09.12 2013

Spotlight on class actions in Australia

The spotlight remains firmly on class action litigation in Australia, with the recent commencement of the largest class action in Australia’s history involving ANZ in the Federal Court of Australia and the continued review of funding for class action litigation as part of the 15-month inquiry into Australia’ system of civil dispute resolution being undertaken by the Productivity Commission.

 

Corporate entities are increasingly becoming the target of shareholder class actions in Australia. With a heightened awareness among shareholders of their rights and toughened corporate disclosure requirements having widened the scope for matters to be litigated, shareholder legal actions have been more vigorously pursued against companies and directors alike. This is not surprising in an economic climate where asset value growth is extremely difficult and companies are being forced to note asset impairments, release profit downgrades, and grapple with selective capital providers.

 

Shareholder Class Actions

 

A class action facilitates one or more shareholders being able to represent a significant group or class of other shareholders in an action against a company in relation to allegations of corporate misconduct, misleading statements or nondisclosure to securities markets. Generally, a class action may be commenced where there are seven or more persons with a claim against the same entity arising out of the same, similar or related circumstances and giving rise to a substantial common issue of law or fact. This makes class actions attractive to shareholders and litigation funders alike.

 

For corporate entities, their management and other shareholders who may fall outside the plaintiff class or group, a class action poses significant issues and requires clear and decisive thinking. A successful defence strategy requires early intervention to plan and manage risk relating to insurance, and legal and financial assessments must inform strategy decisions and facilitate management of relationships with key stakeholders and regulators.  A Company should not wait until there is an actual threat made by a shareholder of a potential or imminent class action to consider how they might develop and implement a defence strategy.

 

Commission Review Findings Pending

 

In reality, class actions can be complex, time consuming and a very costly form of litigation and their threat is real. The Productivity Commissions findings may bear significantly on the way in which they are funded and conducted in Australia.

 

The Commission is due to release a draft report in April 2014, followed by a final report to the Government in September 2014.  In the meantime, corporate entities must be proactive and adopt strategies to minimise the impact of the changing shareholder class action landscape.

 


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