Litigation Notes No. 9

Number 9
23 June 2003

Treaties and Administrative Decision Making – Teoh in
Question

Statements made by four members of the High Court
in Re Minister for Immigration and Multicultural
Affairs; Ex parte Lam ('Lam')
suggest there is a strong likelihood that, if Minister
for Immigration and Ethnic Affairs v Teoh (1995)
183 CLR 273 ('Teoh') was
formally relied upon by a party in a future case,
the High Court will overturn that aspect of the decision
concerning legitimate expectations arising out of
the act of entry into a treaty.

Re Minister for Immigration and Multicultural Affairs;
Ex parte Lam

High Court of Australia, 12 February 2003
[2003] HCA 6; (2003) 195 ALR 502

Background

The applicant, Mr Lam, was originally a refugee
from Vietnam. He subsequently had a long criminal history
in Australia including trafficking in heroin, and in
due course the Minister for Immigration and Ethnic
Affairs cancelled his visa and sought to deport him.
The applicant was unmarried but had two children born
in Australia who were Australian citizens, and who
were living with a relative carer. The applicant instituted
High Court proceedings arguing that the Minister had
failed to accord him procedural fairness.

High Court's Decision

All members of the High Court rejected the applicant's
argument. The argument turned upon the fact that the
Department of Immigration and Multicultural Affairs
(as it was then known) had written to him requesting
that he provide the names and contact details of his
children's carers because the department wished
to contact them in order to assess his relationship
with his children and the possible effects on them
of a decision to cancel his visa. The department did
not contact the children's carer, despite indicating
its intention to so do in this letter.

The applicant argued that he was denied procedural
fairness because the decision to cancel his visa was
made without him being told by the department that
it had been decided not to contact the children's
carer and that the decision maker intended to rely
on the information about the children provided in the
applicant's submission and annexures including
a letter from the children's carer.

The Court placed importance upon the fact that, in
the proceedings, the applicant did not suggest that
he relied to his disadvantage in any way upon the representation
that the children's carer would be contacted.
The applicant had addressed the issue of the children's
welfare and best interests in his submission, as had
the children's carer in her annexed letter. The
applicant did not argue that he was deprived of any
opportunity to put any further information or submissions
to the Minister in respect of the children. He could
not demonstrate that there was any new material that
might have influenced the decision maker to decide
the case differently.

All members of the High Court held that there was
no unfairness to the applicant and no injustice could
be shown to exist. The applicant had lost no opportunity
to advance his case, and he did not rely to his disadvantage
on the statement of intention.

Previous Decision in Minister for Immigration
and Ethnic Affairs v Teoh

In the previous decision of Teoh, a
majority of the High Court (McHugh J dissenting) held
that a treaty ratified by Australia, but not incorporated
into Australian domestic law, could found a legitimate
expectation that administrative decision makers would
act in conformity with it. Statutory and executive
indications to the contrary could remove that legitimate
expectation. The majority further held that, if a decision
maker proposed to make a decision inconsistent with
that expectation, procedural fairness required that
the persons affected be given notice and an adequate
opportunity of presenting a case against the taking
of such a course.

Discussion of Teoh in Lam

The High Court in Lam did not have to formally
reopen and reconsider Teoh. The applicant did
not formally rely upon Teoh, although his case
was based on legitimate expectation and denial of procedural
fairness.

However, in their judgments, four of the five member
Bench sitting in Lam expressed strong criticism
of the reasoning and decision in Teoh. Only
Gleeson CJ expressed no criticism of Teoh.

In a joint judgment, McHugh and Gummow JJ expressed
the view that there still remains a fundamental question
of the relevance of the doctrine of legitimate expectation
[81–83], a view expressed by McHugh J (in dissent)
in Teoh. Their Honours were critical of the
reasoning in Teoh that ratification of a treaty
is a 'positive statement' made 'to
the Australian people', without it being accompanied
by a consideration of the extent to which such matters
impinge upon the popular consciousness [95]. McHugh
and Gummow JJ suggested that Teoh is not consistent
with the earlier reasoning and decision in Haoucher
v Minister for Immigration and Ethnic Affairs (1990)
169 CLR 648 ('Haoucher'), a case
which can be compared with Teoh. The legitimate
expectation in Haoucher arose because of a detailed
policy statement made by the Minister to the House
of Representatives. McHugh and Gummow JJ also noted
that the treaty under consideration in Teoh had
not been followed by any relevant exercise of legislative
power to make laws with respect to external affairs,
nor was it a self-executing treaty (such as a peace
treaty) [98–100]. There appears to be a clear
implication in their joint judgment that the reasoning
in Teoh failed to give sufficient attention
to the relationship between international obligations
and the domestic constitutional structure [98].

In a separate judgment, Hayne J was also critical
of Teoh. His Honour agreed with McHugh J (in
dissent) in Teoh that more attention needed
to be given to whether legitimate expectation still
has a useful role to play in the realm of procedural
fairness [121], and he also agreed that 'it may
be that, for the reasons given by McHugh and Gummow
JJ' [in their judgment in Lam], Teoh cannot
stand with the earlier decision in Haoucher [122].
Hayne J also noted that further consideration may have
to be given to what was said in Teoh about the
consequences which follow for domestic administrative
decision making from the ratification, but not enactment,
of an international instrument [122].

The fourth member of the Court in Lam who expressed
strong criticism of Teoh was Callinan J. His
Honour stated that he considered the term 'legitimate
expectation' to be 'a complete misnomer' in
the case of Teoh, as the treaty in question
had not been incorporated into Australian law by enactment
and neither Mr Teoh nor his children had any
knowledge of the treaty nor its ratification by the
Executive [139–141]. Callinan J questioned the
utility of the concept of legitimate expectation in
discourse about the rights and obligations of applicants
and administrators, and also questioned the necessity
for the 'invention of the doctrine' [140].
Furthermore, his Honour suggested that the application
of the doctrine of legitimate expectation in a case
such as Teoh 'elevate[d] the Executive
above the parliament', by the Court giving the
effect to the treaty that it did [147, 152].

Conclusion

In light of the views expressed by these four members
of the High Court in Lam, it seems very likely
that, in a future case in which there is formal reliance
upon Teoh, the High Court will reopen and overturn
that aspect of the decision concerning legitimate expectations
arising out of the act of entry into a treaty.

Text of the decision is available at http://www.austlii.edu.au/au/cases/cth/high_ct/2003/6.html.

Contacts for further information:

Robert Orr QC
Deputy General Counsel

Tel: (02) 6253 7017
Fax: (02) 6253 7304
E-mail: robert.orr@ags.gov.au

Dr Susan Reye
Senior General Counsel

Tel: (02) 6253 7110
Fax: (02) 6253 7304
E-mail: susan.reye@ags.gov.au

Native Title

The principal issue in this case is the proper
approach to the definition of 'native title' and 'native
title rights and interests' in section 223(1)
of the Native Title Act 1993 (NTA).

Members of the Yorta Yorta Aboriginal Community
v State of Victoria and Ors

High Court of Australia, 12 December 2002
[2002] HCA 58; (2002) 194 ALR 538

The High Court dismissed an appeal by members of the
Yorta Yorta Aboriginal community (the claimants) from
a decision by a majority of the Full Court of the Federal
Court. The Full Court's decision was to dismiss
an appeal against the trial judge's determination
that native title does not exist in relation to an
area of land in northern Victoria and southern New
South Wales in the vicinity of the Murray and Goulburn
Rivers (the claim area) covered by the claimants' native
title determination application made under the NTA.

Gleeson CJ, and Gummow and Hayne JJ gave a joint judgment
dismissing the appeal. McHugh and Callinan JJ gave
separate judgments dismissing the appeal. Gaudron and
Kirby JJ gave a joint dissenting judgment that would
have allowed the appeal.

As a result, the trial judge's determination
stands. That is, native title does not exist in the
claim area.

Background and High Court's Decision

The claimants had made a native title determination
application under the NTA. Attention in the High Court
was, therefore, focussed on the requirements that must
be satisfied in order to come within the definition
of 'native title' in s.223 of the NTA.
In particular, did the definition import a requirement
of continuous acknowledgement and observance, of laws
and customs since sovereignty and, if so, what part
of the definition did this? Was it:

  • the requirement in s.223(1)(a)
    that native title rights and interests be possessed
    under the 'traditional' laws and customs
    of the claimants, or
  • the requirement in s.223(1)(c)
    that the rights and interests be 'recognised' by
    the common law?

This case confirms that proof of a continuous acknowledgement
and observance of laws and customs since sovereignty
is critical to establishing native title, and that
this requirement flows from s.223(1)(a) not s.223(1)(c).

The joint judgment of Gleeson CJ, Gummow and Hayne
JJ is the principal judgment. It starts from an observation
that, upon the acquisition of sovereignty, the Crown
acquired a radical title to the land which was burdened
by rights and interests in relation to land – called 'native
title' – owing their origin to laws and
customs deriving from a normative system that pre-existed
sovereignty.

It is therefore essential that claimants demonstrate
the content of pre-sovereignty traditional laws and
customs by reference to a society then in existence.
They must also demonstrate that the society has continued
to exist, and that the rights and interests being asserted
pre-dated sovereignty; no new rights and interests
can be created after sovereignty. There is however
some scope for the adaptation, change or development
of laws and customs post-sovereignty.

Implications of the Decision

It follows that it is wrong to confine an inquiry
about native title to an examination of the laws and
customs now observed in an indigenous society. Of course,
current observance is still necessary. But claimants
must also demonstrate that laws and customs have continued
to be observed 'substantially uninterrupted' since
sovereignty, that they were transmitted from generation
to generation, at each stage they defined the rights
and interests that the people could exercise in relation
to the area concerned, and that the society under whose
laws and customs the rights and interests are said
to be possessed continues to exist as a body united
by its acknowledgement and observance of the laws and
customs.

All of this is said to flow from the requirement in
s.223(1)(a) of the definition of 'native title' for
the rights and interests to be possessed under the 'traditional' laws
and customs acknowledged and observed by the claimants.

In the context of the NTA 'traditional' carries
an understanding that the origins of the content of
the laws and customs are to be found in the normative
rules of indigenous societies that existed before the
assertion of sovereignty.

Text of the decision is available at http://www.austlii.edu.au/au/cases/cth/high_ct/2002/58.html.

Contacts for further information:

Peter Jeffery
Senior General Counsel

Tel: (02) 6253 7091
Fax: (02) 6253 7317
E-Mail: peter.jeffery@ags.gov.au

Sheila Begg
Senior Executive Lawyer

Tel: (02) 6253 7146
Fax: (02) 6253 7303
E-Mail: sheila.begg@ags.gov.au

Powers to Compel Production of Documents or Information

The High Court has unanimously allowed an appeal
by The Daniels Corporation International Pty Ltd
('Daniels') and declared that section
155 of the Trade Practices Act 1974 (Cth)
('the Act') did not require the production
of documents to which legal professional privilege
attaches. The High Court's decision overturned
the unanimous decision of the Full Court of the Federal
Court of Australia which had reached the opposite
conclusion.

The High Court delivered judgment on the same day
in proceedings brought by Woolworths Limited and
Coles Myer Limited against the ACCC and Professor
Fels, Chairman of the ACCC. The Court had been referred
the same question to consider as in Daniels.

The Daniels Corporation International Pty Ltd v
Australian Competition and Consumer Commission

Woolworths Limited v Fels; Coles Myer Limited v
Fels

High Court of Australia, 7 November 2002
[2002] HCA 49; [2002] HCA 50; (2002) 192 ALR 561

Background

The Australian Competition and Consumer Commission
('the ACCC') served notices on the solicitors
for Daniels pursuant to s.155(1)(a) of the Act, requiring
the production of documents held by them as a result
of their having acted as solicitors for Daniels. The
solicitors failed to produce all of the documents specified
in the notices and they claimed that the remaining
documents were subject to legal professional privilege.
Proceedings were commenced in the Federal Court by
the ACCC seeking a declaration that s.155 of the Act
requires production of documents to which legal professional
privilege attaches. The solicitors for Daniels were
later joined as respondents to the proceedings.

In February 2001 the proceedings were heard in Sydney
by a Full Court of the Federal Court specially convened
by Wilcox J who had referred the legal question involved
in the ACCC's proceedings to the Full Court which
comprised Wilcox, Lindgren and Moore JJ.

The Full Federal Court unanimously held that Daniels' solicitors
were not entitled to refuse to comply with the s.155
notices on the ground of legal professional privilege.
Wilcox J noted that although 'in a technical
sense, observations [made in a previous High Court
case of Pyneboard Pty Ltd v TPC (1983) 152 CLR
328] concerning the relationship between that doctrine
[of legal professional privilege] and s.155 of the
Act were [outside the scope of the what had to be decided]… Pyneboard strongly
suggests that the natural meaning of the words used
in s.155(5)(a) excludes legal professional privilege' ([52]
of the Full Court judgment).

Ultimately Wilcox J concluded that the better view
is that a claim of legal professional privilege is
not a valid answer to a notice under s.155 of the Act.

Moore J decided to grant the declaration sought by
the ACCC because the language of s.155(5) is 'emphatic
and requires compliance with a notice if the recipient
is capable of complying with it'.

Lindgren J agreed with the approach taken by Wilcox
and Moore JJ and, in addition, noted that it was not
necessary to form a view about whether privilege was
abrogated in relation to documents which were not physically
in possession of the recipient of the notice but which
were legally in the control of that person [95].

High Court's Decision

In Daniels v ACCC, Woolworths Limited v ACCC & Fels;
Coles Myer Limited v ACCC & Fels the following
question was considered by the Full Court of the
High Court:

Can the production of documents to
which legal professional privilege attaches and is
maintained be compelled by the Second Defendant pursuant
to section 155 of the Trade Practices Act 1974 (Cth)?

In a joint judgment, Gleeson CJ, Gaudron, Gummow and
Hayne JJ, declined to follow the approach taken by
the majority of the High Court in the earlier decision
of Pyneboard Pty Ltd v TPC and suggested the
decision of Corporate Affairs Commission (NSW) v
Yuill (1991) 172 CLR 319 may now be decided differently
[35]. Both of these decisions had been relied upon
by the Full Federal Court and the ACCC. Since 1991
the Australian Securities and Investments Commission
(ASIC) has relied on Yuill to require the production
of documents which are the subject of claims for legal
professional privilege.

Gleeson CJ, Gaudron, Gummow and Hayne JJ identified
a number of difficulties in adopting the approach to
the construction of s.155 of the Act applied in Pyneboard.
Firstly, Brennan J's approach was inconsistent
with the rule in Potter v Minahan ((1908) 7
CLR 277) that provided statutory provisions are not
to be construed as abrogating important common law
rights, privileges and immunities in the absence of
clear words or a necessary implication to that effect.

Secondly, the approach adopted by Mason ACJ, Wilson
and Dawson JJ concentrated on the terms of s.155(1)
and paid no regard to s.155(2). They also argued that
the earlier approach by the Court also rendered otiose
the express abrogation, in s.155(7), of the privilege
against incrimination.

Gleeson CJ, Gaudron, Gummow and Hayne JJ further noted
that the question decided in Yuill was that
legal professional privilege was not a reasonable excuse
for failing to comply with a notice under s.295(1)
of the Companies (New South Wales) Code and was not
concerned with s.155 of the Act [19].

In separate judgments, McHugh, Callinan and Kirby
JJ agreed with the conclusions of the majority. McHugh
J held that neither Pyneboard nor Yuill assisted
the ACCC, and Justice Callinan distinguished Yuill on
the basis that there were no provisions in the Act
making specific reference to legal professional privilege.

McHugh J held that s.155 would not become inoperative
or be rendered futile if a person to whom a s.155 notice
was addressed could refuse to produce the documents
because they were protected by legal professional privilege.
It is interesting to note that this position seems
to be inconsistent with the earlier statement in Yuill by
McHugh J that:

Unlike s.155 of the Trade Practices
Act, therefore, the general terms of s.295 [of the
Companies (New South Wales) Code] show no implied intention
to abolish all relevant common law rights and privileges.
(Yuill at 351)

In concluding that legal professional privilege is
not lost by statutory words of generality, Kirby J
stated that [112]:

Adoption of this approach does not
mean a return to an excessively literalist interpretation
of regulatory legislation, where important considerations
of public interest are involved. The approach is not
inconsistent with a purposive construction of legislation.
It remains in every case to identify the purpose.

The High Court further noted that legal professional
privilege does not attach to communications made for
the purpose of engaging in contraventions of the Act
and a 'communication the purpose of which is
to "seek help to evade the law by illegal conduct" is
not privileged' (per Gleeson CJ, Gaudron, Gummow
and Hayne JJ at [24]). Further, Kirby J stated at [114]:

Legal professional privilege will
not be available where a conclusion is reached that
particular communications were not prepared for the
dominant purpose of giving or receiving legal advice.
Similarly, legal professional privilege may not apply
where an ulterior purpose for the communication is
demonstrated, for example where the communication was
made in furtherance of a criminal or fraudulent purpose.

The High Court's decision has implications beyond
the Trade Practices Act and is relevant when considering
the operation of provisions in other legislation which
compel production of documents or information.

Text of the decision is available at http://www.austlii.edu.au/au/cases/cth/high_ct/2002/49.html.

Contact for further information:

Marcus Bezzi
Senior Executive Lawyer

Tel: (02) 9581 7470
Fax: (02) 9581 7413
E-Mail: marcus.bezzi@ags.gov.au

Governments and Public Instrumentalities – a
Reality Check on their Liability in Negligence

The High Court has made clear that it is not the
role of the law of negligence to influence government
decision making on the allocation of resources and
spending. Otherwise, the courts risk interfering
with political decision making. The Court's
decision also demonstrates that the standard of care
required to discharge a duty of care can only be
determined after a proper consideration of the magnitude
of the risk of harm and the degree of probability
of its occurrence. The decision shows a continuation
of the High Court's own approach to ascertaining
the existence of a duty of care, which differs from
the approaches of other common law jurisdictions,
including the United Kingdom.

Graham Barclay Oysters Pty Ltd v Ryan; Ryan v Great
Lakes Council and Ors; State of New South Wales v
Ryan and Ors

High Court of Australia, 5 December 2002
[2002] HCA 54; (2002) 194 ALR 337

Background

In late January 1997, the plaintiff suffered illness
through contracting the hepatitis A virus from the
consumption of oysters grown at Wallis Lake within
the Shire of Great Lakes in New South Wales. Following
heavy rains in November 1996, Wallis Lake suffered
increased pollution from human faecal effluent in water
streams flowing into the lake. The effluent appears
to have emanated from inadequately controlled sewerage
storages in the general vicinity of the lake (principally
defective septic tanks). Human faeces is a carrier
of the hepatitis A virus. Oysters growing in the lake
would retain the virus in their flesh from absorption
of the lake's waters. A New South Wales government
task force attributed some 444 cases of hepatitis to
the consumption of oysters grown in the lake, in the
aftermath of this increased pollution in late 1996.

The plaintiff instituted a representative action for
damages in the Federal Court under Part IVA of the Federal
Court of Australia Act 1976 on behalf of himself
and 184 other persons who suffered illness through
contracting hepatitis in this same outbreak. The action
was brought against Graham Barclay Oysters Pty Ltd,
the grower of the oysters, Graham Barclay Distributors
Pty Ltd, the distributor of the oysters, the Great
Lakes Council ('the Council') and the State
of New South Wales ('the State'). Claims
against the grower and distributor companies sought
relief under the consumer protection provisions in
Part V of the Trade Practices Act and damages in negligence.
The claim against the Council was in negligence, based
on its alleged failure to take sufficient steps under
its statutory powers to minimize the faecal contamination
in the lake. The claim against the State in negligence
alleged failures by the State Ministers responsible
for fisheries and public health, the State environmental
control authority and other officials and responsible
government committees for their respective alleged
failures to exercise substantial control over the oyster
industry concentrated on the lake.

The primary judge, Wilcox J, found each of the grower
and distributor companies, the Council and the State
liable in negligence. He also found that the grower
and distributor companies had failed to supply goods
fit for purpose in breach of section 74B of the Trade
Practices Act and failed to supply goods of merchantable
quality in breach of section 74D of that Act. The Full
Court of the Federal Court upheld the appeal of the
Council (by a 2:1 majority) ruling that the Council
owed no duty of care to the plaintiff. The Full Court,
however, dismissed the appeal of the State (again by
a 2:1 majority). The same majority who dismissed the
State's appeal also dismissed an appeal by the
grower and distributor companies against the primary
judge's ruling that they were negligent. The
Full Court, however, unanimously rejected an appeal
by the grower and distributor companies against the
ruling of liability for breach of the Trade Practices
Act provisions.

By special leave, the State appealed to the High Court
against the finding of liability against it. Similarly,
the grower and distributor companies obtained special
leave to appeal against the rulings of liability and
negligence against them. Finally, the plaintiff was
granted special leave to appeal against the Full Court's
overturning of the primary judge's ruling of
negligence against the Council.

The High Court upheld the State's appeal. The
Court, by a 4:3 majority, upheld the appeal of the
grower and distributor companies against the negligence
ruling of the primary judge. Finally, the Court unanimously
dismissed the appeal of the plaintiff against the overturning
of the liability ruling against the Council. The findings
of liability by the primary judge against the grower
and distributor companies under the Trade Practices
Act provisions remained unchallenged.

High Court's Decision

As to the liability of the State and the Council,
McHugh J pointed out that each should have foreseen
the risk of harm to the consumer of oysters through
the faecal contamination in the lake. However, this
was only the start of the inquiry whether a duty of
care existed. So far as the State was concerned, McHugh
J saw the liability exposure in negligence of executive
government as different from the position of individuals
and other public authorities. He said at [91]:

The powers and functions of the government
of a polity are generally invested for the benefit
of the general public. In the absence of a statutory
direction, the mere existence of such a power in that
government imposes no duty to exercise it for the protection
of others. In that respect, its situation is analogous
to a private citizen who, absent special circumstances,
has no duty to take affirmative action to protect another
person from harm. Nor does the bare fact that the Executive
government has exercised its powers from time to time
create any duty to exercise its powers. Such exercises
of power do not constitute "control" of
an activity in the sense that that expression is used
in the law of torts. They are merely particular exercises
of powers that were invested in the Executive government
for the benefit of the general public to be exercised
at the discretion of the Executive government. Unless
a particular exercise of power has increased the risk
of harm to an individual, the Executive government
of a polity does not ordinarily owe any common law
duty to take reasonable care as to when and how it
exercises its powers. No doubt circumstances may arise
where conduct of the government, short of increasing
a risk of harm, creates a duty of care. But such cases
are less likely to arise than in the case of other
public authorities. In particular, knowledge of specific
risks of harm or the exercise of powers in particular
situations is less likely to be a factor in creating
a duty than in the case of an ordinary public authority.
This is because the powers and functions of the Executive
government are conferred for the benefit of the public
generally and not for the benefit of individuals.

Gleeson CJ in his judgment struck the same theme,
even more strongly, when he said at [6]:

[I]n the case of an action in negligence
against a government of the Commonwealth or a State
or Territory, [citizens] are inviting the judicial
arm of government to pass judgment upon the reasonableness
of the conduct of the legislative or executive arms
of government; conduct that may involve action or inaction
on political grounds. Decisions as to raising revenue,
and setting priorities in the allocation of public
funds between competing claims on scarce resources,
are essentially political. So are decisions about the
extent of government regulation of private and commercial
behaviour that is proper. At the centre of the law
of negligence is the concept of reasonableness. When
courts are invited to pass judgment on the reasonableness
of governmental action or inaction, they may be confronted
by issues that are inappropriate for judicial resolution,
and that, in a representative democracy, are ordinarily
decided through the political process.

All judgments of the Court were consistent with the
proposition that, notwithstanding the forseeability
of harm to consumers from the contamination, the State
had no relationship with those consumers which imposed
on it an affirmative duty to take action to protect
them against that risk in the circumstances.

As to the Council, the duty of care owed by a statutory
authority such as a local government body was analysed
in several of the judgments. In their joint judgment,
Gummow and Hayne JJ said [149 and 150]:

An evaluation of whether a relationship
between a statutory authority and a class of persons
imports a common law duty of care is necessarily a
multi-faceted inquiry. Each of the salient features
of the relationship must be considered. The focus of
analysis is the relevant legislation and the positions
occupied by the parties on the facts as found at trial.
It ordinarily will be necessary to consider the degree
and nature of control exercised by the authority over
the risk of harm that eventuated; the degree of vulnerability
of those who depend on the proper exercise by the authority
of its powers; and the consistency or otherwise of
the asserted duty of care with the terms, scope and
purpose of the relevant statute. In particular categories
of cases, some features will be of increased significance.
For example, in cases of negligent misstatement, such
as Tepko Pty Ltd v Water Board [(2001) 206 CLR
1], reasonable reliance by the plaintiff on the defendant
authority ordinarily will be a significant factor in
ascertaining any relevant duty of care.

The factor of control is of fundamental importance
in discerning a common law duty of care on the part
of a public authority. It assumes particular significance
in this appeal. This is because a form of control over
the relevant risk of harm, which, as exemplified by Agar
v Hyde [(2000) 201 CLR 552], is remote, in a legal
and practical sense, does not suffice to found a duty
of care.

The different members of the Court concluded in this
case that the Council did not exercise a sufficient
degree of control over the risk of illness through
the consumption of contaminated oysters. They contrasted
the situation here with the state of control exercised
by the defendant councils in Pyrenees Shire Council
v Day (1998) 192 CLR 330 and Brodie v Singleton
Shire Council (2001) 206 CLR 512. The requisite
control had to apply to what caused the loss or injury
in the immediate sense; being here the consumption
of the contaminated oysters. Control in this sense
was not established by noting that the local government
body had powers in respect of controlling faecal pollution.
Gummow and Hayne JJ said at [152]:

Control over some aspect of a relevant
physical environment is unlikely to found a duty of
care where the relevant harm results from the conduct
of a third party beyond the defendant's control.

It was pointed out that the Council did not control
the process by which commercial oyster growers cultivated,
harvested and supplied oysters, nor the times or the
locations at which these things were done [154].

The more contentious part of the case was the issue
whether the grower and distributor companies were negligent.
The companies (in line with Donoghue v Stevenson [1932]
AC 562) conceded that, in supplying oysters to the
plaintiff, they owed a duty of care to him. On this
issue, Gummow and Hayne JJ in their joint judgment
(with the agreement of Gaudron J), and McHugh J, in
a separate judgment, expressed the view that the majority
of the Full Court of the Federal Court had not correctly
applied the test of whether the duty of care upon the
grower or distributor had been performed. The issue
was more complex than simply giving an affirmative
or negative answer to the question whether the defendant
carried out the duties formulated [106]. McHugh J said
that the courts below 'did not attempt to evaluate
and weigh the competing considerations' [106].
Gummow and Hayne JJ said that the proper inquiry as
to whether a breach has occurred involves 'identifying,
with some precision what a reasonable person in the
position of the defendant would do by way of response
to the reasonably foreseeable risk' [192].

Gummow and Hayne JJ took the view that the Full Court
of the Federal Court had failed to identify with the
necessary precision, by reference to considerations
of the nature of those indicated by Mason J in Wyong
Shire Council v Shirt (1980) 146 CLR 40, at 47–8,
what a reasonable response to the risk of harm would
have involved. In practical terms, the majority justices
on this issue did not see a reasonable response as
going so far as to require the grower and distributor
companies to shut down their businesses during the
period of high oyster contamination, nor require the
companies to put a warning on the oysters harvested
in this period at the point of sale about the danger
of eating them. On the other hand, Kirby J, in the
minority on the issue, said that, where the oysters
were known to be highly vulnerable after heavy rain
to contamination with potentially seriously consequences, 'the
duty of care owed to consumers, as required by the
common law, was a heavy one' [260].

Several justices made passing comment on the interaction
of the law of negligence with certain of the consumer
protection provisions in Part V of the Trade Practices
Act. Gummow and Hayne JJ in their judgment ([129]–[130]),
and Kirby J in his ([226]–[228]), raised the
issue of whether the provisions in Part V of the Trade
Practices Act dealing with liability to consumers for
defective products so comprehensively covered liability
on this subject as to exclude the general law of negligence.
These justices were content to proceed on the assumption
in the present case that this had not occurred and
that the plaintiff's claims under the Trade Practices
Act against the grower and distributor companies could
exist concurrently with those under the law of negligence
(the plaintiff not being thereby being able to recover
twice). See, to similar effect, the comments of Gaudron
J at [62].

Duty of Care

On the broader landscape of negligence law in Australia,
this decision confirms the approach of the High Court
in a number or recent cases, starting with Pyrenees
Shire Council v Day (supra), in developing a distinct
Australian approach to the ascertainment of a duty
of care. This involves the identification of factors
necessary to establish a duty of care, additional to
the reasonable foreseeability of risk or damage (principally
vulnerability, power, control, generality or particularity
of the class, and the resources of and demands upon
an authority: see Callinan J at [321]). Consistent
with his position in earlier cases, Kirby J, while
resigning himself to the development of this Australian
approach [238], repeated criticisms of it, preferring
the 'three tier' approach favoured in the
United Kingdom, based on the House of Lords decision
in Caparo Industries Plc v Dickman [1990] 2
AC 605 (that being (i) reasonable foreseeability of
harm, (ii) proximity or neighbourhood of relationship,
and (iii) whether imposition of a duty of care was
fair, just or reasonable in the circumstances).

Kirby J saw confusion still reigning in Australian
courts on what was the correct approach to adopt in
ascertaining the existence of a duty of care [211].
He invoked the prayer of Ajax '[S]ave us from
this fog and give us a clear sky, so that we can use
our eyes'. While this decision involved pollution,
not fog, it has brought some welcome clarity on several
important issues in the law of negligence. It has also
given a measure of comfort to governments and their
instrumentalities that litigants will think more carefully
before deciding to sue them for damages in negligence
in similar circumstances in the future.

Text of the decision is available at http://www.austlii.edu.au/au/cases/cth/high_ct/2002/54.html.

Contact for further information:

Paul Sykes
Senior Lawyer

Tel: (02) 6253 7050
Fax: (02) 6253 7302
E-Mail: paul.sykes@ags.gov.au

Abuse of Market Power

The High Court by a 6-1 majority (Kirby J dissenting)
upheld an appeal by Boral Besser Masonry Limited
('BBM') from the unanimous decision of
the Full Court of the Federal Court, and reinstated
the decision of the trial judge. The case turned
on whether s.46 of the Trade Practices Act 1974 had
been contravened. This section prohibits a corporation
with a substantial degree of market power from taking
advantage of that power for the purpose of eliminating
or substantially damaging a competitor, preventing
market entry, and deterring or preventing a person
from engaging in competitive conduct.

Boral Besser Masonry Limited (now Boral Masonry
Ltd) v Australian Competition and Consumer Commission

High Court of Australia, 7 February 2003
[2003] HCA 5; (2003) 195 ALR 609

Background

The appellant, BBM, is a subsidiary of Boral Concrete
Products Pty Ltd, which in turn is a subsidiary of
Boral Limited ('Boral'). The trial judge,
Heerey J, found in favour of both Boral and BBM, and
dismissed the application by the ACCC. There was an
appeal to the Full Court of the Federal Court, but
ultimately the appeal was pressed only in relation
to BBM. The Full Court (Beaumont, Merkel and Finkelstein
JJ) allowed the appeal, finding BBM had contravened
s.46. BBM appealed to the High Court. The High Court
allowed the appeal with costs. It set aside the orders
of the Full Court and in place ordered that the appeal
to that Court be dismissed with costs.

Facts

The facts are summarised in the joint judgment of
Gleeson CJ and Callinan J and in the judgment of McHugh
J. In brief, the case is concerned with the manufacture
and supply of concrete masonry products ('CMP')
which are manufactured from cement, sand, stone aggregate,
and water. 'The process of manufacture is relatively
simple, and the products are not the subject of patent,
copyright, or any other form of intellectual property' [7].
Concrete masonry is a generic product, a 'commodity' [299].
There are a number of alternative products available
to the building and construction industry for use instead
of CMP including tilt-up and precast panels, plasterboard,
and clay bricks. Relevantly, however, the market for
the purposes of s.46 was accepted to be 'a market
for CMP in Melbourne' rather than the 'more
widely defined market for walling and paving products
generally' [155].

The significant suppliers of CMP in Melbourne in 1993–1999
were:

  • BBM
  • Besser Pioneer Pty Ltd ('Pioneer')
  • C & M Brick (Bendigo) Pty
    Ltd ('C & M'). It established a plant
    in 1993 and commenced full-scale production of concrete
    bricks and pavers in February 1994. It had a new
    Hess machine which was state of the art.
  • Amatek Ltd trading as Rocla. It
    ceased to manufacture concrete bricks in Victoria
    in September 1993 and ceased to manufacture its remaining
    CMP in Victoria in August 1995.
  • Budget Bricks & Pavers Pty
    Ltd ('Budget'). It ceased operations
    in June 1996.

Contravening Conduct

Gleeson CJ and Callinan J considered that the conduct
under review could not be evaluated without having
regard to the context in which it occurred [34] – namely
a downturn in the building industry in Victoria in
1991 as a result of the general economic recession
in the state at the time. This had led to over-capacity
in the market and enhanced the countervailing power
held by a small number of customers (block layers)
who bought CMP largely on price.

The contravening conduct by BBM was alleged to have
occurred in the period from April 1994 to October 1996,
during which period BBM's market share was between
25 and 30 per cent. BBM competed in the CMP market
with a small number of other companies, including Pioneer,
Rocla, Budget and C&M. In 1993, C&M established
a highly efficient state of the art plant on the outskirts
of Melbourne and commenced production of concrete bricks
and pavers in November 1993, production of blocks commencing
later. In mid 1993, prices of block were driven down
and a price war developed. During the relevant period
BBM cut prices for CMP block product below its avoidable
or variable costs. In February 1994 it entered negotiations
with C&M with a view to possibly acquiring C&M's
new plant. In addition, it upgraded its Deer Park plant,
expanding its production capacity, demonstrating its
financial strength. Heerey J noted that BBM's
purpose was to damage its competitors and, if possible,
to eliminate one or more [107].

High Court's Decision

In this case, the majority found that the market involved
a simple undifferentiated product with no relevant
technical constraints on its manufacture, readily available
raw materials, little brand relevance or customer loyalty
and the setup costs for an efficient production were
less than $8 million. Price was the main determinant
in product purchase and as structural barriers were
low, there was prima facie no market power. BBM's
competitor, Pioneer, was of a similar size and means
as BBM and competed 'relentlessly and ferociously'.

The majority of the court agreed with the decision
of Heerey J, notwithstanding his findings on purpose,
that BBM did not have a substantial degree of power
in a market, that its pricing behaviour and expansion
of production capacity did not involve a taking advantage
of market power, but constituted a rational and legitimate
business response to conditions of intense competition,
and rejected the reasoning of the Full Court. Importantly,
in the High Court, the case was 'stripped of
any allegation of illegal conduct on the part of Boral,
and of any allegation of collusion or conscious parallelism,
past or anticipated, between BBM and Pioneer, and of
any suggestion that BBM's offer to buy C&M's
plant was other than in good faith' [97]. Findings
of such actions will presumably impact upon the conclusions
to be drawn in a different factual context.

Central Issue

As Justice McHugh explained at [262]:

Section 46 of the Act poses four
issues for determination. First, the court must identify
the relevant market in which the conduct occurred.
Second, the court must determine whether the alleged
offender had a substantial degree of market power.
Third, the court must determine whether the alleged
offender has taken advantage of that market power.
Finally, the alleged offender must have engaged in
the conduct for one of the proscribed purposes.

Market Power and Substitution

According to the majority, there is no real controversy
about what BBM did – cutting prices for 30 months
in the expectation that one or more of its competitors
would leave the market [173]. The central question
in the matter before the High Court is whether in engaging
in this conduct, BBM demonstrated it had both a substantial
degree of market power of which it took advantage.

Significant to the majority decision is the finding
that customers were able to force the price of CMP 'down
and down' and that BBM was responding to competitive
forces, operating as it was in an intensely competitive
market. It had no ability to sustain a pricing policy
or the terms on which it supplied its product without
regard to market forces or supply or demand. 'The
finding reflects the antithesis of market power on
the part of an individual supplier' [32]. Accordingly,
BBM could not be found to possess market power. 'Cutting
prices is not evidence of market power. Any firm can
do that' [287]. The majority judges confirmed
that the 'ability to cut prices is not market
power. The power lies in the ability to target an outsider
without fear of competitive reprisals from an established
firm, and to raise prices again later'.

Market Power and Constraint

It is clear from the majority decision that s.46 requires 'not
merely the co-existence of market power, conduct and
proscribed purpose, but a connection such that the
firm whose conduct is in question can be said to be
taking advantage of its power' [120]. The decision
of the court in Melway Publishing Pty Ltd v Robert
Hicks Pty Ltd (2001) 205 CLR 1 is emphasised. Gleeson
CJ and Callinan J state that 'The essence of
power is absence of constraint. Market power in a supplier
is absence of constraint from the conduct of competitors
or customers'. The judges also note it is inherent
in the competitive process that competitors will be
damaged [122]. It is clear 'that a "greed-driven
desire to succeed" over rival firms is neither
a basis of liability nor a ground for the inferring
of the existence of such a basis' [195].

Pricing and Market Power

On application to the facts, the main aspect of the
conduct of BBM in question was its pricing behaviour.
Gleeson CJ and Callinan J say 'where the conduct
alleged to contravene s.46 is competitive pricing,
it is especially dangerous to proceed too quickly from
a finding about purpose to a conclusion about taking
advantage of market power' [123]. This is reiterated
by McHugh J who refers to the same warning provided
in the Melway case [262]. Analysis on the basis
of predatory pricing, or recoupment, or selling below
variable or avoidable costs 'are concepts that
may, or may not, be useful tools of analysis in a particular
case'. But '[w]e are concerned with the
language of s.46' and care must be taken when
using such analysis [124]. Similarly Gaudron, Gummow
and Hayne JJ refer to 'permissible statutory
construction' [194].

McHugh J says at [273]:

what is required is not a bright
line rule about costs but a more sophisticated analysis
of the firm, its conduct, the firm's competitors,
and the structure of the market not only at the time
in which the firm has engaged in conduct allegedly
in breach of the Act but also before and after that
conduct.

Recoupment

The primary judge found that BBM had no prospect of
being able to recoup its losses by charging supra-competitive
prices after driving out its rivals and the Full Court
found it unnecessary to review that finding as their
Honours held that recoupment analysis formed no part
of the application. The High Court rejected this, considering
that recoupment is a relevant consideration, or a 'a
matter of factual importance' [130], in determining
market power. For McHugh J, it is a fundamental requirement:

It is the power to obtain supra-competitive prices
that demonstrates market power, not higher or lower
prices. [306]

Preferred Approach

The majority conclude that Heerey J used the correct
approach in applying the law. He,

consistently with the requirements
of s.46(3), approached the question whether BBM had
a substantial degree of power in the CMP market, by
examining the actual conduct of BBM, case by case,
over the whole of the relevant period (and beyond),
in respect of each of the major contracts on which
it bid, in the light of the evidence that those major
contracts represented the business to which it attached
most importance, and on the basis that what went on
in relation to those contracts was the best evidence
of the state of the market and the best indication
of the extent of BBM's power. [140]

In contrast, the problem with the reasoning of the
Full Court was explained to be that it 'began
with the purpose of eliminating or damaging a competitor,
and reasoned inferentially from that' [141].
The judges say at [147]:

eliminating a competitor, unless
it is done out of pure malice, is ordinarily only a
means to the end of being able to raise prices. If,
after one or two firms leave a market in the course
of a price war, the remaining firms are in strong competition,
then their departure does not achieve, or evidence,
market power.

Similarly Gaudron, Gummow, and Hayne JJ reiterate
that the object of s.46 is not the protection of the
economic well-being of competitors [186].

Conclusion

The Boral case turns on the particular facts as found
by the court and for that reason is not necessarily
helpful in promoting a deeper understanding of the
section's application and meaning. Kirby J (dissenting)
is of the view that the purpose and statutory intention
of the section is defeated by the narrow approach adopted
by the majority. This narrow view is, however, very
much based on the particular facts of the case. The
relevance of these factual findings should not be underestimated
in considering its application to other factual scenarios.

Text of the decision is available at http://www.austlii.edu.au/au/cases/cth/high_ct/2003/5.html.

Contact for further information:

Susan Pryde
Senior Executive Lawyer

Tel: (03) 9242 1426
Fax: (03) 9242 1317
E-Mail: susan.pryde@ags.gov.au

Unconscionable Conduct and the Trade Practices Act

As a condition of a lease renewal the owners of
a shopping centre requested that a tenant abandon
claims against them that were before the Commercial
Tribunal of Western Australia. Four members of the
High Court (Kirby J dissenting) determined that the
conduct of the owners did not constitute unconscionable
conduct insofar as unconscionability was to be judged 'within
the meaning of the unwritten law' and that
the tenants were not in a position of 'special
disadvantage'.

Australian Competition and Consumer Commission
v CG Berbatis Holdings Pty Ltd

High Court of Australia, 9 April 2003
[2003] HCA 18; (2003) 197 ALR 153

Background

Mr and Mrs Roberts leased a business called Leeming
Fish Supply, in the Farrington Fayre shopping centre
in Leeming, Western Australia. In 1990 a number of
the tenants at the centre, including the Roberts, became
concerned at some of the charges levied under the terms
of their leases and instituted proceedings against
the owners in the Commercial Tribunal of Western Australia
('the Tribunal').

Mr and Mrs Roberts were looking to sell their shop
but had no asset to sell without the lease renewal.
They had a sick child who was taking much of their
time, energy and resources and a condition seeking
abandonment of the claims in the Tribunal as a requirement
of their lease renewal was imposed by the owners late
in the day. This condition was clause 14 of the lease.
The tenants, who needed to renew quickly, reluctantly
signed the new lease and abandoned their claim.

The ACCC instituted proceedings in the Federal Court
on 3 April 1998 alleging that the imposition by the
owners of clause 14 as a condition of the grant of
a new lease contravened s.51AA of the Trade Practices
Act 1974 ('the Act').

At first instance, French J granted declaratory relief,
finding that the various respondents had contravened
s.51AA of the Act and that the conduct of requiring,
as a condition of the grant of the new lease, that
the Roberts release the owners of the shopping centre
from various claims arising under the Roberts' existing
lease, was unconscionable within the meaning of s.51AA
of the Act. He found that the Roberts suffered from 'situational' as
distinct from 'constitutional' disadvantage.

An appeal to the Full Court succeeded and in place
of the relief granted by the primary Judge the Full
Court ordered that the application be dismissed with
costs. The High Court dismissed the appeal by the ACCC
by a majority of 4 to 1 (Kirby J dissenting).

High Court's Decision

Gleeson CJ pointed out that the relevant disadvantage
does not occur simply because of inequality of bargaining
power:

Unconscientious exploitation of another's
inability or diminished ability to conserve his or
her own interests is not to be confused with taking
advantage of a superior bargaining position. [14]

Good conscience, he said, did not require the lessors
to permit the lessees to isolate the issue of the lease
from the issue of the claims the subject of clause
14. Clause 14 was part of the commercial negotiations
and that parties to commercial negotiations frequently
used their bargaining power to 'extract' concessions
from other parties.

In a joint judgment, Gummow and Hayne JJ decided that
the concept of unconscionability was limited to particular
categories of case defined by reference to Blomley
v Ryan (1956) 99 CLR 362 and Commercial Bank
of Australia Ltd v Amadio (1983) 151 CLR 447. They
held that the conduct that breached s.51AA was more
limited than unconscionability under general law principles
because contravention of s.51AA attracted particular
remedies under the Act which were not available otherwise
for unconscionable conduct. Gummow and Hayne JJ referred
to the decision in Amadio in which Mason J discussed
the concept of special disadvantage saying that the
litigation had been conducted on the basis that the
expression in s.51AA 'engage in conduct that
is unconscionable within the meaning of the written
law, from time to time, of the States and Territories' was
to be understood with reference to the equitable doctrine
expounded, in particular, by the High Court in Amadio.

Callinan J held that the owners had the choice to
make between compiling commercial considerations of,
for example, keeping the Roberts as tenants, or obtaining
another responsible tenant, preserving their 'public' image
as non-oppressive landlords, fostering the goodwill
of their tenants generally, and ridding themselves
of irritating and expensive litigation when the opportunity
to do so arose. The choice they made was a commercial
one and did not render their conduct unconscionable.

In his dissenting judgment, Kirby J found the principle
applied to be one which denies to those who act unconscientiously
the fruits of their wrongdoing rather than a focus
on the victim of undeserved misfortune. He said that
[96]:

To seek to answer the question whether
the bargain was unconscionable first, and only then
to reflect upon the conduct of the stronger party in
procuring the assent of the weaker one, is to invert
the proper approach to analysis in such cases. The
quality of the bargain (or the adequacy of the consideration)
has never been either a necessary or a sufficient element
for establishing unconscionable dealing.

Kirby J said that the reference in s.51AA to 'the
unwritten law' includes the case of a party to
a contract who was in such a debilitated condition
that there was not 'a reasonable degree of equality
between the contracting parties' where 'the
party's condition was sufficiently evident to
those who were acting for the other party at the time
to make it prima facie unfair for them to take his
assent to the impugned transaction'. He preferred
a broad and beneficial application of s.51AA as opposed
to a narrow and restrictive one. He took the view that
the reach of the section went further than the principles
of unconscionable dealing as elaborated in Blomley and Amadio and
that its full scope remains to be elaborated in future
cases [77].

Text of the decision is available at http://www.austlii.edu.au/au/cases/cth/high_ct/2003/18.html.

Contact for further information:

Darryl Carlson
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Tel: (08) 9268 1134
Fax: (08) 9268 1772
E-Mail: darryl.carlson@ags.gov.au

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