Business uproar over litigation

Chris Merritt, Legal affairs editor | October 09, 2009
Article from: The Australian
Full article link here

LITIGATORS and peak business groups have warned that a proposed federal law encouraging "public interest" litigation would create a US-style greenmail industry and play into the hands of plaintiff lawyers.

They warned unfashionable industries such as mining, forestry and power-generation would be vulnerable under commonwealth plans to exempt "public interest" activists from the normal loser-pays rule on legal costs.

Even if corporate defendants win in court, the government's plan would prevent them from recovering their legal costs from activists who were, in the eyes of a judge, acting in the public interest.

The Australian Chamber of Commerce and Industry said the proposal would skew the civil justice system by giving activists special treatment.

"Public interest litigation raises a whole new spectre of activism and agitation in the court system," ACCI chief executive Peter Anderson said.

"Opening new avenues for litigation has the potential to increase litigation because it is designed to be used. This form of litigation also puts the court in a difficult position. It is being asked to make costs orders based on a very elastic notion of what the public interest is."

The proposal, drawn up by the attorney-general's department, was criticised also by the Forest Industry Association of Tasmania, which warned that activists could use the procedure to impose unnecessary legal costs on a wide range of industries that were unfashionable.

"It's not just forestry," association chief executive Terry Edwards said.

"Farmers growing genetically modified crops of canola could also be vunerable."

Litigator Stuart Clark of Clayton Utz said the plan would play into the hands of plaintiff lawyers who had tried in the past to "dress up individual claims as some sort of public interest case".

"It is yet another attempt to tip the balance in favour of plaintiffs by removing rights and protections for defendants," he said.

"Business must have the right to defend claims that are brought against them and are entitled to the same protections as any other members of the community.

"These proposals are just aimed at removing all barriers for claims being brought against corporate defendants, and they are also trying to generate a situation where corporate defendants will simply give up."

The plan, which is outlined in the government's Access to Justice report, comes after Victoria's Public Interest Law Clearing House urged federal Attorney-General Robert McClelland to introduce a system of "protective" costs orders for public-interest litigants.

The Access to Justice Report cites and rejects warnings from business about the PILCH proposal that had been reported in The Australian in June.

"In cases where a public interest costs order were made, there would by definition be additional costs on defendants that are ultimately successful but are unable to recover a proportion of their costs," the report says.

"Concerns are raised on the basis of a potential flood of frivolous litigation, which business would have to pay for. It is also suggested that if a matter were truly in the public interest, then the public, not the business, should fund it.

"The cost to a defendant would be an important factor for a court to consider and it is not expected that such orders would be made as a matter of course."

However, the scheme recommended by the Access to Justice report makes no mention of requiring judges to consider the cost burden that would be shifted to defendants.

The report's proposal is broader than the scheme drawn up by PILCH, which included several control factors not present in the report's recommendation.

Before issuing any protective costs order, PILCH would have required judges to consider the financial resources available to the parties, the costs likely to be incurred during proceedings, whether the plaintiff had a pecuniary interest in the outcome and any prejudice to the defendant.

PILCH acting executive director Mat Tinkler said this week that the Access to Justice Report had produced a "basic" recommendation and he believed the control factors would be included in any legislative scheme.

He did not believe the absence of control factors in the report's recommended scheme meant they had been rejected.

"Because that is certainly the proposal we put forward and that is how the case law has developed in the UK and other jurisdictions," Mr Tinkler said.

When asked about the absence of control factors in the recommended scheme, a spokesman for Mr McClelland said the purpose of the report was to generate debate, and feedback would be welcomed.

In discussing public interest cost orders, the report says: "the main benefit in removing the barrier to litigation is only achieved in practice if litigants are aware of where they will stand as regards costs before those costs are incurred." However, the report recommends later that judges should be able to make public-interest cost orders "at any stage of the proceeding".

It says "a 'flood' of litigation is not expected" because case management rules would keep legal costs proportionate, courts could refer cases to alternative systems of dispute resolution and public interest plaintiffs would still face "the significant financial burden" of paying their own legal bills.

The report urges the government to allow judges to make these rulings whenever they are satisfied litigation would benefit the public. Judges would issue these orders in cases that would "determine, enforce or clarify an important right or obligation affecting the community or a significant section of the community, or affect the development of the law generally and reduce the need for further litigation".

Mr Anderson said the plan was far too open-ended and the report had made a weak case for such a significant change.

"If there is going to be public interest litigation, it should effectively be funded by the public," he said.

"The defendant, which will generally be business, is being used as a vehicle."