Australian Disputes Year in Review 2021

We recap the key commercial cases and regulatory developments of 2021 and identify some areas to watch in 2022.

1. CONTRACTS

Unfair contract terms

Unfair contract term provisions in the Australian Consumer Law and ASIC Act regulate substantive fairness in consumer and small business contracts. Two recent cases considered whether clauses affecting how disputes could be resolved caused a significant imbalance in the parties' rights and obligations.

This September, the Federal Court indicated (without deciding) that a class action waiver clause in the Ruby Princess cruise passenger terms and conditions was an unfair contract term: Karpik v Carnival plc [2021] FCA 1082. Passengers on the Ruby Princess brought a class action against the cruise ship owner and operator alleging a COVID-19 outbreak had resulted from their negligence. The defendants applied to enforce exclusive jurisdiction and class action waiver provisions in the US passenger contract. The Court held these provisions were not incorporated as terms of the contract. The Court's comments that the class action waiver would have been an unfair contract term confirms what has long been suspected, that class action waiver clauses are unlikely to be effective in Australia.

At the end of 2020, the Federal Court decided that an arbitration clause in a social media platform's terms of use was not an unfair contract term: Dialogue Consulting Pty Ltd v Instagram Inc [2020] FCA 1846. The Court reached that conclusion in the context as it considered the arbitration clause was clearly flagged and did not favour either party.

The High Court provides clarity on casual employment

In August, the High Court emphatically overturned Federal Court decisions that found that employees engaged on a casual basis, but who worked regular and predictable shifts over an extended period, were in fact not casual employees and had leave entitlements. The High Court determined that a casual employee does not have a firm advance (and enforceable) commitment to continuing work. The presence or otherwise of the requisite firm advance commitment is to be assessed by reference to the employment contract, where it is wholly in writing. The High Court rejected the notion espoused by the Federal Court that regard could be had to the "entirety of the relationship" including post-contractual conduct : WorkPac Pty Ltd v Rossato. Ashurst acted for WorkPac. For more details see: Contracts king as High Court clarifies the casual conundrum.

2. TORTS

Government authorities - standard of care

A lower standard of care in negligence applies to public authorities when exercising their powers.

Following the 2011 Brisbane floods, affected parties brought a class action against the Queensland government and two government water authorities alleging negligence in their conduct of the flood operations.

In September, the NSW Court of Appeal held that one of the government water authorities was not liable in negligence because the authority's flood operations were an exercise of its power as a public authority, contrary to the first instance decision. The NSW Court of Appeal accordingly applied the lower standard of care imposed on public authorities when exercising their powers, namely that the government authority would not be liable unless its conduct was so unreasonable that no public or other authority having the functions of the authority in question could properly consider the act or omission to be a reasonable exercise of the function: Queensland Bulk Water Supply Authority t/as Seqwater v Rodriguez & Sons Pty Ltd [2021] NSWCA 206.

At first instance, all three defendants had been found liable. One water authority was the only defendant remaining in the matter before the NSW Court of Appeal, where it successfully overturned the first instance decision. The other two defendants settled the claim in February for $440 million after they were held at first instance to be responsible for 50% of the loss.

Defamation on social media

In a significant development, the High Court held that news organisations were responsible for comments posted by third parties on their social media sites. In Fairfax Media Pty Ltd v Voller the Court held that an organisation is liable on the basis that it participates as a publisher of comments that are posted, regardless of intention. Ashurst acted for Fairfax, Nationwide News and Australian News Channel. For more details see: The end of cheap comments? The High Court confirms operators of Facebook pages are publishers of third party comments.

3. FINANCIAL SERVICES

Financial service timeline - another busy year

The financial services regulatory landscape is constantly evolving. This year we created an online interactive timeline to help navigate the changes. We mapped out the dates for the commencement of new obligations, changes to existing ones, important reports and key enforcement matters. A timeline for 2022 will be published in the new year. For more details see: What's Ahead: Australian Financial Services Interactive Regulatory Timeline.

Personal financial product advice

Australian financial services law distinguishes between financial product advice that is general in nature and advice that is personal. Financial services licensees have more onerous obligations when they give personal advice as they must disclose certain information and act in the client's best interests. In February, the High Court clarified the broad scope of personal financial product advice, finding that a marketing campaign to encourage clients to roll over their superannuation was personal rather than general advice. For more details see: It's personal – Is there a future for general financial product advice?

Asset-based lending - is it unconscionable?

Next year the High Court will have the opportunity to consider how statutory unconscionability applies to lending practices in Stubbings v Jams 2 Pty Ltd & Ors. The case concerns a system of asset-based lending and whether it was unconscionable to lend to a company without inquiring into whether it could service the loan. The High Court will also consider when it is permissible to rely on certificates of independent advice.

4. REGULATORY INVESTIGATIONS AND ENFORCEMENT

ASIC's evolving enforcement approach

In April, Federal Treasurer Josh Frydenberg announced the appointment of Joe Longo as ASIC's new Chair, with Sarah Court appointed as a Deputy Chair. These appointments mark the latest stage in the evolution of ASIC's enforcement approach, from negotiating outcomes, to "why not litigate?", to "express investigations", to a new era of enforcement under Mr Longo and Ms Court. Their early comments suggest that in the new era, ASIC will remain an active litigator but will recognise that not every case is a candidate for litigation and in some circumstances other enforcement tools are more appropriate. For more details see: The Evolution of ASIC's Enforcement Approach.

Breach reporting

This year again saw a raft of legislative changes to continue to implement the 76 recommendations in the 2019 report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. One of the most significant changes was the new regime in October for financial services and credit licensees to report breaches of core obligations to ASIC. Serious breaches and investigation outcomes must be reported within 30 days. For more details see: How to comply with the new breach reporting regime.

Product intervention

Since 2019 ASIC has had the power to make a product intervention order that a person not engage in specified conduct where it is satisfied that a financial product is causing significant detriment to retail clients. This year the Full Federal Court clarified in Cigno v ASIC the factors that ASIC may take into account when determining whether to exercise its product intervention powers. The Court determined that ASIC can consider the harm caused by financial products in the context in which they are provided. For more details see: Full Court decision clarifies ASIC's product intervention power.

5. CONSTRUCTION

Long stop limitation periods for defective building work

Actions for loss or damage arising out of or in connection with defective building work cannot be brought more than 10 years after the date of completion of the work - Environmental Planning and Assessment Act 1979 (NSW), s 6.20. The NSW Court of Appeal in Bandelle Pty Ltd v Sydney Capitol Hotels Pty Ltd confirmed that section 6.20 operates regardless of when the defect was identified, when the development consent was granted or whether the claim is for property damage or economic loss. Thus, in Bandelle, the claim was statute-barred under section 6.20 even though the claimant first suffered loss after the expiry of the 10 year long-stop limitation period. For more details see The clock is ticking on latent defects – NSW Court of Appeal interprets long-stop limitation period.

WA security of payment regime

In June, Western Australia introduced new security of payment laws. The Building and Construction Industry (Security of Payment) Act 2021 (WA) does not strictly follow security of payment legislation in other jurisdictions and is unique. It introduces novel concepts which will be the subject of debate in the coming years. For more details see Changes imminent for construction industry: Western Australia launches new Security of Payment Legislation.

6. ARBITRATION

Arbitration remains an attractive alternative

Our Global Arbitration Group provided an overview of the key themes in arbitration from 2021 in our recent arbitration update. The arbitration update provides a snapshot of the "state of the nation" which contains clues as to what developments may come in the year ahead. The key themes include the growth of Australia as an international arbitration destination, recent amendments to the Australian Centre for International Commercial Arbitration rules, the increasing focus on the interaction between international arbitration and climate change, the uptake of virtual hearings and diversity. For more details see: Australia - Looking Back at Key Themes from 2021.

In addition, recent decisions on the enforcement of arbitral awards demonstrate that Australia continues to be a "pro-arbitration" jurisdiction. For more details see: Enforcement of arbitral awards – the Australian approach.

7. CLASS ACTIONS

Competing class actions

In recent years we have seen intense competition between litigation funders and plaintiff law firms seeking to prosecute class actions against Australian companies and governments. In March, the High Court confirmed the power to manage competing class actions by conducting a multi-factorial analysis to determine which case should progress. For more details see: High Court confirms power to stay competing class actions.

Securities class actions

Recent changes to Australia's continuous disclosure regime will require plaintiffs in securities class actions to establish a fault element of "knowledge, recklessness or negligence" for a class action based on continuous disclosure breaches or misleading or deceptive conduct.

Funding commissions and contingency fees

The government has passed legislation dealing with the reasonableness of litigation funding commissions, introducing a rebuttable presumption that a return to group members in a funded class action of less than 70% of the gross proceeds of a claim is not fair and reasonable. The legislation is currently before the Senate.

Legislation permitting contingency fees in class actions was passed in Victoria in 2020. If approved by the Court, law firms can charge their fees based on a percentage of any award or settlement rather than on a time cost basis. In September, the Supreme Court of Victoria considered, and refused, the first application for approval of a class action contingency fee on the basis that it was not attractive compared with the available alternative of a "no win, no fee arrangement". For more details see: Class action contingency fees – how common will they be?  More recently, the Supreme Court of Victoria approved, for the first time, an application for class action contingency fees, set at 27.5% of any award or settlement.

Class closure

It can be easier to settle an open class action if the court makes an order closing the class before a mediation. These orders give some certainty about who will be bound by any settlement. Last year, in the Haselhurst decision, the NSW Court of Appeal held that the Supreme Court did not have the power to make a class closure order. The question whether the Federal Court has the power to make a class closure order was recently referred to the Full Federal Court in the Boral class action. In Victoria, the Court has an express statutory power to make a class closure order.

8. CORPORATE CRIME

Corporate crime to be uncovered by new immunity policy

In February, ASIC published an immunity policy which applies to individuals who have contravened certain provisions of the Corporations Act such as market manipulation and insider trading. ASIC hopes the policy will help uncover white-collar misconduct which is notoriously difficult to detect and investigate. Under the policy, individuals may seek immunity from civil and criminal penalties for their part in the relevant conduct. The policy is modelled on the ACCC's immunity policy, but is not available to corporations. For more details see: ASIC's new immunity policy.

Loss of privilege in an immunity context

In May, the Federal Court held that a company that had applied for and obtained immunity under the ACCC's policy (as well as corresponding immunity from criminal prosecution) had waived legal professional privilege in the lawyers' notes of the initial accounts given by its employees during an internal investigation, by reading out portions of those notes to the CDPP. That occurred after the CDPP intimated that failure to disclose the contents of the notes might jeopardise the company's maintaining immunity. While merely seeking immunity did not waive privilege, the subsequent oral disclosure to the CDPP was held to give rise to waiver: CDPP v Citigroup Global Markets Australia Pty Ltd [2021] FCA 551.

Autonomous sanctions reform

Autonomous sanctions are targeted punitive measures that governments impose as a matter of foreign policy, beyond the recommendations of the United Nations Security Council, in response to situations of international concern. To date, Australia's autonomous sanctions have been administered primarily via country-based regimes, rather than in relation to types of conduct of concern. Unlike country-based sanctions, "thematic" sanctions can be imposed in relation to conduct of concern, regardless of where it occurs. In December, the Australian Parliament passed legislation to expand Australia's existing sanctions regime. For further details see: Global Magnitsky movement gains pace: Parliament passes reforms to Australia's sanctions regime.

9. CYBER SECURITY

ASIC focus on cyber security

In the face of an increasing volume of cybercrime reports, ASIC has confirmed that cyber security is one of its key regulatory priorities. ASIC's test case against RI Advice Group also demonstrates that financial services and credit licensees may face regulatory action if they fail to implement adequate cyber security systems and procedures.

ASIC commenced the action after certain authorised representatives of RI Advice Group were the subject of multiple incidents, including ransomware and hacking attacks, which allowed cybercriminals to access sensitive client information. ASIC alleges that, because RI's cyber resilience was inadequate and this exposed consumers to an unacceptable risk, RI Advice Group failed to do all things necessary to ensure the financial services were provided "efficiently, honestly and fairly", in contravention of section 912A of the Corporations Act. For more details see: ASIC hints at benchmark standards for cyber security.

10. CLIMATE CHANGE

Climate change duties and litigation exposure

As public attention on climate change continues to increase, a number of climate-related proceedings were again before the courts in 2021.

In one proceeding, a group of bank shareholders are seeking access to internal documents relating to the bank's gas and other fossil fuel projects under section 247A of the Corporations Act. In another proceeding, a shareholder advocacy NGO contends that an oil and gas company made misleading statements about the effect of natural gas on the climate.

Earlier this year, the Federal Court held in Sharma v Minister for the Environment [2021] FCA 560 that the Minister for the Environment owes a duty to take reasonable care to avoid causing personal injury to Australian children as a result of climate change when deciding to approve a coal mine project. An appeal is pending. A group of Torres Strait Islanders have also commenced proceedings alleging the Commonwealth owes a duty of care to protect them from the current and projected impacts of climate change in the Torres Strait Islands.

While shareholders and regulators call for increased disclosure and greater accountability relating to climate change, companies may now be required to take positive steps to address climate change risk. There are clear reasons to take care when making "net zero" or climate change commitments. For more details see: Net zero commitments: Increasing expectations and liabilities for Greenwashing.

Editors: Jeremy Chenoweth, Practice Group Head, AsiaPac, Dispute Resolution; Andrew Westcott, Expertise Counsel; and Camilla Wayland, Expertise Counsel.

Contributors: John Pavlakis, Partner; Rani John, Partner; Ian Humphreys, Partner; James Clarke, Partner; Edmond Park, Counsel; Melissa Yeo, Senior Associate; Morgan Spain, Senior Associate; Sally-Anne Stewart, Senior Associate; Luke Carbon, Senior Associate; and Patrick Lawler, Senior Associate.