Appendix C: Statement of risks (Continued)
Contingent liabilities — unquantifiable
Agriculture
Compensation claims arising from equine influenza outbreak
The Australian Government may become liable for compensation should it be found negligent in relation to the outbreak of equine influenza in 2007.
Proceedings have commenced in the Federal Court of Australia by Maurice Blackburn Lawyers with Attwood Marshall Lawyers who represent a closed class of applicants (586) claiming damages as a result of the 2007 equine influenza outbreak. No final quantum of damages sought can be calculated. The Department of Finance, which has responsibility for Comcover (the Australian Government's general insurance fund), has assumed responsibility for the potential claims under its insurance arrangements with the Department of Agriculture.
Attorney‑General's
Australian Victims of Terrorism Overseas Payment
The Social Security Amendment (Supporting Australian Victims of Terrorism Overseas) Act 2012 inserted Part 2.24AA into the Social Security Act 1991 (the Act) to create a scheme for providing financial assistance to Australians who are victims of an overseas terrorist act that has been declared by the Prime Minister. The scheme commenced on 22 January 2013. Under the scheme, Australians harmed (primary victims) and Australians who are close family members of a person who dies as a direct result of a declared terrorist act (secondary victims) will be able to claim payments of up to $75,000. As acts of terrorism are unpredictable, the cost of the scheme is unquantifiable.
Communications
Termination of the funding agreement with OPEL
Following the termination of its agreement with OPEL Network Pty Ltd (OPEL) under the Broadband Connect program, the Commonwealth made provision towards costs incurred by OPEL in producing its Implementation Plan. OPEL was wound up on 13 March 2009. Proceedings were commenced in the NSW Federal Court by the OPEL Liquidators and Optus on 5 September 2013 in respect of the termination of the funding agreement (including a claim relating to the costs for the preparation of the Implementation Plan).
Defence
Indemnities and remote contingencies
As at the 31 October 2013, the Defence Materiel Organisation carried 444 instances of contingencies (including Foreign Military Sales) that are unquantifiable. While these contingencies are considered remote, they have been reported in aggregate for completeness.
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 are not able to be finalised by use of negotiation. The litigation includes common law liability claims, including injury from alleged exposure to hazardous substances in the workplace. A number of claims have also been received for damage caused by the use of a Defence Practice Area. There is also the potential for a number of claims to arise out of reviews into Australian Defence Force and Defence culture.
Environment
End of lease at the former National Halon Bank site, Braybrook, Victoria
The Department of Environment exited a lease at the former National Halon Bank site in Victoria on 28 June 2013. Some environmental contamination has been detected and investigations have been conducted on the cause, source and timing of the contamination. The Commonwealth is now engaged in negotiations with the relevant parties on potential soil and groundwater remediation options and costs. The site owner has engaged an independent site auditor through Environment Protection Authority Victoria to conduct an environmental audit of the entire site, of which the former National Halon Bank site was a small portion. The Department will be limited in progressing the negotiations with all parties until the entire site audit is complete, which is expected in 2014.
Murray‑Darling Basin Reform — additional net costs
Under the 2013 Intergovernmental Agreement on Implementing Water Reform in the Murray‑Darling Basin, signatory Basin States have agreed that the capped financial support provided through the associated National Partnership for state implementation payments replaces the 'No Net Additional Costs' provision under the 2008 Intergovernmental Agreement on Murray‑Darling Basin Reform.
As at 7 November 2013, Victoria, South Australia and the ACT had signed the 2013 Intergovernmental Agreement, whilst NSW and Queensland were considering the matter further and are thus still covered under the provisions of the 2008 Intergovernmental Agreement. The 2008 Intergovernmental Agreement specified that the Basin States will not bear additional net costs as a consequence of the reforms agreed between the parties and implementation of the Water Act 2007. This undertaking ceases on 30 June 2015.
Finance
Australian Government Domestic Property
The Australian Government's domestic property portfolio managed by the Department of Finance has approximately 100 properties. A small number of these have had potential remediation issues identified which are currently the subject of further investigation. Except for one property at Lucas Heights NSW, none of the remaining properties with potential remediation issues have had a provision recognised as the conditions for neither legal nor constructive obligations have been met, nor is a reliable estimate of the obligation currently possible.
Comcover — insurance claims and reinsurance recoveries
The Department of Finance (Finance) manages Comcover, the Australian Government's general self‑insurance fund which provides insurance and risk management services to Australian Government departments and agencies. Finance's liability for outstanding claims includes the expected future cost of claims notified as well as claims incurred but not reported. The provision for claims is subject to inherent uncertainty in the estimation process.
Litigation — Davis Samuel case
The Australian Government was subject to a counter‑claim for damages in legal action before the Australian Capital Territory Supreme Court. The Australian Government is seeking to recover funds which were misappropriated from the Department of Finance and Deregulation during 1998. The judgment, handed down on 1 August 2013, dismissed the counter claim against the Australian Government and found in favour of the Australian Government in its claims against the defendants. Final orders are yet to be made. The Court extended the time for appeals to 28 days after final orders are made.
Immigration and Border Protection
Immigration detention services by State and Territory governments — liability limit
The Department of Immigration and Border Protection (DIBP) is negotiating arrangements with a number of State and Territory governments for the provision of various services (including health, education, corrections and policing services) to immigration detention facilities and people in immigration detention. Some jurisdictions are seeking indemnification by the Commonwealth for the provision of those services.
In June 2012, the then Minister for Immigration and Citizenship wrote to the Minister for Finance and Deregulation seeking agreement under regulation 10 of the Financial Management and Accountability Regulations 1997 (FMA Regulations) for expenditure that may become payable under those arrangements.
In September 2012, the then Minister for Finance and Deregulation agreed that DIBP could consider entering arrangements which include the relevant indemnities, as per the indemnity parameters listed in the table below.
DIBP is now seeking to standardise indemnity arrangements across all State and Territories for police and education service streams.
| Jurisdiction | Services Streams | |||
|---|---|---|---|---|
| Health | Education | Correction | Police | |
| New South Wales | N/A | $5 million per claim or event* | Uncapped liability | $5 million per claim or event* |
| Victoria | Uncapped liability | Uncapped liability | N/A | $5 million per claim or event |
| Queensland | N/A | $5 million per claim or event* | N/A | $5 million per claim or event* |
| Western Australia | Uncapped liability | Uncapped liability | N/A | $5 million per claim or event |
| South Australia | $5 million per claim or event | $5 million per claim or event | N/A | $5 million per claim or event |
| Tasmania | N/A | $5 million per claim or event* | N/A | $5 million per claim or event* |
| Australian Capital Territory | N/A | $5 million per claim or event* | N/A | $5 million per claim or event* |
| Northern Territory | N/A | $5 million per claim or event* | N/A | $5 million per claim or event* |
N/A — Not Applicable
*To be formally agreed by Minister for Finance
Industry
Gorgon liquefied natural gas and carbon dioxide storage project — long‑term liability
The Australian and Western Australian governments have agreed to provide an indemnity to the Gorgon Joint Venture Partners (GJV) to indemnify the GJV against independent third‑party claims (relating to stored carbon dioxide) under common law following closure of the carbon dioxide sequestration project, and subject to conditions equivalent to those set out in the Offshore Petroleum and Greenhouse Gas Storage Act 2006. It is proposed that the Western Australian Government will indemnify the GJV, and that the Australian Government will indemnify the Western Australian Government for 80 per cent of any amount determined to be payable under that indemnity. The formal agreement between the Australian and Western Australian governments in relation to the indemnity is expected to be signed in 2013‑14.
Infrastructure and Regional Development
Moorebank Intermodal Company Limited (MIC) — Board Members' Indemnity
The Australian Government has provided certain indemnities for the board members of the Moorebank Intermodal Company Limited (MIC) to protect them against civil claims relating to their employment and conduct as directors. The indemnities apply to the period of appointment as board members of the company. Until the indemnity agreements are varied or brought to an end, they will remain as contingent and unquantifiable liabilities.
Indemnity provided to the New South Wales Rural Fire Fighting Service in relation to the Jervis Bay Territory
The Department of Infrastructure and Regional Development is required to engage the NSW Rural Fire Service (NSW RFS) to provide fire management support for the volunteer brigade located in the Jervis Bay Territory (JBT). To provide this service, the NSW RFS requires the Commonwealth to provide an uncapped indemnity whereby the Commonwealth would be liable for any damage caused as a result of the actions of the NSW RFS in the JBT while fighting a fire. The likelihood of an event occurring that may result in a liability for the Commonwealth has been assessed as very remote and the risks are currently mitigated through the training and professional qualifications of the NSW RFS staff.
Social Services
Business Services Wage Assessment Tool (BSWAT)
The Australian Government may potentially become liable for a range of costs following a Full Federal Court ruling (21 December 2012) that the use of the Business Services Wage Assessment Tool (BSWAT) to assess the wages of two intellectually disabled employees constituted unlawful discrimination under the Disability Discrimination Act 1992.
The Australian Government's potential liability cannot be quantified at this time.
National Disability Insurance Scheme (NDIS)
In bilateral negotiations, the Australian Government has committed to provide temporary, untied financial assistance to some jurisdictions that expect to have their GST entitlements adversely affected during the transition to the National Disability Insurance Scheme (NDIS).
Under this commitment, the expected liability will depend on a range of factors including when all jurisdictions reach full scheme and any impact resulting from the Commonwealth Grants Commission's 2015 Methodology Review, scheduled to be completed in February 2015. The Review will consider the most appropriate treatment of disability services for GST distribution purposes, both during the transition to the NDIS and once the full scheme is operating nationally. Any impact on the Government's budget is not expected to occur before 2016‑17.
Treasury
Financial Claims Scheme
The Financial Claims Scheme provides depositors of authorised deposit taking institutions (ADIs) and policyholders of general insurers (GIs) with timely access to their funds in the event of a financial institution failure.
The Australian Prudential Regulation Authority (APRA) is responsible for the administration of the Financial Claims Scheme. Under the Financial Claims Scheme any payments to eligible depositors or policyholders will be made out of APRA's Financial Claims Scheme Special Account.
The Financial Claims Scheme established under the Banking Act 1959 provides a mechanism for making payments to depositors under the Government's guarantee of deposits in ADIs. Payments are capped at $250,000 per account holder per ADI. As at 30 June 2013, deposits eligible for coverage under the Financial Claims Scheme were estimated to be approximately $692.3 billion, compared to $688.2 billion at 31 March 2013, reflecting overall deposit growth in the financial system.
The Financial Claims Scheme established under the Insurance Act 1973 provides a mechanism for making payments to eligible beneficiaries with a valid claim against a failed general insurer.
In the very unlikely event of an ADI failure, any payments made under the Financial Claims Scheme would be recovered through the liquidation of the failed institution. If there was a shortfall in the amount recovered through the liquidation of the failed institution, a levy could be applied to ADIs to recover the difference between the amount expended and the amount recovered in the liquidation. From 2016, subject to the outcomes of the Financial System Inquiry, the payments would initially be met from the Financial Stability Fund announced in the 2013 Economic Statement. In this case, a levy could be applied to ADIs to recover the difference between the amount expended and the amount recovered in the liquidation and from the Financial Stability Fund.
In the very unlikely event of a GI failure, any payments made under the Financial Claims Scheme would be recovered through the liquidation of the failed institution. In the event that there was a shortfall in the amount recovered, a levy would be applied to GIs to recover the difference between the amount expended and the amount recovered in the liquidation.
Under the legislation, initial amounts available to meet payments and administer the Financial Claims Scheme, in the event of activation are $20.1 billion per institution.
Guarantee of State and Territory Borrowing
The Australian Government announced on 25 March 2009 that a voluntary, temporary guarantee would be put in place over State and Territory borrowing. The Guarantee of State and Territory borrowing commenced on 24 July 2009 and closed on 31 December 2010.
Securities covered by the guarantee will continue to be guaranteed until these securities either mature or are bought back and extinguished by the issuer.
The expected liability under the guarantee is remote and unquantifiable. Australian Government expenditure would arise under the guarantee only in the unlikely event that a State or Territory failed to meet its obligations with respect to a commitment that was subject to the guarantee and the guarantee was called upon. In such a case, the Government would likely be able to recover any such expenditure through a claim on the relevant State or Territory at a future date. The impact on the Government's budget would depend upon the extent of the default and the State or Territory's ability to meet the Government's claim.
As at 31 October 2013, the face value of State and Territory borrowings covered by the guarantee was $21.0 billion, down from $25.4 billion at 30 June 2013.
Guarantee Scheme for Large Deposits and Wholesale Funding
The Australian Government announced the guarantee of eligible deposits and wholesale funding for authorised deposit taking institutions from 12 October 2008 under the Guarantee Scheme for Large Deposits and Wholesale Funding.
On 7 February 2010, the Government announced that the Guarantee Scheme would close to new liabilities on 31 March 2010. Since 31 March 2010, Australian authorised deposit taking institutions have been prohibited from issuing any new guaranteed wholesale funding or accepting new guaranteed deposits above $1 million. Existing guaranteed wholesale funding is guaranteed to maturity. Depositors who covered their balances above $1 million under the Guarantee Scheme can have those funds covered to maturity for term deposits up to five years, or until October 2015 for at call deposits.
The expected liability under the Guarantee Scheme is remote. Government expenditure would arise under the guarantee only in the unlikely event that an institution failed to meet its obligations with respect to a commitment that was subject to the guarantee and the guarantee was called upon. In such a case, the Government would likely be able to recover any such expenditure through a claim on the relevant institution. The impact on the Government's budget would depend on the extent of the institution's default and its ability to meet the Government's claim.
As at 25 October 2013 total liabilities covered by the Guarantee Scheme were estimated at $40.7 billion, down from $48.3 billion at 30 June 2013. This is made up of $2.3 billion of large deposits and $38.4 billion (down from $46.0 billion at 30 June 2013) of long‑term wholesale funding. All guaranteed short‑term wholesale funding matured in March 2011.
As at 30 September 2013, institutions participating in the Guarantee Scheme had paid fees of $4.3 billion since its inception.
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