De Jong v Carnival PLC

Response to the Opt Out Notices

1. Consistent with the judgment of De Jong No 1, the opt out notices sought responses from group members as to their willingness and capacity to contribute an amount representing 15% of the cost of the cruise they paid for. According to an affidavit of Daniel Forster sworn 26 May 2016, to facilitate this Carnival provided Ms De Jong's solicitors with a list of 1045 so called "lead passengers" on 14 April 2016. Apparently, the cruise ship carried over 2500 passengers but the relevant group is defined as passengers who booked and paid for the cruise. Mr Forster explained that the list was compiled based on the information available to Carnival but there was some uncertainty because approximately 75% of bookings came via intermediaries such as travel agents who remitted funds for a particular booking without necessarily indicating whether the passenger making the booking was the passenger who paid for the cruise. Despite this, in his submissions Counsel for Carnival, Mr Hogan-Doran, noted that it was likely that the passenger in each group booking who received the opt out notice was able to provide it to the passenger who booked and paid for the booking. In any event, both parties proceeded on the basis that the list of 1045 passengers represented all potential group members.
2. The responses to the opt out notices, including the inquiry of members about their willingness and capacity to contribute to an order for security, were available for all parties to analyse. Mr Hogan-Doran's submissions (at [6]) and the submission of Counsel for Ms De Jong, Mr Rowe, (at [5]), included an analysis of the responses which at least in the following respects were either common ground or not disputed.
3. The average total fare of each "lead passenger" on the list was $2,126.49 and they ranged between $964.20 and $5,641.00. Of the 1045 persons on the list, 39 persons opted out. According to Carnival in respect of the remaining 1006 the total fares paid was $2,135,449.59 and it follows that the total potential security pool is $320,317.44 (being 15% of $2,135,449.59).
4. Thirty one (31) persons responded to the opt out notices indicating a willingness to contribute 15% of their fare. These amounts totalled $9,866.18 (representing fares paid of $65,774.50). Eight hundred and forty three (843) people did not respond to the opt out notices. Those persons paid a total of $1,801,594.21 in fares and 15% of their fares totalled $270,239.13.
5. One hundred and thirty two persons (132) responded to the opt out notices indicating an unwillingness or incapacity to contribute. Those persons paid $268,080.88 in fares. In his written submissions Mr Hogan-Doran noted that two of these responders are not group members in that they did not personally pay for a ticket and another three opted out. Further, he disputed whether the responses of approximately 35 other persons demonstrated an incapacity or reasonably based unwillingness to contribute 15% of the fare and submitted that their portion of the fares should be added back. The amount of their fares was not specified but given the average fare was $2,126.49 then it amounts to approximately $70,000. Fifteen per cent of this amount is $10,500.00. Save for those persons Mr Hogan‑Doran conceded for the purposes of this application the "veracity and reasonableness of those who indicated an unwillingness or inability to pay".

Submissions

1. Mr Hogan-Doran submitted that, as the onus was on Ms De Jong to prove that the proceedings would be stultified by the making of an order for security, it followed that she must demonstrate the group members' incapacity or reasonable unwillingness to contribute. Accordingly, he submitted that any consideration of the resources available to the plaintiff to meet an order for security should include both those who responded with a willingness to contribute 15% of their fares and those who did not respond at all. In relation to the non‑responders, Mr Hogan-Doran pointed to evidence indicating that at least 20 of the group members who did not respond owned real property, the amount that was sought from each group member (ranging from $144.63 to $820.86) was modest and that some group members were able to respond to the opt out notice with relative ease. He submitted that the Court should infer that those who did not respond "have nothing to say to support any inability or reasonable unwillingness to pay but do wish to retain the benefit of the proceedings".
2. Mr Hogan-Doran also submitted that there was a real risk that the claims of group members would fail. In those circumstances, he also submitted that an amount sought by reference to 15% of the passenger's fares was not oppressive given that Carnival's costs of the proceedings are estimated at $937.348.66 and that it has incurred $53,667.00 in (successfully) defending the application for a separate question and $48,795 in pursuing the application for security (as at 5 August 2016).
3. Counsel for Ms De Jong, Mr Rowe, submitted that security should not be ordered. He submitted that the individual claims were small and there was no indication that the claimants are wealthy individuals. He also submitted that few claimants responded by indicating a willingness to provide some security and that as no inquiry had been undertaken to ascertain claimants' means, it would be "impractical to assume sufficient money would be pledged by group members to support an order for security anywhere near the amount" of $686,890.97 (being that originally sought by Carnival: De Jong No 1 at [2]).
4. In his written submissions Mr Rowe traversed a number of Federal Court decisions concerning the awarding of security for costs in representative proceedings. The decisions referred to were addressed in De Jong No 1 at [20] to [41]. In oral submissions Mr Rowe also referred to the judgment of Ball J in Paul Baker as Plaintiff Representative of 165 Plaintiff Group Members v The Partnership of Anne Patricia Lareter [2016] NSWSC 1194 ("Baker") in which his Honour declined to embark upon an investigation of the means of group members to contribute to an order for security bearing in mind the cost and delay involved in questioning group members via notices (at [21]). However, at [15] his Honour endorsed the analysis in De Jong No 1. Further, in Baker his Honour concluded that the plaintiff had a strong case that the defendants had defrauded him through a "scam" (at [17]). Thus, unlike this case, in Baker there was not a sufficiently strong case for security to justify ascertaining the willingness and capacity of group members to contribute to an order for security (cf. De Jong No 1 at [64]).
5. Mr Rowe also emphasised the nature of this claim being a "consumer claim by ordinary people not a commercial case" and the characteristics of group members as consumers. He submitted that individual claims were not viable in their own right and that an order for security would stifle the proceedings. It was also contended that an order for security would not be made if the members commenced individual actions.
6. In oral submissions Mr Rowe submitted that Ms De Jong's claim was a strong one. He referred to various internal memorandum discovered by Carnival which indicated that in the 24 hours preceding the departure of the cruise ship Carnival staff were aware of adverse weather conditions in the area of New Caledonia and were giving consideration to changing the ship's itinerary.
7. In reply, Mr Hogan‑Doran submitted that this material was supportive of his client's case. He pointed out that the statement of claim alleged that Carnival "knew or ought to have known" prior to its departure that the ship would not travel to New Caledonia and also alleged that Carnival failed to "make any or any adequate enquiry prior to [the] departure of the cruise into the nature and extent of Tropical Cyclone Pam". Mr Hogan‑Doran submitted that the material referred to by Mr Rowe demonstrated that, contrary to the pleaded case, no decision to change the itinerary prior to the departure of the cruise ship was made prior to the ship's departure and that consideration was given to the possible effect of Tropical Cyclone Pam on the ship's itinerary. Mr Hogan-Doran also submitted that the terms of the contract between passengers and Carnival enabled Carnival to alter the itinerary and, if that was done due to adverse weather conditions, then a passenger could not cancel their cruise and obtain a refund.

Assessment

1. In De Jong No 1 at [64] I concluded that, leaving aside any issue of stultification, Carnival had made out "a sufficiently strong case for an order for at least some security" to warrant embarking on the process of ascertaining the willingness and capacity of group members to contribute an amount to meet such an order. This conclusion was at least in part based on an assessment of the strength of Ms De Jong's case (at [61]), the nature, number and size of the claims made (at [62] to [63]) and a weighing up of the risks of the litigation faced by each side (at [65]).
2. Mr Rowe's submissions sought to revisit part of that assessment. I have already set out his submissions in relation to the strength of his client's case and Mr Hogan-Doran's response. I do not accept that the discovered documents to which I was referred in argument demonstrate that Ms De Jong (or other group members) has a strong case. The material suggests that Carnival was monitoring the gathering cyclone and was aware prior to the ship's departure that it had the potential to affect the ship's itinerary but that was not certain and did not result in any decision to change the itinerary. As submitted by Mr Hogan-Doran those matters do not of themselves advance the pleaded case and there is a contestable issue as to whether notification of a change of itinerary due to adverse weather would have entitled Ms De Jong and the other passengers to cancel their trip and obtain a refund. In De Jong No 1 at [61] I accepted that Ms De Jong's claim was genuine but stated that I was not in a position to assess its prospects of success. At this point I accept that it is genuine but cannot assess its prospects of success as any higher than arguable.
3. In De Jong No 1 at [63] I noted that the size of the individual claims of group members ranged from $3000 to $5000. I also noted a submission made on behalf of Ms De Jong that contrasted the claims with losses from commercial transactions (cf Madgwick v Kelly [2013] FCAFC 61; 212 FCR 1). I stated that "the disappointment arising from a holiday that does not meet contractual expectations has been found to justify compensation in a number of cases" (citing Baltic Shipping Company v Dillon [1993] HCA 4; (1993) 176 CLR 344; Jarvis v Swans Tours Ltd (1973) QB 23) but added that "it is not a type of loss that weighs much against an order for security compared with actions that allege a more serious interference with a person's rights or interests, such as actions seeking damages for personal injury, psychiatric harm or the loss of a person's significant asset such as their home or business" (at [64]).
4. Subject to two related matters I maintain that view. The first is that on a closer inspection of the loss claimed by Ms De Jong it is not a claim for the disappointment arising from a holiday that did not meet expectations but instead is a claim for the lost opportunity to cancel the holiday prior to the ship's departure. Thus, paragraph [31] of the Statement of Claim particularises the losses suffered as the funds Ms De Jong outlaid to travel from Melbourne to Sydney, her accommodation in Sydney on the night before the ship's departure, the cost of the cruise and her "inconvenience". The first two matters could only be recovered if Carnival was obliged to cancel the cruise prior to her departure from Melbourne for Sydney, making the cost of the flight and accommodation was recoverable. Further, any assessment of the loss suffered on this basis would require Ms De Jong to bring to account the value of the cruise she in fact experienced. This would reduce her damages perhaps substantially.
5. Second, in his submissions Mr Rowe sought to reagitate the discussion in De Jong No 1 concerning the nature of the claims made by Ms De Jong on her own behalf and on behalf of group members. He emphasised that this case involved a "consumer claim by ordinary people". To describe a claim as a "consumer claim" does not advance the matter very far. The more relevant inquiry is to the type of harm suffered. Individuals may plead breaches of various consumer guarantees provided for in the Australian Consumer Law (being Schedule 2 of the Competition & Consumer Act 2010 (Cth)) but the nature of their losses can vary substantially. As noted in De Jong No 1 at [64] in some cases they may suffer personal injury or serious economic harm such as the loss of their home or business. In such cases the Court may be reluctant to order security especially where it is likely to preclude a representative party and group members from pursuing their claims. However, the lost opportunity to cancel a holiday and obtain a refund is not such a significant interference with a person's rights or interests so as to weigh much if at all against the making of an order for security.
6. In De Jong No 1 at [12] I accepted that the unchallenged evidence of Carnival's solicitor was that Carnival was likely to incur $937,348,66 in defending the proceedings and that, if his client was successful following a hearing of the proceedings, then its assessed costs were likely to be $782,803.47 including a sum of $686,890.97 being accrued up to the commencement of the hearing. In De Jong No 1 at [65] I concluded that if "the claims of group members are as small as Ms De Jong's submissions contend, then Carnival's likely level of unpaid costs in the event that it succeeds appears to be significantly disproportionate to the total cost of the claims it faces". I posed the issue in the following terms (at [66]): "Why should Carnival face the prospect of such a significant loss even in the event that it succeeds, whereas group members face no prospect of any loss in the event that they are unsuccessful? It is unfair to expose one party to litigation to such a level of unrecoverable costs for that size of claim while the bulk of the persons who comprise the other side to litigation have no exposure, even though they might have the means to make some contribution to an order for security."
7. The material made available on the resumed hearing of this notice of motion bears out this analysis. With 1006 group members and having regard to the observations in [20] to [21] it is difficult to see how the maximum value of each claim exceeds approximately $2,000 each and thus it is doubtful that Carnival's overall exposure exceeds $2 million. Given the finding in De Jong No 1 at [12], conservatively allowing a further $50,000 for the costs of the separate question determined in De Jong No 2 and the resumed hearing of this motion, estimating the plaintiff's recoverable costs of a fully litigated proceedings at $450,000, then it follows that Carnival faces over an overall exposure of approximately $3.5 million if it is unsuccessful in the proceedings. In the event that it is successful it faces an unrecoverable exposure of just over $1 million (or just over $700,000 on a party/party basis). Against that, if no security is ordered, each group member has the prospect of recovering $2,000 if they are successful with no deduction for costs and they face no loss of any amount if they are unsuccessful. Given that their only asserted loss is the refund of the amount paid for a holiday and incidental costs (less the value of the holiday they enjoyed), this represents an unfair allocation of all of the risks of the litigation to Carnival. If the proceedings continue, Carnival would be required to spend a disproportionate sum to defend the claims against it with no prospect of recovering any of that amount. On the other hand, Ms De Jong and group members could pursue the litigation without any adverse financial consequences if it did not succeed, knowing that their opponent had to approach the litigation from the position that the longer the proceedings continued the greater its losses would be regardless of the outcome.
8. Mr Rowe submitted that Carnival was a large company with significant resources such that, unlike Ms De Jong and the other group members, it had the capacity to absorb the costs and risks of the litigation. In one sense this is correct but it fails to address the proposal that Ms De Jong and group members only provide a contribution proportional to the cost of the cruise they paid for. As indicated by the figures noted in [9] that amount is relatively modest.
9. Mr Rowe also submitted that an order for security would not be made if individual actions were commenced by group members (although he accepted that the amount sought in any such individual actions would be so small that they would not be viable). A comparison with the situation that would prevail if individual actions were commenced only illustrates the unfairness of a position that loads all the financial risks of the litigation onto Carnival. It was common ground that the amount of any claims made by individual group members would be so low that they would be commenced in the Small Claims Division of the Local Court. In the Small Claims Division, other than certain incidental costs, the costs recoverable following a contested hearing are limited to those recoverable upon the entry of default judgment (Local Court Act 2007, s 37; Local Court Rules 2.9). If that rule were applicable to these proceedings then it would mean that Carnival would not be at risk of paying any significant amount for Ms De Jong's costs in the event that she succeeded. However, that rule is not applicable such that Carnival is at risk of paying those costs but can never recover its own costs which are disproportionately large compared to the claims made against it.
10. There remains the question as to whether an order for security would risk stultifying the proceedings. Mr Hogan-Doran submitted that the Court should infer that all of the persons who did not respond to the opt out notice by indicating an unwillingness or incapacity to pay were able to pay 15% of the cost of their fare and that resource is available to Ms De Jong. I do not accept that. One of a number of possible competing inferences is that the persons who did not respond simply did not wish to engage with the litigation at this point. However, at this point of the analysis Ms De Jong bears the onus of proving stultification, including the onus of demonstrating that group members cannot, or cannot be reasonably expected to, contribute to an order for security. It suffices to conclude that, given the modest amount sought, there is no basis for concluding that a majority of group members who did not respond cannot make a contribution of that amount.
11. Subject to what follows I will make an order for the provision of security in an amount that corresponds with the sum of the amounts referable to those who responded by indicating that they could pay 15% of their fares ($9,866.18), and 15% of the fares of half of those group members who did not respond ($135,119.55, see [10]). After rounding, the resulting amount is $145,000.00.
12. For the sake of completeness I accept that there is a significant likelihood that the proceedings will come to an end if security in this amount is ordered in that I accept that there is a significant likelihood that the group members will not respond in sufficient numbers to a request to contribute. However I am not satisfied that result will come about because the group members do not have the means to pay a modest proportion of their fare as the price of the opportunity to participate in the proceedings.
13. In the circumstances I consider that it would be unfair to impose on Carnival all the financial risks of the proceeding and have group members bear none bearing in mind the nature of the interest they seek to vindicate, namely, the lost opportunity to obtain a refund from a holiday that did not meet their expectations. It is appropriate to order the provision of an amount of security that provides some measure of protection to the defendant in the event that it is successful, including for the costs it has incurred and is entitled to recover but which is also proportional to my approximate estimate of the maximum size of the claim it faces, namely $2,000,000. The amount that will be ordered represents less than 10% of the total cost of the fares that were paid for and my estimate of the highest value of the plaintiff and group members' claims. It is still an amount that is significantly less than the plaintiff's estimates of the costs it is likely to incur but as stated in De Jong No 1 at [68] it "would not be an appropriate means of addressing the potential unfairness [to Carnival] to impose a disproportionate cost on group members as the price of remaining in the representative action."

ORDERS

1. It follows that I will order Ms De Jong to provide security for costs in the amount of $145,000.00. I will allow her three months to organise that amount given that she may choose to approach group members seeking a contribution. If that amount is not provided I will then order that the proceedings be stayed but only after having first ordered that the proceedings no longer proceed under Part 10 of the CPA (see De Jong No 1 at [54]).
2. In his written submissions Mr Hogan‑Doran sought an order that the costs of the application for the posing of a separate question resolved in De Jong No 2 be payable forthwith along with the costs of the notice of motion for security. I do not see any reason to bring forward the requirement to pay those costs lest the failure to do so stifles the proceedings and pre-empts any efforts of Ms De Jong to meet the order for security. That said, Carnival should have its costs of the notice of motion to this time given that it has largely been successful.
3. Accordingly, the Court orders that: 1. On or before 17 January 2017 the plaintiff provide security for costs in the amount of $145,000.00. 2. The defendant's notice of motion filed 29 January 2016 be stood over to 31 January 2017 at 9.30am. 3. The plaintiff pay the defendant's costs of the notice of motion filed 29 January 2016 to date. 4. The parties have liberty to apply on 2 days' notice.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 October 2016