On Just Terms S2 E10: Directors' duties, class actions and the courts with Michael Pelly, Legal Writer at Capital Brief

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Today I'm delighted to welcome Michael Pelley back to On Just Terms.
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Michael's the legal reporter at Capitol Brief, and he was previously the legal affairs editor at the Australian Financial Review.
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He's been a senior advisor to State and Federal Attorneys General and is the author of many works, including The Smiler, a biography of former Chief Justice Murray Gleason.
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In today's episode, we'll be discussing the problems with complex legal litigation and some of the complex cases regarding director's duties that have recently been published.
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So, Michael, thanks again.
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It's been a couple of years since we last spoke, and uh it's good to see you again on the podcast.
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Always a pleasure to be with you, Jason.
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So look, I'm interested in tapping in on what you've seen in the corporate and legal risk environment since we last spoke.
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Every week is a new story, and you're interested in everything.
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So what's different from the last time we spoke?
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Well, I think uh obviously in the last week we've had the ASIC versus Star judgment and um the 500 pages of reasons by Michael Lee, which uh I think is very interesting across the board, not only for director's duties cases, which ASIC will pursue, but also for you as a as a class actions lawyer, because a lot of what you do goes to whether director's conduct was reasonable or officer's conduct was reasonable.
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100%.
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And so where should we start when talking about I mean everyone's talking about it, a lot of ink's already been spilled, it's only less than a week old.
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What struck you, what stood out for you of that judgment?
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Well, I think you should start with what ASIC was trying to achieve in this case.
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It was launched a very long time ago.
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I think it was 2023.
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Yes.
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ASIC was very keen to raise the bar for directors, but also to raise the bar for lawyers and general counsel.
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Now you could possibly argue through various reasons that ASIC did not get up on the first thing.
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In fact, I read with great interest uh the comments by your chairman, Rebecca Maslin Stanich, which says that the bar's pretty much where we thought it was.
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And I think the case comes, unless section 180 and its various bits are actually revised, that's it's not going to change terribly much.
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But as far as lawyers go, Joe Longo, the ASIC chairman, has had a real B in his bonnet about lawyers and the role they play in corporate life.
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As you know, Joe was um, I think he's a Herald, I think he's a HSF alumni, isn't he, Joseph?
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He is indeed.
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Well, he well, Joe was a GC himself for Deutsche Bank.
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So I think he has a very different view or a heightened view of what a GC can bring to the table.
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Yeah.
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He was very keen to push the idea that it's not just a checklist of obligations, as he said, but it's a positive duty to bring matters to the attention of the board and to help the CEO present, obviously, fulsome board papers and have proper discussions about risk before the board.
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And he pretty much put Paula Martin in the doghouse on this one because uh through a combination of some fairly average testimony with long, long, long poisons and an ability to make any concessions, it was a bit of a horror show for Ms.
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Martin.
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In fact, um one thing I noticed uh in the course of the credit findings was that um he gave Paula Martin the same credit finding that he gave to uh Bruce Lerman in the uh Lerman versus Ten case, which is not good news for her because he basically said, I don't believe anything you say unless it's corroborated by someone else or you're speaking against your own interests.
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Yeah.
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Yeah, I look, I agree.
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There seems to be a flavor here that there is going to be some tension in being able to attach liability to non-executive directors because they're innately reliant on what management are telling them.
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Do they get a free pass in this judgment, Jason?
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Because it looks to me like Lee said some things about what they should be doing.
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Yes.
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But that's a big gap from what they should be doing, from what the law actually requires to do.
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And as Rebecca says, the law is sitting where you always thought it sat.
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Yeah.
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I think the judgment does have a legal tract and then something closer to a purposive track.
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A morality of the morality tract, one might say.
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This is the way you should, whether it's the way we expect you to behave, if even if the law doesn't say that.
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My reading was he was trying to inject some narrative around the the the decisions that follow in the next few years to uh platform.
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Do you get the sense it was a warning?
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Yes, I I do.
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Although one that uh seemed to be laced with a bit of frustration that he didn't have the case from ASIC that he wanted.
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What was the case he wanted?
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I'm asking you as a litigator.
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Yeah, it seemed seemed to me he wanted a case where he where ASIC could allege and demonstrate that the board ought to have essentially, I'm uh paraphrasing here, but lost confidence in the senior conduits of information to them and so should have said, look, we're not getting what we need.
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It's time to get new people in, we're asking different questions.
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And absent something in the papers or all the documents they're filed with the court.
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That would only come out through cross-examination, I imagine.
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Correct.
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And none of the NEDs stepped into the box.
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Right.
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A decision which Justice Lee said was justified.
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He did, and and a strategy that that has been effective.
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That's a conduit, I guess, to then have the narrative around board papers and the need to ensure that they're distilled into something that guides judgment rather than a publication of every possible permutation and combination of risk.
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I I'm a little bit sympathetic, as you'd expect me to be, for corporate Australia in this space because life's complex, way more complex than it was in some of the decisions cited in the judgment.
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Well, there was one passage in the judgment where he's talking about the raising of the credit facilities and everything like that.
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And he basically says, Well, you have this, there was this ASIC pointed to one line in an appendix that basically said, Well, you should have been aware that he was jailed on suspicion of money laundering in China in 2012.
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Well, yeah.
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That strikes me as a bit of a high bar.
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It's a high bar, and it's also Justice Lee, if I make it.
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And that's but that's where ASIC wanted to take it.
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It is.
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And indeed, they're not alone.
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Most cases, you know, every class action that I've defended is an attempt to sort of withdraw hindsight from the line four of document 200.
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But Lee put it right back in.
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He said it's you can't do this with that.
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That's right.
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And so it's a it's a it's a balance.
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And I think that's why there's so much, this is a warning in the sense that on the particular facts of this case, this outcomes occurred, but the next case might be totally different.
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What do we draw from the fact, I'm asking you, of course.
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That we've had effectively four executive officers and seven NEDs.
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Yes.
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And the four executive officers, two went two were two admitted and made concessions before the case, and the other two went down.
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Yeah.
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Nothing from the NEDs.
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Yeah.
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ASICs had a very, I don't say this pejoratively, but their track record of establishing liability against non-executive directors is very poor.
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I mean, they they've left shareholder class actions to do that work, not against directors individually, but against companies for failure to disclose.
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They've they've not really had success in identifying liability against directors for any Australian corporate.
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And I don't imagine the bar for liability for directors and shareholder class actions is any lower than it is Precisely in this in this case.
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Which is why we don't see them sued directly.
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First you've got to have the corporate conduct, then you've got to have the knowing involvement from the directors.
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And it's all coming down to reasonableness.
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So all this commentary we've seen by Lee coming out and saying, oh, directors should be doing this, you know, the Marquis of we're not the Marquis of Butte anymore.
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Yeah, yeah.
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Again, coming at the point, is this going to have any practical I mean, can it be a warning unless there's other changes legislatively?
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Well, one you might say it's not a common law construct, is it?
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No.
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In fact, on common law, you might say this judgment hasn't moved the dial.
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Like, is it new that managers, senior C-suite executives have responsibility to make sure important information goes to the board?
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No.
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No.
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Is it new that a board places reliance on management?
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No.
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So on the facts of this case, there was risk for everyone, but it turned out that it stuck pretty much to where the common law has been.
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Why haven't things changed since Cintro?
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Yeah.
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Well, because that's the big judgment he referred to.
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Justice John Middleton.
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Yes.
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Basically saying 14, 15 years ago.
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Yes, yes.
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You guys should be limiting the amount of information you get.
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It's not an excuse.
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Yeah, yeah.
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We've gone nowhere.
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No, it's true.
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Are these directors just sort of using this as a way, almost as an out.
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Well, we don't really have to do terribly much.
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Well, I I've got a very simple answer to why it hasn't changed since Central, a case I was involved in.
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But before I do, I saw the reference in the judgment to Centro.
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I thought that was an unusual one in the sense that it's a completely different case.
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That's a billion-dollar misclassification issue as opposed to the conduct in this case.
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So it's factually very different.
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But I think the reason it hasn't changed is shareholder class actions.
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Because every defense to a shareholder class action is lots of information was had regard to, and we ultimately came to this decision.
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The implication of these cases is make sure the record is replete with all of the detail that's possible so that you can demonstrate a reasonable basis.
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And by the way, discharge at least says that's a disaster because that leads you down to appendix 55, you know, line 56.
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You should be reading that too.
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Indeed.
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And and but he's dealing with the director's duties case.
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And and companies in the rest of their corporate restructure are dealing with allegations that they failed to keep the market informed.
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And the best way to defend those is to have a record that demonstrates that everything was thought through and this was the reasonable outcome.
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It also struck me a little bit during this case that a couple of the assumptions on which ASIC was operating were let's just say were very pure.
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Right.
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You know, for example, they they talked about Philip Crawford somehow engaging with them, and but it looked to us as though Philip Crawford wasn't telling, you know, uh Starr that there were terribly many problems.
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Yes.
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So if the casino regulator isn't telling you there are many problems or we've got a good relationship with Star, where's the urgency to act?
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Yeah.
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Well, ASIC seemed to think that as soon as you had that one piece of information, there's a you're almost compelled to act.
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Well, there are parallels for that.
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I mean, the the CBA Zonia case, one of the narratives there is that once you're in a dialogue with your regulator, in that case Ostrak, and they're expressing a level of dissatisfaction, even though things have moved on, that should be a trigger or a warning that there's a bigger problem at play.
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Uh, which is a strange narrative.
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I mean, one might interpret it the other way.
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Regulators, I imagine, liage with you on a whole lot of different levels.
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Indeed.
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Another might ring you up and say, How are you today, Jason?
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And the next day you say, Mr.
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Bitch, we need to have a discussion.
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Well, never in my case.
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It's always never.
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But you're right.
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And the longer you have that dialogue, one might say the less uh critical the issue is because it's being s it's being worked through.
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So it this judgment, I think it is correct to say it's a warning.
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I'd interested in your views because it sets a narrative for a higher bar of corporate conduct, but it doesn't actually change the law.
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Hmm.
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So where do we where do we go with for Paula Martin and GCs?
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Because I think that's the big takeaway for lawyers.
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Isn't the answer we just use AI?
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That seemed to be.
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Okay, then if we're gonna use AI, are we opening up courts to to question what prompts we use?
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Yeah, it is.
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Because that's that's getting into very interesting territory.
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It is.
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I'm interested in your take.
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There's a role for AI and everything, clearly.
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That that that's the new world.
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We we we're uh debating re the the emergence of reality if we try to say AI is not gonna be have a role.
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But this case seemed to me it wasn't a question of uh let's get a machine to tell us what the critical summaries are, it's judgment.
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What issues need to be elevated, what issues don't.
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That's a human aspect.
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And you're passing over judgment to the to the um the AI.
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To the AI tool.
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Would you like to defend that in court?
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Well, um it's the new what is it, the new form of reasonable reliance.
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Can we ever get to a point where a court or maybe a judge like Justice Lee says it's quite reasonable for you to rely on this to provide a summary?
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And um, if the summary is not adequate, well, that's not really a problem.
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Not I think not in my career.
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I I think the element of I don't think that's ever gonna happen.
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Come on, I agree.
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You know.
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And that that's why I thought the the narrative in The Judgment about AI, there's certainly a role to distill information, but at the end of the day, you need humans making decisions.
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Was it curious that Lee put it in there?
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Yeah, it it I I think it was a little um Because it's classico, but it went nowhere towards the or extracurial observations, which he's famous for.
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Well, he my sense is he's trying to give some helpful guidance on how systems might be uplifted.
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But at the end of the day, it seems the judgment turned to me on hu hu decisions by humans as to what to report and what not to report.
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Did you get the sense that he would have really liked to have found against the Neds?
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That's a hard read.
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I mean, I I he did express frustration with the way that ASIC brought the case, which could be an indicator of precisely that.
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Do you do you think maybe he as a as a as a great litigator himself maybe could have could have foreseen another path?
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Maybe every judge is in that space.
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But yeah, I do think there was a a narrative there around the over-intellectualization or or over-complication of the case that ASIC tried to bring.
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Uh, because as we've just been discussing, it boiled down to did the board get the critical information it needed by those that it relied on.
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Trevor Burrus, Jr.
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And and as you said, was it reasonable to rely on on Matt Beckier and Paula Martin?
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And there's nothing in most of the documents I saw.
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Trevor Burrus, Jr.
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That that's the issue for ASIC's case.
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It's it's relying, isn't it, on connecting the dots between quite discrete and sometimes areas of minutiae within board papers that are themselves voluminous.
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But that there is a challenge for all corporations.
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How do I make sure the directors are actually spending their time exercising judgment as opposed to uh getting across minutiae?
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I'm very sympathetic there because these days boards are spending 60-70% of their time on compliance to avoid legal risk as opposed to exercising judgment.
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Well, Jason, you're you're also very up with this idea about how these sorts of cases all cross over.
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Yes.
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Now they cross over to your favourite subject of class action.
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Yeah, they do.
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They do.
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So with the High Court about to take on another class actions case, yeah.
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Do you see any impact of this judgment on your on your space?
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Yeah, uh look, I think this is uh the the pathway that connects this case to many what I'll call corporate governance class actions is what's what's reasonable.
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Because every every shareholder class action turns on did the company act reasonably in relation to the information that it had.
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And the answer is often these were the best judgments that were made on the information available.
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And by the way, nothing was within the awareness of an officer that ought to have caused them to form a different opinion.
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And we don't need a Danish philosopher to tell us.
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Well, I had to Google that one.
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Sorin, Soren Kierkengyard.
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Yes.
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But there is there is force in the proposition, isn't there, that a case and that's the tyranny of defending these cases.
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You're defending them in the shadow of hindsight.
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The decisions are being made in the cut and thrust of the real world, where no one can really anticipate the significance of page 50.
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How bad does it have to be there?
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Because you're pointing out they're not winning these cases.
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They're not winning, although it's pretty fluid.
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I mean, when you look at the decisions to date, one might say that the losses have been on questions of causation and loss, which are a little bit more technical than breach, contravention of the law in terms of did I have material information that I failed to disclose.
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In fact, some courts have found yes, there's material information, but it wouldn't have affected share price.
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Now there's room for morality in the common law, common law construct.
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Is there room for morality around the director's duties in section 180?
00:17:00.480 --> 00:17:12.079
Yeah, um, hard question because the I think once courts decide to put an overlay of morality over the plain language of the text of the statute, it gets pretty murky, doesn't it?
00:17:12.400 --> 00:17:20.000
That's one thing to uh give them a little bit of a touch up, it's another thing to say you have broken the law or you have you have broken your duty.
00:17:20.400 --> 00:17:20.799
Precisely.
00:17:20.960 --> 00:17:31.039
And so real really what some cases do, maybe this is an example, is they put a narrative out that is ultimately designed for the legislature to pick up and change our normative standards.
00:17:31.279 --> 00:17:33.519
And so maybe it could that's not gonna happen.
00:17:33.599 --> 00:17:36.319
We've seen uh the same way it's not gonna happen in your world.
00:17:36.559 --> 00:17:36.799
Yeah.
00:17:36.880 --> 00:17:38.400
I well class actions.
00:17:38.480 --> 00:17:45.920
I don't think I think we're seeing a government that was very active in the first in its first term, the Albanese government.
00:17:46.000 --> 00:17:46.079
Yes.
00:17:46.400 --> 00:17:53.920
With an attorney general who was very keen to pursue a number of issues, but interestingly, one of those was not class actions.
00:17:54.240 --> 00:17:54.480
Indeed.
00:17:54.720 --> 00:17:55.920
Well what what do you see?
00:17:56.160 --> 00:18:07.519
Let's talk about the politics for a minute, because we've had prior to the current Labour government, a couple of Conservative governments, lots of pressure on the what I call the class action industry, almost no uh reform.
00:18:07.839 --> 00:18:19.200
They'd made a bit of noise and they really put much pressure on it because when they'd made that noise, when we were working on those stories, when Michaelia Cash came to that, that was at five minutes to midnight in the Morrison government.
00:18:19.279 --> 00:18:19.440
Yeah.
00:18:19.599 --> 00:18:21.039
They didn't have time to get it through.
00:18:21.119 --> 00:18:28.720
It almost seen like a a little, we'd like to do this, and uh, this is a rallying point against Labour who are all for class actions.
00:18:28.960 --> 00:18:29.200
Yeah.
00:18:29.440 --> 00:18:33.359
So parliamentary joint committee, to me, that took it up a level.
00:18:33.599 --> 00:18:41.039
You've got you really a public hearing about whether class actions are money-making enterprises or recovery systems.
00:18:41.279 --> 00:18:44.240
And that's what that that's what that inquiry basically descended into.
00:18:44.480 --> 00:18:45.200
I think that's all it was.
00:18:45.440 --> 00:18:46.400
It was all about cost.
00:18:46.480 --> 00:18:49.119
It's to show that you're making too much you're making too much money.
00:18:49.359 --> 00:18:49.839
That's what it was.
00:18:50.079 --> 00:18:53.759
It didn't get down to our favourite subject, the circularity of shareholder class actions.
00:18:54.160 --> 00:18:57.440
Didn't deal with that, but but in a l other than in a cursory way.
00:18:57.519 --> 00:19:06.799
And it didn't do, and I know this is not uh a headline grabber, but it didn't deal with how do we make the class action regime quicker and less expensive.
00:19:06.960 --> 00:19:08.319
Like it didn't really get into that.
00:19:08.480 --> 00:19:14.640
What it got into is, oh, 15% of all settlements go to lawyers, another 25% go to funders.
00:19:14.799 --> 00:19:16.000
Isn't this a problem?
00:19:16.160 --> 00:19:18.319
It is a problem, but there are many more problems.
00:19:18.799 --> 00:19:30.079
I think the biggest problem is you've got to sort out how a class action seems to cost both the defence and and the plaintiff 10 million bucks before they even get in a court door.
00:19:30.400 --> 00:19:31.200
We get to a hearing.
00:19:32.960 --> 00:19:35.519
Because I agree, that that is a that is maybe the issue.
00:19:35.839 --> 00:19:41.839
Is there is there it seems to be, you know, an agreed facts process seems to be difficult in class actions?
00:19:42.079 --> 00:19:42.240
It is.
00:19:42.559 --> 00:19:47.759
Unlike crime or other things, that seem to agree facts and they can move forward from the facts quite easily to the legal issues.
00:19:48.240 --> 00:19:52.160
Because the the fact that it can't be agreed is what opinions should have been formed.
00:19:52.240 --> 00:19:54.000
That's the only fact that really matters.
00:19:54.240 --> 00:19:58.000
Everyone knows when the company was founded, everyone knows the revenue numbers.
00:19:58.160 --> 00:20:00.960
The hard decision is should we have formed a different opinion?
00:20:01.359 --> 00:20:09.039
So how have we moved on from, you know, before before Meyer, you know, no class action had gone to judgment.
00:20:09.279 --> 00:20:09.680
Yeah, yeah.
00:20:09.920 --> 00:20:13.279
And no shareholder class action had gone to judgment, rather.
00:20:13.519 --> 00:20:15.680
Has Meyer really changed things?
00:20:16.160 --> 00:20:24.880
I don't think Meyer was uh a landmark decision in the sense that it it was a finding of on particular facts of a contravention resulting in no loss.
00:20:25.200 --> 00:20:36.400
It didn't go into the same minutia that cases like Luca, um, CBA, and and some of these other cases are potentially brambles in terms of what's the content of.
00:20:36.799 --> 00:20:39.680
Ian Jackman, just as Ian Jackman's an interesting figure in all this, isn't he?
00:20:40.000 --> 00:20:40.160
He is.
00:20:40.559 --> 00:20:45.279
He has a more relaxed view, can we say, about things?
00:20:45.680 --> 00:20:46.319
Hard to know.
00:20:46.400 --> 00:20:51.759
He he is responsible for the second Wally uh judgment, as you know.
00:20:52.079 --> 00:20:59.519
And he he did find a finding of uh contravention in the sense of an unreasonable budget, but ultimately no causation and loss.
00:20:59.839 --> 00:21:00.640
Well, that's the whole point.
00:21:00.960 --> 00:21:04.319
I mean, this is the the bit that always puzzled me.
00:21:04.400 --> 00:21:04.559
Yeah.
00:21:05.039 --> 00:21:09.920
How do you actually link the knowledge to actual loss?
00:21:10.160 --> 00:21:18.640
Because, you know, um Beach introduced this concept, or not introduced the concept, but stressed this concept of the sophisticated investor.
00:21:18.880 --> 00:21:19.440
Yes, yes.
00:21:19.599 --> 00:21:26.720
You know, they don't just sort of go, oh yes, I believe what the chairman told me, and I'm going to go and go and invest because of that.
00:21:26.880 --> 00:21:26.960
Yeah.
00:21:27.200 --> 00:21:27.839
Well, one one issue.
00:21:29.519 --> 00:21:30.880
Uh no, so I didn't mean to talk about it.
00:21:31.039 --> 00:21:31.359
I agree.
00:21:31.519 --> 00:21:38.000
On your point, one one thing that struck me about Meyer is that the finding was that the market had already sort of impounded this.
00:21:38.559 --> 00:21:38.880
Exactly.
00:21:38.960 --> 00:21:39.119
Yeah.
00:21:39.359 --> 00:21:44.079
And yet uh Justice Beach was prepared to say, but I'm sure there are some retail investors.
00:21:44.480 --> 00:21:46.880
Well, he didn't want to give up on market based causation, did he just?
00:21:47.279 --> 00:21:47.359
No.
00:21:47.440 --> 00:21:48.480
So it's a it's a mix.
00:21:48.640 --> 00:21:49.279
It's it's a mix.
00:21:49.680 --> 00:21:56.400
These cases at the end of the day are only being brought because of one goal to to generate some money ultimately for group members and those that promote them.
00:21:56.480 --> 00:21:57.599
And that's not happening.
00:21:58.160 --> 00:21:59.359
Unless you're in Victoria?
00:22:00.079 --> 00:22:00.240
Yeah.
00:22:00.319 --> 00:22:04.240
Well Victoria Well that's that leads us back to our thing about why there hasn't been any change.
00:22:05.039 --> 00:22:05.759
Do you think there will be?
00:22:05.920 --> 00:22:08.799
Will will other jurisdictions embrace contingency fees?
00:22:09.200 --> 00:22:16.720
Look, it'd be Andrew Bell would have to go and twist the arm of his um of his Attorney General, and I don't see that I don't see that happening.
00:22:16.880 --> 00:22:17.200
Right.
00:22:17.359 --> 00:22:24.319
Um Andrew Bell being the Chief Justice of New South Wales, who was a little bit annoyed that New South Wales doesn't get any class actions anymore.
00:22:24.480 --> 00:22:24.720
Right.
00:22:25.039 --> 00:22:29.039
And the federal court's a little bit annoyed that it's getting less class actions these days.
00:22:29.440 --> 00:22:29.759
Yeah.
00:22:30.319 --> 00:22:32.160
But nobody's doing anything about it.
00:22:32.720 --> 00:22:39.440
Do you think it's putting the debate about whether contingency fees are good or not to one side, should we have a national uh regime?
00:22:39.599 --> 00:22:43.599
Everyone's paid in the same way, irrespective of which court they're Well, obviously.
00:22:43.839 --> 00:22:45.519
Because then you're getting into forum shopping.
00:22:45.599 --> 00:22:45.759
Yeah.
00:22:45.839 --> 00:22:55.279
I remember when the Victorian legislation came through, everybody said, well, this will be another another another more favorable way to do business.
00:22:55.519 --> 00:22:55.920
Yes.
00:22:56.079 --> 00:23:00.880
And it has worked out that if you look at where the how the cases have drifted, the numbers don't lie.
00:23:01.119 --> 00:23:01.359
Yes, yes.
00:23:01.680 --> 00:23:04.720
Victoria is now the I think tied with Victor the Feds.
00:23:04.880 --> 00:23:06.799
The Feds is the mainly popular terms of growth rates.
00:23:06.880 --> 00:23:07.279
It's not the same.
00:23:07.440 --> 00:23:12.319
Oh, the growth rates they've gone through, but they're and all the other states have basically lost out.
00:23:12.480 --> 00:23:14.160
Now, will the feds go this way?
00:23:14.400 --> 00:23:15.039
Can't see it.
00:23:15.680 --> 00:23:23.680
Because there seems to be, especially with this government, a little bit of a willingness to lead a lot of reform around legal issues to the courts.
00:23:23.920 --> 00:23:24.240
I see.
00:23:24.319 --> 00:23:24.960
I see.
00:23:25.279 --> 00:23:29.200
So as long as Labour's in, I don't see anything happening.
00:23:29.519 --> 00:23:30.319
Really interesting.
00:23:30.799 --> 00:23:43.200
And if the Libs do get back in, well, we've got hard to see them the next election, maybe the election after that, then they gotta get up, then they've probably got a list of things they're gonna do, and I don't see class actions being at the top of the pile.
00:23:43.359 --> 00:24:01.119
So I think it's uh I think all the reform's gonna be coming out of the courts, and whether the High Court wants to do anything to clarify how common fund orders work, they want to do it clarify anything around directors' duties, hello, Commonwealth Bank versus uh Zonder, which is one of yours.
00:24:01.839 --> 00:24:15.200
And if they want to do anything around this about ASIC versus Starr, because ASIC has seemed to be taking, has had an appetite recently for taking what are long shot test cases to the court.
00:24:15.279 --> 00:24:23.599
If you look at the blockchain case, they or the block earner case, they lost heavily at trial and on appeal.
00:24:23.759 --> 00:24:24.160
Yes.
00:24:24.480 --> 00:24:28.799
And something tells me there'll be an appeal in this uh in this case.
00:24:28.960 --> 00:24:43.519
So regardless of what happens, I think we're headed to the high high court to get some sort of uh guidance around directors' duties and around how they operate and what is the standard they're meant to actually operate.
00:24:43.680 --> 00:24:47.839
Is is reasonable what does reasonable mean in these circumstances?
00:24:48.160 --> 00:24:48.240
Yeah.
00:24:48.559 --> 00:24:52.319
As you know, it's always been how long's a how long's a piece of string.
00:24:52.559 --> 00:24:54.400
And very factually, you know, driven.
00:24:54.559 --> 00:25:05.680
Um so what what so that's an interesting take that you really think it'll be over to the courts to reform the law in this space rather than well, let's take a look at another example.
00:25:05.839 --> 00:25:06.000
Yeah.
00:25:06.160 --> 00:25:12.079
ASIC has been very keen to get some movement around Chapter 7 of the Corporations Act.
00:25:12.319 --> 00:25:18.000
As we know, there was a huge, long inquiry by the ALRC.
00:25:18.319 --> 00:25:20.079
They sent all their recommendations in.
00:25:20.160 --> 00:25:25.039
Everyone from John Middleton, who's one of the commissioners, has been urging them to go and do something.
00:25:25.279 --> 00:25:26.319
They've done nothing.
00:25:26.400 --> 00:25:26.559
Yeah.
00:25:26.799 --> 00:25:29.359
And they don't even look like doing anything.
00:25:29.680 --> 00:25:32.960
Because, again, another thing, everything's about cost of living now.
00:25:33.039 --> 00:25:33.599
Yeah, yeah.
00:25:33.839 --> 00:25:39.440
And think, though, we're gonna we're gonna reform class actions and no votes in that.
00:25:39.680 --> 00:25:40.880
There was no votes in it.
00:25:40.960 --> 00:25:47.839
And I just don't see to for them to do it, that would be again to go through another long consultation process.
00:25:48.160 --> 00:25:55.599
Daniel Molino's still new to the job, and he would probably have carriage of it because the treasurer doesn't seem terribly interested.
00:25:55.920 --> 00:25:59.200
Be nice if it was in the Attorney General's portfolio, but it's not.
00:25:59.599 --> 00:26:02.400
She has social media laws to look after and things like that.
00:26:02.480 --> 00:26:04.559
And I don't see it happening.
00:26:04.880 --> 00:26:13.359
In a sense, um cybersecurity, data breaches, there's a range of other sort of legal issues that might ultimately be receiving more attention.
00:26:13.599 --> 00:26:14.799
ESG, climate change.
00:26:15.039 --> 00:26:19.920
Yeah, I think if you had a top ten, I think you'd be you might even be struggling to get into the top ten with Class X.
00:26:20.319 --> 00:26:22.319
Very deflating for my career prospects.
00:26:22.640 --> 00:26:30.480
Oh, well, and you just you just keep going according to uh don't don't lawyers always uh thrive on a little bit of doubt in the law.
00:26:30.880 --> 00:26:31.200
That's true.
00:26:31.359 --> 00:26:32.799
This is an area with so much uncertainty.
00:26:32.880 --> 00:26:47.039
I mean, the it is the last time um uh solicitor, common fund orders, you know, so could a solicitor forget contingency fees just as a matter of common law and court order extract a percentage of the recovery from group members, the high court says no.
00:26:47.200 --> 00:26:49.599
It contributes I'd still find I don't know.
00:26:49.680 --> 00:27:03.119
I mean, maybe I find the whole the way the high court's done this, even going back right to right to the earliest cases where they said, Oh, yeah, yeah, I know you've got a problem with Champany, but really it's all about access to justice.
00:27:03.359 --> 00:27:04.000
Fostiff.
00:27:04.400 --> 00:27:08.720
They really bent over the backwards on their whole access to justice issue.
00:27:09.039 --> 00:27:15.440
Well, you might but you might think that the current high court's pretty different to that FOSTIF court, because they're basically saying to lawyers, no, you can't get a contingency fee.
00:27:15.759 --> 00:27:23.119
Yeah, but you've also got Robert Beets Jones saying, hang on, don't you don't don't you go down running around class actions.
00:27:23.359 --> 00:27:26.640
Remember the one of the various earliest speeches Robert Beats Jones made.
00:27:26.960 --> 00:27:27.119
Yes.
00:27:27.359 --> 00:27:40.240
And I've sort of he of the he of the Grantham Floods class action who said that uh no, we've there's absolutely a place for them anybody who thinks that class actions aren't uh serving a good purpose now.
00:27:40.480 --> 00:28:06.079
This is where we get into the other side of the um argument, uh Jason, where do we where we um hive off uh or we separate class actions into the good and the and the avaricious and the maybe the bad, if we're talking about and I think look, from my point of view, I think there's a discussion around class actions on on product liability cases and stolen wages and everything.
00:28:06.640 --> 00:28:12.799
I think the issue there has become not so much whether they're right to be bringed, but how they're administered.
00:28:12.880 --> 00:28:13.200
Yes.
00:28:13.359 --> 00:28:24.799
There's a real groundswell of emerging excuse like judicial distaste for how the costs that are racked up on administrations and stuff like that.
00:28:25.039 --> 00:28:33.279
Now, then we go over to class actions, where does anybody see any real utility in class actions?
00:28:33.519 --> 00:28:38.160
I've always been interested in the argument that oh they promote better, better behaviour.
00:28:38.319 --> 00:28:41.279
And possibly you couldn't you could make that argument.
00:28:42.640 --> 00:28:58.880
But also the whole circularity of it all, it just beats me that you're taking from, for example, take the classic, like the my uh the the your case, that you if you bought shares between a certain date and a certain date, yeah, you were in.
00:28:59.119 --> 00:29:01.200
Now, what if you never sold those shares?
00:29:01.359 --> 00:29:01.759
Sorry.
00:29:03.599 --> 00:29:10.079
Or what if you did, and and on the plaintiff's theory you were perfectly compensated for the overpayment by selling at a higher level as well.
00:29:10.319 --> 00:29:11.759
And what if you didn't sell the shares?
00:29:11.839 --> 00:29:11.920
Yes.
00:29:12.079 --> 00:29:15.440
Are you are there for are there for are therefore entitled to a second buying?
00:29:15.599 --> 00:29:20.319
Right, or or your investment improves after the period of alleged non-disclosure.
00:29:20.559 --> 00:29:26.720
You make a good point about we we don't have a supply issue for what I'll call corporate class actions.
00:29:26.880 --> 00:29:33.839
And it's telling, I think, that when contingency fees came into Victoria, the goal was to increase diversity of claims, but that didn't work.
00:29:34.240 --> 00:29:39.279
Well, why is there why why has every other case been about how much I can get out of the out of the thing?
00:29:39.359 --> 00:29:43.359
It seems to be courts seem to be a little bit reluctant to go over 30%.
00:29:44.079 --> 00:29:51.920
They are, or they have been there, but they uh the I find it hard to comment on that because I I'm not sure of the machinery by which these numbers are being.
00:29:52.319 --> 00:29:52.559
I don't know.
00:29:52.880 --> 00:29:56.559
Somebody just sort of throw the balls up in there, looks like a 24 case.
00:29:56.640 --> 00:29:57.039
What do you reckon?
00:29:57.200 --> 00:29:59.119
28, 32, you reckon we can go for?
00:29:59.440 --> 00:30:05.920
You're not giving the evidence much credit, although I haven't seen it, but um it's not Well, this is a really hard case, maybe 32.
00:30:06.480 --> 00:30:07.599
That is the narrative that's coming through.
00:30:07.680 --> 00:30:08.160
Cases are hard.
00:30:08.480 --> 00:30:09.519
I don't think it's a really hard case.
00:30:09.839 --> 00:30:11.519
So therefore we should be getting more money, you know.
00:30:11.680 --> 00:30:26.720
That's and we and we should be employing like I love one of the recent cases where Justice Mortimer pointed out that uh the expert who was hired in the case was getting paid less than the than the than the law clerks who were viewing the evidence.
00:30:27.119 --> 00:30:28.240
I remember that judgment, yeah.
00:30:28.559 --> 00:30:30.079
That and and look, that's exposing.
00:30:30.640 --> 00:30:33.279
And that's an industry, an ongoing industry issue.
00:30:33.599 --> 00:30:44.799
Your broader point, though, was there aren't enough, my sense is, what I might call social justice class actions, where uh when you do see them brought, they generally result in outcomes.
00:30:45.119 --> 00:30:51.920
Or what about, as you mentioned, stolen wages, um, underpayment cases, uh climate change.
00:30:52.079 --> 00:30:53.759
Um, there's just not the finance.
00:30:54.160 --> 00:30:56.240
When they're brought, that they generally have an impact.
00:30:56.559 --> 00:31:01.039
Now, all these things could could actually be done through legislative means, but governments don't want to do that.
00:31:01.359 --> 00:31:03.279
No, regulators aren't bringing those cases.
00:31:03.440 --> 00:31:11.359
And you know, 30 years ago, the government rejected a scheme that would have a s a fighting fund for social justice claims.
00:31:11.759 --> 00:31:14.400
Well, in fact, Bob Debitts put up this idea.
00:31:14.559 --> 00:31:17.039
I remember this is how sadly how long I've been around.
00:31:17.200 --> 00:31:25.119
Bob Devus put up this idea at a meeting of the Attorneys General, with this the old SCAG they used to call it standing committee.
00:31:26.000 --> 00:31:28.400
The worst acronym in the law, but I loved it.
00:31:28.559 --> 00:31:29.200
I was still about it.
00:31:29.759 --> 00:31:35.359
But he put up this idea that they could take a percentage out of each judgment, put it into a pool.
00:31:35.519 --> 00:31:35.920
Right.
00:31:36.160 --> 00:31:40.319
And then you would have a self-funding or public interest claims.
00:31:40.640 --> 00:31:40.880
Exactly.
00:31:41.119 --> 00:31:44.880
And class action would effectively be become public interest litigation.
00:31:45.119 --> 00:31:45.279
Yeah.
00:31:45.359 --> 00:31:56.319
If it met certain criteria, like being for a social Victorian Law Reform Commission, a number of um good reform bodies have suggested it, but I guess maybe no votes in it either.
00:31:56.799 --> 00:31:58.640
Well, yeah, it's the other one too.
00:31:58.720 --> 00:32:05.279
You're possibly putting money in the pockets of lawyers by pursuing you know money out of public funds.
00:32:06.000 --> 00:32:06.799
It's a tricky one, that one.
00:32:06.960 --> 00:32:12.799
Put it this way, there's 55 ways to ask to argue against uh whether you should bring a legal claim or not.
00:32:13.119 --> 00:32:13.440
Yes.
00:32:13.599 --> 00:32:19.599
Okay, well, look, what what haven't I asked you that we is useful that we mentioned before we sign off today?
00:32:20.000 --> 00:32:28.160
I just think it's interesting how how does litigation continually get more complex and expensive.
00:32:28.480 --> 00:32:36.799
Well, is to be because it isn't the great skill of the lawyer, and meant to be of the lawyers of the judges, yeah, to bring the case down to its essence.
00:32:37.119 --> 00:32:38.880
Yeah, it's a different practice now.
00:32:39.200 --> 00:32:43.039
Is the bench not asserting itself as much?
00:32:43.200 --> 00:32:49.599
Or are lawyers just in the old vernacular, just always want to cover every base, and I could have put it another way.
00:32:49.920 --> 00:32:51.200
It might yeah, it might be more.
00:32:51.279 --> 00:32:52.960
I I think frankly, it's more the latter.
00:32:53.039 --> 00:33:00.000
There doesn't seem to be any lack of I mean, Justice Lee's an example of wanting to get to the point and but party.
00:33:00.400 --> 00:33:05.440
Because what used to be the two-week trial, I mean, the four-day trial now is very rare.
00:33:06.160 --> 00:33:07.519
Why can't we bring it back?
00:33:07.759 --> 00:33:11.680
Well For me, that is everyone talks about legal costs and everyone.
00:33:12.240 --> 00:33:12.400
Length.
00:33:12.720 --> 00:33:13.359
Length is a problem.
00:33:13.599 --> 00:33:14.559
Length is the issue.
00:33:14.720 --> 00:33:18.160
And and discovery, I mean, when you've produced a hundred.
00:33:21.599 --> 00:33:22.720
Well, I think AI could.
00:33:22.960 --> 00:33:28.319
It could at least say, here are the documents that you you need to have focus on to build the chronology.
00:33:28.400 --> 00:33:37.920
It could distill Could you could you see your practice and preparing for a class action go go the other way and become less voluminous?
00:33:38.319 --> 00:33:39.440
On discovery, 100%.
00:33:40.000 --> 00:33:47.759
I just think there's a a world in which reviewing materials to identify where potentially the important ones are could be reduced drastically.
00:33:47.920 --> 00:33:48.880
I think that's our future.
00:33:49.200 --> 00:33:55.519
Doesn't substitute the need for a human to say here's the implication of that important document, but it might reduce the search time.
00:33:55.920 --> 00:34:00.720
Because that's where I think lawyers and courts and the legal system lose the public.
00:34:01.200 --> 00:34:10.400
Lose the public and how long things take and how many boxes or trolleys have to be wheeled into a courtroom for a court case.
00:34:10.719 --> 00:34:11.679
And that's what's changed.
00:34:11.760 --> 00:34:14.159
I think there's many more of those now than there ever used to be.
00:34:14.320 --> 00:34:16.159
Now, part of that is the digital world.
00:34:16.320 --> 00:34:18.719
There are just more documents now that need to be reviewed.
00:34:18.800 --> 00:34:18.960
Trevor Burrus, Jr.
00:34:19.039 --> 00:34:22.639
But shouldn't the digital world make it easier for us to find what's actually of essence?
00:34:23.039 --> 00:34:28.559
Precisely, because I I think one thing that hasn't changed is the cases turn on three or four folders.
00:34:28.800 --> 00:34:31.760
Uh, and it's how do you get to those three or four quickly?
00:34:32.159 --> 00:34:32.400
Yeah.
00:34:33.119 --> 00:34:39.440
Well, Michael, as usual, quite a tour de force uh there in terms of the current legal landscape.
00:34:39.599 --> 00:34:42.880
I'm so grateful for you being generous with your time and joining the joining the podcast.
00:34:43.039 --> 00:34:44.480
Thank you so much, Michael Pelly.
00:34:44.800 --> 00:34:46.079
Thank you, Jason Pitt.
00:34:47.360 --> 00:34:50.960
As we close today's discussion, two important themes emerge.
00:34:51.199 --> 00:34:58.239
Firstly, the implications of regulatory litigation will likely be far reaching both for directors and corporations.
00:34:58.559 --> 00:35:06.079
And secondly, class actions, including the politics of how these cases are run and financed, will continue to evolve.
00:35:06.320 --> 00:35:15.679
Michael's perspective highlights the potential scale of the changes to the perception of both directors and companies' liability and class action proceedings.
00:35:15.920 --> 00:35:18.320
Thank you for joining us on On Just Terms.
00:35:18.400 --> 00:35:20.559
We look forward to continuing the conversation.