By Maurice Lynch, Special Counsel and Thomas Mangan, Associate
In May 2020 the vessel “APL England” encountered rough seas off the coast of Australia during its voyage from Ningbo, China to Melbourne, Australia. Valuable goods were either lost overboard or were damaged as a result of the incident, which was a huge blow for supply chains during what was the peak of the pandemic’s lockdown. Around 30 containers were lost overboard and around 50 were damaged. Popular Sydney beaches were also closed when debris washed ashore including face masks, plastic containers, air-conditioning ducts and entire shipping containers.
After negotiations with the vessel’s owners and demise charterer broke down, the insurers of the cargo owners that suffered losses commenced proceedings against the owners and charterers in the Federal Court of Australia.
Class actions typically see proceedings launched against the big financial institutions, particularly insurance companies. Most recently, a group of small businesses are investigating a class action against insurance companies alleging that COVID-19 related losses are covered under their business interruption policies. Similar class actions of this nature have been launched around the world.
However, it is unheard of for a group of insurers to commence proceedings as the plaintiffs. Even the Court struggled with how the class action regime was to be applied in this instance as it had to delicately balance the interests of the insurers and the insured cargo owners who are the named group members in the proceedings. For example, insureds had to be properly informed of their rights, yet also be advised that they needed to closely consult with their insurers on aspects of the proceedings, as it may impact on their cover.
Insurers are pursuing the vessel owners, CMB Ocean 13 Leasing Company Pte Ltd and demise charterers, APL Co Pte Ltd, for breaching their duties as bailees as they failed to deliver the cargo in the same condition as when it was loaded onto the vessel. Due to the defences raised by these parties, and in order to preserve the interests of all group members (particularly noting that shipping claims generally have a one year time limitation) the plaintiffs have also had to join a number of contractual carriers to the proceedings, suing under breach of contract.
The insurers have also come to a cost sharing arrangement between themselves and Mills Oakley, which is again unique, given that there is no litigation funder involved in the proceedings. To make matters more extraordinary, any uninsured losses will be pursued by the group members themselves, at their own cost.
This is the first Court approved class action commenced by insurers. Accordingly, it has the potential to be a ground-breaking development in cargo recoveries. This is particularly where there is a common event which has caused the loss of multiple insureds each of whom are insured by different insurers. This regime allows subrogated insurers to aggregate multiple claims but keep costs to a minimum. This is achieved through the class action mechanism which allows the determination of common questions on liability and quantum for one lead class applicant which are binding on the defendants in so far as the common questions impact all class members. This means that there does not need to be multiple liability or quantum trials, which will save significant costs for the insurer class members, increasing their net recovery, and which will avoid the risk of inconsistent factual findings in various judgments.
It goes without saying, that the procedural dynamic of the class action is novel. The matter will be watched closely as a precedent for insurers seeking recovery from a single incident that has impacted a number of individuals and their respective insurers.
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