12 ‘working’ days of Christmas countdown

On the 1st day of Christmas, the Federal Court gave to me... No privilege for a report on cyber-security…

In September 2022, Optus was the subject of a cyber incident potentially affecting over 9 million people. Optus engaged Deloitte to undertake an investigation, and a report was subsequently prepared. In April 2023, a class action was commenced, with the applicants seeking orders to inspect the Deloitte report. Optus asserted legal professional privilege, however Justice Beach rejected the claim in Robertson v Singtel Optus Pty Ltd [2023] FCA 1392. An application for leave to appeal has since been filed.

Although the general counsel of Optus appeared to have appreciated from the outset the numerous legal risks involved, and the need for external assistance with advising in respect of such risks, the affidavit evidence was found to be insufficient to establish that the report was privileged. This was particularly so in the face of a media release of 3 October 2022 containing statements of the CEO regarding various reasons for the Deloitte investigation – none of which indicated that it was for the dominant purpose of seeking or obtaining legal advice. There was no affidavit evidence given by the CEO or board members regarding these matters.

This decision provides a salient lesson on the complexities involved in managing and responding to significant incidents, the need for a well-defined and consistent approach, and the difficulties associated with making a valid claim for privilege. In the spirit of the season, the lesson is perhaps best encapsulated by his Honour’s finding at [165] that “it is difficult to see how the CEO could have made the statements she did on 3 October 2022 if everyone then was singing from the same hymn book as to the dominant legal purpose”.

On the 2nd day of Christmas, the Victorian Courts gave to me... Plans for a scale of costs for the 21st century…

The process for recovering costs in civil litigation still used in most Australian jurisdictions is outdated, lacks transparency, is difficult for clients and lawyers to understand, does not reflect the charging practices of most legal practices, and does not meet policy or statutory objectives. These were some of the findings of a Report on Litigious Costs prepared for the Supreme and County Court of Victoria last year.

Almost all legal practices charge clients on the basis of an agreed hourly rate or, less often but increasingly so, a fixed fee for particular work or up to a stage in the litigation process. However, for the purposes of costs recovery, many courts require parties to ‘retro-fit’ the work to a court mandated ‘scale of costs’, which is a creature of the seventeenth century and typically identifies the quantum of fees that can be paid for particular items of work, such as reading documents, attendances, filing or photocopying. This process requires the engagement of the ‘masters of the dark arts’ – costs consultants – to prepare retro-fitted bills of costs or costs statements.

The Report made 10 recommendations for reform, with the first stage being to repeal the scale and establish a time-based costing regime similar to NSW (which implemented this some 30 years ago), and the second stage being fixed recoverable costs for matters where costs are reasonably predictable and costs budgeting for more complex matters. After consultation, on 30 November 2023, the Supreme Court’s Council of Judges endorsed in principle a new scale, to commence on 1 January 2025, which is based on time spent and sets out maximum hourly rates for legal practitioners of differing PAE and criteria for determining the reasonableness of the rates. Where a party is not charged on the basis of hourly rates, the same criteria will be applied to assess reasonableness of the amount. The County Court will make similar changes.

It is anticipated that this will simplify the process of costs recovery and estimation, reduce the current significant gap between actual and recovered costs for successful litigants, and facilitate improved access to justice. As we are about to enter the second quarter of the 21st century, will other jurisdictions follow?

On the 3rd day of Christmas, the High Court gave to me... No more peak indebtedness in insolvency…

Earlier this year, the High Court of Australia put the infamous ‘peak indebtedness rule’ to the test, with beneficial results for creditors in liquidations in the context of an unfair preference claim. In the matter of Bryant v Badenoch [2023] HCA 2, the High Court scrutinised the operation of s 588FA(3) of the Corporations Act 2001 (Cth), and unanimously found that the ‘continuing business relationship’ or ‘running account’ defence does not incorporate the ‘peak indebtedness rule’.

Before this decision, liquidators purported to apply this ‘rule’ (which did not expressly exist in the legislation) to choose the high point of a company’s indebtedness to a creditor as the starting point for the ‘single transaction’ that they were required (by s588FA(3)) to consider when calculating the value of a preference claim. In doing so, the liquidator was able to maximise the difference between the peak of the company’s indebtedness to a creditor and the amount owed at the end of the ‘single transaction’, and therefore maximise the preference claim.

The High Court’s unanimous decision was a significant upheaval to what was once considered to be settled law, and no doubt came as a disappointment to liquidators.

On the 4th day of Christmas, Federal Parliament gave to me… An expanded unfair contract terms regime…

On 9 November 2023, the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 received assent. The name does not on its face reveal the important changes made to the unfair contract terms (UCT) provisions in the Australian Consumer Law (ACL). The focus of this note is on the ACL, although similar but not identical changes were made to the Australian Securities and Investments Commission Act 2001.

The UCT provisions continue to apply to unfair terms in standard form consumer and small business contracts, and render such terms void. The test remains unchanged, however the application is significantly broadened in respect of small businesses. In this regard, the contract price thresholds have been removed. Additionally, a small business contract is a contract for the supply of goods or services, or the sale or grant of an interest in land, where at least one of the parties is a small business employing fewer than 100 employees or with a turnover of less than $10m in the previous year. Previously the regime only applied to small business contracts where one of the parties employed fewer than 20 persons. Clearly these provisions will capture a much larger proportion of contracts. The amendments also clarify that a contract may still be a standard form contract despite a party having an opportunity to negotiate changes to terms that are minor or insubstantial, or to select a term from a range of options.

A contravention of the provisions now gives rise to pecuniary penalties. For a body corporate it is the greater of $50m, three times the value of the benefit, or 30% of adjusted turnover during the relevant breach period. The penalty for an individual is up to $2.5m. Further, besides being able to award compensation, the courts now have the power to make orders for redress (including declaring the contract void ab initio or varying the contract retrospectively). On the application of the ACCC, a court can restrain a party from making future contracts that include particular terms. A review of your contracts might be a good New Years’ resolution.

On the 5th day of Christmas, the Qld UCPR gave to me…Offers to settle for defendants, with a costs indemnity…

The formal offer to settle provisions in the UCPR (Qld) were significantly amended on 23 June 2023, and now adopt a more balanced approach to the costs consequences that flow if offers are rejected – consistent with rules in other jurisdictions. This should encourage earlier resolution of litigation.

For offers made by a plaintiff, where the plaintiff obtains an order no less favourable than the offer, the defendant pays the plaintiff’s costs on the standard basis up to the day of service of the offer and on the indemnity basis afterwards. Previously the defendant was required to pay indemnity costs for the entire proceeding.    

For offers made by a defendant, if the plaintiff obtains an order but on terms less favourable than the defendant’s offer, the defendant pays standard costs up to the offer but can recover indemnity costs from the plaintiff afterwards. Where the plaintiff’s proceeding is dismissed but the defendant has made an offer, the plaintiff must pay the defendant’s standard costs up to the offer and indemnity costs afterwards. Under the previous rules, if the defendant made an offer and the plaintiff did not obtain an order that was more favourable, the defendant paid the plaintiff’s costs on the standard basis up to the offer and the plaintiff paid the defendant’s costs on the standard basis afterwards.

There was limited incentive for defendants to make formal offers under the old provisions, and they generally resorted to making Calderbank offers instead. This practice will likely change. Defendants should carefully consider these new provisions and plaintiffs should take the time to evaluate any such offers received.

On the 6th day of Christmas, the Queensland Court of Appeal gave to me… Expert file notes – a lawyer’s headache relieved…

In a decision with practical implications for practitioners working in Queensland courts, the Queensland Court of Appeal in Enkelmann & Ors v Stewart & Anor [2023] QCA 155 overturned earlier findings and confirmed that rule 212(2) of the UCPR, under which a ‘document consisting of a statement or report of an expert is not privileged from disclosure’, does not extend to a file note prepared by a solicitor in conference with an expert.

The plaintiffs had engaged an expert to do a peer review of two reports (one for the defendants and one for the plaintiffs), comparing their strengths and weaknesses, prior to a mediation. No report was prepared but notes of the conference were taken by the plaintiffs’ lawyers. The defendants applied for disclosure, and the plaintiffs asserted privilege. At first instance it was held that ‘the abrogation of legal professional privilege in r 212(2) extends to a solicitor’s file note, which records the opinion of an expert on an issue which is directly relevant on the pleadings and … it does not only incorporate reports actually drafted or prepared by the expert’. In the alternative, it was held that the conduct in respect of the engagement of the expert amounted to waiver.lawyers’

The Court of Appeal overturned the decision. It held that rule 212(2) affects documents ‘brought into existence to be a statement or report of an expert, whether taken by a solicitor or prepared by the expert…[and] this includes a draft [report]’. However, crucially, it held that privilege is not abrogated ‘in respect of a document that is neither a statement nor a report of an expert’. Accordingly the conference with the expert, and the file notes, were privileged.

Nevertheless, this was a pyrrhic victory. While rejecting the first instance alternative finding of waiver, on the basis that it seemed to be based on ‘some overriding principle of fairness operating at large’, the Court of Appeal upheld the defendants’ notice of contention – finding that, when the expert gave evidence under cross-examination about his opinions he had offered, without objection from the plaintiffs, privilege had been waived. 

On the 7th day of Christmas, the Federal Court gave to me… A ‘new’ defamation defence harking back to history…

In Russell v Australian Broadcasting Corporation (No 3) [2023] FCA 1223, Justice Lee dealt with the ABC’s remaining defence in respect of four publications that had been found to convey serious imputations concerning a former commando’s conduct in Afghanistan in 2012.

This case was the first test of section 29A of the Defamation Act 2005 (NSW), a relatively new provision that was introduced as part of model provisions for the uniform defamation laws to ensure that the law of defamation does not place unreasonable limits on freedom of expression and, in particular, on the publication and discussion of matters of public interest and importance.

It was held that the defence requires the defendant to prove both the relevance of the publication to ‘an issue of public interest’ and the making of a value judgment about whether the publication was ‘in the public interest’.

Ultimately, in a case in which no party escaped criticism, the first element was established. However, his Honour found that the ABC had failed to prove that its belief that the matter was in the public interest was reasonable in all the circumstances.

In doing so, his Honour carefully considered the history of similar defences, including the qualified protection defence in the Defamation Act 1889 (Qld) that had been successfully utilised by media until its replacement by the uniform laws in the early 2000’s. Principles from cases dealing with those historic provisions assisted with interpretation of the ‘new’ defence. Although this case was not a good vehicle for establishing that the defence had real work to do in restoring the balance between freedom of expression and of reputation, it provides valuable guidance for the future.

On the 8th day of Christmas, the Queensland Supreme Court gave to me… A valid expert determination, and a reference to Hercules…

In the decision of Bagata Pty Ltd and Anor v Sunstorm Pty Ltd [2023] QSC 104 the court was asked to determine, as a separate question, whether findings of an expert appointed by the parties (concerning vacant possession and permitted use) were affected by ‘manifest error’ within the meaning of a dispute resolution clause that provided:

In the absence of manifest error, the determination of the Expert is conclusive and binding on the parties.

In dismissing the challenge to the expert determination, Justice Applegarth conducted a detailed analysis of authorities that considered the meaning of ‘manifest error’, holding that a key requirement of a manifest error is that it be apparent on the face of the determination and reasons of the expert. His Honour also referred to the significant difference between the tasks undertaken by judges and arbitrators and those undertaken by experts, remarking:

In a proceeding like this, the task of the Judge is not to match the qualities of Dworkin’s imaginary Justice Hercules in arriving at the one right answer to an issue of contractual construction. The proceeding is not an appeal by way of rehearing based on the materials that were before the Expert. The Court’s task is not to search for error in reasons that are not expected to include the type of reasons expected of a Judge or arbitrator. The parties entrusted the determination to an expert, not an arbitrator. The parties also were paying the Expert’s costs under an expedited process. They were not paying the Expert to write a treatise. Instead, they were paying him to consider the evidence and their submissions and to provide a written statement of his reasons for reaching a determination.

On the 9th day of Christmas, the NSW Supreme Court gave to me… An injunction against the world…maybe?

In an unexpected response to what has unfortunately become a less than unexpected occurrence, in June this year the NSW Supreme Court reportedly granted an injunction preventing hackers from accessing and publishing data stolen from a law firm through a cyber attack. The restrictions in the injunction were apparently not limited to the hacker group ‘named’ in the application, but reportedly extended to anyone else in possession of the hacked data, including clients and the media.

Whether seeking such orders becomes common place in the fight against cyber crime is yet to be seen, and it is presently unclear whether courts will regularly grant such orders or on what terms. No reasons were published for the NSW decision, however the decision of the Victorian Supreme Court made a decade earlier in McDonald’s Australia Ltd v Watson [2013] VSC 502 is instructive.

That case concerned the activities of a group of protesters trying to prevent the building of a McDonald’s restaurant in the Dandenong Ranges. The court had granted an interim injunction against certain individuals, but also appointed them as representatives of classes of persons involved in trespass or nuisance activities – using court rules that are common across Australia. The defendants accepted that the court had jurisdiction to make orders against them personally, but challenged the power to appoint them as representatives. The case explored the breadth and limits of such orders.

The court recognised that the purpose of such rules is ‘to facilitate the administration of justice by enabling a party to obtain a binding determination in a single action…on behalf of or against persons with the same interest in the action’. Justice Kyrou held that the existence of an identifiable group or class was not a precondition to such an order, that the appointed representatives did not have to have management or control of the represented group, and that their willingness to act as representatives was not required.

Of particular interest was the consideration at [98] to [100] of the power to make injunctions against unnamed persons. The court referred to an even earlier decision in Patrick Stevedores [1998] 4 VR 143, in which the Court of Appeal held that ‘an injunction cannot be directed to the world at large but must be directed to an identified person or persons’, but recognised the scope for a representative order. In the McDonald’s decision, Justice Kryou held that there may be circumstances of urgency that justify an injunction against an identifiable person whose name is unknown if a representative proceeding is unavailable or impracticable, and that this does not infringe the rule against orders against the world at large.

On the 10th day of Christmas, the High Court gave to me… The final say on fuel efficiency…

After failing in VCAT, the Supreme Court of Victoria, and the Court of Appeal – in a case that alleged misleading and deceptive conduct in respect of windscreen fuel consumption labels – Mitsubishi Motors finally achieved success in the High Court in Mitsubishi Motors Australia Ltd v Begovic [2023] HCA 43.

The plaintiff had purchased a new Triton in 2017, to which a windscreen label had been affixed in compliance with provisions of the Motor Vehicle Standards Act 1989 (Cth) (MVS Act). Almost immediately afterwards, the purchaser became dissatisfied with the actual fuel consumption, and commenced proceedings in VCAT. VCAT found that the fuel consumption label was misleading or deceptive under s 18 of the ACL, and Mitsubishi was ordered to buy the vehicle back for the purchase price.

The court referred to the principle of interpretation that, in the event of apparent inconsistency of legislative provisions relating to the same subject matter and enacted by the same legislature, the general provision may need to be subordinated to the specific provision in order to alleviate conflict. The need to reconcile conflict could not be avoided in this case by characterising the conduct of Mitsubishi, in presenting and supplying the vehicle, as voluntary. In this respect, the court held that s 18 of the ACL assumes that conduct ‘in trade or commerce’ involves a choice to engage in that kind of trade or commerce – rather than a compulsion to do so.

The High Court also recognised that there may be no difficulty reconciling the provisions where the MVS Act required that the vehicle be sold with the affixed label, and the ACL prevented a supplier representing that the actual vehicle sold conformed to the relevant type of vehicle if it did not in fact do so. In that case, both Acts could apply. However, in this case, there was no evidence of any such conduct by Mitsubishi.

The Court held that, as part of a national legislative scheme directed at consumer protection, it was necessary to construe s 18 of the ACL consistently with the (prescriptive) provisions of the MVS Act. It stepped through the plain requirements of the MVS Act that Mitsubishi had no choice but to comply with, and ultimately concluded that Mitsubishi had not engaged in misleading and deceptive conduct.

On the 11th day of Christmas, the US Supreme Court gave to me… Hamilton and the independent state legislature theory…

On 27 June 2023 the US Supreme Court, in a 6-3 decision, rejected an argument that the Elections Clause in the US Constitution vests exclusive and independent authority in state legislatures to draw federal congressional maps that was not open to challenge. North Carolina’s General Assembly had drafted a new federal congressional map, which was challenged as an impermissible partisan gerrymander contrary to the state’s constitution. The trial court found such claims nonjusticiable under the state constitution, but this was overturned by the North Carolina Supreme Court which held that, although partisan gerrymandering claims were outside the reach of federal courts, they were not beyond the reach of state courts. The legislative defendants then filed proceedings in the US Supreme Court. Subsequently the makeup of the North Carolina Supreme Court changed and it overruled the previous decision that partisan gerrymandering claims were justiciable under the state constitution. It did not however reinstate the 2021 congressional plans that had been previously struck down.

One of the issues that divided the court was whether it had jurisdiction or whether, as a consequence of the state Supreme Court’s overruling of its earlier decision that led to the appeal, the matter was moot. The majority held that it was not moot – as a consequence of the fact that, if the US Supreme Court overturned the earlier decision entirely, the state would be able to re-adopt the 2021 congressional plans. For those unfamiliar with US Supreme Court decisions, it is interesting to read the majority and dissenting judgments expressly critising each other’s reasoning.

The substantive aspect of the case explored the history of the role of courts in such matters, with the majority observing that ‘[s]ince early in our Nation’s history, courts have recognized their duty to evaluate the constitutionality of legislative acts.’ The role of earlier state decisions in this respect provided a ‘model for James Madison, Alexander Hamilton, and others who would later defend the principle of judicial review’, with Alexander Hamilton publishing that ‘“courts of justice” have the “duty . . . to declare all acts contrary to the manifest tenor of the Constitution void.”’ After examining subsequent US Supreme Court decisions, the majority upheld a previous decision that to the effect that a state legislature cannot create congressional districts independently of requirements of the state constitution with respect to the enactment of laws.

The majority then rejected, by reference to previous precedent, the argument (including of the dissent) that because the US Constitution gives state legislatures the power to regulate congressional elections, only the US Constitution can restrain the exercise of that power – i.e. not state or federal courts. They went on to hold that, although the Elections Clause did not exempt state legislatures from constraints imposed by state law, state courts did not have ‘free rein’, and (perhaps adopting Hamilton) that they had ‘an obligation to ensure that state court interpretations of that [federal] law do not evade federal law’. It did not however provide guidance as to proper role of federal courts in this respect – merely touching on its last discussion in Bush v. Gore, 531 U. S. 98 (2000). Justice Kavanaugh, in concurring, suggested that the ‘free rein’ test will have to be distilled into a more specific test in the future. The dissent was more scathing – suggesting that ‘this federalization of state constitutions will serve mainly to swell federal-court dockets with state constitutional questions to be quickly resolved with generic statements of deference to the state courts.’

On the 12th day of Christmas, the Commonwealth A-G gave to me… A promise of much-needed reform of privacy…

In the last year or two most of us have had our personal information compromised through malicious cyber attacks on entities that hold our information. The impact could have been reduced in many instances if those organisations had adopted more contemporary information gathering and security practices, and had a true culture of respect for privacy. However, the obligations in the Privacy Act 1988 are well behind current best practice and need to be overhauled – a fact recognised in the Privacy Act Review Report published early in 2023.

The Australian government’s response to the Report was released in September 2023, with the government promising to introduce legislation in 2024. It has identified five key focus areas – bringing the Privacy Act into the digital age (including applying it to a broader range of information), uplifting the protections available to individuals (including strengthening obligations to keep information secure and to delete it when not required), providing entities with greater clarity on how to protect privacy (including adopting a distinction between controllers and processors – as used in other jurisdictions), improving control and transparency for individuals over their personal information (including expanded rights, and a possible statutory tort for serious invasions of privacy), and strengthening enforcement powers of the regulator and courts. Hopefully this will lead to a happier new year for us all!

Andrew Shute
Partner
Sarah Ewing
Special Counsel
Adam Marsh
Solicitor

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