As the new year begins, we look back at the key cases and developments in 2017 in Company and Insolvency Law, Competition and Consumer Law, Contract Law, Insurance, Consumer Credit, Privacy, Intellectual Property, Buying and Selling Businesses, and Risk and Compliance. The links in this article lead to more information on CCH’s IntelliConnect platform.
You can also refer to the latest Company and Insolvency Law books for additional information and insights.
COMPANY AND INSOLVENCY LAW
Top company cases in 2017
These are some of the most significant company law decisions last year:
- Liquidator’s remuneration and proportionality: Whether size of liquidation affects determination of reasonable remuneration. Whether liquidator’s remuneration must be proportionate to value of company assets. Whether time-based or ad valorem remuneration to be applied. Sanderson as liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr (2017) 35 ACLC ¶17-004;  NSWCA 38.
- Extension of period for service — voidable transactions: Liquidators commencing proceedings alleging voidable transactions and subsequently obtaining extension of period for service under court rules. Proceedings served during extended period. Successful challenge of extension. Appeal brought. Whether court has power to extend under rules. Whether extension should be granted. Horne v Retirement Guide Management Pty Ltd (2017) 35 ACLC ¶17-023;  VSCA 47.
- Summons for mandatory examination of a person about a corporation: Special purpose liquidator obtaining summons for mandatory examination of a person about a corporation under s 596A of the Corporations Act 2001. Challenge to validity of summons. Whether s 596A invalid as contrary to the Constitution. Palmer v Ayres; Ferguson v Ayres (2017) 35 ACLC ¶17-001;  HCA 5.
- Offering securities without disclosure documents — accessorial liability: Securities offered without disclosure documents in contravention of s 727 of the Corporations Act. Party found knowingly concerned in contraventions and restrained from future participation in financial services. Appeal brought. Requirements for accessorial liability. Elements of contravention of s 727. Onus of proving disclosure required under Pt 6D.2. Gore v Australian Securities and Investments Commission (2017) 35 ACLC ¶17-011;  FCAFC 13.
- Financial services — duty to act in best interests of client: Company engaging representatives to provide financial services to retail clients. Representatives contravening duty to act in best interests of client. Company failing to take reasonable steps to ensure statutory compliance by representatives. Declarations of contravention. Australian Securities and Investments Commission, In the matter of NSG Services Pty Ltd v NSG Services Pty Ltd (2017) 35 ACLC ¶17-005;  FCA 345.
- Penalty for market misconduct: Proceedings for imposition of civil penalty for contravention of market misconduct provisions. Separate question determining application of Criminal Code. Australian Securities and Investments Commission, In the matter of Whitebox Trading Pty Ltd v Whitebox Trading Pty Ltd (2017) 35 ACLC ¶17-012;  FCAFC 100.
Wolters Kluwer CCH developments
The Insolvency Law Reform Act 2016 commenced in a staggered fashion in March 2017 and September 2017. We proactively helped you get ready for these amendments, updating our Australian Company Law Commentary Premium and Australian Insolvency Management Practice both before the law reform commenced, and as it unfolded.
We made our Company Law reporter more practical by including new precedents and reviewing all existing precedents. Check out our company constitution, notices for meeting, and meeting resolutions, procedural precedents, declarations and consents. We also added some agreements and deeds such as Shareholders’ deed, Share certificate template, Deed of access, indemnity and insurance — Company Directors, Power of attorney, Franchise Agreement, Joint venture agreement, and Deed of settlement and release.
Source material changed rapidly, as Australian Securities and Investments Commission (ASIC) kept us on our toes releasing legislative instruments amending and repealing more than a hundred class orders. The ASX listing rules and guidance notes have also been constantly updated with our Annotated ASX Listing Rules ensuring you always have the most current information.
Our Australian Corporations Act Partner Premium keeps everything connected to save you time, and we will continue to strengthen this research tool in 2018.
COMPETITION AND CONSUMER LAW
Competition law developments
The most significant changes to Australian competition laws in over 20 years (the Harper Review reforms) commenced on 6 November 2017.
Among other things, the prohibition on misuse of market power was strengthened. A prohibition on concerted practices was introduced, and the price signalling provisions were repealed. The separate prohibition on exclusionary provisions was repealed, leading to the renumbering of the subsections in s 45. The scope of the cartel conduct laws was amended, and changes were made to the joint venture exceptions. The cartel conduct provisions were also renumbered.
The authorisation provisions (including for mergers) were consolidated into a single authorisation process. The ACCC was empowered to issue class exemptions, impose conditions on notifications involving collective boycott conduct, and issue a “stop notice” for notified collective boycott conduct.
The law was changed to prohibit third line forcing only where it has the purpose, effect or likely effect of substantially lessening competition. A corporation or person can now notify the ACCC of resale price maintenance conduct. The law is extended so that admissions of fact made by a person may be used in certain other proceedings against that person. The ACCC’s power to obtain information, documents and evidence was extended. Amendments were made to the National Access Regime, in relation to declaration criteria, deemed declaration decisions, extension of a facility, and revocation of certification. The definition of competition was clarified.
Other competition and consumer law developments in 2017 included:
- Ministers agreed to higher maximum penalties and other ACL changes.
- First penalties for excessive surcharges: Red Balloon, $43,200.
- First penalties under the Franchising Code: Domino’s Pizza, $18,000 (first infringement notice penalties). Pastacup, $100,000 (first court-imposed penalties).
- Productivity Commission recommended changes to consumer law enforcement.
- Country of origin defences were amended on 23 February 2017.
- Penalty unit increased to $210 from 1 July 2017.
Wolters Kluwer CCH developments
We have already updated a vast amount of our commentary in light of the Harper Review reforms. Our updates include updates to the Misuse of market power chapter, Cartel conduct chapter, Anti-competitive agreements chapter, Concerted practices commentary, Third line forcing commentary and Authorisations, notifications, class exemptions and review chapter, just to name a few. We also promptly updated our legislation. The full list of our updates is available in our What’s New. More updates are coming soon.
Stay tuned — Allens is in the process of reviewing the updates to our competition law commentary in light of the Harper Review reforms. The first two sets of reviewed commentary have already been published (Cartels ¶2-800 to ¶2-838 and “Roadmap — Access to nationally significant infrastructure services: structure of Pt IIIA”). More commentary reviewed by Allens will be published in the coming weeks.
In 2017, we added eight precedents to our Australian Competition and Consumer Law Reporter: Disclaimers, Manufacturer’s limited warranty, Returns Policy (refund, exchange or repair), Franchise Agreement, Master Franchise Agreement, Lay-by agreement, Sponsorship Agreement(Athlete or Performer) and Sponsorship Agreement (Event/Initiative). These precedents were written or reviewed by Chris Kintis (Partner), Kate Gardner (Senior Associate) and Suzette Caldaroni (Lawyer) of ClarkeKann Lawyers.
We also added 18 new handy tables of case examples, which give a bird’s eye view of competition and consumer law cases, helping you compare cases; find cases that match the scenario you are interested in; and spot trends between fact patterns, liability and penalties. We also expanded and updated our existing 16 tables of case examples. Check out our popular tables of case examples on Unconscionable conduct, “In trade or commerce”, Misleading silence, Misleading or deceptive conduct in conveyancing and Cartel conduct and anti-competitive agreements. We will continue expanding and enhancing our tables of case examples in 2018.
Top competition and consumer cases in 2017
These are some of the most significant competition and consumer law decisions last year:
- First secondary boycott case in eight years against a union: The Federal Court has published a heavily redacted version of its liability judgment. The court generally accepted the evidence of the union delegates (shop stewards) as to the events that occurred on construction sites, in particular in relation to the carrying out of safety checks. No Boral trucks were actually sent away from a site by reason of any conduct of the CFMEU or shop stewards. ACCC v The Construction, Forestry, Mining and Energy Union (No 2) (2017) ATPR ¶42-561;  FCA 1191. We have updated our Secondary boycotts chapter, and also added information about the context of this case.
- Court declares eight unfair terms in small business contracts: Eight contract terms dealing with automatic renewal, price variation, liability, non-performance, exclusivity, suspension, indemnity and termination have been declared unfair and void, by consent. These unfair terms were used by a waste management company, JJ Richards & Sons, in standard form contracts with its small business customers. This was the first court case brought by the ACCC under new laws protecting small businesses from unfair contract terms. ACCC v JJ Richards & Sons Pty Ltd (2017) ATPR ¶42-558;  FCA 1224.
- Penalties against Cement Australia companies increased to $20.6m: The Full Federal Court ordered Cement Australia Pty Ltd and its related companies to pay increased penalties totalling $20.6m (up from the original total penalty of $17.1m) for making and giving effect to anti-competitive agreements. This is the third highest total penalty imposed for a case brought by the ACCC. ACCC v Cement Australia Pty Ltd (2017) ATPR ¶42-557;  FCAFC 159.
- Full Court decides egg industry body cartel case: The Full Federal Court dismissed the ACCC’s appeal in its attempted-cartel case against an industry body (the Australian Egg Corporation (AECL)), two egg producers and two directors. The Full Court confirmed that trade associations may legitimately encourage their members to make production and pricing decisions in order to maintain profitability. Such conduct, at least when directed to the decisions of industry participants in their own businesses and without any suggestion of cooperative action, does not amount to cartel conduct or an attempt to induce cartel conduct: ACCC v Australian Egg Corporation Limited (2017) ATPR ¶42-553;  FCAFC 152.
- Why was the Tabcorp-Tatts merger authorisation set aside? The Full Federal Court set aside the Australian Competition Tribunal’s decision to grant merger authorisation for Tabcorp to acquire Tatts. The ACCC and CrownBet applied for judicial review alleging legal error in the Tribunal’s decision. The ACCC succeeded, but only on its first ground (Competitive detriment). The Full Court held that the Tribunal had overlooked considering the detriment identified by the ACCC. The matter was referred back to the Tribunal for further consideration. The Tribunal granted merger authorisation again: Application by Tabcorp Holdings Limited (2017) ATPR ¶42-550;  ACompT 1; ACCC v Australian Competition Tribunal (2017) ATPR ¶42-552;  FCAFC 150 and Applications by Tabcorp Holdings Limited (2017) ATPR ¶42-562;  ACompT 5.
- NYK fined $25m for criminal cartel conduct: This was the first criminal prosecution for cartel conduct in Australia under the laws introduced in 2009. NYK pleaded guilty to a single “rolled-up” charge of giving effect to a cartel provision. This prosecution arose out of a longstanding global cartel in the market for supplying ocean shipping services for “roll-on, roll-off” cargo, mainly cars and trucks. The cartel provisions related to the fixing of freight rates, bid rigging and customer allocation in relation to shipping services supplied to 10 vehicle manufacturers. The cartel provisions covered six routes to Australia. A 50% discount was given for NYK’s early guilty plea, contrition and past and future cooperation. Commonwealth Director of Public Prosecutions v Nippon Yusen Kabushiki Kaisha (2017) ATPR ¶42-551;  FCA 876.
- Price fixing of surcharges for air cargo services: Air New Zealand and PT Garuda supplied air cargo services from origin ports in Singapore, Hong Kong or Indonesia to destination ports in Australia. Together with many other airlines, they engaged in price fixing by imposing surcharges and fees. In the High Court, the key issue was whether there was a market in Australia. The airlines tussled to obtain the custom of large importers in Australia. The airlines regarded the large importers as targets for marketing and the ultimate source of their business. The High Court held that the airlines’ price fixing conduct took place in a market in Australia, as a practical matter of business. Air New Zealand Ltd v ACCC; PT Garuda Indonesia Ltd v ACCC (2017) ATPR ¶42–544;  HCA 21.
- Investors took advantage of builder’s financial and emotional stress: In a case about investing in a building project using a unit trust, the Full Federal Court delivered a unanimous decision which agreed with the primary judge’s decision on the main issues (unconscionable conduct, misleading or deceptive conduct, actual and ostensible authority), but disagreed with the primary judge on some secondary issues which were important from a practical point of view (including monetary orders against other investors and accessorial liability). Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd (2017) ATPR ¶42-542;  FCAFC 75.
Wolters Kluwer CCH developments
We added more new precedents to our Australian Contract Law Reporter. These include a licence agreement (to use an item), non disclosure deed including confidentiality clauses (unilateral and bilateral), general payment clause, distribution agreement, and direct debit authority, just to name a few. These precedents were written or reviewed by Chris Kintis (Partner), Kate Gardner (Senior Associate) and Suzette Caldaroni (Lawyer) of ClarkeKann Lawyers.
Andrew Chew (Partner) and Ella Pope (Associate) of Corrs Chambers Westgarth reviewed the precedents of key contract clauses (exclusion and limitation of liability clauses, dispute resolution clauses, liquidated damages clauses, entire agreement clauses, indemnities and releases, confidentiality clause and good faith clauses).
We expanded and re-wrote our popular Drafting chapter, which is full of practical drafting tips. We also updated our Agency subchapter. We expanded our two practical guides to unfair contract terms (the main guide and the guide for dealing with the extension of the unfair contract terms regime to small businesses). Peter Sise (Senior Associate) of Clayton Utz reviewed our unfair contract terms commentary.
Top contract cases in 2017
These are some of the most significant contract cases last year:
- Damages for a lost opportunity to make a loss: The Queensland Court of Appeal judgment in Principal Properties Pty Ltd v Brisbane Broncos Leagues Club Ltd (2017) Aust Contract Reports ¶90-446;  QCA 254 involved a claim for contractual damages for the loss of an opportunity to acquire and develop certain land. The vendor was in breach for withholding its development consent to the local council. On the balance of probabilities, there was only a 10% chance that the purchaser would have made a profit, so only nominal damages were awarded by the primary judge. The Court of Appeal held that the 10% chance must be given a value, which provided a basis for lost opportunity damages, discounted for contingencies.
- Contract to defer stamp duty was enforceable: In REW08 Projects Pty Ltd v PNC Lifestyle Investments Pty Ltd (2017) Aust Contract Reports ¶90-445;  NSWCA 269, the NSW Court of Appeal upheld the enforceability of a contract for the sale of land which was back-dated and contained special conditions to defer the payment of stamp duty. The court held that the legislative regime for stamp duty did not expressly render an agreement made for the purpose of deferring duty illegal or unenforceable. Rather, the legislation provided for the imposition of a penalty tax where tax was not paid in accordance with the law. The fact that the legislature stopped short of providing the sanction of unenforceability was a powerful indication that it did not intend that outcome to eventuate. The court further held that the purchaser was not disentitled by “unclean hands” to equitable relief by specific performance of the contract.
- Ineffective deed could be an effective contract: Nurisvan Investment Ltd v Anyoption Holdings Ltd (2017) Aust Contract Reports ¶90-444;  VSCA 141 involved a transaction where the vendor was selling the shares in its subsidiary company to the purchaser. The three parties purported to enter into a Binding Heads of Agreement, which was expressed in the form of a deed. Although the Heads of Agreement was drafted as if the vendor was a party, there was no execution clause for the vendor. There were only execution clauses for the purchaser and the subsidiary. Since the vendor did not execute it, the Heads of Agreement failed to satisfy the formal requirements of a deed, so it was ineffective as a deed when the purchaser later sought specific performance of it. The Victorian Court of Appeal held that the ineffective deed could still operate as a binding contract. The purchaser’s deposit was the consideration. The court recognised that a contract which is intended to be signed, but is not signed by each party, could nevertheless operate as a binding contract if the party, which did not execute it, otherwise bound itself to the contract.
- Woolworths acted reasonably and in good faith: In Masters Home Improvement Pty Ltd and Woolworths Ltd v North East Solution Pty Ltd (2017) Aust Contract Reports ¶90-442;  VSCA 88, the parties had agreed that North East Solution Pty Ltd (NES) would develop at its own cost a Masters Home Improvement Store for Masters and Woolworths at a site in Bendigo. The terms were that the agreement could only be terminated if the parties, acting reasonably and in good faith, were unable to resolve any disagreement that arose between them. When a dispute arose, the primary judge held that Masters and Woolworths did not act reasonably and in good faith to resolve relevant differences that arose, and that they had terminated the agreement for reasons that the agreement did not allow. The judgment was comprehensively overturned by the Court of Appeal because the adverse inferences of fact about the conduct and motives of Masters and Woolworths were insufficiently supported by the evidence.
- Contractual assignee enforces pre-assignment breach: In Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd (2017) Aust Contract Reports ¶90-440;  NSWCA 27, the NSW Court of Appeal held that when the benefit of contractual warranties are assigned, the assignee may recover damages where the warranties were breached before the assignment. The case involved the defective design and laying of concrete pavement as part of the construction of a new container terminal. The defects resulted in spalling and cracking of the pavement that became progressively worse under normal usage conditions. The plaintiff was the assignee of the original builder’s warranties under the building contract, which included a warranty of fitness for purpose. The NSW Court of Appeal held that the assignee was entitled to be compensated for the cost of replacing the whole pavement.
Insurance — Looking back and looking forward
Despite the impact of Tropical Cyclone Debbie, which resulted in losses reaching over $1.5b from more than 72,000 claims, the general insurance industry had a relatively positive year. A review conducted by ASIC found that most small companies holding Australian financial services licences had professional indemnity insurance that met regulatory requirements and, as part of the raft of reforms sweeping the $44b life insurance sector, a new Life Insurance Code of Practice became mandatory for all members of the Financial Services Council. The Insurance Council of Australia (ICA) also identified priority areas for potential inclusion in the General Insurance Code of Practice, including disclosure, claims investigation, and interaction with vulnerable consumers.
In 2018, it is expected that new technologies will continue to result in the delivery of innovative insurance products and services, including the growth of cyber insurance to protect businesses from internet-based risks. As a consequence, a new section on cyber insurance will be included in the Australian & New Zealand Insurance Reporter. 2018 will also see changes to the way that the Australian Prudential Regulation Authority (APRA) approaches applications for approval of reinsurance contracts that are potentially financial reinsurance contracts. The insurance industry is also included in the Royal Commission’s terms of reference in relation to the financial services sector.
Top insurance cases from 2017
These are some of the most significant insurance cases last year:
- Requirements for formation of opinion: Hannover Life Re of Australasia Ltd v Jones (2017) 19 ANZ Insurance Cases ¶62-149;  NSWCA 233 where the NSW Court of Appeal held that an insurer whose liability depended on the formation of an opinion must, in considering and determining whether it should form that opinion, address the correct question and, in doing so, act reasonably and fairly.
- Fire with two interdependent causes: AMI Insurance Ltd v Legg (2017) 19 ANZ Insurance Cases ¶62-148;  NZCA 321 where, following a fire which resulted from two interdependent causes, neither of which could be isolated as the cause, the NZ Court of Appeal held that the insured’s legal liability for costs associated with extinguishing the fire were incurred in connection with an excluded activity.
- What would a reasonable broker do?: SKM Industries Pty Ltd v Australian Reliance Pty Ltd (2017) 19 ANZ Insurance Cases ¶62-145;  VSC 159 where the Victorian Supreme Court held that in general terms, a reasonable broker would have taken reasonable steps to understand the nature and extent of the client’s instructions for insurance cover, advise the client about the insurance cover available to meet the client’s instructions and arrange the insurance as instructed.
- When should a disqualification be discontinued?: Smith v Australian Prudential Regulation Authority (2017) 19 ANZ Insurance Cases ¶62-143;  FCA 807 where the Federal Court of Australia concluded that an applicant was not likely to pose a prudential risk in the future and, given the lengthy period during which the applicant had been disqualified, his manifest remorse, and his acknowledgment and understanding that his previous conduct was serious, wrong and dishonest, the continuation of his disqualification was no longer justified.
- Total irreversible inability to perform two activities of daily living: MLC Nominees Pty Ltd v Daffy (2017) 19 ANZ Insurance Cases ¶62-135;  VSCA 110 where the Victorian Court of Appeal recognised that the requirement that a claimant had to establish that he/she suffered “a total irreversible inability to perform at least two of the activities of daily living” was not easily satisfied, and held that it was not sufficient to find that in a particular case of injury, the total and permanent disability benefit that might subsequently have been payable under the policy was an accrued benefit at the time of injury.
- Construction of a commercial contract: MetLife Insurance Ltd v RGA Reinsurance Company of Australia Ltd (2017) 19 ANZ Insurance Cases ¶62-133;  NSWCA 56 where, in the construction of a commercial contract, the NSW Court of Appeal found it necessary to test both competing constructions against text, context and purpose and to identify the common intention to be imputed to the parties to the contract.
- Relevance of biker gang association to risk of insuring a brothel: Stealth Enterprises Pty Ltd t/as The Gentleman’s Club v Calliden Insurance Ltd (2017) 19 ANZ Insurance Cases ¶62-131;  NSWCA 71 where the NSW Court of Appeal held that a reasonable person would not have been expected to know that an association between a brothel owner and a biker gang created a risk over and above the inherent risk in insuring a brothel such that the existence of the association would have been relevant to the insurer’s decision to accept the risk.
Insurance regulatory update
In Australia, the following prudential standards were revised in 2017:
- GPS 114 — Capital Adequacy: Asset Risk Charge ¶48-324.
- GPS 117 — Capital Adequacy: Asset Concentration Risk Charge ¶48-327.
- CPS 220 — Risk Management ¶48-350.
- CPS 231 — Outsourcing ¶48-360.
- CPS 232 — Business Continuity Management ¶48-362.
- CPS 510 — Governance ¶48-400.
- CPS 520 — Fit and Proper ¶48-420.
Insurance law developments
In Australia, the Terrorism Insurance Amendment Regulations 2017 extended the terrorism insurance scheme to apply to mixed use buildings where at least 20% of the floor space was used for commercial purposes and high value residential buildings that were insured for $50m or more. And in New South Wales, the Civil Liability (Third Party Claims Against Insurers) Act 2017, which commenced on 1 June 2017, now enables a third party to bring proceedings directly against an insurer in respect of his/her claim for damages, compensation or costs against the insured person (rather than proceeding to enforce a specially created statutory charge).
In New Zealand, the Reserve Bank commenced the second phase of its review of the Insurance (Prudential Supervision) Act 2010, and issues that have been identified will be considered in more detail in 2018. Key reforms to the Earthquake Commission Act 1993 are not expected to come into effect until 2020.
ASIC continues to monitor compliance with responsible lending laws and has been active in their enforcement.
In its 2017 half yearly report, ASIC noted that it was concentrating on enforcing high standards in the financial services industry with particular emphasis on responsible lending practices relating to assessing loans submitted by mortgage brokers (eg identifying fraudulent loans) and requirements to satisfy the obligation to verify a consumer’s financial circumstances.
Credit card reform
2017 also saw a focus on credit card reform. The Treasury Laws Amendment (Banking Measures No 1) Bill 2017 contains measures to reform the credit card market and protect consumers from taking on unsustainable credit card debt (Sch 5) by:
- Tightening responsible lending laws to require lenders to undertake affordability assessments prior to issuing a credit card based on whether a consumer can repay the full credit limit within a reasonable period as opposed to the current position in which lenders make a suitability assessment based on whether a consumer can repay a debt without substantial hardship. What a reasonable period is will be determined by ASIC. Date of effect 1 January 2019.
- Prohibiting all unsolicited credit limit increase invitations whether or not a consumer has agreed to receive them. The definition of a credit limit increase invitation will be expanded to cover invitations made in writing, by phone or online. Date of effect 1 July 2018.
- Simplifying the method of calculating credit card interest. It will no longer be permissible to charge backdated interest or interest on the balance that has already been repaid if a consumer does not fully repay their outstanding balance. Date of effect 1 January 2019.
- Allowing consumers to cancel a credit card or lower a credit limit online. Date of effect 1 January 2019.
Establishment of the Australian Financial Complaints Authority
2017 saw the establishment of a new external dispute resolution body called the Australian Financial Complaints Authority (AFCA). AFCA will commence in the second half of 2018 and will provided a free, fast and binding dispute resolution system for consumers and small business. The AFCA scheme will replace the Superannuation Complaints Tribunal and existing external dispute resolution schemes approved by ASIC.
Interest-only home loan review
ASIC completed the first stage of its review of interest-only home loans finding that:
- Major banks have decreased their interest-only lending by $4.5b over the past year. Other lenders have increased interest-only lending.
- Consumers who used a broker to arrange a loan were more likely to obtain an interest-only home loan.
- Consumers approaching retirement continue to receive a significant number of interest-only owner-occupier loans.
The second stage of the review has commenced. The regulator is seeking to ensure that lenders have complied with responsible lending laws requiring them to satisfy themselves that a loan meets the requirements and objectives of a consumer. This includes an analysis of whether the loan is affordable and is the most suitable home loan available.
Top consumer credit cases in 2017
These are some of the most significant consumer credit cases last year:
- Responsible lending breaches, unconscionable conduct, unjust contracts — penalties: ASIC was successful in proceedings against Colin Hulbert, the director of Channic Pty Ltd, and Cash Brokers Pty Ltd in ASIC v Channic Pty Ltd (No 5) (2017) ASC ¶155-215;  FCA 363 (the penalty judgment) and ASIC v Channic Pty Ltd (No 4) (2016) ASC ¶155-210;  FCA 1174 (liability judgment). The respondents were found to have breached the responsible lending provisions of the National Consumer Credit Protection Act 2009, engaged in unconscionable conduct and entered into unjust contracts. The court imposed penalties of $278,000 against Cash Brokers Pty Ltd, $278,000 against Channic Pty Ltd and $220,000 against Colin Hulbert. They were also ordered to pay ASIC’s costs of $420,000.
- Sham sale of diamonds to avoid limits on interest rates — $730,000 penalties: ASIC was also successful against Fast Access Finance in 2015 liability proceedings (Australian Securities and Investments Commission v Fast Access Finance Pty Ltd (2015) ASC ¶155-204;  FCA 1055). The court found that Fast Access Finance had adopted a business model of the sham sale and purchase of diamonds to avoid consumer credit protection laws particularly limits on interest rates. Penalties were imposed in Australian Securities and Investments Commission v Fast Access Finance Pty Ltd (No 2) (2017) ASC ¶155-214;  FCA 243 totaling $730,000. Subsequent to the proceedings ASIC found that Mr Legat, Fast Access Finance director, devised and implemented the diamond trading model and was not a fit and proper person to engage in credit activities. He was banned from engaging in credit activities for three years.
- Unconscionable conduct and unlicensed credit activity — penalties $167,500: Australian Securities and Investments Commission v Kobelt (2017) ASC ¶155-216;  FCA 387 saw the imposition of penalties of $167,500 plus costs to be assessed for engaging in credit activity without an Australian Credit Licence in breach of s 29(1) of the National Consumer Credit Protection Act and for unconscionable conduct pursuant to s 12CB of the Australian Securities and Investments Commission Act 2001. The fine was broken down as $100,000 for unconscionable conduct and $67,500 for unlicensed credit activity.
- Were contracts regulated by the National Credit Code? Where they unjust?: The Commonwealth Bank was successful in Commonwealth Bank of Australia v Stephens (2017) ASC ¶155-218;  VSC 385. The consumer credit questions related to, firstly, whether contracts entered into in 2008 were regulated by the National Credit Code which did not come into force until 2010; secondly whether, if the contracts were regulated by the Code, they were unjust. The court found that the contracts were home loans for personal purposes, therefore regulated by the old Code and as such were carried over instruments regulated by the National Credit Code. It was also found that the contracts were not unjust. While neither party acted perfectly throughout the loan transaction process, it is the contract which must be unjust or must be the result of unfair conduct. The court found that the Bank’s behavior was not unconscionable or unjust and the agreements did not contain any unjust provisions.
Wolters Kluwer CCH developments
2017 was a big year for the Australian Consumer Credit Law Reporter. The service is written by Steven Klimt, Partner, Clayton Utz. Steven specialises in retail banking and financial services regulation. His clients include many of Australia’s leading financial institutions.
The Reporter is undergoing a major revamp. It currently contains new material on What does the consumer credit regime regulate?, Licensing, Related Sales Contracts, Responsible Lending, Related Insurance Contracts, Related Guarantees, Related Mortgages, Formation of credit contracts and disclosure and Dispute resolution. The commentary is accompanied by Roadmaps to help you to find the information you are looking for.
Australian Consumer Credit Law Checklists
This is a new online only addition to the Reporter containing a Responsible Lending Checklist. The Checklist provides details on compliance with the responsible lending laws in the National Consumer Credit Protection Act. All references are linked for easy navigation and practical tips are provided to make compliance with the law a less daunting task.
The key responsible lending obligations addressed are:
- Make reasonable inquiries about a consumer’s requirements and objectives.
- Make reasonable inquiries about a consumer’s financial situation.
- Take reasonable steps to verify a consumer’s financial situation before making an unsuitability assessment.
- Make an unsuitability assessment.
- Obligation not to enter into a contract, or increase a credit limit, which is unsuitable.
- Provide a free copy of the unsuitability assessment on request.
- Provide a credit guide.
- For home loans and credit cards — provide a Key Facts Sheet.
- For credit assistance providers — provide a quote after it becomes clear that credit assistance will be given.
- For credit assistance providers — provide credit or lease proposal documents before providing credit assistance.
- For credit providers — have good record keeping procedures in place.
- Provide documents in a compliant manner.
The Australian National Consumer Credit Protection Act Partner has developed alongside updates in the main product providing you with links to all relevant regulations, commentary, ASIC regulatory guides, ASIC class orders, ASIC information sheets and forms. The Partner compliments the Australian Consumer Credit Law Reporter providing a suite of products covering the consumer credit space.
What’s around the corner?
ASIC’s 2018 plans
ASIC has outlined its plans for the coming year. Highlights include:
- RG 209 on responsible lending will be updated to include guidance following the interest-only review and also to address new issues relating to what a reasonable repayment period is in relation to credit cards.
- Investigations into broker remuneration will be conducted via the use of “shadow-shoppers” to give ASIC a view of a real consumer experience. ASIC is concerned about payments to referrers.
- ASIC’s 2017 work on interest only lending will continue. The focus will change from consideration of affordability to the recording of requirements and objectives to demonstrate consideration of suitability.
- Loan fraud will also continue to be investigated. ASIC wants to understand the level of fraud and its potential consumer harm. To this end, ASIC will look at the role of the credit provider in fraud detection with a focus on ensuring that credit providers meet their responsible lending obligation to verify information provided by consumers.
- Existing protections for reverse mortgages will be investigated to assess their effectiveness.
Wolters Kluwer’s 2018 plans
2018 will see more new content added to your Australian Consumer Credit Law Commentary. New content will be provided on Contract administration/the course of the credit contract and Unjust contracts.
Another checklist is also under development covering disclosure requirements in consumer credit contracts. The checklist will outline legislation, providing links to relevant materials and practical tips to help you apply the rules in your day-to-day work.
We are looking forward to another big year in 2018 and to continuing to meet our goal of providing you with the best consumer credit reporter in the marketplace.
Privacy complaints to the Office of the Australian Information Commissioner (OAIC) increased 17% in 2016–2017 compared with the previous year, and in the past year the OAIC received 114 voluntary data breach notifications and managed 35 mandatory data breach notifications.
The updates to the Australian Privacy Reporter by the service’s consultants, Andrew Galvin and Geoff Bloom, partners with HWL Ebsworth in Sydney, included revised commentary on all releases issued by the OAIC including the 2017 decisions issued by the Australian Privacy Commissioner. Also included was an analysis of the Federal Court’s decision in Privacy Commissioner v Telstra Corporation Ltd and a consideration of the question whether metadata was “personal information” under the Privacy Act 1988. Commentary on the legislation prohibiting conduct relating to the re-identification of de-identified personal information was also included.
In response to continued concerns for privacy and data protection, the OAIC intends to strengthen privacy governance in 2018 with the implementation of the Australian Public Service Privacy Governance Code and Notifiable Data Breaches (NDB) Scheme. When the scheme commences in February 2018, organisations covered by the Privacy Act will be required to notify both the individual who is at risk of a serious harm by a data breach and also the OAIC. 2018 will also see the development of a Freedom of Information regulatory action policy.
IP law developments
The Copyright Amendment (Service Providers) Bill was introduced by the government. The purpose of the Bill is to give “service providers” in the disability, education, library, archive and cultural sectors the benefit of the existing “safe harbour” provisions in the Copyright Act. Under these provisions, if service providers can show that they have taken reasonable steps to deal with copyright infringements by users of their online platforms, the service providers are exempt from liability for copyright infringement.
Wolters Kluwer CCH developments
In 2017, we enhanced the trade marks commentary with an expanded table of 230 case examples, giving a wealth of practical guidance about trade marks that were considered too similar, or sufficiently dissimilar, in opposition proceedings. We also added a new glossary of patents law terminology to our Australian Industrial and Intellectual Property service.
Top intellectual property cases in 2017
These are some of the most significant intellectual property decisions last year:
- No extension of patent term for second and subsequent medical uses of pharmaceutical substances: In Commissioner of Patents v AbbVie Biotechnology Ltd (2017) AIPC ¶92-532;  FCAFC 129, the Full Court of the Federal Court held that patent term extensions under s 70(2)of the Patents Act 1990 (Cth) are not available for second and subsequent medical uses of known pharmaceutical substances. The standard patent term is 20 years, which may be extended up to five years for certain pharmaceutical substances under s 70 of the Act. The Federal Court held by reference to the Explanatory Memorandum that patents for second and subsequent medical use claims of pharmaceutical substances were intended to be ineligible for extension after the standard patent term of 20 years. The provisions were meant to incentivise new and inventive products by compensating for the time that is typically required to achieve regulatory approval of new products.
- Damages for unjustified threats of patent infringement proceedings: Australian Mud Company Pty Ltd v Coretell Pty Ltd (2017) AIPC ¶92-535;  FCAFC 44 was an action for damages as a result of unjustified threats of patent infringement proceedings under s 128 of the Patents Act. The Full Court of the Federal Court held that the primary judge had erred by dismissing as “semantic” the difference between damage sustained as a result of the unjustified threats, and damage sustained as a result of the unsuccessful infringement proceedings. The distinction was required by the statute because the only recoverable damage is damage sustained as a result of the unjustified threats. Damage sustained as a result of the infringement proceedings is not compensable under s 128. In the absence of proven causation between the threats and the relevant damage, the Full Court reversed the primary judge’s damages award of $1,506,859 for the applicant’s lost sales. Instead, the Full Court dismissed the applicant’s whole action for damages, with costs.
- Offers to supply after the patent expires will be an infringement: In Apotex Pty Ltd v Warner-Lambert LLC (No 3) (2017) AIPC ¶92-522;  FCA 94, the Federal Court ruled that an Australian pharmaceutical patent will be infringed by an offer made during the term of the patent, without the patentee’s licence, to supply infringing products after the expiry of the patent. Nicholas J held that the exclusive rights of the patentee under the Patents Act include the exclusive right to offer the invention for sale, and that the making of such an offer during the term of the patent constitutes an “exploitation” of the invention, as defined in the Act, and therefore an infringement.
- Website-blocking injunctions: In Roadshow Films Pty Ltd v Telstra Corporation Ltd (No 2) (2017) AIPC ¶92-531;  FCA 965, the Federal Court issued more website-blocking injunctions under s 115A of the Copyright Act 1968 (Cth) against Telstra and 48 other Australian carriage service providers (CSPs), requiring them to take reasonable steps to block their customers’ access to some 49 foreign online locations and 80 target URLs, including KissCartoon, WatchFree, PrimeWire, Movie4K, Putlocker, and Kinogo. The successful applicants for the injunctions were Village Roadshow, backed by the major US studios of Warner Bros, Paramount, Universal, Disney, and 21st Century Fox. The parties were substantially the same as those in the first website-blocking case, Roadshow Films Pty Ltd v Telstra Corporation Ltd (2016) AIPC ¶92-517;  FCA 1503. Unlike the earlier proceedings, the respondent CSPs did not participate or sought to be heard in these proceedings.
- “Like Moroccanoil, only cheaper”: In Moroccanoil Israel Ltd v Aldi Foods Pty Ltd (2017) AIPC ¶92-533;  FCA 823, Aldi successfully defended claims of trade mark infringement and passing off against its in-house look alike hair care product “Moroccan Argan Oil”, brought by the international makers of “Moroccanoil”. The Argan tree is native to Morocco. According to the Federal Court, the mere fact that one trader copies the get up of another, as Aldi freely admitted in this case, does not necessarily mean that the rival trader’s conduct is misleading or deceptive. It all depends upon whether the rival trader has sufficiently distinguished its own products. It was crucial in this case that Aldi’s “Moroccan Argan Oil” was marketed as part of Aldi’s in-house “Protane Naturals” range of products. However, as found by the court, Aldi had falsely claimed that its product was “natural”, when most of the ingredients were synthetic, except for water. The court also found that the actual amount of argan oil in the Aldi products (which was confidential) was probably insufficient to have any material effect on the “performance properties” of the product, such as “helps strengthen hair”.
- Clipsal v Clipso: Clipsal Australia Pty Ltd v Clipso Electrical Pty Ltd (No 3) (2017) AIPC ¶92-524;  FCA 60 was an action under s 88 of the Trade Marks Act 1995 (Cth) for cancellation of the respondent’s trade mark CLIPSO in relation to electrical accessories. The applicant was the registered proprietor of CLIPSAL in relation to the same goods. The applicant succeeded on three grounds: firstly, the deceptive similarity ground in s 44 of the Act; secondly, the ground in s 60 of the Act that CLIPSAL had acquired a prior reputation in respect of the same goods, such that the registration of CLIPSO would be likely to deceive or cause confusion; and, thirdly, the ground in s 62A of the Act that the application to register CLIPSO was made in bad faith, with an intention to divert business. The applicant’s claims for passing off and statutory misleading or deceptive conduct also succeeded, except in relation to the market segment comprising electricians and members of the trade, who were likely to be aware of the two separate brands in the market.
Passing off, Consumer protection legislation
- Telstra goes to Rio and wins: The Australian Olympic Committee (AOC) lost in its appeal to the Full Court of the Federal Court in Australian Olympic Committee, Inc v Telstra Corporation Ltd (2017) AIPC ¶92-534;  FCAFC 165. The case was about Telstra’s series of promotions and advertisements themed around the 2016 Olympic Games in Rio de Janeiro. The AOC claimed that Telstra’s advertisements made unlicensed use of “protected Olympic expressions”, including Olympics and Olympic Games, for commercial purposes, in breach of the Olympic Insignia Protection Act 1987 (Cth). The AOC further claimed that the advertisements falsely or misleadingly suggested that Telstra was a sponsor of the 2016 Olympic Games, or had provided sponsorship-like support, contrary to the Australian Consumer Law. The appeal was dismissed.
BUYING AND SELLING BUSINESSES
During 2017, we created important Roadmaps to help you navigate around the commentary with ease. The most popular include:
- Roadmap — Preparations before buying and selling a business.
- Roadmap — Characteristics of personal property.
- Roadmap — Restraints of trade in agreements when buying and selling a business.
- Roadmap — Selling and purchasing shares.
- Roadmap — Documenting agreements for sale of business (complete agreements, individual clauses and drafting tips).
Our publication is full of practical tools, so we have revisited and updated your most popular precedents, including:
- Precedent — Sale of Business Agreement (no schedules).
- Precedent — Sale of Business Agreement (with schedules).
- Precedent — Share sale agreement (long form).
- Precedent — Share sale agreement (short form).
- Precedent — Shareholders’ Agreement.
RISK AND COMPLIANCE
2017 saw a continued emphasis on the importance of culture and risk management. They continue to be a focus for regulators such as ASIC and the Australian Prudential Regulation Authority, and the problems caused by poor culture have received plenty of media coverage. In more positive news, there has been a growing recognition of the importance of culture by industry bodies, individual companies and other organisations. For example:
- The April 2017 report of the Retail Banking Remuneration Review, which was commissioned by the Australian Bankers Association, recommended that banks should formally examine their workplace culture and institute formal processes to redress any conscious or unconscious bias towards sales in preference to ethical behaviour and customer service. Banks, including the “big four”, have committed to implementing this recommendation.
- In December 2017, Managing Culture: A good practice guide, a joint publication by The Institute of Internal Auditors Australia, The Ethics Centre, Chartered Accountants Australia & New Zealand and the Governance Institute of Australia, was released.
On 28 August 2017, APRA announced that it would establish an independent prudential inquiry into the Commonwealth Bank of Australia focusing on governance, culture and accountability frameworks and practices within the group.
The terms of reference for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which was announced on 30 November 2017, require the Commission to consider whether its findings:
- are attributable to the particular culture and governance practices of a financial services entity or broader cultural or governance practices in the industry or relevant subsector, or
- result from other practices, including risk management, recruitment and remuneration practices, of a financial services entity, or in the relevant industry or relevant subsector.
In 2017, some companies paid a high price for non-compliance:
- On 16 March 2017, the Federal Court imposed a record penalty of $45m on Tabcorp, for breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.
- On 3 August 2017, Japanese shipping company Nippon Yusen Kabushiki Kaisha (NYK) was convicted by the Federal Court of criminal cartel conduct, in breach of the Competition and Consumer Act 2010. NYK was ordered to pay a fine of $25m, the second-highest fine imposed in the history of the Australian Competition and Consumer Commission.
Major compliance challenges in 2018 for affected businesses include:
- The commencement on 22 February 2018 of the mandatory data breach notification provisions of the Privacy Act 1988.
- The commencement of amendments to the AML/CTF Act which includes an amendment that extends the operation of the Act to digital currency exchange providers. The amendments are likely to commence on 14 June 2018.
The compliance wildcard for 2018 may be climate change. In a November 2017 speech to the Centre for Policy Development, Australian Prudential Regulation Authority member Geoff Summerhayes said that APRA believed many climate-related financial risks were no longer future concerns: rather they were “foreseeable, material and actionable now.” Mr Summerhayes observed that:
the transition to a low carbon economy is underway, and that means the so-called transition risks are unavoidable: changes to market sentiment, new financial or environmental regulations, or the emergence of new technologies with the potential to prompt a reassessment of the value of a large range of assets, and consequently the value of capital and investments.
Although Mr Summerhayes was talking about APRA regulated organisations, his comments are equally applicable to companies and organisations in general. Mr Summerhayes’ comments follow the release of a legal opinion in October 2016 which concluded that directors should consider the impact on their business of climate change risks, and that directors who fail to do so could be found liable for breaching their duty of care and diligence under s 180(1) of the Corporations Act 2001.
Perhaps a sign of things to come is the announcement by BHP on 19 December that it will review its memberships of industry associations with policies that, in BHP’s view, do not appropriately prioritise climate change risks.
For further information on these issues, see the CCH publication, Australian Legal Compliance — Making it Work.
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Our dedicated and talented team of commercial law writers include:
Rufina Cheung — BA, LLB (Hons) (USyd), Joan Rubel — BA, LLB (Macquarie University), Jan Chapple — BA, LLB (USyd), Karen Gazzard — LLB, BSc (Otago), Dr Keith Lupton — BA, LLB (USyd), LLM, PhD (Lond), Samantha Sachdev — LLB, Bbus (UTS) — Gitanjali Singh — MIL (USyd), LLB, BA, Brian Egan — BA LLM (USyd), Graeme Howatson — BA, LLB (Qld), Clare Kent — LLB, Tina Doan — BComm LLB (UNSW).
This article is an adaptation of an article that was first published in CCH’s Australian Commercial Law Tracker on 21 December 2017.