Innovation and boundaries: case management in the Federal Court

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This article was written by Alex Morris, Moira Saville, Armen Varvachtian and Amelia Blefari.

In a recent Full Court decision, the Federal Court has provided guidance on the appropriate boundaries for the case management of largescale, complex commercial litigation. Although the Court has power to make robust and innovative orders with a view to managing the conduct of cases through to final hearing, the judgment in McGraw-Hill Financial, Inc (now known as S&P Global, Inc) v Mitsub Pty Ltd (Trustee) [2017] FCAFC 11 (available here) confirms that, in doing so, the Court will have regard to the need for clarity in what is expected of parties as well as the extent and nature of the obligations such orders would impose.


In the proceedings, the applicant seeks monetary remedies and declaratory relief against two Standard & Poor's entities ("S&P") in respect of alleged contraventions of various provisions of the Corporations Act 2001 (Cth) and Australian Securities and Investments Commission Act 2001 (Cth). The claim focuses on alleged misrepresentations S&P allegedly made to the applicant in relation to a type of synthetic collaterialised debt obligation ("SCDO") called the Blue Gum SCDO, as well as allegedly unconscionable conduct in which S&P is said to have engaged. Specifically, the applicant makes allegations impugning the methodology used by S&P in assigning ratings to the relevant products. These allegations are said to raise issues which are similar (but not identical) to issues that arose in earlier litigation in relation to broadly similar types of financial products.

Following a case management hearing, the docket judge made an order that required the Chief Executive Officer of the S&P entities to file and serve an affidavit identifying, after personally reviewing the files in the proceeding and each of seven other proceedings, whether S&P contended that the findings in prior litigation concerning the inappropriateness of the use of particular ratings methodologies in respect of rating structured products:

  • address systemic events;
  • do or do not apply to S&P's ratings methodologies used for each product in issue in each current proceeding; and
  • if he or she believes that those findings do not so apply, explaining why not and why the Court will need to deal with the issue of reliability of the respondents' ratings that are impugned at a final hearing.

In making this order, the primary judge noted that the litigation of the issues in question, "if fully contested in respect of each related product, is likely to be very expensive and time consuming both for the parties and the Court". His Honour:

"[W]ished to be assured that the chief executive officer, as the person ultimately responsible for the decision to litigate them, had actually turned his or her mind to those issues and explained, at a high level, why the Court, having already spent considerable time and resources on different, but somewhat apparently (on my current understanding) related issues, should revisit those generated in the eight current proceedings involving the use of the [statistical methodology in question]…

The purpose for which I sought the affidavit is to assist in the case management of the eight proceedings. It is not punitive or any kind of sanction. And, it is in no way based on any prejudgment about any of the complex and, as yet, protean matters potentially in issue. But, for the purpose of case management the Court can require a party, by its proper officer, to explain the reason why it needs to litigate particular issues in the proceedings and thus to require the Court and the other parties to devote resources to deal with those issues."

Appeal to the Full Federal Court

S&P sought leave to appeal against this order to the Full Court of the Federal Court. Unanimously, the Full Court allowed the application for leave and the appeal itself. In doing so, Gilmour and Foster JJ accepted the S&P submissions, noting that:

  • even if the primary judge had power to make the order, there was "a very real argument as to the identity of the entity or entities or person or persons bound by the order. The order is ambiguous in this respect and is open to competing interpretations", which is unsatisfactory;
  • the primary judge failed to have regard to the risk of the appearance of pre-judgment in making the order, noting the principle that a judge hearing a dispute "must determine that dispute upon the basis of the material which is before him or her in that case and not because, in some other case, he or she or another judge in another proceeding has decided a similar matter in a certain way";
  • the primary judge failed to have regard to the prejudice the order would occasion to S&P in that it required the CEO of each S&P entity to express belief on substantive legal matters which would "inevitably be informed by legal advice" leading to a "real risk" that, in complying with the order, the CEO would need to disclose privileged material;
  • by expressly referring to the CEO in the orders, the primary judge denied to S&P the opportunity to select the most appropriate person best able to provide the information sought by the order; and
  • the order was ambiguous in that it "did not specify with sufficient particularity the task or tasks that the CEO of each relevant corporation was being required to do".

In a concurring judgment, Gleeson J agreed generally with Gilmour and Foster JJ's reasons for allowing the appeal and added that, in her Honour's view, "substantial injustice would result if leave [to appeal] were refused". Her Honour identified two aspects of the burden:

  • the "burden of swearing an affidavit addressing matters that are not identified with sufficient clarity to permit the deponent to know precisely what he or she was required to do to comply with the order"; and
  • the "substantial expenditure of resources to provide justification of the affected parties' defences (or presumed defences) which was not demonstrated to be reasonably necessary to advance the aims of case management".

Her Honour also referred to the difficulties posed by the form of the order, accepting in particular the submission that the order was expressed upon mistaken premises that certain findings were made in the earlier litigation. Further, her Honour recognised the "serious imposition" occasioned by an order that "would probably require substantial effort having regard to the complexity of the issues that would need to be addressed by the affidavit or affidavits, and the solemn task of making an affidavit", noting the "competing demands" on the time of CEO, including "multiple demands relating to the corporate governance of S&P". Finally, her Honour also noted that there was no reason to doubt the capacity of S&P's lawyers to provide reliable information to the Court of the kind the primary judge sought by way of the order.

What does this mean for case management?

Does the Full Court's decision signal a stepping away from active case management? No. To the contrary, the Full Court indicated that, even though the order in question was "not a run of the mill procedural order", orders of that kind "may be justified under the case management principles currently being developed by this Court in the modern context" – as long as the Court has power to make such an order (which was not determined in this case) and it is appropriate to do so (which it was not).

Parties should therefore still be aware that the driver of case management orders is to be found in the Court's desire for the just, cheap, and quick disposition of proceedings. The possibility remains open for the Court to take innovative steps to ensure that the complex issues before it in large and complex proceedings – including, in particular, class actions – are dealt with in the most effective way possible. However, the Full Court has made it clear that such orders must be unambiguous in their form and operation, not occasion substantial injustice to the parties, and be appropriately adapted to the circumstances of each case.

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