High Court determines that Australia’s unfair contract term laws extend to overseas dealings

On 6 December 2023, the High Court of Australia handed down its decision in Karpik v Carnival plc [2023] HCA 39 (Ruby Princess Case) and determined that Australia’s unfair contract term laws (UCT Laws), namely section 23 of Schedule 2 to the Competition and Consumer Act 2010 (Cth) (Australian Consumer Law), apply to certain contracts for the provision of goods and services outside of Australia.

Section 23 of the Australian Consumer Law states that a term of a small business contract or consumer contract is void if it is unfair and the contract is a standard form contract. As significant pecuniary penalties were introduced into the UCT Laws on 9 November 2023, the High Court’s decision will undoubtedly have significance for business-to-business and consumer dealings where one party is located in Australia or carries on business in Australia.

Background to the Ruby Princess Case

The Ruby Princess Case concerned a class action proceeding for loss or damage brought against Carnival plc and a subsidiary (collectively, Carnival) by passengers of the Ruby Princess cruise ship. The claim concerned the voyage of the Ruby Princess between 8 March 2020 and 19 March 2020, during which multiple passengers contracted COVID‑19 and some of whom died as a result.

Relevantly, 696 passengers from the United States agreed to Carnival’s standard form terms and conditions (US T&Cs). The US T&Cs contained a clause (Waiver) that purported to waive the passengers’ rights to bring a class action proceeding against Carnival.

Carnival argued that the passengers who agreed to the Waiver could not form part of the class action proceedings. The United States passengers argued that section 23 of the Australian Consumer Law applied to the US T&Cs and, as such, the Waiver was an unfair contract term and was therefore void under the UCT Laws.

The question for the High Court to determine was whether the US T&Cs were subject to the UCT Laws and, if so, whether the Waiver was an unfair contract term.

The High Court’s decision and the implications for extraterritorial business dealings

After applying Australian principles of statutory interpretation, the Court determined that the UCT Laws will apply to all standard form small business contracts and consumer contracts where at least one party is incorporated in Australia or carries on business in Australia, including in the following circumstances:

• where the contract is for goods that are provided, or for services that are performed, wholly or predominantly overseas
• where the goods or services are acquired by a business or consumer located overseas
• where the contract contains clauses specifying that the law of a jurisdiction other than Australia will govern the contract.

The Court therefore held that section 23 of the Australian Consumer Law (and the other UCT Laws) applied to the US T&Cs as it was a standard form consumer contract and Carnival carried on business in Australia. If Carnival’s argument was accepted then the UCT Laws would not apply to contracts between Australian consumers and Australian businesses for services provided wholly or predominantly outside of Australia, such as cruising services. The Court emphasised that this would undermine the Australian Consumer Law’s object of protecting consumers.

The Waiver was further held by the Court to be unfair and void under the UCT Laws in the relevant circumstances.

Conclusion

The High Court’s decision in the Ruby Princess Case provides much needed clarity on the application of the UCT Laws to the provision of goods and services where one party to the contract is located outside of Australia. The decision will undoubtedly have a significant impact on the negotiation and formation of contracts governing these extraterritorial dealings.

Businesses that are parties to these types of contractual arrangements should familiarise themselves with the UCT Laws and obtain legal advice before entering into any standard form small business contracts or consumer contracts, or, if there are existing contracts that have an unfair contract term in them, before enforcing or trying to enforce such a term. Substantial pecuniary penalties now apply to breaches of the UCT Laws.

Further information on the latest changes to Australia’s unfair contract term laws can be found in our recent article.

If you would like to discuss any of the matters contained in this article or arrange for competition and consumer law training for your organisation, please contact a member of our corporate advisory team.