“Blue Mountains bushfire victims to launch class action” is the heading of a story appearing in today’s Blue Mountains Gazette (20 May 2014). According to the report “Victims of the October 2013 Springwood, Winmalee and Yellow Rock bushfires are launching a class action against power company Endeavour Energy, worth an estimated $200 million”. Further details of the action will, we’re told, be released and reported tomorrow (and see now B.C Lewis and Jennie Curtin ‘Blue Mountains bushfire class action lodged against Endeavour Energy’ Blue Mountains Gazette, 21 May 2014).
Pending the release of the details of the proposed class action, it is worth recalling that the ABC program ‘Four Corners – Fire in the Wire’ (Monday 28 October 2013) revealed the extent to which electrical assets have caused devastating bushfires in Australia. In the pre-show advertising they said “Four Corners examines the evidence gathered over four decades documenting the causes of our biggest fires. The figures will shock you.”
What else may be shocking are the legal consequences, or more importantly, the lack of consequences that flow from fires that have been caused by electrical assets. Research I conducted with my colleague, Professor Steve Dovers, and funded by the Bushfire Cooperative Research Centre, looked at civil liability arising from bushfires. Despite a belief that litigation is a modern phenomenon, people have been suing over bushfires since the 1860s. Originally the defendants were landowners who were being sued for negligently starting or failing to control a fire. From 1884 Railway operators began to be seen as defendants as steam trains were a frequent source of ignition. From 1977 we began to see electrical authorities as defendants and, from 2005, actions have been run (so far unsuccessfully) against fire services and land management agencies (see Eburn, M and Dovers, S., ‘Australian wildfire litigation’ (2012) 21 International Journal of Wildland Fire 488–497).
The growth of the world-wide-web means it is now possible to find details of cases that are started, came before the court for some procedural issue but ultimately settled. With access to that material we can see that electrical authorities were sued following Victoria’s devastating grass fires of 1977 and the 1983 Ash Wednesday fires in South Australia (see Wollington v State Electricity Commission  VR 115; Wollington v State Electricity Commission  VR 91; Ballantyne v ETSA  SASC 4275; May v ETSA  SASC 4149; Seas Sapfor Forests v ETSA  SASC 4004; Seas Sapfor v ETSA  SASC 5718; SA Electricity v Union Insurance (Unreported, Supreme Court of South Australia, Perry J 9 July 1997); Telfer v Flinders Council; ETSA 3rd party  SASC 42; Telfer v Flinders Council; ETSA 3rd party  SASC 117; Telfer v Flinders Council; ETSA 3rd party  SASC 142. A detailed, annotated table of post-bushfire cases, including those against the electrical authorities can be found on the Bushfire CRC website).
Following the 2009 Black Saturday fires there has been claims against the electrical distributors and most of them have also settled (see Place v Powercor Aust Ltd  VSC 6; Matthews v SPI Electricity (Ruling No 16)  VSC 74; Mercieca v SPI Electricity  VSC 204; Thomas v Powercor Australia  VSC 614 and David Chen, ‘Court Approves $40m Black Saturday fire payout’, ABC Online, 5 December 2011.) In the ongoing class action, Matthews v SPI Electricity and SPI Electricity Pty Ltd v Utility Services Corporation Ltd , the electricity authorities have joined various state agencies (in particular the Country Fire Authority and Victoria Police) to try and diffuse the liability so that makes that case more complex and may be one factor that helps explain why that case has not settled.
Cases settle for many reasons but at some level the parties have to decide that settling the matter is in their best interests. For a defendant a settlement can be in its best interests if it believes that the costs of settling the matter are likely to be less than the costs of running the matter before a court. This will certainly be true if the defendant believes they it does not have a legal defence. A defendant may also not want to run a matter before a court because it does not want a definitive ruling on whether or not it is legally liable. A settlement does not determine legal rights in the way a judicial determination does and the terms of settlement will often say that the settlement is made without admitting that the defendant is legally liable. Settling a case will also remove an unwanted distraction and relieve staff from the need to prepare for, and go to, court and will, instead, allow them to focus on the defendant’s core business – in this context the delivery of electricity.
What we do know is that, notwithstanding these fires and these claims, the defendant electrical authorities are not making a loss. SP Aus Net’s electricity distribution business made a net profit after tax of:
- $157.5 million in 2008;
- $146.9 million in 2009;
- $209.0 million in 2010;
- $252.9 million in 2011; and
- $255.0 million in 2012.
In terms of liability, the 2011 annual report (at p 122) notes that “SP AusNet has liability insurance which specifically provides cover for bushfire liability.” It follows that any damages payable from the current class action will, to the extent of their insurance cover, be met by their insurer rather than from SP Aus Net’s income and profits. In 2009 and 2010 the provision for uninsured losses was a mere $1.4 and $1.6 million respectively, and no separate allowance is reported in the 2011 annual report. It is not known who SP’s Insurers are but there has not been any public failure of any insurance company following the Black Saturday fires.
What we can infer is that notwithstanding the catastrophic destruction brought in 2009, neither the electrical authorities nor their insurers, are making a loss; they continue to do their work and return a profit for their shareholders. Causing a bushfire, even a fatal bushfire, appears to be part of the costs of running an electricity business in Australia, or at least Victoria.
In ‘Four Corners’ the ABC asked “why have public officials disregarded the lessons of the past that may have prevented our most disastrous fires and we look at the factors holding back changes that might well protect the community in the future?” The answer may be that this cost is a cost the community is prepared to pay.
Following the Royal Commission into the 2009 Victorian bushfires it was recommended (Recommendations 27 and 32) that overhead power lines be buried and also electricity authorities reset their power grid to disconnect the power after a single failure, rather than after three. The authorities had said that automatic circuit reclosers would recharge a power line after a fault in case it was a minor fault that had fixed itself. This process would ensure continued supply to the company’s customers. If the line failed three times then the power was shut off until it could be inspected and the problem solved.
In making its recommendation the Royal Commission noted (Final Report, Volume II, Chapter 4, p 171):
The need for a policy change in relation to ACR [automatic circuit recloser] suppression is graphically illustrated by the Kilmore East fire, which started because an ACR reclosed when there was a permanent fault on the line. That ACR was left in service in an effort to improve the reliability of supply on a SWER [Single Wire Earth Return] line that served just 20 customers, yet the resulting fire claimed the lives of 119 people.
With respect to their recommendation, the Royal Commission said (at p 172):
To the extent that there is a decrease in the reliability of supply to SWER line customers, there is a corresponding benefit to those same customers in that the likelihood of fire starting in their area will be reduced.
An implementation task force was established to look into the recommendations from the Royal Commission. With respect to the recommendation to bury powerlines, the Powerline Bushfire Safety Taskforce (pp 8-11) reported that the community would not accept the increased electricity charges that would be required to meet that obligation.
As for the suggestion to reduce the reliability of supply by disabling automatic circuit reclosers, the Taskforce reported (p 70-71) that again the community would not tolerate losing power on high fire danger days.
Aware of the risk posed by electrical supply assets, the South Australian power supply company, ETSA, disconnected the power supply on a particularly bad fire weather day in January 2012 but this decision was not without criticism (‘Power cuts as state endures scorcher’ ABC News, 2 January 2012; ‘ETSA defends decision to cut power’ ABC News, 3 January 2012). An ETSA spokesperson is quoted as saying:
“We recognise there is inconvenience but we recognise that at the end of the day we have … to make these decisions and we have to make them in real time in emerging circumstances to protect lives and property.
He says the decision to cut power was the right one.”
ETSA may have believed it was doing the right thing when it disconnected the power but to reduce the risk to human life, regardless of the inconvenience, but even that is not without controversy. In research published in the Medical Journal of Australia Richard Broome and Wayne Smith report on their study of the likely public health effects of cutting off the power (Broome R, and Smith, W., ‘The definite health risks from cutting power outweigh possible bushfire prevention benefits’ (197(8) Medical Journal of Australia 440-441; see also my earlier blog-post: ‘Electricity authorities, out of the frying pan and into the fire?‘ (October 19, 2012)). Broome and Smith argue that ensuring power supply is necessary to maintain air conditioning as well as life sustaining equipment:
An important omission from the health and safety arguments … is a discussion of the role of air conditioning in preventing heat-related illness. Days of high fire danger are generally very hot and therefore likely to be associated with high rates of heat-related morbidity and mortality. For example, the Victorian government estimated that the 7-day heatwave preceding the February 2009 bushfires caused 374 deaths, a 62% increase above the baseline mortality rate…
Deaths from heat outweigh direct deaths from catastrophic bushfires … So from a public health perspective, power cuts are more likely to lead to adverse health outcomes than maintaining power on potentially catastrophic bushfire days…
What can be inferred from this discussion is:
- Fires are regularly started by electrical assets.
- So far, legal claims for compensation against the electrical authorities have settled out of court which suggests that the authorities see the cost of paying out as more economic than the cost of defending these actions; and they’re still making a profit.
- Generally the community is not willing to tolerate the increased electricity costs, and loss of reliability that would be required to decrease the risk of electrically caused fires. And if Broome and Smith are correct, reducing the reliability of the power supply may cause more deaths from heat related events than are killed from the impact of fire.
It appears that the risk of fires such as those seen on Ash Wednesday (1983), Black Saturday (2009) and now Sydney 2013 is the price we the community pay, and are prepared to pay, to have a relatively cheap, highly reliable electrical supply.
Thanks for another excellent article Michael. Couple of questions for clarity (bearing in mind I’ve absolutely no law training at all!)
1. For the electricity companies to settle out of court, does that mean no precedent is set for future possible litigation?
2. What are the implications for the electricity companies if they don’t settle and go before the courts?
3. If power companies are being sued and consequently settling out of court, are they effectively admitting guilt?
4. If they’re admitting guilt, are they then liable for criminal prosecution?
Thanks in advance.
Thanks Craig. The answers to your questions are:
1. For the electricity companies to settle out of court, does that mean no precedent is set for future possible litigation? Yes it does mean that. A case that settles sets no precedent.
2. What are the implications for the electricity companies if they don’t settle and go before the courts? The court may make findings regarding the companies duty of care, or what is to be expected that the company would prefer were not made, but the most significant implication is that the damages and costs would be higher. If you don’t think you can win there’s no point paying for a defence and even if you think you could win there’s no guarantee. Going to court is a win/lose outcome. If the defendant wins they don’t pay anything but if they lose the judge decides how much they have to pay. If you settle the parties remain in control, and because everyone is there on a ‘winner take all’ basis, settling, ie compromising can be good for everyone.
3. If power companies are being sued and consequently settling out of court, are they effectively admitting guilt? No. First most terms of settlement will say words to the effect of ‘Without admitting liability …’ that is they explicitly don’t admit guilt. Second it’s not actually the electricity companies that settle, it’s their insurers and their concern is their shareholders so they settle when it makes economic sense to settle. They are not admitting anything and can settle even if their client (the insured) doesn’t want them to. So the fact that a case settled can’t be held against anyone.
4. If they’re admitting guilt, are they then liable for criminal prosecution? I’ve already said they’re not admitting ‘guilt’ but even if they were admitting they were negligent that would not open them up to criminal prosecution; merely being negligent is not a crime. The criminal law is different to tort law, it has different issues to be proved and different defences. They are not related so even if they admitted liability, even if it went to court and they were found to have been negligent, that would not be at all relevant in any question of whether or not they had committed a criminal offence even if the alleged offence were negligent manslaughter. The two jurisdictions are simply not related.
I hope that helps clarify the situation.