“My client will take it all the way to the High Court if necessary”
The Perils of Section 21 of the Civil Procedure Act 2010 – a Cautionary
Tale
Commercial Court Seminar, 15 October 2014
Penelope Pengilley
Director, Brian Ward & Partners
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Chapter 2 of the Civil Procedure Act 2010 (Vic) which introduces the overarching purpose
and overarching obligations upon litigants and other interested persons in Victoria, was
designed to reform and modernise the practice, procedures and processes for the resolution
of civil disputes in that state. And the main sections in Chapter 2 speak for themselves as to
how they further that purpose.
However, there is one obligation that has been a curiosity to me given its legislative origins,
hence my choice of topic today, s. 21 which states:
A person to whom the overarching obligations apply must not, in respect of a civil
proceeding, engage in conduct which is—
(a)
misleading or deceptive; or
(b)
likely to mislead or deceive.
Now, on one view s 21 does little more than restate obligations set out in the Professional
Conduct Practice Rules. However, s 21 gives the obligations direct legislative force and in
my view, significantly increases the risk of being sued. In this paper, I will review the
antecedents of s 21 and then consider the section in the context of a cautionary tale.
Those famous words “engage in conduct which is misleading or deceptive; or likely to
mislead or deceive” derive from s 52 of the Trade Practices Act now s.18 of the Australian
Consumer Law.
In the Second Reading Speech, clause 52 was explained as follows “it is important that there
should be such a provision if the law is not to be continually one step behind businessmen
who resort to smart practices”.
So as originally conceived, the words sat within a consumer protection paradigm, filling a
gap between contract and tort law. Then two years later, the High court in Caltex Oil
(Australia) Pty Ltd v Dredge Willemstad1 confirmed the requirement of proximity or special
relationship in the area of negligence and pure economic loss. This impacted the type of
claims that could be made in commercial litigation. Something else was sought. On their
face, the words are not limited to consumer transactions but as their breadth became more
widely appreciated and utility in inter-company disputes recognised, the words got a life of
their own. In due course they found their way into state Fair Trading legislation, the
1
(1976) 136 CLR 529.
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Corporations Act 2001 (Cth),2 the Australian Securities and Investments Commission Act3
and now of course they are a staple of commercial litigation.
If you are interested in the recent treatment of misleading or deceptive conduct cases by our
Supreme Court, I would refer you to a paper by Graeme S. Clarke QC “Misleading or
Deceptive Conduct Cases in the Supreme Court of Victoria”4 and copies can be obtained by
contacting Graeme.
In contrast to section 52/18, insofar as it affects legal practitioners, section 21 of the CPA sits
alongside many other obligations that are imposed upon persons who are already subject to
the most exacting and onerous of duties and ethical standards. But what are the
consequences of introducing an idea from one paradigm into another? And does this very
circumstance affect how section 21 may operate in particular cases?
So let’s set the scene!
Say one has a small commercial client who is suing a much larger and better resourced
defendant, say for wrongful determination of a distributorship, state based, started and
grown by your client, now very profitable, and the supplier company wants to take it over!
When things began to get rocky – before you got involved – your client was his usual blunt
self and made some unfortunate remarks about certain senior officers of the supplier
company and there is now bad blood between the parties, or at least between him and said
senior managers! They see him as a cowboy and want to get rid of him. Their position may
be understandable, but on an objective view, the defendant’s actions were disproportionate
and unreasonable and you think your client has a good claim for serious compensation,
properly supported by a good forensic accountant’s report.
Before commencing proceedings, you do a detailed cost estimate for your client and believe
that he can get to judgment if necessary. However despite your best endeavours, the
defendant has been a difficult opponent and by mediation, your client has run out of money
and can’t continue. The defendant seems well aware of this and you suspect that this was
its intention all along. So apart from section 21, you would be inclined to go into the
mediation and say that despite their efforts and, in your view, their continuing breaches of
2
Section 1041H.
Section 12DA.
4
(2014). For copies contact gsclarke@vicbar.com.au.
3
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the overarching obligations, your client is committed to a trial, does have sufficient resources
and will “take it all the way to the High Court if necessary” – and let’s say the directions
hearings transcript supports your view regarding the defendant’s breaches but the judge has
deferred dealing with the issue until trial.
At mediation, the defendant sends not its belligerent senior managers, but its general
counsel and chief financial officer. Events take their course, in the heat of the moment,
without instructions s.21 is forgotten and you are so convincing regarding your client’s
resolution to continue, wherewithal to do so and the strength of his claim that the defendant
settles at the high end. There is then a palace coup at the defendant and the defendant’s
most antagonistic senior manager is now chief executive officer. She hears on the grape
vine that had your client not settled, he would have had to pull the plug! She sacks the
general counsel and CFO and now, determined to right an egregious wrong and claw back
some money, decides that with your client retired in some tropical tax haven, the defendant
should look to you!
Could this defendant succeed? Setting aside abuse of process issues, remember that it paid
a significant sum at the high end. It now says it did so in the belief that if it did not settle, it
would face your client at trial. As Graeme Clarke reminds us, “misleading or deceptive
conduct occurs when a person leads another into error” (footnote omitted) [5]. Here, the
defendant believed that your client had the capacity to run a trial, a belief deliberately
induced by you.
But what about other additional factors that may have contributed to the decision to settle?
As I mentioned, your client the plaintiff would appear to have had a strong case and
therefore, the court could infer that that was also an operating factor. However, the
defendant could counter saying that had it not believed that your client would go to trial, it
would not have agreed to settle at that figure and that to avoid trial, ultimately your client
would have had to settle for much less.
But could you stop this litigation at the outset? Section 24A of the Supreme Court Act
prohibits mediation evidence being admitted at the trial of the proceeding. It is silent on the
use of evidence in other proceedings and s.131 of the Evidence Act is no help either as the
defendant falls within the exception in subsection 2(f) being a proceeding “in which the
making of such an agreement is in issue”.
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So it’s just not going to go away! This means we have to look at the substantive issues. As
Graeme Clarke says about s 52/18 [65]:
“Although causation is a matter of fact, there is an overlay of normative
considerations which apply to whether there is sufficient causal connection between
the plaintiff’s loss and damage and the defendant’s contravening conduct, such as to
justify holding the defendant legally liable for the plaintiff’s loss and damage.
Ultimately the normative affect of the statutory prohibition of misleading or deceptive
conduct must be implemented by the court when it decides whether the plaintiff
makes out its causation case. The court does so by examination of the purpose of
the statute, the purpose of the cause of action and the nature and scope of the
defendant’s
obligations
in
the
particular
circumstances”
(footnoting
Travel
Compensation Fund v Tambree (2005) 224 CLR 626).
A court may not start from this point but we can as we consider what your fate might be!
Starting with the purpose of the statute, section 52 was introduced as a consumer protection
measure. Similarly, in the Second Reading speech, the Civil Procedure Bill, was said to be
necessary because:
“[a] well-resourced litigant should not be able to use their power to play tactical
games and draw out litigation until the other party is forced into an unfair settlement
or withdraws”(Hansard, Thursday 24 June 2010 2606).
Now the overarching obligations are subject to a paramount duty to the court to further the
administration of justice.5 Perhaps it could be said that protecting one’s clients against the
well-resourced litigant who was the target of Parliament’s concerns, is an aspect of the
paramount duty. Further your actions are consistent with the overarching purpose of the Act6
– to facilitate the just, efficient, timely and cost efficient resolution of the real issues in
dispute – because the settlement reflected the real issues rather than your client’s economic
reality.
The 1974 concern about protecting consumers from sharp practices, is reflected in one of
the few cases to date that squarely looks at the obligations upon litigants mandated by s 21.
In Ruling Number 31 of Matthews v SPI Electricity, in the context of whether SPI had misled
landowners regarding the basis upon which it was accessing their land which was to conduct
tests, his Honour noted that SPI “was in a clear position of advantage vis-à-vis the
5
6
Civil Procedure Act 2010 (Vic), s 16.
Civil Procedure Act 2010 (Vic), s 7.
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landowners” [209]. In contrast, in the mediation, the defendant had the benefit of
representation by experienced counsel and solicitors so, query whether it needed special
protection.
Lying in legal negotiations is not a new phenomenon and some scholars argue that
deception is just another tool that can facilitate efficient outcomes.7 As Professor Charles
Craver, of George Washington University, Washington DC, says:
“I frequently surprise law students and practitioners by telling them that while I have
rarely participated in legal negotiations in which both participants did not use some
misstatement to further client interest, I have encountered few dishonest lawyers. I
suggest that the fundamental question is not whether legal negotiations may use
misrepresentations to further client interest, but when and about what they may
permissibly dissemble.”8
Of course Professor Craver was not dealing with section 21 but the American Bar
Association Model Rules are similar to our professional conduct rules apart from this
respect.
But should the court allow you to use the paramount duty as a shield against this attack
based on your apparent breach of the law? The Explanatory Memorandum refers to the
objective of changing civil litigation culture in this state pursuant to the purpose of redressing
“an imbalance in the civil justice system” (Explanatory Memorandum, p 1). If this objective is
to be given the opportunity to take root, then should old ways be permitted to continue under
different guises – although as noted some writers take the view that some level of deception
can lead to greater process efficiency (an outcome consistent with the overarching purpose
of the CPA)? Further, as Ruling 31 shows s 21 clearly has a role in the management of civil
litigation.
Now this is not a case in which you lie about a fact or matter in issue. It is not analogous to
Legal Service Commissioner v Mullins [2006] LPT 012 (23 November 2006), which
concerned the failure to disclose personal changes to the plaintiff’s circumstances that had a
material affect on the calculation of loss and damage.
7
Lakhani, ‘The Truth About Lying as a Negotiation Tactic: Where Business, Ethics, and Law Collide
… or do They?’ (2007) 9 ADR Bulletin 133.
8
“Negotiation Ethics: How to be Deceptive Without Being Dishonest/How to be Assertive Without
Being Offensive”, (1997) 38 South Texas Law Review, 713, 40.
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And your case is not an instance of lying to an unrepresented person or someone under
some special disadvantage.
Further, apart from s.21 would you have been in breach of any conduct rule? You did not
deceive or mislead the court as although, in the rules “court” can be read to include a
mediation, let us say that your statements were not made in plenary session or even to the
mediator, but to the defendant’s lawyers privately.
Paragraph 18.1 of the Professional Conduct and Practice Rules 2005 prohibits knowingly
making a false statement to one’s opponent “in relation to the case (including its
compromise).”9 It is arguable that this provision is concerned about the case itself or the
legal reasons why it should be compromised, not about your client’s capacity to run the case
to trial.
Some slight support for this interpretation can be gained from paragraph 28
regarding communications with another person. A practitioner must not:
“make any statement that is calculated to mislead or intimidate the other person, and
which grossly exceeds the legitimate assertion of the rights or entitlement of the
practitioner’s client”.
These words appear to acknowledge some degree of latitude in the making of misleading
statements. It may be that you could say that your client had a legitimate right to vindicate
his rights in court and that in the broader scheme of things, you were doing no more than
ensuring that if he was not able to assert that right, he obtained proper compensation in lieu.
Further, your statements were provoked by the circumstances in which your client found
himself, which in your view had been engineered by the defendant in defiance of the
overarching obligations. You were doing no more than redressing this imbalance, an
imbalance that the CPA was designed to address.
Here, you may wish to draw an analogy with the defence of qualified privilege as it was
developed by the common law in the old libel and slander jurisdiction. Halsburys, fourth
edition, v. 28 [115] says that an occasion of qualified privilege arises where statements are
made in reasonable protection of the plaintiff’s proper interests (for example by responding
to an allegation).10
9
See equivalent rule in the Victorian Bar Practice Rules 2009, Rule 50.
See also Patrick George, Defamation Law in Australia 2006 for a modern description of the
development of qualified privilege.
10
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You could say that although generally speaking, litigants are entitled to protection of section
21, in circumstances authored by one litigant, the court may overlook infringement if it is in
the higher interests of the administration of justice to do so.
Of course, the purity of your position may be tarnished somewhat if the defendant can show
that payment of your outstanding fees were riding on your client receiving a favourable
settlement! In my view, if you were seen to gain a benefit, you may be less likely to be given
any indulgence by the court.
So, returning to Graeme Clarke’s normative considerations, in considering cases like yours,
the courts may be slow to find that a settlement which objectively speaking was justified on
the facts and circumstances of the case, was induced by anything other than those facts and
circumstances. That is, the courts will simply not make further inquiry in the absence of
special disadvantage. Further, to accede to the defendant’s contentions would be to give
legitimacy to the defendant’s residual capacity to use the economic imbalance between the
parties despite the purpose of the CPA. Therefore if necessary the court may conclude that
where one party creates an occasion of qualified privilege, the other party’s lawyers may do
what is reasonably necessary to protect that party’s interest.
But countering all this, the wrongful conduct of one person is not a license for you to engage
in further misconduct. And the fact that the legal fraternity has accepted a degree of
deception as part of its tools of trade is not of itself a good reason to allow such behaviours
to continue.
This paper has attempted to alert you to the risks of s 21 and suggests that those risks may
be a consequence of the inclusion of a consumer protection provision designed to work in a
landscape bare of rights and duties into a very different paradigm, already heavily populated
by duties, rules and ethical standards. However, as Ruling 31 demonstrates, the provision
does have a role to play where litigants or their lawyers are dealing with persons at a
disadvantage. One might well ask whether s 21, as presently drafted, helps or hinders the
underlying purpose of the Act! In any event, as your case and I hope this paper shows, what
the section does do is call into aid a myriad of cases decided about those famous words,
making you much easier to sue!
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BIBLIOGRAPHY
Legislation
Civil Procedure Act 2010 (Vic).
Evidence Act 2008 (Vic).
Professional Conduct Rules 2005 (Vic).
Supreme Court Act 1986 (Vic).
Hansard and Explanatory Memoranda
Explanatory Memorandum, Trade Practices Bill 1974 (Cth).
Explanatory Memorandum, Civil Procedure Bill 2010 (Vic).
Commonwealth, Parliamentary Debates, House of Representatives, 16 July 1974, (Mr
Enderby).
Victoria, Parliamentary Debates, Legislative Assembly, 24 June 2010, 2603-2612 (Mr Hulls).
Cases
Caltex Oil (Australia) Pty Ltd v Dredge Willemstad (1976) 136 CLR 529.
Gould v Baggelas (1984) 157 CLR 215.
Legal Services Commissioner v Mullins [2006] LPT 012.
Lord Buddha Pty Ltd v Harpur [2013] VSCA 101.
Matthews v SPI Electricity (Ruling No 31) [2013] VSC 575.
Sidhu v Van Dyke (2014) 308 ALR 232.
Travel Compensation Fund v Tambree (2005) 224 CLR 626.
Articles
Clarke, ‘Misleading or Deceptive Conduct Cases in the Supreme Court of Victoria’ (2014).
Corones, ‘Solicitor’s Liability for Misleading Conduct’ (1998) 72 Australian Law Journal 775.
Craver, ‘Negotiation Ethics: How to be Deceptive Without Being Dishonest/How to be
Assertive Without Being Offensive’ (1997) 38 South Texas Law Review 713.
Lakhani, ‘The Truth About Lying as a Negotiation Tactic: Where Business, Ethics, and Law
Collide … or do They?’ (2007) 9 ADR Bulletin 133.
Limbury, ‘Should Mediation be an Evidentiary ‘Black Hole’?’ (2012) 35 UNSW Law Journal
914.
Wolski, ‘The Truth About Honesty and Candour in Mediation: What the Tribunal Left Unsaid
in Mullens Case’ (2012) 36 Melbourne University Law Review 706.
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