Litigations third wave? Trends following the GFC, the Banking Royal Commission and COVID-19 - Court Procedure

As communities around the world suffer their first and second waves of COVID-19, for Australian litigation the pandemic is akin to a 'third wave', coming after both the 2007-08 global financial crisis and the Banking Royal Commission.

While the commercial effects of COVID-19 may have as long a tail as its health effects, some preliminary trends are already emerging.

Australian courts adapted quickly to COVID-19 restrictions on gatherings by conducting their proceedings remotely, including lengthy trials. Barristers and solicitors have appeared from their chambers or offices or, especially in Victoria, their homes.

Even where hearings have been conducted in person, witnesses have given evidence by video-link due to travel restrictions or to reduce the number of people in the courtroom. At all stages, the courts have strived to balance the obligation to deliver open justice while complying with the various public health and social distancing regulations. These arrangements would once have been regarded by the courts as fanciful and we have no doubt that in-person trials will resume once the pandemic has passed.

But some aspects of the virtual courtroom will remain. In particular, short mentions and case management hearings may continue to occur remotely. This will avoid practitioners waiting outside the courtroom for many hours until the court arrives at their place in the list. Witnesses based overseas may be permitted to give evidence remotely, especially where their credit is not in issue. Electronic court books may become the norm for judges rather than a convenience for lawyers. Some hearings may continue to be conducted with lawyers appearing remotely from interstate, as has been the practice of the High Court in respect of special leave applications even before the pandemic.

These new approaches are neither wholly beneficial nor wholly problematic for lawyers and litigants. They will, however, generally improve the administration of justice and facilitate the courts' overarching interest in being just, quick and (relatively) cheap.

Regulators test positive for resilience

The courts' removal of red tape is also attractive to the legislature. For example, the Commonwealth has proposed to simplify and relax responsible lending rules - an unexpected development given both the global financial crisis and the Banking Royal Commission. The aim is to improve the flow of credit and aid the economic recovery, in a clear case of litigation's 'third wave' consuming its first two.

But while those changes should be attractive to lenders, the regulatory landscape in Australia remains considerably more strict than in the past two decades, and regulators will not lightly relinquish their powers.

The pandemic has not distracted, for example, the Australian Transaction Reports and Analysis Centre from seeking the largest civil penalty in Australian history. The Australian Securities and Investments Commission's (ASIC) operations continue unabated, as market participants (and particularly large banks) are buffeted by constant demands for the production of documents and information and for attendance at compulsory interviews. ASIC expects to enjoy the fruits of its labour by commencing proceedings, though the rate of new cases is less than had been threatened.

In part, ASIC may be distracted by a new set of 'pandemic-related enforcement priorities', especially enforcement against those who exploit consumers' weaker finances, employ the pandemic as part of scams or misleading conduct or fail to make appropriate market disclosures.

The Australian Competition and Consumer Commission (ACCC) has also pivoted to policing the pandemic. For example, it has been asked to authorise cooperation that would ordinarily constitute cartel conduct, such as between supermarkets in order to ensure adequate supply of groceries. It has also threatened to sue (and so extracted cooperation from) travel companies who refused to refund customers when flights were cancelled. In August, the ACCC signed a memorandum of understanding with the Australian Prudential Regulation Authority (APRA) to guide the agencies' cooperation and information sharing. As this exemplifies, COVID-19 has been no impediment to the proliferation of power among Australia's regulators.

From coronavirus to computer virus

While courts and regulators have continued apace, much of their work has been performed from home. The same is true of most businesses in Australia and is speculated to lead to a revolution in ways of working. That has been liberating for employees, but may also lead to the (inadvertent and damaging) liberation of data. For example, in the rush to adopt remote working, many organisations built ad-hoc networks without adequate testing, which may be vulnerable to cyber-attack.

There are well-publicised examples of videoconferences being observed by outsiders. At least one class action lawsuit has been commenced in the United States against a videoconferencing provider, and hundreds of individual complaints have been filed with American and United Kingdom law enforcement agencies. An action may lie against a company who uses videoconferencing services and who through negligence allows their clients' confidential information to be surveilled.

Australians are also providing sensitive personal and medical information when being tested for COVID-19 or 'checking in' to a restaurant. In Wales, the public health authority recently accidentally published the names, dates of birth and locations of more than 18,000 people who had tested positive to COVID-19. Actions may lie against a healthcare provider who suffers a data breach resulting in the disclosure of patient records.

Another type of health insurance

Regulatory and data risk remain high and not even a pandemic will prevent the courts from hearing those claims. Other claims arising from COVID-19 include business interruption and breach of contract, or may arise from government action including public health directions.

While some claims may be insured against, the effectiveness of those policies is in doubt. Many have historically excluded coverage for events caused by a 'quarantinable disease' under the Quarantine Act 1908 (Cth). That legislation was repealed and the equivalent concept became a 'listed human disease' under the Biosecurity Act 2015 (Cth). Some insurers failed to update their policy wording to reflect the new legislation, so their policies refer to an Act and a disease definition that no longer exists. It is unclear whether the outdated wording is effective to exclude COVID-19. Proceedings on that question are currently before the New South Wales Court of Appeal.

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COVID-19 has caused the courts to adapt, not to falter, and the outcome of that reform may be a more efficient system of justice. On the back of the global financial crisis and Banking Royal Commission, regulators continue to amass power and have used it to respond to the pandemic while progressing their existing priorities.

Businesses who expected the global financial crisis to be the last for another hundred years have been buffeted by a more pronounced downturn, one that is attended by the risk of data breach and associated litigation. Further, those who suffer loss as a result of the pandemic find themselves at the mercy of insurance contracts written in another era.

While the long tail of COVID-19 will demand more analysis, it is clear that litigation is riding, and sometimes being buffeted by, a pronounced 'third wave'.

This article is part of our publication Continuity Through Crises: Perspectives on business risk, resilience and recovery in uncertain times. Read more here.

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