"Claims are to be handled and litigation is to be conducted by the agency in accordance with the Directions on The Commonwealth s Obligation to Act as a Model Litigant"
Comcover Legal Service Provider Forum Series Model Litigant Obligation 6 June 2011 Presented by Marianne Peterswald, Mark Kelly and Louise Rafferty Australian Government Solicitor Outline of presentation 1. Source of power requiring compliance with LSDs and Appendix B, Model Litigant Obligation (MLO); 2. Key points about MLO; 3. Practical points - How MLO informs agencies in conduct of Commonwealth legal work, other relevant legislation; 4. Sanctions, or enforcement; 5. Interesting effect of MLO on litigation more generally Legal Service Directions – Introduction – Source of Power - Part VIIIC of the Judiciary Act 1903 deals with the Legal Services Directions - Under section 55ZF of the Judiciary Act 1903, the Attorney-General may issue legal service directions applying generally to Commonwealth legal work or in relation to Commonwealth legal work performed in relation to a particular matter. - Definition of “Commonwealth legal work” – not restricted to litigation, covers all legal work performed by or on behalf of the Commonwealth, including companies in which the Commonwealth has a controlling interest; - Legal Service Directions (LSDs) set out requirements for sound practice in the provision of legal services to the Commonwealth. LSDs – General points: ― Paragraph 14.2 of the LSDs ensures that agencies are to include provision in contracts for legal services regarding the LSDs, including penalties where legal services provider has contributed to the breach. ― Such penalties may also include adverse comment on an agency or a provider being made to the Attorney-General or the relevant Minister. ― LSDs are not enforceable except by, or upon application of, the Attorney-General, and may not be raised in proceedings except by the Commonwealth. At a practical level, the LSDs are ‘enforced’ by OLSC Specific Directions Claims and litigation by or against the Commonwealth or FMA agencies - paragraph 4 of LSDs Model Litigant Obligation –source of obligation found in paragraph 4.2 of the LSDs : ― Claims are to be handled and litigation is to be conducted by the agency in accordance with the Directions on The Commonwealth’s Obligation to Act as a Model Litigant, at Appendix B, noting that the agency is not to start legal proceedings unless it is satisfied that litigation is the most suitable method of dispute resolution. ― Note: also applies to non FMA bodies ― Paragraph 12.3 provides: ― In all other circumstances, a non‑ FMA body, that is not a government business enterprise prescribed under the CAC Act or a Corporations Act company controlled by the Commonwealth, is to: ― (c) handle claims and conduct litigation in accordance with the Directions on The Commonwealth’s Obligations to Act as Model Litigant, at Appendix B Appendix B Key points – Honesty and fairness throughout legal work; avoiding/narrowing disputes; consistency; emphasis on ADR: MLO requires agencies to act honestly and fairly and act in accordance with the ‘highest professional standards’ by: (a) dealing with claims promptly – not causing unnecessary delay; (aa) making early assessment of Commonwealth’s ‘prospects of success’ and ‘potential liability’ in claims against the Commonwealth (b) paying legitimate claims without litigation, including making partial settlements of claims (c) acting consistently; (d) endeavouring to avoid, prevent and limit scope of legal proceedings, including giving consideration to ADR in all cases, before commencing litigation and participating where appropriate; Appendix B – continued (e) avoiding litigation where possible and keeping costs to a minimum by: not requiring other party to prove matters which the agency knows to be true; not contesting liability if the dispute is really about quantum; monitoring progress and using appropriate methods including settlement offers, payments into court or ADR; ensuring that arrangements are made so that appropriate person with appropriate instructions participates in ADR; (f) not taking advantage of a claimant who lacks resources to litigate; not relying on technical defences unless the Commonwealth’s interest would be prejudiced ; (h) not undertaking appeals unless there are reasonable prospects; and justified n the public interest; Appendix B – continued (i) apologising when the agency or its lawyers have acted wrongfully or improperly; ― Notes More than mere honesty – goes ‘beyond the requirement for lawyers to act in accordance with their ethical obligations’ ― Does not prevent the Commonwealth from acting firmly and properly to protect Commonwealth interests, nor preclude ‘all legitimate steps’ and ‘testing and defending’ claims’, or the Commonwealth seeking costs; ― Applies to merits review (e.g., Tribunal proceedings); ― Applies to ADR – Commonwealth must participate fully, and ensure availability of proper instructions and authority to resolve. Appendix B – continued ― Paragraph 5 of Appendix B makes it absolutely crystal clear that the use of alternative dispute resolution is a strong theme underpinning the model litigant obligation ― 5.1 The Commonwealth or an agency is only to start court proceedings if it has considered other methods of dispute resolution (e.g. alternative dispute resolution or settlement negotiations) (emphasises point made in paragraph 4.2) ― 5.2 When participating in alternative dispute resolution, the Commonwealth and its agencies are to ensure that their representatives: ― (a) participate fully and effectively, and ― (b) subject to paragraph 2 (e) (iv), have authority to settle the matter so as to facilitate appropriate and timely resolution of a dispute. ADR – how should you prepare consistent with MLO? ― In practice, this will mean that Comcover and the fund member agency need to ensure that both prior to commencing proceedings, and during the course of any litigation, that it ensures sufficient resources are deployed in preparation for ADR ― Ironically, it also means that in practice, ADR may be delayed until such time as the Commonwealth has sufficient understanding of a claim, its implications and the Commonwealth’s position, so that it can respond appropriately Preparation for ADR – continued ― it also means that when Comcover or the Commonwealth is responding to such a claim in an ADR context, that the legal service provider, the fund member agency, and Comcover, understand their respective roles. ― where possible and desirable, to give the best chance of success, it may mean that there are also representatives from the fund member agency present at mediation or settlement conference – sometimes this can give a sense to a disgruntled plaintiff that his/her/their claim is taken seriously; ― may also mean consideration should be given to apology (including appropriate wording) in context of ADR, where appropriate What is meant by ‘not actionable/enforceable’? ― Section 55ZG provides LSDs not enforceable, Section 55ZI of the Judiciary Act 1903 provides that neither the Attorney General (subsection 1) nor other persons (subsection 2) ― However, there is no doubt that Courts will have appropriate regard to what it perceives as ‘breaches’ of the MLO in making orders through the conduct of litigation. ― So, whilst there not be a particular right, such as a claim in damages, in the event of a perceived ‘breach’ of the MLO, it may well sound in an adverse costs order, not to mention adverse comment. Other legislation with an MLO ‘theme’ Some state legislation (e.g. NSW) imposes similar obligations to act appropriately, on all parties to litigation rather than just government bodies: Section 56 of Civil Procedure Act 2005 (NSW) provides: 3) A party to civil proceedings is under a duty to assist the court to further the overriding purpose and, to that effect, to participate in the processes of the court and to comply with directions and orders of the court. (3A) A party to a civil dispute or civil proceedings is under a duty to take reasonable steps to resolve or narrow the issues in dispute in accordance with the provisions of Part 2A (if any) that are applicable to the dispute or proceedings in a way that is consistent with the overriding purpose. (4) Each of the following persons must not, by their conduct, cause a party to a civil dispute or civil proceedings to be put in breach of a duty identified in subsection (3) or (3A): (a) any solicitor or barrister representing the party in the dispute or proceedings, (b) any person with a relevant interest in the proceedings commenced by the party. 5) The court may take into account any failure to comply with subsection (3), (3A) or (4) in exercising a discretion with respect to costs. Other legislation capturing MLO ‘theme’ Civil Dispute Resolution Act 2011 ? ― Parties to a dispute must try to resolve proceedings prior to commencement of proceedings; ― Applicant to proceedings is to file a statement setting out ‘genuine steps’, before proceedings are commenced and respondent must indicate if agree that ‘genuine steps’ have been taken Some cases? ― Many cases refer to MLO, with increasing frequency ― Recently, in case of In the case Morley & Ors v ASIC  NSWCA 33, Court of Appeal made brief reference to MLO, emphasising at some length the key theme of ‘fairness’; ― In Priest v State of New South Wales  NSWSC 41 ( 2 Feb '07) involving state of NSW, his Honour Johnson J held: ― In a sense, s.56 (of the NSW Civil Procedure Act) has the result that every litigant in civil proceedings in this Court is now a model litigant. However, there is ample authority that governmental bodies, including the Commonwealth of Australia or the State of New South Wales, ought be regarded as having model litigant obligations extending in the past, at least, beyond those of private litigants. In this respect, see decisions such as Scott v Handley (1999) 58 ALD 373; Woodrow v Commonwealth of Australia (2003) 129 FCR 182; Badraie v Commonwealth of Australia (2005) 195 FLR 119 at 135;  NSWSC 1195 at paragraph 94 ― Cases will often cite reference to the MLO when considering making adverse orders for costs where a government body has not complied with orders of the Court, e.g., discovery orders, particularly when this results in Court’s time being caught up with such non compliance Sanctions? ― Paragraph 14 of the LSDs provides that the Attorney General may impose sanctions for non-compliance with the Directions ― There are a range of sanctions that may be imposed, which are designed to ensure that agencies implement more effective processes to avoid breaches ― There is also the requirement to report any breaches, encouraging a culture of compliance ― For example, many agencies include compliance with the MLO as a corporate goal – breach will result in mention in the annual report ― For legal services providers, sanctions may include adverse comment to the AG or the relevant Minister Conclusion – how the MLO affects agencies in conduct of Commonwealth legal work ― Our experience suggests that agencies take alleged breaches very seriously – resources that would otherwise be devoted to defending or resolving claims will be tied up in responding to such allegations; ― Experience also suggests that such breaches are often alleged almost ‘tactically’ – opposition will complain of a breach of MLO even when the Commonwealth, refuses a claim, or seeks to enforce costs; ― Interesting juxtaposition – the MLO seeks to ensure that the Commonwealth has to meet the highest standards of fair play; ― Yet in practice, agencies may be subject to spurious allegations of breaches of MLO by parties acting for tactical reasons – that sort of ‘tactical’ ploy is the very thing the MLO prohibits on the part of the Commonwealth – sometimes leaving the agencies to feel that it is not such a level playing field after all, with the Commonwealth being held to a higher standard of behaviour Comcover Legal Service Provider Forum Series Appendix E – Legal Services Directions 2005 Appendix E and the model litigant obligation What has appendix E got to do with the model litigant obligation? It allows the Commonwealth to take control of an employee’s defence. Para 23 says that if a full indemnity is given then appendix B applies Many proceedings are taken in the name of an employee alone, the Commonwealth and an employee or several employees. If the Commonwealth was not able to assume conduct of these proceedings it could not control what employees do in litigation. Para 4 gives a general policy behind appendix E of allowing the Commonwealth to act as a proper employer supporting deserving employees. Why talk about appendix E? Issues have arisen recently from claims of misfeasance. Misfeasance was a recent topic of a Comcover Forum. Aggravated, exemplary/punitive damages. Claims in Misfeasance allow an award of aggravated or punitive/exemplary damages whereas claims in negligence do not. Misfeasance claims have increased as negligence claims have been curtailed. When faced with a claim for exemplary damages which, to be awarded, must involve abhorrent behaviour by an employee some agencies are reluctant to indemnify. Key parts of appendix E Key paragraphs are probably 5,6,8 and 23. Para 5 says expenditure should normally be approved in civil and criminal proceedings if they arise out of employment and the employee acted “reasonably and responsibly”. The words “reasonably and responsibly” do not carry their usual meaning. Para 6 says do not grant assistance if the Commonwealth is likely to claim contribution or indemnity from the employee if the Commonwealth is sued. Can the Commonwealth seek contribution from an employee? Yes. But surely only where that employee has acted terribly? No, merely negligent employees can be sued by an employer at common law. Para 6 continued An employer is vicariously liable for the negligent act of an employee even though the employer has done nothing wrong. But at common law an employer liable to a plaintiff for the negligent act of an employee can sue that employee for a complete indemnity or contribution. See joint tort-feasor legislation, for example s5 Law Reform (Miscellaneous Provisions) Act 1946 (NSW) 5 Proceedings against and contribution between joint and several tort-feasors Where damage is suffered by any person as a result of a tort… (c) any tort-feasor liable in respect of that damage may recover contribution from any other tort-feasor who is, or would if sued have been, liable in respect of the same damage, whether as a joint tort-feasor or otherwise… Cases where employers have claimed contribution from employees Lister v Romford Ice  AC 555 Lister, a lorry driver, ran in to someone (his father) and injured him. He sued Romford Ice, Lister’s employer. Their insurer paid dad. The insurer then subrogated (stood in the shoes of) Romford and sued Lister as a joint tort-feasor. Because Lister was solely responsible for the accident Romford (really its insurer) recovered 100% of the damages paid to dad. Voli v Inglewood Shire Council (1963) 110 CLR 74 Inglewood SC built a town hall. It employed an architect who drew negligent plans. They were negligently approved by the SC as building authority. Floor collapsed injuring Voli. The SC was vicariously liable for the negligence of the architect. It could recover 100% of V’s damages from the architect – but the SC was negligent in approving the plans so could only recover 50%. Common law amended by statute Insurance Contracts Act 1984 (Cth) Abolishes the right of an insurer to subrogate to an employer in a claim against an employee. Employers Liability Act 1991 (NSW) s3 Employer cannot sue an employee for a tort for which the employer is also liable. s5 The act does not apply if the tort was serious and wilful misconduct of the employee or not employment related. Para 6 continued - Do the statutory reforms prevent the Commonwealth from suing an employee? Probably not. The Commonwealth self-insures. Arguably state legislation does not apply. So what prevents the Commonwealth claiming contribution from its merely negligent employees? The last sentence in para 6 (like the state legislation) “A decision to seek contribution or indemnity will normally be appropriate only where the employee’s conduct involved serious or wilful misconduct or culpable negligence.” So the real test of entitlement to assistance is not “reasonable and responsible” but “was there serious or wilful misconduct?” Levels of assistance If it is not clear whether or not the employee’s behaviour meets the test for assistance the decision may be deferred altogether or the employee’s defence funded until after the facts are ascertained (para 7). The levels of assistance are at paragraph 11 (a) costs of representation (b) any damages and legal costs awarded (c) a reasonable settlement (d) a fine or penalty If funding a defence the employee must comply with App D – generally Comcover appoint a panel member to act. Control of an employee’s defence Para 8 “The indemnification of an employee against any costs or damages payable to another party by the employee … in civil proceedings is only to be approved on condition that the employee’s defence will be controlled by the Commonwealth”. We say it should also be read the other way around. We read “any damages” as “all damages” including exemplary damages. A civil claim is for money and the employee is not at risk of paying any of his or her own money because the Commonwealth will pay all damages and costs. There can be no conflict of interest between the Commonwealth and the employee so the Commonwealth can assume conduct of the employee’s defence without risk. Circumstances where the Commonwealth cannot assume conduct of the employee’s defence In criminal proceedings Criminal proceedings are not just about money, it is not possible to indemnify for a criminal sentence. In civil proceedings where there has not been an indemnity for all damages including exemplary damages. That is because there is not a complete confluence of financial interest between the Commonwealth and the employee. An employee may be indemnified only for compensatory and aggravated damages. In that case the employee may personally have to pay an award of exemplary damages. This creates a potential conflict of interest. For example: “crash/or crash through” evidence Employee might sue the Commonwealth for financial loss. Legal representation Para 22 If an employee is indemnified for all costs and damages (including exemplary damages) in civil proceedings and the Commonwealth is also a party then the solicitors for the Commonwealth must act for both. Para 23 However if a decision on indemnity has been “partially or totally deferred” there must be separate legal representation. This means where the employee has been granted anything other than a complete indemnity for all costs and damages, including exemplary damages, there must be separate representation. Para 23 also requires the application of the model litigant policy if a full indemnity is given. Practical considerations Find out what happened. Get factual details in writing from the employee, possibly as part of the request for assistance, if time allows. If a full indemnity is granted make sure it expressly provides for “any costs or damages”. Better if it includes or attaches factual representations by the employee. An indemnity may be vitiated by fraud. Questions? Frequently asked questions: Whose obligation is it to act in accordance with model litigant principles? What happens when a Commonwealth employee is named as a party to proceedings? Do they have an obligation to act as model litigant too? What do you do when things go wrong? What sanctions apply? Comcover Legal Service Provider Forum Series Model Litigant Obligati