In recent years, litigation funders and plaintiff law firms have looked towards new claims in relation to natural or environmental disasters. Six of the 33 class actions instituted in the 12 months to June 2015 related to catastrophic events, of which three were flood related.[1] One of the flood-related claims was commenced against Seqwater, SunWater and the State of Queensland in connection with the flooding which occurred downstream of Wivenhoe Dam in January 2011. The authors’ previous article on these proceedings is available here.

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The proceedings concern the manner in which flood operations were conducted at Somerset Dam and Wivenhoe Dam during December 2010 and January 2011. The class action follows on from an independent Commission of Inquiry which was tasked with investigating the release strategy adopted from the dams during January 2011. The Commission’s independent expert found that the flood engineers “managed Wivenhoe Dam so that its flood mitigation effect was “very close” to the maximum achievable within the constraints of the manual.”[2]

The proceedings raise critical questions concerning:

  • the extent to which a plaintiff is required to demonstrate that each group member has at least an arguable case against the defendants; and
  • an insurer’s ability to opt out (or opt in) to the proceedings exercising its subrogation rights on behalf of nominated insureds.

The causal inquiry

Causation is a critical aspect of any tort case relating to a natural or environmental disaster. In this case, it is inevitable that some flooding would have occurred downstream of Wivenhoe Dam, irrespective of how flood operations were conducted. This has been recognised by both the plaintiff and the Court.

The extent of the flooding caused by the alleged negligence has a potentially significant impact on the composition of the class and the scope of the defendants’ possible liabilities. As drafted, however, the composition of the class does not address this issue:

  • The plaintiff has commenced proceedings on behalf of persons (or insurers of such persons) who held an interest in land or personal property located downstream of Wivenhoe Dam which was affected by flooding during January 2011 and who have signed a litigation funding agreement.
  • In contrast, the plaintiff’s causation case is focused on the damage caused by the alleged “greater flooding” which resulted from the defendants’ alleged negligence.

Accordingly, it is likely that a potentially significant number of group members will not be able to establish that they have a claim against any of the defendants because they would have suffered loss as a result of flooding which would have occurred irrespective of the defendants’ conduct.

This was a matter raised before Justice Beech-Jones on the hearing of the plaintiff’s notice of motion seeking leave to file a further amended statement of claim in July 2015. His Honour held:

There is no strict rule of pleading that governs the means of identifying a class for the purposes of Part 10 of the Civil Procedure Act 2005. There is certainly no strict requirement that the class be defined by reference to only those persons who in fact have the cause of actions pleaded in the relevant statement of claim. Instead, these issues are governed by case management considerations and the objectives of the Civil Procedure Act including Part 10 itself.

If the definition of class meant that the number of members was vastly disproportionate to those who prima facie appear to have a cause of action, then that may be a basis for the Court to intervene. In such an extreme case, the Court would act so that a large group of people would not be needlessly notified of a class action and bound by its outcome when they had no possible interest in it.

However, in this case the class is also defined by reference to the relevant members having entered into a funding agreement with the litigation funder or their insurer having done so. Prima facie, persons who also have that characteristic should be at least allowed the opportunity to participate in these proceedings. To require the class to be defined by reference to only those persons with the requisite connection to land which was inundated by reason of the defendants’ negligence, or which suffered greater flooding as a result of that negligence, would impose an impossible burden on them in making a choice to opt in or to stay in the proceedings. They would in effect be required to make their own causal inquiry rather than allowing the plaintiff to carry the burden of conducting that inquiry in this Court on their behalf. That is the very purpose of class actions. I reject this challenge.[3]

This illustrates one of the challenges involved in balancing the objectives of the class action regime against the defendants’ interests in properly understanding the scope of their potential liability. Courts have begun to show some willingness to provide defendants with limited information regarding the composition of the class for the purpose of mediation or settlement discussions, particularly where the claim has been commenced on behalf of a closed class.[4]However, it is unclear how the provision of this additional information will affect the Court’s approach to the causation aspects of major tort cases, including the scope of any common questions in such claims.

In recent years, causation issues have become a hot topic in the securities class action space. Causation arguments in the securities field have tended to focus on the debate between indirect (“fraud on the market”) and direct (reliance-based) theories of causation, as discussed in the related article in this issue. In ordinary tort claims (e.g. based in negligence), the true scope of any potential liability is inherently linked to each group member’s ability to demonstrate that they actually have a claim against at least one of the defendants (as causation is an inherent part of demonstrating that the group member has a cause of action).

The extent to which a plaintiff, and at least six other group members, is required to prove that the defendants’ conduct allegedly caused its loss, has a potentially significant effect on the scope of any common questions to be determined in the representative proceedings. Although it is possible that some “common” questions could be framed without reference to causation issues (for example, whether a duty of care arose), the scope of such questions would likely be relatively narrow. Separating causation issues from the trial of the common questions may considerably extend the time taken to finalise the proceedings. It also raises the possibility that the proceedings may need to be discontinued as a representative proceeding at an earlier stage than may have otherwise occurred. Complexities also arise in terms of how questions of breach could be determined without any consideration of causation issues.

In order to prove the causation aspects of its case, it will be necessary for the plaintiff in these proceedings to adduce a detailed hydraulic model of the Brisbane River illustrating the extent to which the flooding would have been reduced if the defendants had acted in the manner alleged by the plaintiff’s dam operations expert witness. The plaintiff has indicated to the Court that its evidence will be able to “take hypothetical outflows from the Wivenhoe Dam system and reconstructing what the level of flooding would have been for every 10 square metres in the Brisbane area”.[5] Inferentially, the plaintiff should be able to ascertain from this model the extent to which flooding (if any) would have occurred at specific properties, without requiring individual group members to undertake their own causal inquiry. This is a far less complex approach to that contemplated in the reliance-based theory of causation considered in securities cases, or even in product liability class actions where individual group members will need to illustrate a causal link between the defendants’ product and the alleged personal injury.

In November 2014, Justice Garling listed the matter for hearing of the common questions to commence on 18 July 2016. On 14 September 2015, Justice Beech-Jones vacated the trial date as the plaintiff had still failed to produce its hydraulic model. His Honour noted that as a matter of fairness, “there is simply no way, having regard to the current timetable involving service of the model, that the defendants could be reasonably expected to meet a case which involves reliance on it”.[6] His Honour determined that he would reconsider the issue of a new trial date in November 2015 once the defendants had the opportunity to consider the causation evidence, such that they could provide an indication as to when a hearing date would be feasible.

The need for opt out notices when insurers are members of the class

In Johnston v Endeavour Energy [2015] NSWSC 1117 (“Endeavour Energy”), Justice Garling determined that a number of insurers, exercising their rights of subrogation, did not have the ability to force its policy holders to opt out of existing proceedings. Our article on this decision is available here. Related issues may arise in these proceedings, as a number of insurers have signed a litigation funding agreement and the class is defined to include their underlying insureds.

Judgments in representative proceedings bind all group members who have not opted out of the proceedings. The binding nature of representative proceedings may give rise to issues between the insurers and their insureds. In particular:

  1. questions may arise as to whether the terms of the insurance policies have effectively assigned the insured’s right to commence proceedings against a third party claiming damages arising out of the event which has given rise to the claim under the policy of insurance.[7] This is an issue which would need to be determined by reference to the terms of each individual policy under which a right of subrogation was purportedly being exercised;
  2. there may be an issue as to whether the insurers had a contractual right (either at the time that the proceedings were commenced or at the time opt out notices are filed) to claim any uninsured losses.[8] It is possible that the insureds may not even be aware that they are group members and that the proceedings may determine all of the insured’s claims. This raises issues around how the insureds can be made aware of the opt out notice and its potential impact on their legal rights;
  3. as Seqwater argued in July 2015, it is possible that a large number of group members do not have any real interest in the proceedings as they do not have a possible claim against any of the defendants.[9] This raises the potential for a conflict to arise in terms of whether:
    1. the plaintiff ought to be required to interrogate details regarding its class (and undertake a preliminary causal inquiry in relation to potential locations allegedly affected by the defendants’ conduct) to reduce the risk that a large number of group members are needlessly notified about the class action and their opt out rights when they have no possible interest in the claim; or
    2. the causal inquiry in relation to each group member’s claim should simply be deferred to the conclusion of the proceeding once the question of liability to the plaintiff has been determined; and
  4. there is a potential for conflicts to arise between the insurers and insureds in terms of whether or not to opt out of the proceedings.

These matters will need to be canvassed in more detail by the Court in the coming months.