Australia: Developments In Liability And Professional Indemnity Claims

Last Updated: 3 July 2007

Article by Scott Kennedy & Clive Curwood1


Since 2002 in New South Wales, Victoria and Queensland legislation has been enacted to compel the greatest change to public liability in decades (the Reform Acts).2 The ultimate impact of the Reform Acts is unknown, however in the past few years the Superior Courts have started to provide guidance on how it interprets these changes.

In the area of public liability, the Reform Acts have mandated changes to the Courts' approach to issues such as:

  1. non economic loss assessments; and
  2. the obviousness of risks.

In the professional indemnity and directors' and officers' classes, the Reform Acts have also mandated changes through the introduction of proportionate liability (as opposed to joint and several liability) throughout Australia.

General Over-View of Claim Numbers and Types

Following the Reforms Acts, the number of claims coming before the Courts continues to fall. At least in theory with the progressive introduction of Proportionate liability throughout Australia since 2004, claims numbers should continue to fall.

Nevertheless, the decline in claim numbers may slow or reverse having regard to:

  1. the pressure to wind back the tort reforms;
  2. the Courts' apparent approach to the Reform Acts; and
  3. the likely increased mobilisation of litigation funders.
  4. First however, the current numbers:

The full presentation can be downloaded here

Where to Now?

Whilst over the past few years new court filings have been at unprecedented levels, one may query whether that situation will remain, in part having regard to:

  1. the pressure to wind back the tort reforms;
  2. the approach of the Courts to the Reform Acts; and
  3. the increased mobilisation of litigation funders.

The Pressure to wind back the Tort Reforms

The Tort reforms are not universally adored. Extra curial comments by senior members of the judiciary include criticisms of the extent of the Tort reform by both the Hon Justice D A Ipp AO who chaired the panel into the legislative reforms, and also by the Hon P de Jersey AC, Chief Justice of Queensland.

Justice Ipp recently stated:

Certain of the statutory barriers that plaintiffs now face are inordinately high.... Small claims for personal injuries are a thing of the past. Establishing liability in connection with recreational activities has become difficult. Stringent caps on damages and costs penalties make most plaintiffs think twice before suing. Public authorities are given a host of novel and powerful defences that are in conflict with the notion that the Crown and government authorities should be treated before the law in the same way as an ordinary citizen. It is difficult to accept that public sentiment will allow all these changes to remain long-term features of the law. 16

Justice de Jersey's comments are even more pointed:

I have spoken previously about the two Queensland statutes of recent years which have significantly interfered with the awarding of compensation to those who have suffered injury because of the actionable fault of another. Now we would all accept that a person injured through the fault of another should be adequately compensated by that other. The issue is whether the legislative reforms went too far. Some change was justified, although legislation was not necessarily the only way of securing it. There had been a shift discernible from court decisions over recent years towards according more primacy to individual responsibility for those engaged in ordinary day-to-day activities. The tripping cases exemplify that.17

Last year I expressed serious reservation whether the so-called "insurance crisis" which led to the Ipp reforms was substantially caused by anything other than lack of prudent financial planning and forecasting by insurance companies, including premiums set uncommercially low for competitive reasons. The President of the Law Council of Australia, Mr John North, recently referred to current high levels of profitability in insurance companies. Many commentators have highlighted what has appeared to be minimal reduction in insurance premiums. Many remain to be convinced that the reduced financial burden on insurers, consequent upon these legislative changes, is benefiting anyone other than those insurers themselves.18

Members of Queensland's judiciary appear to have the most grievance about:

  1. the $250,000 cap on General Damages in Queensland;19
  2. the cap on past and future economic loss to no more than 3 times the average weekly earnings per week;20
  3. the limitation on the award of damages for gratuitous services, being dependant on the provision of services for at least six months and at least six hours per week;21 and
  4. the inflexibility inherent in the new formula for calculating damages.22

Despite comments such as these, there does not appear to be a serious move to wind back the provisions in any real respect.

The Courts approach to the Reform Acts

he New South Wales Court of Appeal approach to the CLA may suggest that that Court does not approach the CLA with enormous warmth, and that approach appears to be shared by the District Court.

In part this can been seen in a recent decision of the District Court, Yu-Mei Chu v State Rail Authority of New South Wales [2007] NSWDC 41. There, the Judge held the State Rail Authority (SRA) liable to compensate a women who broke her ankle falling down stairs at a CityRail station, and then some weeks later at the home of an acquaintance was sexually assaulted when she couldn't escape due to the injury to her ankle.

The plaintiff suffered significant psychological injury, and contended that the sexual assault would not have occurred but for the injury to her ankle, because otherwise she would have been able to successfully repel the man and escape.

After considering the provisions of section 5D of the CLA Goldring DCJ held that but for the injury to her ankle, the plaintiff would not have suffered the sexual assault and its consequences. Goldring DCJ states:

I find, therefore, that the psychological injury to the plaintiff, which she would not have suffered but for the ankle injury, but which she did suffer because of the sexual assault, is within the scope of the defendant's responsibility. In terms of the common law, this would be a foreseeable consequence of the defendant's breach of duty, which led to the ankle injury.

The Judge held that the psychological injury was caused by the sexual assault, rather than the fall, but awarded damages both as a result of the physical injuries and loss sustained as a result of the fall and the psychological harm caused as a result of the rape.

The casual connection as found by the Court could be viewed as a convenient method of circumventing what was otherwise an obstacle in the plaintiff's claim. Not surprisingly, Railcorp has indicated that it will appeal the decision.

Turning to the New South Wales Court of Appeal, if the authorities over the last 12 months are an accurate barometer, the Court's approach is to:

  1. only rarely interfere with the discretion exercised by the Court below on damages for non-economic loss;
  2. to suggest that the CLA does not carry with it any change to the previous test of when reasonable precautions have been taken against a risk of injury;
  3. to indicate that "not insignificant" in the language of the CLA, is essentially the same as the previous test of a risk that is "not far fetched or fanciful"; and
  4. consider that where a risk is obvious that is not a factor that goes to whether or not a duty is owed.

On one view, the Court is interpreting the CLA in light of the previous common law, and reading some of the exclusionary provisions in the CLA, such as the dangerous risk provisions in a fairly narrow fashion.

The potential impact of litigation funders

Whilst litigation funding for claims is not new in Australia, historically, the common law prohibited maintenance (supporting litigation, regardless of the reason) and champerty (supporting litigation in exchange for a share of the proceeds of that litigation), on the basis that they are contrary to public policy. Although recent court decisions have made it plain that litigation funding is now a reality in Australia, the decision in Campbell's Cash & Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41 by the High Court of Australia, there was some uncertainty as to what elements of a litigation funding agreement might render it contrary to public policy and an abuse of process.

The underlying proceeding (a class action) by a number of tobacco retailers against licensed wholesalers for the recovery of state licence fees, was financed by a litigation funder, Firmstone, on the basis that it would take one-third of the proceeds if the case were successful.

The High Court held that where the crimes and torts of maintenance and champerty had been abolished by statute (each of New South Wales, Victoria, South Australia and the ACT), there was no foundation to conclude that the people seek to profit from assisting in litigation, and seeking out and encouraging litigation could only be maintaining an action could be contrary to public policy.

Moreover, fears concerning the adverse effects on the processes of litigation and the fairness of the agreement between the funder and the plaintiff are not sufficient to justify an 'overarching rule of public policy' that would prohibit funded actions or require funding agreements to meet particular standards concerning the funder's degree of control or reward. Such a rule 'would take too broad an axe to the problems that may be seen to lie behind the fears'. Similarly, fears for the administration of justice (for example, that the funder might inflame the damages or suppress evidence) can be adequately met by existing doctrines of abuse of process, and fears that lawyers might find themselves in positions of conflict are also adequately addressed by the existing rules regulating their duties to the court and clients.

The High Court's decision is likely to encourage the number of litigation funders and funded cases, particularly for class actions which through economies of scale may be seen to offer the best chance of a large return for funders.

A good example is that attached to this paper, being a copy of the investment portfolio of one of Australia's largest litigation funders, IMF Limited. This investment portfolio, which is available on the internet and is announced quarterly to ASIC, lists each of IMF's funded matters and its potential return.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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