Disasters take many shapes and sizes. Often Governments convene an Inquiry and more often than not insurers have an interest. Michael Gill interviews DLA Phillips Fox partners Scott McDonald and Iain Rennie who represented a major client in the Equine Influenza Inquiry (EII). The interview focuses upon a number of key issues for insurers when faced with similar circumstances.

Michael: The EII was a large and important Inquiry for Australia; can you give us some idea of how big it was and what the key issues were?
Scott: The outbreak of Horse Flu in August 2007 devastated the Australian horse bloodstock and racing industry, especially in New South Wales and Queensland. While swift Government action prevented Horse Flu spreading into other states, the total losses of those industries were estimated to be $1 billion. As a result, the Federal Government at the time called for a Royal Commission. The Terms of Reference were to inquire into the reasons for the outbreak and to make recommendations for any required changes to quarantine regulations. Ian Callinan, a retired High Court Judge, was appointed as the Royal Commissioner and the hearings commenced on 8 November 2007 through to April 2008. The Commissioner delivered his report to the Minister for Agriculture, Fisheries and Forestry Tony Burke, on 23 April 2008 and published generally in June 2008.
Iain: Our client was involved for two reasons. Firstly, because they are one of the largest breeders of thoroughbreds in Australia. Secondly, because they had imported breeding stallions on one of the two or three flights that had brought the international shuttle stallions into Australia. It was from one of the shuttle stallions on those flights that Equine Flu was probably introduced into Australia.
Michael: In your opinion, what are the major issues which clients and their insurers should consider?
Scott: That requires a case by case analysis. The purpose of these Commissions and Inquiries is to make factual findings about the reasons for events occurring, and if a client or their insurer is of the view that those factual findings may be used in any subsequent recovery proceedings or class actions, it's highly desirable for them to be represented so that they can assist in the determination of those facts and thus the Commissioner's finding.
Michael: Apart from the question of liability, a number of the stakeholders had suffered serious financial loss because of the suspension of the racing season. That may have led to insurers who paid out on business interruption policies giving consideration to recoveries.
Scott: That's correct. Interestingly, I'm not aware that any insurer was represented at that Inquiry, but there were groups of potential plaintiffs who had suffered losses. The whole of racing and bloodstock closed down on the east coast for three months last year. People had to maintain horses that otherwise would have been earning money. So at all levels of the bloodstock industry, racing industry and with recreational horses, loss and damage was suffered.
Iain: In New South Wales and South East Queensland virtually every pony club, vet and strapper, the many farms that use or keep horse, and all sorts of industries which rely on those participants were adversely affected for many months. So what was portrayed as a racing issue, and therefore self contained, was in fact quite a broad community and cultural issue especially for rural communities.
Michael: You normally go into an Inquiry such as this with some partially formed views about the key issues and the parties at greatest risk. Was this one of those Inquiries and did your views change during the course of that long hearing?
Scott: They did change. What was determined ultimately, that is which horse or group of horses introduced Horse Flu into Australia, emerged as a result of blood tests which were taken variously before horses were exported from the UK, USA or Japan, and then again after the horses arrived in Australia. All these samples were checked at the Animal Health Trust in the United Kingdom in late 2007. However the results weren't made available to the parties participating in the EII until February 2008 due to some issues in obtaining samples from various overseas jurisdictions. For instance, the US samples had been disposed of by late 2007 and the Japanese government wouldn't export their samples to be checked in the UK, they wanted to retest them in Japan. This meant they were retested under different conditions to the UK. So, most of the parties were flying blind in the first six weeks of the hearing because the expert evidence which might determine liability of any particular horse or shipment of horses was not available. No-one knew how it would impact on their particular horses and whether it would result in a liability finding against them
Michael: I understand that our client's involvement commenced with something as potentially 'innocuous' as a Notice to Produce certain records to the Commission, and their major involvement in the EII grew out of that event. Was that surprising, or was it something that clients and their insurers should be alert to as a likely consequence?
Scott:

Our client initially considered the request for access to certain employees and some documents for the EII as a minor issue. Their concern really was just to comply but minimise the impact of having those employees out of action for a short time and the difficulty of gathering the apparently modest list of documents requested. What subsequently unfolded was quite unexpected and the demands immediately, and then over the long term, were very considerable.

The days of the 'innocuous' subpoena are well and truly over. In an inquisitorial process like a Royal Commission, if you get a subpoena for production of documents generally the next stage is the Royal Commission's staff wanting, as happened in this case, employees to come in and talk informally, which has its own set of warnings and dangers.

We talked to the client and agreed that it was in the client's interests for us to be in those interview processes to assist in their understanding of where the Commission was going, to help avoid any misunderstandings, and to identify any potential liability areas, if there were any.
Iain: At times it felt like being given a very grand jigsaw puzzle but without the picture on top of the box to show you what you're actually putting together. It was critical after my initial contact from the client to get Scott involved. With the benefit of his experience and expertise, a clear strategy was put in place. What started off as a desire to be cooperative, but get on with business, quickly became quite a structured process where great consideration was given to each step as they occurred and in mapping out a strategy.
Michael: So what are the fundamental differences between how you approach an Inquiry as opposed to a normal Court proceeding?
Scott:

Well, an Inquiry is inquisitorial by nature and has a fairly broad ranging factual backdrop. When it issues a subpoena or a Notice, it's not limited by pleadings the way civil litigation is. So you don't have those usual grounds of objection and you often don't have the time permitted in a civil court to produce the paper.

Also, a Commissioner can go off into unexpected lines of inquiry. Terms of Reference can be very broad. On occasions, particular issues take the Commissioner's fancy; he or she will dig deeper on those issues and want to know more about them quickly. For instance, in the EII, the Commissioner was simply directing parties to produce to him by 'tomorrow morning' an explanation of this, or a document summarising that. It's quite different to the way a Court operates.
Michael: So finally, if you've got nothing to hide, why do you need a lawyer?
Iain: You need a lawyer because you need somebody who understands what you are getting yourself involved in and you need the objectivity and experience that an expert can provide you. It is an area fraught with danger. It is unpredictable and everybody needs calm counsel.
Scott: I think when you are confronted with a Royal Commission of this type, the speed at which it progressed was pretty daunting, even to a fairly sophisticated client. The amount of resources required to run it was significant - there was an employee of the client working with our legal team almost fulltime. Trying to handle this without a lawyer would have been dangerous because if you elect, for instance, not to attend these types of Commission hearings, you are then fair game for all the other parties in respect of the factual findings that will be made, and the identification of the party responsible for the loss. You need to be there to influence those findings and the evidence that is relevant to them.

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