With 2017 now behind us, it is timely to reflect upon significant decisions in the past year which will impact your business. From a record award of damages for defamation, to the first decision under the new business-to-business unfair contracts regime, we have summarised our selection of the top cases from 2017 and the key takeaways for 2018.
Defamation - Wilson v Bauer Media Pty Ltd
On 13 September 2017, Australian actress Rebel Wilson made history when the Supreme Court of Victoria awarded her more than $4.5 million in damages in her defamation case against Bauer Media. This is the largest defamation damages sum ever ordered by an Australian court.
Bauer Media Pty Ltd and Bauer Media Australia Pty Ltd are the publishers of publications such as Women’s Day, Australian Women’s Weekly, New Weekly and OK Magazine. In May 2015, to coincide with the release of Pitch Perfect 2, Bauer Media published articles with various defamatory imputations regarding Wilson, including allegations that Wilson systematically lied about her age, name, family background and events in her life. Wilson instituted defamation proceedings against Bauer Media and claimed both general damages and special damages for loss of opportunity.
Justice Dixon awarded Wilson more than $4.5 million in damages, consisting of:
- $650,000 in general damages, including aggravated damages
- $3,917,472 in special damages for Wilson’s loss of opportunity for new screen roles.
Justice Dixon noted that Bauer Media had engaged in a campaign to ‘takedown’ Wilson and that its conduct was lacking in bona fides, spiteful, unjustifiable and improper. His Honour held that the statutory cap on damages for non-economic loss imposed by section 35 the Defamation Act 2005 (Vic) should be exceeded and awarded general damages (including aggravated) totalling $650,000.
Justice Dixon also awarded special damages in the amount of $3,917,472, for loss of earnings that Wilson would have received from lead film roles from mid-2015 to the end of 2016 had the defamatory material not been published. His Honour held that, but for the ‘grapevine repetition’ of the defamatory imputations, Hollywood film producers, studios and casting directors would have decided to cast Wilson in a lead or co-lead role in a number of films. The case is under appeal, but the ramifications remain.
- This case highlights the need for publishers to be vigilant in source-vetting and verifying the truthfulness of allegations contained in publications, given the potential exposure to large awards of general and special damages in future defamation proceedings.
- However, it should be kept in mind that the nature of Wilson’s occupation as a high-profile film and television actress distinguishes this decision from other defamation cases, as Wilson’s income is intrinsically linked to her personal reputation and marketability.
For a more detailed analysis, click here to view an earlier case update.
Unfair contract terms - Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd
The ACCC instituted proceedings against JJ Richards, one of Australia’s largest privately-owned waste management companies, seeking declarations that a number of terms in JJ Richards’s standard form contract with small businesses were unfair and therefore void. The ACCC also sought injunctions to restrain JJ Richards from relying on the impugned terms in future contracts. This is the first ACCC prosecution of its kind, since the business-to-business unfair contract terms regime in the Australian Consumer Law was extended to apply to standard form ‘small business contracts’ which were entered into or renewed from 12 November 2016.
The Federal Court declared that eight clauses in JJ Richards’ standard form contracts satisfied the above three-pronged test. These included clauses which:
- automatically renewed the contract if the customer failed to terminate the contract 30 days before the expiry of the existing term
- allowed JJ Richards to unilaterally increase prices
- exempted liability if JJ Richards’ performance was “prevented or hindered in any way”
- allowed JJ Richards to charge for unperformed services, regardless of whether or not this was due to reasons beyond the customer’s control
- compelled customers to exclusively use JJ Richards’ services, even where the customer was pursuing services in addition to those offered by JJ Richards
- allowed JJ Richards to suspend its services where payment of an invoice was not made within 7 days, and continue to charge the customer
- provided JJ Richards with an unlimited indemnity, even if the loss was incurred by no fault of the customer, or would have been mitigated by JJ Richards
- prohibited customers from terminating their contracts while they had any outstanding payments, while allowing JJ Richards to continue charging them for equipment hire even after termination.
The Court also found that, when read together, the clauses tended to “exacerbate each other” and increase the power imbalance between the parties and the risk of detriment to JJ Richards’ small business customers.
- Businesses should review the terms of their standard form contracts to ensure they are reasonably justified to protect legitimate commercial interests.
- In particular, businesses should evaluate any terms that impose unilateral rights and any powers that protect the business from loss or damages, especially where these powers are broad and potentially unreasonable.
For a more detailed analysis, click here to view an earlier case update.
Foreign bribery - R v Jousif; R v I Elomar; R v M Elomar
The Elomars were directors of a company involved in engineering, infrastructure and construction projects in Australia and abroad. In 2013, Jousif approached the Elomars with an offer to secure a number of lucrative construction contracts with the Iraqi government. Jousif later disclosed that the Elomars needed to pay US$1 million as a bribe to ensure that the relevant contract would be signed and certified by the relevant Iraqi Minister. The Elomars initially attempted to secure the contract legally but eventually provided Jousif with the bribe in cash, which Jousif transferred to a contact in Iraq. The Elomars were never awarded any contract by the Iraqi government and there was no evidence whether the funds were actually paid to an Iraqi official.
The three accused pleaded guilty to the offence of conspiring to bribe a foreign public official. In the first reported sentencing decision under Australia’s foreign bribery offence, Justice Adamson of the Supreme Court of New South Wales sentenced each accused to four years’ imprisonment with a non-parole period of two years, and imposed a fine of AU$250,000 each on the Elomars. Justice Adamson found that general deterrence is particularly important given the prevalence of Australian businesses working on foreign government contracts, and rejected the argument that bribery of a foreign public official is considerably less serious than bribery of an Australian public official.
- This decision highlights the need for Australian businesses to be vigilant when intermediaries are involved in securing foreign government contracts. In this case, the intermediary was well aware at the outset that a bribe was likely to be required, but chose not to disclose this to the Elomars until they had seen the projects that were on offer.
- Further, it should be kept in mind that sanctions and other financial crime laws operate alongside the foreign bribery offence in the prevention and detection of corruption.
For more on foreign bribery, click here to view previous publications.
Transfer pricing law - Chevron Australia Holdings Pty Ltd v Commissioner of Taxation
Chevron Australia (CAHPL) created a US subsidiary, Chevron Taxaco Funding Corporation (CFC). Pursuant to a credit facility, CFC provided an unsecured loan of US$2.5 billion to CAHPL in 2003. CFC had borrowed the funds in the USA at a rate of approximately 1.2% but on-lent the money to CAHPL at approximately 9%, which gave rise to significant profits which were subsequently distributed as dividends to CAHPL. The interest income for CFC was not taxable in the USA and the dividends declared were not assessable income for CAHPL for Australian tax purposes. CAHPL claimed tax deductions for the interest paid to CFC over the five-year term of the credit facility, a significant proportion of which was denied by the ATO.
The central issue before the Federal Court was whether the terms of the credit facility were at arm’s length, as required under the transfer pricing laws enshrined in Division 13 of the Income Tax Assessment Act 1936 (Cth) and subdivision 815-A of the Income Tax Assessment Act 1997 (Cth). The Full Federal Court unanimously upheld the decision of the trial judge and reaffirmed the ATO’s position.
The Court held that under the Acts, it was necessary to construct a comparable arrangement that would have been put in place by independent parties dealing at arm’s length. In determining the arm’s length price of a transaction involving a multinational group, the hypothetical scenario does not necessitate the detachment of the taxpaying subsidiary from the group which it inhabits. The Court held that such an arrangement would have involved a secured or guaranteed external loan with an interest rate significantly below 9%. Further, the Court concluded that a taxpayer cannot dictate the terms of its loan arrangements with related parties, and then determine the arm’s length price in accordance with those terms.
- CAHPL’s decision to withdraw its appeal to the High Court means that the Full Federal Court’s decision represents a leading authority on transfer pricing law in Australia.
- The Full Federal Court’s decision affirms the ATO’s power to challenge tax arrangements in which an Australian subsidiary pays interests rates on related party loans well in excess of what would be paid on external borrowings by the multinational group which it inhabits, including circumstances in which the Australian subsidiary had been allowed to obtain debt finance from an unrelated third party.
Financial services – ASIC, in the matter of Golden Financial Group Pty Ltd (formerly NSG Services Pty Ltd) v Golden Financial Group Pty Ltd (No 2)
NSG Services (now named Golden Financial Group Pty Ltd) is a financial advice firm. The Federal Court ordered that NSG Services pay a $1 million civil penalty for 20 contraventions of the Corporations Act resulting from breaches of sections 961B and 961G by five of its representatives. ASIC also banned two representatives of NSG Services from the financial services industry.[i] This is the first penalty imposed by a court against a licensee for a breach of the 'best interests' duty and the 'appropriate advice' duty following enactment of the Future of Financial Advice reforms in July 2012.
In the proceeding commenced against NSG Services, it and ASIC agreed that the following facts constituted a breach by NSG’s representatives of the best interests duty and the appropriate advice obligations outlined in sections 961B and 961G:
- Recommending a superannuation fund without suggesting alternate funds and failing to provide the client with information or documents to compare the performance of the recommended fund with the client’s existing fund;
- Failing to give advice about the appropriate level of life insurance cover and the fees and costs associated with the recommended fund;
- Failing to advise the client that he already had pre-existing income and life insurance through his existing superannuation fund;
- Failing to disclose to a fund a client’s pre-existing medical condition; and
- Failing to provide a written statement of advice.
NSG Services also consented to the Court making declarations that it had breached section 961L by failing to take reasonable steps to ensure its representative advisers complied with their obligations to act in the best interests of the client and provide appropriate advice.
- Financial services licensees should review and assess their systems, procedures and policies to ensure their advisers are trained and adequately supervised to act in the best interests of their clients.
- In addition to the civil penalties that a Court may impose, the reputational impact from any adverse publicity could be detrimental to the ongoing viability of a financial advice firm.
For a more detailed analysis, click here to view an earlier case update.
Insolvency - Mighty River International Ltd v Hughes
Mighty River was a shareholder and creditor of Mesa Minerals Ltd (Mesa), a company placed in voluntary administration. On the recommendation of the appointed administrators, a majority of creditors voted in favour of executing a ‘holding’ deed of company arrangement (DOCA) to extend the statutory moratorium period within which the administrators could investigate potential restructuring or recapitalisation opportunities and form an opinion as to whether liquidation or a DOCA would be in the best interests of the creditors. Mighty River instituted proceedings challenging the validity of a holding DOCA.
The Western Australian Court of Appeal unanimously held that the holding DOCA was valid after examining the terms of the deed in the context of Part 5.3A of the Corporations Act 2001 (Cth) (the Act). The Court held:
- the DOCA complied with section 444A(4)(b) of the Act that requires that a DOCA specify “the property of the company (whether or not already owned by the company when it executes the deed) that is to be available to pay creditors’ claims”. As the deed specified that no property will be available for distribution to the creditors, the Court held that it complied with section 444A(4)(b);
- administrators who wish to undertake further investigations into the company have the option of either recommending a holding DOCA to creditors or applying to the court to extend the convening period for the second meeting of creditors under section 439(A)(6) of the Act; and
- the DOCA was consistent with the objects of Part 5.3A of the Act, as it was drafted to at least provide the opportunity for a better return for creditors than that which would result from an immediate winding up.
- This decision confirms the validity of the industry-wide practice of extending the statutory moratorium period through the use of a holding DOCA.
- This decision confirms that it is valid for a holding DOCA to provide that, subject to a variation of the deed, no property will be available for distribution to creditors.
- However, it should be kept in mind that the validity of a particular DOCA will turn on the circumstances of each case.
Insolvency - Linc Energy Ltd (In Liq), Re; Longley v Chief Executive Dept of Environment & Heritage Protection
The Queensland Supreme Court held that the obligations of an insolvent company to comply with environmental obligations under State environmental laws were not affected by the liquidators’ disclaimer of the relevant land and associated tenures.
The respondent issued an environmental protection order (EPO) to the company in administration as the recipient. Subsequently, the liquidators gave notice disclaiming the relevant land and the associated tenures. The respondent contended that, notwithstanding the disclaimer, the company was obliged to comply with the EPO and the liquidators were obliged under State environmental laws to ensure that the company complied with the EPO where there are funds available in the winding up to do so. The liquidators applied for directions as to whether they would be justified in:
- not causing the company to comply with an EPO issued by the respondent
- not causing the company to comply with any further environmental protection orders issued by the respondent.
The Court directed that the liquidators were not justified in causing the company not to comply with its environmental obligations. The State environmental laws prevailed over the provisions in the Corporations Act which enabled liquidators to disclaim property and be relieved of all liability in respect of the disclaimed property.
- Liquidators will not be justified in causing an insolvent company not to comply with its environmental obligations in Queensland (which could extend to other states which have similar laws) where a liquidator has disclaimed property under the Corporations Act.
- The costs of complying with environmental obligations must be met by a liquidator ahead of other priority claims, including the liquidator’s remuneration and unsecured creditors.
- Although the decision is currently under appeal, liquidators should seek legal advice on a company’s obligations under state laws (in particular state environmental laws) to determine their personal liability for ensuring the insolvent company complies with these obligations.
Modern awards - All Trades Queensland Pty Limited v Construction, Forestry, Mining and Energy Union
All Trades Queensland (ATQ) is a national system employer which employed apprentices and trainees and hired their services to other businesses in Queensland. In 2016, ATQ applied to the Fair Work Commission (FWC) for approval of a replacement enterprise agreement. Under the Fair Work Act 2009 (Cth) (the Act), in order for a non-greenfields enterprise agreement to be approved by the FWC, the FWC needs to be satisfied that the agreement passes the ‘better off overall test’ (BOOT). The BOOT requires the FWC to be satisfied that ‘each award covered employee, and each prospective award covered employee, for the agreement would be better off overall if the agreement applied to the employee than if the relevant modern award applied to the employee’.
ATQ argued that in applying the BOOT, the agreement should be compared against a number of Queensland-based awards and orders which pre-date the modern awards made under the Act. Those Queensland instruments contained wages and conditions which were inferior to those contained in equivalent modern awards applicable to the same ATQ employees.
The Full Federal Court held that, for the purposes of applying the BOOT, the critical question is whether the relevant modern award covered the employees to whom the enterprise agreement will apply, if approved. The Court accepted that, even if the Queensland awards continued to operate, there is no inherent conflict in an employee being simultaneously covered by a modern award and a State-based award in a given period, as the concept of coverage is concerned only with the potential, rather than actual, application of the relevant instrument. Accordingly, as ATQ’s employees were found to be award-covered employees within the meaning of section 193 of the Act, the correct comparator instruments for the purposes of the BOOT were the relevant modern awards.
- This decision puts to an end a long-standing practice of remunerating apprentices and trainees by reference to Queensland awards, and brings the minimum wages and conditions for Queensland apprentices and trainees in line with those in other Australian states.
- Further, all employers of apprentices and trainees in Queensland are reminded to review their current rates of pay and to ensure compliance with the terms of the relevant modern awards.
Trade marks – Moroccanoil Israel Ltd v Aldi Foods Pty Ltd [ii]
Moroccanoil Israel Ltd (MIL) manufactures and distributes a popular range of hair products, ‘Moroccanoil’, which contains argan oil. In 2012, Aldi launched its in-house line of hair products under the name ‘Moroccan Argan Oil’. The objective was to make the packaging of Aldi’s product “consistent with” the packaging of Moroccanoil, a product which Aldi identified as an ‘on trend’ product. MIL instituted proceedings against Aldi for trade mark infringement, passing off and contraventions of the Australian Consumer Law.
The Federal Court rejected MIL’s trade mark infringement allegation after comparing Moroccan Argan Oil with MIL’s registered trade marks. His Honour held that Moroccan Argan Oil was not deceptively similar to the composite marks on the registered trade marks, as the composite marks were not registered with limitations as to colour. His Honour also held that Aldi did not attempt to appropriate MIL’s reputation by passing off Moroccan Argan Oil as MIL’s products because, to the extent that Aldi copied the get-up of Moroccanoil, it only sought to appropriate the concept of hair products utilising argan oil as an ingredient.
The Federal Court noted that the mere fact of Aldi copying aspects of the get-up of Moroccanoil did not necessitate a finding of misleading and deceptive conduct. His Honour found that a reasonable customer would likely not be misled or deceived by the get-up of Moroccan Argan Oil, given key differences in get-up, trade channels, target markets and price point. However, his Honour accepted that the use of the word ‘naturals’ on Aldi’s products was misleading and misrepresented that such products contain wholly or substantially natural ingredients, when most of the ingredients were synthetic, except water. Interestingly, his Honour also found that the amount of argan oil present in Aldi’s products could not have materially contributed to the product’s “performance properties”, such as its ability to help “strengthen hair and restore shine”.
- This decision demonstrates that Aldi’s strategy in developing low-cost lines of products by focussing on differences in get-up, trade channels and price points can be effective.
- However, businesses need to ensure that products marketed as ‘natural’ must contain wholly or substantially natural ingredients, excluding water.
- Any representations about performance effects of products need to be properly substantiated and this may involve conducting performance tests.
The authors of this article gratefully acknowledge the authors of the previous weekly brief articles which are linked to and collated in this article. The authors acknowledge the assistance of Ashleigh Sams.