AUSTRALIA: An Introduction to Dispute Resolution

2022 marked the first time since the COVID-19 pandemic that litigants returned en masse to in-person hearings throughout the Australian court system. Notwithstanding this, the technological developments incorporated by the legal sector in response to COVID-19 will continue to benefit dispute resolution processes both inside and outside of the courtroom. Notable recent developments in dispute resolution include:

1. Shareholder examinations of companies in external administration: The High Court of Australia delivered a landmark judgment, holding that shareholders of companies in external administration are entitled to publicly examine its former directors. The decision has major implications for the accountability of directors of a publicly listed company to their shareholders.

2. Growth in construction disputes: Soaring infrastructure costs and unprecedented levels of disruption to supply chains have resulted in a new wave of insolvencies and project disputes in the construction industry, shedding light on an increasingly broken contracting model that inefficiently allocates risk.

3. Continuing role of funders in disputes - Definition of Managed Investment Scheme under the Corporations Act: The Full Court of the Federal Court determined that litigation funding schemes are not managed investment schemes (MIS) subject to regulation under Chapter 5C of the Corporations Act 2001 (Cth). This has now been reflected in the Corporations Act 2001 (Cth) through the Corporations Amendment (Litigation Funding) Regulations 2022 (Cth).

4. Climate change litigation: The Full Court of the Federal Court provided further guidance on the dynamic area of climate change litigation, holding that the Minister for Environment does not owe a novel duty of care with respect to preventing climate change.

5. Practices in engaging expert witnesses: the Federal Court of Australia provided a clear reminder on how expert reports should be prepared and the court’s willingness to reject an expert report if it was not prepared with the necessary independence.

6. Application of the Harman undertaking to non-parties: The Victorian Supreme Court provided a timely reminder of the Harman undertaking and its consequences.

Shareholder examinations of companies in external administration

In a significant development for shareholders, the High Court determined that shareholders of companies in external administration are able to conduct public examinations of directors and officers. The landmark decision of Walton & Anor v ACN 004 410 833 Ltd (formerly Arrium Limited) (In Liquidation) [2022] HCA 3 held that the examination powers under s 596A of the Corporations Act 2001 (Cth) may extend to anyone authorised by ASIC as an “Eligible Applicant”, without reference to whether the company or its creditors will benefit, so long as the examination is for "the enforcement of the Corporations Act, the promotion of compliance with the Act, and the protection of shareholders or creditors from corporate misconduct". This decision substantially broadens the examination powers under the Corporations Act and opens the gates to shareholders that wish to conduct public examinations for the purpose of advancing their personal claims (including claims that may be brought by way of a class action).

Growth in construction disputes 

The construction industry experienced substantial upheaval in 2022. There were unprecedented disruptions to global supply chains as a result of the COVID-19 pandemic and the war in Ukraine, causing substantial delays to projects. There has also been strong growth in construction activity, which now exceeds pre-pandemic levels. The combination of this constrained supply and increased demand has caused substantial inflationary pressures on input and labour costs in the construction industry which have, in turn, resulted in a new wave of project disputes and insolvencies, including the insolvency of major firms such as Clough and Probuild. These insolvencies point to an increasingly broken contracting model that inefficiently allocates risks downstream; a trend that has been developing for some years now and leads to additional disputes and delays in the construction industry.

Definition of Managed Investment Scheme 

The Full Court's decision in LCM Funding Pty Ltd v Stanwell Corporation Limited [2022] FCAFC 103 (Stanwell) overturned a long-established precedent and will undoubtedly prompt further debate over the regulation of the litigation funding industry. There are three characteristics defining an MIS:

1. people contribute money or money's worth as consideration to acquire rights or interests to benefits produced by the scheme;

2. contributions to the scheme are pooled or used in a common enterprise to produce financial benefits; and

3. the members of the scheme do not have day-to-day control of the scheme.

The first two characteristics were contested since the Full Court's 2009 decision in Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11 (Brookfield), in which the Full Court held that a litigation funding scheme was an MIS. In Stanwell, the Full Court held that Brookfield was “plainly wrong” to say that a litigation funding scheme was an MIS.

Further, in December 2022 ASIC announced new litigation funding regulations, the Corporations Amendment (Litigation Funding) Regulations 2022 (Cth), which generally exempt litigation funding arrangements from the managed investment scheme, Australian financial services licensing, product disclosure and anti-hawking regimes in the Corporations Act 2001 (Cth).

These developments are likely to fuel further growth in the litigation funding industry, which plays an increasingly significant role in the dispute resolution landscape in Australia.

Climate change litigation 

In Minister for Environment v Sharma [2022] FCAFC 35 the Full Court of the Federal Court of Australia held that the Minister did not owe the applicants (eight Australian children that brought the proceedings as a class action on behalf of Australian children) a duty of care to not cause them harm by approving an extension to a mining licence in circumstances where that would cause a further increase in global average surface temperatures. In making this finding, the court also determined that there was no implied mandatory statutory consideration of harm to the environment by the Minister when she exercised this discretion. This contrasts with the first instance decision, which held that the Minister did owe the applicants the alleged duty.

Practices in engaging expert witnesses 

The Federal Court of Australia rejected an expert report and oral evidence from a purportedly independent expert witness in New Aim Pty Ltd v Leung [2022] FCA 722 on the basis that the report was written by the solicitor who had retained the expert. The decision proved a salient reminder that expert witnesses owe a paramount duty to the court to assist impartially and set out the best practices for lawyers engaging independent expert witnesses. Key takeaways include that:

1. lawyers should not write expert reports;

2. interactions with expert witnesses should be treated with great care to avoid any (real or perceived) risk that their opinions have been influenced by lawyers or parties to the proceedings;

3. lawyers may assist experts to express opinions effectively and in accordance with evidentiary requirements, but an expert's evidence must be the expert's own opinions; and

4. expert reports should disclose any involvement of lawyers in preparing the report.

Application of the Harman undertaking to non-parties

In Re Ramsay Health Care Australia Pty Ltd [2022] VSC 226, the Victorian Supreme Court dealt with the nature and extent of the ‘Harman undertaking’, which prohibits the use of documents obtained during court proceedings outside of those proceedings. In this decision, the court held that the Harman undertaking applied to prevent a third party (in this case, the management at a hospital) from using documents that were originally obtained by way of subpoena in different proceedings, even if the third party was not aware that the documents had originally been produced for the purpose of those other court proceedings. This highlights the onus on recipients of documents to make themselves aware of the provenance of the documents that they receive, so that they can ensure that the Harman undertaking is not being breached as this could be treated as contempt of court. This is particularly salient for in-house counsel, company management and directors to keep in mind.