The Bench Press

Updated: Internationalising the International Arbitration Act

2017-08-21T10:30:00.000+10:00

This article has been updated following Australia becoming a signatory to the Mauritius Convention on 18 July 2017, discussed below.

Last week the Civil Law and Justice Legislation Amendment Bill 2017 (Cth) (Bill) was introduced into the Senate and received its second reading speech. The object of the Bill is to ‘make minor and technical amendments to civil justice legislation’ and it proposes amendments to various Commonwealth legislation including the International Arbitration Act 1974 (Cth) (IAA). A closer inspection of the proposed amendments to the IAA reveals that the relevant amendments to the IAA are anything but ‘minor and technical’.

There are four key proposed amendments to the IAA. These are succinctly and somewhat deceptively summarised in the explanatory memorandum to the Bill as:

clarifying the procedural requirements for enforcement of an arbitral award
specifying expressly the meaning of competent court for the purpose of the UNCITRAL Model Law¹
clarifying the application of the confidentiality provisions to certain investor-state arbitrations, and
modernising the provisions governing arbitrators’ powers to award costs in international commercial arbitration proceedings.

In relation to these proposed amendments, Senator the Honourable George Brandis QC stated in his second reading speech that the Bill:

‘reflects the Government's commitment to maintain its place in the international legal environment by amending the International Arbitration Act to help ensure that Australian arbitral law and practice stay on the global cutting edge, so that Australia continues to gain ground as a competitive arbitration friendly jurisdiction.’

The following analysis of the proposed amendments identifies the significance of these proposed changes to the IAA.

Clarifying procedural requirements for enforcement
This summary is probably the most understated of the four proposed amendments. This Bill proposes amending the language in sections 8(1) and 8(5)(f) of the IAA to clarify that a foreign award is binding between the ‘parties to the award’, rather than between the ‘parties to the agreement pursuant to which the arbitration award is made’, which is the current language in section 8.

The reference to enforcing an award against a party to the arbitration agreement, as opposed to the parties to the award, is in contrast to equivalent legislative provisions in leading international arbitration jurisdictions such as the United Kingdom, Singapore and Hong Kong.

The current wording of this provision has resulted in contradicting Australian case law. The Victorian Supreme Court of Appeal has held that section 8(1) as it is currently formed imposes a legal onus on the party seeking to enforce the award (Award Creditor) to prove that party which must pay the award (Award Debtor) is a party to arbitration agreement². However, Justice Foster, the Arbitration Co-ordinating Judge in the Sydney Registry of the Federal Court of Australia has held that the Award Creditor need only produce the award and the alleged agreement upon which it relies in order to meet the evidential requirements of section 9(1), even if the Award Debtor is not a named party to the arbitration agreement.³

This addresses the emergence of joinder and consolidation in arbitration proceedings where there are multi-party or multi-contract proceedings. Many arbitration institute rules have recently been revised to accommodate joinder and consolidation. The recognition and enforcement of an award between parties to the award, as opposed to the parties to the agreement, is a practical and sensible approach which should be adopted in the IAA.

This clarification should be welcomed as it acts to remove a potential unnecessary procedural step which would require the Award Creditor to demonstrate that the award does in fact bind the Award Debtor. It brings the IAA into line with international best practice and reinforces the approach taken by Justice Foster as the approach to be adopted throughout all Australian jurisdictions.

Unlike the remainder of the proposed amendments to the IAA, if these amendments enter into force, they would apply to arbitral proceedings regardless of whether those proceedings commenced before these amendments are enacted. The other amendments to the IAA would only apply to arbitration proceedings commenced after the Bill is enacted.

Specifying the meaning of ‘competent court’
Article 6 of the Model Law, requires the functions referred to in certain Articles of the Model Law to be performed by the court(s) as specified by each State enacting the Model Law. Australia has specified the courts for the purposes of Article 6 as the supreme court of the state or territory which is (or is to be) the place of the arbitration, or in any case, the Federal Court of Australia.

This specification works well for articles 11(3), 11(4), 13(3), 14, 16(3) and 34(2) which are identified in article 6 of the Model Law and all use the phrase ‘the court or authority specified in article 6’ to designate power to the relevant Australian court.

However, the following articles do not refer to ‘the court or authority specified in article 6’ and instead designate power to ‘the competent court’:

article 17H – recognition and enforcement of interim awards
article 27 – court assistance in taking evidence
article 35 – recognition and enforcement of awards, and
article 36 – grounds for refusing recognition or enforcement of awards.

There is no definition of ‘competent court’ in the IAA or the Model Law, which has caused the question of jurisdiction to arise when a party has sought to engage the court’s power in relation to these provisions.⁴

The Bill seeks to introduce amendments which would clarify this ambiguity by stating that if the taking of evidence or the recognition or enforcement of awards (interim or otherwise) is to take place in a state or territory, then the supreme court of that state or territory is a competent court, or in any case, the Federal Court of Australia is a competent court.

This is another welcome amendment which would apply to arbitration proceedings commenced after the Bill is enacted. Until then, parties seeking to rely on these provisions will need to rely on the common law to establish that the relevant court is a competent court to exercise jurisdiction.

Clarifying the application of confidentiality provisions
The amendments proposed to the confidentiality provisions in the IAA intend to exclude the application of these provisions where the Transparency Rules ⁵apply. The application of the Transparency Rules is governed by the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (2014) (Mauritius Convention). This update to the application of the confidentiality provisions in the IAA indicates that Australia is taking steps towards implementing transparency in investor-state arbitration.

In July 2017, Australia was the first country in the Asia-Pacific region to become a signatory to the Mauritius Convention. Parties to the Mauritius Convention agree to apply the Transparency Rules where both the State and the claimant investor’s State are parties to the Mauritius Convention or where the investor agrees to their application. Australia is however, yet to ratify the Mauritius Convention. Furthermore, the Mauritius Convention is not due to enter into force until October 2017.

Once the Mauritius Convention enters into force and Australia ratifies it, investor-state arbitrations between Australia and consenting investors or investors from States party to the Convention will become subject to the Transparency Rules regardless of when the treaty underpinning the arbitration was concluded, or the applicable arbitration rules. Similarly, Australian investors engaging in arbitration against foreign States party to the Convention should be wary that the Transparency Rules may apply. As more countries sign up to the Mauritius Convention, transparency will automatically apply to more investor-state arbitrations.

One way in which the clarifications to the confidentiality provisions could have a role to play now is where parties to an investor-state arbitration, to which the Transparency Rules apply, agree to Australia as the seat of the arbitration. The IAA would then provide the appropriate framework in which the Transparency Rules could operate.

The amendments affecting the applicability of the confidentiality provisions would apply to arbitration proceedings commenced after the Bill is enacted. It is important to note that these clarifications to the confidentiality provisions only apply to investor-state arbitrations and not international commercial arbitrations so private parties who have agreed to international arbitration as a means of resolving their dispute still have the protection of the confidentiality provisions in the IAA, unless they agree to opt-out.

Modernising arbitrators’ powers to award costs
Finally, the Bill proposes amendments to remove reference to the taxation of costs in international arbitration. The Explanatory Memorandum states that references to taxing costs are ‘outmoded and inflexible in contrast to current practice in international arbitration’.

Instead, the IAA would simply provide that the tribunal may, in making an award, settle the amount to be paid by whom and in what manner.

This is a ‘minor and technical’ amendment that would apply to arbitration proceedings commenced after the Bill is enacted and would allow a tribunal to settle costs in a manner it deems appropriate.

What this all means
Further consideration of the Bill has been adjourned. Once the Bill is agreed to by both the Senate and the House of Representatives, it can receive Royal Assent following which, the Bill will become law.

If this Bill is enacted, it will assist in bringing the IAA into line with best practice in international arbitration and the promotion of Australia as an arbitration friendly jurisdiction.

We will update this article as the Bill passes through parliament and hope to bring you news of its enactment in the near future.

Russell Thirgood and Erika Williams

________________________________

¹UNCITRAL Model Law on International Commercial Arbitration (As adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended by the United Nations Commission on International Trade Law on 7 July 2006) (Model Law).
²IMC Aviation Solutions Pty Ltd v Altain Khuder LLC (2011) 38 VR 303.
³Dampskibsselskabet Norden A/S v Beach Building & Civil Group Pty Ltd (2012) 292 ALR 161.
⁴See, for example, Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (2012) 201 FCR 209.
⁵United Nations Commission on International Trade Law Rules on Transparency in Treaty-based Investor-State Arbitration (Transparency Rules).

Native Title - individual 'power of veto' jeopardises ILUAs

2017-02-06T14:13:00.000+10:00

WHO SHOULD READ THIS

All proponents and Traditional Owners who are a party to an existing Indigenous Land Use Agreement (ILUA) or intend to enter into an ILUA.

THINGS YOU NEED TO KNOW

There has been a change in law - McGlade v Native Title Registrar [2017] FCAFC 10 (McGlade). All applicants who comprise a ‘registered native title claimant’ must execute an ILUA for that ILUA to be effectively registered.
Until and unless this decision is overturned by appeal or legislative change, the impact is far reaching in respect of:
- registered ILUAs and the validity of future acts done under them; and
- the registration of future ILUAs.

WHAT YOU NEED TO DO

For those in the process of obtaining or registering an ILUA – ensure that all named applicants execute the ILUA.
For those who are party to an existing ILUA – review your agreements and consider your position. Importantly, did all of the applicants execute the agreement?

Background

In 2010, the Federal Court in QGC Pty Ltd v Bygrave (No.2) [2010] FCA 1019 held that an ILUA could proceed to registration with the National Native Title Tribunal (NNTT) without the signatures of all named applicants.

Since then, it has been common practice of the NNTT to accept ILUAs for registration where some, but not all, of the applicants have executed the agreement (and, of course, the balance of the registration requirements have been met).

The Full Federal Court in McGlade has now reversed this position. An ILUA now cannot be registered unless it is signed by each and every named applicant.

This decision has potentially far reaching impacts on parties operating under ILUAs without the signature of all applicants and, critically, on parties seeking the registration of ILUAs that have been executed by some but not all of the named applicants.

The decision

The Court declared that four ILUAs lodged for registration with the NNTT were not valid ILUAs for the purposes of the Native Title Act 1993 (NT Act), because some of the named applicants who comprise the ‘registered native title claimant’ had not executed the agreement (even as a result of death).

The Court found that:

for the agreement to be validly registered as an ILUA, all individuals comprising the ‘registered native title claimant’ must sign it;
resolutions of the community do not have the effect of overriding that fundamental principle;
if an applicant unreasonably refuses to execute an ILUA against the wishes of the claim group, that applicant can only be removed by application of the claim group under section 66B of the NT Act; and
deceased applicants must also be removed and replaced under section 66B prior to the making of the ILUA.

Final thoughts

‘While this may mean that any one of the persons who jointly comprise a registered native title claimant can effectively veto the implementation of a negotiated area agreement by withholding their signature to the agreement, that is what the NTA recognises as possible. Whether the NTA should provide for some mechanism, apart from s 66B or in addition thereto, for responding to the types of agreement making issues raised in these proceedings, is a policy issue for the Parliament to consider, not this Court.’

-The Honourable North and Barker JJ (at para 265)
(our emphasis)

We expect this decision will be appealed. The unanswered questions raised threaten the validity of persisting future acts. Legislative amendments to overcome these issues have been on the table for some time. No doubt McGlade will act as a catalyst in that debate.

For more enquiries, please contact:

Dominic McGann
Peter Stokes
Tim Hanmore
Liam Davis

Masters of their own destiny - Court upholds arbitration agreement between Woolworths and Lowe's

2016-10-06T10:20:00.001+10:00

The recent decision of the Federal Court in WDR Delaware Corporation v Hydrox Holdings Pty Ltd1 affirms the courts’ willingness to uphold arbitration agreements, consistent with Australia’s international convention obligations, judicial recognition of the efficiency of arbitration, and Australia’s reputation as a sophisticated jurisdiction in which to conduct arbitration.

The nuts and bolts
In 2009, Woolworths Ltd (Woolworths) entered into a joint venture agreement (JVA) with the American entity Lowe’s Companies Inc. (Lowes) for the purpose of establishing the Masters Home Improvement hardware chain in Australia and New Zealand. Hydrox Holdings Pty Ltd (Hydrox) was incorporated to conduct the business. Woolworths held two-thirds of the shares in Hydrox, and Lowes owned the remaining one-third through WDR Delaware Corporation (WDR).

Masters has operated at a loss since its inception, causing several disputes between Woolworths and Lowes. On 29 August 2016, Lowes and WDR sought from the Federal Court a declaration that the affairs of Hydrox had been conducted in a manner oppressive to, unfairly prejudicial to or unfairly discriminatory against WDR [2]. The American entities also sought an order that Hydrox be wound up [3].

In short, Lowes and WDR asserted that Woolworths:

failed to provide information necessary for the Lowes nominee directors to vote on resolutions put to the Board
caused the Lowes nominees to be overwhelmed with information prior to meetings of the Board in circumstances where the nominees had insufficient time to consider that information
without the approval of any Lowes nominee, purported to exercise powers that required such approval
wrongfully and in bad faith purported to terminate the JVA for an improper purpose, and
had taken control of the affairs and management of Hydrox to the exclusion of Lowes and WDR [4].

Application for stay
The JVA contained an alternative dispute resolution clause, which required the parties to resolve disputes by arbitration. The parties had not yet attempted arbitration of the present dispute, although two other separate disputes had been referred to arbitration.

On 31 August 2016, Woolworths sought a stay of the proceeding pending determination of the dispute by arbitration [5]. The application for stay was grounded in section 7 International Arbitration Act 1974 (Cth) (IAA), which gives effect to the UNCITRAL Model Law on International Commercial Arbitration. Section 7 of the IAA applied to the arbitration agreement because, at the time of entry into the JVA, Lowes and WDR were domiciled in the United States, a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards [6].

Pursuant to section 7, where there are proceedings pending before the Court involving parties to an arbitration agreement, and where the proceedings require the determination of a matter capable of settlement by arbitration, the Court must stay the proceedings and refer the parties to arbitration [7].

A determination of whether the court must stay a proceeding in favour of arbitration invites two considerations: first, whether the dispute falls within the scope of the agreement between the parties; and, second, whether the matter is arbitrable [8]. In the present case, the parties agreed that the disputes came within the scope of the clause [9]. The question for determination by the Court, then, was whether some or all of the claims were arbitrable and whether the whole or only part of the proceeding should be stayed [10].

Identification of the relevant ‘matters’
Section 7 speaks of a ‘matter’ capable of settlement by arbitration [11]. Lowes and WDR argued that the dispute involved only one such matter, being the question as to whether Hydrox should be wound up [12]. It was argued that the winding up of a company is not within the power of an arbitrator [13] and that, as such, the sole matter in the dispute was not arbitrable [14].

Justice Foster rejected these contentions, preferring Woolworths’ conception of the dispute as comprising four distinct matters including deficiencies in the provision of information, wrongful voting by Woolworths’ nominee directors, wrongful termination of the JVA, and Woolworths’ conduct in keeping secret its ‘game plan’[15].

Arbitrability
Lowes and WDR contended that, even if the dispute involved multiple matters, not one of them was arbitrable [16]. Based on a number of arguments, Lowes and WDR submitted that the public interest required a claim for a winding up order to be heard in open court and not by a private tribunal [17]. The arguments in support of this submission included:

an order for winding up affects the legal status of a person and has serious consequences for the company
an order for winding up affects third parties, including shareholders and creditors
the creation and dissolution of a company is uniquely the subject of governmental authority, and
there is a public interest in ensuring adherence to the procedural steps of liquidation [18].

The Court rejected these assertions. Rather, it was held, as contended for by Woolworths, that the arbitral tribunal could determine the legal and factual disputes between the parties, but leave to the Court the question of winding up. Woolworths described the matters to be determined by the tribunal as ‘jurisdictional or forensic preconditions to the proper consideration by the Court of the appropriateness of making a winding up order.’[19] By this approach, accepted by Foster J, it is open to the Court to consider the relevant arbitral award or awards, supplemented by evidence if required, when determining whether the making of a winding up order is justified [20].

In addition, the Court found no substantial public interest element in the determination of the disputes, because they arose between the sole shareholders of Hydrox and related only to the performance of obligations between those parties, and because Hydrox was not insolvent [21].

Justice Foster granted a stay of the whole of the proceedings.

Conclusion
The decision in Hydrox Holdings is another example of the Australian courts’ willingness to uphold arbitration agreements, and underlines Australia’s reputation as a sophisticated jurisdiction in which to conduct arbitration. This facilitative approach is consistent with Australia’s obligations under international conventions and promotes the efficient and inexpensive resolution of disputes. Importantly, Foster J found that the arbitration agreement could be enforced without usurping the jurisdiction of the courts to make orders for the winding up of a company.

Russell Thirgood and Erika Williams

The authors would like to thank Daniel Argyris, research clerk of McCullough Robertson, for his assistance in the preparation of this article.

_____________________________________

1 [2016] FCA 1164 (Hydrox Holdings).

2 Ibid [11].

3 Ibid.

4 Ibid [54]

5 Ibid [17]

6 Ibid [21]

7 IAA s 7(2)

8 WDR Delaware Corporation v Hydrox Holdings Pty Ltd [2016] FCA 1164 [23]

9 Ibid [24]

10 Ibid [25]

11 IAA s 7(2)(b)

12 WDR Delaware Corporation v Hydrox Holdings Pty Ltd [2016] FCA 1164 [112]

13 Ibid [131]

14 Ibid [113]-[114]

15 Ibid [116]

16 Ibid [131]

17 Ibid

18 Ibid [131]

19 Ibid [165]

20 Ibid [152], [164]

21 Ibid [161]

Santos Ltd v Fluor Australia Pty Ltd [2016] QSC 129

2016-08-17T12:53:00.000+10:00

Case note

In the recent Supreme Court of Queensland decision of Santos Ltd v Fluor Australia Pty Ltd [1], Justice Douglas endorsed the courts’ positive approach to giving effect to alternative dispute resolution (ADR) clauses even where one party seeks a litigated outcome.

In this case, Santos contracted Fluor to perform work on its GLNG Project near Gladstone. Santos became concerned about the amount claimed by Fluor under the contract, which exceeded the budget estimate by over $1.85 billion.

Due to these cost concerns, Santos purported to exercise a contractual entitlement to view Fluor’s costing records for the project. Fluor refused the request on the basis that the demand did not fall within the scope of the relevant clause. Despite an ADR clause in the contract requiring the parties to follow a formal process of negotiation prior to litigation, Santos applied to the court to enforce its entitlement to the records.

Fluor sought a stay of the enforcement application, contending that the dispute between the parties should be resolved in accordance with the ADR clause in the contract between the parties.

Pursuant to the ADR clause, a dispute could not be litigated without attempts in good faith to resolve it, including by meetings between the parties and their dispute resolution representatives.

The Court found that the parties should be held to the contract unless the justice of the case favours the grant of a stay of the ADR process. The Court in the present case cited numerous cases in support of the proposition that a party seeking to subvert an ADR clause bears a heavy onus to prove that there is ‘good ground’ to dispense with the ADR process. The Court also referenced case law in saying ‘strong cause would have to be shown before a court could be justified in declining to enforce such an agreement’.

Similarly, the Court remarked that there is a very high threshold for an ADR clause not to be enforced. The process would need to be ‘obviously futile’ or a completely hopeless exercise, or the prospect of a productive ADR ‘so slight as not to justify enforcing the agreement’.

When Santos raised the argument that the issue in dispute was based on a confined legal point best suited for court determination, Justice Douglas found that, as a matter of policy, where parties agree to ADR, they do so with a view to reaching a mutually commercially acceptable solution, rather than to obtain a determination on the precise legal rights and obligations of the parties.

Other relevant considerations

Justice Douglas’s decision to enforce the ADR clause was also informed by the public interest in requiring parties to adhere to their bargains and in avoiding the unnecessary use of court time.

His Honour also remarked upon the three-month delay in instituting proceedings from the time at which Santos learned of Fluor’s refusal to deliver the documents. It was noted that three months would have been a sufficient time for the parties to have fully completed the ADR process.

Finally, it was relevant that enforcement of the ADR clause would not prejudice Santos’ right to a judicial determination of its claim. The clause provided that, following compliance with the ADR process and absent a resolution, either party could commence litigation of the dispute.

Partial compliance with an ADR clause is not sufficient

In the alternative to its preferred outcome of a stay of the entire ADR clause, Santos sought to dispense with the early stages of the process, leaving only the provision that the more senior negotiators would meet and, unless a resolution were reached, the dispute could be referred to litigation. This was because, contrary to the provisions of the ADR clause requiring representatives of the parties to meet and attempt to resolve the dispute, the parties had exchanged detailed correspondence in relation to their respective positions on Santos’ entitlement to view Fluor’s costing records.

The Court held that the correspondence was no substitute for the face-to-face meetings required by the early stages of the formal process of negotiation, and declined to dispense with any part of the ADR process.

The Court stayed the proceedings, pending the parties’ compliance with the ADR clause.

Judicial support of ADR

Judicial support is a key feature of Australia’s sophisticated system of ADR. The courts’ desire to uphold ADR clauses, as demonstrated in the Santos case, provides parties with the certainty that their agreed alternative methods of dispute resolution cannot be dispensed with lightly.

[1] [2016] QSC 129

Erika Williams

Recognition and enforcement of foreign judgments in Australia - Part 3

2015-10-08T10:59:00.001+10:00

Enforcement of the foreign judgment

In our previous posts we examined the two ways to have a foreign judgment recognised in Australia: under the Foreign Judgments Act 1991 (Cth) and under the common law. Once the foreign judgment is recognised, the next step is to get the money owing under the judgment.

In this post we will explore the steps the judgment creditor may take to enforce the judgment.

Writing a letter of demand

As a first step, it is usually advisable to write a ‘letter of demand’ to the judgment debtor, demanding payment of the judgment debt.

Registering the judgment

If there is no reply to the letter of demand, or if that step is skipped, the next step is to register the judgment in the same court that recognised the judgment.

Consider the financial position of the judgment debtor

After registration, the judgment creditor should give consideration to the financial position of the judgment debtor. This means considering matters such as:

what assets they have (including bank accounts)
where in Australia those assets are located
whether there are regular payments made to the judgment debtor or their bank account(s), and
whether a third party owes money to the judgment debtor.

To find out more about the judgment debtor’s financial position, the judgment creditor may apply for an enforcement hearing. This is a process by which the judgment debtor is compelled to reveal information about their financial position in a written statement (called a ‘Statement of Financial Position’) and subsequently in a court hearing. During the enforcement hearing, the judgment creditor can question the judgment debtor about their financial position.

There are other, informal methods creditors may employ to uncover information about the debtor’s financial position such as hiring a private investigator.

Enforcement warrant

To enforce the judgment, the judgment creditor must apply for an enforcement warrant. This is an order of the court compelling the judgment debtor to pay the judgment in a specified way. Enforcement warrant applications must be made to the same court in which the judgment was registered.

There are various types of enforcement warrants, which provide for a different method to enforce the judgment. Some of the more common types of enforcement warrants are:

seizure and sale of property: This directs an enforcement officer (such as the sheriff or bailiff of the court) to seize and sell property belonging to the judgment debtor. The proceeds of sale are paid to the judgment creditor. There are restrictions on the type of property that can be seized and sold
redirection of a debt: This directs a third party who currently owes money to the judgment debtor to pay the judgment creditor instead, and
regular redirections from a financial institution: This directs a financial institution (such as a bank) to redirect to the judgment creditor regular payments received by the judgment debtor.

Alternatives to enforcement warrants

Instead of obtaining an enforcement warrant, the judgment creditor may apply to bankrupt or wind up the judgment debtor.

Bankruptcy is the process followed if the judgment debtor is an individual; winding up is the equivalent process for companies. Each process is commenced by service of a prescribed notice. If the judgment creditor is successful, each process generally ends with the division of the judgment debtor’s assets amongst its creditors.

There are some disadvantages to this approach. For example, it gives the judgment debtor’s other creditors the opportunity to raise claims, which might ultimately reduce the assets available to the judgment creditor. The judgment creditor also has less control over this process, compared to the enforcement warrant process.

Enforcement in multiple jurisdictions

Enforcement is not restricted to the jurisdiction in which the foreign judgment was recognised; the judgment can be registered in alternate jurisdictions.

Last word

Recognition and enforcement of a foreign judgment is a complicated and potentially expensive exercise. It is best to give proper consideration to the judgment debtor’s financial position before you start, to ensure it is worth going through the trouble.

It is also worth engaging a local lawyer to handle the process to avoid the trouble and stress of trying to navigate a foreign law and foreign courts.

Guy Humble, Tom Ritchie, Tim Alexander

Recognition and enforcement of foreign judgments in Australia - Part 2

2015-09-16T16:52:00.001+10:00

Recognition under the common law

In our previous post, we examined the process for recognising foreign judgments in Australia under the Foreign Judgments Act 1991 (Cth) (Act). While this is the easiest way to get a foreign judgment registered in Australia, it is only available for certain judgments.

For judgments that are not registrable under the Act, a judgment creditor must have the judgment recognised under the common law. In this post, we examine that process and the positions of the judgment creditor (the person enforcing the judgment) and the judgment debtor (the person against whom the judgment is being enforced).

Commencement of proceedings: how and where?

Proceedings for enforcement of a foreign judgment are commenced in the same way as any other Australian court proceeding. If a judgment debtor is not personally enforcing the award then an Australian lawyer must be retained to act on their behalf.

The proceeding can be commenced in any court of any State/Territory, or the Federal Court (which has registries in each State/Territory). The court that is chosen depends on:

the amount that is sought (most courts have monetary jurisdictional limits, which means that they can only decide matters up to a certain value)
the location of assets that can be used to satisfy the judgment, and
whether the foreign judgment is to be used for some purpose other than to satisfy the money owing (e.g. for use in a bankruptcy or winding up proceeding).

Unlike registration, a proceeding under the common law cannot be instituted in the absence of the other party. As such, the proceeding must be served on the judgment creditor. There are special requirements if a person is to be served outside of Australia.

What does the judgment creditor need to prove?

To successfully recognise a judgment, it is necessary to prove four matters:

the parties are the same parties as in the foreign judgment: This would appear to exclude enforcement against a subsidiary or holding company of the judgment debtor, although that issue has not been specifically considered. As with registration, it is possible for an assignee of the foreign judgment to enforce it
the judgment is for a fixed debt: This is no different to the requirement for a ‘money judgment’ under the Act
the foreign judgment is final and conclusive: As under the Act, a foreign judgment is final even if it can it is subject to an actual or potential appeal, and
the foreign court validly exercised jurisdiction over the judgment debtor: This might occur if the judgment debtor:

was present in the foreign court’s jurisdiction when he/she was served with the initiating process (even if only temporarily)
was domiciled or ordinarily resident in the foreign court’s jurisdiction, or
voluntarily submitted to the foreign court’s jurisdiction, either by prior agreement (e.g. a jurisdiction clause in a contract) or by a voluntary appearance in the Court (but an appearance to contest the court’s jurisdiction is not sufficient to show the court exercised jurisdiction over the person).

An application to enforce a foreign judgment must be made within a designated time limit, which varies amongst the States and Territories. It is important to act quickly as the time limit could be as short as 12 months.

Can a judgment debtor oppose enforcement?

A judgment debtor can oppose enforcement on a number of grounds which include that:

the judgment was obtained by fraud
the foreign court acted contrary to natural justice, and
the foreign judgment is estopped by an earlier inconsistent local judgment.

What happens if the judgment creditor is successful?

If the judgment creditor proves the four matters above, and there are no grounds on which the judgment debtor can successful oppose registration, the Australian court will make a judgment in the same terms of the foreign judgment (i.e. it will order the judgment debtor to pay the judgment creditor the amount awarded in the foreign judgment). This judgment can then be enforced in the same way as any other judgment of the court.

In our next post we will look at some of the options available to a judgment creditor to satisfy the amount owing under the foreign judgment.

Guy Humble, Tom Ritchie, Tim Alexander

Recognition and enforcement of foreign judgments in Australia

2015-08-27T08:47:00.000+10:00

Registration of foreign judgments

For a plaintiff seeking to enforce a judgment, it is not uncommon for a defendant’s assets to be spread across the globe, creating both opportunities and problems. The opportunity lies in accessing potential sources of assets to satisfy the judgment. The problem is that a company or person might have no assets in the plaintiff’s home jurisdiction, requiring the judgment to be enforced overseas.

The steps involved in accessing a defendant’s Australian assets to satisfy the judgment are recognition and enforcement. We will explore these steps further in a series of upcoming posts.

In this first post we look at one method of recognition: registration of the foreign judgment under the Foreign Judgments Act 1991 (Cth) (Act).

When can a foreign judgment be registered?

A foreign judgment can only be registered in Australia if it was made by a court of a country listed in the Regulations to the Act. These include courts of United Kingdom, Hong Kong, Japan, South Korea, Germany, France and several provinces of Canada among others. Generally, only judgments of the superior courts of those countries are registrable.

Judgments of New Zealand courts must be registered under the Trans-Tasman Proceedings Act 2010 (Cth) (TTP Act) as explained below.

The United States of America is a notable absence from the Regulations. Therefore, judgments of US courts must be recognised under the common law rules. This process will be discussed in our next post.

Even if the foreign judgment comes from a court that is listed in the Regulations, the judgment must be:

a money judgment (one under which money is payable), and
final and conclusive (but an actual or potential appeal does not prevent a judgment from being ‘final and conclusive’).

Who can register the foreign judgment?

The foreign judgment can be registered by a judgment creditor, identified as the person (or assignee) that was given the foreign judgment. The foreign judgment can be registered against the judgment debtor, the person against whom the judgment was given.

How is the foreign judgment registered?

The foreign judgment is registered by making an application to an Australian court, typically the Supreme Court of a State or Territory. There is no requirement to register in a particular State or Territory and it is possible to have the judgment registered in multiple jurisdictions. As the ultimate goal is to satisfy the money owing under the judgment, it is advisable to work out where the judgment debtor has assets and to make the application to the Supreme Court of that State or Territory.

An application must be made within six years after the later of the date of judgment and the date of last judgment in any appeal proceedings.

What happens when the foreign judgment is registered?

Once registered, the foreign judgment is treated exactly the same as any other decision of that court, meaning a range of enforcement options become available to the judgment creditor. The judgment creditor may also use the foreign judgment to bankrupt an individual or wind up a company. Enforcement options will be discussed in our third post of the series.

Can a foreign judgment be deregistered?

The judgment debtor may apply to deregister a foreign judgment (called ‘setting the foreign judgment aside’) for a number of reasons, such as that the foreign judgment:

was registered for an amount greater that was payable under it
was obtained by fraud
was reversed on appeal or set aside, or
has been wholly satisfied (i.e. the judgment debtor has paid the money owing under the judgment).

A foreign judgment might also be deregistered if the original court had no jurisdiction. The judgment creditor can usually prove the original court had jurisdiction by proving that the judgment debtor voluntarily submitted to the jurisdiction of the court. However the judgment debtor does not voluntarily submit to the original court’s jurisdiction simply because it challenged its jurisdiction or tried to secure the release of property seized or frozen by the court.

The timeframe in which a judgment debtor must apply to deregister the foreign judgment will be specified when the judgment is registered by the court.

Registering foreign judgments under other legislation and treaties

Judgments of New Zealand courts must be registered under the TTP Act. The registration process is generally the same however the TTP Act allows a broader range of monetary based judgments to be registered.

Alternately, judgments may be recognised under a bilateral treaty. For example, Australia is a party to a bilateral treaty with the United Kingdom called the Reciprocal Recognition and Enforcement of Judgment in Civil and Commercial Matters 1994. As Australia is not a party to the Hague Convention on Recognition of Foreign Judgments in Civil and Commercial Matters 1971, recognition in Australia under that convention is not an option.

In the next post in this series we will look at recognition of foreign judgments under the common law.

Guy Humble, Tom Ritchie, Tim Alexander

Impacts of a sluggish court system

2015-08-10T11:54:00.000+10:00

Greece is in trouble. It is being pressured to implement a number of reforms as part of negotiations for various forms of debt relief.

One of those reforms is an overhaul of its courts system, which is viewed as being slow, inefficient, and a handbrake on commerce. For example, the World Bank reported this year that it took on average over four years to enforce a contract in Greece (compared to an OECD average of 1.5 years).

Does Australia have anything to worry about?

Why is an efficient court system important?

There is a legal maxim that states ‘justice delayed is justice denied’.

In 2014, the Commonwealth Productivity Commission noted that a number of adverse consequences flow from a court system that was slow to resolve disputes. These include potential prejudice for litigants, adverse social and economic implications and the potential for some litigants to effectively abandon otherwise meritorious claims.

Without doubt, a legal system that efficiently resolves disputes in a timely manner is more attractive to domestic and international investors. By contrast, delay and uncertainty arising from unresolved disputes can be catastrophic.

How do Australian courts fare?

The World Bank also provides data for Australia: on average, it takes just over a year to enforce a contract.

The Productivity Commission keeps more detailed data including the percentage of a court’s current caseload that has been pending for longer than 12 and 24 months. The table below summarises the Australian averages in the highest courts.

Court	Percentage of pending caseloads older than 12 months	Percentage of pending caseloads older than 24 months
State and Federal Appeal Courts	13%	3%
State Supreme Courts and Federal Court	30%	13%

Queensland beats the national average, as does the New South Wales Supreme Court (but its Court of Appeal is above the national average).

As with all statistics, the data has limitations. For instance, the Productivity Commission data does not take into account that:

most cases settle and, as such, many cases have been resolved not by the courts but by the parties, and
some delays are the fault of the litigants’ conduct (although it might be argued that the courts have a role to play in ensuring that any delays are minimised).

What can an Australian litigant do to fast-track proceedings?

Under Australian law, litigants are generally able to have urgent matters resolved quickly. However, this is often only done on an interim basis, with a genuine reason required for the proceeding to be resolved urgently (something more than the fact that common commercial expediency requires it to be resolved).

Many courts now have specialised lists for instances where litigants want to resolve disputes quickly for commercial reasons. These include the Federal Court Fast Track List, the New South Wales Supreme Court Expedition List and the Queensland Supreme Court Commercial List. Having a proceeding referred to one of these lists will likely reduce the time taken to have the proceeding finalised.

There are also procedures to deal with cases that are moving too slowly through the courts. An example of this is Caseflow Management in the Queensland Supreme Court, a system by which the Court intervenes in proceedings that are progressing slowly to help (or force) parties bring them to a timely resolution.

Are there alternative methods to resolve disputes efficiently?

Arbitration is a popular alternative to dispute resolution and is commonly marketed as a quicker way to resolve disputes. Empirical evidence, however, suggests that this is not always the case and that arbitration is not necessarily any slower or faster than litigation. That said, many arbitration institutions have developed fast-track procedures which ensure disputes are resolved within a fixed time.

Alternative dispute resolution methods (such as mediation and negotiation) provide a quicker option to resolve a dispute. However, these methods are complementary to, and not a substitute for, litigation and arbitration as they will not necessarily resolve the dispute. Mediation and negotiation will ordinarily form part of a prudent dispute resolution strategy, in the hope that they will bring the dispute to a swift end.

Be prepared

While Australia fares relatively well when it comes to efficiency of its court systems, litigants invariably face some uncertainty as to when the dispute will be resolved. There are many stages at which delay risk is a fact of litigation.

Always be prepared to mount an argument and evidence for urgent resolution, and remember that delay at any stage of contractual enforcement can count against you when it comes to seeking what might be seen as preferential treatment by the court system.

Peter Stokes, Tim Alexander

Protecting the little guy: unfair contract terms to apply to small businesses

2015-07-29T12:03:00.000+10:00

In April 2015, the Federal Government released draft legislation titled the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 (Bill), which if enacted, will extend the consumer unfair standard contract term protections to small businesses.

The legislation proposes to amend the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act), and the Competition and Consumer Act 2010 (Cth) (CCA) and is anticipated to commence in early 2016.

The current laws under the ASIC Act and CCA only apply to protect consumers (usually individuals) from unfair contract terms, and are said to fail to address the vulnerability of small businesses engaging in commercial transactions. The Explanatory Material to the Bill states that small businesses are not entering into contracts due to a lack of confidence in understanding and negotiating contract terms and the costs of obtaining legal advice, often resulting in the businesses missing out on opportunities.

How the amendments work

The amendments provide a remedy to small businesses by allowing unfair contract terms to be declared void.

If the contract is capable of operating without the unfair term, the contract will continue to bind the parties with the unfair term being treated as if it never existed. Contracts that are entered into, renewed, or terms of existing contracts that are varied, on or after the date the legislation comes into effect will be required to comply with the new laws.

A business is considered to be a small business if it employs fewer than 20 persons, excluding casual employees not employed on a regular or systematic basis. Further, a contract is considered to be a small business contract if, at the time it is entered into, one party is a small business, and the ‘upfront price’ payable under the contract does not exceed either $100,000 or $250,000 if its duration is more than 12 months.

The ‘upfront price’ is defined as the consideration that is provided, or is to be provided, for the supply under the contract, and which is disclosed at or before the time the contract is entered into. It does not include any amount that is contingent on the occurrence or non-occurrence of a particular event.

It should also be noted that under the amendments there is no onus on a small business to notify the other party that it is a small business. The new laws can apply where a small business is the supplier under the contract, and also where the contract is between two small businesses.

Unfair contract terms

An unfair contract term is one that:

causes a significant imbalance in the parties’ rights and obligations under the contract
would cause detriment (whether financial or otherwise) to a party if it were to be relied on, and
is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term.

In determining if a contract term is unfair, a court is also required to consider the transparency of the term (i.e. that the term is expressed in reasonably plain language, is legible and presented clearly). The contract must be considered as a whole.

Standard contracts

The protections are available only for standard form contracts. Standard form contracts are contracts that use standardised, non-negotiated terms and are prepared by one party to the contract.

In order to assess whether a contract is a ‘standard form’ contract a court will consider whether:

one of the parties has all or most of the bargaining power relating to the transaction
the contract was prepared by one party before any discussion relating to the transaction occurred between the parties
the other party was, in effect, required either to accept or reject the terms of the contract in the form in which they were presented
the other party was given an effective opportunity to negotiate the terms of the contract, and
the terms of the contract take into account the specific characteristics of another party or the particular transaction.

Plan ahead

Businesses (of any size) utilising standard form contracts should review all standard contracts to ensure the terms do not have the potential to be declared void. This is particularly important when it is difficult to determine the size of the business(es) you are negotiating with.

Lucy Kennedy, Thomas Ritchie, Guy Humble

Sharing the risk: Proportionate liability clarified by the High Court

2015-07-14T16:04:00.000+10:00

The High Court recently handed down their much anticipated decision in Selig v Wealthsure¹, providing some well needed clarification on the proportionate liability provisions in the Corporations Act 2001 (Cth) (Act), in light of the inconsistent decisions of the Full Federal Court in Wealthsure² and ABN AMRO v Bathurst City Council³.

The majority decisions, handed down within a week of each other by a differently constituted bench of the Full Federal Court, took opposing views on the application of Division 2A of the Act. The decision of the High Court in Wealthsure, while settling this inconsistency, is not good news for financial advisors or their ‘deep pocketed’ insurers, who may find themselves targets in lawsuits brought by disgruntled clients.

The proportionate liability regime

Division 2 of Part 7.10 of the Act prohibits various types of misconduct in relation to the provisions of financial services or products. One of the types of misconduct covered is misleading or deceptive conduct.

Division 2A of Part 7.10 creates a regime of proportionate liability for several of the types of misconduct listed in Division 2, including misleading or deceptive conduct. It provides that such claims are ‘apportionable claims’ where the damages being sought are for economic loss or damage to property. These provisions are mirrored in the Australian Securities and Investments Commission Act 2001 (Cth).

The regime operates so that where a claim which falls within the scope of Division 2A (being an ‘apportionable claim’) is successfully brought against several defendants, the Court is to apportion the amount of damages awarded between the defendants, based on an amount the Court considers just, having regard to the extent of a defendant’s responsibility for the loss to the plaintiff.

The purpose of the regime is to make each defendant liable only for an amount reflecting their responsibility in causing the loss. This reverses the common law position where each defendant is jointly and severally liable to the plaintiff for the whole of the loss, shifting the risk of being unable to recover from a given defendant to the plaintiff. It also prevents plaintiffs from simply chasing the defendant with the best insurance policy.

Selig v Wealthsure

This case involved a claim by the Seligs for losses flowing from a failed investment scheme. The Seligs had been advised by the first and second defendants, who were financial advisors, to invest $450,000 in a company called Neovest, which was in the business of the providing loans to property developers.

It came to light after Neovest went into liquidation that the scheme was essentially a ‘Ponzi scheme’. The Seligs brought an action for misleading or deceptive conduct, as well as for breach of contract, negligence and misrepresentation, all of which arose from the same conduct (being the investment advice given by the defendants).

Justice Lander in the Federal Court found against the defendants on all grounds.

On the question of whether the defendants were jointly or proportionately liable for the Selig’s loss, his Honour determined that the proportionate liability regime does not have the effect of bringing other claims (such as those brought under the common law), within the scope of the proportionate liability regime. As such, the defendants were found to be jointly and severally liable for the award of damages.

ABN AMRO v Bathurst City Council

In this case a group of local councils sought to recover money lost on a $16 million investment in structured financial products purchased from ABN AMRO on the advice of the councils’ financial adviser, Local Government Financial Services. The council also brought the action against the rating agency Standard and Poors (S&P) who gave the products a AAA credit rating. The councils alleged that S&P breached their duty of care by granting the rating solely based on information provided by ABN AMRO, without conducting their own inquiries.

Justice Jagot found against all three defendants for misleading or deceptive conduct and negligence, as well as various other grounds. In deciding whether the proportionate liability regime applied to the council’s claim, Justice Jagot took the opposite view to Justice Lander in Wealthsure and apportioned the liability between the three defendants equally.

The Full Federal Court decisions

Both cases were appealed to the Full Federal Court.

In Wealthsure the majority found that if one of the claims in respect of the same loss or damage was an ‘apportionable claim’, then the whole amount of the damages award would be apportionable, despite the fact that the damage could also be said to arise from other causes of action. The focus of the majority was on the loss or damage suffered, as opposed to the nature of the conduct of the defendants.

The Full Court in ABN AMRO, on the other hand, followed the approach taken by Justice Lander in the lower court decision in Wealthsure, finding that because not all of the claims for which the plaintiff was successful were ‘apportionable claims’ under Division 2A, each defendant was jointly and severally liable for the loss to the plaintiff.

These two competing decisions caused considerable uncertainty for defendants, as well as their insurers.

The High Court’s approach

The decision in Wealthsure was appealed to the High Court. The key issue before the Court was whether the proportionate liability regime applied to damages which arose from both claims falling under the proportionate liability regime and claims which did not.

The majority in the High Court largely adopted the reasoning of Justice Lander in Wealthsure, focusing on the meaning of ‘apportionable claim’. The majority had regard to the language and purpose of the whole provision and ultimately determined that if the word ‘claim’ was to have a consistent meaning across the whole of Division 2A, it could not be taken to refer to all claims, but only ‘apportionable claims’. This reasoning is a good example of the application of the well established principles of statutory construction.

The Court found that the purpose of the provision, in light of its context and the language used, was to apply a regime of proportionate liability to damages awards arising from claims falling within the relevant provisions. To apply the regime where the damage also arose from claims falling outside Division 2A would not only result in an inconsistent meaning of the phrase ‘claim’ throughout the provision, but would render several other provisions largely irrelevant. The correct approach in such circumstances is to adjust the meaning to achieve, as far as possible, a harmonious result.

Although the reasoning of the High Court’s decision was largely uncontroversial, the decision is important as it settled an awkward contradiction in the case law. However, the practical outcome for professional advisors and their insurers is unfortunate.

The objective of the proportionate liability regime is to reallocate the risk among the parties and is largely aimed at preventing plaintiffs from simply chasing the defendant with the ‘deepest pockets’. It also shifts the risk of being unable to recover from other defendants to the plaintiff.

Given that in cases of misleading or deceptive conduct, plaintiffs commonly also plead the common law actions of negligence or misrepresentation in relation to the same conduct, then the High Court’s decision means that proportionate liability will no longer be applied in such cases, so long as a plaintiff is successful in establishing, for example, negligence as well as misleading or deceptive conduct. This decision has the potential to return us to a time of ever-increasing insurance premiums, as it largely defeats the object of the statutory regime, and places professional advisors at risk of being individually liable for large damages awards, thanks to their generous professional indemnity policies.

Such an outcome was clearly not the intention of the regime and will require future legislative intervention if this perverse outcome is to be rectified.

(2015) HCA 18 (13 May 2015).
(2014) 312 ALR 183 (Mansfield, Besanko and White JJ).
(2014) 224 FCR 1 (Jacobson, Gilmour and Gordon JJ).

Scott Butler, Andrew Poulton, Xavier Keary

In-house counsel: a position of privilege?

2015-07-03T13:56:00.000+10:00

An important issue for all in-house legal practitioners is maintaining the privilege in legal advice they provide as legal counsel to their employer company. The extent to which in-house counsel are protected by the doctrine of legal professional privilege has recently been the subject of a great deal of judicial consideration.

The case of Aquila Coal Pty Ltd v Bowen Central Coal Pty Ltd [2013] QSC 82 raised the requirement of ‘independence’ of in-house counsel in establishing a claim for legal professional privilege. The case also dealt with the issue of whether legal professional privilege may attach to the advice given by in-house counsel who are not fully accredited Australian legal practitioners.

The decision in Aquila Coal at the time appeared to solidify the position that in-house lawyers must hold a position of independence and not be subject to the direct or indirect authority of a person who is not a legal practitioner. It also affirmed that legal advice given by in-house lawyers who do not hold local practicing certificates (and, as such, are not Australia legal practitioners) can nevertheless be protected under the doctrine of legal professional privilege.

However, in Archer Capital 4A Limited (as trustee for the Archer Capital Trust 4A) v Sage Group plc (No. 2) [2013] FCA 1098, Wigney J provided new encouragement to in-house counsel, ruling that it was the ‘dominant purpose’ test, rather than the ‘independence’ test, that is most important in establishing claims involving legal professional privilege. His Honour comprehensively considered the relevant authorities on the ‘independence’ question and made several useful remarks on the issue, finding that:

‘A communication between a lawyer and his or her employer is unlikely to satisfy the dominant purpose test if the lawyer was not employed as a lawyer (that is, the relationship between the lawyer and the employer was not professional) or the lawyer was not consulted in his or her professional capacity as a lawyer (for example, if they were consulted to provide commercial advice, or provide an administrative service, or were consulted as a partner or officer of the firm or company, not as a lawyer). A communication between the lawyer and his or her employer in those circumstances would not be privileged because it would not meet the dominant purpose test, not because the lawyer was not independent. On the other hand, if the relationship between the employer and lawyer was professional (in the sense that he or she was employed as a lawyer) and they were consulted in that professional context to provide legal advice, the resulting communication is likely to satisfy the dominant purpose test.’

Justice Wigney remarked that there was no separate requirement of independence in the case of legal professional privilege claims where the relevant lawyer is an in-house legal practitioner. His Honour also thought that any requirement of ‘independence’ on the part of an in-house lawyer is an aspect of the relationship between the lawyer and the employer (effectively the client) and the capacity in which the lawyer is consulted and consequently provides legal advice.

The Archer Capital case provides welcome judicial commentary for those employed as in-house legal counsel and reinforces the equality of all members of the legal profession when it comes to legal professional privilege. The position is not yet settled and it remains to be seen how an appellate court will clarify the position.

In the meantime, Wigney J identified criteria which he thought indicated a professional (practitioner/client) relationship between in-house counsel and their employers. In-house counsel seeking to maintain legal professional privilege in the advice they give to the business should, at a minimum:

hold a current practising certificate and other relevant professional qualifications
ensure that, in relation to legal matters, there is independent reporting to the board or CEO (rather than to a business unit to whom advice is provided within the organisation), and
keep legal files confidential by (physically and electronically) separating them from the rest of the business operation.

In-house counsel with both legal and non-legal roles, or those who also advise on non-legal issues while acting in the course of their employment, will not automatically be presumed to lack the requisite ‘independence’ necessary, however it should be noted that any advice given in a non-legal role will not attract legal professional privilege.

This position identified by Justice Wigney has been reinforced by the case of Asahi Holdings (Australia) Pty Ltd v Pacific Equity Partners Pty ltd (No. 4) [2014] FCA 796. Justice Beach held that where commercial transactions involve both legal and non-legal advice, any communications passing between legal and non-legal advisers on the same matters are unlikely to attract privilege. It was held that where advice to a client is interwoven with advice from legal and non-legal advisers, for example where collaborative advice is given, this will rarely attract legal professional privilege. Consequently, parties who regularly engage in large scale transactions upon the advice of several different advisers (both legal and non-legal) should exercise caution to ensure that appropriate protocols mentioned above are in place to maximise the probability of establishing a claim for privilege.

Suzie Emery, Peter Stokes

Waiving goodbye to privilege

2015-06-25T10:48:00.000+10:00

In the second post of our legal professional privilege series, we examine instances when such a privilege may be lost by waiver. Waiver of legal professional privilege may be express or implied and, as stated by Justice Kirby in Goldberg v Ng (1994) 33 NSWLR 639, ‘It is simple to destroy the privilege’.

Broadly speaking, waiver of privilege occurs when the party entitled to claim the privilege performs an act which is inconsistent with the maintenance of such privilege. It is the client alone who may waive legal professional privilege. The doctrine of waiver is fairly settled in Australian law however ambiguity can arise when an attempt is made to accurately categorise whether a waiver of legal professional privilege is express or implied.

Express waiver occurs where a party deliberately and intentionally discloses material which is subject to legal professional privilege. Typically, there is little or no difficulty in identifying the precise acts which constitute the express waiver of privilege; such acts usually consist of disclosing documents to persons who owe no obligation of confidentiality to the original holder of privilege. Importantly, once the legal professional privilege has been waived, it can never be retrieved.

It is far more difficult to ascertain precisely when implied waiver occurs. Where the law deems the privilege holder has an intention to act inconsistently with the maintenance of legal professional privilege, despite the fact that no actual intention exists, that privilege will have been waived by implication. An individual will be prevented from hiding behind a veil of secrecy and denying the other party a reasonable opportunity to scrutinise legal advice, where that advice is sought to be used for forensic purposes or to support a position in legal proceedings.

The recent Federal Court decision of Krok v Commissioner of Taxation [2015] FCA 51 examined the issue of implied waiver in the context of income tax assessments. In appealing assessments raised by the Commissioner of Taxation, a taxpayer (Mr Krok) was found to have impliedly waived his right to legal professional privilege in relation to legal advice he had received when he partially disclosed the ‘gist’ of the legal advice in sworn affidavits.

The Commissioner had alleged that Mr Krok’s financial arrangements constituted ‘a sham or a façade’. In response, Mr Krok argued that no taxpayer who had acted upon legal advice could sensibly respond to an allegation of perpetrating a sham without disclosing the fact that legal advice had been received and acted upon. The Court found that Mr Krok’s purpose in disclosing the ‘gist, substance or effect’ of the advice was to advance his own case in relation to the taxation appeals and that he was seeking to obtain a ‘forensic advantage’ in the proceedings by deploying partial disclosure of the legal advice he had received.

His Honour Justice Wigney concluded that the unfairness was ‘manifest’ in the sense that the Commissioner was denied the opportunity to fully scrutinize the advice and test whether what had been disclosed by Mr Krok was accurate and complete. His Honour ultimately held that the partial disclosure of the legal advice provided by Mr Krok was inconsistent with the maintenance of privilege over such advice, and as such, the privilege had been impliedly waived.

The decision in Krok serves as a timely reminder that individuals cannot ‘double-dip’ when it comes to legal professional privilege. A party cannot both rely upon legal professional privilege in defence of their actions and to conceal such advice.

Tim Case, Suzie Emery

Give me that document! An overview of legal professional privilege

2015-06-04T14:22:00.001+10:00

All information that a lawyer receives from a client is considered to be ‘confidential’. Some of that information is also considered ‘privileged’. Legal professional privilege is an important area of the law and one that frequently surfaces in practice. Over the coming weeks, we will take a closer look at the doctrine of legal professional privilege.

Legal professional privilege covers confidential communications between the lawyer and the client made for the dominant purpose of advice or for use in anticipated or existing litigation. For documents, the privilege only exists in circumstances where they are brought into existence for the dominant purpose of giving advice or for litigation. For example the privilege does not encompass documents that are used to evidence transactions, but does extend to material gathered by the lawyer or client in preparation for litigation, even if that material does not constitute ‘communication’ in the strict sense. The only body that has power to inspect documents for which legal professional privilege is claimed is a court, unless legislation expressly and unambiguously provides otherwise.

The first point to note about client legal professional privilege is that it is much narrower than the general duty of confidentiality. The duty of confidentiality attaches to any information received by a lawyer in the course of legal practice. Legal professional privilege, on the other hand, only attaches to communications made either for the dominant purpose of giving of advice or for use in anticipated or existing litigation.

Secondly, legal professional privilege is much stronger than the duty of confidentiality. A lawyer’s duty of confidentiality may be secondary to some legally authorised direction or requirement to disclose the information. Such a direction or requirement will immediately override the duty of confidentiality owed to the client. The duty to maintain privilege, however, is maintained unless a statute expressly and unambiguously abrogates the privilege itself.

A practical example of legal professional privilege

A good example of the difference between confidentiality and legal professional privilege is a search warrant. A warrant issued under the Crimes Act 1914 (Cth) (Crimes Act) can empower a police officer to search a lawyer’s premises and to seize any documents listed in the warrant. Without the warrant, the lawyer does not need to hand the police officer any documents and to do so would be in breach of their general duty of confidentiality. However, the warrant is a legally authorised direction to disclose the documents and overrides the general duty of confidentiality meaning the document must be disclosed to the police officer if they are referred to in the warrant.

Conversely, if a particular document is subject to privilege the lawyer cannot, without the client’s consent, lawfully hand those documents to the police officer - even if they are referred to in the warrant. The privilege must be abrogated clearly and unmistakably by the statute. In this example, the Crimes Act does not abrogate the client privilege. The privilege overrides the warrant so documents subject to privilege, even if specifically mentioned in a warrant, cannot and should not be handed over to the police.

Indeed, it is unlawful to disclose privileged material to the police unless the client waives the privilege. It is the client’s privilege and only the client can lawfully waive this right; a lawyer cannot waive the privilege.

Why do we have legal professional privilege?

Legal professional privilege exists to serve the public interest in the administration of justice, with the general idea being that the law should create conditions that encourage clients to fully and frankly disclose all relevant information to their legal representatives. That puts the lawyer in the best possible position to sift through the relevant facts and to present a relevant, truthful account of the client’s case to the court. The doctrine has been described as a conflict between maintaining the confidence of communications between lawyer and client and the principle that all relevant evidence be available to resolve the issues for decision in litigation. Legal professional privilege has been described as an important civil right which is to be defended by the law.

What is protected by legal professional privilege?

There are three elements of client privilege:

the first is that the purpose of the communication must be for the giving of legal advice or litigation. The giving of advice or involvement in litigation must be the dominant purpose of the communication
second, the communication between lawyer and client must be confidential in the sense that it has not already been disclosed to others, and
third, the communication must be between a client and his or her lawyer (i.e. a barrister or a solicitor) acting in their professional capacity as the client’s lawyer. The privilege will not apply if the lawyer is acting as a commercial or business adviser.

It is important to keep the need to maintain privilege (and confidentiality) in mind when obtaining, and receiving, legal advice and to make sure that the privilege is not inadvertently waived. We take a closer look at this issue in our next article.

Suzie Emery, Andrew Poulton

Social media: a breach of confidence?

2015-05-15T08:28:00.000+10:00

Wilson v Ferguson [2015] WASC 15

The Supreme Court of Western Australia has found that individuals in a close relationship may owe one another equitable obligations of confidence, particularly in circumstances where intimate and private information is exchanged in a social media context. A breach of that obligation may bring about liability for substantial damages awards.

In Wilson v Ferguson [2015] WASC 15, the Western Australia Supreme Court awarded damages of $50,000 for humiliation, anxiety and stress suffered by the Plaintiff after a jilted ex-lover posted confidential (and explicit) photographs and videos on Facebook. The Court also made orders restraining the Defendant from publishing further photos and videos.

Breach of confidence

There are three essential elements of an action for breach of confidence:

there must be information which has a quality of confidence (that is, the information is not common or public knowledge)
the information must be imparted in circumstances where there is an obligation of confidence, and
there must be an unauthorised use of that information, to the detriment of the person communicating it.

Background

The Plaintiff and Defendant were ‘fly-in fly-out’ workers at a mine site in north west Western Australia. During the course of their relationship, the couple would regularly send each other explicit photographs of themselves. However, on one occasion, the Defendant emailed himself videos of the Plaintiff from her mobile phone without her knowledge. He admitted his actions to the Plaintiff who became angry and upset and asked the Defendant to make sure nobody else saw the videos. At that time, the Defendant agreed that no one would see the videos.

Subsequently, the Plaintiff suspected infidelity by the Defendant and ended their relationship via text message while at work. The Defendant proceeded to post explicit photos and videos of the Plaintiff on his Facebook page. The Defendant had approximately 300 Facebook friends, many of whom worked with both the Plaintiff and Defendant. On the same day, the Plaintiff (who was not a Facebook user) received a number of telephone calls about the Defendant’s post, and sent a number of text messages to the Defendant pleading for him to remove the photos. They were subsequently removed that evening.

Decision

The Court found the publication of the photos and videos to Facebook amounted to a breach of the equitable obligation the Defendant owed to the Plaintiff to maintain the confidentiality of the images. The Court found that the intimate nature of the personal relationship gave rise to a relationship of trust and confidence which was sufficient to impose an equitable obligation of confidence on the parties.

The intimate images of the Plaintiff clearly had the necessary element of confidence and the circumstances in which they were obtained by the Defendant were such to impose upon the Defendant an obligation to maintain that confidentiality. This was confirmed by the fact the Plaintiff asked the Defendant to agree to make sure nobody else saw the photographs. It was also established that the Defendant misused the images by posting them on his Facebook page with the motive of causing embarrassment and distress to the Plaintiff in response to her ending the relationship.

Lucy Kennedy, Tim Case

Continuous disclosure and market based causation

2015-05-06T15:41:00.000+10:00

The recent case of Grant-Taylor v Babcock & Brown Ltd [2015] FCA 149 ended years of litigation which followed the high-profile collapse of Babcock & Brown (BBL). The judgment in the class action brought by 72 different plaintiffs offers some useful insight into whether Australia will follow the US in accepting market-based causation in the context of shareholder actions.

Background

The proceeding was commenced by those plaintiffs who purchased shares in BBL during its final year of trading on the ASX. At the beginning of February 2008 (when the first of the plaintiffs purchased their shares) the trading price was $16.76. When the shares were last traded on 7 January 2009 the price had dropped to $0.33. Following a trading halt, BBL was placed into administration and then subsequently liquidation.

The plaintiffs commenced proceedings alleging that BBL had breached its continuous disclosure obligations under section 674 of the Corporations Act 2001 (Cth) by failing to disclose to the market that:

the final dividends for the last three years were paid unlawfully out of capital, not profits, and thus the financial reports for those years did not give a true and fair view of its financial position
it was insolvent over a month before it stopped trading and the company was aware, or should have been aware of this, and
its final dividend in 2007 was paid out of funds borrowed on the back of an internal asset revaluation.

None of the plaintiffs claimed that these alleged non-disclosures were material in their decision to purchase the shares. Instead they sought to rely on an extension of the principle in Potts v Miller (1940) 64 CLR 282 that the measure of damages in cases of deceit is the loss or expense of the plaintiff in consequence of the inducement. The plaintiffs argued that if the alleged misconduct caused the market as a whole to inflate the price of the security, then this fact could be commonly relied upon by all plaintiffs to prove causation. This concept is known as ‘market-based’ causation.

Decision

The claim ultimately failed as Justice Perram found that the allegations were not sufficiently made out. His Honour also found that had the allegations been made out, none would have had a material effect on the share price. Notwithstanding, His Honour made some interesting comments regarding the concept of market-based causation.

Considering the case of ABN AMRO Bank AV v Bathurst Regional Council (2014) 309 ALR 445, his Honour found that this decision supported an argument put forward by the plaintiffs, namely that where A misleads B and B in consequence misleads C, it is possible for C to recover from A.

He then extended this logic to circumstances where company A misleads the market (being many B’s) by failing to disclose material information, and these B’s then bid up the price which in turn causes loss to C. His Honour determined that, as a matter of principle, there is no reason why C should be prevented from recovering from A.

Justice Perram’s comments offer some strong support for a future decision to accept market-based causation. However, although insightful, the concept will need further judicial consideration in order to settle this ongoing debate.

Xavier Keary, Andrew Poulton

Supreme Court of Victoria derails future of entrepreneurial class actions

2014-09-12T09:36:00.000+10:00

The number of shareholder class actions in Australia continues to grow at an impressive rate. However, a recent decision of the Supreme Court of Victoria has examined the limits of entrepreneurship by securities class action lawyers, and has reiterated concerns foreshadowed by the High Court regarding the funding of legal actions by lawyers.

Background

In Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited (No. 3) [2014] VSC 340, the lead plaintiff, Melbourne City Investments Pty Ltd (MCI) was controlled by solicitor, Mark Elliott, the company’s sole director and shareholder. In 2013, MCI commenced separate securities class action proceedings against Treasury Wine Estates Limited (Treasury), WorleyParsons Limited (WorleyParsons) and Leighton Holdings Limited (Leighton), alleging misleading and deceptive conduct, and a failure by each company to satisfy its continuous disclosure obligations, contrary to various provisions of the Corporations Act 2001 (Cth).

Decision

Treasury and Leighton subsequently brought an application seeking orders that the proceeding be stayed as an abuse of process on the basis that the proceedings were brought by MCI for a collateral purpose, namely as a vehicle for Mr Elliott to obtain legal fees. Alternatively, the defendants sought orders that the Court stay the proceeding for so long as Mr Elliott continued to remain the solicitor or record, and if he continued to act, for so long as MCI remained the lead plaintiff.

The Court was not persuaded that the proceeding constituted an abuse of process, but found that unless Mr Elliott ceased to act, or MCI was replaced as the lead plaintiff, Mr Elliott should be restrained from acting and the proceeding should not be permitted to continue as a group proceeding. In reaching this decision, the Court regarded public interest in access to justice through class actions, and the high threshold required to stay a proceeding.

Notably, the Court found that the probable reason for MCI’s existence was ‘to launch proceedings…to enable its sole director and shareholder to earn legal fees from acting as the solicitor for MCI’. Further, it accepted that the company’s ‘business model’ was to purchase nominal shareholdings in a variety of listed companies, with the objective of subsequently launching class actions against them. The Court’s findings were based on the following conclusions:

MCI’s business model was likely to depend on the outcome of the proceedings against Treasury, Leighton and WorleyParsons
Mr Elliott was compromised in his role and there was a real risk that he could not give detached, independent and impartial advice to MCI
it was in the interests of justice for MCI to be represented by a person without the vested interests that Mr Elliott held, and
the proper administration of justice required Mr Elliott be prevented from acting for MCI whilst the proceeding remained as a group proceeding with MCI as the lead plaintiff.

Implications

The decision of the Supreme Court is timely, given that the Productivity Commission’s report into ‘Access to Justice Arrangements’ is set to be handed down in the coming days. The report is certain to canvass the findings of the Commission into the litigation financing arrangements for class actions in Australia, and the ever controversial topic of contingency fees in Australian legal practice.

Practitioners should be mindful that courts currently will not hesitate to intervene where group proceedings resemble entrepreneurial litigation, and present a risk to the due administration of justice. The primary consideration for the court is whether there is an indication that self-interest will dominate over the interests of group members.

On the back of Commonwealth Attorney-General, George Brandis’ comments regarding conflicts of interest and moral hazards in class action litigation, the case is an ominous warning to ‘lawyer-driven’ class actions, confirming the uncertainty that exists regarding legal boundaries between a claimant, lawyer and funder.

Tim Case, Naomi Benton

Heads of Agreement – when are they binding?

2014-09-03T15:17:00.000+10:00

A recent judgment in New South Wales has clarified that a Heads of Agreement is generally considered binding if, at the time of entering into the agreement, the parties intended to be immediately bound by it. This holds true even if the parties intended, and the Heads of Agreement between the parties records, that additional matters are to be agreed and a formal contract executed at a later time. Further, any dispute about the subject matter of a Heads of Agreement will not affect the binding nature of that agreement.

The case highlights that parties contracting on a preliminary basis should take great care when considering the use of a Heads of Agreement.

Background

In Lahodiuk v Pace [2013] NSWSC 512, Justice Sackar of the New South Wales Supreme Court held that a document styled ‘Heads of Agreement’ entered into between two parties following a mediation was binding – even though a dispute subsequently arose between the parties prior to entry into a more formal contract, as contemplated by the Heads of Agreement.

The parties entered into the Heads of Agreement following mediation in October 2012 ‘in complete settlement’ of proceedings commenced by Michael Lahodiuk against the Defendants (Vincent Pace and Prid Pty Ltd). The Heads of Agreement provided that Mr Lahodiuk would purchase Prid Pty Ltd’s interest in a business known as Straightline Auto Repairs and certain equipment used in that business. The Heads of Agreement contemplated the preparation of additional documentation and the parties’ legal representatives exchanged correspondence about that documentation.

In December 2012, Mr Lahodiuk expressed reluctance to settle, citing concerns with the poor condition of the business and equipment, and offered to settle for a lesser sum than that set out in the Heads of Agreement. The Defendants applied to the court seeking specific performance of the Heads of Agreement.

In determining whether the parties were bound by the Heads of Agreement, Justice Sackar considered:

the parties’ intention at the time was the overriding issue, to be determined objectively, having regard to the language of the Heads of Agreement
if the parties intended to be bound immediately, the Heads of Agreement was binding, even though further documentation was to be prepared
that the Heads of Agreement must be read in light of the surrounding circumstances including the history and commercial context of the agreement and that the parties were involved in mediation to resolve litigation
what a reasonable person in the parties’ position would have understood the agreement to mean, and
it was relevant that the heads of agreement was drafted under the supervision of legal practitioners for both sides, after lengthy negotiation and consideration.

His Honour acknowledged the dispute between the parties on state of the business and its equipment but found this was a separate issue and had no impact on whether the Heads of Agreement was binding. He also noted that Mr Lahodiuk could have managed this issue by conducting appropriate due diligence or inserting an appropriate clause in the preliminary agreement.

Implications

The true nature of such an agreement, and whether it is, or is not, intended to constitute a concluded contract, is critical. The magnitude, subject matter or complexities of the transaction are considerations which should ultimately determine whether the parties record their preliminary agreement by way of Heads of Agreement, or rather, in a formal contract.

Even if the Heads of Agreement is intended to be binding, the agreement should allow the parties time to complete due diligence and re-negotiate if necessary. The latter course may ultimately save the parties from expensive and acrimonious court proceedings.

Suzie Emery, Guy Humble

Protecting your business from damaging blog posts

2014-08-20T13:49:00.000+10:00

The Federal Court of Australia has handed down a valuable decision for business owners concerned their business reputation is being damaged by a competitor’s misleading online blog posts.

The decision of Nextra Australia Pty Limited v Fletcher [2014] FCA 399 establishes that, in certain circumstances, the posting of a misleading online blog article regarding a business competitor can amount to conduct which is prohibited under the Australian Consumer Law. With recent reports indicating there are now more than 150 million blogs in existence, the decision is a timely reminder for those operating a blog for commercial reasons.

The applicant in the case, Nextra, is the franchisor of a newsagency franchise operating throughout Australia. The respondent, Mr Fletcher is a director and 50% shareholder of NewsXpress, another newsagency franchise system, and competitor of the Nextra franchise. Mr Fletcher operates an internet blog under the name ‘Australian Newsagency Blog’. On 27 April 2011, Mr Fletcher posted an article on the Blog entitled ‘Nasty campaign from Nextra misleads newsagents’ (Article), and referred to a flyer which had been distributed in print form by Nextra.

After publication of the Article, Nextra commenced proceedings seeking orders that the Article be removed from the blog, that Mr Fletcher be restrained from publishing the Article in any other form and that Mr Fletcher publish a retraction of the Article with an apology to Nextra.

To succeed in its case, Nextra was required to satisfy the Court that the contents of the Article were ‘misleading and deceptive’, and that the posting of the Article occurred ‘in trade or commerce’.

The Court concluded that the Article published by Mr Fletcher, when viewed as a whole, would leave a reasonable reader with the impression that Nextra had distributed false information in its promotional campaign. The evidence was that Nextra had not, in fact, distributed false information in its promotional campaign.

As to whether the posting of the Article occurred ‘in trade or commerce’, Mr Fletcher submitted the Article was merely published in a public forum for matters affecting the newsagency industry. The Court dismissed this submission and instead found that Mr Fletcher had sought to promote his own commercial interests in posting the Article.

Accordingly, the Court found that the posting of the Article was done with an inherently commercial motive which gave the conduct the requisite commercial character.

The Court ultimately ordered that Mr Fletcher remove the Article from the blog and be restrained from publishing the Article in any other form. In so ordering, the Court remarked that readers of the Article would be misled to form erroneous and negative conclusions about Nextra and added that it was in the public interest for such misleading and deceptive material to be removed from the public forum.

Readers should note that the mere publication of an article should not, of itself, be seen as constituting conduct ‘in trade or commerce’. Importantly, as in the Nextra case, the particular blog or forum on which the article is published must be one where its owner seeks to promote its own commercial interests.

Often a misleading or deceptive blog article (whether in stock forums, private blogs or Facebook posts) can be simply and inexpensively removed or retracted through directed legal correspondence with the blog’s owner or the service provider. If this approach is not successful, remedies such as those used in the Nextra case may also be available to affected business owners.

Andrew Poulton, Tim Case