18 December, 2018
This publication recaps 10 of the most important developments of 2018 across commercial disputes, and identifies some areas to watch in 2019.
Topics covered
- Financial Services – The Hayne Royal Commission
- International Arbitration – High Court to address how to interpret arbitration clauses
- Contracts – Can contractual notice provisions undercut the limitation period on misleading or deceptive conduct claims?
- Contracts – Ipso facto reforms
- Contracts – no oral modification clauses
- Class Actions – Competing class actions GetSwift solution
- Misleading or deceptive conduct – Full Federal Court clarifies when the Australian Consumer Law will apply to online businesses based overseas
- Construction – Security of Payments developments
- Energy & Resources – High Court considers native title compensation in the Timber Creek claim
- Anti-Bribery & Corruption – English decision limiting litigation privilege in internal investigations is overturned on appeal.
1. Financial Services – Hayne Royal Commission Delivers Interim Report
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry established on 14 December 2017 received extensive publicity in 2018. The Commission divided its work into rounds of public hearings relating to consumer lending, financial advice, loans to small and medium enterprise, experiences with regional and remote communities, superannuation, insurance and public policy.
A three volume interim report was delivered on 28 September 2018. The interim report outlines issues identified by the Commission in relation to the first four rounds of hearings. The interim report does not provide formal recommendations, but identifies a series of policy based observations and questions about the structure of the financial services industry, potential reforms and simplification to the law, and how current legislation is interpreted and enforced. In addition to the financial services entities, the practices of ASIC and APRA have been closely scrutinised, with the Commission stating that neither body has marked and enforced the bounds of the law in a way that has prevented the misconduct described in the report.
Read our update on the key themes of the report here. The Commissioner's final report is due by 1 February 2019.The publicity generated by the Royal Commission has been accompanied by not only a series of class actions but also a more aggressive stance by regulators.
This has included ASIC embedding officers in the largest financial institutions, seeking an increase in funding and signalling an increase in enforcement proceedings.
2. International Arbitration – High Court to address how to interpret arbitration clauses
A key issue for both domestic and international arbitration is how to interpret the scope of the dispute submitted to arbitration. The Courts have to balance, on the one hand, the need to give effect to the words used by the parties and, on the other hand, the inefficiency of a dispute being dealt with partly by arbitration and partly by the Courts. The appeal in Rinehart v Hancock Prospecting Pty Ltd, currently before the High Court, presents the opportunity to choose between the competing interpretations of the same clause by two different Australian appellate courts.
In 2012 the New South Wales Court of Appeal was required to interpret what was meant by the words "any dispute under this deed" in an arbitration clause. The Court construed the clause as limited to disputes governed or controlled by the deed: Rinehart v Welker [2012] NSWCA 95. It reasoned that the ordinary meaning of the words should be preferred, and it was wrong to adopt a presumption that the parties intended that any dispute arising out of the relationship would be decided by the same tribunal.
In 2017 the Full Federal Court looked at the same words in the context of a different proceeding and came to a different conclusion: Hancock Prospecting Pty Ltd v Rinehart [2017] FCAFC 170. It reasoned that the correct approach to arbitration agreements is to presume that the parties do not intend the inconvenience of having possible disputes being heard in two places.
For further details, see our update here. The High Court's decision is expected in the first half of 2019.
3. Contracts – Can contractual notice provisions undercut the limitation period on misleading or deceptive conduct claims?
It is commonly understood that parties cannot "contract out" of the prohibition against misleading or deceptive conduct under section 18 of the Australian Consumer Law (ACL) because this provision is to be given full effect in accordance with the "no exclusion principle".
However, a number of first instance decisions in New South Wales have found that parties can contractually impose a monetary or temporal limit to ACL liability for misleading or deceptive conduct. In May this year, Justice Riordan of the Victorian Supreme Court expressly declined to follow the decisions of single judges in New South Wales. His Honour instead held that the line of cases that applied the "no exclusion principle" to these notice provisions was to be preferred: Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd [2018] VSC 246.
Riordan J considered the enforceability of a contractual notice provision that required any claims, including claims for misleading or deceptive conduct under the ACL, to be notified within 7 days. Any claims not so notified would be "absolutely barred".
Riordan J held that the claimant could not be precluded from bringing an ACL claim because of the failure to give notice within the 7 day period prescribed under the contract.
His Honour reasoned that "any attempt to restrict the remedy by limiting the time in which an action can be brought is an unacceptable interference with the public policy underpinning the provisions".
Ultimately, this question will need to be resolved by the appellate courts.
For more information see our Contract Law Update here.
4. Contracts – Ipso facto reforms
A variety of commercial contracts in Australia traditionally provide for termination or other rights where there is an "insolvency event" to reduce the risk of dealing with a company that is financially unable to meet its contractual obligations. However, significant restrictions on the enforceability of "ipso facto" clauses commenced this year. The reforms apply to contracts entered into on or after 1 July 2018.
An "ipso facto" clause is a provision which allows one party to exercise a right (eg to terminate or modify the operation of a contract) upon the occurrence of some specific event. Specifically, following amendments to the Corporations Act, a party may no longer be able to enforce ipso facto rights that arise as a result of events including the appointment of a voluntary administrator, a scheme of arrangement (for the purpose of avoiding being wound up in insolvency) or the appointment of a managing controller to the whole (or substantially the whole) of a counterparty's property. Further, in some cases ipso facto rights that arise as a result of the financial position of a party are also affected. Importantly, the restrictions do not apply in relation to contracts, agreements, arrangements or rights that are excluded by the regulations or a ministerial declaration.
According to the Explanatory Memorandum, the purpose of the reforms was "to allow breathing space for a company to continue to trade during a formal restructure".
For more information see the following Ashurst publications:
- New restrictions on enforcing ipso facto clauses under insurance contracts.
- Commonwealth alert: Contractual rights to terminate for insolvency may be unenforceable.
5. Contracts – no oral modification clauses
Often contracts contain a clause providing that any variations have to be in writing and signed by the parties. But what if the parties later agree orally to vary a particular term?
Legal opinions can differ on whether the oral variation is effective. On one view, freedom of contract is paramount, and parties cannot prevent themselves from making a new contract orally or by conduct, except where the Statute of Frauds requires writing. The prevailing view in Australia is that "no oral modification" clauses are ineffective. Recent English authority also denied the efficacy of such clauses: see for example GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited [2003] FCA 50.
However, in May the Supreme Court of the United Kingdom decided that English law should and does give effect to a contractual provision requiring specified formalities to be observed for a variation. If a party relies on a non-compliant variation in good faith, it must rely on an estoppel argument.
For further details, see our updates on Rock Advertising Limited v MWB Business Exchange Centres Limited here and here.
6. Class Actions – Competing class actions GetSwift solution
In recent years the Courts have struggled to manage the problem of multiple class actions being commenced by different law firms in relation to essentially the same events. Competing class actions cause increased legal costs for both sides, wastage of court resources, delay, and unfairness to respondents. In addition, a 2017 decision of Beach J in Bellamy's cast doubt on whether it is appropriate to stay one class action merely because there is another class action dealing with the same subject matter.
However, on 23 May 2018 Lee J permanently stayed two out of three competing open security class actions against GetSwift Limited in the Federal Court. In choosing which class action should proceed, Lee J applied a multifactorial approach but focused on the funding model and the proposal of innovative ways to manage the costs of the proceedings.
See our update on Lee J's decision here.
The Full Federal Court dismissed an appeal against Lee J's decision in GetSwift on 20 November 2018, confirming that the Court has the case management power to conduct a selection process to determine which legal team should have the carriage of the class action, and permanently stay the other competing class actions. However the Full Court indicated that there was no one right answer when dealing with competing class actions. Consolidation of proceedings, the "wait and see" approach and class closure are also valid approaches.
For our more detailed analysis of the implications of the Full Court's decision, see our update here.
For details about proposed reforms to the management of class actions and litigation funding in Australia, see our update on the Australian Law Reform Committee's Discussion Paper here.
The ALRC's report is due to be provided to the Attorney-General by 21 December 2018.
7. Misleading or deceptive conduct – Full Federal Court clarifies when the Australian Consumer Law will apply to online businesses based overseas
With the extraordinary growth of online businesses, it is now routine for Australian consumers to make internet purchases directly from overseas companies. This raises the important question of when those overseas companies are bound by the Australian Consumer Law. The answer was given in the decision in Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224, which was handed down in the final days of 2017.
The Full Federal Court upheld a $3 million penalty imposed on a US company (Valve) which distributes computer games online. Valve had represented on its website and in a subscriber agreement that the fees payable by a consumer were not refundable. These representations were found to be misleading, in contravention of sections 18 and 29(1)(m) of the Australian Consumer Law, because the relevant supplies were subject to ACL consumer guarantees, which gave consumers the right to a refund in certain circumstances.
Two key issues were whether Valve had made the representations in Australia, and whether Valve was "carrying on business" in Australia.
The Full Court held that the representations were made in Australia. Even though the subscriber agreement had been uploaded in Washington State, it could be accessed and read by people anywhere in the world, including Australia. The Full Court also found that Valve was "carrying on business in Australia", including because it had numerous customers in Australia from whom it earned substantial revenue, it had significant personal property and servers located in Australia and it incurred substantial monthly expenses in Australia.
The High Court dismissed an application for special leave to appeal on 19 April 2018, commenting that there was "no reason to doubt the correctness of the decision of the Full Court".
For more information, see our publication on the first instance decision here.
8. Construction – Security of Payments Developments
There were a number of notable common law and legislative developments in respect of Australia's security of payment regimes in 2018:
In February, the High Court delivered its decisions in Probuild and Maxcon, which confirmed that a determination made by an adjudicator appointed under the security of payment legislation is not subject to judicial review for a non-jurisdictional error of law. The High Court's reasoning is broad and likely to apply equally to security of payment legislation in each state and territory (albeit that the decisions only relate to security of payment legislation in New South Wales and South Australia respectively). The High Court also held that retention provisions will fall foul of the "pay when paid" prohibition if the release of retention is contingent upon the operation of a head contract. For further details, see our update here.
The final report of the national review of the security of payment laws commissioned by the Australian Government was released on 21 May 2018. The report made 86 recommendations, including most notably for a nationally consistent legislative model. Other recommendations included that "reference dates" should be abandoned, that time bars should be void in certain circumstances and that adjudicators should be more heavily regulated. Our update on the report is here.
The New South Wales Government passed the Building and Construction Industry Security of Payment Amendment Act 2018 (NSW). Once they commence, the amendments in the Act will provide for revised processes for progress payments, payment claims and adjudications. Amongst a number of other significant reforms, directors and other officers of construction companies will be personally liable for the commission of offences under the New South Wales security of payment legislation. For further details, see our update in respect of the bill here.
The Queensland Government's security of payment reforms under the Building Industry Fairness Act 2017(Qld) have been proclaimed and will commence on 17 December 2018. These reforms will have a significant impact on the management of progress payments and payment disputes in the Queensland construction industry. For more information, see our update here.
9. Energy & Resources – High Court considers native title compensation in the Timber Creek claim
The first ever assessment of native title compensation in Australia came before the High Court in September this year in the Timber Creek compensation claim. The High Court heard an appeal from a decision of the Full Federal Court which had reduced the native title compensation award to the Ngaliwurru and Nungali Peoples for the impact of land grants and public works on their native title interests.
The Full Court had reduced the award from $3.3 million to almost $2.9 million. This was because it took the view that the trial judge had overvalued the economic aspects of the native title rights and interests, and reduced the award for economic loss from 80% to 65% of the freehold value of the relevant land at the time of the compensable acts.
Otherwise the Full Court upheld most of the trial judge's findings, including in relation to an award of $1.3 million for non-economic loss for hurt feelings and loss of spiritual attachment: Northern Territory v Griffiths [2017] FCAFC 106.
We await the High Court's decision, but comments at the hearing suggested that the High Court was sympathetic to submissions about the native title holders' loss of spiritual attachment to the land, was receptive to exploring a "holistic approach" to the assessment of compensation and recognised that its decision in this case would provide guidance for future compensation claims. For more information, see our publications on the High Court appeal here and on the decision of the Full Federal Court here.
10. Anti-Bribery & Corruption – English decision limiting litigation privilege in internal investigations is overturned on appeal
In May 2017, the High Court of England and Wales had controversially ruled that documents generated by an internal investigation, including interview notes and forensic accountants' notes, were not subject to litigation privilege. However, in September 2018, the Court of Appeal overturned that part of the decision of the High Court: The Serious Fraud Office v Eurasian Natural Resources Corporation Ltd [2018] EWCA Civ 2006.
The Court of Appeal found, among other things, that it was clear that the company was contemplating criminal prosecution and that the documents had been brought into existence for the dominant purpose of defending or avoiding those proceedings. The Court also observed that it is "in the public interest that companies should be prepared to investigate allegations from whistle blowers or investigative journalists, prior to going to a prosecutor such as the SFO". If these documents were not privileged, the temptation may be not to investigate at all.
While there are differences between English and Australian privilege laws, this is a timely reminder for Australian companies conducting internal investigations not to assume that the documents created will be privileged merely because of the involvement of lawyers. Careful consideration must be given to whether documents record confidential communications made for the dominant purpose of giving or obtaining legal advice or for use in existing or anticipated legal proceedings.
For more information see our UK publications on the High Court decision here and on the Court of Appeal decision here.
More broadly in relation to the anti-bribery and corruption landscape in Australia, the Federal Government's proposed reforms to strengthen Australian laws (including by introducing a new offence for failing to prevent bribery of foreign public officials and a deferred prosecution agreement scheme) remain before Parliament. See our latest update here.
For further information, please contact:
Adam Firth, Partner, Ashurst
adam.firth@ashurst.com
