.
The Full Court’s Decision – the Unfairness Issue
In regard to the Unfairness Issue, s 23 of the ACL provides that a contract may be void where a contract term is “unfair”, whilst s 24 of the ACL defines the meaning of “unfair”. The Full Court held that the class action waiver was not an “unfair term” under s 23 of the ACL, as the term was not “unfair” within the meaning of that term in s 24 of the ACL.
Significant imbalance in the parties’ rights and obligations
The Full Court held that the class action waiver clause did not impede Mr Ho’s substantive right to bring proceedings against Princess in relation to any damages suffered. It merely required that, if such a claim were to be brought, Mr Ho must bring it himself and not as part of a class action. It did not limit Princess’ liability in respect of any wrong committed against Mr Ho. Rather, the only restriction imposed by the waiver was as to the manner in which Mr Ho might enforce his claim. Therefore, the Full Court did not accept that there was such a significant imbalance in the parties’ rights and obligations that the Clauses were “unfair” within the meaning of the legislation.
Not reasonably necessary to protect the legitimate interests of the advantaged party
The Full Court held that Princess had a legitimate interest in having a class action waiver clause in the contract, as it is an international corporation engaged in business across multiple jurisdictions. By including such a term, it would be able to secure economies of scale by responding to similar claims in the same forum. This point was given greater weight by the Court having regard to the fact that Princess carries on a substantial international business and that it would be more beneficial to have all litigation in the location from which it carries on business.
Not reasonably necessary to protect the legitimate interests of the advantaged party
Notwithstanding what might seem to be the obvious disadvantage of taking on a multinational cruise line on his own, Mr Ho failed to establish that pursuing Princess individually would cause him any significant detriment. However, the Full Court did hold that if Mr Ho would suffer some detriment as a result of the Clauses, Princess had done everything that was reasonably necessary to bring the class action waiver clause and other significant clauses of the US Terms and Conditions to his attention. Therefore, there was no basis on which it could be concluded that the class action waiver was “unfair” within the meaning of ss 23 and 24 of the ACL.
Does section 23 have any territorial limitation?
The Full Court also looked at whether s 5(1)(g) of the Competition and Consumer Act 2010 (Cth) allows for the extra-territorial application of s 23. The Full Court held that section 5(1)(g) has no operative effect on s 23. While s 5(1)(g) is concerned with “engaging in conduct outside Australia”, including making or giving effect to a provision of a contract or arrangement, s 23 is neither enlivened by nor conditioned upon either of those activities. It merely declares that certain types of terms in specific types of contracts are void.
The Full Court recognised that s 23 only applies to those contracts in respect of which Australian law is the system of law with which they had their closest and most real connection. In the present case, it was held that, even if the choice of law clause was put to one side, the jurisdiction of the contract would not be the law of Australia.
If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or jeffreyb@matthewsfolbigg.com.au
Stephen Mullette on (02) 9806 7459 or stephenm@matthewsfolbigg.com.au.
