The facts about litigation in Australia
In recent years there have been many newspaper and media reports about the supposedly increasing numbers of lawsuits in Australia. The fear is that we will end up with an American style litigation culture where people bring frivolous claims and get massive awards of damages. Indeed these two assumptions seem to form a central theme of the asset protection consultant’s marketing campaign.
Forget the beat up - time for a dose of reality. Unfortunately there is a lack of comprehensive and current evidence about changes in the frequency and amount of claims in Australian courts and the size of damages awarded. However, a 2002 report which used data from court registries in four states and the ACT found that overall levels of litigation were decreasing in those jurisdictions
(note 2 )
.
Further, in 2002 the Federal Treasury commissioned respected risk consultants Trowbridge Consulting (which has since merged with Deloitte), to analyse statistics from Insurance Statistics Australia. They investigated claims under insurance contracts, which have a strong correlation with the potential number of incidents, and which can give rise to lawsuits.
The report concluded that the number of insurance claims made in Australia slightly decreased in 1999 and 2000 and were relatively uniform in the years from 1993 to 1999
(note 3 )
. Although both these studies are now a little dated it seems that the view that litigation in Australia is on the increase is not supported by the statistical data we do have.
The second point about the great excesses of damages awarded by the United States court system is also unfounded. The US courts do not permit unrestricted liability in negligence any more than Australian courts do. Liability in the US is restricted by the need to prove that the defendant was guilty of negligence and for that negligence to be the cause of the injury or loss suffered by the person bringing the claim – just as it is here in Australia.
That’s all very well you say, but if litigation isn’t increasing: why have my insurance premiums increased over the last few years? That’s a fair question. I suspect the reasons that insurance companies increase premiums are driven by the same economic imperatives as other businesses – namely supply and demand. However, anecdotal evidence from those in the insurance industry suggests that two events have been significant contributors to the increased cost of public liability insurance in Australia.
Firstly, the collapse of HIH in early 2001 and second, the terrorist attacks on 11 September 2001. Another potential factor behind premium rises is the cyclical nature of insurance markets. Historically premiums have remained stable or fallen for extended periods with short periods of rapid increases between those longer periods
(note 4 )
.
Summary so far
Whilst we can all be amused by those TV shows, websites and emails which focus on ridiculous claims being made in courts – US courts in particular – please bear in mind that these are generally isolated incidents, claims made by unfortunate plaintiffs representing themselves who have no chance of winning the amount they are claiming, imaginary cases from the latest LA Law clone TV show or just plain urban myths. While you do need to take prudent steps to protect your assets, there’s no cause to be unduly alarmed about packs of avaricious litigants waiting to pounce on you with unjustified lawsuits.
The logical questions which follow are:
- What exactly is asset protection?
- How do I figure out if I need asset protection?
- If I need asset protection, how can I achieve it?
The answer to any one of those questions could fill volumes, so in this article we’re merely outlining some of the key points. This should provide you with a framework to start filling in the detail of your knowledge about investment structuring in later InvestEd resources.
