Recall: Product liability group – March 2003
Longford gas decision - liability ruling
In brief: On 20 February this year, Justice Gillard dismissed all of the claims of three plaintiff groups arising from the 1998 disruption to the Victorian gas supply insofar as the losses were purely economic.1 The only claims that succeeded were claims brought by business users of gas for economic loss suffered as a consequence of property damage. Senior Associate Jon Downes and Articled Clerk Mark Richards consider the significance of the decision for Australian tort law and class action procedure.
- Facts of the case
- Duty to avoid purely economic loss?
- Duty to avoid property damage
- Commercial and product liability significance?
- Implication for class actions
Facts of the case
A series of explosions at the Longford gas plant on 25 September 1998 caused gas supplies to all domestic users and most businesses in Victoria to cease for approximately 10 days.
As a consequence, a group proceeding pursuant to Part 4A of the Supreme Court Act 1986 (Vic) was commenced in the Supreme Court of Victoria.
The plaintiffs in this action represented three groups:
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business users of gas;
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domestic users of gas; and
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workers stood down by their employers as a result of the disruption to the supply of gas.
The principal issue in this case was whether or not Esso Australia Resources Pty Ltd (Esso) owed a duty of care to the plaintiffs, or any member of the groups which they represented, not to interrupt the supply of natural gas to avoid causing either purely economic loss or property damage.
Duty to avoid purely economic loss?
Justice Gillard endorsed the approach of Justice Kirby in Perre v Apand Pty Ltd 2 to determine whether or not there existed a duty of care to avoid purely economic loss. The test applied by Justice Gillard required:
- the reasonable foreseeability of injury;
- a relationship of proximity; and
- a consideration of relevant 'salient features'.
Reasonable foreseeability was found to exist with respect to almost all the alleged loss suffered. That Esso supplied gas for the purpose of purchase and use by the gas customers amounted to a sufficiently proximate relationship, as was the relationship between Esso and the stood-down workers, notwithstanding that they were one step further removed. Whether or not a duty of care to avoid purely economic loss was owed by Esso therefore came down to various salient features including:
Indeterminacy
The first feature considered was the principle of indeterminacy that operates to limit the exposure of tortfeasors to liability for purely economic loss of an indeterminate amount for an indeterminate time to an indeterminate class. Despite the potential classes being extraordinarily large (given the 40,000 business users and 1.3 million domestic users), Justice Gillard found that Esso had knowledge of the number and type of gas users prior to the interruption, as well as having the resources to make an assessment of its potential liability. Esso's liability was found not to be indeterminate with respect to the business and domestic gas users.
Indeterminacy was, however, fatal to the claims of the workers who were stood down. Those plaintiffs were found to be 'ripple effect' victims, with there being no way of realistically calculating the number of persons affected or the quantum of the claims immediately prior to the negligent act.
Vulnerability
The plaintiffs' capacity to protect themselves was also considered. Despite some reliance on an uninterrupted supply of gas, all gas customers had chosen to use gas, were aware that the supply was neither completely certain nor guaranteed, and could have purchased back-up equipment or insurance to reduce their exposure to the risk of interruption.
Contractual matrix
To have found a duty of care allowing recovery for purely economic loss would have been inconsistent with Esso's qualified contractual obligations to supply gas. Such a duty would also have been inconsistent with the expectations of gas customers who had agreed to purchase gas on terms that, realistically, would not provide them with any compensation in the event of a failure to supply.
Statutory regime
The statutory regime for the gas industry was also considered by Justice Gillard and, in the circumstances, it was found that the regulation of such obligations and liabilities was best left to the Parliament.
Overall, the weight of the these features with respect to business users and domestic users meant the Court came down against the recognition of a duty of care by Esso to avoid purely economic loss. The judge noted other salient features that were potentially relevant included: whether finding a duty would 'open the floodgates'; the right to legitimately pursue personal gain in business; remoteness of damage; and whether a duty of care would be an unreasonable and disproportionate burden.
Justice Gillard also noted the trend in other jurisdictions, including the United Kingdom, United States and New Zealand, against a duty of care being owed to gas customers in similar circumstances. Case law tended to be against the finding of a duty of care where a public utility failed to deliver energy. This was for policy reasons, including that financial harm may have flowed on endlessly in the form of a ripple effect and that liability could have had an enormous impact upon the ability of a public utility to survive.
Duty to avoid property damage
A consideration of the salient features is not necessary with respect to the avoidance of property damage. Two plaintiffs were therefore able to recover compensation: a cooked chicken outlet that had to destroy some stock because it could not be cooked within the required time; and a malt-producing company that had to dispose of malt in the production process at the time the gas supply ceased. Any expenses incurred in respect of the lost production were also recoverable as loss consequential upon property damage.
Importantly, financial expenses incurred to avoid damage to property were not found to be recoverable, for example, expenses incurred in agitating batches of slurry to prevent them from hardening and causing damage to the containers in which they were stored.
Commercial and product liability significance?
The decision regarding pure economic loss will have a commercial impact on the gas industry and public utilities in general which were concerned about future claims being made by customers for economic loss due to a failure to supply a commodity.
The plaintiffs are considering appealing the decision. The defendants are considering appealing the decision regarding property damage on the basis that the property damage was not reasonably foreseeable.
Justice Gillard's decision does not, however, mean that there is no longer a duty of care to avoid purely economic loss. A party may still be held to owe a duty of care to avoid purely economic loss if there exists a foreseeable injury and a relationship of proximity, and a consideration of the relevant salient features is in favour of such a duty being owed.
The decision highlights that this area of law is one in which the Courts move cautiously and that there is no clear line of demarcation between cases of purely economic loss in which damages are recoverable and those in which they are not.
Implication for class actions
The proceedings were commenced as a group proceeding (commonly known as a class action) pursuant to Part 4A of the Supreme Court Act 1986 (Vic). This procedure was upheld as constitutionally valid by the High Court last year.3
In the course of his judgment, Justice Gillard congratulated the parties on the way the proceedings were run, where he said:
The parties and their legal representatives, with some gentle persuasion by the Court, expeditiously and pragmatically prepared the case for trial, which proceeded with the minimum of fuss and, despite the volume of paper, relatively quickly and in a manageable fashion.
The parties and their legal representatives are to be congratulated on their cooperation, management of voluminous documents and their presentation.
The decision illustrates that we can anticipate more class actions in the future as both plaintiffs and courts increasingly gain experience and confidence in the issues associated with, and management of, this type of litigation.
References
- Johnson Tiles Pty Ltd & Anor v Esso Australia Pty Ltd & Ors [2003] VSC 27.
- (1999) 198 CLR 180.
- Mobil Oil Australia Pty Ltd v Victoria (2002) 76 ALJR 926 (see 23 July 2002 edition of Recall in which we reported on this decision).
