Current trends in Australian disputes

The Dispute Resolution team at Ashurst offer our take on the top 10 developments from 2023 and areas to watch in 2024.

1. Global changing dynamics and investment treaty arbitration

Changing global dynamics was a key trend and concern identified by businesses in our Future Forces Report in 2023, in particular the implementation of protectionist investment policies. International investment treaties are entered into by States to promote and encourage foreign investment. When protectionist policies are put in place, disputes can arise between investors and States regarding the protections for foreign investments contained in those treaties, and are often resolved through investment treaty arbitration (with the resulting awards then being capable of being enforced globally).

The High Court recently held that Spain could not rely on State immunity from jurisdiction to resist recognition and enforcement of an investment arbitration award in Australia because immunity had been waived by entering into the ICSID Convention. The decision also confirmed that there is a separate process of executing the award against the State's property, which States may remain immune from.

This was the first contested application for the recognition and enforcement of an investment treaty arbitration award in Australia and the case confirmed that Australian courts will readily recognise and enforce investment arbitration awards. The Federal Court of Australia has subsequently applied the High Court's reasoning and held that India waived its immunity by entry into the New York Convention. The pro-arbitration approach of Australian courts has been noted internationally and may result in Australia becoming a jurisdiction of choice for these applications.

Further cases involving arbitration are currently before the High Court. One raises whether arbitrators can revisit liability questions after delivering their award on liability (where a case is separated into liability and quantum stages). A second concerns whether proportionate liability legislation can apply in arbitral proceedings.

To read more about developing trends in investment risks and arbitration, see our recent article here.

2. Greater clarity around class action waivers and common fund order powers

The High Court recently found a class action waiver clause (which required a customer to 'waive' their right to participate in a class action) in a standard form consumer contract to be an unfair contract term (UCT) and unenforceable. This was principally because the clause discouraged or prevented customers from bringing an individual claim where the costs of doing so would be uneconomical in view of the claimed loss.

In the course of its decision, the High Court confirmed that the UCT regime under the Australian Consumer Law, which applies to standard form consumer contracts or small business contracts, has very broad extraterritorial application. It applies to companies carrying on business in Australia, including in respect of contracts entered into overseas and governed by foreign law.

While the class action waiver was unfair in this case, the Court found such a clause to be otherwise permissible under the Federal class actions regime. That is, there is nothing inconsistent with the statutory framework in a potential claimant voluntarily waiving their right to join a class action, or agreeing to opt-out in advance. On that basis, it appears that class action waivers are permissible in commercial contracts.

In another key decision, the Full Federal Court has confirmed the Court's power to order that proceeds of settlement be paid to litigation funders from class action group members who have not individually agreed to that, through a 'Common Fund Order' (CFO).

CFOs are used to pay third-party litigation funders a commission from any settlement or judgment sum regardless of whether group members have entered into a funding agreement.

In 2019, the High Court held that the Court did not have power to make a CFO prior to settlement under 'gap-filling' provisions in the equivalent NSW legislation. Despite that, first instance decisions have generally considered there is power to make CFOs at the time of settlement under a different power – the Full Federal Court has now confirmed that position. Whether a CFO is made in any particular case remains a matter of discretion.

3. Focus on deterring foreign bribery

Consistent with global trends, bribery and corruption remains a focus for enforcement authorities in Australia, and continues to have an impact politically and in the courts.

In 2023, the Commonwealth Government introduced a bill to strengthen foreign bribery laws, including by the creation of a new corporate offence of failing to prevent foreign bribery (modelled largely on United Kingdom legislation).

Additionally, the High Court recently considered in The King v Jacobs Group how the maximum penalty for foreign bribery offences should be calculated in Australia. Contrary to rulings at first instance and in the New South Wales Court of Appeal, the High Court confirmed that the 'value of the benefit' derived from the offending means the 'gross benefit', rather than the 'net benefit' (the total money received less the legitimate costs of performance). The decision means that the financial consequences of foreign bribery offending are potentially more severe.

We expect that the combination of strengthened laws (assuming the pending bill is passed) and the potential for increased penalties following the Jacobs Group decision will lead to a ramping-up of enforcement activity and follow on prosecutions of foreign bribery.

4. Liability from cyber security incidents

The threat of data leaks remains a key regulatory and litigation risk in Australia. Regulators are demonstrating that they are willing to take action in this area, such as the OAIC's commencement of civil penalty proceedings in the Federal Court late last year against Australian Clinical Labs (ACL). The OAIC alleges that ACL failed to take reasonable steps to protect customers' personal information from unauthorised access or disclosure, which left it vulnerable to a cyberattack.

Further, following a spate of regulatory investigations and class actions triggered by cyber security incidents, a speech by ASIC Chair Joe Longo highlights that ASIC expects cyber risk management to be a top priority for all boards. This includes the management of cyber risk arising from reliance on third-party providers. ASIC will take action against directors who fail to adopt adequate measures on the basis that they have not exercised care and diligence, as required under section 180 of the Corporations Act 2001 (Cth).

Directors often need to rely on the expertise of others regarding cyber matters, including the management of third-party cyber risk. In doing so, they must be able to demonstrate that any such reliance is reasonable in the circumstances.

While regulators increasingly weigh in on cyber and privacy risks, the Australian Government recently set out a blueprint for a generational change to privacy regulation in Australia by releasing its response to the Privacy Act Review Report.

5. Legal uncertainty in digital asset disputes

Crypto assets and particularly cryptocurrencies have emerged in recent times as a volatile asset class existing outside of the bounds of traditional regulation. As a result, courts and arbitrators are increasingly being called upon to adjudicate disputes involving crypto-asset holders.

Anyone contemplating litigation involving crypto assets should bear in mind that the legal status of this asset class is uncertain. There is as yet no settled law in Australia on the question of whether cryptocurrencies can be classified as property in the traditional legal sense, notwithstanding that the concept of crypto assets as property has been accepted in other jurisdictions such as in the UK and Singapore.

Even if crypto assets were accepted as property, experience in other jurisdictions has shown that other critical questions still remain, including locating the property and obtaining appropriate relief where the property is 'stolen'.

Until such uncertainties are resolved either by law reform or are clarified judicially, any strategy to resolve crypto disputes through the Australian court system will entail significant risk.

6. Energy transition-related disputes

Achieving Australia's energy transition goals will require significant growth in renewable energy output and associated regulatory changes, both of which present significant opportunities and risks for businesses. Understanding the evolving legal and regulatory landscape is therefore important to ensuring that projects are delivered on time and budget, and that Australia's energy transition goals are met.

Disputes relating to the energy transition are increasing in relation to performance issues with new technology, development consents, satisfying emerging regulatory conditions to connect to the grid, and pricing and supply chain issues. Ashurst's analysis of these trends is set out in an article published by Global Arbitration Review here.

Arbitration is the preferred mechanism for resolving energy disputes, with the oil and gas industry representing about 20% of the total number of reported arbitrations according to the ACICA Australian Arbitration Report.

Regulatory issues are increasingly giving rise to disputes in the energy transition space too. For example, with the growing percentage of Australians opting to purchase electric vehicles increasing year-on-year, governments and the private sector are having to consider questions of investment and regulation in respect of energy transition and EV technology.

In October 2023, the High Court considered whether a charge on electric vehicle use levied by the Victorian Government was unconstitutional in Vanderstock v State of Victoria. It was argued that the charge was unconstitutional because it imposed an 'excise on goods' within the meaning of section 90 of the Constitution, which only the Commonwealth Government can lawfully impose. The Court by narrow majority agreed that the charge was an excise, clarifying that only the Commonwealth may impose electric vehicles taxes of this kind in Australia.

The decision would appear to put a halt to any similar State plans to impose electric vehicle charges. Whether the Commonwealth will now do so, or will seek to fund the costs of investment in EV infrastructure by another means, remains to be seen.

7. Greenwashing a key climate litigation risk

'Greenwashing' refers to circumstances where disclosures, statements or commitments are made to give the impression that a company (or any of its procedures, policies or products) is environmentally friendly or sustainable when that impression may be misleading or untrue. This represents a specific type of climate change litigation risk.

Greenwashing has been an area of considerable focus for Australian regulators in 2023. At the time of writing, ASIC has issued six infringement notices over greenwashing concerns, and three sets of greenwashing enforcement proceedings are currently before the courts.

The ACCC, meanwhile, has issued revised guidance for companies on the making of environmental claims, emphasising that highly polluting industries need to be extra careful about claiming improvements to their environment credentials.

Combined with various ongoing activist litigation, this ongoing regulatory interest underscores that Australian companies should be pursuing a proactive, risk-based approach to mitigate the direct and indirect risks of greenwashing, separately and in addition to strategies for combatting general litigation risk.

8. ASIC focuses on reportable situations and design and distribution

Financial services firms have been put on notice of ASIC's increased focus in 2024 on compliance with the reportable situations regime (previously known as the breach reporting regime). This regime is intended to promote the early detection and reporting of significant or non-compliant behaviour by financial services licensees.

ASIC is expected to use its enforcement toolkit to clarify licensees' obligations in this area, so now is the time for licensees to undertake a health check of their reporting processes and consider whether any improvements are required.

Another area of focus for financial services regulatory enforcement has been compliance by issuers and distributors of investment products with design and distribution obligations (DDO). The DDO regime requires financial products to be designed and distributed on an ongoing basis to be consistent with the objectives, financial situation and needs of consumers and retail investors.

Whilst the DDO regime has been in place since October 2021, ASIC has increasingly used its power to issue interim stop orders (which do not require a prior hearing) to immediately halt the issuance and distribution of financial products it considers to be in breach of the regime. Over 80 interim stop orders have been issued to date (over half of which were in 2023). ASIC has also commenced three civil penalty proceedings alleging breach of the DDO regime. Interim stop orders can seriously and immediately disrupt businesses, highlighting the need for issuers and distributors to continuously monitor their ongoing compliance with the DDO regime.

9. Courts simplify requirements for approval of mergers by scheme of arrangement

Australian courts have recently harmonised their guidance on the evidence required in proceedings seeking approval of schemes of arrangement to implement M&A transactions.

In March 2023, Jackman J delivered a judgment indicating that the traditional evidence relied on in proceedings seeking scheme approval should be simplified.

In late 2023, several courts (including the Federal Court of Australia and the Supreme Courts of NSW and Victoria) adopted a harmonised practice note which largely implements Jackman J's simplified evidence requirements and provides guidance on matters requiring specific evidence.

In summary, the simplified evidence should address:

• first Court hearing – (1) an ASIC company search for the target company, (2) substantive details of the nature and effect of the scheme (including break fees, exclusivity provisions and key dates), (3) arrangements for the scheme meeting, (4) verification of information in the explanatory statement for shareholders, (5) proposed communications with shareholders, (6) ASIC's review of the scheme, and (7) funding of any special purpose vehicle bidder.
• second Court hearing – (1) dispatch of scheme documents to shareholders, (2) voting at scheme meeting and voter turnout, (3) receipt of all approvals (including ASIC's 'no objection' letter) and the satisfaction of conditions precedent.

10. The boundaries of limitation and exclusion of liability

Australian courts have long had to grapple with attempts by parties to contract out of statutory prohibitions against misleading or deceptive conduct.

The Victorian Court of Appeal has reconsidered and confirmed that exclusion clauses attempting to contract out of liability for misleading or deceptive conduct will be ineffective because they are contrary to public policy.

Clauses which provide for caps on damages, which exclude consequential loss, indemnities and waivers are likely to be ineffective to the extent that they attempt to contract out of liability for misleading or deceptive conduct.

The Court acknowledged that 'no representation' clauses and other disclaimers may be relevant factual evidence when assessing whether a party engaged in misleading or deceptive conduct as a whole. Similarly, 'no reliance' clauses may be relevant to whether a remedy is available. In addition, parties can agree to settle a claim (or potential claim) for misleading or deceptive conduct, although courts will interpret settlement clauses strictly.

The Court did not clarify whether agreements to time limits on bringing claims for misleading or deceptive conduct are rendered ineffective by public policy.

The High Court is yet to provide a determinative view on this issue, and refused an application for special leave to appeal the Victorian Court of Appeal's decision.

Editors: Ian Bolster, Practice Head, Dispute Resolution, Australia; Peter Richard, Expertise Counsel; and Andrew Westcott, Expertise Counsel.

Contributors: Phillip Aquilina, Senior Associate; Matthew Blycha, Partner; Luke Carbon, Senior Associate; James Clarke, Partner; Nicole Gardner, Consultant; Lucinda Hill, Partner; Rani John, Partner; Daniel Pannett, Senior Associate; Julian Pipolo, Senior Associate; Sally-Anne Stewart, Senior Associate; and Georgia Quick, Partner.