Consumer credit reform - snapshot on compliance

Reform of Australian Consumer Credit Laws by Federal Parliament in 2009 resulted in sweeping changes to the Australia consumer credit landscape, heralding the introduction of a harmonised and uniform regulatory framework where there previously existed only an ostensibly uniform Consumer Credit Code under the auspices of which operated State and Territory based codes.

The statutory progeny of the Consumer Credit Code, the National Consumer Credit Protection Act 2009 (Cth) (the “Act”) mirrors much of the previous regime and indeed subsumes the National Credit Code (the “Code”) into Schedule 1 of the Act. However, since the regulation of consumer credit and finance broking was assumed by the Australian Securities and Investments Commission (ASIC) on 1 July 2010, there are a number of core respects in which the present regime differs.

Significantly, the reforms have culminated in more rigorous obligations upon those lenders and intermediaries who propose to engage in credit activities, including:

• a licensing regime for providers of consumer credit and services;
• responsible lending conduct requirements;
• mandatory membership of an external disputes resolution body; and
• sanctions and ASIC’s enforcement powers as regulator of the regime.

Regulated Credit

Under the current consumer credit regime, only credit that comes within the Code is regulated under the Act. The Code, which forms Schedule 1 of the Act, applies to the provision of credit or proposed provision of credit:

• to a natural person or strata corporation; and
• wholly or predominantly:
• for personal, domestic or household purposes, or
• to purchase, renovate or improve residential property for investment purposes, or
• refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; and
• where a charge is or may be made for providing the credit; and
• where the credit is provided in the course of a carrying on a business of providing credit in Australia or as part of, or incidentally to, any other business carried on in Australia.

For the purpose of the Code, the predominant purpose for which credit is provided is the purpose for which more than half of the credit is intended to be used; or if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods or services are intended to be most used. Accordingly, if more than half of the credit is not for a personal, domestic or household purpose, the credit will not be regulated under the Act.

Engaging in credit activities – licensing

The national consumer credit law, specifically Chapter 2 of the Act, requires that in general a person cannot engage in a credit activity if the person does not hold an Australian credit licence.  Alternatively, a person may be an employee or a director of one of the licence holder or one of its related bodies corporate, authorised as a credit representative, exempt from holding a licence, or granted relief by ASIC from the requirement to hold a credit licence.

For the purpose of the Act, section 6 stipulates that a person is engaged in a ‘credit activity’ if they:

• are a credit provider under a regulated credit contract or consumer lease; or
• provide credit assistance in relation to a credit contract or consumer lease; or
• act as an intermediary between a lender and a consumer, or lessor and consumer; or
• are a lessor under a regulated consumer lease; or
• are a mortgagee under a regulated mortgage or benefit from a regulated guarantee; or
• provide other prescribed credit activities.

Section 47 of the Act prescribes the general conduct obligations of all licensee, and include:

• do all things necessary to ensure that the credit activities authorised by the licence are engaged in efficiently, honestly and fairly;
• ensure that its representatives comply with the credit legislation and are adequately trained and competent to engage in the credit activities;
• have an internal dispute resolution procedure that complies with ASIC approved standards;
• be a member of an approved external dispute resolution scheme; and
• have compensation arrangements in accordance with section 48.

Credit licensees or applicants can refer to ASIC Regulatory Guide 205 Credit licensing: General conduct obligations, which outline key compliance concepts that apply to all of the general conduct obligations for further information.

Responsible lending obligations

The current consumer credit regime provides a considerable degree of protection to consumers by imposing upon credit providers a number of conditions intended to minimize the instances of unfair, prejudicial or inappropriate loans being granted to consumers. These obligations are set out in Chapter 3 of the Act and in the National Consumer Credit Protection Regulations 2010, as amended by the National Consumer Credit Protection (Amendment) Regulations 2011 (No. 4) (the “Regulations”).

The premise of these obligations is that credit licensees must not enter into a credit contract with a consumer, suggest a credit contract to a consumer or assist a consumer to apply for a credit contract if it is or would be unsuitable for the consumer.

In order to meet the responsible lending obligations, a credit provider must make reasonable inquiries about the consumer’s financial circumstances, take reasonable steps to verify the consumer’s financial situation, and make a preliminary assessment (if providing credit assistance) or final assessment (if a credit provider) about whether the credit contract is suitable for the consumer.

The obligations are, in effect, to supply certain documents to consumers to assist consumers in understanding the credit activities that are being offered by the credit provider. Such documents include:

• a credit guide that provides preliminary information about the credit provider to the consumer, and is to be provided before engaging in credit activities.
• a quote that provides an estimated cost to the consumer of utilising the services if a fee is charged, and must generally be provided before credit is provided.
• proposal documents setting out the cost to the consumer of utilising the credit provider’s services; and
• a written assessment (being a preliminary or final written assessment) that a credit contract or consumer lease is not unsuitable for the consumer.

Whilst there are some exemptions to these requirements, for the most part the documents must be given to consumers to ensure that consumers have access to information that will assist them in making decisions about dealing with the credit provider, and understanding their rights and the contracts that are being offered. The time at which the documents will need to be supplied to consumers depends on what type of entity the credit provider is and what credit activities are engaged in by the credit provider, but will invariably need to be furnished before the credit provider engages in credit activities with the consumer.

It should be noted that these obligations commenced on 2 October 2011, and will apply to most credit licencees and credit representatives including but not limited to credit providers and lessors (including assignees), credit assistance providers such as mortgage and finance brokers, credit representatives, including some franchisees, and debt collectors. The obligation to provide pre-contractual disclosure to a consumer under section16 of the Code is unchanged and continues to apply.

Credit licencees and representatives that fail to comply with the disclosure obligations may face significant criminal and civil penalties. ASIC may also take administrative action by suspending, cancelling or imposing conditions on the credit provider’s credit licence or issue an infringement notice.

Dispute Resolution Procedures

A further significant requirement under the current regime is the requirement that credit providers have suitable and sufficient dispute resolution procedures in place.  The national consumer credit law requires that creditors must have in place internal dispute resolution (IDR) procedures and membership of an ASIC-approved external dispute resolution (EDR) schemes, being:

• Financial Ombudsman Service Limited (FOS); or
• Credit Ombudsmen Service Limited (COSL).

It is crucial that credit providers have appropriate links between their IDR and EDR procedures. Whilst recourse to IDR is intended to be the first forum for consumers to resolve disputes with credit providers, it is often circumvented and complaints pursued through EDR schemes in the first instance.  

As there may be a cost to licensees in circumstances where complaints are first made to an EDR scheme and later referred to its IDR, it is important that licensees provide clear, comprehensive and accessible information to consumers on the procedures for making complaints.  In this regard, creditors should consult Regulatory Guide 165Licensing: internal and external dispute resolution.

Conclusion

In view of the above, credit providers should gain both a clear understanding of what ‘credit’ is regulated under the current regime, the obligations which are imposed under the regime, and decide how to address the implications of the foregoing requirements so as to avoid being subject to the numerous civil and criminal penalties and sanctions.

Abolition of expert immunity in the UK

Paul Wynne Jones v Sue Kaney [2011] UKSC 13

In Paul Wynne Jones v Sue Kaney [2011] UKSC 13 (“Kaney”) the Supreme Court of the United Kingdom [1] has abolished expert immunity.  Previously it had long been established that expert witnesses had a limited form of immunity from proceedings for negligence and breach of contract.  The immunity was limited to evidence given by an expert witness in court and to work which was preliminary to giving such evidence.  The immunity enjoyed by an expert witness was considered to form part of a general immunity from civil liability applying to judges, jurors, barristers [2] and witnesses in court proceedings generally.  The privilege was based on public policy grounds in that the administration of justice demanded that such persons should speak without fear of consequences in discharging their public duties.

The facts in Kaney were as follows:

• Mr Jones was injured in a road traffic accident in Liverpool in 2001. 
• Ms Kaney was a clinical psychologist who was instructed by Mr Jones’ lawyers to give an expert opinion for the purposes of the litigation.  Ms Kaney prepared a report in which she expressed the opinion that Mr Jones was suffering from post traumatic stress disorder (PTSD). 
• Ms Kaney subsequently signed a joint expert statement following a telephone conference with the defendant’s expert.  The joint statement was prepared by the defendant’s expert.  The joint statement was damaging to Mr Jones’ claim and included statements that Mr Jones’ psychological reaction did not reach the level of a PTSD and that she had found Mr Jones to be deceptive and deceitful.
• It subsequently came to light that:
• Ms Kaney had not seen the reports of the opposing expert at the time of the conference;
• The contents of the joint statement did not reflect the agreement reached between the experts;
• Ms Kaney’s true view was that Mr Jones had been evasive rather than deceptive; and
• Ms Kaney maintained her view that Mr Jones did suffer from PTSD. 
• The claim was settled for a significantly less sum compared with the settlement which would have been achieved if Ms Kaney had not signed the statement [3].
• Mr Jones issued proceedings against Ms Kaney for negligence.  At first instance Justice Blake struck out the claim on the basis that, as an expert, Ms Kaney was immune from suit.

In striking out the claim Justice Blake considered that he was bound by existing authority, however, he did certify that the case involved a point of law of general public importance and granted a ‘leapfrog certificate’ by which the appeal went directly to the Supreme Court.  Justice Blake took the view that “a policy of blanket immunity for all witnesses” was too broad and that there was a substantial likelihood that the Supreme Court could find that the public policy reasons supporting the immunity could not be justified [4]. 

The appeal to the Supreme Court raised the narrow issue of whether the act of preparing a joint witness statement is one in which an expert witness enjoys immunity;  however, the Supreme Court considered that this issue inevitably raised the broader issue was whether public policy justified expert witness immunity in general. 

The Supreme Court held that the immunity enjoyed by experts could no longer be justified. 

A summary of the decision of the Supreme Court is as follows:

• Every wrong should have a remedy and that any exception to the rule must be justified as being in the public interest and kept under  review;
• A paid expert voluntarily undertakes duties to his client for reward.  Breach of those duties should give rise to a remedy;
• The immunity as enjoyed by barristers had been abolished by the House of Lords in 2001 on the grounds it could no longer be justified [5];
• The primary rationale for the immunity was that an expert witness may be reluctant to give evidence against his client’s interest if there was a risk that his client might sue him.  In common with barristers there was no conflict between the duty that the expert had to provide services to his client with reasonable skill and care and the duty the expert owed to the court.  An expert has a paramount duty to the court that may require an expert to act in a way that may not advance a client’s case.  An expert will not be liable merely because a view is unhelpful to the expert’s client;
• There was no justification for the assumption that if expert’s immunity was abolished expert witnesses would be reluctant to provide their services;
• The decision does not extend to the absolute privilege that experts enjoy in respect of claims in defamation or the immunity of other witnesses in respect of litigation.

In reaching the conclusion that there was no longer a justification for the expert’s immunity, Lord Dyson stated:

“…even if there is such a long-established rule, it is based on policy grounds and cannot survive if the policy grounds on which is it based no longer justify the rule.  The mere fact that the immunity is long-established is not a sufficient reason for blessing it with eternal life.  Circumstances change as do attitudes to the policy reasons which underpin the immunity.  The common law develops in response to these changes.  The history of the rise and fall of the immunity of advocates provides a vivid illustration of this point [6].”

The likely consequences that will follow the Supreme Court decision are that in the United Kingdom professional indemnity insurance premiums will rise, fees for experts may rise and exclusion clauses may be introduced into contracts to give expert evidence.  Furthermore, experts will likely become more cautious in providing initial advice

The Position in Australia

Currently in Australia, experts have the benefit of immunity (as do barristers).  The position of expert witness immunity has not specifically been the subject of consideration by the High Court, however, general witness immunity was re-affirmed by the High Court in D’Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12, (2005) 223 CLR 1. 

The New South Wales Supreme Court has specifically considered the question of expert witness immunity and re-affirmed the immunity in relation to expert witnesses in Sovereign Motor Inns Pty Ltd v Howarth Asia Pacific Pty Ltd [2003] NSWSC 1120 [7].  In this case, Sovereign brought claims for breach of contract, negligence and under the Trade Practices Act against an expert who had been instructed to prepare a number of expert reports and give evidence in a claim concerning breach of a lease.  The majority of a particular report was not admitted because the expert failed to comply with the Experts Code of Conduct and the court considered that the report was inadequate. 

The defendant successfully applied to strike out the Sovereign claim.  The question that was to be determined was whether the Sovereign claim, as pleaded, was one that fell within the principle of witness immunity.   In reaching his conclusion, Master Harrison (as he then was) stated:

“it is my view, that in both Australia and England, the law is well settled in relation to an expert witness who provides a report and gives evidence.  He or she has immunity from suit.” [8]

Conclusion

If an Australian defendant today was to bring an action against an expert, there remains some prospect that if it was to go before a superior court, that expert’s immunity in Australia may be abolished; however, it must be noted that unlike the United Kingdom, Australia still provides immunity to advocates.

_______________________________________________________________

[1] The Supreme Court of the United Kingdom is the highest appellate court in the United Kingdom.
[2] The immunity of barristers was abolished by the House of Lords in Arthur JS Hall and Co. v Simons [2000] UKHL 38.
[3] Mr Jones’ lawyers sought permission to change their expert but this was not allowed by the district court judge.
[4] Jones v Kaney [2010] EWHC 61 QB at 37 & 38.
[5] The House of Lords did not remove the absolute privilege for barristers from claims for defamation.
[6] Jones v Kaney [2011] UKSC 13 at 112.
[7] Sovereign at 33.
[8] Sovereign at 46.

HIH Claims Support Ltd v Insurance Australia Limited

On 22 August 2011 the High Court delivered its decision in HIH Claims Support Ltd v Insurance Australia Limited [1]. This decision impacts on insurers and their ability to seek contribution from other insurers where policies covering risks of the same nature are operating at the same time.

How does the decision impact insurers?

The decision raises two main considerations for insurers.

Firstly, is the same risk being covered? If an insurer is in a position to seek equitable contribution from another insurer, the Court will look to see if the risks covered are of the “same nature and to the same extent [2]. The court will look to the obligations of each insurer and whether they are essentially the same or different. If they differ then the court will compel equitable contribution.

Secondly, have the risks been precisely specified? The decision also puts insurers on notice to make sure the policies issued specify the risks covered with some precision. This may have bearing on a court when determining whether the risks covered by another insurer are the same or different and whether a claim for co-ordinate liability and equitable contribution will succeed or not. The Court does not, however, approach the issue with too much technicality [3] so the overarching consideration will always be whether the obligations of the insurers are “of the same nature and to the same extent”.

Brief

• Ronald Steele, a sub-contractor, had negligently erected a scaffold that caused damage to a valuable video screen operated by Screenco.
• Steele was insured by HIH Group, under a general liability policy, as well as SGIC, Insurance Australia Limited’s (IAL) predecessor. Steele was a sub-contractor of the Australian Grand Prix Corporation.
• In 2001, the Court found Steele liable to Screenco. The HIH Group accepted Steele’s claim but only indemnified Steele for approximately $80, 000 in preliminary legal costs, having gone into liquidation prior to the trial.
• Following the collapse of the HIH Group, the Federal Government established the HIH Claims Support Scheme (Scheme). Steele assigned his rights as a HIH policy holder to HIH Claims Support Ltd (HIH Trustee), which indemnified Steele for 90 per cent of all costs in relation to the claim made by Screenco.
• The HIH Trustee then commenced proceedings in the Supreme Court of Victoria seeking contribution from SGIC (IAL) for the cost of indemnifying Steele. The High Court of Australia heard this dispute on appeal.

Equitable Contribution and Co-ordinate Liability

The equitable doctrine of contribution is enlivened in situations where two or more parties bear a common burden in respect of the one loss. That common burden, referred to as co-ordinate liability, must be of the same nature and to the same extent [4].  Equity may intervene and compel a party to contribute to a loss in situations where a common legal burden is established [5].

The High Court’s Decision

The High Court of Australia found in favour of IAL and held that there was no co-ordinate liability and that the HIH Trustee could not claim equitable contribution as the obligations of the parties were not “of the same nature and to the same extent” [6]. The reasons for this were threefold.

Firstly, the High Court held that there was no common interest or common burden shared by the parties [7] as IAL would have stood alone if IAL had made a payment to Steele first – Steele would have been ineligible for assistance under the HIH Scheme.

Secondly, the High Court acknowledged the point-in-time that the HIH Trustee became active – the time when the HIH Trustee made first payment. The Court held that if IAL had paid out Steele first, IAL would never have had an opportunity to claim contribution as the HIH Trustee’s obligations would not have been in existence [8].

Thirdly, the risks undertaken by the HIH Trustee and IAL were different risks [9]. The HIH Trustee’s obligations to Steele arose due to Steele assigning his rights after the insured event had occurred. Conversely, IAL’s obligations were in existence before the insured event. Under these circumstances the risks were not co-ordinate.

The HIH Trustee then commenced proceedings in the Supreme Court of Victoria seeking contribution from SGIC (IAL) for the cost of indemnifying Steele. The High Court of Australia heard this dispute on appeal.

The High Court was unwilling to develop the law of contribution to overcome the challenges faced by the HIH Trustee and instead made it clear that the doctrine of contribution and co-ordinate liability was to follow the existing limits of the law.    

_______________________________________________________________

[1] [2011] HCA 31.
[2] BP Petroleum Development Ltd v Esso Petroleum Co Ltd 1987 SLT 342, 348 per Ross LJ quoting Chelmsford LJ in Caledonian Railway Company v Colt (1860) 3 Macq 833, 844.
[3] Mahoney v McManus (1981) 180 CLR 370, 378.
[4] BP Petroleum Development Ltd v Esso Petroleum Co Ltd 1987 SLT 342, 348 per Ross LJ quoting Chelmsford LJ in Caledonian Railway Company v Colt (1860) 3 Macq 833, 844.
[5] Friend v Booker (2009) 239 CLR 129, 148.
[6] BP Petroleum Development Ltd v Esso Petroleum Co Ltd 1987 SLT 342, 348 per Ross LJ quoting Chelmsford LJ in Caledonian Railway Company v Colt (1860) 3 Macq 833, 844.
[7] HIH Claims Support Ltd v Insurance Australia Limited [2011] HCA 31, [52].
[8] HIH Claims Support Ltd v Insurance Australia Limited [2011] HCA 31, [53].
[9] HIH Claims Support Ltd v Insurance Australia Limited [2011] HCA 31, [54].

New federal and state pre-litigation requirements

Legislation at federal level has recently been enacted, introducing pre-litigation requirements must be adhered to by parties prior to commencing proceedings in the Federal Court. The overriding purpose of these amendments is:

• to encourage parties to settle disputes
• attempt to narrow the issues in contention prior to commencing proceedings; and thereby
• minimise cost and delay

COMMONWEALTH: CIVIL DISPUTE RESOLUTION ACT 2011 (CTH) ("CDR Act")

Commencement

The CDR Act has now come into effect as of 1 August 2011; coinciding with the introduction of the new Federal Court Rules and Federal Magistrates Court Rules.


'Genuine Steps' Statement

The CDR Act requires that when an applicant institutes proceedings in the Federal Court of Australia or Federal Magistrates Court, they file a ‘genuine steps’ statement noting:

• the steps that have been taken in an attempt to resolve the issues; or
• if no such steps were taken, the reasons why steps were not taken– including but not limited to the urgency of the proceedings and extent to which steps to resolve the dispute would have compromised the safety or security of a person or property.

A respondent to the proceeding must also file a genuine steps statement, prior to the hearing date specified in the application, indicating that they agree with the applicant’s statement or, if not, the reasons why not.

Notably, the CDR Act imposes an obligation on lawyers acting for a person who is required to file a genuine steps statement, to advise the person of the requirement and assist the person to comply with the requirement.


What constitutes genuine steps?

The CDR Act provides that a person takes genuine steps “if the steps taken by the person in relation to the dispute constitute a sincere and genuine attempt to resolve the dispute, having regard to the person's circumstances and the nature and circumstances of the dispute”.

The implication is that the requirement of taking genuine steps is not a dogmatic one, but one that affords some degree of latitude to parties to take steps that are deemed appropriate or necessary in the circumstances.

Moreover, the CDR Act incorporates a non-exhaustive list of examples of what may amount to ‘genuine steps’, including:

• notifying the other person of the issues that are, or may be in dispute and offering to discuss them with a view to resolving the dispute;
• responding appropriately to any such notification;
• providing relevant information and documents to the other person to enable the other person to understand the issues involved and how the dispute might be resolved;
• considering whether the dispute could be resolved by a process facilitated by another person, including an alternative dispute resolution process;
• if such a process is agreed to:
• agreeing on a particular person to facilitate the process; and
• attending the process;
• if such a process is conducted but does not result in a resolution - considering a different process;
• attempting to negotiate with the other person, with a view to resolving some or all issues in dispute.

It should be noted that steps not falling within the ambit of these examples may still constitute taking genuine steps to resolve a dispute; however, the question of what does and does not amount to genuine steps will ultimately be determined by the Court. 

Implications of Non-compliance

Failure by a party to file a genuine steps statement, on its own, will not invalidate the proceedings.

However, this does not mean that consequences will not flow from a party’s failure to comply. Rather, the Act enables the Court to take account of any failure to comply in the performance of functions and exercise of powers in relation to civil proceedings before it, and when exercising its discretion to award costs against a person or lawyer. The potential for adverse costs orders should therefore provide a significant impetus for parties and legal representatives alike to ensure that these requirements are satisfied prior to commencing litigation.


Proceedings Excluded Under the Act

Certain kinds of proceedings are expressly excluded from the operation of the CDR Act, including those where taking genuine steps to resolve a dispute is either not practicable or inappropriate, such as those relating to a civil penalty or criminal offence, appeals, ex parte proceedings, and proceedings involving a vexatious litigant.

Moreover, certain Acts are also excluded, in particular those under which comprehensive dispute resolution regimes already exist, including the Family Law Act 1975 and Fair Work Act 2009.

Corporate criminal responsibility: Locating the directing mind and will of a company in senior management

In February 2011, Cotswold Geotechnical Holdings (Cotswold) became the first English company to be convicted of corporate manslaughter. The conviction heralds the first successful application of the Corporate Manslaughter and Corporate Homicide Act 2007 (the Act) in England and will likely be a catalyst for further Australian discussion.

In September 2008,  Alexander Wight, a junior geotechnical engineer employed by Cotswold  was left working alone in a 3.5 metre deep trench when the unsupported walls of the trench collapsed and smothered him. Despite well-recognised industry guidelines that prohibited entry into trenches in excess of 1.2 metres deep, the company denied responsibility for Mr Wright’s death.

In securing a conviction of corporate manslaughter, the Act required the prosecution to establish that the way in which the company’s activities were managed or organised amounted to a gross breach of a duty of care to the deceased. In assessing the management and organisation of the fatal activity, the British Act dictates that a substantial element of the failure within the organisation must have been in the way the fatal activity was organised by senior management, thereby obviating the historical hurdle of identifying the directing mind and will of a company by placing the duty of care squarely on the shoulders of the collective senior management of the British company.

Despite a push towards national corporate manslaughter laws in Australia following a number of work related deaths, it appears as though the regulation of corporate manslaughter is a remote possibility for Australia. Whilst the Criminal Code Act 1995 (Cth) (the Code) extends negligence to corporations by attributing the mental and physical elements of the offence to corporations as entities, the Code applies only to Commonwealth offences. As manslaughter is not a Commonwealth offence, it is excluded from the Code and, in the absence of specific provisions in each state and territory, is almost impossible to prosecute under criminal legislation.

To date, the Australian Capital Territory is the only jurisdiction to introduce an offence of industrial manslaughter; however, whilst the English legislation looks to senior management as the benchmark for gross negligence, the Crimes (Industrial Manslaughter) Act (ACT) 2003 adopts a broad sphere of liability, enabling the physical element of the offence to be attributed to the officers of a company, its agents and its employees.  Despite the explicit call to account that this legislation fosters, every Australian jurisdiction except the ACT has vehemently rejected the proposal for the introduction of industrial manslaughter laws.

The law has been steadfast in its objective to bring individuals accused of gross negligence to justice. How then has the corporate entity, whose enjoyment of a separate legal identity underlines the very essence of corporate existence, so easily escaped prosecution for so long? Is it time to open the gates for corporate convictions or would such an opening mark the beginning of an impossible burden for the corporate entity?

Divining the thoughts of imaginary men: apprehending bias and the disqualification of judges

Ensuring that a dispute is determined by a decision-maker who will make an impartial and unbiased finding is crucial to the proper administration of justice.

The law has a long history of insisting that justice must not only be done, but seen to be done; and that the appearance of impartiality is vital to engender confidence on the part of litigants and the public. For that reason, disqualification ought not require actual bias, but merely the appearance or apprehension of bias.

Yet, despite the intuitive nature of the principles, formulating a proper test to determine when a judge ought not hear a case has proven difficult.

In British American Tobacco Australia Services Limited (BATAS) v Laurie [2011] HCA 2, the High Court had an opportunity to clarify the correct test and its application.

While there exist a number of reasons for a judge to be disqualified from hearing a matter – such as having a personal interest in the subject matter or a relationship with a litigant – the most frequent application has been disqualification on the grounds of apprehended bias.

The current test was articulated by the High Court in Ebner v Official Trustee in Bankruptcy (2000) 205 CLE 337, in which the court determined that disqualification for apprehended bias required a ‘fair-minded lay observer’ to conclude that a reasonable apprehension of bias existed. That reasonable apprehension, however, must be ‘firmly established’ (see Johnson v Johnson (2000) 201 CLR 488)).

That principle sought to ensure that the test was an objective one, and that bias was to be determined from the perspective of a layperson. It was not enough that a lawyer or another judge would not be concerned – it was considered vital that the public at large be at ease with the administration of justice.

The difficulty with this principle lies in its application, which necessarily requires judges to attempt to divine what the hypothetical lay observer would think about a given set of circumstances. Moreover, it requires judges to determine exactly how much information and knowledge to attribute to that fictional person.

Much discussion has been given to the characteristics of the fair-minded lay observer. That person must not be overly suspicious, but reasonable and intelligent; not a lawyer, but is not uninformed about the law generally; not an expert, but would take the trouble to investigate an important matter before making a decision; and will understand and respect the strong commitment to integrity and impartiality made by members of the judiciary.

Even so, the decision which a judge must make when considering a recusal application is an unenviable one. In BATAS, the five members of the court were unable to agree, although the correct test, as described above, was easily identified.

Crucial to the court’s considerations were whether or not the fair-minded observer should be taken to have read the primary judge’s reasons for refusing to disqualify himself; and whether or not that hypothetical person would apprehend bias in a situation where a judge had, in 2006, made a finding on limited evidence about a fact that was again significant in separate, fuller proceedings in 2009.

The High Court was most united on the topic of the reasons for refusal, with four of the five members of the High Court holding that the fictional layperson should not be taken to have read those reasons.

The decision on the primary issue was less unified. Three of the five members of the High Court considered that a reasonable apprehension of bias would exist, despite the disclaimers in the 2006 judgment that the finding, being an interlocutory one, was necessary based on limited evidence and may be altered upon fuller investigation at a final hearing. The minority, by contrast, considered that the fair-minded observer would understand and accept that the judge was required to make a decision on limited evidence, and would not apprehend an inability or unwillingness to alter that decision when fuller evidence was available.

The division in the High Court in BATAS illustrates both how intricate the issues can become – with the court being required to debate whether or not the hypothetical person had read a particular document – as well as how difficult it is to objectively determine the thoughts of the fictional person.

Nonetheless, the care and attention devoted to this particular area of the law ought bring some comfort to both the profession and the public. When the highest court in the land is concerned about the minutiae of the knowledge of imaginary men, there is a clear and strong convention in the judicial system to ensure that justice is indeed blind.

Joint expert report - Is there a back-door for further expert evidence?

In Rudyard Kipling Thorpe (as Litigation Friend to Mrs Leonie Leanthie Hill) v Fellowes Solicitors LLP [2011] EWHC 61 (QB), the High Court of England and Wales considered, inter alia, whether it was appropriate that a party adduce further expert (or lay) evidence outside case management orders.

The Facts

Mr. Rudyard Kipling Thorpe, acting on behalf of his mother, Leonie Leanthie Hill brought a claim against Fellowes Solicitors in professional negligence. Mrs. Hill, with the assistance of her daughter, Leilth P Alexander, sought to sell her property. Fellowes were instructed to act as Mrs. Hill’s solicitors in the sale of the property.

Mr. Thorpe alleged that Mrs. Hill suffered from dementia, and thus lacked the requisite capacity to instruct Fellowes with respect to the sale of her property. It was on the basis that Fellowes were negligent in not being alert to Mrs. Hill’s competence that Mr. Thorpe brought his claim. In response, Fellowes stated, notwithstanding Mrs. Hill’s mental condition, she retained the ability to make cogent decisions, one of them being to instruct Fellowes. 

Mr. Thorpe had instructed two experts, Dr. Greenwood and Dr. Jeganathan, prior to the hearing, who stated that Mrs. Hill’s cognitive functions were significantly impaired, that she was incapable of understanding and executing legal documents and she might well not have had testamentary capacity.

Fellowes contested the findings by the experts, based on their dealings with Mrs. Hill.

It was readily apparent that expert evidence was required to assess the extent of Mrs. Hill’s ailment.

The Court made detailed orders with respect to calling a single expert, jointly instructed by the parties.

The single expert, Dr. Cockerell, with the benefit of the reports prepared by Dr. Greenwood and Dr. Jeganathan, expressed a contrary opinion. Dr. Cockerell’s opinion was not accepted by Mr. Thorpe.

Mr. Thorpe subsequently made attempts to adduce evidence from Dr. Greenwood and Dr. Jeganathan.

Further expert evidence – a back door?

Mr. Thorpe’s solicitors served a summons upon the three doctors requiring their attendance at the hearing.

The attendance of the three doctors was precluded (save for leave of the Court), as all expert and lay evidence was to be served at a much earlier date.

Mr. Thorpe brought the application to admit the evidence of Dr. Greenwood and Dr. Jeganathan as being evidence of fact, not opinion and that it ought to be admitted in the interests of justice. This argument held no currency with Justice Sharp and was dismissed. 

Her Honour noted, at [55], that a Court may permit further expert reports in instances where a single export report had been ordered, however, the fact that one party is not in agreement with an opinion expressed is not a sufficient reason on its own (the corollary being that it may form as one of the reasons for an application for further expert evidence). Her Honour stated that a Court needs to be cognisant of the rules which “provide for the controlled admission of expert evidence only with the permission of the court, having regard to issues of proportionality and the overriding objective”.

Further, her Honour stated that it was common for medical professionals to disagree, at [44], and her decision to refuse any further evidence was, no doubt, made easier by the fact that Dr. Cockerell had for his benefit the reports prepared by Dr. Greenwood and Dr. Jeganathan.

In assessing whether the attendance (and cross-examination) of Dr. Cockerell was warranted, her Honour referred to the statements made by Lord Woolf MR in MP v Mid Kent Healthcare NHS Trust [2001] EWCA Civ 1703, where His Lordship, at [28], stated the general proposition that a cross-examination of a single expert is to be “restricted as far as possible” and, further, if a cross-examination is to occur, it would be patently manifest that the single expert be advised in advance of the topics the subject of cross-examination.

Back door shut?

The decision of the High Court is another example of the Court’s application of the overriding purpose of the rules governing litigation, see Part 1 of the Civil Procedure Rules. Litigants need be aware that the Court will swiftly stifle any attempts to admit evidence via the back door, and any effort to adduce further opinion evidence can only occur if the requirements as set out by Lord Woolf MR in MP v Mid Kent Healthcare NHS Trust are satisfied. 

Some recent and interesting decisions in the area of banking and finance law

The Supreme Court of New South Wales has recently handed down some decisions that will be of interest to financiers.  The decisions consider the following issues:

• What is the consequence of a failure by a credit provider to give a debtor a default notice complying with section 80 of the Consumer Credit Code or section 88 of the National Credit Code (whichever is applicable in the circumstances)?
• What rights does a guarantor have if it believes that mortgaged property has been sold by a mortgagee at under-value?
• What rights, if any, does a tenant of a lease entered into without the consent of the mortgagee have as against the mortgagee?

Default Notices

CKM (Mortgages) Limited v Burtenshaw [2010] NSWSC 1044 lends support to the view that when there is a genuine issue in proceedings about whether a loan has been provided wholly or predominately for personal, domestic or household purposes, and that issue has been determined against the credit provider in such a way that the Consumer Credit Code is held to apply to a loan, section 80 of the Consumer Credit Code does not have the result that a failure by the credit provider to have served a notice prior to the commencement of the proceedings will result in the proceedings being dismissed.

CKM (Mortgages) Limited followed the decision of Davis J in Bank of Queensland v Dutta [2010] NSWSC 574; however, it should be noted that these decisions are in direct conflict with earlier decisions of the Supreme Court of New South Wales; namely, Permanent Mortgages Pty Ltd v Cook [2006] NSWSC 1104 (where the Court held that it was open for the debtors to seek to rely upon the credit provider’s failure to comply with section 80 by way of defence or in support of an application for summary judgment) and Benjamin v Ashikian [2007] NSWSC 735 (where the Court held that the effect of the failure to comply with section 80 was that the action was struck out without prejudice to the credit provider’s right to bring fresh proceedings after the credit provider had complied with the requirements of section 80).

Accordingly, although the more recent decisions support the position of the credit provider, the law is, at this stage, by no means certain. 

Guarantor’s Rights

On 7 September 2010, in Bank of Western Australia Limited v Usalj [2010] NSWSC 991, Harrison AsJ held that section 420A of the Corporations Act 2001 (Cth) offers no protection and gives no rights to a guarantor.  Section 420A of the Corporations Act 2001 (Cth) provides that when a controller exercises a power of sale in respect of property of a corporation, the controller must take all reasonable care to sell the property for its market value or the best price that is reasonably obtainable.

Harrison AsJ followed the decisions of GE Capital Australia v Davis [2002] NSWSC 1146 and Florgale Uniforms Pty Ltd v Orders [2004] VSC 65 and said that notwithstanding that a guarantor has no standing under section 420A, a guarantor can still obtain the benefit of any credit by relying upon an equitable set-off against the credit provider’s demand. 

Tenant’s Rights

The decision of Schmit J in Perpetual Nominees Limited v Karamakis and Ors [2010] NSWSC 1041, which was handed down on 15 September 2010, confirmed that where a tenant has entered into a lease without the consent of the mortgagee, the lease is not valid or binding on the mortgagee.  This was in circumstances where the tenant had spent approximately $65,000 on improvements to the mortgaged property.  Schmidt J referred to Dolroy Pty Ltd v Civilco Constructions Pty Ltd [2007] NSWSC 1263 and said that the general rule is that spending money on another’s property does not, prima facie, give rise to a proprietary interest in the property.   

Secure Funding Pty Ltd v Insurance Australia Limited [2010] FCA 1094

In October 2010, we successfully defended the above Federal Court of Australia proceeding on behalf of Insurance Australia Limited (IAL). 

Secure Funding is a credit provider that was noted as such on a policy of home buildings and contents insurance entered into between IAL and two co-insureds.  One of the co-insureds set fire to the insured premises with the intention of causing damage.  Secure Funding made a claim for recovery of its loss pursuant to section 48 of the Insurance Contracts Act 1984 (Cth) (ICA).

Section 48(1) of the ICA provides that a person who is noted on a policy of insurance as a person to whom the policy extends has a right to recover the amount of their loss in accordance with the contract, notwithstanding they are not a party to it.  The section is limited by subsection (3), which provides that the insurer has the same defences to an action under the section as it would if the action was brought by the insured.

Secure Funding sought to rely upon the case of VL Credits v Switzerland General Insurance Co Ltd [1990] VR 938.  The facts of that case were similar in many respects to the Secure Funding matter – an insured person deliberately set fire to the insured premises, and a financier made a claim pursuant to the policy of insurance seeking recovery of its loss.  Notwithstanding the fact that the insured person was undoubtedly unable to recover its loss, the Court held that the financier could.

The distinguishing feature between VL Credits and Secure Funding was the relevant term in the policy of insurance.  In that regard, the term in VL Credits was as follows:

If any claim be in any respect fraudulent or if any fraudulent means or devices be used by the insured or anyone acting on the insured’s behalf to obtain any benefit under this policy or if any destruction or damage be occasioned by the wilful act or connivance of the insured, the company without prejudice to any other right it might have under this contract, is entitled to refuse to pay the claim.

The reason given by the Court in VL Credits for allowing the financier to be covered by the policy was because it would not, in the absence of language requiring it, interpret the term as visiting the consequences of fraud upon a party that had not been fraudulent himself.  In other words, as the financier had not acted in a fraudulent manner, the Court found that it should be entitled to cover. 

However, the term in Secure Funding was as follows:

However, we will NOT cover loss or damage as a result of fire started with the intention of causing damage by you or someone

• who lives in your home, or
• who has entered your home or site with your consent, or the consent of a person who lives in your home.

Prior to trial, the parties agreed that the co-insured who set fire to the insured premises with the intention of causing damage did so after entering the home with the consent of a person who lived in the home.  Our submission on behalf of IAL was that the term in question clearly visited the consequences of fraud upon a party that had not been fraudulent himself.  That is, it was not only the fraudulent conduct of the claimant that would trigger the operation of the term; the term would also be triggered by the fraudulent conduct of a person who lived in the home or who entered it with the consent of a person who lived in there.

The Court held that, as it was agreed that the co-insured who deliberately set fire to the home did so after entering the home with the consent of a person who lived there, the term was triggered and operated against the interests of Secure Funding.  This was notwithstanding the fact that Secure Funding had not engaged in any fraudulent conduct itself.


Lessons to be Learned

It may be prudent to review the terms in your policies of insurance to see if they are worded similarly to the one in the abovementioned case.  It should be noted, however, that there is currently an amendment bill on foot that may result in an amendment to section 48.  The amendment will be in a manner favourable to the interests of insurers and will have the effect of overruling decisions like VL Credits. 

We've turned 5!

William Roberts Lawyers was incorporated in June 2005, with our first office located in Albion Place, Sydney. Within 18 months, the firm had outgrown these premises, relocating to Pyrmont. William Roberts has gone from a 2-man practice, to a practice that now employs in excess of 35 staff members. As a result, and to accommodate future growth, we are now located in our new offices at Goulburn Street, Sydney.

Our youthful exuberance is the basis for the enthusiasm, commitment and justice that we seek to bring to all our legal matters.  We continue to ensure that our lawyers improve their advocacy skills through training and development such as conducting moot trials, participation in and preparation of internal seminars, as well as comprehensive mentoring systems.

Now that we have turned five, we look to the future. The short-term future sees our Melbourne practice open its doors shortly. In the long-term, we hope to become a national commercial litigation practice with the same personal commitment to the core values that we hold today.

Misleading and deceptive market announcements: Company director held personally liable

The cases:

• ASIC v Citrofresh International Ltd (No 2) FCA 27 (2 February 2010)
• ASIC v Citrofresh International Ltd (No 3) FCA 292 (29 March 2010)

Key points:

• It is important for directors who draft and/or authorise market announcements to verify their accuracy and validity, otherwise they may be personally liable.
• A director's statutory duty of care and diligence under s 180 of the Act is based on an objective standard - lack of personal experience concerning the subject matter of the announcement will not lower the standard required.
• A director cannot discharge their duties under the Act by relying on the judgments of the third party consultants who are not the correct experts on the subject sought to be advised.

Background:

Managing Director and CEO of Citrofresh International Ltd (“CIL”), Mr Ravi Amrit Narain, was responsible for authorising and causing CIL to make a misleading and deceptive ASX announcement that boldly described a range of its disinfectant products as “barrier protection” that would “act as an invisible condom” for “post-coital application”, and amongst other things claimed these products were a “a global solution to reduce and eventually stop the spread of HIV”. On this release, the share prices of the company increased from $0.23 to $0.70 following the announcement. This prompted the Australian Securities and Investment Commission (“ASIC”) to commence legal proceedings against CIL and Mr Narain for making misleading and deceptive statements about Citrofresh products.

CIL ultimately consented to judgment against it before Justice Goldberg for contravention of s 1041H of the Corporations Act 2001 (Cth) (“Act”) where Mr Narain escaped liability at first instance. However the full federal court allowed an appeal against the decision in favour of ASIC and remitted it back to Goldberg J for the determination of whether Mr Narain had breached his duty of care and diligence owed to the company and its members, and whether the statement released was in fact misleading or deceptive. (See ASIC v Narain [2008] FCAFC 120, 3 July 2008).

Outcome:

ASIC v Citrofresh International Ltd (No 2) FCA

It was held that Mr Narain’s conduct was in contravention of s 1041H of the Act which prohibits a person from engaging in conduct that is misleading or deceptive or likely to mislead or deceive in relation to a financial product or service. Mr Narain was also found to have breached his statutory obligation under s 180 of the Act to exercise his powers and discharge his duties with a degree of care and diligence that a reasonable person in the position of director or officer of the corporation in the corporation’s circumstances with the same responsibilities would have exercised.

The misleading statements:

There were five statements reviewed by the court which ASIC relied upon with respect to their misleading and/or deceptive nature.

Unchallenged expert medical evidence was led by ASIC and concluded that each of the statements in the release either had no basis or no evidence to suggest the Citrofresh disinfectant was anything like a vaccine, nor could be deemed effective as a “barrier protection” or have any effect in the reduction or prevention of HIV or other STDs. The court was satisfied the statements were indeed misleading and deceptive.

Importantly, since Mr Narain was involved in the actual drafting and approval of the ASX announcement, the court held that he was personally liable for contravening s1041H of the Act and for causing CIL to contravene the provision.


Objective standard of care: Lack of experience is no shield

Mr Narain made multiple submissions asking the court to take into account his inexperience in the governance of public companies when determining the standard of care and diligence that was required of him in the exercise of his statutory duties, as well as with regard to any pecuniary penalty calculations and considerations. However the court held Mr Narain could not be excused on grounds of inexperience from ‘exercising the appropriate degree of skill and care required of a company director especially one who was a managing director and chief executive officer’.

Non-expert third party reliance is insufficient

The court also held that while Mr Narain had sought the assistance of at least two external advisers in the drafting of the relevant ASX announcement, these third parties were not experts in the area of science, infectious diseases or their treatment, and as a result, Mr Narain was not entitled to rely on them for the accuracy of the statements.

The net still too loose as iiNet is let off the hook

In a landmark decision handed down by the Federal Court of Australia, it was held that internet service providers (ISPs) were not liable for copyright infringements of their users with particular reference to films and television programs.
The third largest ISP in Australia, iiNet, was successful in its defence after Justice Cowdroy found, in Roadshow Films Pty Ltd v iiNet Limited (No. 3) [2010] FCA 24, that iiNet provided a service that does not serve the purpose of infringing copyright

Primary argument:

The primary argument by the major motion picture studios was that the ISP had failed to take any reasonable steps to stop the infringing of copyright by its users and/or subscribers and by doing so authorised the copyright infringement.

Judgment:

Justice Cowdry found for the respondents for, inter alia, the following reasons:

• the provision of an internet service is not equivalent to providing the means for copyright infringement.   Justice Cowdry further noted that iiNet did not create or have control over the BitTorrent system, which is a peer-to-peer system that allows large volumes of data to be distributed; and

• in response to the contention with regard to the relevant powers  to prevent copyright pursuant to s 101(1A)(a) of the Copyright Act, his Honour considered that the use of a scheme for notification, suspension and termination of iiNet’s user accounts was not within the scope of a reasonable step within the meaning of the Act.

Summary:

With the vast publicity accorded to this case, Justice Cowdry noted the disappointing result for the 34 applicants (representing the major motion picture studios) and acknowledged the ever increasing rate of copyright infringement in today’s age of technology.  The Federal Court was of the view, however, that iiNet was not responsible for its users gaining access to the BitTorrent system and infringing copyright.   We now await the decision by the applicants as to whether an appeal will be filed.

William Roberts has relocated!

We are excited to announce that William Roberts has moved to new bigger and better premises.

Our new details are:

• Street address - Level 22, 66 Goulburn Street SYDNEY NSW 2000
  
• Post office box - PO Box 20424 WORLD SQUARE NSW 2002
  
• Document Exchange (DX) remains unchanged - DX 11591 SYDNEY DOWNTOWN
  
• Phone and fax numbers remain unchanged
  
  t     + 61 2 9552 2111
  f     + 61 2 9552 1911

It's your fault I got drunk! Duty of care meets personal responsibility

It is an oft-lamented trend of our times that people seldom accept responsibility for their actions, but increasingly seek to attribute blame to others for their mistakes.

The High Court this month was faced with a decision, in C.A.L. No 14 Pty Ltd v Motor Accidents Insurance Board; C.A.L. No 14 Pty Ltd v Scott [2009] HCA 47 (“Scott’s Case”), about what steps a third party must take to protect a person from the consequences of their own actions.

The facts of the matter, in brief, are these: Mr Scott attended a hotel, at which he voluntarily drank alcohol, first with a friend and later by himself.  At a point in time, the friend suggested that Mr Scott leave his motorcycle and his keys with the proprietor of the hotel, to avoid a breathalyser which was rumoured to be operating in the area, and instead call his wife to take him home.  Mr Scott agreed to this proposition, gave his keys to the proprietor and arranged for his motorcycle to be locked up at the hotel.

As the night went on, Mr Scott was offered a ride home by his friend’s wife but declined that offer. The proprietor later offered to call Mr Scott’s wife to collect him from the hotel, but Mr Scott declined that offer in abrupt and offensive terms.  Some time passed, then Mr Scott requested the return of his keys and motorcycle, repeatedly declared himself ‘right to ride’ in response to questions by the proprietor, and eventually rode away.  Mr. Scott was thereafter involved in an accident on the roads, which cost him his life.

Mrs. Scott, his widow, claimed against the hotel and its proprietor alleging negligence.  It was alleged that there existed a duty of care on the part of the hotel to take reasonable care to avoid Mr Scott riding his motorcycle while intoxicated, and that the proprietor had breached that duty by failing to:

• refuse to return the keys or motorcycle to Mr Scott;
• telephone Mrs Scott to collect her husband;
• personally drive Mr Scott home; or
• otherwise manifest some resistance to the attempts of Mr Scott to ride home.

The High Court decisively rejected the contentions of Mrs. Scott, refusing to accept that a duty of care existed, that the alleged duty of care was breached or that the postulated breaches caused the death of Mr Scott.

The Court was quick to note that some of the alleged breaches, if they were held to be breaches of a duty, would have required the proprietor to restrain Mr. Scott, refuse to hand over Mr Scott’s property or otherwise interfere with Mr. Scott’s autonomy – thereby committing the torts of detinue and false imprisonment.  Further, the High Court observed that Mr. Scott had shown resistance to all offers of assistance and could not be presumed to be willing to disclose his wife’s phone number or submit to being driven home.

The High Court stressed that there is no general duty of care on the part of those serving alcohol to monitor and minimise the service of alcohol or to protect customers from the consequences of the alcohol they choose to consume.  That is the case regardless of the statutory requirements upon publicans to refrain from serving alcohol to intoxicated persons.  To find otherwise would necessitate an ‘interfering paternalism’ that conflicted with individual autonomy and responsibility.

Rather, the Court held the accountability to drink responsibly and to minimise the potential harm flowing from drinking was a matter more fairly placed on the drinker than the seller of drink.

That finding concurred with the decision of Callinan J of the High Court in Cole v South Tweed Heads Rugby League Club Ltd. In that matter, the Court dismissed a similar complaint by a drinker, but most of the members of the Court refused to adopt Callinan J’s finding about the duty of care issue, deciding the case on other grounds.  In Scott’s Case, the High Court has decisively put to rest the idea that a proprietor must protect a person from the consequences of their own decision to drink.

iiNet - caught in a torrent?

Should an ISP be liable for its customer's copyright infringement? This is the central issue at hand in the landmark case between the Australian Federation Against Copyright Theft (AFACT) and iiNet.

AFACT is an industry body comprising of 34 film studios and owners of motion pictures and television programs, including Roadshow films, Walt Disney, Paramount and Sony.

In November 2008, AFACT lodged a claim against iiNet for allowing subscribers to download pirated films through peer-to-peer (P2P) networks.  AFACT claims iiNet is liable primarily because of their failure to take “reasonable and appropriate” steps to stop their customers from making the alleged copyright breaches.  AFACT is taking legal action against iiNet seeking either damages or an injunction, under sections 115 and 116 of the Copyright Act 1968 (Cth), provisions dealing with copyright infringement.

Breakdown of Infringing Action:

• Having a copy of a film stored on iiNet user’s computer, available online for downloading using P2P network BitTorrent.
• Transferring the data packets that make up the film where a request is made over BitTorrent, making available the film to the public
• iiNet continuing to provide service despite knowledge of the infringing activity.

Prior to submitting their claim, AFACT retained the services of DtectNet Software APS (DtectNet) to investigate the suspected unauthorised transfer of copyright files by users via P2P networks. Two investigators became iiNet subscribers and traded files on the company network.  Notices were subsequently sent to the ISPs with lists of internet addresses requesting that the ISP disconnect the users.  These requests were not actioned by iiNet.

Issues and Implications:

Irrespective of the outcome of the case, some outstanding issues arise regarding the online legal arena.  Should ISPs act as police and monitor the service usage of their customers?  To alleviate their liability, iiNet have drawn a parallel to Australia Post, who iiNet submit would not be liable for drugs transferred via their postal services.

While the case has been at trial, two journalists have updated the public in real-time using Twitter. Although video and audio live media recordings are still prohibited, the court, aware of the journalists twittering, have tacitly approved it.

A central question that comes to mind is why did AFACT choose to take action against iiNet? If they are held liable, will AFACT continue to take legal action against larger internet service providers as the next step? Only time will tell.

Tort of Negligence - Tracing the Problem Back to its Roots

Case note and commentary

Facts

In 1981, Sydney Water operating under its statutory authority installed a water main into an underground sandy trench running parallel to Edmondson Avenue, Austral NSW (a semi-rural area). The water main caused a blockage in the free flow of water where it traversed the opening of a culvert pipe. As a result, excess water built up underground and was affecting root systems of the surrounding vegetation, including a eucalyptus tree.

The water main was installed in accordance with the standard engineering practice at the time.

In 2001, a violent storm caused the eucalyptus tree to collapse on to a passing vehicle.  One of the occupants, Mr. Turano, was fatally injured.

Subsequent investigation found that the tree was affected by a root pathogen, the introduction of which was facilitated by the excess water caused by the blockage. While the storm was the immediate cause of the collapse, the root pathogen contributed in weakening the root system and making it more susceptible to collapse.

An action was brought by Mrs Turano, the widow of the man killed in the incident. Sydney Water Corporation appealed to the High Court after it was unsuccessful in the NSW Court of Appeal.

The High Court’s decision

In reaching its decision, the Court looked at the temporal relation between Sydney Water's conduct, MrsTurano's injury and whether the relationship between them gave rise to a duty of care. The Court looked at the interval of time between installation of the water main and the collapse – noting that during this time the tree was growing on Crown land, and under the control of the council, not Sydney Water.

Sydney Water additionally argued that the Court of Appeal relied on hindsight reasoning to reach its conclusion on the issue of duty of care. The High Court agreed with Sydney Water’s submissions. Rather than working backwards from the injury with the benefit of hindsight, the correct approach is to assess the actions of Sydney Water at the time of the work being carried out. As such, the work practices at the time of installation were relevant, and the Court asked the following question;

whether in 1981, a water authority acting reasonably ought to have obtained the advice of an arborist on the impact of its proposed works on vegetation growing in an unpopulated, semi-rural area.

The High Court ultimately found that injury to road users as a result of the collapse of a nearby tree was not a reasonably foreseeable consequence at the time of installing the water main.

A victory for common sense, but a Pyrrhic victory for Sydney Water?

One issue not addressed by the Court in its decision is whether the risk of such an occurrence may now be reasonably foreseeable to Sydney Water, having had the benefit of the evidence of the litigation, especially that of an arboreal expert and a consultant engineer, and whether this will:

• negate the ‘temporal relation’ element of the test, as Sydney Water now being aware that such an event can occur should check the drainage of all existing water mains; or
• affect the reasonable foresee ability of such an event when dealing with future installations of water mains – essentially requiring consideration to the issue of tree collapse and injury to road users to be undertaken for all future installations.

Under NSW statute, a person is not acting negligently unless it can be proved that a risk was foreseeable, not insignificant and in the same circumstances a reasonable person would have taken precautions to prevent such risk.Further, in determining whether a reasonable person would have taken precautions against the risk, the court is to consider the probability and likely seriousness of the harm, the burden of taking precautions against the risk and the ‘social utility’ created by the activity which creates the risk.

While this case may have highlighted the possibility of such risks materialising and the serious harm it can cause, it is very much open to debate on whether as a matter of practicality, the burden of checking the entire Sydney Water infrastructure can be in proportion to the likelihood of such risk materialising, or whether a reasonable person in the position of Sydney Water will abandon or substantially modify carrying on the process of supplying water because of such a risk.