Current trends in Australian disputes
We recap the key commercial cases and regulatory developments of 2022 and identify some areas to watch in 2023
1. Data breaches lead to regulatory focus and increased penalties
Cybersecurity developed as a key litigation risk in 2022.
In May, the Federal Court declared that the RI Advice Group had breached its duties under the Corporations Act as a financial services licensee, following nine cybersecurity incidents between 2014 and 2020. The company had lacked adequate documentation and controls to manage cybersecurity risks.
ASIC warned that failure to address cybersecurity risks or comply with disclosure and reporting requirements may be a breach of the director’s duties.
The second half of 2022 saw several high profile data breaches involving millions of customers, prompting investigations by regulators.
In response, the Australian Government passed new privacy legislation, increasing penalties for privacy breaches and giving new powers to the Office of the Information Commissioner. Penalties went from a maximum of A$2.2 million to the greater of A$50 million; three times the benefit of the contravention; or, if the benefit can’t be determined, 30 per cent of the company’s domestic turnover.
2. Climate change and greenwashing litigation escalate
Claims based on the spectre of climate change remained prominent in 2022.
In Sharma v Minister for the Environment the Full Federal Court held that the Minister did not owe a duty to avoid causing personal injury to Australian children when deciding whether to approve plans to extend an open-cut coal mine in New South Wales. In this case the climate change implications of the approval were ultimately a policy issue for government. Subsequently, Australia legislated an economy wide emissions reduction target of 43% below 2005 levels by 2030 and net zero by 2050.
Meanwhile, investor and regulatory pressure kept environmental, social responsibility and corporate governance performance under the spotlight.
Greenwashing has become a priority enforcement for regulators, with ASIC issuing several infringement notices and commencing enforcement proceedings. At the same time, continued progress towards global standards for significant ESG-related risks highlights likely continuing disclosure risks for companies and directors.
3. National Anti-Corruption Commission to have broad investigatory powers
In 2022, the Australian Parliament passed the National Anti-Corruption Commission Act 2022 and related legislation to establish a federal anti-corruption authority (the NACC) with broad powers to investigate corruption involving public officials, including conduct that occurred before the NACC’s establishment. The government expects the Commission to begin operations in mid-2023.
The NACC will serve as an independent agency with the power to investigate and report on “serious and systemic corruption” across the Commonwealth public sector. The breadth of the NACC’s investigatory powers reinforces the importance of ensuring, when dealing with Commonwealth officials, that you avoid conduct that could be construed as adversely affecting the honest and impartial exercise of a public official’s power or performance of their duties. Commonwealth officials should also be aware that their conduct could be investigated and that there are mandatory reporting requirements under the NACC legislation that may interact with the existing Public Interest Disclosure Act requirements.
4. Supreme Court of Victoria paves the way for contingency fees in class actions
2020 legislation empowered the Supreme Court of Victoria to make “Group Costs Orders” (contingency fees) in class actions. Under these orders, the plaintiffs’ legal costs can be calculated as a percentage of any award or settlement. The Victorian Supreme Court approved a Group Costs Order for the first time in Allen v G8 Education Ltd, permitting the plaintiffs’ lawyers to charge a contingency fee capped at 27.5% of any gross settlement or award. Similar contingency fee type orders have since been approved in a number of other cases, such as for 40% in the Arrium class action and 24.5% in Beach Energy.
These developments make the Supreme Court of Victoria an attractive jurisdiction for class action plaintiffs lawyers, as contingency fees are prohibited in other Australian jurisdictions. We have now seen cases brought in Victoria where it would not otherwise have been the obvious place to bring the proceedings.
5. Inflationary environment puts a spotlight on the risk of cost escalation and construction disputes
Managing the risk of cost escalation in construction projects has become a focus in the last 12 months following unprecedent rises in construction costs. Traditionally parties have managed cost escalation with strategies such as purchasing materials in advance, locking in a fixed price with suppliers or including a contingency allowance in the project budget to cover unforeseen events or risks.
Contractors are becoming less comfortable with traditional risk management strategies in the current climate and are seeking to include cost escalation clauses which provide a more certain mechanism to manage cost escalation. These clauses can protect a contractor’s interests by providing that the price of works will be adjusted to account for an increase in material or labor costs. But they require careful drafting, including attention to the events that trigger the cost escalation mechanism and an appropriate cap on any increase to the contract price. Parties should also consider including an appropriate alternative dispute resolution clause as the economic climate inevitably puts pressure on construction projects and elevates the risk of disputes.
6. High Court to consider the recognition and enforcement of investment arbitration awards in Australia
The High Court is considering whether the Kingdom of Spain can rely on state immunity to avoid recognition and enforcement of an arbitral award under the ICSID Convention (the Convention on the Settlement of Investment Disputes between States and Nationals of Other States). As the first contested enforcement of an investment arbitration award in Australia, the decision will provide important guidance on this emerging area of the law.
The dispute before the High Court arose after Spain reduced the level of subsidies paid to renewable energy generators, including the respondents in the High Court proceedings. The respondents had obtained awards against Spain under the ICSID Convention, which they sought to enforce in the Federal Court of Australia. Spain has asserted it is immune from suit under the Foreign States Immunities Act 1985 (Cth). The High Court will decide whether Spain’s accession to the ICSID Convention constituted a submission to the jurisdiction of the Federal Court, so as to extinguish foreign state immunity. The High Court heard the matter on 10 November.
7. Penalties legislated for unfair contract terms
In October Parliament passed legislation which drastically increases the maximum penalties under the Competition and Consumer Act and makes significant changes to the law on unfair contract terms. The changes come into effect from October 2023.
The unfair contract terms amendments introduce new civil penalties relating to entering into a standard form consumer or small business contract which contains an unfair term, and applying or relying on an unfair contract term. Before these amendments, unfair terms could be made void, but there was no penalty.
The amendments also expand the scope of “small business” contracts to which the regime will apply.
Regulators continue to take action in this area and will likely step up their efforts once the new civil penalties come into effect. Notably, the Federal Court made orders in August preventing Fujifilm from relying on unfair terms in its standard contracts with small businesses. Fujifilm had used templates to enter into 34,000 contracts for the supply of printers and related software on a lease basis, many with small businesses. The contracts contained unfair terms relating to automatic renewal, limitation of liability, termination rights and payments, payment terms and variation rights.
8. Financial services systems are scrutinised for unconscionable and misleading conduct
For financial entities services, 2022 brought further clarity to the law of unconscionable conduct and misleading or deceptive conduct.
The High Court decision in Stubbings v Jams 2 demonstrates that systems, practices or procedures are likely to be unconscionable where they are found to have been orchestrated to avoid knowledge or an appreciation of a party’s financial or personal circumstances, vulnerabilities or disadvantages that would create unconscionable conduct risk. A certificate of independent legal or financial advice will not necessarily “immunise” an entity from a finding of unconscionable conduct where there is otherwise evidence of exploitation of a special disadvantage.
Separately, in two recent enforcement proceedings by ASIC against banks involving charging fees without contractual entitlement, the court held that statements of account recording transaction fees did not impliedly represent that the fees were payable. Further, a contractual term which provides for a fee waiver did not impliedly represent that the bank had adequate systems and processes in place to ensure the fee waivers would be applied in every case. The “efficiently, honestly and fairly” obligation similarly did not require banks to achieve a standard of perfection in the delivery of services to customers. We expect to see further litigation around the extent of these obligations in 2023.
9. A public authority’s duty of care in negligence turns on the statutory framework
In a decision arising from the 2014 Parkerville bushfire, the High Court held that a statutory authority owed a duty of care to avoid or minimize the risk of harm to persons and their properties in the vicinity of its electricity distribution system: Electricity Networks Corporation t/as Western Power v Herridge Parties.
The bushfire started when a pole supporting an electrical cable fell to the ground, igniting dry vegetation. The fire caused damage to 392 hectares and the loss of 57 homes.
The Court found that when determining the existence and content of such a duty, the starting point should be a consideration of the terms, scope and purpose of the statutory framework, and the statutory functions and powers which the authority in fact exercised. The Court rejected submissions that the authority lacked sufficient control, and that a duty was inconsistent with the statutory framework.
10. The High Court says terms in informal contracts are inferred
The High Court considered the test for identifying terms in informal contracts in Realestate.com.au Pty Ltd v Hardingham.
A photographer sued the operators of real estate platforms for infringing his copyright. The photographer had orally agreed with real estate agents to create the images, without discussing copyright. The platform operators invariably required agents to give an irrevocable, perpetual license for images. Was the license limited to the particular marketing campaigns, or ongoing?
The Court held that there was a term entitling the agents to sub-license the use of the images indefinitely. According to the majority, it was not necessary to imply a term, as the term could be inferred (or would be the conclusion of the reasonable observer) from the silence of the parties in light of the background circumstances. The Court clarified that informal contract terms should be identified objectively, not by reference to the parties’ inferred actual intentions.