The Full Court of the Federal Court has considered whether contracts which purport to exclude a right to participate in a class action are enforceable under Australian law. After last week's decision in Carnival plc v Karpik (The Ruby Princess) [2022] FCAFC 149 the position is not entirely clear, with each of the three judges delivering separate reasons and the class action waiver considered by the Full Court governed by US law. However, the decision still provides useful guidance for businesses considering the efficacy of class action waivers in standard form contracts in Australia.
The key takeaways from the decision are:
- where a standard form contract includes an enforceable foreign exclusive jurisdiction clause, and class action waivers are permitted by the law of that foreign jurisdiction (in this case, Californian law), Australian courts will be inclined to uphold a class action waiver. However, courts are not likely to uphold exclusive jurisdiction clauses that are contrived to avoid Australian law;
- Part IVA of the Federal Court of Australia Act 1976 (Cth) does not prohibit class action waivers. Consumers are free to contract out of their rights under Part IVA by agreeing that they will opt out of a class action arising from the contract containing the waiver in advance of any class action being commenced; and
- a particular class action waiver may still be ineffective if found to be contrary to the Australian Consumer Law, such as where it is an unfair contract or if reliance on the waiver would amount to unconscionable conduct. Prominently displaying the waiver and directing the consumer's attention to it before they enter into the contract will weigh in favour of the waiver being effective.
Class action waivers
A class action waiver (or "arbitration clause") is a clause in a contract securing a consumer's agreement not to participate in a class action arising from the contract. Australian law permits a consumer to waive their statutory rights unless to do so would be contrary to an applicable statute, either its express words or a necessarily implied meaning. Despite being well established in the United States, Australian courts have said little about class action waivers and there are open questions about whether these waivers are unfair or unconscionable contracts under the Australian Consumer Law. If found to be unfair or unconscionable, a waiver is void or unenforceable.
The leading US Supreme Court decision, AT&T Mobility LLC v Concepcion 563 US 333 (2011), upheld a waiver in these terms and overturned a lower court's decision that it was an unconscionable contract:
“You and A&AT agree that each may bring claims against the other only in your or its individual capacity, and not as plaintiff or class member in any purported class action or representative proceeding.”
In contrast, a recent Canadian Supreme Court decision found that a clause in an employment contract requiring a delivery driver to resolve any dispute with Uber through mediation and arbitration in the Netherlands was an unconscionable contract. The mediation and arbitration process required up-front administrative and filing fees of US$14,500, plus legal fees and other costs of participation. The Court's decision in Uber Technologies Inc v Heller 2020 SCC 16 was influenced by the lack of information in the contract about the costs of arbitration and the nature of the contract as a standard form contract or "contract of adhesion". These contracts are characterised by the unequal bargaining position between the parties resulting from the inability of a consumer or other individual party to negotiate the terms of the contract.
The Full Court's decision
Class members of The Ruby Princess class action, who allege negligence and breaches of the Australian Consumer Law in relation to the infamous COVID-19 impacted voyage by that vessel in early 2020, were subject to one of three different standard form versions of the passenger terms and conditions. Only class members subject to the US terms and conditions agreed to a class action waiver. In part, the waiver stated:
“Waiver of class action: This passage contract provides for the exclusive resolution of disputes through individual legal action on your own behalf instead of through any class or representative action. Even if the applicable law provides otherwise, you agree that any arbitration or lawsuit against [the] Carrier whatsoever shall be litigated by you individually and not as a member of any class or as part of a class or representative action, and you expressly agree to waive any law entitling you to participate in a class action.”
At first instance, Justice Stewart found that the waiver was not properly incorporated into the US terms and conditions but that, if it had been, it was an unfair contract contrary to the Australian Consumer Law.
The Full Court focused on the case of Mr Ho. Mr Ho, a Canadian resident who entered into the US terms and conditions while in Canada or the US, was the US terms and conditions sub-group representative. All three judges agreed the US terms and conditions were incorporated into Mr Ho's contract.
Chief Justice Allsop found that the class action waiver was not unfair, as it was permitted under the proper law of the contract – that is, US law – and considering Mr Ho's residence in Canada.
His Honour agreed with Justice Stewart that the waiver should be interpreted, in the context of Part IVA of the Federal Court Act, as requiring a class member to opt out of a class action. Significantly, that context included section 33J(2) of the Federal Court Act which permits class members to opt out before an opt out notice is published.
His Honour also found Part IVA did not prohibit class action waivers:
“I do not see any policy or purpose of Pt IVA infringed by a party freely and fairly agreeing in advance of receipt of the notice from the Court setting the date by which the opt out is to occur, as part of a contractual relationship, to oblige itself, herself or himself not to participate in a class action, and thereby become obliged to exercise that power to opt out. …
If the permissive and beneficial procedure of Pt IVA is not to be capable of being waived in a free and fair bargain in advance of proceedings being brought such should be stated by Parliament. I do not discern the necessary intendment of such from Pt IVA.”
Rather, whether a class action waiver was enforceable would depend on an assessment of the waiver and the contract it was incorporated into. His Honour cautioned:
“There might be little doubt that in many cases of Australian consumer contracts it would be unfair and unjust for standard form contracts, as contracts of adhesion, to seek to impose a waiver of the operation of Pt IVA or any other statute of a State or Territory of similar character.”
Justice Derrington found the class action waiver was not unfair. His Honour's analysis centred on section 24 of the Australian Consumer Law, which sets out factors to be considered when determining whether a contract is unfair under section 23. By reference to some of the section 24 factors, his Honour found:
- there was no significant imbalance in the parties' rights under waiver, it being restricted to the manner in which a claim may be conducted;
- the waiver was in The Ruby Princess parties' legitimate interests as they had a "legitimate interest in avoiding the burden of class actions being brought against it, whether in Australia or in the United States" and "in dealing with the claims made against it" in its choice of forum, namely California;
- in the absence of evidence about Mr Ho's capacity to conduct individual proceedings in California it was not possible to give weight to the detriment the waiver may have caused Mr Ho; and
- the Ruby Princess parties "did everything that was reasonably necessary to bring the class action waiver and the other significant clauses of the US Terms and Conditions to [Mr Ho's] attention."
On this last point, his Honour found reasonable notice had been given to Mr Ho in circumstances where the online booking confirmation process included a prominent "IMPORTANT NOTICE" hyperlinking a consumer to the US terms and conditions containing the class action waiver. His Honour concluded:
“In the context of electronic commerce, the manner in which those terms and conditions were made available in the circumstances amounted to a reasonable notice and Mr Ho was able to consider them well prior to the crystallisation of any agreement.”
Referring to section 33J(2) of the Federal Court Act, his Honour also found that the class action waiver was not contrary to Part IVA of the Act.
Justice Rares reached the contrary conclusion to Chief Justice Allsop and Justice Derrington and found that The Ruby Princess parties could not contract out of Part IVA. His Honour found that the waiver was contrary to the purpose of Part IVA opt out procedure, which provides for opt out after class members had the benefit of the information contained in the opt out notice published by the Court. By requiring a consumer to agree to opt out prior to publication of the notice, the waiver had the effect of depriving consumers of making a fully informed decision about the exercise of their opt out rights:
“A construction of Pt IVA that permitted enforcement of a class action waiver clause would negate, first, the legislative intention to enhance access to justice and the efficiency of the exercise of the judicial power of the Commonwealth, and secondly, the right of a group member to decide whether to exercise the right to opt out of a representative proceeding after it has commenced.”
This conclusion meant his Honour did not address whether the class action waiver was an unfair contract. His Honour did note that the waiver had the effect of altering the description of the class membership in a way that circumvented the Court's statutory power to make this alteration.