Australia: Update on Insulation and Container Detention Claims

Background

I thought it would be useful to provide the following summary on the status of claims associated with the Federal Government Home Insulation Scheme and efforts to recover allegedly excessive container detention fees.

Home Insulation Scheme

As many would be aware, the suspension and cancellation of the Federal Government's "Home Insulation Scheme" ("Scheme") left many in industry facing significant costs and losses. Due to the initial suspension and subsequent cancellation of the Scheme, many customers of those in industry could not pay for the customs duty, GST or transportation costs relating to the insulation for which there was suddenly no market. Many in industry who were left holding the insulation are still paying storage costs on that insulation.

At the time that the Scheme was first suspended, the Federal Government invited those in industry who had been adversely affected to write to express their concerns and to identify the nature of their losses for consideration by Government. Subsequently, on behalf of a number of parties in industry, we did write to the relevant Federal Government Minister seeking compensation.

However, the preliminary response from the Federal Government's insurer was that:

• our clients had no contract with Government and therefore no contractual claim against Government;
• our clients should take action against their own customers (being importers, installers or distributors); and
• our clients should exercise their liens over the insulation to recover moneys owing to them.

Our subsequent experience and views on these comments are as follows.

• The claim by those affected is not based on contract. It is based on remedies associated with negligence, negligent misstatement and breach of statutory duty by the Federal Government in its conduct and implementation of the Scheme. Those remedies exist outside of any contractual relationship between our clients and the Federal Government. In any event, even if the Federal Government believed it had no legal liability to our clients, then the "Scheme for Compensation for Defective Administration" ("CDDA Scheme") provided a mechanism for Government to compensate those adversely affected due to failure of the Government to conduct its administration in an appropriate fashion.
• The customers of our clients do not have any revenue or resources to pay any claims made by our clients even after litigation has been brought against those customers. That arises directly from the suspension and subsequent cancellation of the Scheme by the Government without notice or consultation.
• Little will be recovered on any exercise of any lien given that the market for the insulation has almost entirely disappeared. That market was created by the Federal Government and its Scheme and subsequently destroyed by the suspension and cancellation of the Scheme. In addition, it appears that some of the insulation is, indeed, faulty (of which our clients would have been unaware and would not have been an issue for our clients).

Accordingly, in our view, the comments by the Federal Government and its insurers are not helpful, misconstrue the situation and ignore the realities created by the initial misadministration of the Scheme and its subsequent suspension and cancellation without notice, consultation or further consideration.

Further, while the Government has established various compensation Schemes, they do not extend to those in industry.

At different times, the issue has come to public attention again and we have sought to press the interests of our clients and the industry in the media. For example, the Hawke report into the Scheme, the report by the Senate Standing Committee on Environment, Communication and the Arts and the more recent report of the Australian National Audit Office all underline that the Scheme failed in large part through a failure in administration of the Scheme by the relevant Government Department. In our view, this extends to the way in which the Scheme was suspended and then cancelled without consultation or notice A proper "exit strategy" would have considered the position of those with insulation "on order" based on expected sales and those handling the transport of that insulation, given that those orders relied on the Scheme which was established and promoted by the Federal Government. Currently, the real problem in pressing the issue is twofold. Firstly, the nature of the claim is unique. However, the underlying concepts behind the claim are similar to those under which claims for compensation have been paid in relation to the problems associated with the introduction of the ICS in October 2005 and with the administration of Item 50A by Customs. Many of those claims were paid according to the CDDA. Secondly, many of those affected do not have the financial resources to pursue a claim.

Container detention

For many years, there have been concerns expressed that the amounts claimed by shipping companies and their Australian agents for "container detention" fees far exceed the real cost associated with a failure to return a container within the agreed "free" time and exceed those which a court would allow to be recovered.

These difficulties lead to regular debates by affected parties as to the amount which is properly payable. The amounts ultimately paid are often negotiated and rarely subjected to any judicial scrutiny. The issue was thrown into the public forum at the time of the decision of the New South Wales Consumer Trader and Tenancy Tribunal ("Tribunal") (see our updates in relation to that case dated 7 May 2010 and 13 May 2010).

There has been significant subsequent debate on the issue. At the risk of losing important legal analysis, the current position relating to the container detention litigation can be summarised as follows.

• The decision of the Tribunal will be taken to appeal.
• The decision may be limited to its particular facts.
• There is little judicial authority in the long term from a decision of the Tribunal. However, at the same time, the decision of the Tribunal does apply those legal concepts which we believe should apply to limit claims for damages.
• Future cases will turn, in part, on whether the amounts claimed are construed as being claimed for breach of the contract to return the container within an agreed time (in which case a court will need to determine whether the amounts claimed are properly damages or a penalty) or whether the amounts claimed are more properly construed as an increasing hire charge (in which case amounts may be more defensible).

Again, there is some interest in taking action to recover amounts which are considered to have been overpaid in the past. However, the same concerns arise as for those seeking to recover compensation for the Scheme – namely the unsure status of the facts and the law and the cost to pursue the issue mitigate against pursuing the issue.

Pursuing both issues

As mentioned above, there remains significant interest in pursuing both issues. There is also significant frustration that there is no easy or early resolution. That frustration is aggravated in the case of the insulation issue where the Government has paid compensation to others affected, except for those in industry. The reality is that neither claim is likely to be resolved without further effort whether by way of additional submissions or by way of litigation.

As we have mentioned on many occasions, this firm is not a "no win, no fee" firm and we appreciate that affected parties may not be in a position to invest further money to pursue these claims. However, we have been in discussions with litigation funders who have expressed an in-principle interest in pursuing claims on a contingency basis. The willingness of those litigation funders to pursue the claims will depend on a variety of issues including the relevant facts of a claim, further detailed analysis of the legal positions of the parties and there being a large enough pool of affected parties with a large enough claim to warrant further investment by the litigation funders. The nature of how the claims may be pursued and the timing will be a decision to be taken between the parties if they resolve to pursue the claim. For these purposes, we would be pleased to put those interested in pursuing their claims together with the litigation funders. To enable us to do so we would require details of the following:

• name of the claimant;
• nature of the claim;
• size of the claim; and
• willingness for us to arrange meetings and to pursue the claim.

Clearly, the decision to pursue any of these claims will be one to be taken between the affected parties being the claimant and the litigation funder. Alternatively, if parties are keen to proceed but would prefer to proceed on their own basis through their own investment of funds, we would be happy to assist.

As always, we would be pleased to assist further.

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.