Businesses in Australia have been inundated by updates in 2023 about recent reforms to the unfair contract terms regime (UCT) in the Australian Consumer Law (ACL). These reforms came into effect on 9 November 2023 – they extend the regime to cover a broader range of businesses and make unfair terms illegal and subject to substantial penalties.
A recent High Court decision now provides guidance about the application of the UCT regime to contracts entered into outside Australia, as well as how the regime views so-called 'class action waiver' clauses.
Spoiler alert! – the UCT regime operates extraterritorially and the class action waiver clause was found to be unfair.
The Ruby Princess class action
The High Court's consideration of the extra-territorial operation of the UCT regime arose out of representative proceedings commenced in the Federal Court for claims in tort and under the ACL against Carnival plc and its subsidiary, Princess Cruise Lines, for losses suffered by passengers on the ill-fated Ruby Princess voyage that suffered a COVID-19 outbreak.
While the Ruby Princess sailed from Australia, a significant group of passengers were not from Australia and had entered into terms outside Australia, including a particular set of 'US Terms and Conditions'. For this subgroup of passengers, the questions before the High Court were:
- Whether the UCT regime had extraterritorial reach and applied to contracts entered into outside Australia.
- If so, whether a 'class action waiver' clause in that contract was void because it was unfair.
- Several subsidiary issues relevant to the class action proceedings in terms of the enforceability of the waiver clause under the Federal Court of Australia Act, and if an exclusive jurisdiction clause should not be enforced.
Before the case reached the High Court, a majority of the Full Federal Court had previously determined that the waiver clause was not unfair under the regime.
Reach of the UCT regime outside Australia
The High Court found that the ACL's UCT regime has extraterritorial reach outside Australia and applied to the contract:
- The High Court held that the starting point is always the construction of local statutes (here the ACL). The process of statutory construction must come before any presumptions against extraterritoriality and 'choice of law' rules. Consistent with other authorities, the High Court found the clear intent was that certain parts of the ACL (and the Competition and Consumer Act) would capture conduct outside Australia by certain parties.
- This conclusion was described as unsurprising. If a company carries on business in Australia, then a price of doing so is that it is subject to laws intended to protect consumers, including in relation to conduct engaged in outside Australia. If a company does business in Australia and uses standard terms in a consumer or small business contract, it should meet Australian norms of fairness irrespective of where the contract was made.
- The High Court then addressed (and dismissed) a series of issues raised by Carnival about extraterritoriality in relation to the UCT regime. This included suggestions that the contract must be entered into while the foreign company is engaged in business in Australia, and that the UCT regime should apply only to a term that affects the acquisition of goods or services by a consumer in Australia. The High Court held that limits of this kind (including that services must be performed in Australia) would impose limits that were not reflected in the ACL.
- Carnival raised various hypotheticals including that consumers overseas may seek to commence action in Australia to take advantage of the ACL (an example being a consumer purchasing a car in Europe from a European manufacturer). The Court distinguished the possibility of a consumer doing so from the practical question of whether a consumer would take such action and that a matter would progress to judgment (for example, in a scenario where a defendant might seek a stay because Australia was an inappropriate forum).
Why the class action waiver term was unfair
The High Court then determined that the class action waiver term was unfair. In doing so, the High Court provided some general guidance which is relevant when assessing whether a term is 'unfair' under the UCT regime:
- The High Court stepped through the core requirements of a 'significant imbalance' between the parties, whether the term was reasonably necessary to protect Carnival's 'legitimate interests', and if relying on the clause would cause 'detriment'.
- Relevantly, the High Court found that the clause did create a significant imbalance in the parties' rights when it was a one-way term that benefited Carnival. There was obviously a detriment (and that detriment need not be significant).
- In relation to the 'legitimate interests' limb, the High Court dealt swiftly with the suggestion that the waiver was 'required' to ensure Carnival faced individual claims rather than an aggregated class action where, faced with the possibility of significant losses, defendants may be pressured or encouraged to settle questionable claims.
- Finally, in relation to 'transparency' which is relevant factor when assessing if a term is unfair, the High Court noted that the consumer was only able to view the clause once they had received a booking confirmation email, and only if they clicked a link in that email, navigated the linked webpage and signed into a webpage. Given the imbalance and the detriment caused by the term, a greater degree of transparency was required.
The High Court also addressed several other issues, including that (1) the class action waiver was not void by reason of anything in the Federal Court of Australia Act concerning representative proceedings, and (2) there were strong grounds that an exclusive jurisdiction clause in the terms should not be enforced.
The decision: key implications for business
The High Court's decision reinforces the broad operation of the ACL, including to contracts entered into overseas, and the need for businesses to carefully review standard form terms and conditions through a UCT lens. In particular:
- Similar to other decisions regarding the consumer guarantees under the ACL, the UCT regime can apply in relation to foreign consumers where a contract is entered into outside of Australia. Where a company is carrying on business in Australia, the ACL can capture conduct that is engaged in outside Australia.
- Careful attention is required when assessing if a term is unfair. That requires an awareness about the business and also the industry, particularly when assessing if a term is reasonably necessary to protect legitimate interests.
- The transparency of a term is relevant to the overall task of assessing fairness. Here, the extent of 'digging' required by a consumer to locate a term was problematic, particularly in light of the nature of the term in issue.
The enforcement phase and next steps
In light of recent sweeping changes to the UCT regime, in 2023 many Australian businesses have dedicated significant time and energy to reviewing standard form terms and conditions. The High Court's decision confirms the extended reach of the UCT regime and reinforces the need for businesses including those overseas to review their contracts and test for risk, particularly in an environment where heavy penalties now apply.
We expect that the ACCC will move swiftly to an 'enforcement stance' in relation to the UCT regime. Please get in touch if you would like to discuss the implications of this decision or if you have any other UCT-related questions.
Read our previous UCT-related articles:
