Johnson Tiles Pty Ltd v Esso Australia Pty Ltd

2. On 25 September 1998 a series of explosions and a fire occurred at the Longford Natural Gas Plants situated in Gippsland in this State. The plants are and were owned at all relevant times by Esso Australia Resources Pty Ltd and BHP Billiton Petroleum (Bass Strait) Pty Ltd and operated by Esso Australia Resources Pty Ltd. Another Esso Company, Esso Australia Pty Ltd, provided technical, operational, financial, accounting, advisory and related services to the operator company.

5. As a result of these events the gas supply ceased for a period, ultimately being restored by 8 October 1998. Many gas consumers suffered substantial property damage and consequential economic loss and also financial loss as a result.

8. A group proceeding was commenced in the Federal Court of Australia in September 1998 and later was transferred to this Court. In fact there were two proceedings in the Federal Court. When they came to this Court I stayed both proceedings and a new proceeding was commenced in this Court about a week or two prior to the Federal Court proceedings being transferred to this Court.

11. The defendants were Esso Australia Pty Ltd and Esso Australia Resources Pty Ltd. There were two plaintiffs representing three different groups, namely, business users, domestic users and stood-down workers. Numerous third and fourth parties were joined in the proceeding. I ordered that the third and fourth party proceedings be heard separately from the main proceeding, although permission was granted to the third and fourth parties to appear at the group proceeding. They did so.

14. The proceeding came on for hearing before me on 4 September 2002. A group proceeding deals with questions of law and fact which are common to the parties. These are the issues which are decided at the hearing. The hearing does not decide the claim of each group member. I published my reasons for judgment on the common questions on 20 February 2003. I subsequently dealt with claims made by two group members.

17. The effect of the answers to the common questions was that the gas consumers who suffered property damage as a result of the gas stoppage were entitled to claim compensation for property damage and any consequential economic loss. However, those who claimed purely economic loss arising from the gas stoppage, failed. The two plaintiffs in the proceedings, as I have indicated, represented three groups, namely, business users, domestic users and stood-down workers, the latter being employees who lost income by reason of being stood down during the gas stoppage.

20. I made orders on 26 June 2003 pursuant to which advertisements were placed in two newspapers, requiring members of the various groups who were entitled to recover damages, to respond by giving notice to the court and requiring the plaintiffs' solicitors to file a list of those claimants who they represented. I made orders extending the time for any party to appeal and have continued those orders to date. Those business consumers who suffered purely economic loss are believed to number tens of thousands with losses totalling in excess of many millions of dollars. As I have stated in my judgment, they have been denied the right of recovery.

23. In addition there were other groups of claimants who failed, namely, stood-down workers who suffered purely financial loss, domestic consumers who claimed they suffered damage to their property, namely, gas hot water units failing, and domestic consumers who claimed they had suffered damage when food became inedible with the passage of time because they could not prepare the food for consumption. They also lost in the proceeding and the domestic consumers lost on the facts.

26. All told a total of 472 notices of claim have been filed. Four of those were filed after the time provided by the terms of the orders I made and a further two notices of claim have been filed which were not included in the court records. By consent I ordered on 23 September 2004 that the six claimants who had not strictly complied with the terms of the orders were entitled to seek compensation from the defendants.

29. There are three different categories of claimants; they are:

(i) 339 claimants who filed their notices of claim through the plaintiffs' lawyers acting on the instruction of insurers who were exercising their rights of subrogation (the insured claimants). The claims made and the notices total $52,123,217.61;

(ii) 128 notices of claim were filed by the plaintiffs' lawyers for claimants who were not insured (represented uninsured claimants);

(iii) Five notices of claim were filed by claimants who it is believed are not insured and are not represented by any lawyers (the unrepresented, uninsured claimants).

35. The claims made in the notices by groups being (ii) and (iii) above total $2,210,023.82. Part 4A of the Supreme Court Act 1986 dealing with a group proceeding requires a court to consider any proposed settlement and a proceeding may not be settled without court approval.

38. Section 33V(1) provides:

"(1) A group proceeding may not be settled or discontinued without the approval of the Court."

42. Before the Court may consider a settlement, a notice must be given to group members of the proposed settlement. I refer to s.33X(4) which provides:

"(4) Unless the Court is satisfied that it is just to do so, an application for approval under section 33V must not be determined unless notice has been given to group members."

46. As can be seen from the sub-section the Court may, in appropriate circumstances, dispense with that obligation. Whether or not the Court would dispense with notice must, of course, depend on all the circumstances.

49. There is nothing in the Act which identifies what are the relevant matters the Court must consider and take into account in relation to both the giving of notice and the application for approval. Clearly by reason of the nature of the group proceeding, the interests of the plaintiffs and the group members, being not only those entitled to recover but those who are not entitled to recover and whose rights are affected by the compromise, are to be considered in the light of the proposed compromise.

52. The settlement agreed to by the parties provided for the giving of notice to group members. Accordingly, by orders made on 23 September 2004 I ordered that advertisements be placed in the newspapers on two separate occasions and that opportunity be given to those who wished to do so to make application to the Court. Of prime importance is the interests of those members of the groups who failed, because the proposed compromise denies them any right of appeal. Once the settlement is approved by the Court this has the effect of denying those persons the right to appeal.

55. The advertisements have been placed in the newspapers and I am satisfied on the evidence that was placed before me this day that the first advertisement appeared on 2 October 2004 in the Sun Herald and The Age newspapers, and the second advertisement appeared on 18 October 2004 in the Sun Herald newspaper and on 19 October 2004 in The Age newspaper.

58. Further, evidence has been placed before the Court which discloses that no person, nor any legal entity, has expressed any interest to be heard on this application this morning in response to the advertisement. Evidence has been placed before me, confirmed by enquiries made by my Associate of the Prothonotary, that no person or legal entity has filed a notice with the Prothonotary seeking to be heard on this application. No person present in court has sought to object or be heard in relation to this application. The orders made by the Court on 23 September 2004 obliged any group member who wished to object to the proposed settlement to file a notice with the Prothonotary by 29 October 2004.

61. Accordingly, the Court must now consider whether the settlement should be approved pursuant to s.33V(1). I have before me this day representatives appearing on behalf of the plaintiffs, defendants, the first to sixteenth third parties and also the seventeenth to twenty-sixth third parties, and some fourth parties are also represented in Court, and no opposition has been expressed to the making of the order approving the settlement.

64. The settlement deed is between the two plaintiffs Barrett Burston Malting Co Pty Ltd ("Barrett Burston") and Nando's Australia Pty Ltd ("Nando's"), the plaintiffs' lawyers and the two defendants. Barrett Burston and Nando's were two claimants who recovered a judgment and costs after I published my reasons for judgment. The evidence revealed that the Esso defendants have entered into separate agreements with the third parties settling their differences and it is believed that the third and fourth parties have settled their differences.

67. At the outset it is necessary to summarise the nature of the settlement and the effect. This exercise highlights the vulnerability of the group members in respect to their rights being affected if the settlement is approved. It is that vulnerability which must be addressed consistent with the nature and object of group proceedings.

70. The regime established by the settlement can be summarised as follows:

The parties, who I will describe as the "Esso parties", are required to pay the sum of $32,500,000. The Esso parties must pay their own legal costs and have released the plaintiffs from all claims for costs of the proceeding including all costs orders made in their favour. The plaintiffs must pay their own costs giving up any costs orders in their favour and the two successful claimants, being Barrett Burston Malting Co Pty Ltd and Nando's Australia Pty Ltd, forego the orders for costs made in their favour.

74. The plaintiffs and the group members release and discharge the third parties and the Esso parties from all claims and liability (including costs liability) in respect of losses suffered as a result of the interruption to the supply of gas from the Longford Plants owned and operated by Esso between 25 September and 8 October 1998.

77. The plaintiffs and the group members insofar as Part 4A of the Supreme Court Act 1986 empowers them, release and discharge the third parties and BHP Billiton Petroleum (Bass Strait) Pty Ltd, from any liability (present, prospective or contingent) of the third parties and BHP Billiton to the plaintiffs and group members in respect of the proceeding or the September 1998 stoppage. It is noted the third parties and BHP Billiton are not parties to the agreement. All parties waive any rights of appeal from any judgments or orders made in the proceeding.

80. The sum of $32,500,000 is to cover the claims made by the insured claimants, the uninsured claimants and the five unrepresented, uninsured claimants, and also the legal costs incurred on behalf of the plaintiffs and the group members they represented in the litigation. It can readily be seen that the settlement sum is less than the total of all the claims, however, the plaintiffs and the group members have agreed to accept a lesser sum. The division of the amount is -

* The claims made by the represented uninsured claimants and the five unrepresented uninsured claimants total $2,210,023.82, and those claims are to be paid in full. Further, none will be liable for any costs in relation to the claims, unless, of course, they retain different lawyers to assist them.

* The balance of $30,289,976.18 is to be paid to the insured claimants who have agreed to pay all the legal costs incurred by the plaintiffs and the group members, including the costs incurred in the claims made by Barrett Burston and Nando's.

85. It is anticipated that the costs will be in the order of $18,000,000 to $19,000,000, being disbursements exceeding $4,000,000 and solicitor/client costs exceeding $14,000,000. It is clear that the settlement provides full payment to the represented and the unrepresented, uninsured claimants - they total 133. However, each claimant must prove his or her or its loss.

88. A procedure has been set up to deal with their claims. Where an uninsured claimant claims $5,000 or less, the claim is to be determined and assessed by an independent counsel acting as an expert on the basis of a statutory declaration filed by the uninsured claimant, in a form annexed to the settlement scheme. The independent counsel will be a member of the Victorian Bar. He or she is to determine whether the loss and damage suffered by the small claimant is of a kind recoverable pursuant to the reasons for judgment, and make a determination of the entitlement based on the information provided in the statutory declaration. The amount paid to a small claimant will be the full amount of loss and damage assessed by the independent counsel but excluding interest. The determination of the independent counsel in respect of each small claim is to be final and binding.

91. Where the claim is more than $5,000 the entitlement to compensation is to be determined and assessed by an independent loss assessor who is to determine whether the claimant has suffered loss and damage of the kind recoverable pursuant to the reasons for judgment, and to assess and make a determination of the amount that the claimant shall be entitled to recover based on the reasons for judgment.

94. The settlement scheme provides that large claimants are to lodge statutory declarations in the form annexed to the settlement scheme and that the independent loss assessor is entitled to contact each large claimant in order to request and obtain information regarding the claim. The scheme further provides that the independent loss assessor shall be entitled to obtain advice from the plaintiffs' lawyers in respect to the application of the reasons for judgment. The settlement scheme provides that large claimants have the right to have the determination of the independent loss assessor reviewed by independent counsel and to provide further information or material to the independent counsel for the purposes of the review. The determination of the independent counsel in respect of each large claim is to be final and binding. Whether the determination is made by the independent loss assessor or independent counsel, the amount paid to a large claimant shall be the full amount of the loss and damage, assessed in accordance with the for reasons for judgment, excluding any interest.

97. The costs of the settlement scheme are to be paid out of the settlement sum and $3m has been set aside for the claims and the costs. Costs estimates have been given by a costs consultant, Catherine Mary Dealehr, and an experienced solicitor, Mr Proud. It is estimated that the total costs, including those of the independent counsel and the loss assessors, will be in the order of $227,550.

100. The balance of $3m will be more than ample to cover the claims - this is borne out by the difference between the total claims made and the $3m set aside, less the costs. I agree with the views put forward that the proven uninsured claims are not likely to exceed by any great amount the claims made at present and accordingly one can feel a degree of confidence that the $3m will be more than ample to cover the claims, together with the costs of determining the compensation.

103. The only disadvantage suffered by any of the claimants is that a claimant is not entitled to recover any interest on the claim moneys recovered. Given that the claimants will not incur any expenses, or at most a small amount, this disadvantage is of no consequence. If a claimant had pursued his, her or its claim independently of the group proceeding, and succeeded, any solicitor/client costs charged by his, her or its own solicitors over any party/party costs would exceed any interest recovered. When viewed in this way the uninsured claimants suffer no real prejudice as a result of the settlement.

106. The insured claimants are in the hands of their insurers who bring the claims pursuant to their rights of subrogation. The insurers are represented by experienced insurance lawyers. They are prepared to accept substantially less than the claims made and also to pay the legal costs, not only of the successful group members but also of those who lost, and that includes, of course, the plaintiffs. I interpolate to note that the insurers paid out substantial sums to insured entities who suffered purely economic loss. Those group members are not entitled to recover. It is clear that the insurers funded this litigation against what could be described as fairly determined defendants. The insurers have taken advice. They are fully aware of the risks of litigation. They are big players in the litigation scene. They know very well how to protect their interests. They have agreed to accept a sum substantially less than the claims and also to pay costs in the order of $18,000,000 to 19,000,000. I have no doubt they know what they are doing after weighing the risks of proceeding with the claims. They are advised by experienced insurance lawyers. Further, they have secured an agreement that the Esso Group will not appeal any judgments or orders. Given those matters I am satisfied that their interests have been protected.

109. That deals with those who have been successful in the litigation to date. As an important consideration for the payment by the Esso parties, the latter have requested and obtained a release by the plaintiffs of all claims against Esso, including of course claims on behalf of group members. Clause 5.1 is in these terms:

"5.1: The Named Plaintiffs for themselves and on behalf of all Group Members release and discharge Esso from any Claim for loss or damage that is of the same nature as that which was claimed by the Named Plaintiffs and Group Members in the Proceeding, including any liability (present, prospective or contingent) of Esso to the Named Plaintiffs or Group Members or any cause of action the Named Plaintiffs or Group Members have or may have against Esso in respect of or arising out of:

wherever and whenever arising, whether known or unknown at the time of execution of this Deed, whether presently in contemplation of the Parties or not, and whether arising at common law, in equity, under statute or otherwise."

116. I interpolate to observe that there is a like release in favour of BHP Billiton Petroleum (Bass Strait) Pty Ltd (see paragraph 5.3). This comes about for the reasons which I stated earlier concerning that company's involvement in the ownership of the Longford Plant.

119. The release clause also releases third parties to the proceeding. Whether or not it is binding is a matter for them, and I say no more. The effect of the releases is that the plaintiffs and any group members who failed in the proceedings will be precluded from pursuing any appeal against the judgments and orders made upon and after publication of my reasons for judgment. Not surprisingly the Esso parties, including the BHP company, have required full releases as an important condition of the settlement.

122. It was very apparent from the earliest days of the litigation that by far the largest claims were for purely economic loss. It was also very clear that a large number of insurers were funding the litigation, no doubt motivated by the prospect of clawing back the large sums paid out for economic loss claims.

125. When I published my reasons the first important matter for consideration by the plaintiffs' legal advisers was the question of appealing the finding that the defendants owed no duty of care to the gas consumers who suffered purely economic loss. One can infer from the passage of time, now 20 months without an appeal, and the terms of the compromise, that the advice was that the prospects on appeal were not good. The law in this field is far from settled and has moved very slowly to recognise a duty of care to avoid purely economic loss in the face of the powerful policy consideration against liability to an indeterminate number of claimants for an indeterminate amount of money.

128. Further, the risks involved in pursuing an appeal were not being shouldered by small financially strapped entities but insurance companies who weighed the risks of recovery against the costs of an unsuccessful appeal. Further, no doubt the companies took into account that they had a right of appeal which could be used as a bargaining point in settlement discussions; a point lost if they appealed and failed. These large strong litigants decided against appeals and I would draw the inference that the insurers who represented a big stake in this area were not prepared to run the risk of taking on an appeal.

131. That leaves the uninsured claimants; they have had the opportunity to appear today to object to this settlement. The advertisements made it clear that an approval of the settlement would deny the plaintiffs, and group members who lost, their right to appeal. No-one has exercised the right to appear before me this day to object to the proposed settlement. The approval of the settlement will result in the plaintiffs and group members who fail losing their rights of appeal. This, as I have already stated, is a matter the Court must carefully consider. Most settlements involve a degree of compromise, usually the result of weighing the risks involved in the litigation and the costs. The risks of loss in this litigation concerning claims made by those who suffered purely economic loss were indeed very high. The insurers have decided, in the face of a substantial sum paid out by them for economic loss, not to pursue the appeal process. Obviously the risks outweigh the prospects of success. As I stated, no person or entity has come forward to object to the proposed settlement.

134. Given those circumstances I am satisfied that the settlement, involving as it does the loss of rights of appeal, is appropriate. Ms Lisa Michelle Nichols, a partner with Slater & Gordon who has been the lawyer with the carriage of this very substantial litigation on behalf of the plaintiffs and the group members, represented by Slater & Gordon, and three other firms of solicitors, Phillips Fox, Lander & Rogers and Maurice Blackburn Cashman, has sworn an affidavit in which she states that it is her opinion that the settlement is fair, reasonable and adequate, a view also shared by three very experienced lawyers, namely, Michael Proud of Phillips Fox, Bernard Murphy of Maurice Blackburn Cashman and Ari Abrahams of Lander & Rogers. Although it is apparent that the losing litigants and claimants are giving up their rights of appeal, the fact is that it is apparent nobody has any confidence in the success of an appeal. Nobody opposes the settlement and all parties support it. In my opinion the settlement should be approved. Having carefully considered all the interests of those affected by it, I am satisfied in all the circumstances that the settlement should be approved.

137. One matter I should advert to is paragraph 3 of the proposed orders. Mr Collins SC on behalf of the plaintiffs stated that his clients neither consented to the order nor opposed it. Paragraph 3 is in these terms: "(3) Pursuant to s.33ZF of the Act or otherwise, the Court declares that the plaintiffs have the authority of the group members described in paragraph 4 of these orders to enter into and to give effect to the Settlement Deed and the transactions thereby contemplated."

140. Those described in paragraph 4 are the group members as defined in the amended statement of claim. The declaration states that the plaintiffs have their authority to enter into the deed. That follows from the nature of the group proceeding - see Mobil Oil Australia Pty Ltd v Victory[1].

143. As has been pointed out, the deed of settlement indeed is a contract between the parties and what is sought is a public recognition that the plaintiffs do have the authority to enter into that contract, and of course, the fact is that the group members described in paragraph 4 are indeed the group members who were represented by the plaintiffs in the proceedings, namely, the business users, domestic users and stood-down workers. I am prepared to make the declaration. What flows from it is another matter which does not concern the Court.

147. This brings to a conclusion, subject to the third and fourth party proceedings, which ultimately I hope will be compromised, what could be described as potentially the biggest group proceeding ever heard in Australia.

150. The explosion at Longford did in fact take place on 25 September 1998 and within a matter of days a group proceeding was instituted in the Federal Court. As a result of a judgment delivered by Justice Merkel on 12 April 2004 it was indicated that the proceedings should be transferred to this court. As a result, on 26 April 2001 a proceeding was instituted in the Court and this was closely followed by an order made by Justice Merkel on 17 May 2001 transferring that Federal Court proceeding to this court.

153. In order to avoid complications and better manage the group proceeding I ordered a stay of the transferred proceedings and indicated that the proceeding instituted in this court should be the vehicle for litigation of the issues in dispute. Various direction hearings took place and the group proceeding issues were set down for trial on 4 September 2002. On 20 November 2002 I reserved my judgment. I delivered judgment on 20 February 2003.

156. As things turned out two claims were heard and the Court entered two judgments. I made various orders in relation to the costs of all the proceedings. Unfortunately the orders for costs created some difficulty and indeed at the time I thought that was so, but I did not feel that I was in a position to make any orders which would be fair to the parties. We have now reached the point that the proceeding has been finally settled other than for the third and fourth proceedings.

159. I am very pleased to say that this litigation has progressed expeditiously with a minimum of fuss and with the full co-operation of the very large legal teams representing the various parties. I do wish to express my gratitude to the various legal teams whose industry, application and no-nonsense approach to this litigation, including avoiding technical points being taken, resulted in this litigation being heard, determined and finalised within a relatively short period in what was one of the biggest pieces of litigation to come before this court.

162. The Court and all those involved can feel justifiably proud that the litigation process which was involved in this very large complicated case was achieved in a relatively short space of time. I thank you one and all for your sterling efforts which brought this very large piece of litigation to an appropriate conclusion.

165. I will now stand down for a few minutes before I deal with the next matter.

[1] [2002] HCA 27; (2002) 211 CLR 1 at pp.20 - 22 per Gleeson CJ.