Anti-suit injunctions and consumer contracts

This post has been contributed by Mary Keyes, Director of the Law Futures Centre and Therese Wilson, Dean of Griffith Law School.

On Monday 9 December 2019, the volcano on Whakaari/White Island, in the Bay of Plenty region in the northeast of New Zealand, erupted.

Forty-seven people, mostly tourists from the cruise ship ‘Ovation of the Seas’, operated by Royal Caribbean Cruises, were on the island at the time.

Twenty-two people died and 25 were injured.

Injured passengers and family members of passengers who died have since brought proceedings against Royal Caribbean, alleging negligence, in the courts of several countries, including Australia and the United States.

Ovation of the Seas, Auckland, New Zealand

Litigation by passengers against cruise ships has a long history and has produced important decisions in both private international law and domestic contract law, in Australia and overseas.

In cases like this, litigation is normally commenced by the person who has been injured — in this case, the passengers.

That has occurred in both the US and in Australia. But Royal Caribbean Cruises Ltd has also commenced separate proceedings in Australia, asking the Federal Court to grant an anti-suit injunction to prevent passengers who brought proceedings against Royal Caribbean in the United States District Court in the District of Florida from continuing with the US proceedings.

Royal Caribbean’s application is based on a clause in their terms and conditions, which states that passengers ‘agree to submit to the exclusive jurisdiction of the court of that state [New South Wales] in the event of dispute’.

This is referred to as an ‘exclusive jurisdiction clause’: in commercial cases, its effect is that the party or parties to whom the clause refers is obliged to litigate, if at all, only in the nominated court.

While exclusive jurisdiction clauses usually don’t say so expressly, they are treated as creating an ‘implied negative stipulation’, obliging the party or parties to whom the clause applies not to litigate in any other court.

The clause might nominate Australian courts, or foreign courts, as the court in which a party or both parties agree to litigate, in the event of a dispute.

While jurisdiction clauses used to be found occasionally in cross-border commercial contracts, they have become almost ubiquitous in both commercial and consumer contracts.

In commercial cases, the Australian courts typically enforce exclusive jurisdiction clauses strictly.

Clauses which require parties to litigate exclusively in Australian courts can be enforced by an Australian court granting an anti-suit injunction to prevent the commencement or continuation of proceedings in a foreign court, brought in breach of the exclusive jurisdiction clause.

In Australia, the law generally does not distinguish commercial from consumer contracts when it comes to the effects of exclusive jurisdiction clauses.

Both are regulated by case law which has been developed in the commercial context, where the strict enforcement of contractual terms can be justified.

Litigation by consumers against suppliers of goods and services is rare, and there are only a few Australian cases in which a supplier has tried to enforce an exclusive jurisdiction clause against a consumer.

Until February 2021, these cases all involved exclusive jurisdiction clauses nominating foreign courts (i.e. disentitling Australian consumers from litigating in Australia).

In almost all those cases, Australian courts did not strictly enforce the exclusive jurisdiction clause, sometimes explicitly referring to the different considerations that are relevant in the consumer context.

However, in one case, the New South Wales Supreme Court enforced an exclusive jurisdiction clause that designated a foreign court against an Australian consumer.

Royal Caribbean Cruises Ltd v Reed is the first time an Australian court has been asked to enforce an exclusive jurisdiction clause which nominated Australian courts, against a consumer, by enjoining the consumer from continuing with litigation in a foreign court.

The Federal Court has not yet decided this question finally, but in February 2021, the court determined two preliminary issues: first, whether leave should be granted to Royal Caribbean to serve originating process on passengers who live in the United States (Justice Stewart held that it should), and second, whether an order enabling substituted service to be made on those passengers should be made (Justice Stewart ordered that it should).

Both of these applications are determined on an ex parte basis — that is, on the application of only one party, when the other party is neither present nor represented.

Therefore, the court did not hear the passengers’ arguments about why the case should not proceed in the Australian courts.

Moreover, the court has not yet determined whether it will grant an anti-suit injunction; it has just decided that Royal Caribbean has a ‘prima facie case’ that the US proceedings have been brought in breach of the passengers’ agreement to litigate exclusively in ‘the court of’ New South Wales (which Justice Stewart interpreted broadly, in keeping with precedent, to include the Federal Court of Australia), and therefore that an anti-suit injunction might be available.

For two reasons, it is surprising that Justice Stewart took the view that the exclusive jurisdiction clause was binding on passengers who are resident in the United States, and expressed the prima facie view that it could be enforced by the award of an anti-suit injunction.

First, Australian courts are usually more protective of consumers than of commercial parties, in the sense of not strictly enforcing exclusive jurisdiction clauses against them, even though the applicable principles do not clearly discriminate in favour of consumers.

Second, there is no Australian precedent establishing that an anti-suit injunction should be available if the foreign party is a consumer, which Justice Stewart does not mention in his judgment.

The Australian law regulating exclusive jurisdiction clauses, and arbitration agreements (which operate in a similar way, usually to restrict consumers’ rights to litigate in their home countries), in consumer contracts is an area which, in our view, is in need of urgent attention and reform.

The globalisation of markets for consumer goods and services, and the contemporaneous increase in the use of technology to automate the contracting process, facilitate the inclusion by suppliers of lengthy, confusing and often unfair contract terms, many of which are unlikely to appear salient to consumers.

This applies especially to jurisdiction and arbitration clauses, the meaning and implications of which are often obscure., as well as not clearly relevant to consumers who are likely to feel particularly optimistic when purchasing a holiday.

Consumers are very unlikely to appreciate, at the time of entering into the contract, that the forum in which proceedings are heard is often crucially important not only to their ability to litigate at all, but also to the likely outcome of the litigation.

The significance of forum is evident from the efforts that sellers and suppliers put into contesting consumers’ rights to litigate in their home courts, in cases like Royal Caribbean Cruises v Reed.

These problems have long been recognised in some other legal systems.

Most notably, in the European Union, the law regulating jurisdiction clauses distinguishes commercial from non-commercial agreements, and significantly limits the enforceability of jurisdiction clauses in consumer cases.

Basically, jurisdiction clauses in consumer contracts can only be enforced if they have been entered into after the dispute arose, or if they are favourable to the consumer.

While Australian law has a number of principles which can be used by a well-informed consumer with access to, and the funds to pay for, expert representation, it is not certain that the Australian courts will always protect consumers.

In any event, it is highly undesirable for the law to be so unclear about the legal effects of such important agreements, especially where consumers are concerned.

The law in the European Union provides a useful basis for the development of the Australian law. In a case like Royal Caribbean Cruises Ltd v Reed, the result would be that the exclusive jurisdiction clause could not be enforced against plaintiffs like the Reeds who don’t live in Australia.

That would leave them free to pursue their claims in the courts of Florida, where Royal Caribbean Cruises is based, and which is much closer to the Reeds’ home in Maryland.

This result is not only more sensible, but more sympathetic, than requiring severely injured people to litigate in a foreign country.

Mary Keyes and Therese Wilson specialise in international dispute resolution and are working on a project about jurisdiction and arbitration clauses in consumer contracts.