An Australian consumer who purchases a good or service online will usually be required to enter into a written contract with the vendor. If, as is increasingly common, the vendor operates in multiple countries, then the contract will often be standard form and contain choice of forum and choice of law clauses.
This post, which is the sixth in a series from the KWM Competition team, considers whether such clauses — and, in particular, exclusive jurisdiction clauses — could amount to “unfair” contract terms under the Australian Consumer Law (ACL).
When will a term of a standard form contract be unfair?
The ACL prohibits terms of standard form consumer or small business contracts that are “unfair”. A term will be unfair if the following three criteria are satisfied:
- the term would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
- the term is not reasonably necessary in order to protect the legitimate interests of the party advantaged by the term; and
- the term would cause detriment (financial or otherwise) to a party if it were applied or relied on.
In assessing application of the UCT regime, it is necessary to consider the extent to which the term is transparent and the contract as a whole, as well as matters such as 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.
For a detailed discussion of when a clause will be unfair under the ACL, see our previous post here.
Choice of Forum Clauses
What is a choice of forum clause?
Contractual parties often seek to decide, in advance, the venue of dispute resolution –by specifying the courts in which disputes arising under the contract will be litigated.
Such clauses may be “non-exclusive” or “exclusive”. A non-exclusive jurisdiction clause provides that disputes may be litigated in the courts of a particular jurisdiction, but without prejudice to the right of each party to commence litigation in the courts of any other jurisdiction, if appropriate. By contrast, an exclusive jurisdiction clause provides that the parties must only litigate disputes arising under the contract in the courts of a particular jurisdiction. It is well-established that clear language will be required for jurisdiction clauses to be found to be exclusive.
Are exclusive jurisdiction clauses unfair under the Australian Consumer Law?
An exclusive jurisdiction clause might, on its face, seem to give rise to a risk of unfairness, particularly where there is an inequality of bargaining power and the chosen jurisdiction is effectively selected by, and advantageous to, the stronger party. Moreover, s 25 of the ACL explicitly refers to a term limiting a party’s right to sue another party as an example of a term that may be unfair.
However, in Carnival plc v Karpik (The Ruby Princess) the Full Court of the Federal Court found that the exclusive jurisdiction clause in that case was not unfair.
A detailed summary of the facts of Ruby Princess litigation and the primary judgment of Stewart J is set out in this blog post. In short, approximately 700 passengers aboard the ill-fated Ruby Princess cruise ship agreed to terms and conditions (US T&Cs) with Carnival plc (Carnival) and Princess Cruise Lines Ltd (Princess), which relevantly included the following exclusive jurisdiction clause:
Claims for Injury, Illness or Death: All claims or disputes involving Emotional Harm, bodily injury, illness to or death of any Guest whatsoever, including without limitation those arising out of or relating to this Passage Contract or Your Cruise, shall be litigated before the United States District Courts for the Central District of California in Los Angeles, or as to those lawsuits over which the Federal Courts of the United States lack subject matter jurisdiction, before a court located in Los Angeles County, California, USA, to the exclusion of the courts of any other country, state, city, municipality, county or locale. You consent to jurisdiction and waive any objection that may be available to any such action being brought in such courts.[1]
In 2020, a class action was commenced on behalf of passengers in the Federal Court against Carnival and Princess, alleging contraventions of the ACL and the tort of negligence. In 2021, Carnival and Princess sought a permanent stay of the proceeding by reason of, inter alia, the exclusive jurisdiction clause. This was opposed on various grounds by group members subject to the US T&Cs (US Group Members), including that the clause was void and unenforceable as an unfair contract term under the ACL.
At first instance, Stewart J found that the exclusive jurisdiction clause was not unfair for two reasons:
- No significant imbalance: The clause did not cause an imbalance, let alone a “significant” imbalance, in rights, because the clause did not prevent a passenger’s right to sue to enforce their rights under the contract. Rather, “it only [sought] to restrict the fora in which a passenger may bring an action to enforce those rights”.[2]
- Reasonably necessary to protect the legitimate interests of Princess and Carnival: Avoiding litigation in multiple jurisdictions is a legitimate interest worthy of protection. As his Honour observed, “[t]here is nothing illegitimate about the respondents selecting NSW as the jurisdiction in which Australian and New Zealand residents bring their claims, England as the jurisdiction in which UK residents bring their claims and California as the jurisdiction in which residents from everywhere else in the world bring their claims”.[3]
On appeal to the Full Court, US Group Members initially challenged Stewart J’s finding that the exclusive jurisdiction clause was not unfair, but ultimately abandoned that challenge. Nevertheless, Allsop CJ remarked in his Honour’s reasons for judgment that the clause was “not unfair by Australian law”, “fairly-bargained” and, by the law of the forum and proper law of the contract, “enforceable”.[4]
The Ruby Princess litigation therefore provides useful guidance on whether exclusive jurisdiction clauses might be unfair under the ACL. At least under the Ruby Princess specific set of facts, the exclusive jurisdiction clause was not unfair including because the term did not cause significant imbalance in rights and obligations and was reasonably necessary to protect the legitimate interest of the party advantaged by the term. This is particularly evident where the vendor is an international corporation which seeks, by the exclusive jurisdiction clause, “to protect itself from claims being litigated in the courts of countless countries applying countless different substantive and procedural laws”.[5]
Choice of Law Clauses
What is a choice of law clause?
Choice of law clauses specify the proper law of the contract — that is, the system of law which the parties intend to govern the contract. For example, in Fuji Xerox Australia Pty Ltd v Documents on Call Pty Ltd, various agreements between the parties for the supply of printing equipment contained the following choice of law clause:
This Agreement and all matters arising out of or relating to it are governed by the laws of New South Wales.[6]
In most cases, the governing law selected by the parties will be that of the court identified in any accompanying choice of forum clause. In some cases, however, the governing law may differ, in which case the chosen court will need to apply the law of a different jurisdiction.
Are choice of law clauses unfair under the Australian Consumer Law?
There is limited authority on the question of whether a choice of law clause is unfair under the ACL. Such a clause might, at least on its face, seem to be similar to an exclusive jurisdiction clause in terms of the risk of unfairness. Thus, if an exclusive jurisdiction clause might be permissible where it is reasonably necessary to protect the legitimate interest of avoiding litigation in multiple jurisdictions, then similar reasoning could well apply to a choice of law clause on the basis it avoids disputes being litigated under different laws and creates certainty as to the relevant law that is to be applied.
However, it remains to be seen whether this reasoning holds, particularly where a choice of law selects the laws of a jurisdiction that lacks any connection to the parties and confers an advantage on one party and not the other. In that case, the clause may well protect the legitimate interest of the vendor, but it may not be reasonably necessary to do so. In addition, by conferring an advantage on the vendor, it might be difficult to escape the conclusion that the clause would also cause an imbalance in the parties’ rights and detriment the weaker party if relied upon.
Whether such an imbalance is “significant”, and the nature and extent of any detriment caused, will depend on the circumstances of each case. As emphasised in the Ruby Princess litigation, it is the party alleging unfairness that bears the onus of establishing these elements, while the party advantaged by the term bears the onus in relation to the whether the clause is reasonably necessary to protect that party’s legitimate interests.
While choice of law clauses are yet to be tested in Australia under the UCT regime in the ACL, there is some authority from the United States in support of refusing to give effect to a choice of law clause in a standard form contract where the parties are unequal in bargaining power, particularly where the clause would allow the stronger party to avoid liability imposed by the law of the forum.[7]
Moreover, quite apart from the UCT regime, there is some Australian authority to the effect that a choice of law clause cannot select the laws of a jurisdiction that lack a “substantial, though not necessarily predominant, connection with the contract“.[8] The Ruby Princess decision itself (at both first instance and in the Full Court appeal) debates the extra-territorial application of the UCT regime and how choice of law clauses and the proper law might affect the application of the UCT regime.[9]
Conclusion
Choice of law and choice of forum clauses are an increasingly regular feature of online commerce.
According to the Full Court’s decision in the Ruby Princess litigation, exclusive jurisdiction clauses might not be unfair where avoidance of litigation a multiplicity of international jurisdictions is a legitimate interest worthy of protection and where there is no significant imbalance in parties’ rights. Similar reasoning might apply to choice of law clauses, which are yet to be tested under Australian UCT law.
Importantly, however, terms need to be considered having regard to the particular contract at hand and the particular circumstances of each case. Indeed Allsop CJ, in relation to the class action waiver clause which we will write about in our next post, expressly said, “The above conclusion [in relation to fairness of the clause] says nothing about another contract with an Australian consumer whereby it might be sought in a standard form contract to deprive a person of access to Pt IV.”[10]
Businesses should closely consider choice of forum and choice of law clauses against the UCT regime, including whether such clauses have the potential to cause detriment to consumers and a significant imbalance in rights.
See our next UCT deep dive, which also relates to the Ruby Princess case including the High Court appeal.
[1] Karpik v Carnival plc (The Ruby Princess) (Stay Application) [2021] FCA 1082 at [26].
[2] Karpik v Carnival plc (The Ruby Princess) (Stay Application) [2021] FCA 1082 at [135].
[3] Karpik v Carnival plc (The Ruby Princess) (Stay Application) [2021] FCA 1082 at [136].
[4] Carnival plc v Karpik (The Ruby Princess) [2022] FCAFC 149 at [4], [5] and [7] per Allsop CJ.
[5] Gonzalez v Agoda Co Pte Ltd [2017] NSWSC 1133 at [126] per Button J.
[6] Fuji Xerox Australia Pty Ltd v Documents on Call Pty Ltd [2018] NSWSC 1862 at [13] per Harrison J.
[7] Fricke v Isbrandtsen Co (1957) 151 F Supp 465 (SDNY); Nygh’s Conflict of Laws in Australia (LexisNexis, 10ed, 2019) at [19.10];
[8] Re Helbert Wagg & Co [1956] Ch 323 at 341; Kay’s Leasing Corp v Fletcher (1964) 64 SR (NSW) 195 at 205 per Walsh J; Nygh’s Conflict of Laws in Australia (LexisNexis, 10ed, 2019) at [19.15].
[9] See, eg, Karpik v Carnival plc (The Ruby Princess) (Stay Application) [2021] FCA 1082 at [126] per Stewart J; compared to Carnival plc v Karpik (The Ruby Princess) [2022] FCAFC 149 at [20-35] per Allsop CJ and [274-349] per Derrington J.
[10] Carnival plc v Karpik (The Ruby Princess) [2022] FCAFC 149 at [9] per Allsop CJ.
Image credit: “The Royal Courts of Justice” by morebyless is licensed under CC BY 2.0.
