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22 Decemeber 2016
Kevin Thompson Professional Standards Manager Australian Property Institute By email to [email protected]
RICS Australasia Limited By email to [email protected]
Dear Kevin
Advice re Intellectual Property Rights in Valuation Agreements
1. Thank you for your instructions.
2. Briefly, the Draft ANZ Property Valuation Services Agreement (PVSA):
2.1. Clause 28: seeks to acquire from the Service Providers ownership of all intellectual
property (IP) subsisting in the “Valuation Materials”; and
2.2. Clause 27: requests that Service Providers undertake not to use or disclose any
confidential information (regardless of whether it is the confidential information of ANZ or
the Service Providers), unless it is for the purpose of performing their obligations under the
PVSA.
3. We attach at Attachment 1 a table in which we set out the definitions we use in this advice.
4. We have reviewed the issues in respect of IP, confidentiality, privacy and insurance arising from
Clauses 27 and 28 that will have an effect on Members and Service Providers.
5. In this advice:
5.1. PART 1: we have identified the IP rights commonly created during a valuation process;
5.2. PART 2: we have reviewed and advised on the Proposed IP Assignment Clause and
Proposed IP Licence Clause in the PVSA;
5.3. PART 3: we have identified the confidential information and personal information frequently
accessed and obtained during the valuation process;
5.4. PART 4: we have reviewed and advised on the Proposed Confidentiality Clauses in the
PVSA;
5.5. PART 5: we have advised on any professional indemnity insurance issues arising from the
Proposed IP Assignment Clause, Proposed IP Licence Clause and Proposed
Confidentiality Clauses; and
5.6. PART 6: we have provided further advice in relation to non-IP issues which may affect API
and RICS members (and non-members of the API who are referred to as Service Providers
in the PVSA), including potential liability issues and quantum.
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Executive Summary
6. We note that, although a Service Provider (being a corporate valuation firm) is not a Member of
API or RICS (except in the case of a Service Provider being a RICS (Firm) Member), the PVSA
applies to a “Service Provider Representative”, which is the employee valuer who may be a
Member of API or RICS. Accordingly, this advice is relevant to the Service Providers, as well as
the Members of API or RICS.
7. We recommend that API and RICS advises their Members (and to the extent API and RICS can,
advise the Service Providers) not to agree to:
7.1. the Proposed IP Assignment (Clauses 28.1 and 28.2);
7.2. the Draft IP Variation Clause (Clause 28.3);
7.3. the Draft Confidentiality Clauses (Clauses 26 and 27); or
7.4. the Draft Privacy Clause (Clause 29).
8. These clauses favour the ANZ, are uncertain as to scope, expose the Service Providers (and
potentially, Members) to an increased risk of infringement claims, and require higher
administrative costs to operate (see Parts 2 and 4 for more detail).
9. We also recommend that API and RICS inform their Members (and to the extent that they can,
inform the Service Providers), to obtain professional advice in relation to:
9.1. the professional indemnity insurance issues arising from the Proposed IP Assignment
Clause and the Draft IP Variation Clause;
9.2. the effects on Members and Service Providers of issues that possibly affect the obligations
of API and RICS Members, and possible liability and quantum issues arising therefrom.
10. We also recommend that API and RICS have discussions with the ANZ on behalf of their
Members (and to the extent they can, on behalf of the Service Providers), as to all other issues
raised in this advice.
11. We note that API/RICS may provide ANZ with a copy of this advice, provided that ANZ first
agrees in writing to the following terms:
11.1. whatever is produced to ANZ is on a totally “Private and Confidential” basis;
11.2. production of any advice is done on the basis that ANZ agrees that there is no waiver of
any legal privilege, and
11.3. in the interim, ANZ agrees not to press any Service Provider to sign the PVSA.
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PART 1 – What IP Rights arise during a Valuation Process
13. The main species of IP rights which may arise during a valuation process is copyright. Copyright
protects original works of authorship, including:
13.1. literary works (eg. the written text in valuation reports); and
13.2. artistic works (eg. photographs of properties in the valuation reports, graphs and the like).
Copyright – General principles
14. Copyright does not protect ideas, facts or information itself, without more (for example, one simple statement of “the property was sold at $3 million”).1 Rather, it protects the “original”
expression of those ideas, facts or information.
15. For copyright to subsist in a work:2
15.1. Fixation: the work must be fixed or recorded in a tangible medium of expression (for
example in a book or in a computer database);
15.2. Authorship: the work must originate from an author (being a natural person)3;
15.3. Originality: the work must be a product of the author’s skill, labour and expertise and it
must display “independent intellectual effort”.4
16. In general, the author of a copyright work is the first owner of that work, unless the author created
that work in the course of his/her employment. In the latter case, the employer will be the first
owner of the work, in the absence of contrary agreement.
17. We set out below our comments on whether copyright is likely to arise during the valuation
process, and if so, at what stage of that process.
Mere information – eg. location details, single sales data (eg $300,000 sale of a property)
18. Copyright is unlikely to subsist in a single piece of information where there is de minimus
originality, for example:
18.1. a single entry of sales data in a valuation report (but note this single sales data may be
protected by Confidential Information – see Part 3); or
18.2. a single sentence which merely states the location or size of the property, without any
creative effort being expended by the author in writing that sentence.
Written Analysis
19. On the other hand, copyright is likely to subsist in a valuer’s written analysis or opinion of lending
risk created by the valuer, as it is likely that the valuer would have expended intellectual effort in
creating such written analysis.
Computer generated Database or Tables of Sales Data
20. In order to determine whether copyright subsists in a database of sales or rental data (such as
CoreLogic) or a table/graph containing sales or rental data in a valuation report, an analysis of the
following is required:
20.1. whether the creator(s) of the database or table can be identified (see paragraph 21 below);
1 Exxon Corp v Exxon Insurance Consultants International Ltd [1982] Ch 119; [1981] 3 WLR 541; [1981] 3 All ER 241 2 Section 32 of the Copyright Act 1968 (Cth). 3 Warwick Film Productions Ltd v Eisinger [1969] 1 Ch 508. 4 IceTV Pty Ltd v Nine Network Australia Pty Ltd [2009] HCA 14.
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20.2. whether the database or table was “computer generated” with little or no human input; or
20.3. whether the database or table was created as a result of input by an individual who
expended creative energy, sufficient labour, skill, intellectual effort and judgement to create
the database or table to attract the quality or character necessary to differentiate the
database or table from the raw data.
21. In Telstra Corp Ltd v Phone Directories Co Pty Ltd,5 a case concerning whether copyright
subsists in telephone directories, the computer systems used to handle and store the information
were the result of the work of various entities over a number of years. The Court found that
Telstra could not identify all the people whom it was alleged were the actual authors of the
database. The Court further opined that even if the authors could be identified, if there were many creators/authors of the work, it could be that no one of them contributed “independent sufficient
effort” to the whole to be regarded as an author for the purpose of subsistence of copyright.6
22. Further, the Court held that the creation of the telephone directories was not as a result of “creative spark” or the exercise of “skill and judgment”. In particular, substantial parts of the
directories were “heavily automated” and generated by the computer systems, not by human
originality. Accordingly, the Court held that copyright does not subsist in the Telstra telephone
directories.
23. Similarly, in Primary Health Care v FCT,7 the Court found that copyright does not subsist in
medical consultation notes. The Court held that the notes were limited to notations of the names
of medical conditions and medications, as well as physiological and pathological data (such as
blood pressure and blood count readings), and consequently did not display the “independent
intellectual effort” of an author, which is a prerequisite to afford copyright protection.
24. In contrast, in Tonnex v Dynamic Supplies,8 a single author had carefully selected information or
raw data relevant to customers and set out that selected information in a chart. The Court held
that copyright subsisted in the chart because the author of the chart expended sufficient creativity
to meet the requisite threshold of originality. Consequently, the Court held that copyright
subsisted in the chart.
25. Further, where there is only a limited number of ways an idea, facts or information can be
expressed, such as is the case for TV schedules, the Courts often find there to be insufficient
originality for copyright to subsist.9
26. In this regard:
Scenario Likelihood of copyright subsisting
Scenario 1: multiple unidentifiable authors
If the relevant databases of sales/rental information (such as the internal database of a valuation firm or the CoreLogic database) are created by a number of unidentifiable authors, each of whom is unlikely to contributed “independent sufficient effort” and creativity to be regarded as an “author”
Copyright unlikely to subsist in the database
(the consequence is that if copyright does not subsist, there is no copyright to be assigned by the Service Providers to ANZ, and the valuers
would be free to continue to use the database for other valuations)
5 Telstra Corp Ltd v Phone Directories Co Pty Ltd (2010) 264 ALR 617. 6 See also: Ice TV Pty Ltd v Nine Network Australia Pty Ltd [2009] HCA 14. 7 Primary Health Care Ltd v Federal Commissioner of Taxation [2010] 186 FCR 301. 8 Tonnex International Pty Ltd v Dynamic Supplies Pty Ltd [2012] FCAFC 162 9 Ice TV Pty Ltd v Nine Network Australia Pty Ltd [2009] HCA 14.
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Scenario Likelihood of copyright subsisting
Scenario 2: computer generated
If the tables of sales or rental data in the valuation reports are automatically generated by a computer system with little or no human input, and are unlikely to involve creativity or originality
Copyright unlikely to subsist in the tables/graphs
(the consequence is that if copyright does not subsist, there is no copyright to be assigned by the Service Providers to ANZ, and the valuers would be free to continue to use the tables for
other valuations)
Scenario 3: identifiable independent creation
If the tables/graphs of sales or rental data appearing in the valuation reports are created by an identifiable valuer carefully selecting and collating raw data using skill, labour and creativity in selection and arrangement, and this is entered into an excel spreadsheet again using skill in the form of selection and arrangement for the purpose of generating that table/graph
Copyright likely to subsist in the tables/graphs
(if the Service Providers assign the copyright in the valuation report to ANZ, the Service Providers
will not be able to re-use the same table (or database) for future valuations, unless the valuers go through the same labour and skill process of carefully selecting and collating the raw data, or
ANZ licenses them back for this purpose)
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PART 2 – Clause 28 of the PVSA (Proposed IP Assignment Clause)
Clause 28
28. We now turn to the issues arising from the Proposed IP Assignment Clause in the PVSA.
29. Clause of the PVSA states:
“28. INTELLECTUAL PROPERTY
28.1 Unless specifically agreed in writing between the parties, the Service Provider agrees that all rights, title and interest in all:
28.1.1 Valuation Reports10;
28.1.2 Valuation Files11;
28.1.3 data attached to Valuation Reports or Valuation Files, including but not limited to, data uploaded to, or inputted into, an ANZ Specified System12; and
28.1.4 any other intellectual property created or otherwise brought into existence by or on behalf of the Service Provider in the course of providing the Services13 or otherwise in relation to this Agreement14,
(together, the Intellectual Property), belongs to ANZ.
28.2 The Service Provider must do all things reasonably required by ANZ to assign or novate the Intellectual Property to ANZ.”
(our highlight)
30. In this advice, we refer:
30.1. clauses 28.1 and 28.2 of the PVSA as “Proposed IP Assignment Clause”; and
30.2. the materials referred to in clauses 28.1.1 to 28.1.4 of the PVSA as “Valuation Materials”.
31. Please note that in this section of our advice, we have assumed that copyright subsists in any
and all of the Valuation Materials (but see Part 1).
32. The issues arising from the Proposed IP Assignment Clause are as follow:
Issues / Our Comments
32.1.
Issue One: Future report requires Independent Intellectual Effort by the Valuer
The obvious issue arising from a Service Provider assigning ownership of IP in the Valuation Materials to ANZ is that the Service Provider cannot subsequently use, reproduce or communicate that IP for its own benefit or for the benefit of any subsequent third party client.
10 “Valuation Report” is defined in the PVSA as An API PropertyPro Report, a Residential Restricted Access Inspection, a
Progress Inspection, a Short Form Commercial Valuation Report, a Long Form Valuation Report or any other report as specified by ANZ from time to time.
11 “Valuation File” is defined in the PVSA as a valuation file for a property containing at least the following information: (i) a copy of the Valuation Report; (ii) photograph(s) of the property; (iii) the Valuer’s field notes regarding the Property; (iv) Lending Cautions (if any); (v) sales data and analysis of the three most comparable property sales (in the immediate area) over at least a 6 month period immediately preceding the relevant Property Valuation Request; and (iv) all other relevant material in respect of each Valuation, including any explanatory or supporting material.
12 “ANZ Specified System” is defined in the PVSA as “the CoreLogic RP data Valex system, the VMS system or any other system nominated by ANZ from time to time”.
13 “Services” is defined in the PVSA as “any and all services to be provided by the Service Provider (who is also the employer of API/RICS member valuers called upon to complete a valuation) under this Agreement including the real estate valuation service expressly detailed in this agreement and any additional services, or variation of those services, which may be agreed between the parties from time to time”.
14 “Agreement” is defined in the PVSA as “this Agreement including the Professional Services Brief, all schedules and any subsequent amendment”.
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Issues / Our Comments
The result of this would be that valuers cannot simply “copy” a whole or a substantial part of the Valuation Materials assigned to ANZ, and would have to use their independent intellectual effort to create a new valuation report.
32.2.
Issue Two: Definition of “Intellectual Property” is unduly broad
The definition of “Intellectual Property” in Clause 28 is extremely broad.
We say this as the definition of “Intellectual Property”:
• is not limited to IP created for ANZ (save for clause 28.1.4)
Consequence: The Service Provider is required to assign to ANZ any existing IP it owns prior to the engagement by ANZ, including its trade marks
• is not limited to IP owned by the Service Provider
Consequence: The Service Provider is required to assign to ANZ any IP owned by third parties subsisting in the Valuation Materials (see paragraph 32.6 below)
• includes “Valuation Reports”, which is defined to include “any other report as specified by ANZ from time to time”
Consequence: Service Provider would have to assign the ownership of IP in a report it prepared for a third party, say NAB, to ANZ
• includes “data attached to Valuation Reports and Valuation Files”
Consequence: Service Provider would be requested to assign the ownership of IP in its internal database (such as PropertyPro) to ANZ
• includes “any other intellectual property created or otherwise brought into existence by or on behalf of the Service Provider in the course of providing the Services or otherwise in relation to this Agreement”
Consequence: The Service Provider would be requested to assign the IP in its business know-how or business processes to ANZ, if the know-how and new internal business process were created in the course of the Service Provider providing the Services to ANZ.
32.3.
Issue Three: Uncertainty as to what IP is assigned
The test for originality to determine whether copyright subsists in a work is not an “all or nothing” approach, but rather a question of fact and degree of the extent to which the author has expended skill, judgment or labour on the creation of the work. The necessary amount will depend on the facts of each case and is very much a question of degree as to the extent of the author’s contribution to the making of the particular work (see Part 1 above).15
Accordingly, it is sometimes difficult to determine whether sufficient labour and skill have been expended to satisfy the originality threshold. It is therefore uncertain whether the threshold of originality will be met such that copyright subsists in that part/section of a valuation report:
• If that part/section of the valuation report does not meet the “originality” threshold, copyright will not subsist. In that case, the Service Providers will be free to use, reproduce and communicate that part/section (or a substantial part of it).
• However, if that part/section of a valuation report does meet the “originality” threshold, copyright will subsist and be subject to the assignment to ANZ. In that case, the Service Providers will not be at liberty to use, reproduce or communicate that part/section (or a substantial part of it) at all nor will they be able to use it during the process of creating a new valuation report.
15 Desktop Marketing Systems Pty Ltd v Telstra Corp Ltd (2002) 119 FCR 491.
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Issues / Our Comments
32.4.
Issue Four: Internal cost of identifying copyright
Following from paragraph 32.3 above, the internal cost of having to consider the issue of subsistence and ownership of copyright (to ascertain whether the Service Provider can reproduce the Valuation Materials in future valuations) is likely to be extremely high.
If copyright is found to subsist in the Valuation Materials (which means that the Service Provider cannot use, reproduce or communicate that work as ownership will have been assigned to ANZ), the cost to the Service Provider of having to expend labour and skill again to collate and gather the relevant data would also be high.
In addition, there would be the internal administrative cost for the Service Providers (being the corporate entities) to conduct regular training for its individual valuers, to ensure the individual valuers understand the complexity surrounding the ownership of IP, and the limitations on re-using that IP consequent on any assignment to the ANZ. For example, the individual valuers will have to be trained to be able to distinguish the ownership of IP in the following scenarios:
Status Quo Maintained:
• IP created for, say NAB, will remain owned by the Service Providers, and the Service Providers can license the individual valuers to use that IP in future reports.
New Regime – ANZ Owned IP
• IP created for ANZ will be owned by ANZ; and
• IP created for, say NAB, which is subsequently used for ANZ, will be owned by ANZ.
32.5.
Issue Five: Increased Exposure of ANZ bringing an infringement claim
There is an increased risk that ANZ may bring proceedings against a Service Provider, on the basis that the valuation reports prepared by that Service Provider reproduce a whole or a substantial part of the Valuation Report prepared for ANZ (and in which ANZ has acquired the IP pursuant to Clause 28).
The Service Provider will then have to incur the cost of defending its position, and proving that the valuation report prepared for the third party bank was created independently without using or in any way copying the IP in the ANZ Valuation Materials.
32.6.
Issue Six: Service Provider does not have the Right to Assign the Ownership of Third Party IP
The Proposed IP Assignment Clause assigns “any other intellectual property created or otherwise brought into existence by or on behalf of the Service Provider”.
The Proposed IP Assignment Clause is broad enough to possibly include assignment of “third party IP”, for example (but not limited to) where the Service Provider has obtained the following in the course of providing the Services:
• floor plans from customers;
• zoning information provided by town planners; and
• description of the property or building layout provided by the sales agent, owner etc.
Service Providers are unlikely to own this third party IP, and therefore the Service Providers will not have any entitlement to assign it to ANZ (despite ANZ’s expectations and the current wording of Clause 28.
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Issues / Our Comments
32.7.
Issue Seven: Increased Exposure to Third Party Infringement Claims
Following from paragraph 32.6 above, if Service Providers agree to assign the third party IP in the Valuation Materials to ANZ, the Service Provider will be exposed to a risk of misrepresentation claims being brought by the third party owners against the Service Providers, for representing to ANZ that they own the third party IP.
32.8.
Issue Eight: Commercial Disadvantage in Dealing with Other Banks
If the Service Provider assigns the IP in the Valuation Materials to ANZ, the Service Provider will not be in a position to enter into similar agreements with other banks, as the ownership in the Valuation Materials will have already been assigned to ANZ.
This may deter third party non-ANZ banks from using those Service Providers in the future, because the third party non-ANZ banks may be exposed to an increased risk of an infringement claim being brought by ANZ, on the basis that ANZ suspects that the Service Provider has used the “Intellectual Property” (ownership of which ANZ has obtained from the Service Providers pursuant to Clause 28) in the course of preparing a valuation report for the other bank.
32.9.
Issue Nine: Obligation to Disclose Confidential and Personal Information
Clause 28 requires that the Service Provider assigns the IP in the “data attached to the Valuation Reports and Valuation Files” to ANZ.
This would incidentally oblige the Service Provider to provide a copy of the relevant data to ANZ, which may contain confidential and personal information that the Service Provider neither owns nor is entitled to disclose to ANZ.
Relevantly, clause 29.1 of the PVSA requires that the Service Provider warrants to ANZ that it will at all times comply with the provisions of the Privacy Act 1988 (Cth).
There is therefore a tension between the obligation in clauses 28 and 29, as:
• clause 28 imposes an obligation of disclosure and assignment of “data” which may be confidential and personal information; whereas
• clause 29 contains a warranty or compliance with Privacy Act.
32.10.
Issue Ten: Increased exposure to breach of confidence and privacy claims
Following from paragraph 32.9 above, if the Service Provider is obliged to disclose confidential information and personal information to ANZ as part of the obligations to assign, the Service Provider may be exposed to an indefinite number of claims for breach of confidence/privacy.
32.11.
Issue Eleven: Indemnity
Clause 35 of the PVSA requires the Service Providers to indemnify ANZ against any claim, damage, loss or expense incurred by ANZ as a direct “or indirect” result of a breach of the PVSA by the Service Providers.
This indemnity is extremely broad, and makes the Service Provider responsible for any claims made by third parties as a result of:
• the Service Providers assigning third party IP to ANZ, in circumstances where the Service Providers are not entitled to assign those third party rights (see paragraphs 32.6 and 32.7 above); and
• the Service Providers disclosing confidential information and personal information to ANZ, in circumstances where the Service Providers may not have consent or authority to do so (see paragraphs 32.9 and 32.10 above).
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Issues / Our Comments
Please also note that in respect of a possibility of a claim being made against a Service Provider, such claims can also be made against the Member in the course of him/her undertaking the valuation.
33. As the core function of Service Providers is to determine property value, based on market trends
and data, it is crucial for Service Providers to be able to continue to freely use intellectual property
already owned by those Service Providers (and created over many years) and information in the
Valuation Materials for the purpose of preparing future valuation reports, without any fear of
actual or threatened claims for infringement of intellectual property, confidentiality and privacy.
34. Accordingly, we recommend that API and RICS advise their respective Members (and to the
extent possible, the Service Providers) not to agree to the Draft ANZ IP Assignment Clause 28.
Clause 28.3
35. We understand that ANZ has issued a Draft Variation Agreement to the PVSA (or a revised
version of the PVSA), which proposes a limited licence back by ANZ to the Service Providers to
use some of the IP, as detailed in draft clause 28.3 as follows:
“28.3 Licence to Service Provider
ANZ grants, subject to the restrictions in this clause, a non-exclusive, royalty-free licence to the Service Provider during and after the term of this Agreement to use, reproduce, modify, adapt and develop the Intellectual Property in any Short Form Commercial Valuation Report or Standard Commercial Property [sic.] excluding the ANZ Modifications for the purposes of Service Provider's business from time to time, subject to the obligations of confidentiality owed to ANZ under clause 27 and privacy under clause 29.
In this clause, ANZ Modifications means a modification of or enhancement to any embodiment of any of ANZ's Intellectual Property made by or on behalf of the Service Provider in connection with or for the purposes of performing the Services or its other obligations under this Agreement.”
(our highlight)
36. In this advice:
36.1. we refer clause 28.3 as the “Proposed IP License Clause”;
36.2. we assume that the above highlighted part in clause 28.3 intends to read “in any Short
Form Commercial Valuation Report for Standard Commercial Property”.
37. There are a number of issues arising from the Proposed IP Licence Clause:
Issues / Our Comments
37.1. Issue One: Licence to use IP in Commercial Reports only
The Proposed IP Licence Clause is limited to a licence for the Service Providers to use the IP in Short Form Commercial Valuation Reports16 for Standard Commercial Property17.
16 “Short Form Commercial Report” is defined in the PVSA as “A short form Valuation of a Standard Commercial Property
prepared in accordance with this Agreement, the Professional Services Brief, API Valuation and Property Standards and RICS Valuation and Property Standards”.
17 “Standard Commercial Property” is defined in the PVSA as “any land or building, not related to a portfolio assessment, with a market value up to $5 million, that is used for (i) retail, hire or lease of goods or services to the general public; (ii) offices,
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Issues / Our Comments
Accordingly, the licence back does not include a licence to the Service Providers to use in anything else. In particular, it does not include:
• a licence to use the IP in residential valuation reports; or
• a licence to use the IP in the Valuation Materials referred to in clauses 28.1.2, 28.1.3 or 28.1.4 of the PVSA, which includes Valuation Files and/or data attached to the Valuation Files.
37.2. Issue Two: Licence to “Existing IP” only
Further, the Proposed IP Licence Clause excludes a licence for the Service Provider to use the IP in the “ANZ Modifications” (or modification or enhancement tailored for ANZ).
Since the ANZ Modifications were created by the Service Providers using the Existing IP, it is open to the Service Providers to argue that they should have, at the very least, a licence to use these “springboard improvements” (if not ownership of).
37.3. Issue Three: Limited scope of Licence
The proposed licence by ANZ to the Service Providers is limited to for the purposes of the Service Providers’ business from time to time.
It is uncertain what is intended to be caught by the “Service Providers’ business from time to time”. For example, it is unclear whether licensing the valuation data to CoreLogic in order to receive a discount for subscription would be considered part of “a Service Providers’ business”.
37.4. Issue Four: General Issues
Furthermore, the Proposed IP Licence Clause gives rise to the same issues and risks identified in the Proposed IP Assignment Clause outlined in paragraph 32 above, being:
• Definition of “Intellectual Property” to be assigned to ANZ unduly broad (see paragraph 32.2 above)
• Uncertainty as to what IP is assigned (see paragraph 32.3 above)
• High Internal Cost of Identifying Copyright (see paragraph 32.4 above)
• Increased Exposure of ANZ bringing an infringement claim (see paragraph 32.5 above)
• No Right to Assign the Ownership of Third Party IP (see paragraph 32.6 above)
• Increased Exposure to Third Party Infringement Claims (see paragraph 32.7 above)
• Commercial Disadvantage in Dealing with Other Banks (see paragraph 32.8 above)
• Obligation to Disclose Confidential and Personal Information (see paragraph 32.9 above)
• Increased exposure to breach of confidence and privacy claims (see paragraph 32.10 above)
• Indemnity (see paragraph 32.11 above)
whether owner-occupied or occupied by third parties; or (iii) industrial uses with four or less tenants (In-Scope Standard Commercial Property), or five or more tenants (Out-of-Scope Standard Commercial Property)”.
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38. Accordingly, we consider that the risk to the Service Providers in connection with the Proposed IP
Licence Clause remains to be high (ie. the proposed licence back is far too narrow and unclear).
39. We therefore recommend that API and RICS advise their respective Members (and to the extent
possible, the Service Providers) not to agree with the Proposed IP Licence Clause.
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PART 3 – Confidential Information and Personal Information
General principles
40. Confidential information protects information that has the necessary quality of confidence, such
as confidential sales and rental data.18 Particularly sensitive and highly confidential information
(such as sales and rental data) may also have the status of a trade secret.
41. The obligation of confidence may arise from:
41.1. an express or implied term in a contract (for example, if a valuer is told by a discloser that
the information is confidential);19 or
41.2. the circumstances surrounding the disclosure, ie where a reasonable person in the position
of the recipient would have recognised that the information was given to that person in
confidence or for a specific limited purpose.20
Either way, the obligation to maintain confidence is an obligation imposed by the owner of the
confidential information on a third party not to use or disclose that confidential information, save
for a specific purpose.
42. The Courts have adopted a flexible approach as to what information is protectable as confidential
information or trade secret. In Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd,21 the
Court identified the following relevant factors:
42.1. the extent to which the information is known outside of the business;
42.2. the extent to which it is known by employees and others involved in the business;
42.3. the extent of measures taken to guard the secrecy of the information;
42.4. the value of the information to the business and to its competitors;
42.5. the amount of effort or money expended in developing the information; and
42.6. the ease or difficulty with which the information could be properly acquired or duplicated by
others.
43. Information which is confidential information maintains its quality of confidence as long as it is not
in the public domain.
44. Breach of the obligation of confidence occurs where there is an unauthorised use (not only
unauthorised disclosure) of the confidential information (provided that an obligation to keep the
information secret and confidential first exists).
Confidential Information used during valuation process
45. We understand that Service Providers (and their individual valuers) obtain various data, including
property sales and rental data, from various sources, including from banks/lenders, purchasers of
the property (ie the bank’s customers), owners of property, sales and leasing agents, tenants,
other valuers, internal databases of Service Providers, and/or third party databases (such as
CoreLogic).
18 Moorgate Tobacco Co Ltd v Philip Morris Ltd [No 2] (1984) 156 CLR 414; 19 A party may enter into an agreement to impose an obligation on another party to keep certain information secret and
confidential, regardless of whether that information has the necessary quality of confidence. However, please note that an agreement which restrains a party from using or disclosing information which is in the public domain may be void or voidable: Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70.
20 Coco v A N Clark (Engineers) Ltd [1969] RPC 41; (1968) 1A IPR 587 21 Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37.
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46. There is no question that the sales and rental data which has not entered the public domain is
likely to have the necessary quality of confidence for it to constitute confidential information in the
nature of trade secrets.
Whether the valuers can use or disclose that confidential information
47. Whether the valuers can use or disclose the confidential information obtained from third parties,
and the extent that the valuers can use or disclose that confidential information, depends on the
circumstances in which the disclosers (such as the sales agent, customers or tenants) have
disclosed that information to the valuers, and any express or implied terms as agreed between
the parties.
48. Where the valuer has informed the discloser that the valuer would like to access the confidential
information from the discloser for the purpose of using it in a valuation, and the discloser has
provided the valuer with that information on that basis, there are good arguments that in those
circumstances:
48.1. the valuer can use that confidential information for the limited purpose of valuation (as the
discloser ought to have known that the information provided will be used for the purpose it
was disclosed);
48.2. the valuer can disclose that confidential information to a bank/lender, for the limited
purpose of evaluating, processing and approval finance (as the discloser ought to have
known that the purpose of valuation is to facilitate a third party bank/lender to evaluate or
approve finance);
BUT
48.3. the valuer cannot use or disclose, or authorise a third party bank/lender to use or disclose,
for the purposes other than those referred to in paragraphs 48.1 and 48.2 above.
49. In the above circumstances:
49.1. the valuer cannot purport to assign the ownership (or sub-licence the right) to use that
confidential information to ANZ (and allow ANZ to use that confidential information as it
thinks fit); and
49.2. the valuer must ensure that any third party bank/lender is aware that the confidential
information is confidential, and must not use or disclose that confidential information for
any purpose other than finance approvals.
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Privacy – General principles
50. As a general rule, an agency22 or an organisation23 is treated as an “APP entity”, and is bound by
the Privacy Act 1988 (Cth) and the Australian Privacy Principles, unless it is a “small business
operator” (being an organisation which has an annual turnover of $3 million or less for a financial
year).
51. Small business operators are also treated as APP entities (regardless of the amount of annual
turnover) for certain acts and practices in connection with the operation of a residential tenancy
database.
52. The Australian Privacy Principles, amongst other things, state that an APP entity can only use or
disclose “personal information”24:
52.1. for a purpose for which it was collected; or
52.2. for a secondary purpose if an exception applies, including:
(a) if the individual has consented to a secondary use or disclosure; and
(b) the individual would reasonably expect that the APP entity would use or disclose their
personal information for the secondary purpose, and that purpose is related to the
primary purpose of collection.
53. If a valuation firm collects personal information for the purpose of conducting a valuation, the
individual the subject of the personal information may not have reasonably expected that:
53.1. the valuation firm would disclose the personal information to the banks/lenders; or
53.2. the banks/lenders may use or disclose the personal information for other purposes as the
banks/lenders see fit.
22 “Agency” refers to Australian Government agencies, but does not include State and Territory agencies: section 6 of the
Privacy Act 1988 (Cth). 23 “Organisation” is defined as an individual, a body corporate, a partnership, any other unincorporated association or a trust:
section 6C of the Privacy Act 1988 (Cth). 24 “Personal Information” is defined as any information or an opinion about an identified individual, or an individual who is
reasonably identifiable, whether the information or opinion is true or not, and whether the information or opinion is in a material form or not: section 6(1) of the Privacy Act 1988 (Cth). Common examples include an individual’s name, signature, address, telephone number, date of birth, bank account details, employment details and commentary/opinion about a person.
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PART 4 – Clauses 26 and 27 – Confidentiality Clauses;
Clause 29 – Privacy Clause
54. We have also reviewed the “Proposed Confidentiality Clauses” in the PVSA, which state:
“26. CONFIDENTIALITY – ANZ’S OBLIGATIONS
ANZ and any ANZ Group member will not be restricted from disclosing any confidential information relating to the Service Provider or this Agreement … to any third party contractors of a member of the ANZ Group where that third party contractor provides business process outsourcing services and requires access to the information to allow a member of the ANZ Group to receive the business process outsourcing services provided by that third party contractor, provided that ANZ:
26.1.1 discloses the information on a need to know basis only, including ensuring that the relevant third party contractor has in place logical and physical segregation to ensure information is not disclosed beyond the specific individuals responsible for the provision of the third party services to the member of the ANZ Group; and
26.1.2 ensures that the relevant third party contractor is bound by confidentiality provisions substantially in accordance with those set out in this clause 26.
27. CONFIDENTIALITY – SERVICE PROVIDER’S OBLIGATIONS
27.1 The Service Provider acknowledges and agrees that any information and material of whatever nature that is communicated to, provided to, or otherwise becomes available to, or accessible by the Service Provider in the course of providing Services to ANZ, including any information, material or data produced or recorded by the Service Provider or a Valuer in the course of providing the Services (“Confidential Information”) is confidential in nature and commercially sensitive.
27.2 The Service Provider must keep confidential and not disclose (directly or indirectly), use or access the Confidential Information for any reason except [limited circumstances].
[…]
27.4 Without limiting clause 27.2, the Service Provider:
27.4.1 agrees to:
[…]
27.4.1.2 refrain from divulging or disclosing the Confidential Information to any other person, firm or corporation
27.4.1.3 refrain from using or attempting to use the Confidential Information in any manner … to gain advantage for the Service Provider, a Valuer or anybody else.
27.4.2 agrees to indemnify ANZ against any claim, action, damage, loss, liability, cost, charge, expense, outgoing or payment which it pays, suffers, incurs or is liable for as a result of any unauthorised disclosure of the Confidential Information by the Service Provider […]
29. PRIVACY
[…]
29.3 The Service Provider must treat as confidential any Personal Information originally collected by ANZ to which the Service Provider has or gains access as a result of or in connection with this Agreement.”
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55. There are a number of issues arising from the Draft Confidentiality Clauses:
Our Comments
55.1.
Issue One: The “Confidential Information” that the Service Provider must keep
secret is not limited “the confidential information of ANZ”
Clause 27.1 defines the types of “confidential information” the Service Providers are
required to keep secret and confidential, and is not limited to the confidential information
of ANZ.
This will have the effect that the Service Providers must keep its own confidential
information and trade secret confidential, and cannot use its own confidential information
for future valuations.
Having said that, please note that this broad restraint on Service Providers to keep its
own confidential information secret is likely to be unreasonable, and therefore
unenforceable.25
55.2.
Issue Two: The “Confidential Information” that ANZ must keep secret is not
defined
While the types of “confidential information” the Service Providers are required to keep
secret and confidential are defined (see clause 27.1), the types of “confidential
information” that ANZ is required to safeguard is not defined/restricted (see clause 26).
Consequently, Service Providers may have to prove that certain information is
confidential before the Service Providers can claim against ANZ.
55.3.
Issue Three: No General Obligation on ANZ to keep the Confidential Information of
the Service Providers secret
In any event, the Proposed Confidentiality Clauses are heavily one-sided. In particular,
under the proposed clause 26, ANZ is not bound by a general obligation to keep the
“confidential information” (which is not defined, see paragraph 55.2 above) belonging to
the Service Provider confidential (compared to the obligation imposed on the Service
Providers in clause 27.2).
Instead, clause 26 merely stipulates that if ANZ discloses “confidential information” to a
contractor of the ANZ Group (for example, a data collection agency which is a sub-
contractor to the ANZ Group), ANZ must only disclose that information on a need to
know basis.
Consequently, clause 26 allows ANZ to make unrestricted disclosure to third parties who
are not contractors of the ANZ Group. Consequently, if ANZ obtains access to third party
information in a valuation report (including the confidential information in the Valuation
Files obtained pursuant to the Draft IP Assignment Clause, see paragraph 32.9 above),
ANZ will not be restricted under the PVSA to use and disclose that confidential
information to other parties.
55.4. Issue Four: Indemnity
Clause 27.4.2 requires the Service Providers to indemnify ANZ against any claims,
25 Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70.
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Our Comments
damages, loss and expense incurred by ANZ as a result of any unauthorised disclosure
of the “Confidential Information” by the Service Providers.
This indemnity is extremely broad. To illustrate, consider the following scenario:
• the Service Providers are obliged to provide ANZ with confidential information and
personal information relating to third parties (see paragraph 32.9 above);
• in circumstances where ANZ does not have an obligation to keep that confidential
information secret (see paragraph 55.3 above);
• in circumstances where the Service Providers may not be entitled to permit ANZ to
use or disclose those confidential information without restrictions as proposed in
clause 26;
• the Service Providers will have to indemnify ANZ pursuant to clause 27.4.2 if a third
party brings an action against ANZ for using or disclosing the confidential
information of that third party in an unrestricted manner.
55.5.
Issue: High administration cost
Following from paragraph 55.4, to reduce the risk of any breach of confidentiality claims being made against Service Providers by third parties, Service Providers will have to seek permission from each discloser (sales/rental agents, property owners etc):
• for the Service Provider to disclose to ANZ; and
• for ANZ to in turn use and disclose the confidential information in any manner that
ANZ thinks fit.
The cost of conducting such exercise will be high.
The Proposed Confidentiality Clauses will also need to impose obligations on ANZ to
ensure its agrees with third parties
Further, as the Service Provider is prevented from using the Confidential Information created in the course of providing the Services to ANZ, the Service Provider will have to collate and gather the confidential sales/rental data (and other relevant confidential data) again every time it prepares a new valuation report.
There will also be high internal administrative cost for the Service Providers (being the corporate entities) to conduct regular trainings for its individual valuers, to ensure the individual valuers understand his or her confidentiality obligation under the PVSA.
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56. We have also reviewed the “Proposed Privacy Clause” in the PVSA, which state:
“29. PRIVACY
29.1 The Service Provider represents and warrants to ANZ that it will at all times comply with the provisions of the Privacy Act 1988 (Cth) and the Australian Privacy Principles set out in that Act in relation to the handling, use and management of Personal Information.
29.2 The Service Provider must not use, or disclose to any party other than ANZ, any Personal Information supplied to it (or to which it has access or gains access) in connection with or as a result of this Agreement, except:
29.2.1 as is necessary to perform its obligations under this Agreement; or
29.2.2 as required by law.”
57. The proposed Clause 29.1 is acceptable, as it merely restates the statutory position that the
Service Providers must comply with.
58. However, there remain to be a number of issues arising from the Proposed Privacy Clause:
Our Comments
58.1.
Issue: One-sided
The Proposed Privacy Clause imposes an obligation on the Service Provider with
respect to the Personal Information.
However, there is no corresponding obligation on ANZ not to use or disclose the
Personal Information ANZ might obtain from the Service Provider as a result of the
PVSA.
58.2.
Issue: Scope of the obligation
The Proposed Privacy Clause requires that the Service Provider not to use or disclose any Personal Information “supplied to it (or to which it has access or gains access) in
connection with or as a result of this Agreement”.
This is unduly broad, as it includes Personal Information obtained by the Service
Provider independently and not supplied by ANZ.
If the person the subject of the Personal Information consents to the Service Provider
using and disclosing that Personal Information, there is no reason why the Service
Provider should be restricted by the ANZ from using or disclosing that Personal
Information.
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PART 5 – Potential Professional Indemnity Insurance (“PI”) issues arising from transfer of ownership of Intellectual Property
Summary
60. In our opinion, the assignment or transfer of ownership of all intellectual property of a valuer, in
respect to a valuation undertaken by that valuer, to a client (including lender clients), will lead to
policy indemnity issues arising as between the valuer and its PI insurer. In this context, the term
“valuer” includes the named “Insured” as is usually defined in a PI policy, and as such covered
under such a policy.
61. For the purpose of considering this issue, and to provide the API and RICS as to what, if any,
advice or alert they should give to their Members, we have perused a number of PI policies and
also consulted with certain persons involved in underwriting professional risks, but specifically
valuer’s risks.
62. In summary, and pursuant to the advice below, we strongly recommend that the API and RICS
draw to the attention of all Members, and to the extent possible the Members’ employers
(including all Service Providers under the PVSA), and not just those who may have been
presented with the PVSA from ANZ, what is set out below. Further in doing so the API and RICS
should advise all Members, and in the case of the API, those Corporate entities who employ
valuers including Service Providers under the PVSA, that they should seek advice from their
insurance and legal advisors in determining what, if anything, they should do in response to being
required to undertake valuations pursuant to the PVSA and especially clause 28 of the PVSA (or
some similar term in another service agreement).That advice should also have regard to what is
contained within this advice in respect to clauses 26,27,29 and 35.of the PVSA.
Introduction
63. As a general proposition, PI insurance is taken out to provide an indemnity to meet inadvertent
and/or unforseen “conduct” by an “insured”, leading to a loss by another party, in the course of
the “Insured’s Professional Business and or Services”. It is trite to say that the very essence of
insurance, or risk transfer, is based upon an insurer providing coverage and/or indemnity in
relation to unknown and/or unforeseen acts, omissions and/or conduct etc. of an insured which
leads to a loss. Once an insured is aware of or ought reasonably to be aware of a claim being
made upon it/he/she (or anyone or more of these – see below re what is usually meant by the
term “Insured”), or is aware or ought reasonably to be aware of circumstances that could give rise to a claim (or as some policies more broadly state, “…or ought reasonably to have known had
potential to give rise to a claim” – which could be of real relevance to the issues being considered
in relation to clause 28 in the PVSA), then the policy is trigged requiring the insured to notify the
PI insurer).PI insurance is offered on a claims made and notified basis.
64. At law, and in particular having regard to the Insurance Contracts Act (Cth), an insured has a duty
of disclosure to an insurer for the purpose of having insurance effected. That includes all matters
that, in general terms, are material to the knowledge of the insured as to whether an insurer
would accept such a risk and if so on what terms (refer s21 (1) Insurance Contracts Act 1984
(Cth) (“ICA”).
65. That disclosure which is sought by an underwriter in a proposal completed by an “insured” also
requires notification of any prior claims and also any circumstances that are known or ought
reasonably to be known by an insured, which could give rise to a claim (or as above , the
potential to give rise to a claim), upon an insured.
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66. Given the above, it is quite possible that if a Service Provider (in its corporate capacity), in
completing a proposal for PI insurance, made its employee (Member) valuers aware of a
provision such as clause 28 (a point we draw attention to below, as an obligation of a Service
Provider to its employee valuers who get the “benefit” of being an “insured” under the policy),
then noting what we have referred to earlier in this advice about the heighten risks attaching to
“potential” breaches of intellectual property rights and such knowledge of this “potential” by
Service Providers and employee valuers, might raise the issue of awareness of “…the potential to
give rise to a claim”?
67. In our opinion, given the request to transfer ownership of all Intellectual Property rights pursuant
to clause 28 of the PVSA, and what we and at least one underwriter believes could or would
follow in the carrying out of the Professional Business of such Service Provider and their
employee valuers in compliance with such a term, an Insured would have a duty to disclose to an
insurer such a term pursuant to the duty under s 21 of the ICA. That was the very firm view of the
underwriter with whom we have discussed the IP Clause, and who underwrites valuers PI
insurance. In his opinion, for reasons set out below, the inclusion of clause 28 in the PVSA,
certainly increased the risk profile for PI insurance of valuers having to comply with the
requirements of clause 28, together with the other PVSA clauses referred to above.
The Requirement of Members to have Professional Indemnity (PI) Insurance Cover
68. It is a requirement of the PVSA that Service Providers effect appropriate PI insurance (refer
clause 33 of the PVSA and also Part 2 of Schedule 2).
69. For API members who have the “benefits” under the Professional Standards legislation in
Australia, mandatory PI cover is required.
70. For RICS Members, all practising RICS Members, it is a requirement of membership to hold PI
cover.
71. Putting aside such mandatory requirements, it is the best interest of all “stakeholders” who
engage Members of the API/RICS, as well as in the public interest, for those members to hold
appropriate PI cover. In our opinion, an opinion shared by the underwriter we have conferred
with, for reasons set our below, certain policy indemnity “problems” are very likely to arise in the
event that Members of the API and/or RICS (and those non-member “Service Providers” referred
to in the PVSA), agree to the inclusion of Clause 28 of the PVSA.
72. In addition to the duty to disclose clause 28 of the PVSA, there is a term and condition in all PI
policies for an insured to disclose any change or amendment to the risk during the duration of the
policy. In our opinion, this particular term would be triggered as soon as an “Insured” entered into,
in this case, the PVSA. This opinion has also been expressed by the underwriter. That is an
issue of immediate concern to any Service Providers and their employee Member valuers, should
they have already entered into the PVSA. As to what might be the potential enhanced risk to an
insurer in the event that an insured agreed to such a term such as clause 28, the increased risk
could arise in a number of ways including (but not exclusively):
72.1. providing or transferring ownership or purporting to transfer ownership of confidential
data/information , privacy affected data, copyright and other general intellectual property
details to a client for its benefit ,when such purported ownership did not reside in the
insured so that such provision of information/documents etc. could breach any of those
relevant provisions at law and/or be unlawful.
72.2. by providing ANZ and/or others with information that ANZ or others would not ordinarily
have access to, such as, for example, making available internal records etc of potential or
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actual admissions. By “transferring” ownership of data held in the valuation file, which
ironically might not even be required under litigation rules in some jurisdictions, this may
breach certain PI policy terms to the prejudice of the insurer. Further, waiver of legal
privilege that attaches to certain documents, (legal) advices, opinions etc. obtained by a
valuer in the course of undertaking a valuation, may occur through that documentation,
those advices etc. being provided to the client under the IP transfer ownership condition in
the PVSA. The ANZ has in fact recognised this as an issue at paragraph 1.8 of the First
Schedule of the Brief, and in favour of the Service Provider’s rights, in the Brief. However,
in the event of any inconsistency with the Brief and the PVSA, the PVSA (ie clause 28 in
this respect) prevails , so that paragraph in the Brief would give way to the operation of
clause 28.
72.3. the assumption of responsibilities by a Service Provider and/or employee Member valuer,
not otherwise needed to be assumed beyond what the law requires, that go with the likely
“problem” issues referred to above, which could cause prejudice to an insurer in the event
that the insurer is asked to indemnify an insured and as such conduct a claim on behalf of
the insured.
73. There is a further dimension to this issue in relation to disclosure by an “Insured” valuer,
particularly when that insured valuer is a corporate entity (ie Service Provider) and as such not a
member of the API.
74. All PI policies provide, employees and former employees, as well as former directors etc., with
cover as an insured. In our opinion, again shared by the underwriter, it follows that a Corporate
entity such as that referred to, would have an obligation and responsibility to its employee
Member valuers, to inform them that in the event that the Corporate entity (“Service Provider”)
entered into an IP transfer of ownership provision in a PVSA, and in the event of a non-disclosure
on the part of the corporate entity in failing to disclose this particular provision in its proposal,
indemnity might be denied to the “Insured” which, as noted above, would include such
employees, former employees and former directors etc.
75. Whilst PI policies also usually include a severability and non imputation term, which in effect
protects “innocent insureds” from the consequences of a policy breach/failure to disclosure of
another insured under the policy, such term does not “protect” the so called “innocent insured” if
that/those insureds (say Member employees) have prior knowledge of a breach or failure and
also do not notify an insurer of that “innocent Insureds” awareness of what is known in that
regard.
76. That we are recommending that Service Providers disclose such terms to a Member employee,
could defeat the favourable intent of the severability term for such an employee. In our opinion
and that of the underwriter, a Corporate entity (Service Provider), would have a duty and
obligation pursuant to its employment contracts to inform all valuer Member employees of clause
28 (and any other onerous term for that matter), in order for those valuer Member employees to
be afforded the opportunity to seek advice as to the relevant provision in the PVSA.
Issues for consideration after entering into the PI policy
77. It has been held that a policy of insurance will be interpreted and constructed upon its words, and
critically, it will reflect the commercial intent of the parties’ desire to effect and provide insurance
cover. In McCann v Switzerland Insurance Australia Limited & Ors (2000) 176 ALR 711 at
paragraph 74, Justice Kirby stated:
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“As a species of commercial contract, an insurance policy must be interpreted to give to the words
used their ordinary and fair meaning. … The meaning to be given to insurance policies must take
into account the commercial and social purposes for which it was written. Under the guise of
giving the language of a policy its ordinary and fair meaning, a court is not entitled to make a new
contract for a party at odds with that upon which they have agreed.”
78. Therefore, the following is our commentary and observations arising from our consideration of
“standard” valuers’ professional indemnity policies (although in some cases policies differ): These
observations and comments also include the views of the underwriter with whom we discussed
the impact on insurance ‘risk” of the PVSA or similar, containing a clause such as Clause 28.
79. An insuring clause in a “standard” professional indemnity insurance policy provides an agreement
by an insurer to indemnify an insured against “civil liability” or breach of professional duty for
compensation to any third party arising from any claim (usually defined) as a result of the conduct
of an insured in the course of the insured’s professional business and/or services.
80. Such broad form cover absent other provisions, and also additions and/or limitations on cover,
cannot in our opinion have an unlimited width and application even though the cover is broad in
respect of liability arising for breach of “civil liability”. Whilst “civil liability” is not usually defined in
a PI policy, it cannot be without some limitation. For example and again subject to the full terms of
a policy , a policy with no other cover than in the Insuring clause and no other coverage
exclusions, in the case of coverage being sought where the insured became aware of or ought
reasonably to have been aware of the potential for liability to arise from an act or omission of
advertence, reckless indifference, and in other areas (to which most policies deal) the case of
fraud, dishonesty etc, quite possiblymight not cover the claim.
81. Put another way, PI policies cover professionals (valuers) for losses incurred to third parties
brought about by unforeseen consequences and/ or inadvertent conduct of the professional
insured.
82. Therefore, it is certainly possible that where a loss arose from a claim for a breach of a third
party’s IP rights, where the breach occurred in the knowledge of the professional (Insured) in the
course of complying with a provision such as Clause 28 of the PVSA, absent anything else, the
claim may not be covered..
83. Most policies also include other specific indemnity and coverage extensions/provisions relevant to
the issues at hand (always subject to the terms and conditions of a policy) including but without
limiting the generality thereof:
83.1. breach of confidentiality;
83.2. a claim of defamation;
83.3. breach of any intellectual property rights;
83.4. breach of privacy law; and
83.5. breach of copyright,
to name just a view.
84. It is not uncommon in these extensions of coverage for such breaches, for policies to include the
qualifying word “unintentional” by reference to how such a breach occurred. In our opinion this is
simply a confirmation of the general provision as to the basis upon which an insurance policy is
issued.
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85. Other relevant breaches that may attract coverage include those relating to trademark, registered
designs and/or patents, or even any plagiarism.
86. Depending how a particular breach of intellectual property rights occurred, given in particular, say
“recklessly indifferent” or “otherwise advertent” conduct of a Service Provider and or employee
Member valuer, might have occurred, the fraud and dishonesty extension in a PI policy might also
apply.
87. That said, we do not see that as a major threat to an insured in the circumstances , but
nonetheless it is difficult to speculate how a breach of intellectual property rights might come
about.
Issues arising from Part 4 of this advice
88. In Part 4 of this advice we have provided our opinion and comments relating to the separate
Confidentiality clauses (26 and 27) in the PVSA given the “interaction”, in our view, with the
incorporation in the PVSA of clause 28.
89. On their own, clauses 26 and 27 raise issues directed to Service Providers. With the exception of
any Service Providers who are RICS Firm Members, those clauses do not refer to or directly
concern all other Members.
90. However our opinions expressed in Part 4 should be considered by Service Providers as
requiring further legal and expert insurance advice by those Service Providers as to the likely
adverse impact upon their PI cover. However, we recommend that API and RICS should draw our
opinions and comments in Part 4 to their Members for them to obtain expert advice..
Observations of a PI underwriter
91. The PI underwriter with whom we consulted summarised his views on the potential impact on the
PI cover for those who agreed to clause 28 to be included, as follows:-
91.1. Noting what PI insurance is to cover for an insured valuer for breach of civil liability and/or
breach of professional duty as a valuer, he could see no reason why a valuer would ever
agree to such a term which he described as “broad and unnecessary” in fulfillement of the
Services required under the PVSA, for the task that the ANZ needs of a valuer. He
observed that as far as he was aware, a valuer’s service was in fact to “sell” his/her/its
intellectual property in the form of providing expert valuations.
91.2. He was unaware in considering insurable risk of any other professions who had agreed to
this term being included as part of a service agreement.
91.3. He could foresee a situation where, absent a suitable licence arrangement regarding data
“use” which provided the valuer with “total control” of how the data was used, and which did
not transfer ownership of IP rights, where Service Providers (and those Member valuers
doing the valuation), that in undertaking the valuation, might be precluded from using
valuable IP obtained and created previously in other valuations for other clients. However,
he added that he did not see why any professional would give away their intellectual
property, and in any event the same issues re potential increased insurance risk were still a
factor of higher insurable risk in his view. These are views we agree with. As noted above
and as an extension to his views, he did not see introduction of a licence arrangement
lessening the risk exposure of an insured, particularly as he would want to know (ask) as
part of the insurance proposal process or evaluation of a change in material risk (see
above). “How would you manage compliance with and adherence to the terms to which you
have agreed, that is, clause 28 of the ANZ PVSA?” He doubted that any prospective
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insured could answer that question without legal and insurance expert advice. He
volunteered he himself could not see how this could be “managed” without the need for
thorough expert explanation. That in his view, was a very simple example of why he saw
such a clause as clause 28 as increasing valuer PI insurance risk.
91.4. He said that any Service Provider ( as an employer of Member valuers) would need to
specifically draw this clause to the attention of those employed (and “insured” valuers”) to
properly instruct them as to how they were to “manage” compliance with and adherence to
the clause 28 requirements, and he would want this disclosed to him, that is the Service
Provider’s response.
91.5. He could foresee not just a possible increase in claims by third parties whose IP rights
have been infringed, but a substantial increase in investigation and defence costs
associated with claims being made upon the PI policy, including “complaint” claims under
API/RICS regulation. His concern extended to the fact that he was not only concerned
about eventual outcomes to claims and complaints, but the time and costs associated with
investigating these issues. As he said even if the policy did not provide cover for complaint
defence costs, his experience and ours as well, is that with complaints come third party
claims which need input by an insurer and its lawyers to keep some measure of “control”
over the likelihood of “ dual proceedings”.
91.6. He opined that depending upon where this clause “landed”, he could foresee a situation
where valuers doing valuations for other client lenders were they were some way
precluded from use of or access to “their created” IP, which might, if not disclosed to the
other clients, create a conflict of interest situation by taking on instructions knowing they
were unable to do the job fully (if correct this has Code implications).
91.7. He saw admission issues and waiver issues as heightening the risk, and causing costly
interruptions with claims handling.
92. In summary, he said that the agreement to comply with clause 28 increased the risk profile of
valuers and was a matter of some considerable concern to him as an insurer of valuers. He
foresaw the possibility of an ANZ PVSA “exclusion’ of some type or more likely a question to a
proposing insured requesting if that Insured had agreed to enter into the ANZ PVSA or similar.
This he said would at the worst make underwriters “think twice” about taking this risk or at best
provide cover with a very limited number of aggregate claims under the policy cover ,much
reduced cover sub limits and other limitations. In our view a “by-product” of the potential for
denials of cover occurring is that limitation of liability available under Professional Standards
legislation would not be available in the event of a claim being denied by an insurer.
OUR RECOMMENDATION
93. In light of the above, we strongly recommend that all members of the API and RICS, as well as
those non API member Service Providers, be made aware of this advice and that the API and
RICS strongly recommend that all Members and Service Providers seek legal and insurance
expert advice before agreeing to clause 28 being included in the PVSA, or in the case of
Members before they provide valuations for ANZ.
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PART 6 – Further General Advice in relation to Membership Issues, Potential Liability and Quantum Basis of instructions and introduction
95. Broadly, we have been instructed to provide advice on the effects/impact proposed clause 28 of
the PVSA have on Members.
96. We have provided our advice in Parts 1 to 5 above. In this Part 6, we identify certain further
general issues relating to membership, potential liability and quantum.
97. At the outset, we again raise that:
97.1. the Proposed IP Assignment Clause (clauses 28.1 and 28.2 of the PVSA) will pose a high
risk to the Service Providers and will increase the internal administration costs for the
Service Providers (see paragraph 0); and
97.2. the Proposed IP Licence Clause (clause 28.3 of the Variation Agreement to the PVSA) only
permits Service Providers to use the intellectual property in commercial valuation reports
and for the limited purpose of the Service Providers’ business from time to time (see
paragraph 37). We consider such limited licence to be unduly restrictive and unreasonable,
particularly in light of the need for Service Providers or Members to use their existing
intellectual property to perform valuations.
Introductory relevant issues relating to API/RICS membership
98. We note that API and RICS different categorisations, membership requirements or membership
obligations (including but not limited to rules of conduct). We consider that neither the API nor
RICS has member obligations that would in any way lead us to different conclusions and
recommendations regarding the effects (or possible effects) of clause 28 have on their respective
Members.
What is the purpose of a valuation report and associated advice and services, as required of a
valuer “by a lender”?
99. The sole and only purpose of the PVSA and Brief is to set out the contractual basis for ANZ (or
any other lender) to retain a Service Provider to provide a specific valuation of a specific property
for ANZ, in order for ANZ to, amongst other considerations, decide whether to lend to a borrower.
ANZ has full discretion to decide whether or not it will rely on the valuers’ recommendations or
analysis in a valuation report as to the value of a proposed mortgage security.
100. There is nothing in “The Reasons for this Agreement” section of the PVSA, or from the existing
relationship between lenders and valuers, that suggest that the valuers have to provide to ANZ
“creative services” and to create original literary or artistic work for ANZ.
101. Accordingly, it does not seem economically prudent or commercially appropriate for a Service
Provider and/or Member valuer to agree to the Proposed IP Assignment Clause in the PVSA (or
similar clause in other documents).
102. You have informed us that certain enquires have been made by API and/or RICS with relevant
ANZ personnel as to the reason why clause 28 has been incorporated within the PVSA. We were
informed that “the broad response” from ANZ is that the clause is used to “assist the business
purposes of the ANZ”.
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Issues for consideration by both the API and RICS regarding the effect (if any) upon their
Members (and/or those non member Service Providers) of agreement by Service Providers to
include clause 28 of the PVSA
The API
103. Members of the API are individual members. The API does not have as part of its membership,
corporate entities. This is a distinction to be drawn between the API and RICS (see below).
104. Members of the API are “governed” by a variety of Institute membership obligations and
requirements, namely, and principally for this advice, the Code of Professional Conduct (the
Code).
105. In the preamble to the Code it is stated:
The Code of Professional Conduct (“the Code”) is a public statement of the principles, values and
behaviour expected of Members of the Australian Property Institute Limited (API), as determined by
the Board.
The purpose of the Code is to ensure that high standards of corporate and individual behaviour are
observed by all Members. (In our view, it is likely that the word “corporate” would be interpreted to
mean that a member employed in a “corporate” environment must observe such stated standards.)
Every Member of the API must comply with the Code. A breach of this Code may constitute
Professional Misconduct which may be investigated by the API in accordance with the complaints
procedures under the Complaints Policy.
In order to maintain public confidence in the professional standards of Members of the API it is
essential that those Members exhibit, and are seen to exhibit, professional standards in carrying out
their duties.
106. The Code requires strict adherence by API Members to, amongst other things, the Code. It is also
clear, or at least arguable, that the API Members must have regard to the interests of the “public”
to, inter alia, “maintain public confidence in the professional standards of the Members of the
API”.
107. In our opinion, this part of the Code provides a powerful all-encompassing general obligation on
API members that could in our view be called into examination in almost any actual or purported
breach of the Code following a complaint made upon a Member. In our opinion, a breach of
Intellectual Property rights (as defined above), of a third party, depending how it occurred, could
be dealt with under the preamble section of the Code. In our opinion the term “public confidence”
would be given a very wide meaning in an interpretation of what the Code sets out as obligations
for the API Members to adhere to.
108. For example, in the event that a Member of the API was unable to complete a valuation having
previously accepted instructions from someone other than the ANZ, because he/she
subsequently determined that he/she was unable to rely upon sourced information/data that on
one view was given confidentially, but without authority to be referred to or utilised, or
alternatively be unable to be relied upon because it was in the ownership of ANZ, that could , in
our opinion, be acting against the “public interest” as an independent professional valuer and
Member of the API. Such an example might also give rise to a conflict of interest situation.
109. As part of the Code clause 1.12 states as follows:
A Member must not, during, or after termination of a retainer, disclose to any other person, who is not
a partner or employee of the Member’s firm, any confidential information provided directly or indirectly
by a client or to a client, unless:
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(a) the client authorises the disclosure;
(b) the Member is permitted or compelled by law to disclose;
(c) the Member discloses information for the sole purpose of avoiding the probable commission or
concealment of a felony; or
(d) necessary for replying to or defending any charge or complaint as to conduct or professional
behaviour brought against the Member or his or her partners, associates or employees.
110. Clause 1.14 states:
Where information critical to the assignment being undertaken is relied upon by a Member, the
source of that information must either be disclosed in the relevant report or contained in the working
papers supporting the relevant report and be appropriately attributed in either case, unless the
information is protected by confidentiality, or the Member is prevented by privacy or other like laws
from disclosing or referring to the source.
111. Clause 1.2 envisages a number of scenarios. However, one scenario which might lead to a
breach or a possible breach of part of the Code in the event of a finding of a breach of a third
party’s IP rights, could be:
“A Member must not, during, or after termination of a retainer disclose to any other person, who is
not a partner or employee of a Member’s firm, any confidential information provided directly or
indirectly……to a client, unless,…(a) the client authorises the disclosure (our highlighting);”
112. It seems to us that simply because a client authorises such a disclosure, might not of itself allow a
Member who knows that he or she is in fact disclosing “confidential information “ to “any other
person”, to in fact do so. This would in turn be a possible breach of the Code. We also refer to
Part 3 of this advice as to give further examples where Members might “suffer” possible adverse
outcomes by the manner in which they fulfil their role as a valuer and which might lead to
complaints being made and made out under the Code.
113. In our opinion and without canvassing remedies at this time, a client authorisation would not of
itself override an existing confidentiality obligation, yet because of the agreement to clause 28 in
the PVSA and also having regard to obligations contained in clause 27 of the PVSA, it seems
quite possible for the Member to be implicated as part of any dispute that subsequently arose. It
is not in Members’ best interests to be so implicated given what that would involve for Members
(irrespective of any good “defence”), nor for the PI insurers of those Members (see Part 4 of this
advice).
114. If we are correct in our above analysis, this simply gives support to the points we have made (and
for that matter the underwriter we conferred with made – see below), as to the various
complexities that could arise through agreement to the terms of clause 28, and with the need for
various expert advice every step of the way. As also referred to in Part 2 of this advice the costs
involved in investigation and defence of claims and/or complaints could be quite substantial (this
also was alluded to by the underwriter and provides support for his opinion that clause 28
heightens the risk of an underwriter of a valuer).
115. In our opinion for various similar reasons Clause 1.14 of the Code would be open for
consideration in certain fact scenarios where Intellectual Property rights were breached,
particularly when considering clauses 28.1.2 -28.1.4 of the PVSA.
116. Although we have concluded above as to the width of the Code being able to be relied upon to
deal with any complaints arising out of complaints of Member breaches of Intellectual Property
rights, it would be open to the API (and for similar reasons RICS) to amend the Code to
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incorporate a more defined and prescriptive Code of Conduct provision to deal with any issues
arising as described in this advice. This is an issue that the API (and RICS) might wish to
consider dependent upon what occurs with the ANZ and any other lenders regarding whether or
not clause 28 or similar terms remain in the PVSA or other service agreements.
117. Rule 3 of the Code also deals with “independence and impartiality”. Whilst we express no view on
the future possibility of a lender with ownership of valuer IP, selling certain acquired IP to
valuers, if that was ever to occur, then in our view this could be a serious breach of that part of
the Code.
RICS
118. The Royal Charter under which RICS is incorporated in the United Kingdom, proceeds on a
slightly different but otherwise in our opinion, similar basis as to the requirements and obligations
of its Members. The Royal Charter (the Charter) requires RICS to promote the usefulness of the
profession for the advantage of the UK public and in other parts of the world. The “stakeholders”
to whom RICS members need to consider, is wider than that of the API. Additionally, Members of
RICS can be not only individual valuers (surveyors), but RICS also has membership for “Firms”,
as defined.
119. RICS has Rules of Conduct for both individual Members and Firms although each of those
specific rules are fundamentally the same. The Rules of Conduct for individuals in fact apply for
all RICS Members.
120. The most applicable Rule is that dealing with ethical behaviour, which of itself is dealt with under
the Ethics and Professional Standards as applied by RICS, noting in particular five standards
those being:
“Act with integrity”
“Always provide a high standard of service”
“Act in a way that promotes trust in the profession”
“Treat others with respect”
“Take responsibility”
121. The most relevant ethical standard is that relating to “Act with integrity”, in which RICS requires of
all of its Members.
122. This standard includes, but is not limited to, the following behaviours or actions:
122.1. being trustworthy in all that you do.
122.2. being open and transparent in the way you work. Sharing appropriate and necessary
information with your clients and/or others to conduct business and doing so in a way so
they can understand that information. (our underlining)
122.3. respecting confidential information of your clients and potential clients. Don’t divulge
information to others unless it is appropriate to do so. (our underlining)
122.4. not allowing … conflict of interest … to override your professional or business judgements
and obligations.
122.5. making clear to all interested parties where a conflict of interest, or even a potential
conflict of interest, arises between you or your employer and your client.”
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Summary
123. In our opinion, whilst there are differences in the broad “regulatory” basis upon which both API
and RICS operate vis-à-vis Members obligations, given the specific issue in relation to our advice
as to the transfer of ownership of Intellectual Property rights as set out in clause 28 of the PVSA,
we take the view that each of the API and RICS Members’ obligations would not be interpreted
differently, should their Members breach any third party’s Intellectual Property rights.
API/RICS Membership and the “interaction” between the ANZ PVSA and Brief
124. A perusal of both the PVSA and Brief makes it clear of the significant importance to ANZ, in
appointing valuers to be included on an ANZ Panel, that membership of either or both the API
and RICS is a mandatory requirement of the ANZ. We have not attempted to consider and refer
to every reference to API/RICS membership in the PVSA and Brief, save to say that the following
are but random but important examples of requirements that valuers appointed to the Panel for
the purpose of undertaking the valuations, are members of the API and/or RICS.
125. More critically, however, in our opinion, they are required by the PVSA and Brief to comply with
the relevant Codes, Standards, Guidelines etc including using specific forms of valuation reports,
being specifically designated API report procedures and forms. These include namely, the API
Property Pro and Memorandum, Restricted Access Inspection reports, both of which are
copyrighted to the API, and are also the bases of valuation instructions adopted by the finance
industry generally. Refer for example Genworth Financial Mortgage Insurance Pty Limited v
Hodder Rook & Associates Pty Limited [2010] NSWWSC 1043, particularly paragraphs [50] to
[53], and [56] of that decision.
126. Further, at paragraphs [4] and [5] and beyond in the Brief, it is quite clear ANZ’s stated
requirement of its valuers being either members of the API and/or RICS, and preparing valuation
reports “in accordance with this Brief and the API’s ‘Australia and New Zealand Valuation
Property Standards/RICS Valuation – Professional Standards (the Red Book)”, as amended from
time to time. It is clear that ANZ require valuers appointed to their Panel (including those Service
Providers who employ Members as referred to in the PVSA), to comply in respect of all
obligations of membership of the API and/or RICS, including critically to maintain that
membership and be obligated to all of the requirements that that membership entails.
127. The ANZ by its very actions in requesting ownership of all of the intellectual property, may on one
view assist the facilitation of “potential breaches of API/RICS membership obligations through the
various codes” etc, where a breach of confidentiality, privacy law, copyright and/or trademark,
occurs, as a possible by-product of providing that ownership of Intellectual Property as required in
clause 28.
128. One potential absurd outcome for the API and its Members by Service Providers agreement to
the incorporation of clause 28 in the PVSA, could be that because of the width of clause 28 and
also having regard to the contents and requirements of the PVSA and the Brief, API copyright
attaching to the Property Pro and the Memorandum to the Property Pro valuation process, as well
as the Restricted Access process, might be transferred to ANZ for its ownership! We simply flag
this issue and given the obvious sensitivity of this issue especially attaching to the actions of
Service Providers and also how Members conduct their valuation task in the knowledge of having
to comply with cl. 28 of the PVSA, the API may wish to explore this issue further.
129. Further, it is quite conceivable that in undertaking a valuation of a property but being denied
authorised access to use, for analysis purposes and as part of the valuation, certain confidential
material/data which ordinarily would have been provided by a third party, might not now be
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provided. This could preclude a valuer Member from properly undertaking a valuation. In our
opinion, the API and RICS should recommend that their Members disclose to a third party from
whom they might be seeking confidential information for use in completing a valuation , on every
occasion they seek such data, that “they” or at least Service Providers are bound to comply as
far as is possible with s.28 of the PVSA.
130. We are instructed that if third party confidential “sources of information/data” often used by
valuers and so critical to many valuation tasks, were to “dry up”, this would have a dramatic effect
on the ability of Service Providers but more particularly Member valuers, being able to
professionally, thoroughly and fully, complete many valuations. This in turn, may impact on
Members’ ability to comply with their Codes. We wonder whether or not the ANZ and its advisors
have considered this point alone?
Some further issues to consider beyond those issues referred to earlier in this advice
131. There are some further issues that we strongly recommend be drawn to the attention of API and
RICS Members, in addition to those issues raised above .In the case of the PVSA, or other
similar panel valuer agreements, those agreements are usually entered into between a corporate
entity (via the “mind” of the entity, which is quite often including those who may also actually
undertake the valuation).
132. In the case of individual Members of the API and RICS who will undertake the valuations (and we
leave aside for the present time corporate “Firm” Members of RICS), they are more often than
not, not parties to the Agreement. Even if they were undertaking the roles of a “corporate mind”
who agrees to a contractual arrangement and the valuer who does the valuation, both proceed on
different bases with different potential liabilities arising from their different roles.
133. We have assumed, and will proceed as such unless informed otherwise, that for the main part
most if not all employee Member valuers of Service Providers, are not involved nor consulted in
relation to the panel value agreements that are entered into from time to time by a Service
Provider.
134. In our opinion, this raises a very serious issue for the API and RICS to alert their individual
Members about, namely, the potential impact upon those Members as the professional valuers
who undertake specific valuations pursuant to the PVSA. In our opinion Service Providers,
including RICS Firm members, should provide full disclosure of such contractual terms as clause 28 (and the other PVSA clause we had referred to) to those individual member valuers before
they complete a valuation pursuant to the PVSA. This is so that they can be fully informed of that
provision (and any other onerous provisions that might impact upon them by simply be in the
valuer in question), and of the potential adverse consequences to them arising from the transfer
of ownership of Intellectual Property. Put another way it seems to us that those valuer members
need to be fully informed and even afforded the opportunity of obtaining legal and other advice
regarding clause 28, amongst the other claims mentioned.
135. We have previously raised in this advice the complexity and costs that will exist in considering
“managing” how every valuation should be approached, in a way that ensures that Intellectual
Property rights are not infringed, no matter how it might occur. This is an area of legal complexity
and will no doubt impact upon various service requirements as set out in the PVSA and Brief in
the case of the ANZ. We find it difficult to contemplate that this was not an issue exercising the
minds of those seeking to have ownership of all Intellectual Property as envisaged in clause 28.
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RECOMMENDATION
136. Therefore we strongly recommend that should Service Providers (even in the event of a RICS
Member "Firm" Service Provider) agree to clause 28 in the PVSA, that the API and RICS put all
Members on notice that:
136.1. firstly, they should be made aware of such provisions of clause 28 and the other clauses
referred to; and
136.2. secondly, be informed that they should obtain advice (legal or otherwise), as to any
potential consequences of them carrying out a valuation pursuant to the terms of the
Agreement which includes clause 28.
137. Consider for example, that a note of a conversation is taken when some confidential information
is given, and the note is included in the valuer's file. Dependent upon how clause 28 was
interpreted, that information through the file note in the valuation file may then become known to
(and "owned") by ANZ and then possibly various other third parties, and as such used improperly.
This could lead to a substantial breach of confidential information sounding in substantial
damages.
138. Whilst we have not attempted to detail examples of how substantial damage claims could occur,
there can be no doubt that potential infringement of Intellectual Property rights would lead to large
monetary claims.
139. Whilst the API cannot compel Service Providers who are not individual members of the API to
take the steps we are recommending above, clearly RICS corporate Firm members should be
compelled to consider and act upon our recommendations.
Yours sincerely
Shannon Platt
Partner, Head of IPT
t: +61 2 9373 1465
Lindsay Joyce,
Consultant, Insurance
t: +61 2 9260 2519
53422108\4 22 December 2016 Page 32 of 33
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Attachment 1
Definitions
We use the following definitions throughout this advice:
PVSA means the draft Property Valuation Services Agreement (Dedicated Panel Valuers) drafted by ANZ.
Brief means the ANZ Professional Services Brief – Valuations (November 2016).
Valuation Materials
means the materials referred to in clause 28.1 of the PVSA, being:
(a) Valuation Reports;
(b) Valuation Files;
(c) data attached to Valuation Reports or Valuation Files; and
(d) any other intellectual property created or otherwise brought into existence by or on behalf of the Service Provider in the course of providing the Services or otherwise in relation to the PVSA.
Service Provider means the corporate entity which it is proposed will enter into the PVSA with ANZ, as identified on page 1 of the PVSA. The term is not otherwise specifically defined in the PVSA.
Members means a member of API and/or RICS.
Clause 28 means the Proposed IP Assignment Clause.
Proposed IP Assignment Clause
means clauses 28.1 and 28.2 of the PVSA.
Clause 28.3 means the IP Licence Clause.
Proposed IP Licence Clause
means clause 28.3 in the draft Variation Agreement No. 1 to the PVSA.
Proposed Confidentiality Clauses
means clauses 26, 27 and 29.3 of the PVSA.
Proposed Privacy Clause
means clause 29 of the PVSA.
Interpretation
For the purpose of this advice, we have treated both Service Provider and Dedicated Panel Valuer as
one and the same contracting party with ANZ in the PVSA.