On the brink of privacy class actions in Australia: All eyes on pending OAIC determination
Market Insight 26 August 2019 26 August 2019
Insurance & Reinsurance
Most people are likely aware of the March 2018 'Cambridge Analytica' incident which involved alleged unauthorised access to and misuse of personal information of users of the social media giant. Those who have been following this incident will also know that the Office of the Australian Information Commissioner (OAIC) is formally investigating the incident, with a much anticipated decision soon to be handed down by the Commissioner.
To date, there has been a relative shortage of privacy litigation being commenced against companies and government agencies, let alone any successful class action determinations through the Courts. This is a result of various shortcomings in the Australian legal landscape and legislative framework, which in its current form is not sufficiently robust to provide affected individuals with appropriate avenues to easily seek redress following a mishandling or breach of their data.
Against this background, the overall findings, determination and willingness of the Commissioner to award compensation has the potential to fundamentally impact the operation of Australia's privacy regime, particularly as it could provide affected individuals with the ability to claim compensation en masse, when their data is affected by a data breach, or if there is mishandling of their data in contravention of privacy laws and regulations.
This article is intended to provide a snapshot of the class actions and legal regime in Australia with respect to privacy breaches, and to provide predictions about the future landscape in anticipation of the pending decision from the Commissioner.
Cambridge Analytica incident in a nutshell
In June 2014, researcher Aleksandr Kogan deployed a personality-quiz application onto Facebook.
The application was an immediate success and resulted in around 270,000 unique installations where—as per standard practice—users agreed to allow the application to access their Facebook data. During this process, the application also harvested publicly available information about each user's Facebook friends. As a result, Kogan's application collected the information of around 87 million people, mostly without their knowledge or consent.
Kogan later delivered this database of personal information to political consulting firm, Cambridge Analytica, who are alleged to have used this information to influence the outcome of the 2016 US presidential election. Altogether, it is estimated that of the 87 million total number of affected individuals, approximately 300,000 Australians had personal information contained in this database.
Regulators around the world are treating this incident very seriously. In October 2018, the UK Information Commissioner's Office fined Facebook GBP 500,000 for serious breaches of data protection law (the maximum amount allowable under the pre-GDPR privacy regime). This is being appealed by Facebook. Following this, in 2019, the Italian Data Protection Authority fined Facebook EUR 1 million in relation to the incident. More recently, the US Federal Trade Commission approved a USD 5 billion fine against Facebook.
Although these sums are unprecedented, it is interesting to see the different approaches in severity by reference to the number of users impacted – bearing in mind that only 67 Italian users were impacted by the incident, compared with 1 million UK users. It remains to be seen how future fines are assessed by regulators for severity and appropriateness.
Why the lack of Australian privacy class actions?
In theory, large scale data breaches should be ripe for class action litigation.
Data breaches occur frequently, impact a large amount of stakeholders including customers, supply chain and trading vendors, shareholders, credit card providers, and financiers of the breached entity, and have the potential to cause serious and significant harm to individuals whose data is at risk. They are also newsworthy and often captivate the public's attention, arming litigation funders and an active plaintiff bar with a steady stream of prospective cases to pursue.
Despite this, the commencement of data breach class actions has been almost non-existent, owing largely to an inadequate legal framework, despite the Australian litigation landscape being quite accustomed to class actions. Although there have been a number of false starts following large scale and headline grabbing incidents, the only substantive case on foot in the Courts currently is the class action brought against the NSW Ambulance Services in relation to unauthorised disclosure of sensitive health and personal information of Ambulance Services employees.1
Generally, a class action may be successfully lodged in Australia where:
7 or more persons have a claim against the same person(s);
the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances; and
the claims of those persons give rise to a substantial common interest of law or fact.
While major data breaches will often satisfy these elements, a class action cannot be successfully maintained without a sufficient cause of action. Problematically, Australians do not have a free-standing actionable right to pursue privacy breaches under common law or equity, or under statute. Much will turn on the particular facts of the case and the relationship between the affected party and the entity responsible for the privacy violation.
As such, there is no simple means of grounding representative claims on the grounds of privacy violations in the Australian Courts, which is in stark contrast to jurisdictions such as the United States, where privacy class actions are abound (noting however that the US has its own unique procedural difficulties surrounding class certification). This is having a chilling effect on data breach class litigation in Australia.
Should the Australian parliament introduce a statutory tort for breach of privacy?
The world has woken up to the risks associated with mass data collection. With greater awareness comes an increased public expectation around how organisations and government agencies handle, secure and protect their data.
A statutory remedy for breach of privacy would provide victims with an avenue for redress should there be a violation of privacy. However, whether Parliament should implement such legislation has been the topic of extensive research and heated debate over the past 12 years, with vocal advocates on both sides of the discussion.
To illustrate, back in in 2008, the Australian Law Reform Commission (ALRC) recommended the implementation of a statutory cause of action for serious invasions of privacy in its paper ‘For your Information: Australian Privacy Law and Practice’, 2 which the Australian Government elected not to support. In fairness, the Apple iPhone had only just been released the year prior, drones were not on supermarket shelves, and the social media giants we all recognise were mere start-ups. Times have since changed.
Subsequently in 2014, the ALRC published the 2014 ‘Serious Invasions of Privacy in the Digital Era’ report,3 which again advocated for individuals to have a statutory cause of action in tort where a defendant intentionally or recklessly:
intrudes upon seclusion (such as physically intruding upon a private space or by watching, listening to or recording the plaintiff's private affairs); or
misuses private information (such as collecting or disclosing personal information about the plaintiff).
Although this review was designed to bring the law in line with the digital age, again, the Australian Government did not support the creation of such a regime, leaving individuals without a clear actionable right of privacy.
Since then, multiple State, Territory and Commonwealth law reform bodies have reignited the call for privacy law reform, in the context of 'revenge porn' (or 'image based abuse') providing victims with avenues of redress should intimate images be disclosed or threatened to be disclosed or disseminated (usually by jettisoned ex-lovers). While these reviews led to changes in criminal laws to allow law enforcement bodies to charge individuals responsible for such reprehensible behaviour and allow the e-Safety Commissioner to issue civil penalties against wrongdoers (such law reform is applauded), nevertheless, broader privacy laws remained untouched.
As such, individuals that wish to pursue privacy claims must found their action on common law or equitable actions, such as negligence, breach of contract, breach of confidence, misleading and deceptive conduct, or breach of continuous disclosure obligations (depending on the circumstances of the incident, profile of the breached entity, and relationship with affected individuals), all of which are ill-fitted and cumbersome for the purpose of establishing remedies to be awarded to affected individuals.
Current claims landscape in Australia
To date, two lower (non-appellate) Courts in Queensland and Victoria have grappled with the state of the Australian law, finding in favour of severely impacted individuals in two unique cases involving stalking, and unlawful broadcasting of the identity of a victim of sexual assault on national television.4 We also note the WA Supreme Court's recent decision in respect of a case involving 'revenge porn' (in which the Supreme Court awarded the plaintiff AUD 35,000).5
In addition to these examples, there was a representative claim brought against CBUS in 2017 through the OAIC, in which the OAIC tested its powers with respect to representative complaint actions under the previous 'NPP' Privacy Act regime.6 Critically, the OAIC did not order compensation without evidence of harm being suffered as a result of the breach.7
This will be a key battleground for future actions, with the key question being whether individuals have suffered compensable harm which can be supported by proof of loss. Beyond obvious cases such as individuals suffering actual financial harm or out of pocket expenses as a result of a breach of their data, arguments will likely surround whether an increased risk of future harm as a result of a data breach or other non-economic loss including emotional distress, inconvenience, and embarrassment, can be compensated. Much can be learned from the US legal jurisprudence in this area.
Despite these rare exceptions, as a whole, the inadequacy of Australia’s privacy legal framework has contributed to the absence of class actions in privacy. While some Australian Courts have paid consideration to the existence of a similar privacy right in common law, there has been no clearly enunciated position on attaining a remedy on this basis.
It remains to be seen whether the government introduces legislation creating a statutory tort for serious invasions of privacy, which forms part of the Australian Competition and Consumer Commission's recommendations in the July 2019 Digital Platforms Inquiry.8 This is particularly so given that the Government announced plans to strengthen Australia’s privacy laws, as well as increase funding for OAIC, prior to the most recent election9 (read our article here).
In the meantime, as is currently being tested in the case of Facebook, arguably the best recourse that individuals currently have is to lodge a representative complaint with the OAIC. That is, until or unless a plaintiff law firm (likely with US privacy class action experience and financial backing from a litigation funder) is willing to test the bounds and establish their position in this space through the Courts.
Privacy action against Facebook - the impact in Australia
Generally speaking, Commonwealth Government Agencies and private sector organisations that have an annual turnover of AUD 3 million or more are subject to the Privacy Act 1988 (Cth) (Privacy Act). Although Facebook is incorporated overseas, importantly, the Privacy Act has extra-territorial reach and can still apply to overseas organisations that have an Australian link, even if they that process and store data outside of Australia.
Under the Privacy Act, relevantly, entities are required to:
- provide individuals with adequate notice and obtain their consent about how their information is to be collected and handled; and
- ensure that personal information remains secure and is handled in accordance with the stated purpose for which the information was collected.
In 2018, backed by global litigation funder IMF Bentham, a representative action was brought by an individual through the OAIC seeking compensation on behalf of the 300,000 Australian's involved in the Cambridge Analytica incident, in the sum of AUD 10,000 per individual. If the representative complaint is successful, this may result in a total payout of more than AUD 3 billion.
Additionally, the Commissioner has the authority to order Facebook to:
- implement structural and procedural changes to the company to prevent future breaches; and
- apologise to Australian users whose personal information was compromised.
The costs of entering into and demonstrating compliance with enforceable undertakings to address the above can be costly. Against recent criticisms of Australian corporate regulators entering into enforceable undertakings however, it remains to be seen whether the Commissioner will instead make a finding in favour of the representative complainant and order compensation to affected individuals. If the OAIC adequately compensates the class of affected individuals, then this will likely be the forum and vehicle for privacy class actions in the future.
If not, then absent the development of the right of privacy through judicial intervention (say in the NSW Ambulance case, assuming it proceeds to judgment), it will be up to lawmakers to introduce a statutory tort for the serious invasion of privacy.
Given recent proposals to increases the powers of the OAIC and quantum and scope of Privacy Act fines, recent proposals to introduce mandatory data breach legislation for NSW Government Agencies, and the newly introduced Consumer Data Right and increased information security requirements for APRA related entities, it may be that there is sufficient appetite for law reform. Much will likely turn on the OAIC decision and the government's appetite to introduce legislation.
Way forward - how organisations can prepare
To date, most losses incurred by organisations that experience a data incident are first party costs – i.e. the costs of responding to an incident (such as the costs of engaging external advisors and undertaking a notification campaign) and business interruption and consequential losses. However, very few organisations have incurred liability losses as a result of compensating individuals for mishandling of their data.
We predict that as the regulatory investigation and litigation environment heats up over the next 6-12 months, this is where organisations will face significant exposure.
What measures can your organisation take to prepare?
- Purchase cyber insurance - Organisations should ensure that they have in place adequate insurance programs to cover the costs of data and privacy related litigation, including standalone cyber insurance which is intended to provide both first party costs and third party liability cover.
- Implement processes and procedures to mitigate human error - Should a liability claim arise, plaintiffs and defendants will likely cross swords on the meaning of 'reasonable steps' in assessing liability. In our view, the occurrence of a breach doesn’t in itself mean an organisation failed to take reasonable steps. However, in defending allegations of wrongdoing, it will be critical that organisations can demonstrate on a technical level that they followed best practice security and industry standards. It will also be critical that they can demonstrate that they had requisite controls, processes and procedures in place to mitigate the risk of human error of employees and supply chain vendors, which are an increasingly common cause of incident.
- Catalogue data handling practices - From a pre-incident perspective, organisations should catalogue their data handling practices in advance, so that they can later make the argument that they took reasonable steps to protect data, even if an incident occurs despite their best efforts.
- Look into how you can boost your organisation's cyber resilience - While there is no such thing as perfect security, there are measures that organisations can take to improve their cyber risk resilience in advance in accordance with best practice.
- Review supplier and customers contracts - Organisations should understand how the terms of their supplier and customers contracts impact the future defence of a claim or prosecution of a cross-claim where multiple supply chain vendors are responsible for causing or contributing to the incident, such that their liability can be reduced accordingly. Multi-party breaches are on the rise and remain a constant source of risk for many organisations.
How can we help?
Clyde & Co has the largest dedicated and rapidly expanding cyber incident response practice in Australia and New Zealand. Our experienced team have dealt with over 700 data breach and technology related disputes in recent times, including a number of the largest and most complex incidents in Asia Pacific to date.
From pre-incident readiness, breach response, through to defence of regulatory investigations and proceedings, as well as recovery actions against wrongdoers, we assist clients in Asia Pacific across the full cyber lifecycle. Our team is also highly regarded for their expertise and experience in managing all forms of disputes across sectors including advising on some of the most newsworthy class actions commenced in Australia.
Our 24 hour cyber incident response hotline or email allows you to access our team directly around the clock. For more information, contact us on:
Australia: + 61 2 9210 4464
New Zealand: 0800 527 508
 Australian Law Reform Commission, For Your Information: Australian Privacy Law and Practice (Report 108, 2008).
Australian Law Reform Commission, Serious Invasions of Privacy in the Digital Era (Final Report No 123, September 2014).
Grosse v Purvis  QDC 151; and Doe v Australian Broadcasting Corporation .
Wilson v Ferguson  WASC 15.