01 Apr 2021

Successful environmental class action raises question of whether more will follow

By Greg Williams, Blair McEwan

The most important takeaway from the Sanda decision is that it underscores the fact that, in conducting a risk assessment, statutory compliance may not be enough

Pollution control plans, and conditions on environmental approvals more generally, will be under the microscope following one of Australia's first successful environmental class actions (and the first funded class action to be brought against an Australian company for cross-border pollution-related damage suffered by foreign claimants).

The class action was brought by Mr Daniel Sanda, on behalf of himself and over 15,000 other seaweed farmers in the Rote/Kupang region of Indonesia whose livelihoods were adversely affected by the 2009 Montara oil spill from an oil well in Australian territorial waters operated by PTTEP.

The decision in Sanda v PTTEP Australasia (Ashmore Cartier) Pty Ltd (No 7) [2021] FCA 237 flags two important issues:

  • the need to consider the true worst-case scenario in any risk analysis, and therefore the true scope of any duty of care that might be owed; and
  • a novel method of assessing damages for class members without a strong paper trail, which could encourage funders to take on more borderline cases.

Finding a duty of care was owed to seaweed farmers – and breached

At trial, the respondent, PTTEP Australia, accepted that it was negligent in suspending and operating the oil well – conduct which resulted in the 2009 oil spill – but denied that it owed a duty of care to Mr Sanda and the Group Members on the basis that the Rote/Kupang region where they farmed, approximately 250 km north-west of the oil field, was outside the zone it had modelled as potentially affected by its operations.

PTTEP Australia was required under the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) to have and maintain an "oil spill contingency plan" (OSCP). This set out the consequences (including trajectory modelling) of a "worst-case scenario" oil spill, which assumed a total loss of crude oil from one wing tank, and a spread over 7 days (the 2009 oil spill released many times more oil and lasted for weeks). The plan had been submitted to and approved by the Commonwealth Department of the Environment and Water Resources a few months before the spill.

The trajectory modelling in the OSCP did not predict the Rote/Kupang region could be affected, so PTTEP Australia argued that the oil spill reaching this region was out of contemplation, and as a result that the risk to the seaweed farmers' livelihoods was not reasonably foreseeable.

The Court rejected this argument entirely, holding "[t]he respondent cannot absolve itself from a duty of care simply because it chose to model only the loss of oil from a wing tank and not the loss of oil from a well blowout possibly lasting several weeks, which was the actual risk that was posed by its negligent conduct."

It also noted "the OSCP reveals the respondent’s concern as to whether oil spilled at the H1 Well could reach those shorelines Australia, Timor and Indonesia and harm the marine ecosystem there", although the modelling was not predicated on a spill of the magnitude that actually occurred and thus could not say there would be no impact on Mr Sanda and his fellow farmers.

PTTEP Australia's failure to properly suspend the oil spill was held to be capable of causing loss or damage to those who carried out businesses involving the commercial exploitation of the marine ecosystem. As a result, Justice Yates was satisfied that it owed Mr Sanda and the Group Members a duty of care, the risk of harm was foreseeable, and the duty of care was breached. However, it remains to be seen to precisely what group the duty was owed. The common questions in the proceedings did not include a question about the class of persons to whom PTTEP Australia owed a duty.

Assessing damages without a clear paper trail

The determination of loss was complex because Mr Sanda had no system of record-keeping which showed actual production of seaweed, costs or resultant profit from seaweed farming. PTTEP Australia argued that this documentary gap meant there was no basis in which his loss could be assessed.

The Court disagreed. Using a somewhat novel approach, it calculated Mr Sanda's aggregate loss by making an estimate of his usual income from which the Court deducted his actual income across 2009-2014, which was then discounted by 40% due to the uncertain nature of the evidence – leaving Mr Sanda with 252,997,200 IDR ($22,731.24 AUD), and any  interest up to judgment he might be awarded.

What Sanda will mean for potential defendants to environmental class actions

The first, and most important, takeaway from the Sanda decision is that it underscores the fact that, in conducting a risk assessment, statutory compliance may not be enough. PTTEP Australia submitted an OSCP that passed regulatory review, but failed to plan for a true worst case. Just because PTTEP Australia did not predict the spill's size and effects doesn't mean they were not foreseeable, and the Government's acceptance of that plan was not determinative of a duty of care. We can expect environmental class actions to grow, and increased scrutiny not only of regulatory compliance, but the internal risk management too, by litigation funders.

One finding which may also have implications for future cases based on conduct causing environmental harm is that on indeterminacy of liability, "a policy consideration which can militate against recognition of a duty of care in cases involving mere economic loss where the imposition of liability might be for an indeterminate amount for an indeterminate time to an indeterminate class". The Court held these concerns did not apply to this case, as "indeterminacy depends upon what the respondent knew or ought to have known of the number of claimants and the nature of their likely claims". Here, the duty involved avoidance of physical harm (loss of seaweed crops) and not avoidance of pure economic loss (for instance had Mr Sanda claimed that the oil spill devalued rather than destroyed his seaweed crop). Accordingly, whilst significant, this decision does not challenge the existing difficulties with claims for pure economic loss in a negligence claim of this kind. 

Finally, it is significant that the Court was ultimately comfortable in making a finding of substantial loss without the kind of documentary evidence that we have come to expect in claims of this kind. It is likely than this approach would be less appropriate in assessing commercial loss for more regulated jurisdictions, where the lack of record-keeping is likely to be more heavily scrutinised. Australian businesses, being subject to Australia laws relating to the keeping of books and records, are less likely to be subject to the assumptions made by the Court in relation to Mr Sanda's usual income. Nonetheless, we see this approach as encouraging to litigation funders, particularly where the class members are from less regulated countries, as it reduces the probative burden for potential class members and hence for the funders.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.