AUSTRALIA: An Introduction to Dispute Resolution

2023 was a busy year for dispute resolution lawyers with important developments in a variety of fields. Legal technology, artificial intelligence and machine learning have made profound advances in the past 12 months, and it will be interesting to see how they are deployed by Australian dispute resolution lawyers in their work going forward.

Notable recent developments in dispute resolution are included in the following headings. 

Cryptocurrency and Blockchain  

The collapse of FTX and Sam Bankman Fried’s criminal trial in the United States dominated international business headlines throughout 2023. Although there was limited activity in the Australian courts directly flowing from FTX’s collapse, the sheer scale of the downfall is demonstrated by the fact that, according to reports, administrators for the Australian FTX entities, on behalf of 30,000 Australian investors, hope to claw back as much as USD240 million from the global FTX insolvency process.

The Australian government is undertaking a consultation process with industry to develop specific cryptocurrency laws. In the meantime, certain existing regimes may be applicable: (i) the consumer law (which, inter alia, requires persons in trade or commerce not to engage in misleading or deceptive conduct) and unfair contract terms regime under the Australian Consumer Law, set out in Schedule 2 of the Competition and Consumer Act 2010 (Cth); (ii) the financial services regime under the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001; and (iii) the credit activities and services regime under the National Credit Consumer Protection Act 2009 (Cth) in respect of cryptocurrency lending activities.

It is no surprise, then, that cryptocurrencies have been the subject of regulatory and consumer action, including for example in the case of the “Qoin” cryptocurrency. In that case, proceedings have been commenced against certain parties involved in the issuance the Qoin token, the provider of Qoin wallets and the exchange platform on which the Qoin tokens could be traded. In particular, parallel proceedings have been commenced on behalf of purchasers of the Qoin cryptocurrency (Private Enforcement Proceedings) and by the Australian Securities and Investments Commission (ASIC) (Regulatory Proceedings).

Certain respondents sought to stay the Private Enforcement Proceedings until the determination of the Regulatory Proceedings, arguing that the respondents should not be required to defend two similar proceedings. In Its Eco Pty Ltd v BPS Financial Limited (No 2) [2023] FCA 110, the court made the point that the stay of the private enforcement proceedings would present a grave interference with the prima facie entitlement of the applicants to have their case proceed in the ordinary way. There is no entitlement as of right for a respondent to have civil proceedings stayed merely because there are concurrent proceedings seeking the imposition of a criminal penalty, nor, it must follow, a civil penalty. Further, it is preferable to deal with issues arising from concurrent proceedings through appropriate case management, rather than the more drastic remedy of a stay.

Public Nuisance Claims Against Government and Public Bodies in Respect of Major Projects

Major projects can, and some might say inevitably, lead to significant disputes between the contracting parties. Given the massive amount and scale of infrastructure and other projects in the past decade, this work continues to keep Australian dispute resolution lawyers busy.

But it is not only parties to the contracts who may bring claims against those involved in major construction projects. In Hunt Leather Pty Ltd v Transport for NSW [2023] NSWSC 840, claims were brought against the New South Wales Government in respect of the Sydney Light Rail Project. The plaintiffs were among thousands who suffered due to the disturbance caused by construction noise, dust, vibrations, heavy machinery and hoardings, which was unnecessarily prolonged due to planning failures by the government.

The court found that the government was responsible for the harm suffered by the lead plaintiffs because through the planning of the project it “created the state of affairs which led to the extended period of interference in circumstances in which the harm was foreseeable and, indeed, predictable”. Justice Cavanagh’s decision also confirmed that, whilst the completed light rail has a public benefit, the mere fact that something has a public benefit does not allow the government to “override the rights and interest of ordinary members of the community”.

Arbitration  

Australia is often referred to as a pro-arbitration jurisdiction. Two recent cases illustrate the Australian courts’ pro-arbitration approach.

First, King River Digital Assets Opportunities SPC v Salerno [2023] NSWSC 510 concerned the rare instance of an application by a non-party to an arbitration agreement for a stay of court proceedings based on an arbitration agreement entered into by other parties. King River had commenced court proceedings against Mr Salerno for accessorial liability for misleading and deceptive conduct engaged in by Trigon. Mr Salerno was a director of Trigon. Trigon and King River were parties to an agreement containing an arbitration clause. Mr Salerno’s application for a stay in favour of arbitration was successful. Mr Salerno’s defence was that Trigon did not engage in misleading and deceptive conduct and that, accordingly, he had no accessorial liability. Accordingly, despite him not directly being a party to agreement, Mr Salerno was entitled to a stay of the proceedings.

Second, in Mansfield (Liquidator) v Fortrust International Pty Ltd, in the matter of Palladium Investments International Pty Ltd (in liq) [2023] FCA 350, the court held that when arbitration claims “have been vested in or are exercisable” by the party to the arbitration agreement, a liquidator can bring the claims by way of arbitration. However, disputes concerning undervalued transactions and transfers to defeat creditors, which arise under insolvency legislation, were not arbitrable.

Insolvency Litigation: the High Court of Australia Confirms the Abolition of the Peak Indebtedness Rule for Unfair Preferences

In Bryant v Badenoch Integrated Logging Pty Ltd [2023] HCA 2, the High Court of Australia confirmed that the peak indebtedness rule may not be used when assessing the quantum of an unfair preference claim arising from a continuing business relationship. The practical consequence of this decision is that liquidators may have a harder time pursuing unfair preference claims against trade creditors in the future.

Privilege  

The precise scope of privilege is a perennial topic that keeps litigators and their clients occupied. For example, in Robertson v Singtel Optus Pty Ltd [2023] FCA 1392 the Federal Court ruled that a forensic investigation report prepared by Deloitte for Optus investigating a large data breach was not subject to legal advice or litigation privilege. This decision underscored the critical importance of the dominant purpose test in determining legal advice or litigation privilege. The court examined Optus’ public announcements and considered that, in light of those public statements about the purpose of the report, it was not prepared for the dominant purpose of obtaining legal advice or litigation. Optus has appealed the decision.