An unsuprising criticism about the upcoming statutory tort of privacy which is generally wrong

January 20, 2025 |

Chris Merritt is a good journalist and has ably edited the Legal Affairs section of the Australian. But he has bug bears which defy logic and fact. One of them is a statutory tort of privacy. The Australian has always had a set against the tort, primarily because of fears that it would interfere with the practice of journalism. Given the exemption which precludes a claim from being brought against journalists this is no longer a thing for the Australian. That of course does not stop Merritt from having a major rant against the statutory tort in last week’s Business to pay the price for new privacy tort. It is quite surprising that the Australian has been so slow to start its complaint about the statutory tort.  In the past it campaigned a long time before any tort was even proposed.  Here the complaint is made after the fact.

Now Merritt’s complaint is that businesses will be bankrupted for being vicariously liable for the breaches of privacy

The focus of the article is on the possible impact on businesses.  The reliance is on the submissions by the Business Council of Australia and the Australian Industry Group to the Senate Committee reviewing the Bill.  The BCA and the AIG have always been hostile to any form of actionable right to privacy.  Their submissions to this heavily circumscribed statutory right have followed that line.  They were not particularly analytical submissions and had a heavy dose of Henny Penny “the sky is falling” hypotheticals.  One hypothetical is how this tort will impact insurance premiums in the future.  Merritt draws a very long bow in drawing a comparison of the impact of the tort with the insurance disruption following the collapse of HIH.  That a similar result is in the offing.  Given the general damages award is capped this is quite a stretch.  It is quite an illogical analysis because given the tort requires an intentional or reckless act it is not proper to compare those claims, in the future, with claims of a sort and awards of the quantum associated with personal injury and medical negligence. The statutory tort provisions makes no comment on vicarious liability so the principle applies.  But so what?  The situations where that happens will be quite limited.  But if a person uses company resources to interfere with someone’s privacy then a company may be called to account if it is done in the course of company business and not inconsistent with its activities.

It is a quite a poor article but does highlight the continuing, largely ideological, fighting retreat by some areas of the media to a statutory tort.

The article provides:

Right now, companies are failing at a record rate. So can anyone think of a worse time to create a new way of suing business?

Unfortunately, that’s exactly what federal parliament did on November 29 when it approved a new statutory tort for serious invasions of privacy.

Despite warnings from peak industry groups, parliament did nothing to stop innocent employers being held vicariously liable for invasions of privacy committed by employees who break corporate rules.

Everyone should be accountable for their misdeeds – but not the wrongs committed by others. ?Yet that is a key feature of the new privacy tort sitting on the federal statute book, just waiting for enterprising lawyers to give it a run when it comes into force in June.

In October, the Business Council of Australia warned about the potential unfairness of holding employers vicariously liable for the wrongful actions of their employees – particularly if companies have taken all reasonable steps to prevent staff from invading anyone’s privacy.

The Australian Industry Group also sounded the alarm in a submission on the Privacy and Other Legislation Amendment Bill.

“Vicarious liability for the wrongs of an employee presents a significant risk for employers in the context of tort law. The various risk mitigation strategies and the litigation insurance costs which would be necessitated by the establishment of a privacy tort would not be in the public interest,” the Ai Group said.

That warning about potential hikes to the cost of litigation insurance should have been a big warning for parliament. It should have persuaded parliament to make the change that had been proposed by the Business Council.

The BCA solution would have given business a strong financial incentive to do everything reasonably possible to protect the privacy of everyone it deals with.

Instead, this new law treats corporate Australia as a patsy that is there to be fleeced.

It was waved through one month after parliament was put on notice that business failures were surging.

In October, the Australian Securities & Investments Commission published figures showing a 43 per cent increase in insolvencies in the first three months of 2023-24.

A total of 3568 businesses had an external administrator appointed in that period – 1073 more than during the September quarter of 2023.

So why would federal parliament decide that now is the time to give plaintiff law firms a brand new way of suing businesses?

Just follow the money.

By failing to exclude vicarious liability, this scheme will give successful plaintiffs access to corporate insurance cover.

This is good news for plaintiff law firms – particularly those that take a share of their clients’ ­payouts.

Members of parliament who take an interest in these things would also have known that the boom in class actions has passed its peak.

In the year to June, statistics compiled by King & Wood Mallesons show just 44 class actions were filed, which is the lowest total since 2016-17, with only 12 actions filed in the first six months of 2024.

So from a litigator’s perspective the new tort is perfectly timed. It also comes with advantages for ­litigators.

Parliament has structured it so litigation will lead to payouts without proof of damage.

And while the rest of the Privacy Act aims to protect “personal information”, the new tort has a broader reach.

It permits payouts over the disclosure of information that merely “relates to” the plaintiff.

When structured wisely, class actions can provide an efficient way of holding wrongdoers to ­account.

But when any form of litigation gets out of control, or the underlying law is skewed unfairly, it can impose collateral costs on the innocent that are unsustainable.

Despite what some might believe, most class action settlements against companies are actually paid by their insurers.

And when the legal system is skewed against business – as it will be under this tort – history shows that insurers will respond with alacrity.

About 20 years ago they staged a capital strike in response to booming payouts for personal injury claims. Insurance was not just expensive, but in some cases was unavailable.

The public outcry led to a wave of tort reform that was brutal but effective.

By refusing to address the problem of vicarious liability for business under the new tort, parliament has skewed the law to favour plaintiffs.

If law firms take advantage of this to target companies with solid insurance cover, nobody should blame the lawyers.

They would be responding rationally to an unfair system that gives priority to obtaining a payout, regardless of whether that payout comes from entities that have done everything reasonably possible to protect privacy.

Right now, the insurance industry will be considering how much extra risk it faces in Australia because of this new law.

If that leads to higher insurance costs, it is entirely foreseeable that this will show up in higher prices for consumers of goods and services – even before the plaintiff law firms get cracking.

If that is the only adverse consequence of this new tort, we should consider ourselves lucky.

Twenty years ago state governments had no option but to surrender to the insurers, which had simply withdrawn from the market, leaving surf clubs and other institutions to pay personal injury claims without the safeguard of ­insurance.

In order to persuade insurers to return to the Australian market the states changed personal injury laws, restricted access to the courts and capped damages ­payouts.

It was crude and in many ways unjust. But it worked.

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