In Conversation with Prof. Brad Sherman: D'Arcy v Myriad Genetics Inc (2015) and the Future of Australian Patent Law

Prof. Brad Sherman

Prof. Brad Sherman

Professor Brad Sherman is an academic of the T.C. Beirne School of Law, and an alumnus of the London School of Economics and the University of Cambridge. His expertise includes the historical, doctrinal, and conceptual development of intellectual property law.

Prof. Sherman sat down with the JATL blog editor, Jocelyn Bosse, to discuss the implications of the recent High Court decision, D'Arcy v Myriad Genetics Inc [2015] HCA 35, which was handed down on the 7 October 2015.

Jocelyn: "The High Court of Australia recently held that an isolated human gene was not a patentable invention within the meaning of the Patents Act 1990 (Cth). The judgment overturns the unanimous decision of the Federal Court in 2014. Were you surprised by the decision?"

Brad: "To some extent, yes. I was surprised by the willingness of the Court to seriously engage with the legal issues for the first time. In some ways, I was not surprised by the style of argument used - particularly by the majority - which seemed to avoid the question about the meaning of "invention." Nevertheless, I was pleased with the decision."

Jocelyn: "During the proceedings, the Court seemed rather concerned with the wide scope for potential unintentional infringement of the patent. In the joint judgment of French CJ, Kiefel, Bell and Keane JJ, it was noted at [8] that “There is a real risk that the chilling effect of the claims, on the use of any isolation process in relation to the BRCA1 gene, would lead to the creation of an exorbitant and unwarranted de facto monopoly on all methods of isolating nucleic acids containing the sequences coding for the BRCA1 protein.” Is not this more an issue of ‘fair basing’ and less a question of ‘patentable subject matter’?"

Brad: "Yes, the Court was particularly concerned with the question of unintentional infringement of the patent. I think there are several things to bear in mind here. One is that recent research by Professor Dianne Nicol of the University of Tasmania has shown that the suggestion that gene patents have a 'chilling effect' is not supported by the evidence. But, having said that, there has been quite a bit of evidence to show that Myriad, in other jurisdictions, had an impact on the ability for women to access the types of services that they want, such as breast cancer screening at an affordable cost. So, it does have unexpected effects.

In relation to 'fair basing,' one of the things about patentable subject matter in Australia - and, for that matter, the USA and Europe - is that 'subject matter' has been conflated with other types of criteria. For example, in Europe, questions as to subject matter (particularly in the United Kingdom) are very closely linked to questions of inventive step. At the European Patent Office, they are taking subject matter very seriously. They ask a broad question: the "any hardware" approach. They ask whether it is "technological" - it does not matter whether it is new, old, or inventive. On the other hand, in Australia, we conflate all those things together, which is one of the reasons why it is so problematic.

The decision does introduce fair basing, but that is partly a consequence of how the case was argued. I do not know why it was argued as 'subject matter' in the first place."

Jocelyn: "Do you see that conflation changing in the future?"

Brad: "I don't think so. I would like it to happen, since the law would be much clearer if we adopted the approach of the European Patent Office. That would be on the condition that we took the other criteria of patentability, like inventive step, fair basing, sufficiency, etc. seriously. We do not take them seriously in Australia at this stage. The other problem is that it shifts the emphasis onto the Patent Office, so it is not as transparent."

Jocelyn: "Nettle and Gageler JJ argued that the manner of manufacture test invokes a requirement for an “inventiveness threshold” as well as the requirement for artificiality and economic usefulness.  Could this be a bit of a conflation of the question of ‘patentable subject matter’ with the other criteria for patentability, like ‘obviousness’ and ‘industrial applicability’?"

Brad: "In the same way in which the focus on 'fair basing' conflates questions of patentable subject matter, I agree that the "inventiveness threshold" also imports obviousness into patentable subject matter. I believe that is inherently problematic. When you are dealing with 'inventive step,' the parties can bring  in experts and you can argue on the particular facts of the case. We are mixing different issues here: on the one hand, patentable subject matter is about a class of inventions (e.g. genes, computer programmes), but the Court was talking about specific levels of inventiveness. They were moving between different issues. I think it would be much neater and clearer if the law focused directly on one of the two."

Jocelyn: "Although laws of nature are not patentable, purified preparations of naturally occurring microorganisms (e.g. yeasts with brewing applications) had been patented in the USA since Pasteur’s patents in the 1870s right through to the engineered microorganisms in the Chakrabarty case in 1980. Naturally-occurring substances have previously been subject to the test of being an “artificially created state of affairs with economic significance,” although the High Court emphasised in Apotex Pty Ltd v Sanofi-Aventis Australia Pty Ltd: “Nothing said in the Court's reasons for decision in that case can be taken as an exact verbal formula which alone captures the breadth of the ideas to which effect must be given.”

How does this most recent decision affect the patentability of other naturally-occurring substances?"

Brad: "The decision has important ramifications for the patentability of other naturally-occurring substances, subject to a number of limitations. The key issue about this decision, at least in the minority, was that the judgment of subject matter is done on the basis of difference between nature and artifice. Something is artificial if you can show there is a gap caused by human intervention. By focusing on the genetic dimensions of the gene, rather than the chemical dimensions, the Court could recognise that there was in fact no difference between them, and therefore it was not patentable subject matter.

Going forward, in relation to proteins and other things, it could be that if a protein were created artificially, it would depend upon how it was characterised. They are even more complicated than simply asking whether it's chemical or genetic, so it's even more hybrid. Certainly, I think it suggests that the courts will be much more willing to critically review the patentability of naturally-occurring substances."

Jocelyn: "Gordon J noted that: “Myriad submitted that such a result would put Australia out of step with some of its trading partners including the European Union and the United States of America. That issue, if it is to be addressed, is a matter for the legislature…”

Likewise, French CJ, Kiefel, Bell and Keane JJ stated that: “The proposition that a broad statutory concept applies to a new class of case on the boundaries of existing judicial development of that concept requires consideration of the limits of judicial law-making inherent in common law methodology. Where an affirmative application of the concept is likely to result in the creation of important rights as against the world, to involve far-reaching questions of public policy and to affect the balance of important conflicting interests, the question must be asked whether that application is best left for legislative determination. The patentability of nucleotide sequences derived from human DNA is in that category.” 

Do you agree that gene patents would be an extension of the concept of a ‘manner of manufacture’ which was not appropriate for judicial determination?"

Brad: "One of the interesting things about the NRDC case is that it stressed the importance of the law and the definition of 'manner of manufacture' to adapt to encapsulate new types of innovative technology. One of the issues in this case is the focus on the phrase  'manner of new manufacture' rather than the concepts that lie behind it. I think that the patent law has been able to appropriately accommodate conceptual changes in the past, so long as it is based on the principles that have been developed.

I think that it is appropriate for the courts to stand up and deal with this. If Parliament is unable to resolve this issue - and historically parliaments have had phenomenal difficulty in dealing with intellectual property law provisions - so I think there is enough of a conceptual framework that decision can be made, so long as it is taken seriously, and so long as the courts and the lawyers take a broader and more imaginative approach, rather than just reverting to the same old ideas."

Jocelyn: "It was argued by Myriad that Parliament had the opportunity in the past to specifically exclude gene patents, but it didn't go through. They essentially argued that Parliament was intentionally leaving it open."

Brad: "There are many different reasons why legislation does go ahead. Pieces of legislation are often the product of pork barrelling, or trading between partners, or lobbying, so the fact that something doesn't get through is not any indication that Parliament does not want to do it, and while it may be in some cases, that was a bill put forward by a senator who did not have the support of the party."

Jocelyn: "The Myriad decision in the USA specifically recognised that synthetic DNA created in a laboratory, known as cDNA, was not a product of nature and could be patented. On the other hand, the Australian High Court was silent with regard to those claims, with the exception of Gordon J, who stated in obiter dicta comments that genetic probes would be patentable. Some say this means that the High Court has gone further than the US Supreme Court. Do you think the biotechnology and other industries have any cause for concern here?"

Brad: "The omission of comment about synthetic DNA was a real oversight. On the reasoning of the decision, I would be highly surprised if synthetic DNA did not get up. It may be the case, however, if it were argued appropriately, that it would not get up on the basis of lack of inventive step. Under the basic principles of patent law, I don't see any reason why synthetic DNA would not get up. 

I am still very surprised that the High Court did not see how important it was to mention that: it was a real oversight, and completely bizarre since it came up during the proceedings."

Jocelyn: "What likely implications will this decision have for access to certain types of genetic material by the scientific and research community? Would it really improve the provision of genetically derived healthcare services and the capacity to conduct unfettered biotechnological research?"

Brad: "I mentioned the research by Professor Dianne Nicol, which suggested that there has not been a lot of evidence of any stifling effect of gene patents. There has, however, been some indications in the agriculture industry, where lawyers involved in the research process take a conservative approach, and have effectively stifled the research. A more imaginative approach would allow them to get around it, but if you get the wrong lawyers involved and an institution like a university or public agency, then it does have a stifling effect.

Although it is not as bad as some people claim, I think it is important in terms of the impact. Going forward, it would allow researchers to argue more strongly that their activities are not covered by patents. Insofar as the potential threat to genetically-driven healthcare is concerned, and although there are potentially ways to get around it, the conservative legal system and the lawyers involved are a bit institutionally averse to challenging these provisions. So, we get the situation where cancer victims or potential cancer victims get railroaded. In the United States, there are lots of examples of threats issued against people researching in the field, and that will disappear going forward.

Given that the patent had lapsed in Australia, it is obviously a dead issue, but in other areas it is very important: it is not just for gene patents. Had the High Court been a little bit clearer, it would have been a much better decision."

Jocelyn: "The Court gave particular credence to patent law internationally. In the judgment of French CJ, Kiefel, Bell and Keane JJ, it was noted that: “The relevant law of other countries may appropriately be taken into account where an application of the Act would enhance or detract from the harmonisation of Australia's patent law with other jurisdictions.” What do you make of the weight which was given to the state of affairs in our regional trading partners like China, Japan, Korea, Singapore and India, and the purported need for harmonisation with Europe and the USA?"

Brad: "The issue of harmonisation of patent laws in the judgment was odd. Members of the judiciary in recent years have been stressing the fact that universities are providing inadequate education about statutory interpretation. I would have thought that a statute which says, quite clearly, that the meaning of "invention" is derived from the phrase 'manner of manufacture' would be interpreted according to the relevant principles and concepts, and not deriving from perceptions of what the laws are like in some countries, like China, Singapore, etc. I mean, why not Canada? Why not France? How do you select those five countries out of the hundreds of countries?

I do not see why questions of harmonisation are important. These are issues for Australian people, particularly Australian women, and I think that the issues about harmonisation are completely irrelevant. If there were issues about harmonisation, it would be about Australian researchers getting the same level of protection overseas. I found it to be the most bizarre part of the decision.

Australia complies with its international obligations like the TRIPS agreement, which is very specific about the laws and we provide the correct levels of protection. There is some scope for member states under the TRIPS agreement to interpret things according to their national needs. I think that it is much better for a country to pursue its own interests. Often arguments for harmonisation just reflect a particular policy, because decisions have to be made about which countries to harmonise with - why not Canada, or France, or North Korea [laughs]?"

Jocelyn: "Is there anything else you would like to add?"

Brad: "The decision is very important. It sends a strong message, and it's really pleasing that the Court would engage in a way which it has never done with patent jurisprudence. Some aspects of the decision are a bit disturbing or unnecessary - it's really not an example of evidence-based decision making. On the one hand, the Court is saying that it is a matter for the politicians to decide, and on the other, it is raising political issues in the reasoning.

Harmonisation is an issue that I really don't think is relevant in this context. The lack of guidance about the synthetic DNA was an oversight, although I do not think there would be any doubt about the law. It is just something that could have been dealt with really quickly, but was not.

It is heartening to see the Court beginning to develop some Australian jurisprudence. However, it is a mix: on the one hand, they have their own jurisprudence, and on the other, they are falling back onto other countries. Australian patent law has been a bit homeless since the British joined the European Patent Convention, so we couldn't follow the UK, or the USA, and so now we do not know where to look - as though we've been thrust out by our parents and have not quite grown up yet. Part of the decision is us wanting to go live back at home (but we aren't really sure where home is, so we are looking around for a country to befriend us) and the other part of the decision is us trying to grow up.

Overall, though, the outcome is fantastic."

Jocelyn: "Thank you so much for taking the time to speak with Pandora's Blog."

"Victims of Corruption" - Transcript of the Second Social Justice Forum

On Wednesday 20th May, JATL was proud to host the second social justice forum on the topic "Victims of Corruption." The speakers included Dr Radha Ivory from the TC Beirne School of Law, Keith Christiansen from Transparency International, and Laurence Terret from Herbert Smith Freehills.

Special thanks must go to the JATL Social Justice team, Tristan Lockwood, Jordan Mathas-Carleton and Rose Leonforte, for organising the event.

Tristan welcomed everyone to the forum:

"Tonight, we've come together to talk about corruption in the context of social justice. As most of you know, the Justice and the Law society looks to explore the intersection between social justice and the law. I think this is a really interesting nexus which is emerging: the intersection between corruption, which we know from TV and movies, and social justice, our conception of what is right and wrong, and how this plays out in a really tangible way.

Tonight, we are joined by Laurence Terret, of Herbert Smith Freehills, Keith Christiansen, an expert in the field of corruption with many years experience, and Dr Radha Ivory of the University of Queensland.

Before I hand over to Dr Ivory to introduce the other panel members and commence tonight's discussion, I'll make some brief comments about Dr Ivory's career, which is a very interesting one and very relevant to tonight's discussion. Dr Ivory was a graduate of this law school with a Bachelor of Arts and Law with First Class Honours. Dr Ivory subsequently obtained her doctorate from the University of Basil, graduating summa cum laude. From her work with NGO "Building Safer Organisations" in Geneva, to the co-authoring of a general report on corporate criminal liability for the Congress of the International Academy of Comparative Law, Dr Ivory has had an illustrious career in the field of corruption, and governance more generally.

Dr Ivory's PhD has recently formed the basis for a monograph published by the Cambridge University Press, titled "Corruption, Asset Recovery and the Protection of Property in International Law: the Human Rights of Bad Guys." Currently a lecturer at the University of Queensland, and a senior consultant at the Basil Institute of Governance, please welcome our chair for tonight's discussion, Dr Ivory."

Dr Radha Ivory 

Dr Radha Ivory 

Dr Ivory introduced the other two speakers:

"I'm going to frame their contributions with a few short comments about the nature of the, let's call it 'international legal approach to corruption,' which has something to do with the regulation here in Australia, closer to home, as well as to how people in developing states are, as it were, "protected" from the wrongs that can be done to them by various types of state and non-state actors. 

Seeing as we're coming up to tax time, I presume at least some of you are thinking about filing tax returns; that is, that some of you are working and will be claiming something back. Now, I hope that no one is planning to claim back for a foreign bribe. No takers? Well, surprisingly - perhaps - it wasn't so long ago when people in Australia could recover foreign bribes as tax deductions. That may sound a little shocking... I hope it does! [audience laughter]. But, I think one of the questions we need to ask ourselves is why and how this has changed.

Certainly one of the reasons is that there's now a whole range of international treaties that require states to prohibit actions like foreign bribery, and various other forms of misuse of public office and trust for reward. What they do, is they commit the state parties, like Australia, the USA, China, Russia, Indonesia - developing and developed countries - to criminalising these acts and omissions, to making companies liable for those crimes, and to cooperate in criminal matters, to suppress those offences. So, when we can't, in Australia, act on our own to prosecute an offence, investigate it, and enforce the penalty, we can ask for assistance from another state using one of these treaties or another of the conventions that's related to it.

It all sounds like it should work pretty neatly, but, given that we're here, and given that we're still talking about victims of corruption, obviously something is going wrong. Obviously it's not enough that we just can't claim those foreign bribes anymore. So, we're looking to other solutions, other, let's call them regulatory responses. Some of those responses are informal. They are created by people on the ground to respond to the challenges confronting them then and there. Those are the type of responses that we'll be hearing about from Mr Keith Christiansen.

Keith working with MSABI (Maji Safi kwa Afya Bora Ifakara - Safe water for Better Health!) in Tanzania

Keith working with MSABI (Maji Safi kwa Afya Bora Ifakara - Safe water for Better Health!) in Tanzania

Keith has had an illustrious career in many fields that pertain directly to the regulation and response to corruption. On the one hand, he was a member of the defence force as a senior military officer for some time, he worked as a UN peacekeeper and diplomat, and , in addition to that, he has also served as a leader of corporations: as a CEO and a director, working particularly in the Asia-Pacific region.

Now, more to the point, in semi-retirement, Keith is very active in the NGO 'Transparency International' (TI). I'll leave it to Keith to say a little more about TI in his talk, but just to link it back to my comments, they were one of the leading organisations in pushing for this international set of regulations, these international standards. They are a very important NGO and they have a chapter here in Australia, and a committee here in Queensland.

In addition to his role with TI, Keith also works with MSABI Water & Sanitation programme, which has its operations in Tanzania. Again, he has a leading role there and is very well-placed to tell us about their work in trying to protect their programs from corruption in one form or another. Thank you."

Applause. Keith Christiansen shared his comments:

"Thanks Radha. Thank you very much to Tristan and everyone on your organisational group for inviting me here tonight. I've looked forward very much to the opportunities to come and talk about corruption, and anti-corruption in particular, to the younger generation. It's something for which I find a lot of interest and enthusiasm, as well as beating your head against the wall with senior bureaucrats, some senior business leaders, so I like to share my experiences so I can perhaps inspire you as you take your journeys along your career paths. 

For me, this topic bring together the two passions that Radha alluded to: my anti-corruption passion and, from my engineering background, supporting a very worthy cause in Tanzania - a water and sanitation programme - which is having a very important impact in a very small part of the country, which we are hoping grow a lot further. At the time I was involved with those entities, I didn't quite realise they were going to come together so importantly on the ground. I'd like to share that experience with you, because I think that's what's really important. A lot of what I'll say by way of introduction are big figures to impress you and show why this is such a serious issue for the world to deal with. It can often sound like it is just too hard. But there are little cracks, and you can get in there and make a difference.

Transparency International is the premier, independent anti-corruption agency in the world. They are a not-for-profit NGO based out of Berlin: there is an organisation of about 150 staff in Berlin, and a very big research team that pull together the Transparency International Corruption Perceptions Index, a colourful map of the world that is done each year. The colour red shows very high-risk countries for corruption, while the yellow to greener colours are a little bit better. For any organisation, of any type, in the world, if you are going into a foreign market, you should look at that map, and if you're in the high-risk countries, that should be the first warning to really look at your risk management for corruption risk. It is a pro bono organisation, particularly in Australia, and it's open to membership to anyone.

So moving on to the topic, the dilemma that we face is that the social injustice, in the international development and humanitarian area in particular, ultimately means that about 40% of the resources - and I use that broad term 'resources', a lot of which is the actual funding, but some of it is physical resources, particularly in emergency relief when we're talking about food supplies, tentage, all the things we see on the news - but up to 40% of that does not make it to its intended recipients. Now that's the global average, it goes up and down in different places, but it's an enormous waste, and certainly, if that doesn't represent a social injustice in itself that we should all be displeased with, then I don't know what is.

If we can focus in Africa, 80% of Africans earn less than $2 a day. Just think about that. That forces them to have to make decisions each day: do I use that $2 a day to buy some food to feed the family, or do I use it to pay a bribe to get some medical treatment? Now that's a pretty telling social injustice, but that sort of scenario is confronted by thousands every day. Clearly, in those sort of countries, with a high level of poverty, there are a lot of people who are vulnerable and easily exploited by those with power. There are lots of technical definitions about what corruption is, but essentially, it's abuse of power for individual gain. There are people who have very few options, no resources - they can't say no, so it's very easy to be exploited.

So that leads me into my story. MSABI, as Radha said, is a water and sanitation programme in Tanzania. It was actually started by a young, UQ graduate engineer who was in his mid-twenties, and went to Tanzania in 2007 as a trailing spouse - his partner was doing a PhD on malaria research in a very remote part of Tanzania. Dale Young has won a couple of awards here in the alumni at UQ for his efforts. Dale is a water engineer. They had been there about three months, and there was a very serious typhoid and cholera outbreak in the village they were living and working in. A lot of kids were dying, and as a water engineer, Dale could see the problem. Basically, this is a valley where there's a big river, so there's no shortage of water, but when you dig the wells in the sandy, loamy soil about 3m deep to scoop out the water, and then 10m away you dig the sanitation pits, so you get cross-contamination in the water supply.

Image from the MSABI blog

Image from the MSABI blog

This is a part of the world where the average life expectancy is 48, and 5% of the kids don't make it to their 5th birthday, and of those kids, the majority die from diarrhoea-related illness, which kills more than malaria and AIDS put together.

You don't need medical intervention to stop that. You need to wash your hands, understand hygiene, and drink safe water. So, that's what this programme does. Dale was there at a time where he was working in a village that had a desperate problem. This is a very remote part of Tanzania, a long way from the government - any government - and he thought he had a solution. He could see that the solution had to be something to help the people help themselves, and do it using resources that are readily available within their own district, not imported equipment and things. So, he realised that what he was doing, technically, was empowering these people to deal with the problem themselves. They had lots of disappointments. In this valley, there had been 300 mechanical pumps put in over about a 10-year period - you've probably seen them, these ones that go up and down, have a hydraulic ram in them and the suck the water up - but the problem is, in sandy, loamy soil, within 18 months the rubber grommets that seal the pump section get chewed out by the sand: they are the wrong piece of equipment in that sort of environment. They were put there by people with good intentions, but no engineering background.

So, Dale saw a solution to this using local resources. He came back to Australia, got some seed funding from the company that we were both working for at the time, and that's now grown to the biggest water and sanitation programme in Tanzania since 2009. The key to that is this empowerment of the people. Early on, we were just doing a well here, a well there - experimenting with ways of drilling down to 30m, which was the safe depth to get the safe water out. You can't get trucks with well drilling equipment into these villages, you have to use hand-manipulated well drilling apparatus, the rotor sludge pump technique developed by the Egyptians about 4000 years ago - they use bamboo sections, we actually used proper drilling types now. Basically, we just push water through the pipes and jiggle it up and down, since we're not going through rock, it's only sandy loamy soil, we can get down to those depths.

From the MSABI blog

From the MSABI blog

This empowered people. By setting up their own well drilling companies, setting up the local villages to make their own well drilling equipment, there was not a reliance on the local authorities, the regulatory authorities, which we knew were going to be a problem at some point because of the way it works in that part of the world. Forty percent of the resources don't get through to where they are needed because of these regulatory bodies. We decided, after a couple of years when things were going well, that we needed to really start thinking about a strategy to deal with potential conflict, which at some point we were going to have with the bureaucracy. So we introduced a system where, every time a well was opened in a village or school, we had the local elected government official come along and open it. They like to have their photos up on a big banner, give them all the kudos for the well, 'MSABI' was just in little letters down the bottom.

The villagers knew who really put the well there, who helped them do it, but we gave the kudos because we knew, at some point, when we ran into problems with the bureaucrats, we could then go to the local politicians and say "We're getting a hard time here, can you help us?" They don't want MSABI to have to leave the valley, so we developed some leverage. Almost on script, two years into this programme, we ran into trouble. We started getting messages about some 'compliance issues' - have you got a licence for well drilling? Well, we don't have a well drilling rig, and from what we understood about the law, the sort of drilling we were doing did not require a licence.

From the MSABI website

From the MSABI website

The problem in that part of the world is actually finding the law or regulatory regime. Most of the locals don't know, and as happens, the bureaucrats will make up these laws to suit their own purpose. Dale was called in to the head of the rural water authority at the appropriate time, which said that MSABI was not compliant in some areas, but Dale said "We just can't do that." The guy said it was a serious problem, but "there is a way you can make all this go away." This was a one-on-one meeting behind closed doors, and that translates to a certain amount of money being deposited in a brown paper bag and being left at a certain location to make the problems go away. There was no way we were going to cross that line. The response was, "MSABI is not going to go down that line, so if that's your approach, we'll just have to close up shop, and I'm going next door to the Governor's office - who is the senior elected government official - who loved MSABI and whose photo has been all over the well opening, and tell him that we're going to have to close down. Before Dale even got to the door: "I'm sure we can work this out!"

We are now five years into the programme. We actually have a good working relationship with the rural water authority, with whom we now work hand in hand, in identifying locations for wells, and we're giving them the kudos of a number of MSABI's wells which are developed in this valley. So, it looks good on their reporting to the national headquarters. Part of all this anti-corruption is making people look good, but certainly not crossing your own lines of credibility.

I think that the important thing to take out of this is that people power, of which people empowerment is a very important part to develop the confidence, is a very powerful anti-corruption tool, and it's certainly something that Transparency International, around the world, promote. TI actually works as a bit of a broker in some parts of the world, to get the people who are the beneficiaries of this, together with the government officials who are the ones most likely to exploit the system, and develop the transparency and the understanding that the people have a say in what the requirement is, and then having the ability to monitor it, question, and report.

So, I'll just leave it at that. There's a big discussion about 'people power' as a social justice issue, well beyond humanitarian and development systems. It's not the answer to everything, but it certainly has provided a very powerful foundation in Tanzania for us to get the social justice where it needs to be at."

Dr Ivory returned to introduce the second speaker:

"Thanks Keith for that very inspiring insight into your work in Tanzania. Not to make it too boring by getting back to law stuff again, I think Keith's comments highlight a couple of things that will take us well into Laurence's intervention. One is the way that ideas about 'right' and 'wrong' have changed, and how changing ideas about what's right and wrong have brought people from different places, together, working together. We see it, we being people who live in "Western countries," we see it as our business, our responsibility, to care about what happens to people who live in other places, who are not our neighbours, who may not have any way of benefiting us materially. So, ideas about sovereignty have changed because ideas about right and wrong have changed.

The response that states have taken, as I've said, is to emphasise the criminal law, at least in the law on the books - the books, in this case, are those international treaties I've talked about, as they have been implemented in states like Australia. But, notice that the idea of regulation assumes a certain type of state: a state that has certain types of capacities to implement laws, a state that has certain laws in place, and that within that state, people can and do want to abide by those standards. Now, it also assumes a certain division between the public and the private sphere, and anyone who has taken Associate Professor Jon Crowe's course in Feminist Jurisprudence will remember that that's a problematic distinction. We don't know whether it ever really existed in our countries, and we don't know whether it applies to other places. I hope, as I'm talking, that you're starting to think about the problematic nature of 'us and them'.

So, we come to think about the responses to corruption as being less about criminal law - state there, people over here - to something that involves collaboration across those traditional public and private divides, and forms of regulations that aren't just about the law but are also about mobilising the actual societies that we find in one place to another. So I hope that's not too much of a complicated segue to Laurence's presentation, which is about another way in which private actors - in this case, corporations - have been brought into the model for changing behaviour to respond to ethical issues.

Laurence Terret

Laurence Terret

Laurence, I should add, is a solicitor from Herbert Smith Freehills, and we're very lucky to have him here from London, but I don't think JATL actually flew him out today... I don't know that JATL's budget quite stretches to business class tickets, or even economy for that matter [laughter].

He's with us as a representative, a secondee to the Brisbane office. His area is dispute resolution, and he's acted for international energy and mining corporations in Africa and other parts of the world. I'll leave it to Laurence to explain how his experience relates to the topic that we're talking to today. I'll conclude this little bracket by saying that corporations have an important role to play in making the world safer for everyone to live in, and I'm looking forward to hearing more about how they can do that right now. So thank you Laurence."

Laurence Terret shared his experiences:

"Thank you Dr Ivory for that introduction, and thank you Keith. The first class ticket certainly sounded nice, maybe we can speak about that afterwards [laughter]. As the doctor said, my background is that I'm an associate at Herbert Smith Freehills, qualified in England and Wales, where I've worked for four years. Part of my experience involves advising energy and mining clients investing in developing economies. One thing those clients are seeing is a rise in human rights and business law. This is a relatively new area of law, and it's important for our clients to engage with it. It's not new, in the sense that human rights have been around for a while - in 1948 was the UN Universal Declaration of Human Rights - but only fairly recently, in 2011, the UN issued guidelines on human rights and business.

Now, these guidelines are broadly categorised into three pillars:

  • Protect;
  • Respect; and,
  • Remedy. 

So, protect is the obligation for governments to protect human rights, respect is the obligation of businesses to respect human rights, including human rights-related business abuses, and remedy is that individuals should have access to remedies for human rights-related issues which are connected to businesses. These kinds of issues are important to clients for a number of reasons, there are a number of risks involved with human rights.

  1. Reputational - it looks very bad if they are involved in human rights issues;
  2. Financial - I'll talk about it a bit later. There can be significant financial consequences;
  3. Operational - these kind of things can really affect the business. For example, protestors at mines, or even governments revoking mining licences, and things of that nature;
  4. Being a Good Corporate Citizen - that is terminology which is increasingly used.

The OECD, as a consequence of the UN guidelines, has now introduced the OECD guidelines for multinationals - which is not new, but they've introduced a new area on business and human rights - and OECD countries have set up national contact points called NCPs (there's one here in Australia). The idea is that an interested party can bring a complaint of human rights abuses to the national contact point of the country in which the abuse was either alleged to occur, or in which the corporation is based.

So, an example of a complaint brought in the Australian NCP recently, is against an Australian bank which had financed a sugar plantation in Cambodia, which allegedly involved appropriation of  property, environmental damage, etc. Although it's 'soft law' in the sense that these NCPs can't enforce remedies, there's reputational risks and people are expected to comply. So, that's the soft law side of it. The other side of it is a trend, which we've seen in England in the last 10 or 20 years, which is the phenomenon of international tort claims against multinationals for human rights abuses. An example of this has been in the papers recently, is that Shell settled a claim for £60 million (roughly AU$120 million), as a result of an oil spill and damage to environment, by local fishermen in Nigeria, the Bodo community. That's a good example of these kind of claims.

I think it's worth asking why these claims are on the rise. There's a number of reasons. One of them is that local people in, what we call, the 'host state' (the state in which the investment is taking place) don't feel as though they have access to justice in those countries. I think that relates to what Keith was saying: the local judicial system is often clogged up, and it's often seen as corrupt, so they need to find new ways to access justice. That's one reason. Another reason is financial. Again, these people don't have access to finance or resources that you need to actually bring these claims, but in Western courts and Western legal systems, there are other avenues to finance these kind of claims. For example, pro bono or 'no win, no fee' type arrangements. The third reason we see this happening is mobilisation and globalisation. People are increasingly mobilised. Particularly here, it relates to the involvement of NGOs and also class-action lawyers who can actually encourage people and mobilise them and group them together to issue these kind of claims. So those are the reasons why, I'll just touch now on some of the legal issues - not in great detail.

One of the legal issues is, 'Who do you actually sue?' The classic example is that there's a local community, it suffered environmental damage and loss of livelihood as a result of an operation by a company. Now, often these investments work that there's a parent company, headquartered in the UK or Australia for example, and then there's a local subsidiary. So really, the best way, strategically, to do this, is to include the parent company as a defendant. There's a couple of reasons for that. One of them is the 'deep pockets' - they generally have more money, but the other one is that it allows them to seize jurisdiction in the Western courts. If you have a defendant who is domiciled in the UK, that allows you to bring a claim in the UK courts. So that's one issue.

The other one, as I mentioned, is jurisdiction. Often, if you can found a claim in the Western courts, these claims can get bogged down in procedural issues, and one of the arguments used is forum non conveniens - so whether in fact this is a convenient forum to bring the claim, or whether there's a more convenient forum elsewhere - whether, for example, the local courts would be better placed to deal with it. Then there's some interesting arguments around that, often some of these claims do get bogged down in procedural type arguments like that.

The final legal issue, I just want to touch on briefly, is the substantive law that applies. So, you've founded the claim, you've got jurisdiction, but then the court has to decide 'What is the law that actually applies to the tort?' There's really two options: the law of the host state, or the law of the home state. The general rule is the law that applies is the law of the place in which the tort occurred, so it would actually be the host state. In some of these cases, surprisingly enough, that's not necessarily an issue because the same facts can give rise to a claim there, and there might be nuances, but there are often similar issues that would give rise to a claim in the home jurisdiction, but the issue of the substantive law can be relevant in specific areas, such as limitation periods, or the measure of damages.

What do we advise clients in this space? What we're telling business is that you need to know your obligations relating to human rights. It's not enough to just say 'Yeah, human rights, yeah we agree with that.' That's easy to say, but in the current landscape, that's not really enough. So what we say is that you have to know and show, and there's three areas that companies need to focus on:

  1. Have a human rights policy
  2. Due diligence
  3. Remediation mechanisms

So I'll just talk about each of those briefly. Policy: you should say it loud and say it proud - make it clear that you buy into human rights. But it's not enough to just say it, you need to integrate it as a value in your business, and it needs to be from the very top. It needs to be the board level people that understand the obligations here, and really buy into it. As well as those top people, it should really also be the experts, the people on the  ground in these countries that understand what this means, and what the implications are, and how to go about it. The idea is that, if you integrate it, it becomes a value that people actually buy into.

Interestingly enough, human rights law applies, not just to your own company, but to your contractors and business partners as well. It's enough for you to be doing it, you need to be telling contractors what to do, and that they buy into it. An example is that Herbert Smith Freehills was recently involved in one of these projects, and the client got hundreds of subcontractors to warrant that they would comply with the schedule of human rights obligations: that's the level you need to go.

A site in Ivory Coast being excavated to remove toxic waste. Photograph: Legnan Koula/EPA via 'The Guardian'

A site in Ivory Coast being excavated to remove toxic waste. Photograph: Legnan Koula/EPA via 'The Guardian'

Another example of one of these claims in the English courts is Trafigura, an oil management company, that they settled, and they were accused of toxic waste dumping in the Ivory Coast. In fact, they weren't the ones that dumped the waste, it was a local contractor, but they were found to be responsible for that.

The second is Due Diligence: this isn't due diligence in the classic sense from an M&A situation where it's just a one-off at the start of a transaction - this is ongoing due diligence. Right at the outset of a project, you need to scope human rights as part of the cost-opportunity analysis. So, you need to understand who is affected by your operation, how they might be affected, where, and when - and this needs to be from the start, right through, ongoing monitoring and compliance of how the project is affecting local people.

And three, Grievance Mechanisms: have a forum for people to be able to air their grievances. The idea is that if you've got the structure set up, you can spot problems early, and you can deal with these problems. It is better to deal with is before it escalates, and better also to be responsible about what's happened than to try and avoid it, because that will come back later. Ultimately, what we say is that the long-term viability of any kind of project really depends on the buy-in of the local people. If they see you have a responsible attitude, and you're wanting to comply, and you care about what they say, then you're more likely to succeed.

Thank you very much."

Dr Ivory continued:

"Thank you Laurence for that very lucid, thorough and precise survey of the law on human rights regulations from an international perspective. Excellent summary. Now, it's over to you! What do you want to know from our panelists?"

Audience Question: "The literature on corruption generally divides itself into moralist and functionalist. Moralists seem to argue that corruption is never justified whereas functionalists tend to argue that corruption can actually be justified if it promotes economic efficiency. I'm just wondering what your opinions are on that, particularly you, Keith?"

Keith: "The only benefit, economically, that corruption would have would be very short term, and wide impact on a lot of people. There's probably a philosophical argument about that, particularly from the economic-rationalist side, but from my own personal experience - and at the core of that is the thing about whether you pay a small facilitation payment... you know, $50 to get your supplies off the ship at the local port. Having been in that situation in Indonesia, there is no future in paying that $50, because $50 becomes $100, and then next time round it's $1000. You can say, "Well, $1000 is a bit much!" but the response will be, "Yeah, but you've paid it before, so we're going to tell the police that you've already paid bribes." So, as an international person that's going to create a big problem.

I know you're talking about something much more macro than that little situation, but really, that same philosophy applies. There is no long-term future because corruption is about more than just economics. It's about people. There is a connection between corruption and human rights, because the consequence of corruption is a human right, and the bigger the macroeconomic picture of that, the bigger the impact."

Audience Question: "I have a question for Laurence. How do you advise corporations in terms of enforcing their policies with their subcontractors?"

Laurence: "Well, it's difficult because the subcontractors are local entities, but you can get into situations where... it's all about spotting things. So, if you spot that one of the subcontractors is not complying, you may need to threaten to terminate the contract, for example, if it's serious - but that would be one option. Before that, what we encourage is dialogue and to engage with them, and you can threaten them commercially as well. You can put commercial pressure for them to stop these kind of abuses. So commercial pressure, negotiation, but ultimately you might be in a situation where you have to terminate and find another contractor; it really depends on the severity and whether it can be remediated."

Audience Question: "Australia's Government are generally perceived to be relatively free of corruption, I was wonder how the private sector measures up against the global standard?"

Keith: "Well, if you have a chance to look at the Corruption Perceptions Index, Australia is actually in the top ten countries. Unfortunately, in the last couple of years, we've actually been coming down the ladder a little bit, which is of concern - the survey at the end of this year will be of particular interest.

CPI 2014 results for Asia-Pacific

CPI 2014 results for Asia-Pacific

The private sector issue is that Australia is part of the global economy. Going forward, we're in the Asian Century, where the major economic growth in the world is going to be led by Asia, and where Australia is, it means that we have to engage. Our companies have to engage in Asia, and if you have a look at the CPI, pretty well all of Asia is red. So, the reality is, from my own personal experience, any Australian company that's been working in any of the South-East Asian countries for the last number of years, they could not put their hand on their heart and say "We've been devoid of any corrupt activities." Because the reality is, they probably don't know.

The sort of activities that go on, they might be at the low end of the scale - the small facilitation things that I was talking about before. But that's the hard, cold reality of doing business in that part of the world. The problem is that there's an element of denial in Australia - the old "She'll be right, mate, doesn't really happen here!" Having had seven years working in that part of the world, then came back to Australia, I just couldn't believe the attitude of what was going on. That's why I'm on a bit of a crusade!

It's easy for us, generally, we're in one of those good countries, in good environments. Although, there is a lot going on that people wouldn't even know - people wouldn't even know what questions to ask to find out what was going on - but it's happening, without a doubt."

Laurence: "I think that it depends on the company. In recent times, there's been a lot of focus in this area - the human rights, which I spoke about, and Radha would also know about anti-bribery and criminal sanctions. Very much, from our perspective, there really is an increased focus on corruption, and to stamp it out, a sort of 'zero tolerance' regime. There's reporting requirements. I would say that public companies have greater reporting requirements: a public company has more pressure and more obligations to comply, as well as obligations to shareholders.

Some of the examples I was giving, like Shell, apart from anything else, it just looks absolutely awful for them, so there's also the reputational side as well, which is the business side. There's the regimes, which are actually pretty tight, and there's also the reputational side. As a result of that, for many companies, even 10 to 20 years ago, this might have been normal practice. 

I heard from someone, it wasn't so uncommon in South-East Asia that the way you would do it was through an agent, so that you would just give an agent X amount of money, and you would not look at what he was doing with it. He would facilitate for anyone he needed to, to get your goods through - but you can't do that anymore because the regimes also apply to business partners and contractors. For that kind of thing, it's really not good enough to say you 'didn't know' because - well, why were you giving them the money?

I think it's changing a lot and companies are talking about being responsible, and actually complying with this. Essentially, the way things are moving, we say that "what bad for human rights and for people, is also bad for business. The interests are really aligned at this stage."

Radha: "To respond quickly to that as well, I think we need to think carefully about what we mean by corruption. There are a couple of challenges in working with a concept that doesn't have a clear meaning. One of them is that we tend to think of things that happen in other places, that are typical to other types of economies and societies, as 'more problematic' than what doesn't look quite right or feel quite right in our own.

I think we need to have a concept of corruption that takes into account all forms of wrongdoing by all forms of people, and looks critically at ourselves. Whilst doing what we can, as participants in a global market, and people who benefit from companies that go and trade, and make money from dealing with people in jurisdictions where this type of corruption is a problem, we also need to look at the types of things that happen in our own society, that's permitted by law or against the law, that might not meet that definition of corruption just thought of as a 'bribe'.

Another more critical point is the challenge of actually achieving real accountability, rather than just passing risk from one unit in the economy to another. I think it's quite heartening to hear both of our speakers talk about the need to really talk to people on the ground: real human beings like you and me responding to actual challenges in particular places, even if they have much more global ramifications from another point of view. Maybe just think about how that affects your idea of corruption out there and in here, and what you can do about it.

Audience Question: "I have, sort of a different idea of what corruption looks like, in terms of engaging with Asian countries particularly. I'm just wondering what you think in terms of the refugee problem that we've got at the moment, particularly with regard to the Cambodian agreement that we've delved into. Having been to Cambodia, you can see that corruption levels should be more than red, and that's a country where we're giving a lot of money for a refugee programme to be put in place. I know that's us giving over money - does that increase the Australian corruption level just by handing over that money or is it just contained within a Cambodian corruption level?"

Keith: "That's a good question. Certainly the Australian Government is always very concerned about that international aid-type support... whether you consider that refugee issue an "aid" sort of thing. The biggest problem we have is Papua New Guinea to the north, and the amount of money we put in there, that doesn't go where it's intended to, as highlighted by a 4 Corners programme in recent times.

If you're referring to where Australia rates in the Perceptions Index, for money that it sends overseas, that wouldn't be reflected. If all that money was going to corrupt activities, that would register in Cambodia in the surveys that were done there, as opposed to in Australia. Unless, there was evidence that the Australian bureaucracy had management of that money, and was not doing as much as they could - and generally they do what they can. It's a hard thing to deal with, very complicated."

Laurence: "I'd just like to add, not directly in response, but what Keith was talking about - unfortunately some of these international tort claims which I mentioned, when there's some sort of settlement, the money goes into a fund run by the Government. A lot of the time, the actual money does not filter down to the actual people who were actually affected by the environmental or other human rights problem. Even in that area, corruption within countries can affect people on the ground who have actually suffered problems."

Radha: "I think that's an excellent question, and I think it highlights the issues of having an international campaign against corruption that may indirectly hide other forms of 'wrong', for want of a better word. It's not possible for the Australian Government to commit corruption by doing things, doing those kind of things, because there's no formulated international standard against them, or an international consensus that would somehow drive a reputational risk for Australia, other than these concepts that we have, like human rights - or, more indirectly in your example, corruption. How can we change that? I guess that's my question back to you."

Dr Ivory closed the proceedings and thanked the speakers.

Transcript prepared by Jocelyn Bosse