Unfair Contract Terms and International Contracts

Does your business trade internationally? If so, be aware that a recent High Court case has confirmed that Australian laws regarding unfair contract terms may apply to your contracts, as Mitchell Zadow, Managing Principal and Accredited Specialist (Commercial Law) explains.

What was this case about?

The recent High Court case of Karpik v Carnival plc, also known as the Ruby Princess Case, has established that Australia's unfair contract term laws have extraterritorial application. This means that these laws will apply to contracts for goods and services outside Australia, even if the contracts are not performed in Australia.  

The case involved a class action against Carnival plc and its subsidiary by passengers of the Ruby Princess cruise ship, focusing on the period when passengers contracted COVID-19. In particular, 696 U.S. passengers had agreed to Carnival's standard form terms and conditions, which included a clause waiving their rights to bring a class action. The passengers argued that this waiver was an unfair contract term under Section 23 of the Australian Consumer Law.

The High Court, applying principles of statutory interpretation, concluded that the unfair contract term laws apply to standard form contracts where at least one party is incorporated in Australia or carries on business in Australia. This includes situations where the contract involves:

  •   goods or services provided wholly or predominantly overseas
  •   goods or services that are acquired by a business or consumer located overseas; or
  •   clauses that specify that the law of a jurisdiction other than Australia will govern the contract.

What does the decision mean?

The decision clarifies that the Australian Consumer Law's unfair contract term provisions are not limited to contracts where all parties and performance are within Australia.  

The High Court held that Carnival's US terms and conditions were subject to the unfair contract term laws, and the waiver was deemed unfair and void. Accordingly, the decision has significant implications for businesses engaged in international dealings.  

As a result, businesses involved in such contracts are advised to familiarise themselves with these laws and seek legal advice before entering into standard form small business or consumer contracts. Additionally, for existing contracts containing unfair terms, caution is advised before attempting to enforce them, as substantial pecuniary penalties now apply for breaches of the unfair contract term laws.

How Sharrock Pitman Legal can help?

If you require advice on the application of your international contracts or guidance drafting supplier or customer contracts, please do not hesitate to contact our Commercial Law team on 1300 205 506 or sp@sharrockpitman.com.au.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation

For further information contact  
Mitchell Zadow

Mitchell is the Managing Principal of our law practice.

He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate. For further information, contact Mitchell on his direct line (03) 8561 3318.

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