I have previously reported on the settlement of the Black Saturday litigation arising out of the Marysville Fire (‘Another Black Saturday class action settles’ (February 6, 2015)). The parties reached an agreement on 6 February 2015 but that agreement had to be approved by the court which has now been done. In Rowe v AusNet Electricity Services Pty Ltd & Ors [2015] VSC 232 (27 May 2015) Emerton J approved the settlement of $300 million. The defendants were AusNet Electricity Services, UAM. a maintenance company contracted by them to inspect the power lines as well as the state of Victoria representing the Department of Environment, Land, Water and Planning, the Country Fire Authority and Victoria police.
The allegations against AusNet were (see [6]-[8]):
… based on the design, construction, maintenance and inspection of its electricity distribution assets (wires and poles) at Murrindindi, the training and supervision of inspectors in relation to its patrol of the Murrindindi assets and the reconnection of electricity on Black Saturday following a power failure. It is also alleged that AusNet is liable for breach of its statutory duty, in nuisance, under a derivative liability and as principal for the acts and omissions of its agent, UAM.
UAM is alleged to have been negligent in its inspection of the Murrindindi assets and in the training and supervision of its inspectors.
The State parties are alleged to be liable in relation to the failure to provide adequate warnings of the Murrindindi fire on 7 February 2009 and the Secretary of DELWP is also alleged to be liable in relation to planned burning.
The agreed settlement is ([31]) that the defendants will:
… pay the sum of $300 million (the ‘settlement sum’) in settlement of the claims of the plaintiff and group members, with no admission of liability and inclusive of costs. AusNet is to contribute $260.9 million, UAM $10 million and the State Parties $29.1 million to the settlement sum.
The settlement is more complex than that though. Although this is the end of the legal proceedings it is not the end for the plaintiffs. A class action can only determine matters that the members of the class have in common. In this case that is the question of liability. It is now known that the defendants are liable to the plaintiffs in the sum of $300 million. What is not been determined is how much each person will recover. There are two sorts of claimants, those were claiming for personal injury and those that are claiming for economic loss and property damage. $34 million will be made available for the personal injury claimants and their losses still need to be assessed. When each person’s losses are assessed the maximum they will recover is 80% of that final assessed value. The amount contributed by Victoria will go only to personal injury claimants ([32]). The balance of the settlement money as well as any left over from the personal injury claims will go to those who suffered economic loss and property damage. The amount they recover will be determined by the application of a formula assessing various losses such as loss of fences and the property. At [80] the judge said that the formula:
… seeks to address a number of matters:
(a) the valuation of homes as opposed to non-home buildings, and the question of whether ‘diminution of value’ or ‘reasonable reinstatement’ is the proper basis for valuation;
(b) the complications involved in treating claims in different circumstances where home and non-home buildings have been rebuilt, partially rebuilt before property sale or not rebuilt before a property sale;
(c) the valuation of fences;
(d) the valuation of ordinary home contents and domestic chattels as opposed to collectibles, and normal livestock as opposed to breed stock or bloodstock;
(e) issues regarding the valuation of gardens and trees, which have emerged from the exchange of a series of expert opinions;
(f) income losses by employees or self-employed persons not because of personal injury but because of damage to business assets or time off work to attend to personal assets or other disruptions from the fire, or wages lost by employees stood down because of the damage to their employer’s assets or slowdown in trade;
(g) lost corporate income from damage to business assets or trade slowdown;
(h) pure economic loss not covered by the above items;
(i) the costs of alternative accommodation;
(j) the valuation of claimants’ own/volunteer labour and own/donated materials; and
(k) the question of ‘inconvenience damages’.
Each plaintiff therefore still has to go through a process to quantify the amount of the damages. This way of quantifying who was to get what was the same as the process used in the settlement of the litigation arising from the Kilmore East/Kinglake fire.
One part of the settlement involves the payment of the plaintiff’s costs. The plaintiff was represented by a firm of solicitors the conduct of the case on a no win no fee basis. To reflect their share of the risk namely that they may have done a lot of work and if the case is not been successful they would have ended up out of pocket a law firm is entitled to charge its normal fees plus an extra 25% when operating on this basis. Note this is quite different to the US system where a law firm can charge a percentage of the verdict; that is not permissible in Australia. In any event the costs were assessed at in excess of $20 million. This will be paid to the law firm before any amount is paid to the claimants. From the settlement amount there also has to be paid the further costs of administering the scheme including assessing all the various claims for damages.
I have previously commented that people settle cases not necessarily because they think are going to win or lose but because settlement is the most cost-effective way out of the problem. All the defendants in this case continued to deny liability but ultimately they (or more accurately, their insurer) agreed to contribute money. The plaintiffs to have agreed to settle even though is no expectation that they will recover 100% of their losses again because it’s cost-effective and time effective. Settling now saves the burden had go through the litigation process and probably appeals regardless of the result. As his honour noted (at [64]) there are:
… a number of incidental advantages of settlement, including:
(a) early finalisation of the proceeding;
(b) avoidance of continuing personal anxiety, stress and suffering;
(c) advancement of payment; and
(d) containment of legal costs.
His honour took these advantages into account when concluding that the settlement was reasonable between the parties.
So why bother?
The litigation over the Kilmore East/Kinglake fire settled for $494 million with costs in excess of $60 million (Settlement in Black Saturday litigation is approved (December 23, 2014)). This Marysville/Murrindindi settlement is another $300 million including costs of $20 million. For reasons explained above neither case is actually over, and the claimants still have to quantify how much there’ve lost and how much of the total settlement they will receive. If, as appears to be the case, we going to end up in this situation after catastrophic fires do we really need to spend well in excess of $80 million to prove that the event was someone else’s fault and how much everyone has to contribute before we begin to work out how much the people have suffered a loss actually need? The focus appears to be all wrong starting with whom to blame rather than what has been lost.
I am reminded that following the 9/11 terrorist attacks on the United States the US government introduced a no fault compensation scheme that was open to everybody who was killed or injured in that terrible event. By signing up to the scheme people waived their right to sue so they did not have to have protracted battles with the US government, airlines, airport authorities and response agencies. An individual lawyer was put in charge of the scheme and it was his job, no doubt assisted by staff, to try and assess how much people would receive based on the normal rules by which compensation is determined (see Kenneth R. Feinberg, What is life worth? The unprecedented effort to compensate the victims of 9/11 (Public Affairs, New York, 2005)). Without going into the details of the scheme or how did that what we can see is that this scheme focused on the needs of those who had suffered loss and removed the need to spend $80 million trying to find who to blame.
Spending $80 million to get to this point seems particularly egregious when the Royal Commission that inquired into these fires and was meant to determine both their cause and the good and bad points of the entire emergency management scheme, cost $40 million. That figure does not include the costs of all the various parties that appeared before the Royal Commission so there is no doubt the total costs were much higher. That makes spending another $80 million (and that’s just the plaintiffs’ costs) and still having factual disputes as to what caused the fires and what else could or should have been done during the event seems like a particular waste of money. What we do know is that we have spent well in excess of $120 million and still AusNet deny that it was their asset that caused the fires or that they were negligent and the state parties also deny that they were negligent. None of those issues have been resolved by the court. Because these cases have settled any determination of whether or not there was negligence or even whether an agency like the Country Fire Authority or Victoria police owe a duty care to individuals in the circumstances remain unresolved.
These comments are no reflection on the parties involved. This is the system we have the plaintiffs had no choice but to go to the lawyers, the lawyers had no choice but to commence the action if they were to try and act in their client’s best interests, and the court can only determine matters that is actually called upon to determine and when a case settles is not asked to determine the legal issues. The solution is not criticising people for taking legal action or falling back on the idea that people should be taking more responsibility for themselves and if there’s a fire they should be prepared to wear the losses. If the fire was caused by negligence than they have a legal right to a remedy and we hope that litigation including the fear of costs and reputational consequences will encourage potential defendants to act with greater care. (Though, as I have argued elsewhere, it appears to me that bushfires are just cost where prepared to pay for the sake of having reliable electricity- Bushfires; the price we pay for electricity (May 20, 2014)). If that is the case then the solution is not asking people not to take legal action after fires but to recognise that if we are going to end up at this point perhaps we should find a way to get straight to the point and save the millions of dollars on legal costs simply to establish liability. Given that it is insurance companies paying out this money, and they have the means to do it but through the collection of premiums wise investment and reinsurance, then it must be time to consider some sort of no fault catastrophic insurance scheme and divert the money that is currently being spent on legal costs to improving community resilience.
Australian Emergency Law 
DEFINITELY!! As a member of the community with no experience with laws and governing etc…. I would love for post-disaster cleanup to bring goodness to the community to allow them to rebuild! 🙂
Dear Michael,
I agree wih your view that a no fault catastrophic insurance scheme would be preferable.
The obvious question, though, is how will this scheme be funded? Government funding would be the least contentious alternative, however this would end up imposing a significant burden on the Federal or State taxpayer in the long run, when claims have to be paid.
Any attempt to make other entities pay for the scheme will, naturally, be resisted by them. For example, if governments seek to obtain funding by imposing a levy on electric companies for part or all of the costs of the scheme, the electricity companies will naturally seek to reduce the exposure to this levy of their industry as a whole, and if their specific entity in particular. Non-Victorian electricity companies, for example, will argue, with considerable justice, that bushfires are mainly a Victorian problem, and should be paid for by Victorian electricity companies. In addition, all electricity companies will no doubt seek to pass their contributions to the scheme on to electricity consumers. To the degree they are successful, consumer power prices will increase. To the degree they are unsuccessful, their shareholders will bear the burden of these contributions, at least reducing their return on investment, and possibly leading to the sale or insolvency of the electricity company.
Barry
They’re all good and important questions that would certainly need to be addressed if this is to actually happen. You appreciate what I’m writing here is in the form of editorial rather than a proposal or refereed journal article so I certainly don’t have the answers to those questions.
What I do see however, is that the current system is being paid for and the liability is being met by insurance companies or in the case of Victoria by their self insurance scheme, without either the insurance companies or the electricity companies going broke. If, after the next catastrophic fire, the relevant insurers simply offered to compensate people affected by the fires on the same terms as those just approved that would in fact give them a considerable saving. If we assume that the plaintiff’s costs when the order of $20 million we might also assume that a defendant’s costs are less the plaintiffs. But in this case there were three defendants so let’s assume the sake of the argument that their combined costs were also $20 million. If that were true then merely offering to settle on this basis as soon as the fire occurred would save the insurer’s $40 million. If those rough and ready calculations held true in the Kinglake fire where the plaintiff’s costs were $60 million then that’s a further saving of $120 million. If the insurance companies did that off their own bat they would save considerable money and would presumably be able to fund that in the same way they’re currently funding the liabilities.
Now I am not an actuary or an accountant or even very numerate. and I certainly haven’t thought this through in any detail though one day I would like to, but I would think that with the transaction costs that are currently being met in litigation there has to be a way to fund this type of scheme that would be more efficient, less stressful and more effective at building community resilience (And see here my article ‘Litigation for failure to warn of natural hazards and community resilience‘ (2008) 23(2) Australian Journal of Emergency Management 9-13).