Contingent liabilities - unquantifiable
Attorney-General's
Native title costs
The Commonwealth has offered to assist the States and Territories in meeting compensation costs associated with native title. The amounts that might be paid by the Commonwealth will be subject to the terms of financial assistance agreements being negotiated with the States and Territories and liabilities arising from the 1998 amendments to the Native Title Act 1993. The Commonwealth's liability cannot be quantified due to uncertainty about the number and effect of compensable acts, both in the past and in the future, and the value of native title affected by those acts. Similarly, it is not possible to quantify the liability for compensable acts for which the Commonwealth may be directly liable.
The Commonwealth has also offered to assist the States and Territories with the costs of bodies performing native title functions under State and Territory legislation. The extent of this assistance will depend on the existence of such bodies, the timing of their recognition and the extent of their use.
Communications, Information Technology and the Arts
Art Indemnity Australia
The Government indemnifies cultural objects loaned to exhibitions displayed in Australian museums and galleries. The exact amounts involved will vary with the exchange rate applying at the time any claim for loss or damage to an artwork or heritage object loaned from overseas is paid, and the extent of any loss or damage. Most of the Commonwealth risk in indemnifying exhibitions is insured through Comcover. Uninsurable risk continues to be borne solely by the Commonwealth.
Defence
ADI Limited - officers' and directors' indemnities
Under the sale agreements for ADI Limited, the Commonwealth has indemnified the directors, officers and employees for claims and legal costs associated with assistance related to the sale of the Commonwealth's shares in the company. The Commonwealth has provided an indemnity to ADI Limited for uninsured losses relating to specific heads of claims.
Australian Submarine Corporation (ASC) - indemnity provided to Electric Boat Corporation (EB) under the Services Agreement
In early October 2002, the Department of Defence entered into a Services Agreement with EB and its subsidiary Electric Boat Australia (EBA) to provide technical and commercial support to ASC as it transitions from being a producer of submarines to an agency for through-life support.
EB/EBA staff commenced at ASC on 14 October 2002. The Services Agreement will run for three years with up to four annual extensions.
For the purposes of this agreement the Commonwealth and ASC provided EB and EBA a warranty that they had the right to provide EB/EBA with confidential and other information under the agreement. Under the agreement, the Commonwealth provided an indemnity to EB and EBA against claims arising from a breach of that warranty.
Under the agreement, the Commonwealth also indemnified EB and EBA against claims arising from property loss or personal injury resulting from a defect in the operation or performance of a Collins Class submarine caused by other than unlawful conduct, gross negligence or wilful misconduct of EB or EBA, and where claims exceed the greater of $2 million or profit earned by EB under the agreement.
HMAS Melbourne and HMAS Voyager damages claims
Former crewmembers of HMAS Melbourne have instituted legal proceedings against the Commonwealth, claiming damages for injuries allegedly caused by the HMAS Voyager/HMAS Melbourne collision on 10 February 1964. About 130 claims remain current. A number of dependency claims arising from that collision have also been foreshadowed by the dependants of deceased former members of the crew of HMAS Voyager. Further claims are likely to be made in connection with the collision.
Litigation cases
The Department of Defence is involved in a wide range of litigation and other claims for compensation and/or damages that may result in litigation where the matters have yet to be finalised by negotiation or, where required, litigation. Various claims, the subject of cases that have yet to be heard or are part heard, await a decision on what (if any) damages and/or costs should be paid to the claimant. The litigated and non-litigated claims include common law liability claims and claims arising from complaints to the Human Rights and Equal Opportunity Commission. The litigation also includes asbestos claims and claims from injury resulting from the F111 Deseal/Reseal programs. In total there are about 400 claims at present, with a value in excess of $160 million. There is identified potential for additional claims from known incidents of non-military asbestos exposure and the F111 Deseal/Reseal project. These claims total about 130 with a value of approximately $30 million.
Finance and Administration
Australian Industry Development Corporation (AIDC) - board members' and management indemnity
The Commonwealth has indemnified the Corporation's board members and management against civil claims relating to employment and conduct as directors and management of subsidiary companies. Liability is subject to the terms of the indemnities.
Australian Submarine Corporation (ASC) - Commonwealth shareholding
The Commonwealth has indemnified Barry AC Hilson and BACH Pty Limited in relation to liabilities arising from assistance provided to the Commonwealth during the conduct of a review of the Commonwealth's shareholding in ASC. This indemnity is ongoing.
Australian Submarine Corporation (ASC) - directors' indemnities
The Commonwealth has indemnified the members of the Board of the ASC for any claim associated with the provision of information to the Electric Boat Corporation (EB) of the United States. Certain information has been provided to the EB under a Process Agreement between it, the Commonwealth and the ASC. This indemnification has been separately extended to include any claim associated with the provision of information to EB and its subsidiary, Electric Boat Australia (EBA) under the Services Agreement between ASC, the Department of Defence, EB and EBA.
ComLand Limited - land remediation
The Commonwealth has indemnified the ComLand Group in the event that the Group incurs certain land remediation expenses where the need for such remediation was not identified when the land was transferred to ComLand.
Employment National Limited (EN) - board members' and Chief Executive Officer's indemnity
Indemnities by the Commonwealth have been provided to EN board members and the Chief Executive Officer to protect against civil claims relating to their employment and conduct as directors. These indemnities are ongoing.
Employment National Limited (EN) - letter of comfort arrangements
The Commonwealth has provided a letter of comfort to EN indicating continuing financial support for the company to ensure its solvency. The letter of comfort remains in place while the company remains wholly owned by the Commonwealth or until terminated by the Minister for Finance and Administration. EN is expected to be wound-up during 2003-04.
Health Insurance Commission (HIC)
The Commonwealth has issued indemnities to Commissioners of HIC against claims made in connection with HIC's participation in the IT Outsourcing Initiative. The indemnity applies to actions of HIC during the period of the process to outsource the HIC IT infrastructure up to the time that the HIC entered into a contract.
Indemnities for the Reserve Bank of Australia (RBA) and private sector banks
Under contractual arrangements for transactional banking services entered into by agencies covered by the Financial Management and Accountability Act 1997, the Commonwealth has indemnified the RBA and private sector banks against loss and damage arising out of acts or omissions by the Commonwealth, including by error, fraud, negligence or transactions made without the authority of the Commonwealth.
Sale of Australian National Railways Commission (ANRC) and National Rail Corporation (NRC) Ltd
An indemnity has been provided to all of the Commissioners of ANRC in respect of assistance in relation to the sale process. This includes the provision of information about ANRC at the request of the Commonwealth or its advisers for the purposes of the sale of the ANRC and its business units or assets.
An indemnity was issued to directors and specified officers of NRC in relation to assistance provided to Office of Asset Sales and Information Technology Outsourcing in the conduct of the scoping study. This indemnity was issued on 21 July 1997 and is a continuing one in respect of any liability that arises from the assistance provided before the expiry of the notice of completion from the Commonwealth.
On 20 October 2000, the Commonwealth entered into a Deed of Confidentiality with the New South Wales (NSW) Government in relation to the possible sale of NRC and Freight Rail Corporation (FreightCorp). Under this Deed, the Commonwealth indemnified the NSW Government and FreightCorp in relation to any damages sustained by NRC and/or FreightCorp arising as a result of a breach of the Deed by the Commonwealth.
The former shareholders of NRC (the Commonwealth and the Governments of NSW and Victoria) jointly indemnified each NRC director against claims and legal costs incurred by that director as a consequence of actions of the director that related to the sale by the former shareholders of their interests in the company. The Deed of Indemnity is dated 3 November 2000 and provides a continuing indemnity to each Director in relation to actions covered by the Deed.
Sydney Airports Corporation Limited (SACL), Bankstown, Camden and Hoxton Park Airports and Essendon Airport Limited - directors' indemnities
The Commonwealth has indemnified each member of the board of directors of SACL, Essendon Airport Limited, Bankstown Airport Limited, Camden Airport Limited and Hoxton Park Airport Limited against claims and costs incurred arising from the conduct of the directors in relation to the sale, or scoping study for the sale of these airports. Where certain company insurances or indemnities exist for the directors in relation to a claim, the Commonwealth indemnity cannot be called upon.
Tuggeranong Office Park Pty Ltd (TOP)
The Commonwealth has provided an indemnity to the TOP Trustee to meet any shortfall in the redemption of bonds due on 20 August 2008, which cannot be sourced by TOP or the Construction Development Company from the Sinking Fund.
Indemnities relating to other asset sales
Indemnities have been given in respect of a range of other asset sales. Details of these indemnities have been provided in previous Budget and Mid-year Economic and Fiscal Outlook (MYEFO) papers and Finance annual reports. For example, see pages 9-15 to 9-23 in the 2002-03 Budget Paper No. 1, and pages 177-183 of the 2001-02 Finance Annual Report.
Foreign Affairs and Trade
Export Finance and Insurance Corporation (EFIC) - board members' and senior management indemnities
The Commonwealth has provided certain indemnities to EFIC board members and senior management to protect against civil claims relating to the implementation of EFIC's alliance/divestment of its short-term export credit insurance business.
Health and Ageing
Blood and blood products liability cover
The Commonwealth has signed a memorandum of understanding (MoU) with the States, Territories and the Australian Red Cross Blood Service (ARCBS) to establish a National Managed Fund (NMF), which pools the liability risks associated with the supply of blood and blood products by the ARCBS between the Commonwealth, States and Territories. The MoU provides for the parties to contribute to the NMF taking into account potential claims payments; the level of funds in the NMF and investment earnings; and a prudential allowance for liabilities incurred but not the subject of claims. If there are insufficient funds to cover claim costs, the MoU provides for each party to contribute funds in accordance with allocation provisions prevailing at the time. Under the MoU, the blood and blood products liability cover for the ARCBS remains in force until all parties agree to terminate the arrangements from an agreed date.
Commonwealth Serum Laboratories (CSL) Limited
CSL Limited is indemnified against claims made by persons who contract specified infections from specified products and against employees contracting asbestos-related injuries. CSL Limited has unlimited cover for most events that occurred before the sale of CSL Limited on 1 January 1994, but has more limited cover for a specified range of events that might occur during the period of the current contract. Where cover has not been arranged, the Commonwealth may have a contingent liability. Given the open-ended nature of some of the indemnities, damages and risk cannot be quantified.
Indemnity relating to smallpox vaccine
On 12 December 2002, the Commonwealth took possession of an initial shipment of 50,000 doses of smallpox vaccine as part of the 2002-03 Budget measure Incident response capability. This vaccine, to be used only in emergency situations, was the only type available for large-scale purchase and was manufactured using older style technology. The Government granted an indemnity to the manufacturer covering possible adverse events that could result from the use of the vaccine.
The initial purchase of smallpox vaccine will be followed by another shipment of vaccine manufactured using more modern technology later in 2003. The indemnity applies only to the original shipment.
United Medical Protection (UMP)/Australasian Medical Insurance Limited (AMIL) guarantee
In the 2002-03 Budget, the Government announced that the Commonwealth would guarantee to the provisional liquidator, or to any other subsequently appointed liquidator, the obligations of UMP/AMIL to pay any amount properly payable in the period 29 April 2002 to 30 June 2002 in respect of claims made under a current or past policy and to provide coverage for claims incurred during that period. As a part of these arrangements, the Government has also entered into a Deed of Agreement with the provisional liquidator of UMP to provide a guarantee to MDU Australia Insurance Co Pty Limited, a member of the UMP group.
On 31 May 2002, the Prime Minister announced an offer to extend the Commonwealth guarantee provided to UMP/AMIL and the companies' provisional liquidator to 31 December 2002 on a claims made basis. On 23 October 2002, the Prime Minister announced a further extension to 31 December 2003.
The guarantee will apply to the extent that the provisional liquidator is unable to meet UMP/AMIL's obligations under these policies from UMP/AMIL's assets. The liabilities cannot be quantified, as a reliable estimate cannot be produced at this time.
Both extensions of the guarantee will be funded, if necessary, via a levy on doctors. At present, the provisional liquidator has not called on the Commonwealth guarantee.
Immigration and Multicultural and Indigenous Affairs
Separation of Aboriginal children from their families in the Northern Territory
Earlier laws, policies and practices in relation to the Commonwealth's administration of the Northern Territory led to the separation of certain Indigenous children from their families. There are currently over 2,000 plaintiffs with claims pending against the Commonwealth for (largely unspecified) damages in relation to alleged forcible and wrongful separations (mostly by the children of those allegedly forcibly and wrongfully removed).
Only two of these claims have so far proceeded to trial and they were dismissed by the Federal Court in August 2000. An appeal to the Full Bench of the Federal Court was also dismissed in August 2001. Special leave to appeal, sought from the High Court, was refused. A third claim is proceeding in the Federal Court.
Industry, Tourism and Resources
Liability for damages caused by space activities
Under the United Nations Convention on International Liability for Damage Caused by Space Objects, the Australian Government is fully responsible for damages caused to nationals of other countries caused by space objects launched from, or by, Australia. The Commonwealth Government requires anyone seeking approvals under the Space Activities Act 1998 to insure up to the level of maximum probable loss (MPL), up to a maximum of $750 million each launch and each return of a space object. The Commonwealth also accepts all liability caused to foreign nationals above the insured level.
PetroTimor Court Case
PetroTimor was granted a concession for petroleum exploration in an area of the Timor Sea by Portugal in 1974. Following the Indonesian take-over of East Timor, PetroTimor ceased operations. With the subsequent Timor Gap treaty between Australia and Indonesia (and now the Timor Sea Treaty between Australia and East Timor), PetroTimor is arguing that its rights have been alienated and it is currently seeking damages against the Commonwealth and companies operating in the area.
The case was heard by the Federal Court, which ruled that it was beyond its jurisdiction. PetroTimor has now sought leave to appeal.
Snowy Hydro Limited - directors' indemnities
The Commonwealth has, together with the co-shareholder Governments of New South Wales and Victoria, indemnified the members of the Board of Snowy Hydro Limited for liabilities arising from entering into agreements to implement corporatisation of the Snowy Mountains Hydro-Electric Scheme, and from liabilities to Snowy Hydro Limited at corporatisation. The indemnity will apply to liabilities arising within five years of corporatisation, and for which a claim is notified to the Governments within eleven years of the corporatisation date of 28 June 2002.
Snowy Hydro Limited - water releases
The Commonwealth, New South Wales and Victorian Governments have indemnified Snowy Hydro Limited for liabilities arising from water releases in the Snowy River below Jindabyne Dam, where these releases are in accordance with the water licence and related regulatory arrangements agreed between the three Governments. The indemnity will apply to liabilities for which a claim is notified within twenty years from 28 June 2002.
The Commonwealth, New South Wales and Victorian Governments will provide financial support to the company, if this is necessary, to avoid the company breaching its loan covenants to fund the cost of civil works required to address a cold water pollution offence. The undertaking applies for seven years from 28 June 2002.
Transport and Regional Services
Australian Maritime Safety Authority (AMSA) - incident costs
In the normal course of operations, AMSA is responsible for the provision of funds necessary to meet the clean-up costs arising from ship-sourced marine pollution and, in all circumstances, is responsible for making appropriate efforts to recover the costs of any such incidents. The Commonwealth meets costs that cannot be recovered from such incidents.
Deep Vein Thrombosis class action
The Civil Aviation Safety Authority (CASA) and the Commonwealth have been named in a number of writs, which allege that CASA was negligent in not making air travellers aware of the risks of Deep Vein Thrombosis during long periods of immobility. The Commonwealth's exposure is limited to claims for the years 1995 to 30 June 1998, as CASA was covered by a Commonwealth Deed of Indemnity in relation to the performance of its regulatory functions. As at 17 April 2003, 108 writs had been issued against CASA which were covered by the Deed of Indemnity.
Maritime Industry Finance Company Limited (MIFCo) - board members' indemnity
Indemnities for MIFCo board members have been provided to protect against civil claims relating to employment and conduct as directors of MIFCo.
Stevedoring Industry Finance Committee (SIFC)
The SIFC faces an ongoing number of claims for asbestos related injuries to former waterside workers, and a class action against SIFC was initiated in February 2001 by Slater & Gordon. These injury claims were inherited from the Australian Stevedoring Industry Authority.
Tripartite Deeds relating to the sale of Core Regulated Airports
Tripartite Deeds apply to the 12 Core Regulated Airports (Sydney, Melbourne, Brisbane, Perth, Canberra, Coolangatta, Townsville, Adelaide, Hobart, Launceston, Darwin and Alice Springs). The Tripartite Deeds between the Commonwealth, the airport lessee company and financiers provide for limited step-in rights for the financiers in circumstances when the Airport Lease is terminated to enable the financiers to correct the circumstances that triggered such a termination event.
Treasury
Changes in value of cross currency swaps and foreign currency denominated debt
Significant net foreign exchange gains or losses could be recorded in the AAS31 operating statement if there is a significant change in the nominal exchange rate. This is because a change in the nominal exchange rate results in a change in the net principal value of cross currency swaps and foreign currency denominated debt. The direction of movement in the exchange rate will determine whether there is a net foreign exchange gain or a loss. A gain is a positive risk to the operating result, while loss is a negative risk. Net foreign exchange gains or losses do not have any direct impact on the budget balances reported under the Government Finance Statistics reporting framework.
HIH litigation
The HIH liquidator filed a claim on 11 November 2002 in the ACT Supreme Court against the Commonwealth of Australia and the Australian Prudential Regulation Authority (APRA) for damages, interest and costs. The claim is based on an alleged duty of care owed by the Insurance and Superannuation Commission (ISC) and APRA to the HIH Companies, which it allegedly breached in its regulation of the FAI Companies. As at 30 April 2003, the HIH liquidator had not served the claim on the Commonwealth or APRA.
Housing Loans Insurance Corporation (HLIC) - guarantee
The Commonwealth sold the HLIC on 12 December 1997 and has assumed all residual contingencies. The principal amount covered by the guarantee and the balances outstanding are unable to be reliably measured. The guarantee relates essentially to the HLIC's contracts of mortgage insurance and any borrowings approved by the Treasurer up to the time of sale.