03 Apr 2014

Declarations might not be a financial penalty, but they can still cost you

by Edmond Park

Any declaration will stand as a public statement of the entity's conduct, or misconduct, and may have serious consequences for follow-on actions.

Declarations are a form of relief frequently and commonly sought by the ACCC when it brings proceedings for alleged breaches of the Trade Practices Act 1974 (Cth) (TPA), now known as the Competition and Consumer Act 2010 (Cth) (CCA), but businesses often don't understand how they work, or why they need to give them careful thought.

Once the orders are entered, the orders made by the Court are said to be "perfected" and thereby become permanent. This might then require disclosures to the market (ie. listing rule requirements for continuous disclosure), or give rise to new liabilities for the company, or lead to reputational damage.

A recent Federal Court decision, Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2014] FCA 148, reminds litigants and practitioners that declarations should not be overlooked as a mechanical or generic part of the relief sought, but instead closer scrutiny should be made of them in terms of their legal basis, their formulation and why they should be made.

What is a declaration?

When a court makes a declaration, the declaration is "a formal statement by a court pronouncing upon the existence or non-existence of a legal state of affairs" on questions of fact or law or a mixture of both "as determined by reason of the trial of the action reflected in the findings". It is to be contrasted with a coercive judgment which can be enforced by the courts such as by way of an order for damages or an injunction or the imposition of a pecuniary penalty. [1]

Why do regulators seek declarations?

Declarations are requested in claims for breach of Part IV of the CCA or the Australian Consumer Law because:

  • They record the Court’s disapproval of the contravening conduct;
  • they vindicate the applicant's (often the ACCC's) claim that the relevant respondents contravened the CCA;
  • they help clarify the law; and
  • they can help deter others, which is often an express aim of the ACCC.

ACCC v Cement Australia: from interim to final orders

The principal proceedings concerned alleged breaches of sections 45 and 46 of the TPA.

On 10 September 2013, when the Court published its reasons for judgment in the substantive proceedings, it also made certain declarations described as "interim declarations" as to contraventions as well as non-contraventions, together with orders directing the parties to prepare and submit formal orders and declarations for the consideration of the Court based on the judgment.

This was complicated by the fact that the ACCC didn't establish that Cement Australia and its related companies had misused their market power in contravention of section 46 of the TPA. It succeeded however on some of the allegations involving primary and accessorial liability for contraventions of section 45 of the TPA.

The parties were not able to agree on the form of the final orders including the declarations. The respondents' position was that the final form of the declarations "should be configured in a form and limited to the way in which the interim declarations have been framed", which would retain the declarations about their non-contraventions.

The Court took the opportunity to clarify why the interim declarations were made on 10 September 2013 and to dispel any uncertainty or confusion between those interim declarations and the final formulation of declarations. Justice Greenwood stated that the interim declarations were "were deliberately framed at a high level without attempting to comprehensively frame the ultimate declarations to be made in the precise terms in which they ought be made after thoughtful and careful analysis of the lengthy reasons by the parties".

It was in this context that the Court also took the opportunity to consider the legal principles relevant to the making of final declarations, their legal basis, their formulation and why they should be made.

What should a declaration look like?

Justice Greenwood started by noting that a declaration must recite the rights of the parties with respect to the final resolution of a particular matter in controversy with precision and in a binding way, rather than summarise the outcome of the controversy:

"the formulation of the declaration ought properly reflect the essence of the conduct constituting the declared state of affairs and not simply be framed in terms of the language of the section itself which begs the question of the conduct".

Even though the terms of the declaration may replicate some things stated in the Court’s reasons for judgment, a declaration is regarded at law as something more than the formally expressed passages in the judgment that contain findings of fact or law or determine that a right, duty or liability does or does not subsist or that particular conduct is or is not lawful.

Against that background, Justice Greenwood considered the final form of the declarations.

Despite making interim declarations about non-contraventions, Justice Greenwood held it was inappropriate to make them final because:

  • the framing of the declaration, in order to be accurate and precise, would need to make clear that the respondents did not engage in a contravention;
  • where the relevant statutory provision contains a number of integers, and non-contravention flows from the failure to establish one of those integers, a declaration that recites non-contravention would not convey the relevant conduct with precision;
  • similarly, simply declaring non-contravention itself might be apt to mislead as to the actual conduct finding.

Presumably the interim declarations concerning non-contravention were made for the express purpose of assisting the parties to state, with precision, the form of the final declarations. However, even with this assistance, the parties were unable to agree on the final form.

And why should litigants pause to consider declarations carefully?

Any declaration will stand as a public statement of the entity's conduct, or misconduct, and may have serious consequences for follow-on actions.

As the Cement case shows, in complex cases the Court will not rush to formulate the orders, but will give the parties the opportunity to consider the reasons for judgment so that the orders, in particular any declarations, may be framed as precisely and accurately as possible to accord with the factual and legal findings. That opportunity should not be squandered as a mere formality, given the serious nature of the consequences.

There are two key actions to take when contemplating the form of a declaration:

First, ensure that the declaration accurately reflects the conduct and the legal findings, especially where some but not all allegations of contravention are made out. If the declarations are a short-hand substitute or summary, there may be room for confusion and uncertainty as to the contravening conduct. A declaration drawn up in haste and without consideration may be drawn broader that the actual findings warrant, which would be contrary to the principles governing the making of declarations.

Secondly, as the making of a declaration is the exercise of a statutory discretion conferred on the Court, a litigant should also be alive to factors relevant to the exercise of that discretion to ensure it does not miscarry and making the declaration is, in all of the circumstances of the case, justified.


 

[1] Zamir & Woolf, "The Declaratory Judgment", Lord Woolf and Jeremy Woolf, Sweet & Maxwell, 4th edition, [1.02] Back to article

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.