Home | Databases | WorldLII | Search | Feedback Precedent (Australian Lawyers Alliance)

Lubomirska, Irina --- "Aggregate damages in disaster class actions" [2021] PrecedentAULA 44; (2021) 165 Precedent 35

AGGREGATE DAMAGES IN DISASTER CLASS ACTIONS

By Irina Lubomirska

The Australian federal class actions regime, contained in Part IVA of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act), will celebrate its 30th birthday in early 2022.^[1] Its state counterparts have also celebrated significant milestones.^[2]

Since 1992, approximately 740 class actions have been filed Australia-wide^[3] in respect of a diverse range of wrongs, including actions by victims of disasters which were caused or exacerbated by negligent conduct. The three largest class action settlements in Australia to date – with regard to the Kilmore East bushfires, the Murrindindi bushfires, and the Queensland floods^[4] – have arisen out of such class actions. This illustrates the importance of class action mechanisms in ensuring that disaster victims have access to justice.

There have been extensive developments in jurisprudence in the area of class actions over the last three decades. However, there has been very little attention paid to one aspect of the class actions regime that could significantly impact its ability to provide access to justice in an efficient and cost-effective manner: the ability of the representative party to obtain aggregate or lump sum damages for the class.

IMPORTANCE OF EFFECTIVE DAMAGE ASSESSMENT MECHANISMS

One common feature of mass tort and many product liability class actions is that they are hotly contested, often culminating in ‘mega trials’ on liability.^[5] With large-scale legal resources needed to prove the key threshold issues, the class action process may be the only realistic way for victims of these mass wrongs to obtain redress. However, a favourable finding on liability is but one step towards providing victims with a tangible remedy.

Another common feature of such actions is the need for an individualised assessment of the loss suffered by each group member.^[6] Such assessments can be complex. However, where they are undertaken pursuant to a non-adversarial process, such as following a lump sum settlement, these assessments and the subsequent distribution of damages can occur faster and more efficiently than would otherwise be achievable, with significantly less stress for already traumatised group members.

For example, the combined Kilmore East and Murrindindi bushfires settlement administrations involved the distribution of almost $700 million to approximately 7,000 group members, with approximately 11,653 economic loss or property damage claims and approximately 2,330 personal injury claims among them. Assessment and distribution were completed in about two years, with an average cost of $9,300 for personal injury and $2,035 for property damage claims.^[7]

Because there was an aggregate sum settlement, the Supreme Court of Victoria was not faced with adversarial damages assessments of some 7,000 group members. For judges or associate judges of the Court to undertake such assessments would have been extremely cumbersome, and the experience would have been traumatic for many of the group members. Its implementation would have been beyond the resources of the Court,^[8] taking many years and incurring enormous legal costs.

These potential delays are illustrated by the Horsham bushfire class action,^[9] which was resolved on the basis that the defendant would be involved in the loss assessment process. There were 214 participating group members. The settlement was approved on 5 December 2011, but the resolution of all claims was not achieved until 30 October 2017, some six years after settlement approval.

An earlier illustration of the same issue was in McMullin v ICI Australia Operations Pty Ltd^[10] where, following the judgment on liability, individual group member claims were referred to a judicial registrar for assessment of damages. In his judgment on 23 December 1999, Wilcox J noted that the assessment process had been running since August 1997 and, in that time, 11 claims were resolved by judgment, 472 claims were settled through mediation and 12 claims remained unresolved.^[11]

The traditional, adversarial approach to damages assessment was not applied to the 7,000 group members in the Kilmore and Murrindindi class actions. Had it been, it is doubtful that the Court would have been in a position to state, as it did, that the resolution ‘demonstrate[d] that the class action process works’ and that ‘many substantially disadvantaged and affected people can recover compensation that they would otherwise not have been able to obtain’.^[12]

ACTIONS WITH NO AGGREGATE SETTLEMENT

To date, the courts have not had to seriously grapple with the challenges of determining damages in mass tort actions because most class actions settle in an aggregate amount, followed by a non-adversarial settlement administration under court supervision. However, the courts may soon need to consider whether and how the class actions process will deliver compensation to victims of mass torts, including disasters, in the absence of a lump sum settlement.

This issue has arisen in the Queensland floods class action, which concerns property damage and economic loss as a result of the 2011 Brisbane floods caused by the negligent operation of flood mitigation dams. There are more than 6,800 group members, with claims ranging from a few thousand to tens of millions of dollars. On 29 November 2019, Beech-Jones J handed down a judgment in favour of the class in the Supreme Court of NSW.^[13] The Court subsequently handed down a number of further rulings concerning, among other things, apportionment, damages of sample group members, interest and costs.^[14]

With the parties unable to reach a settlement, the plaintiff foreshadowed an application for aggregate damages as the appropriate means to deal with group members’ losses. Two of the defendants proposed that all group members be required to file individual proceedings, which would be determined either by the Court or by referees.^[15] In November 2020, the Court granted the plaintiff’s application to refer the claims of 264 group members, comprising a stratified random sample, for assessment by court-appointed referees. The assessment of the claims is intended to support an application for aggregate damages based on statistical extrapolation from the assessed sample to the (closed) class.^[16]

In early 2021, a $440 million settlement was reached between the plaintiff and two of the defendants, who are collectively liable for 50 per cent of the class loss. The proceeding is continuing against the remaining defendant, and the court-ordered reference process antecedent to the aggregate damages application remains on foot.

A judgment in favour of the class has also recently been handed down in the Montara class action,^[17] which was brought on behalf of approximately 15,000 Indonesian seaweed farmers whose crops were destroyed by an oil spill from a Montara oil field. A judgment in favour of the plaintiffs was handed down in the pelvic mesh class action,^[18] brought on behalf of the hundreds or possibly thousands of women who have suffered injuries due to mesh implantation.

At the time of writing, both of these proceedings have not yet settled. The courts and class representatives may also need to face the challenge of finding an appropriate approach to the assessment and distribution of damages to the thousands of group members.

RELEVANT PROVISIONS

As well as provisions that are traditionally deployed to resolve individual issues, such as ss33Q, 33R and 33S of the Federal Court Act and its state equivalents, class actions legislation contains provisions that may enable an aggregate approach to damages. The following is an extract from s33Z of the Federal Court Act (state legislation has relevantly identical provisions^[19]):

‘

(1) The Court may, in determining a matter in representative proceedings, do any one or more of the following:

...

(e) make an award of damages for group members, sub-group members or individual group members, being damages consisting of specified amounts or amounts worked out in such manner as the Court specifies,

(f) award damages in an aggregate amount without specifying amounts awarded in respect of individual group members.

...

(2) In making an order for an award of damages, the Court must make provision for the payment or distribution of the money to the group members entitled.

(3) Subject to section 33V, the Court is not to make an award of damages under paragraph (1)(f) unless a reasonably accurate assessment can be made of the total amount to which group members will be entitled under the judgment.

(4) Where the Court has made an order for award of damages, the Court may give such directions (if any) as it thinks just in relation to:

(a) the manner in which a group member is to establish the member's entitlement to share in the damages, and

(b) the manner in which any dispute regarding the entitlement of a group member to share in the damages is to be determined.’

Additionally, s33ZA^[20] contains provisions regarding constituting a fund for the distribution of money to group members and allows the Court to specify the manner in which group members can establish their entitlements to payment out of the fund. It also allows the Court to return any excess in the fund to the defendant or respondent.

Section 33Z enables two types of aggregate damages assessments. Under s33Z(1)(e), the aggregate is the sum of the individual group members’ damages amounts, which are either known or can be worked out in a specified manner. Such an assessment may be viable where the relief claimed is capable of formulaic quantification,^[21] but is unlikely to be feasible in a mass tort action involving the assessment of unliquidated damages.

Section 33Z(1)(f) allows the Court to award an aggregate amount without first determining the amounts due to individual group members. This determination of the scope of the defendant’s obligation is anterior and separate to the determination of the individual entitlements of group members, which can then occur in the manner directed under s33Z(4).^[22]

The key precondition to an order under s33Z(1)(f) is that ‘a reasonably accurate assessment can be made of the total amount to which group members will be entitled under the judgment’ (s33Z(3)). To the extent that the assessment overestimates the defendant’s liability, the Court may make orders returning the residue, pursuant to s33ZA(5); however, there is no provision for additional awards if the aggregate amount is underestimated.

‘Reasonably accurate’

There is little authority regarding the requirement for ‘reasonable accuracy’ in the context of particular factual situations. And there is no authority in the context of mass tort or actions arising from disasters, which may require particular considerations.

In recommending the adoption of the ‘reasonably accurate’ criterion, the Australian Law Reform Commission rejected as ‘too strict’ the proposition that an aggregate assessment should be permitted only where the same degree of accuracy could be obtained as in an individual action of the same kind.^[23]

The only aggregate damages award so far made under s33Z(1)(f) was in Australian Competition and Consumer Commission v Golden Sphere International (Golden Sphere).^[24] This was an action on behalf of victims of a pyramid scheme, who were induced to purchase certificates at $50 each. Some victims sold their certificates and therefore recouped some of the money. The ACCC called evidence from several victims who suffered losses between $50 and $150 and sought damages in an aggregate amount, estimated on the basis of the likely number of victims and a conservative average loss amount of $50.

Justice O’Loughlin rejected the respondent’s submission that damages could be awarded only in respect of group members who proved their losses, as this ‘would destroy the efficacy of representative proceedings ... If that exercise [proof of each group member’s loss] had to be carried out, the whole purpose of representative proceedings would be emasculated.’^[25] Justice O’Loughlin also opined that the legislation ‘gives to the Court wide discretionary powers to fix awards of damages consistent with the circumstances of a particular action’.^[26]

In respect of the ‘reasonably accurate’ requirement, his Honour noted:

‘The word "assessment" used in the phrase "assessment of damages" imports an element of judicial discretion: assessing damages is not the application of mathematical formulae. When it is qualified by the words "reasonably accurate" it can be said, with confidence, that the judicial discretion has been widely extended. I am satisfied that the legislature has intended that the practical application of the provisions of Pt IVA of the FCA is not to be read down through any evidentiary inability to identify every member of the group and the relevant amount of damage that each member has or may have suffered.’^[27]

The meaning of ‘reasonably accurate’ was considered by the Victorian Court of Appeal in Schutt Flying Academy (Australia) Pty Ltd v Mobil Oil Australia Ltd and Another,^[28] but not in the context of an application or intended application for aggregate damages. The defendant challenged the validity of the class actions regime implemented by Court Rules, in part on the basis that s33Z(1)(f) authorised awards of damages to be made otherwise than in accordance with legal principles and could result in an inadequate award of damages to group members; and because it could deprive them of the right to have damages assessed in accordance with the law.^[29]

Justice Ormiston opined that the impugned provisions were rules of procedure that ‘provide for what is hoped to be a simpler and less expensive way of paying properly calculated damages to each member of the class who chooses to claim’, rather than a change in the principles applicable to calculation of damages.^[30] His Honour would not endorse the deliberate making of awards that are insufficient to enable group members to recover their full damages, but considered that, even if an underestimate did occur, it would not be a substantive alteration to the law of damages.^[31] His Honour appeared to recognise that at least some practical realities may be relevant to determining what is ‘reasonably accurate’:

‘The procedure is intended to provide a cheap and efficient means of recovering loss for parties who might ... be put to great expense in pursuing their claims, such that their additional solicitor-client costs might otherwise well outweigh any potential shortfall in the fund. By allowing the defendant to retreat from the contest before damages are assessed for each claimant considerable cost savings may be anticipated in the ordinary run of case to which the subparagraph might be applied.’^[32]

The most recent consideration of s33Z(1)(f) is in Mallonland v Advanta Seeds Pty Ltd.^[33] The discussion is obiter, the plaintiff having failed on the issue of liability. The litigation involved losses over a period of 15 years, flowing from the use of sorghum seed which was contaminated with other species of seed. There was significant variability in losses between the group members and the parameters of the class were not fully known. The aggregate damages application was made on the basis of the average loss suffered by the plaintiffs and sample group members per hectare or per bag of seed, extrapolated to the class. There appears to have been no evidence that the proposed extrapolation was statistically valid.

Justice Jackson stated that it was not necessary to decide:

‘whether aggregate damages can ever be awarded under the section in a case for damages in a representative proceeding involving operational lost crop profits or additional expenses or the like ... [in this case] the evidence as to the losses suffered by the plaintiffs and sample group members is itself enough to demonstrate the high degree of variability in the losses suffered by group members which cannot be simply averaged on either an area or per bag purchased or planted basis to give a reasonably accurate assessment of the individual losses.’^[34]

It is suggested, with respect, that in so far as his Honour refers to a reasonably accurate assessment ‘of the individual losses’, this is not the enquiry that is required. Section 33Z(1)(f), to which the reasonable accuracy requirement applies, ‘refers only to the manner in which the defendant may be required to satisfy its obligations, not to the amount to which “individual group members will be entitled under the judgment”, as referred to in para (4)’.^[35] However, in the circumstances where no evidence was presented supporting the validity of loss extrapolation, Jackson J’s conclusion is unsurprising: that no reasonably accurate assessment of the total amount could be made in the present case.^[36]

POTENTIAL UTILITY IN DISASTER CLASS ACTIONS

With scant guidance from authority, it is difficult to predict how courts will approach the issue of aggregate damages in mass tort class actions. The approach that is adopted may make a significant difference to the ability of the class action process to deliver remedies to victims of disasters caused by negligence. It may also impact defendants’ approach to the settlement of actions following a verdict.

The lacuna of authority emboldens the author to express the following opinions, which should not be regarded as predictions of future developments.

The first is that the assessment of unliquidated damages invariably involves considerable uncertainty, guesswork and discretion. In the absence of omniscience, the ‘true’ damages suffered are not precisely quantifiable. As Wilcox J stated in a 1998 damages ruling in McMullin v ICI Australia Operations Pty Ltd:

‘There are occasions when a court must make an assessment that is impossible of arithmetical justification; a number of factors intrude and, at the end of the day, the court can do no more than say that a fair figure appears to be a particular sum of money. That can be regarded as an arbitrary assessment ... but it may, nonetheless, represent a reasonable judgment in all the circumstances of the case.’ ^[37]

It is suggested that the concept of ‘reasonable accuracy’ should take into account that a damages assessment is not an exercise of mathematical precision.^[38] An aggregate of individually assessed damages will also have significant uncertainties associated with it. This is particularly so in disaster class actions, where evidence may be lost in the disaster itself or subsequently, and recollections may be impacted by trauma.

Second, it is suggested that the concept of ‘reasonable accuracy’ cannot be divorced from practical realities or reasonably available alternatives. Group members’ rights to recover their ‘full entitlement’ are meaningless where the vindication of those rights is impossible or impractical because of cost, trauma or inordinate delay. A conservative amount sought by the class representative, as in Golden Sphere, may reflect a reasonable allowance for practical realities and the benefits expected of aggregation, rather than a lack of ‘reasonable accuracy’. Further, whether a particular level of accuracy is reasonable may depend on the costs and burdens of achieving greater accuracy.

Third, class actions arising out of disaster scenarios will often involve significant variability in losses between individual group members. This is not of itself an objection to an award of aggregate damages, because ascertaining a global figure under s33Z(1)(f) is a separate question to the assessment of individual group member damages. Nevertheless, heterogeneity in individual losses may be a relevant factor in the level of uncertainty that attends calculations or modelling of the aggregate amount; special consideration of methodologies will need to be applied to that analysis.

Finally, it is possible that, at the inception of the class actions regime, it was envisaged that s33Z(1)(f) would be utilised in cases where the assessment of damages is relatively simple.^[39] However, in the absence of such constraint in legislative wording, to so confine the scope of aggregate damages would be to allow the overarching purpose of the class actions procedure^[40] to be frustrated by the very magnitude of wrongdoing that it is intended to remedy.

Irina Lubomirska is a Special Counsel with Maurice Blackburn Lawyers, specialising in class actions including the Kilmore and Murrindindi bushfire class actions and the Queensland floods class action. EMAIL ilubomirska@mauriceblackburn.com.au.

The author would like to acknowledge Hannah Kay for research assistance and R Gilsenan, V Mawuli, N Ryan-Green and R Ryan for their comments and suggestions on the draft.

^[1] Part IVA commenced on 5 March 1992.

^[2] The Victorian class actions regime was introduced by Rules of Court on 1 January 2000. The NSW legislation commenced on 4 March 2011. The more recent Queensland legislation commenced on 1 March 2017 and the Tasmanian legislation on 9 September 2019.

^[3] V Morabito, ‘Courts see record number of class actions as shareholder proceedings drop in significance’, Lawyerly (20 May 2021) <https://www.lawyerly.com.au/courts-see-record-number-of-class-actions-as-shareholder-proceedings-drop-in-significance/>.

^[4] Settlements were as follows: Kilmore East bushfire class action (Matthews v AusNet Electricity Services Pty Ltd & Ors [2014] VSC 663 (23 December 2014) (Matthews)) – $494.7 million; Murrindindi bushfire class action (Rowe v AusNet Electricity Services Pty Ltd & Ors [2015] VSC 232) – $300 million; and Queensland floods class action (Rodriguez & Sons Pty Ltd v Queensland Bulk Water Supply Authority t/as Seqwater (No. 28) [2021] NSWSC 467 (4 May 2021)) – $440 million, with two defendants, together responsible for 50 per cent of damages. The proceeding is continuing against one other defendant, by itself liable for 50 per cent of damages.

^[5] For example, Matthews (above note 4) ran for more than 200 sitting days; and the Queensland floods class action for 130 sitting days, culminating in a 1,600 page judgment: Rodriguez & Sons Pty Ltd v Queensland Bulk Water Supply Authority t/as Seqwater (No. 22) [2019] NSWSC 1657 (29 November 2019) (Rodriguez No. 22). The pelvic mesh product liability class action ran for half a year, culminating in a judgment of almost 1,500 pages: Gill v Ethicon Sarl (No. 5) [2019] FCA 1905 (Gill).

^[6] Matthews v Ausnet (Ruling No. 42) [2016] VSC 394 (15 July 2016) (Matthews No. 42), [21].

^[7] Maurice Blackburn Lawyers, Kilmore East – Kinglake & Murrindindi – Marysville Black Saturday Class Action Settlement Administrations: Final report (Report, 2018) <https://www.mauriceblackburn.com.au/media/4475/kilmore-east-kinglake-murrindindi-marysville-black-saturday-class-action-settlement-administrations-final-report-a4.pdf>.

^[8] Matthews No. 42, above note 6, [20].

^[9] Thomas v Powercor Australia Limited [2011] VSC 614 (5 December 2011).

^[10] [1999] FCA 1814.

^[11] Ibid, [6].

^[12] Supreme Court of Victoria, ‘Court approves distribution of almost $700m in 2009 Black Saturday bushfire class actions’, quoting Forrest J (Media release, 7 December 2016) <https://www.supremecourt.vic.gov.au/court-approves-distribution-of-almost-700m-in-2009-black-saturday-bushfire-class-actions>.

^[13] Rodriguez No. 22, above note 5. The action was commenced in NSW because Queensland did not have a class actions regime at the time.

^[14] See Rodriguez & Sons Pty Ltd v Queensland Bulk Water Supply Authority Trading as Seqwater (No. 23) [2020] NSWSC 650; Rodriguez & Sons Pty Limited v Queensland Bulk Water Supply Authority t/as Seqwater (No. 24) [2020] NSWSC 1498; Rodriguez & Sons Pty Ltd v Queensland Bulk Water Supply Authority t/as Seqwater (No. 26) [2020] NSWSC 1728; Rodriguez & Sons Pty Ltd v Queensland Bulk Water Supply Authority t/as Seqwater (No. 27) [2021] NSWSC 145; and Rodriguez & Sons Pty Limited v Queensland Bulk Water Supply Authority t/as Seqwater (No. 29) [2021] NSWSC 483.

^[15] Rodriguez & Sons Pty Limited v Queensland Bulk Water Supply Authority t/as Seqwater (No. 25) [2020] NSWSC 1544 (3 November 2020).

^[16] Ibid.

^[17] Sanda v PTTEP Australasia (Ashmore Cartier) Pty Ltd (No. 7) [2021] FCA 237.

^[18] Gill, above note 5.

^[19] State equivalents are the Supreme Court Act 1986 (Vic), s33Z; Civil Procedure Act 2005 (NSW), s177; Civil Proceedings Act 2011 (Qld), s103V; and Supreme Court Civil Procedure Act 1932 (Tas), s86.

^[20] State equivalents are s33ZA (Vic); s178 (NSW); s103W (Qld); and s87 (Tas).

^[21] ALRC, Grouped Proceedings in the Federal Court (Report No. 46, 1988) (ALRC Report) [225].

^[22] Schutt Flying Academy v Mobil Oil [2000] VSCA 103, [35] per Ormiston JA (Schutt).

^[23] ALRC Report, above note 21, [228].

^[24] [1998] FCA 598; (1998) 83 FCR 424 (Golden Sphere).

^[25] Ibid, 448.

^[26] Ibid.

^[27] Ibid, 448–9.

^[28] Schutt, above note 22.

^[29] Ibid, [16]–[18].

^[30] Ibid, [34]–[35]. Charles JA agreed with Ormiston JA.

^[31] Ibid, [36]–[37].

^[32] Ibid, [37].

^[33] [2021] QSC 74 (9 April 2021) (Mallonland).

^[34] Ibid, [586]–[590].

^[35] Schutt, above note 22, [35].

^[36] Mallonland, above note 33, [586].

^[37] [1998] FCA 1408 (2 November 1998).

^[38] Golden Sphere, above note 24, [448]–[449].

^[39] ALRC Report, above note 21, [235]; Schutt, above note 22, [37].

^[40] See Federal Court Act 1976 (Cth), s37M.