Australia’s Proposed Data Breach Notification Law: What’s The Harm In A “Real Risk of Serious Harm” Standard?

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Last week, the government of Australia released an “Exposure Draft” of a bill that, if passed into law, would amend Australia’s Privacy Act to require notification to the government and affected individuals in the event of a data breach. Currently, although Australian law requires government agencies and businesses subject to the Privacy Act to take reasonable steps to protect personal information, it does not mandate notification following a data breach.  The proposed Australian law requires notification only in the event of a “serious data breach,” which is defined as unauthorized access to, or disclosure/loss of, personal and certain other information that results in a “real risk of serious harm” to any of the individuals to whom the information relates. 

Although many data breach notification statutes contain what is known as a “risk of harm” threshold, Australia’s proposed law contains a relatively high risk of harm threshold when compared to the data breach notification laws currently in effect in the United States and the European Union. For its part, the Australian government acknowledges the fact that it is proposing a comparatively high risk of harm threshold in its proposed law.  In the Discussion Paper that it circulated along with the Exposure Draft of the bill, the Australian Attorney-General’s Department stated that the proposed law has a “relatively higher notification threshold than schemes in many other jurisdictions” in order to “help avoid the risk of individuals experiencing ‘notification fatigue’ and . . . unnecessary administrative costs for business.”

However, the ramifications of such a high risk of harm threshold could be significant. It is the entity experiencing the data breach who, in the first instance, is responsible for making the determination as to whether or not the risk of harm threshold for notice has been met.  Thus, the decision to issue notice under the proposed Australian law could be viewed as an admission by the company that the data breach it experienced poses a “real risk of serious harm” to affected individuals.  Pair this with the Seventh Circuit’s decision earlier this year in Remijas v. Neiman Marcus, No. 14-3122 (7th Cir. July 20, 2015), and it is evident that a company (especially one with operations in both the U.S. and Australia) would have to think long and hard before determining that the risk of harm threshold under the Australian law, if passed in its current form, has been met.

In Remijas, Neiman Marcus argued that the plaintiff lacked standing to sue over the data breach experienced by the company because the plaintiffs had not met the requirements for standing under the Supreme Court’s decision in Clapper v. Amnesty International, 133 S. Ct. 1138 (2013).  In Clapper, the Supreme Court held that, in order to establish standing in a lawsuit, a plaintiff must allege an injury in fact that is both redressible and was caused by the defendant’s conduct.  The Seventh Circuit rejected Neiman Marcus’ argument on standing, in part, because of the company’s decision to pay for credit-monitoring and identity theft protection services for the plaintiffs in the wake of the data breach.  The court stated Neiman Marcus’ decision to provide these remediation services was “telling” in that it was “unlikely” that the company offered to pay for these services because “the risk [of injury] is so ephemeral that it can safely be disregarded.”  In other words, the decision to offer remediation services was viewed by the court as an admission that an injury in fact was “certainly impending” under Clapper.

It is easy to imagine the effect on a company’s ability to contest the injury in fact and causation elements of standing in a data breach lawsuit, or even the cognizable injury element of a negligence claim, where the company has made a determination that there was a “real risk of serious harm” resulting from a data breach it experienced.  Standing is the first line of defense for any company sued over a data breach, and negligence is the most common claim asserted in such cases.  Of course, a company could argue in litigation that its decision to provide notice under the Australian law was made out of an abundance of caution or to avoid the consequences of someone determining, based on information that surfaces at a later date, that notice should have been issued.  In other words, the company would have to argue that it really did not determine that a real risk of serious harm existed.

Given this, one has to wonder exactly how many notifications will be made pursuant to the proposed Australian law. The litigation consequences of determining that a company has met the risk of harm threshold under the proposed Australian law may well serve as a serious disincentive for companies to provide notice under the law.  This would, in turn, undermine the overall purpose of the law, which as the Australian Attorney General’s Department acknowledged in its Discussion Paper, “is to allow individuals whose personal information has been compromised in a data breach to take remedial steps to avoid potential adverse consequences, such as financial loss or identity theft.”  Time will tell how well this goal will be served by the proposed Australian law, but, for a country that currently has no law requiring notification in the event of a data breach, the proposed law is a step in the right direction.

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