The Mother of All Lawsuits

An explosion of liability claims is causing escalating insurance costs.  Some doctors and other service providers are refusing to take the risk of continuing to practice.  Whether through increased costs or services becoming no longer available, the consumer is the ultimate loser from this.

Hence, we have State and Commonwealth Governments searching for ways of limiting the costs that providers of goods and services might be up for if things go wrong.

Ironically, all this is happening at the same time as the mother of all class action suits began this week in the Victorian Supreme Court.  That suit stems from a different sort of explosion -- the one that occurred at the Esso managed Longford plant in 1998.  The Esso suit has the potential to rewrite the law of contract and negligence with dramatic implications for businesses, governments and even unions.

The action was initiated almost immediately after the explosion by two of the most aggressive plaintiff law firms -- Slater and Gordon and Maurice Blackburn Cushman.  They were subsequently joined by law firms representing 22 insurance companies which paid out a reported $200-$300 million in claims to businesses resulting from loss of gas supplies.

The action is being funded by these law firms on American-style no-win, no fee basis.  In other words, the law firms are funding the action and will only be remunerated if they win.  According to BRW Magazine, the lawyers will, if they win, receive their costs plus a 25 per cent premium.  The claimants do not have to pay any money up front.  The action is a no-loss arrangement for them.

The claimants could number in the millions, legal costs could reach $100 million and, if awarded, damages could be as high as $500 million.  This could easily be Australia's largest class action case ever.

The case is hardly clear cut.  While the Victorian Supreme Court has ruled that Esso was responsible for the Longford explosion and therefore the cessation of gas supplies, this does not mean that it should be liable for all downstream effects.  Firstly, Esso did not have contracts with consumers.  Esso's contract of supply was with the government owned Gascor.  Second the contract between Esso and Gascor expressly considered the possibility of disruption and includes a clause exempting Esso from any liability for loss of profit or consequential loss.  Third, Esso had no ability to ensure alternative gas supplies;  these powers lay with the Government.  Fourth, many consumers knew of the risk, took out insurance and have received compensatione for their losses.

If the court rules against Esso, it will dramatically increase the cost of, and risk to, suppliers and users of essential facilities from airlines and other public transport to electricity.  It would undermine the ability of parties to apportion risks and liabilities through contracts.  It would provide a disincentive to people to take appropriate precautions like insurance and back-up systems.  It would open up an almost unlimited horizon of activity to ambulance-chasing lawyers.

The process illustrates the needless costs imposed on us by lawyers, both in diverting the consumer's dollar in their direction and in undermining the ability of firms to offer goods and services.

ADVERTISEMENT