Unraveling the Enigma of Class Action Waiver Clauses: A Deep Dive into Australian Consumer Law

In the ever-evolving landscape of consumer contracts, class action waiver clauses are becoming increasingly common. These clauses present unique challenges, particularly in terms of their potential to be deemed "unfair" under the Australian Consumer Law (ACL). This article aims to examine the circumstances under which class action waiver clauses may be considered "unfair" under the ACL and shed light on a recent case that has shaped this discourse.

Understanding Class Action Waiver Clauses

Class action waiver clauses stipulate that disputes arising under the contract must be pursued through individual legal action on the person's own behalf and not as part of any class action or representative action. These clauses are quite prevalent in the US and have been upheld there.

An example of a class action waiver clause, currently under consideration by the High Court, can be found in the case of Karpik. It reads as follows:

(C) WAIVER OF CLASS ACTION: THIS 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 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.

Unfairness Under the Australian Consumer Law

Under the ACL, terms of standard form consumer or small business contracts that are deemed "unfair" are void (and will soon be prohibited). A term will be deemed unfair if it satisfies the following three criteria:

  1. The term would cause a significant imbalance in the parties' rights and obligations arising under the contract.
  2. The term is not reasonably necessary to protect the legitimate interests of the party that is advantaged by the term.
  3. The term would cause detriment (financial or otherwise) to a party if it were applied or relied on.

In assessing unfairness, several factors are considered, including the extent to which the term is transparent, the parties' respective bargaining power, whether the contract was pre-prepared by one party, and whether the parties had the opportunity to negotiate the terms.

Class Action Waiver Clauses: The Ruby Princess Litigation

In Australia, the validity of a class action waiver clause was recently considered as part of the Ruby Princess litigation. In this case, passengers (and their relatives) initiated proceedings against the time charter, operator, and owner of the Ruby Princess regarding loss/damage suffered, including distress and disappointment, arising from the alleged failure to take reasonable care in respect of the passengers during the outbreak of Covid-19.

One of the challenges faced by the primary judge and later the Federal Court related to whether the US terms and conditions were incorporated into the contract. Additionally, they had to determine whether the foreign jurisdiction clause and proper law of the contract clause meant the case fell under US law, potentially rendering the ACL sense of unfairness irrelevant due to the enforcement of a stay under US law.

High Court Appeal: A New Turn

The matter is currently before the High Court, where significant reliance is being placed on section 5(1)(g) of the Competition and Consumer Act 2010 (Cth) by the passengers. This section aims to extend the application of the act to conduct outside Australia, in respect of the Australian Consumer Law, by bodies corporate incorporated or carrying on business within Australia.

If the High Court finds that section 5(1)(g) operates in this way, it may provide the passengers with an opportunity to have the case assessed under the ACL for fairness instead of exclusively determining it under US law, potentially leading to a permanent stay of proceedings.

Some of the interesting aspects of the case include:

  • Whether the US terms and conditions were incorporated into the contract, despite the relevant passenger allegedly having no notice of those terms at the time of booking. One possible scenario is if the person who made the booking for the passenger was more than just an intermediary and was, in fact, their agent.
  • The tension between exclusive jurisdiction clauses (and proper law of the contract clauses) when the Australian Consumer Law (and the unfair contracts regime) seemingly have the ability to override those clauses, as per section 5 of the Competition and Consumer Act.
  • If the ACL regime is found to apply to such contracts, the next question will be whether the class action waiver clause is indeed unfair. The applicants in the case argue that section 25(k) of the ACL cites a term that limits the right of one party to sue another party as an example of an unfair contractual term. They contend that while passengers are not limited from suing the operator/owner individually, they are deprived of the opportunity to do so as a group/class. The removal of the right to use the representative procedure may be seen as limiting the right and therefore unfair, considering that class actions promote access to justice by allowing representative proceedings with the assistance of a funder, which individuals may not be able to afford on their own.

Keep an eye on this space as this exciting drama unfolds.