Litigation Notes No. 2

Number 2
27 May 1998

Validity of Corporations Cross-Vesting
Scheme

Although this case concerned the cross-vesting scheme
in the Corporations Law, the decision on the constitutional
principles involved is also relevant to the validity
of the general cross-vesting scheme. As the High Court
was evenly divided, the decision does not conclusively
determine the validity of the cross-vesting schemes.

Gould v Brown,
High Court of Australia, 2 February 1998

The High Court was evenly divided (3-3) and, under s.23(2)(a)
of the Judiciary Act 1903, the decision appealed
from (which had upheld the validity of the cross-vesting
scheme in the Corporations Law) was therefore affirmed.
Chief Justice Brennan and Justices Toohey and Kirby dismissed
the appeal from the decision of the Full Federal Court
and Justices Gaudron, McHugh and Gummow would have allowed
the appeal.

The Commonwealth Attorney-General appeared in the High
Court on behalf of the Commonwealth to support the validity
of the challenged provisions.

THE CROSS-VESTING SCHEMES

The general cross-vesting scheme established by the Jurisdiction
of Courts (Cross-vesting) Acts 1987 of the Commonwealth
and each of the States commenced on 1 July 1988. The
corporations cross-vesting scheme included as part of
the Corporations Law (which commenced on 1 January 1991)
operates in civil matters arising under that law to the
exclusion of the general cross-vesting scheme. Its provisions
essentially mirror the general scheme.

The purpose of the cross-vesting schemes is to avoid jurisdictional
disputes arising in the Australian judicial system. Proceedings
commenced in a court covered by the schemes cannot fail
for want of jurisdiction, but proceedings commenced in
an inappropriate court may be transferred to a more appropriate
court.

In Bankinvest AG v Seabrook (1988) 90 ALR 407,
408 Street CJ described the operation of the general cross-vesting
legislation:

'The cross-vesting legislation in effect brings together
the eight State and Territory Supreme Courts, the Federal
Court and the Family Court into an organisational relationship.
Very broadly speaking, the legislation now operative
throughout Australia achieves two objectives: first,
it enables any one of these courts to exercise the jurisdiction
of, and to apply the law that would be applied by, any
one of the other nine; secondly, it enables any one of
those courts in which proceedings are commenced to transfer
them to any one of the other nine.

The introduction of this scheme is a significant move
towards providing throughout our nation the services
of an integrated court system transcending the boundaries,
both geographic and jurisdictional, that have in the
past obstructed the courts in meeting the requirements
of the Australian public.'

The structure of the two schemes may be illustrated by
reference to the provisions of the corporations cross-vesting
scheme the validity of which was challenged in the present
case. Section 42(3) of the Corporations (Name of State)
Act 1990 enacted by each State Parliament confers State
jurisdiction on the Federal Court. Section 42(3) provides:

'Jurisdiction is conferred on the Federal Court with
respect to civil matters arising under the Corporations
Law of (the State).'

Section 56(2) of the Corporations Act 1989 (Cth)
consents to the reception of State jurisdiction by the
Federal Court. Section 56 provides:

  1. Nothing in this or any other Act is intended to override
    or limit the operation of a provision of a law of a State
    or Territory relating to cross-vesting of jurisdiction
    with respect to matters arising under the Corporations
    Law of the State or Territory.
  2. The Federal Court, the Family Court or the Supreme
    Court of the Capital Territory may:

    (a) exercise jurisdiction (whether original or appellate)
    conferred on that Court by a law of a State corresponding
    to this Division with respect to matters arising
    under the Corporations Law of a State; and

    (b) hear and determine a proceeding transferred
    to that Court under such a provision.

BACKGROUND TO THE LITIGATION

In June 1996 the Full Federal Court delivered judgment
in three matters in which the Court unanimously upheld
the validity of laws giving effect to the general cross-vesting
scheme and to the cross-vesting scheme in the Corporations
Law. The decisions are reported as BP Australia Ltd
v Amann Aviation Pty Ltd (1996) 62 FCR 451,
137 ALR 447. In one of the matters (Gould v Brown,
formerly BP Australia Ltd v Amann Aviation Pty Ltd),
special leave to appeal to the High Court was sought and
granted.

Amann Aviation Pty Limited ('Amann') was wound up by an
order of the Federal Court made under the Corporations
Law in the exercise of State jurisdiction cross-vested
in the Federal Court. Under s.596A of the Corporations
Law, the liquidator caused to be issued out of the Federal
Court (also in the exercise of cross-vested State jurisdiction)
a number of summonses to persons to attend before the Court
to be examined about the affairs of Amann. The case involved
a challenge to the jurisdiction of the Federal Court to
make the winding up order, issue the summonses and conduct
the examinations. The challenge to the Federal Court's
jurisdiction was put on two grounds: first, that the powers
purportedly exercised by the Federal Court are derived
from a State law and State Parliaments cannot validly invest
State jurisdiction in a federal court created under Chapter
III of the Constitution; secondly, that the particular
power to conduct examinations involves the invalid conferral
of non-judicial power on the Federal Court contrary to
the doctrine of the separation of powers.

THE HIGH COURT'S DECISION

Power to cross-vest jurisdiction

Brennan CJ and Toohey J, and Kirby J, upheld the validity
of the cross-vesting provisions on the basis that:

(a) the legislative power of a State Parliament extends
to conferring State jurisdiction on a court that is not
a court created by that Parliament; and

(a) there is no limitation arising from Chapter III
of the Constitution which prevents a State Parliament
from vesting State jurisdiction in a federal court other
than the High Court. Chapter III of the Constitution
is exhaustive only of the kinds of federal jurisdiction
that can be invested in a federal court and there is
no negative implication that Chapter III precludes the
conferral of non-federal jurisdiction.

However, a State could not legislate to confer powers
on a federal court created by the Commonwealth Parliament
which are incompatible with the separation of powers implied
by Chapter III or which alter the essential character of
a federal court. Therefore, a State Parliament could not
validly confer non-judicial powers on a federal court.

The conclusion reached by Justices Gaudron, McHugh and
Gummow was that Chapter III of the Constitution exhaustively
states the jurisdiction that may be conferred on federal
courts and this does not include the conferral of State
jurisdiction. Therefore, neither a State Parliament nor
the Commonwealth Parliament can confer or consent to the
conferral of State jurisdiction on a federal court.

Power of the Federal Court to order examinations

Brennan CJ and Toohey J, and Kirby J, decided that the
powers to order and conduct examinations and issue summonses
could validly be conferred on the Federal Court where they
were exercised in the course and for the purposes of a
winding up. When exercised for that purpose, the powers
were incidental to the judicial power of winding up and
have a judicial character. To the extent that the powers
could be exercised otherwise than in the course and for
the purposes of a winding up, they would not be judicial
and could not validly be conferred on the Federal Court.

Contact for further information:
David Bennett, Senior Government Solicitor
Tel: (02) 6253 7063
E-mail: david.bennett@ags.gov.au

Acquisition of Property

In this case the High Court allowed the Commonwealth's
appeal by a 4-2 majority (Brennan CJ, Gaudron, McHugh
and Gummow JJ; Toohey and Kirby JJ dissenting).

Commonwealth v WMC Resources Ltd,
High Court of Australia, 2 February 1998

Western Mining Corporation Ltd (now WMC Resources Ltd)
commenced proceedings in the Federal Court seeking compensation
from the Commonwealth after the area covered by a petroleum
exploration permit in which WMC had a part interest was
reduced by the Petroleum (Australia-Indonesia Zone of
Co-operation) (Consequential Provisions) Act 1990 ('the
Consequential Provisions Act'). That Act and the Petroleum
(Australia-Indonesia Zone of Co-operation) Act 1990 give effect to the Zone of Co-operation Treaty between Australia and Indonesia and create a joint development
regime in the 'Timor Gap'.

The central issue in the legal action brought by WMC against
the Commonwealth was whether the Consequential Provisions
Act, by abolishing part of the petroleum exploration permit,
effected an 'acquisition of property' from WMC otherwise
than on 'just terms' within the meaning of s.51(xxxi) of
the Constitution. If it did, then the Commonwealth would
be liable to pay compensation to WMC under s.24 of the
Consequential Provisions Act. Section 24(2) of the Consequential
Provisions Act provides that where the operation of that
Act would result in the acquisition of property from a
person otherwise than on just terms, the Commonwealth is
liable to pay compensation to that person.

In 1994 Ryan J of the Federal Court determined that WMC
was entitled to compensation under s.24 for the reduction
in the size of the area covered by the petroleum exploration
permit. On 27 March 1996 the Full Court of the Federal
Court (Black CJ and Beaumont J, Cooper J dissenting) dismissed
an appeal by the Commonwealth against Ryan J's decision.
The High Court granted the Commonwealth special leave to
appeal.

The case raised several significant constitutional issues
given that the key terms of s.24(2) of the Consequential
Provisions Act correspond to those of s.51(xxxi) of the
Constitution. Before the High Court the Commonwealth argued,
among other things, that:

  • the exploration permit was wholly a creature of statute
    and, as such, rights created by the permit were inherently
    susceptible to modification or diminution by a later
    Commonwealth Act;
  • there was no 'acquisition' of WMC's property. There
    was merely an extinguishment or diminution of WMC's rights
    without the conferral of any correlative benefit on the
    Commonwealth or anyone else;
  • the Consequential Provisions Act was not a law with
    respect to the acquisition of property. Rather, it was
    concerned with the adjustment of competing rights, claims
    and obligations between Australia and Indonesia and only
    incidentally affected property rights.

THE HIGH COURT'S DECISION

By a 4-2 majority the High Court held that the Commonwealth
is not liable to pay compensation to WMC under s.24(2)
of the Consequential Provisions Act. In doing so it held
that the Commonwealth legislation did not involve the acquisition
of property from WMC within the meaning of s.51(xxxi) of
the Constitution.

Of the majority justices, Brennan CJ held that where a
law of the Commonwealth creates or authorises the creation
of a right, a statutory modification or extinguishment
of that right effects its acquisition if, but only if,
it modifies or extinguishes a reciprocal liability to which
the party acquiring the right was subject. In the present
case, no party was relieved of any liability as a result
of WMC's rights in the exploration permit being modified.
In particular, the Commonwealth was not relieved of any
such liability.

Brennan CJ conceded that if the Commonwealth had proprietary
rights in the continental shelf, it would be arguable that
the extinguishing of a permit holder's proprietary rights
relieved the Commonwealth of a reciprocal burden on its
title to land and thus constituted an acquisition of property.
However, this argument was not available in the present
case as the Commonwealth has no property in the continental
shelf at common law and has not purported to declare by
statute its property in the continental shelf.

Gaudron J broadly agreed with Brennan CJ, holding that
there had been no acquisition of property as the
diminution of WMC's statutory rights did not confer any
corresponding benefit on the Commonwealth or any other
person.

McHugh J thought that as the rights of WMC in the permit
were created by an enactment under s.51(xxix) (i.e. the Petroleum
(Submerged Lands) Act 1967), those rights were always
liable to be amended, revoked or extinguished by legislation
enacted under that same power. In contrast to Brennan CJ
and Gaudron J, McHugh J considered that where a right is
purely the creation of Commonwealth law, the Commonwealth
Parliament may extinguish that right without 'just terms' even
if a consequence of the extinguishment is to vest some
benefit in the Commonwealth or some other person.

Gummow J characterised the permit as a mere licence to
do something which would otherwise be unlawful. He considered
that a law which reduces the content of such licence rights
does not involve the acquisition of anything proprietary
in nature. Gummow J thought, in any event, that it was
apparent from the terms of the legislation under which
the relevant permit was granted that the permit was inherently
susceptible to variation by amendments which might be made
from time to time to the legislation.

IMPLICATIONS OF THE DECISION

The divergent views expressed by the majority justices
limit the value of the decision as both a precedent and
a guide to future Commonwealth action. However, the decision
is significant in that a majority of the Court (McHugh
J dissenting) rejected the view that a right which is wholly
a creature of Commonwealth law is, in all cases, inherently
susceptible to modification or diminution by a later Commonwealth
Act. It follows that where a Commonwealth statute confers
a right in the nature of 'property', the application of
s.51(xxxi) will need to be considered in relation to any
subsequent Commonwealth legislation which purports to modify
or extinguish that right.

Contact for further information:
Guy Aitken, Senior General Counsel
Tel: (02) 6253 7084
E-mail: guy.aitken@ags.gov.au

Validity of Section 15X of the Crimes
Act 1914

Section 15X was inserted in the Crimes Act 1914 by
the Crimes Amendment (Controlled Operations) Act 1996. In
this matter the High Court by a 5-2 majority (Brennan
CJ, Toohey, Gaudron, Gummow and Hayne JJ; McHugh and
Kirby JJ dissenting) upheld the validity of s.15X. The
Commonwealth Attorney-General had intervened to support
the validity of the challenged provision.

Nicholas v R,
High Court of Australia, 2 February 1998

The accused was charged on counts which included alleged
possession of prohibited imports contrary to s.233B of
the Customs Act 1901 and pleaded not guilty
to the charges in the County Court of Victoria. The prohibited
imports to which the s.233B offences allegedly related
were heroin which had been imported into Australia as part
of a 'controlled' importation by law enforcement officers
in contravention of s.233B. The County Court granted an
application by the accused that the trial on the s.233B
counts be permanently stayed on the basis of the principles
established by the High Court in Ridgeway v R (1995)
184 CLR 19.

In Ridgeway, a majority of the High Court recognised
a judicial discretion in criminal proceedings to exclude
evidence, on public policy grounds, where the commission
of the alleged offence was procured by unlawful conduct
on the part of law enforcement officers.

The rationale for this discretion is the public interest
in ensuring that law enforcement officers act within the
law and in preserving the integrity of the administration
of criminal justice by the courts.

The Crimes Amendment (Controlled Operations) Act 1996 inserted
provisions in the Crimes Act which sought to overcome
the decision in Ridgeway. The provisions apply to
certain authorised 'controlled operations' by law enforcement
officers to import narcotic goods. In relation to controlled
operations commenced after the amendments came into
effect, the provisions exempt from criminal liability for
a narcotic goods offence a law enforcement officer who
imports prohibited drugs as part of a controlled operation;
the exemption from criminal liability removes the basis
for the operation of the Ridgeway principle.

In relation to a controlled operation which was commenced before the
amendments came into effect, the provisions direct a court,
when deciding whether to admit evidence of the unlawful
importation of narcotic goods for the purposes of the prosecution
of certain alleged offences, to disregard the fact that
a law enforcement officer committed an offence in importing
the goods in the course of the controlled operation. The
validity of the provisions dealing with controlled operations
which were commenced before the amendments came into effect
were challenged in this case.

In the present case, after the coming into effect of the
amendments made by the Crimes Amendment (Controlled
Operations) Act, the Director of Public Prosecutions
applied to the County Court to vacate the order that had
been made staying the trial. The application was removed
into the High Court in order to determine the validity
of the amendments dealing with controlled operations which
were commenced before the amendments came into effect.

The accused argued that the challenged provisions were
invalid as, contrary to the separation of powers required
by Chapter III of the Constitution, they impermissibly
interfere with the exercise of judicial power by directing
the court as to the exercise of the Ridgeway discretion
and also by directing the court in relation to the small
number of individuals, including the accused, to whose
trials the provisions would apply.

THE HIGH COURT'S DECISION

A majority of the High Court upheld the validity of s.15X
of the Crimes Act, which was the relevant operative
provision. In substance a majority held that s.15X is a
procedural law altering the laws of evidence to be applied
in the relevant prosecutions and does not impermissibly
interfere with the exercise of the Ridgeway discretion.

A majority of justices also held that s.15X does not seek
to secure the conviction of particular persons for particular
conduct on particular occasions; it is a law generally
applicable to relevant prosecutions and it remains for
the court to determine guilt or innocence. Gaudron J also
held that equality before the law is an essential characteristic
of the exercise of federal judicial power but that s.15X
does not offend this requirement. Brennan CJ emphasised
that Ridgeway involved the weighing of competing
public policies and that Parliament is entitled to express
its view as to where the balance of the public interest
lies.

McHugh and Kirby JJ (in separate judgments) held that
s.15X was invalid on the basis that, by interfering in
the way it did with the exercise of the Ridgeway discretion,
it interfered with the capacity of courts invested with
federal jurisdiction to protect their integrity and maintain
public confidence in the administration of justice.

Contact for further information:
Jenny Burnett, Principal Solicitor
Tel: (02) 6253 7142
E-mail: jenny.burnett@ags.gov.au

Liability of Statutory Authorities

The High Court refused to overrule Nagle v Rottnest
Island Authority (1993) 177 CLR 423. Ultimately
then, the case involves the application of settled
principles to particular facts.

Romeo v Conservation Commission of the Northern Territory,
High Court of Australia, 2 February 1998

The High Court dismissed Romeo's appeal by a 5-2 majority
(Brennan CJ, Toohey, Gummow, Kirby and Hayne JJ; Gaudron
and McHugh JJ dissenting). The Court upheld the Northern
Territory Supreme Court's decision that the Conservation
Commission of the Northern Territory (the Commission) had
not breached its duty of care to Romeo.

BACKGROUND

In April 1987 Nadia Romeo, then 16, suffered serious injuries
as a result of her fall from the top of Dripstone Cliffs
onto Casuarina Beach near Darwin. The Commission is a public
authority responsible for the management and control of
that area. Ms Romeo sought damages against the Commission
in the Northern Territory Supreme Court. Ms Romeo claimed
that the Commission had breached its duty of care to her
in not giving her warning of the presence of the Cliffs
or erecting a barrier at their edge.

The top of the Dripstone Cliffs is used frequently by
members of the public to view tropical sunsets. The trial
judge, Angel J, observed that the Commission provided various
facilities, including toilets and barbeques, at Dripstone
Park some distance from the Cliffs. At the top of the Cliffs
the Commission provided a car park, bordered by a low post
and log fence, and maintained the grass and plants.

At about 11 pm on 24 April 1987 Ms Romeo joined friends
in the carpark at the top of the Cliffs. Alcohol was consumed
and Angel J found that Ms Romeo, an inexperienced drinker,
was adversely affected by it. Ms Romeo and a friend were
seen on the sea side of the log fence around midnight.
Sometime later they fell from the Cliffs but it is unclear
how this happened. Angel J concluded that Ms Romeo and
her friend had, in the gloom and under the effects of alcohol,
mistaken a worn patch in the grass leading to a gap in
the vegetation at the Cliffs' edge as a path and had simply
walked over the edge.

Angel J rejected Ms Romeo's claim for damages against
the Commission, observing that the nature of the Cliffs
and their dangers were self-evident. Ms Romeo's appeal
to the Full Supreme Court was dismissed by all judges,
and she appealed to the High Court.

THE HIGH COURT'S DECISION

A majority of the High Court dismissed Ms Romeo's appeal.
A majority of the Court (Brennan CJ dissenting) also refused
to overrule Nagle v Rottnest Island Authority (1993)
177 CLR 423.

In Nagle the plaintiff dived into a swimming area
on Rottnest Island hitting his head on a submerged rock.
The High Court held in Nagle that where a public
authority, exercising statutory powers, encourages members
of the public to engage in certain activities on areas
under its control, it comes 'under a duty to take reasonable
care to avoid injury to them and the discharge of that
duty would naturally require that they be warned of foreseeable
risks of injury associated with the activity so encouraged.'

In the present case, Toohey and Gummow JJ (in a joint
judgment) and Kirby and Hayne JJ (in separate judgments)
denied that the Commission had breached the duty of care
it owed to Ms Romeo. Toohey and Gummow JJ held that the
Commission was 'under a general duty of care to take reasonable
steps to prevent persons entering the Reserve from suffering
injury' but that such steps did not include fencing off
an area where the danger was obvious.

Kirby J agreed that the Commission was not in breach of
its duty of care to Ms Romeo as the danger of the Cliffs
was obvious to any reasonable person. Hayne J considered
that Ms Romeo's claim that the Commission had breached
its duty to her by not fencing off the Cliffs 'attributes
a false degree of precision to identification of the foreseeable
risk; it attributes too high a probability to the occurrence
of that risk and it fails to identify properly the response
that would have had to be made to that risk to avoid it.'

In dismissing Ms Romeo's appeal, Brennan CJ said given
that the powers exercised by the Commission are statutory,
any duties it may have are also statutory. His Honour stated:

[W]hen the sole basis of liability of a public authority
is its statutory power of management and control of premises,
its liability for injury suffered by a danger in the
premises is not founded in the common law of negligence
but in a breach of a statutory duty to exercise its power
and to do so reasonably having regard to the purpose
to be served by an exercise of the power.

The duty his Honour said 'is to exercise reasonable care
to prevent injury from dangers arising from the structure
or condition of the premises which are not apparent and
are not to be avoided by the exercise of reasonable care
on the part of the entrant.' However, his Honour's approach
to determining the scope of the duty of the authority was
not shared by the rest of the Court.

In separate judgments, Gaudron and McHugh JJ in applying Nagle,
upheld Ms Romeo's appeal. The Commission had encouraged
people to visit the Cliffs. It was foreseeable that some
visitors would walk along the Cliffs' edge and that some
would not take care for their own safety. Both Gaudron
and McHugh JJ therefore found that the Commission was in
breach of its duty of care in not providing adequate fencing
along the top of the cliffs near the carpark.

Contact for further information:
Paul Sykes, Principal Solicitor
Tel: (02) 6253 7050
E-mail: paul.sykes@ags.gov.au

Omission by a Public Authority to Exercise
Statutory Duties

A majority of the High Court has rejected the usefulness
of the doctrine of general reliance in determining the
negligence liability of public authorities. Further,
given the doubts raised by the High Court in relation
to the doctrine of proximity in Hill v Van Erp (1997)
142 ALR 687, serious questions arise as to what principles
should be applied to determine liability in negligence.

Pyrenees Shire Council v Day;
Eskimo Amber Pty Ltd v Pyrenees Shire Council,
High Court of Australia, 23 January 1998

The High Court (comprising 5 Justices) unanimously dismissed
the Pyrenees Shire Council's ('the Council') appeal against
the Victorian Supreme Court's decision that the Council
was liable in negligence to Mr and Mrs Day. Further, the
High Court by a 3:2 majority (Brennan CJ; Gummow and Kirby
JJ; Toohey and McHugh JJ dissenting) allowed the appeal
of Eskimo Amber Pty Ltd (Eskimo Amber) and Mr and Mrs Stamatopoulos
against the Victorian Supreme Court's decision that the
Council was not liable to them.

BACKGROUND

On 9 August 1988 a fire broke out in premises in Neill
Street, Beaufort, Victoria. The premises were owned by
Mr and Mrs Nakos and were leased in 1988 by Mr and Mrs
Tzavaras. The fire occurred as a consequence of a faulty
chimney. An officer of the fire brigade advised the occupant
of the premises not to use the fireplace until the chimney
was repaired.

Several days later, Mr Walschots, a building and scaffolding
inspector employed by the Council, inspected the chimney
and advised the tenant, Mr Tzavaras, not to use the fireplace
until the defect was repaired. Following his inspection,
Mr Walschots wrote a letter stating that the fireplace
should not be used until repaired and addressed it to Mr
Tzavaras and to Mr Nakos at the Neill Street premises.
While Mr Tzavaras received the letter, Mr Nakos did not,
and the fireplace was not repaired. The Council did not
follow up on the letter to ensure that the fireplace was
fixed.

In January 1990 Mr and Mrs Tzavaras assigned their lease
of the Neill Street premises to Eskimo Amber, the family
company of Mr and Mrs Stamatopoulos. Mr Tzavaras told Mr
Stamatopoulos that the fireplace was in use. Mr and Mrs
Stamatopoulos conducted a business from, and lived in,
the Neill Street premises.

In May 1990 another fire occurred in the defective fireplace
at the Neill Street premises causing property damage to
Eskimo Amber, Mr and Mrs Stamatopoulos, and to the occupiers
of the neighbouring premises, Mr and Mrs Day.

Pursuant to the Local Government Act 1958 (Vic),
the Council may take action to prevent the risk of fire
which may cause damage, including the issuing of notices
requiring defective fireplaces to be remedied. It is an
offence not to comply with a notice issued under the Act
and the Council has the power to take necessary follow
up action.

Mr and Mrs Day were successful in their Victorian County
Court actions in negligence against both Mr Tzavaras and
the Council. Eskimo Amber and the Stamatopouloses succeeded
in negligence against Mr Tzavaras, but failed in their
actions for negligence and breach of statutory duty against
the Council.

The Council appealed to the Victorian Court of Appeal
against the County Court's decision in relation to the
Days. The Court applied the doctrine of 'general reliance' and
the appeal was dismissed. The doctrine of general reliance,
developed by Mason CJ in Sutherland Shire Council v
Heyman (1985) 157 CLR 424, arises out of a plaintiff's
dependence on a statutory authority to exercise its powers
with due care where such powers are granted to minimise
or prevent the risk of injury recognised by Parliament
to be so great or complex that individuals cannot take
adequate steps for their own protection. Eskimo Amber and
the Stamatopouloses appealed to the Court of Appeal claiming
that the Council was liable in negligence. The Court held
that the Council did not owe a similar duty of care to
Eskimo Amber and the Stamatopouloses and their appeal was
dismissed.

THE HIGH COURT'S DECISION

A majority of the High Court (Brennan CJ and Gummow and
Kirby JJ) allowed the appeal by Eskimo Amber and the Stamatopouloses.
All five members of the Court held that the Council was
liable for the damage suffered by the Days. However, their
Honours differed in their reasons.

In separate decisions, Toohey and McHugh JJ, relying on
the doctrine of general reliance, found that the Council
was liable to the Days. The Days relied on the Council
to exercise its statutory powers to ensure that the defective
fireplace, of which it had knowledge, would be repaired.

The Days had no knowledge of the defective fireplace,
they could not inspect the premises, and any remedy they
might have would be slow and costly. Toohey and McHugh
JJ considered that Eskimo Amber and the Stamatopouloses
were in a different position to the Days and could not
rely on the doctrine of general reliance. Eskimo Amber
and the Stamatopouloses were in a position to ascertain
the faults in the fireplace if they chose to do so.

Brennan CJ, Gummow and Kirby JJ, in separate judgments,
rejected the usefulness of the doctrine of general reliance.
Brennan CJ stated that the basis for the Council's liability
for the damage suffered is legislative intention. Further
his Honour said:

Where the power is a power to control "conduct or activities
which may foreseeably give rise to a risk of harm to
an individual" ... and the power is conferred for the
purpose of avoiding such a risk, the awarding of compensation
for loss caused by a failure to exercise the power when
there is a duty to do so is in accordance with the policy
of the statute.

The Council was under a public law duty to enforce the
terms of Mr Walschots' letter; the risk of not doing so
was extreme and there was no reason to justify the Council's
not doing so. The Council was, therefore, liable to the
Days, Eskimo Amber and the Stamatopouloses.

Gummow J considered that the touchstone of the Council's
duty was its 'measure of control of the situation including
its knowledge, not shared by Mr and Mrs Stamatopoulos or
by the Days, that if the situation was not remedied, the
possibility of fire was great and damage to the whole row
of shops might ensure.'

Drawing on Caparo Industries Plc v Dickman [1990]
2 AC 605, Kirby J enunciated a three stage test to decide
whether a duty of care exists. First, is it reasonably
foreseeable that the conduct or omission would cause harm
to the plaintiff or someone in the plaintiff's position;
second, is there a relationship of 'proximity' or 'neighbourhood' between
the wrong-doer and the plaintiff and, third, if so is it 'fair,
just and reasonable' that the law should impose a duty
on the wrong-doer? On these facts, Kirby J held the Council
liable to the Days, Eskimo Amber and the Stamatopouloses.

Contact for further information:
Paul Sykes, Principal Solicitor
Tel: (02) 6253 7050
E-mail: paul.sykes@ags.gov.au

The Award of Costs in 'Public Interest' Litigation

Following this decision, exceptional or special circumstances
relating to 'public interest' litigation may warrant
departure from the general rule that the successful party
will ordinarily expect to recover its proper costs.

Oshlack v Richmond River Council,
High Court of Australia, 25 February 1998

In this case the High Court by a 3:2 majority (Gaudron,
Gummow and Kirby JJ; Brennan CJ and McHugh J dissenting)
allowed an appeal by Mr Oshlack against a decision of the
NSW Court of Appeal ordering that he pay the Richmond River
Council's (the Council's) costs both in the litigation
at first instance and in the appeal.

In the NSW Land and Environment Court, Mr Oshlack challenged
the validity of a development consent granted by the Council
in respect of the 'Iron Gates' residential subdivision
at Evans Head. Stein J dismissed Mr Oshlack's challenge.
The Council sought costs but his Honour decided that special
circumstances existed in the case justifying a departure
from the usual order as to costs (i.e. that costs follow
the event). He therefore made no order as to costs.

The special factors that Stein J took into account included
the 'public interest' nature of the litigation, the relaxation
of standing pursuant to section 123 of the Environment
Planning and Assessment Act 1979 (NSW) (the EPA Act)
(to award costs may have the effect of denying Parliament's
intention of relaxing the standing requirements), the fact
that Mr Oshlack had nothing to gain personally from the
litigation but rather sought to preserve the environment,
considerable public opposition to the development and hence
public interest in the outcome of the litigation, and that
Mr Oshlack's challenge, although dismissed, was arguable.

The Court of Appeal, relying on the High Court's decision
in Latoudis v Casey (1990) 170 CLR 534, upheld the
Council's appeal and ordered that Oshlack pay its costs.

In their joint judgment in Oshlack, Gaudron and
Gummow JJ, said that the Court of Appeal had regarded Latoudis 'as
authority for the proposition that the award of costs to
a successful party in civil litigation is made not to punish
the unsuccessful party but to compensate the successful
party against the expense to which that party has been
put by reason of the legal proceedings.' In the present
proceedings, Mr Oshlack's motive in bringing the litigation
in the public interest was, therefore, irrelevant.

Mr Oshlack then appealed, on the issue of costs, to the
High Court.

THE HIGH COURT'S DECISION

A majority of the High Court (Gaudron, Gummow and Kirby
JJ) restored the decision of Stein J. Gaudron and Gummow
JJ said section 69 of the Land and Environment Court
Act 1979 (NSW) ('the Court Act') confers upon the Court
a discretion to award costs. That discretion is very wide
but it must be 'exercised judicially, that is to say not
arbitrarily, capriciously or so as to frustrate legislative
intent.'

Their Honours denied that there was a rule that 'in the
absence of disentitling conduct, a successful party is
to be compensated by the unsuccessful party.' They did,
however, accept the existence of a principle generally
favouring the successful party, guiding (but not confining)
the exercise of judicial discretion.

The result was that, while a successful party might ordinarily
expect the exercise of judicial discretion in his or her
favour in the absence of disentitling conduct, each case
must be considered on its merits.

Disentitling conduct may include, for example, unnecessarily
prolonging the litigation. Gaudron and Gummow JJ distinguished Latoudis,
and decided that the facts Stein J took into account when
exercising his discretion pursuant to section 69 of the
Court Act, and in light of section 123 of the EPA Act,
were not irrelevant. Indeed such factors were relevant
to Stein J's exercise of
his discretion.

In a separate judgment, Kirby J also restored the decision
of Stein J. Kirby J stated that Latoudis did not
forbid Stein J 'from giving weight to the public interest
character of the proceedings.' Kirby J also observed:

Given the statutory context and the clear purpose of
Parliament to permit, and even encourage, individuals
and groups to exercise functions in enforcement of environmental
law before the Land and Environment Court, a rigid application
of the compensatory principle in costs orders would be
completely impermissible.

His Honour concluded that while the successful party will
ordinarily expect to recover its proper costs, there may
be exceptional or special circumstances that dictate otherwise.
Public interest litigation may sometimes warrant departure
from the general rule.

Brennan CJ and McHugh J dissented. Brennan CJ delivered
a short judgment, following Latoudis, and generally
agreeing with McHugh J. McHugh J stated firmly that 'the
fact that the proceedings can be characterised as public
interest litigation is irrelevant to the question whether
the court should depart from the usual order that costs
follow the event.'

IMPLICATIONS OF THE DECISION

Clients need to be aware that, while the successful party
will ordinarily expect to recover its proper costs, there
may be exceptional or special circumstances that dictate
otherwise. Public interest litigation may sometimes warrant
departure from the general rule.

The risk of not being able to recover costs in litigation,
even when one is successful, will be especially great where
it is open to the client simply to submit to the jurisdiction
of the court, but the client elects to take an active part
in the proceedings.

Contact for further information:
Rolf Driver, Senior Government Solicitor
Tel: (02) 6253 7214
E-mail: rolf.driver@ags.gov.au

The Meaning of Control

Following this decision the concept of 'control' and
the phrase 'being in a position to control' at least
in the context of broadcasting legislation will be given
a far broader meaning based on commercial reality. Arrangements
which previously would not have fallen foul of the limitations
on control will no longer be allowed.

Canwest Global Communications Corporation v Australian
Broadcasting Authority, Full Court of the Federal
Court of Australia, 27 February 1998

In this case the Full Court of the Federal Court in a
unanimous decision dismissed an appeal by CanWest against
a decision of Hill J.

BACKGROUND

In 1997 the ABA conducted an investigation into whether
the provisions in the Broadcasting Services Act 1992 ('the
BSA') dealing with ownership and control of commercial
broadcasting licences were being complied with in relation
to a number of commercial television broadcasting licences,
which together made up the Ten Group licences. The ABA's
report was issued in April 1997. The ABA found that CanWest,
a Canadian corporation and therefore a foreign person for
the purposes of the BSA, was in breach of subsections 57(1)
and 57(3) of the BSA because CanWest was in a position
to exercise control of the Ten Group licences and because
CanWest, together with another foreign person, had company
interests in the Ten Group licences which exceeded 20%.

CanWest was given six months to take action so that it
was no longer in breach of the BSA. CanWest subsequently
instituted proceedings against the ABA seeking judicial
review of the ABA's Report and findings. Hill J dismissed
the application at first instance. CanWest then appealed
to the Full Court of the Federal Court.

THE FULL COURT'S DECISION

The central issue in dispute in the proceedings was the
nature of the statutory concept of 'control' and the words 'in
a position to exercise control'. It was contended on behalf
of CanWest, in reliance upon the decision in Equiticorp
Industries Limited v ACI International Limited (1986)
10 ACLR 568 and other revenue cases, that to be in a position
to exercise control of a commercial broadcasting television
licence there must be 'an enforceable and immediately exerciseable
right to exercise control'.

The ABA, in determining that CanWest was in breach of
the ownership and control provisions, had focused on the
question of whether there is an immediate factual power
to control. The ABA considered not only the legal arrangement
between the parties, but also any commercial or other arrangements
or understandings underlying those agreements and looked
at control arising as a result of, or by means of, trusts
arrangements, agreements, understandings and practices
whether or not having legal or equitable force and whether
or not, based on legal on equitable rights.

Beaumont J, with whom Black CJ and Lockhart J agreed,
held that the ABA correctly appreciated the nature of the
legal question it was required to address in relation to
the meaning of control and that there was no explicit or
implicit requirement in the BSA that the relevant power
be immediately exerciseable on legally enforceable grounds.

Equiticorp and the revenue cases relied upon by
CanWest were distinguished on the basis that the legislative
provisions in question had significant differences.

Beaumont J adopted the reasoning of Bowen CJ and Lockhart
J in Re Application of News Corp Limited (1987)
15 FCR 227, in particular the News Corp approach
that questions of control in the context of broadcasting
legislation are to be determined by practical and commercial
considerations rather than highly refined legalistic tests.

It was also contended on behalf of CanWest that the phrase 'in
a position to control' must carry with it a connotation
of an ability to direct or command, that is, there must
be a right or power and one person must be able to require
the other person to act against the latter's wishes. Beaumont
J rejected this contention.

His Honour found that practical control, arising out of
formal constraints, financial incentives and disincentives
and other surrounding circumstances may constitute control
without an express finding being made that the parties
had reached a relevant understanding or a relevant practice
existed.

Beaumont J also upheld the ABA's finding that the fact
that various company directors would not breach their fiduciary
duties to act in accordance with the instructions or wishes
of CanWest did not negate the finding of control.

His Honour found that 'control' in circumstances falling
within lawful limits is sufficient for the purposes of
the BSA and it is not necessary to also find that control
extended to unlawful conduct.

ISSN 1329-458X (Print)
ISSN 2204-6542 (Online)

For assistance with supply of copies, change of address
details etc Tel: (02) 6253 7052, Fax: (02) 6253 7313,
E-mail: ags@ags.gov.au.

The material in these notes is provided
for general information only and should not be relied
upon for the purpose of a particular matter. Please
contact AGS before any action or decision is taken
on the basis of any of the material in these notes.

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