Australia: Getting the Deal Through - Securities Litigation 2016

  1. Describe the nature and extent of securities litigation in your jurisdiction.

At the heart of most securities litigation in Australia is a claim by an investor for compensation for a loss allegedly suffered as a result of a misrepresentation or non-disclosure.

In recent years, representative proceedings (or class actions) have become the dominant vehicle through which investors seek to recover compensation. In the 12 months to June 2015, over 30 representative proceedings were filed in Australia, with securities, financial product and investment claims representing nearly half of all new filings.

Various factors have influenced the growth of representative proceedings in Australia, but the 2006 ruling of the High Court that third-party litigation funding is permissible has been the most important. In Australia, an unsuccessful litigant is usually ordered to pay the successful party's legal costs. That rule presented a significant hurdle to would-be representatives, who stood exposed to substantial costs orders in the event of the unsuccessful prosecution of class actions. Nowadays, most securities class actions in Australia are funded by third-party funders, who agree to bear the prosecution costs and the risk of adverse costs orders in exchange for a percentage of the recovery.

The corporations regulator in Australia, the Australian Securities and Investments Commission (ASIC), has the power to bring proceedings on behalf of investors for breach of disclosure obligations and misleading or deceptive conduct (section 50 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASICA)), but such actions are uncommon.

  1. What are the types of securities claim available to investors?

Most claims are for breach of statutory obligations imposed by federal corporations legislation; principally the Corporations Act 2001 (Cth) (CA). These claims, described in more detail below, differ depending on whether the company is listed, and whether the investor took up an offer of securities from the company or made a secondary market acquisition. Fundamentally, the legislation proscribes misleading or deceptive conduct, and imposes various disclosure obligations, including a requirement that listed entities continuously disclose information to the market that a reasonable person would expect to have a material impact on the price or value of the entity's securities.

Common law claims for negligent misstatement or fraudulent misrepresentation may also be available to investors who take up offerings or make secondary-market purchases. However, such claims are far less common than statutory claims.

  1. How do claims arising out of securities offerings differ from those based on secondary-market purchases of securities?

Subject to a number of exceptions, a person must not make an offer of securities unless a disclosure document is prepared. Securities offerings have a specific disclosure framework under the CA.

A person commits an offence if they offer securities under a disclosure document that contains a misleading or deceptive statement or omission that is materially adverse from the point of view of an investor (section 728(3)). Investors who suffer loss as a result of a misleading or deceptive statement or omission in a disclosure document can commence proceedings under section 729(1) to recover that loss from a variety of persons, including anyone involved in the contravention.

Offers of financial products, such as units in a trust or managed investment scheme, are subject to a separate, but similar, disclosure regime under the CA. A person commits an offence if he or she offers a financial product under a disclosure document that contains a misleading or deceptive statement that is materially adverse from the point of view of a reasonable person considering whether to proceed to acquire the financial product (see sections 1021B–1021P). Investors who suffer loss as a result of a misleading or deceptive statement or omission in a disclosure document can commence proceedings under section 1022B to recover that loss from the issuer or anyone involved in the preparation of the disclosure document who, directly or indirectly, caused or contributed to it being defective.

On the other hand, claims arising out of secondary-market purchases of securities are usually based on breaches of the general misleading and deceptive conduct provisions of the CA and the continuous disclosure obligations of companies listed on a financial market.

The general misleading and deceptive conduct provisions of the CA are found in section 1041E (making false or misleading statements in relation to financial products) and section 1041H (misleading or deceptive conduct in relation to financial products or services). Section 1041H provides that a person must not, in this jurisdiction, engage in conduct in relation to a financial product or a financial service that is misleading or deceptive or is likely to mislead or deceive. By contrast, section 1041E, which is an offence provision, proscribes the making of a statement or the dissemination of information that is false in a material particular or materially misleading. That provision only operates if, among other things, the statement maker did not care whether the information was true or false, or the statement maker knew or ought to have known that the information was false in a material particular or was materially misleading. Investors who suffer loss as a result of a contravention of sections 1041E and 1041H can commence proceedings under section 1041I to recover that loss.

If a company contravenes its continuous disclosure obligations (see question 4), both it and any person involved in the contravention commits an offence (sections 674(2) and 674(2A)). Investors who suffer loss as a result of a contravention can commence proceedings under section 1317HA to recover that loss.

  1. Are there differences in the claims available for publicly traded securities and for privately issued securities?

The most significant difference relates to the continuous disclosure obligations that apply to publicly traded securities. In Australia, ASX Limited (the operator of the Australian Securities Exchange (ASX)), is the primary market operator. The ASX Listing Rules set out certain continuous disclosure obligations, which are given force by the CA. Listing Rule 3.1 provides that once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity's securities, the entity must immediately report that information to ASX. This obligation is subject to a number of exceptions, including where the information concerns an incomplete proposal or negotiation.

  1. What are the elements of the main types of securities claim?

Securities claims arising out of either securities offerings or secondarymarket purchases of securities typically have two main elements: engagement in conduct proscribed by the relevant securities legislation (for example, the making of a statement (or an omission) that is misleading or deceptive); and proof that the investor suffered loss as a result of the proscribed conduct.

  1. What is the standard for determining whether the offering documents or other statements by defendants are actionable?

Offering documents and other statements are actionable if they contain a misleading or deceptive statement or fail to contain prescribed information. The relevant standard for each cause of action typically available to investors is discussed in questions 3 and 4.

  1. What is the standard for determining whether a defendant has a culpable state of mind?

The general misleading and deceptive conduct provision in section 1041H of the CA is a strict liability provision. By contrast, section 1041E (false or misleading statements) requires deliberate, negligent or reckless conduct.

The disclosure document liability regimes and continuous disclosure civil liability regimes are also strict liability provisions. However, there are a number of statutory defences available (see question 12). For example, it is a complete defence for a person who is involved in a breach of the continuous disclosure provision if they took all steps (if any) that were reasonable in the circumstances to ensure that the disclosing entity complied with its obligations and, after doing so, believed on reasonable grounds that the disclosing entity was complying with its obligations (section 675(2B) of the CA).

  1. Is proof of reliance required, and are there any presumptions of reliance available to assist plaintiffs?

The terms of the legislation do not require proof of reliance. The legislation requires the claimants to demonstrate that they suffered the loss for which they seek compensation by or as a result of the proscribed conduct; that is, they must establish causation.

It is unclear whether it is necessary to establish individual reliance in securities litigation to prove causation. Plaintiffs have argued that such proof is not required. Borrowing from concepts underlying the fraud on the market theory, they contend that, in an open and efficient market for securities, any misrepresentation will be reflected in the price of the relevant securities, such that the misrepresentation will have caused their loss regardless of whether it influenced their investment decision. The argument has not yet been the subject of a final judicial determination in securities litigation in Australia, although the Full Court of the Federal Court of Australia has held, in the context of a pleading dispute arising in a securities class action, that it is reasonably arguable.

  1. Is proof of causation required? How is causation established?

See question 8.

  1. What elements present special issues in the securities litigation context?

Forward -looking statements or representations in relation to securities are the subject of specific rules in Australia. A person or entity must have reasonable grounds for forecasts or other forward -looking statements in a disclosure document (see section 728 of the CA) or representations relating to future matters generally (section 12BB of the ASICA). ASIC and ASX both regulate, and provide guidance in relation to, forward -looking statements. ASX Guidance Note 8, which provides guidance on the operation of Listing Rule 3.1, includes recommendations from ASIC and ASX that any material assumptions or qualifications that underpin forward-looking statements in an announcement should be stated in the announcement. The use of cautionary language will not, in and of itself, cure the absence of reasonable grounds.

  1. What is the relevant limitation period? When does it begin to run? Can it be extended or shortened?

The limitation period for a claim arising from breach of the disclosure document provisions or the general misleading or deceptive provisions of the CA is six years after the day on which the cause of action arose (sections 729(3), 1022B(6) and 1041I (2) of the CA). The limitation period for a claim for a compensation order for breach of continuous disclosure obligations is six years after the contravention (section 1317K).

When representative proceedings are commenced, the running of any limitation period that applies to the claims of group members is suspended until a group member opts out of the proceeding (for example, section 33J of the Federal Court of Australia Act (FCA)) or there is a final determination made in relation to the representative's claim (that does not finally dispose of the group member's claim) (for example, section 33ZE).

  1. What defences present special issues in the securities litigation context?

The disclosure regime for issues of securities under the CA includes a number of defences against liability. In the context of prospectus liability, the defences fall under the following categories: 'due diligence', 'no knowledge', 'reasonable reliance' and 'withdrawal of consent' (sections 731–733 of the CA). The outer limits of these defences are not well defined. One area of particular uncertainty is the extent to which (assuming competence is established) a person can rely on the work product of another without further inquiry.

In the context of product disclosure statement liability, it is a defence if the person took reasonable steps to ensure that the information would not be misleading or deceptive.

It is a defence against continuous disclosure liability if a person involved in the contravention: took all steps (if any) that were reasonable in the circumstances to ensure that the company complied with its disclosure obligations; and after doing so, believed on reasonable grounds that the company was complying with those obligations (674(2B)).

The general misleading or deceptive conduct provision (section 1041H) is not subject to express defences, however, it may be that liability can be apportioned if it can be established that the acts or omissions of concurrent wrongdoers caused, independently or jointly, the damage or loss that is the subject of the claim.

  1. What remedies are available? What is the measure of damages?

Damages are the primary remedy.

The starting point for the measure of damages is the 'rule' in Potts v Miller. This measure compares the difference between the actual purchase price and the hypothetical 'real value' of the security at the time of purchase. 'Real value' may be ascertained by reference to a variety of factors, including subsequent events only where those events show, for instance, that what the shares might have sold for was not their true value and noting where 'independent,' 'extrinsic,' 'supervening' or 'accidental' factors affected the price.

An alternative measure of damages, which has been used in two recent high profile cases involving complex financial products, is the difference between the price paid for the shares and whatever is 'left in hand' upon sale. This approach may be adopted where, for example, the effect of the misrepresentation is such that the purchaser is 'locked in' and unable to mitigate their loss.

Another potential measure of damages is the difference between the price paid for the security and the market price that would have prevailed but for the misrepresentation.

  1. What is required to plead the claim adequately and proceed past the initial pleading?

The basic requirement is that a pleading must comprise of a statement, in summary form, of the material facts on which the party relies, but not the evidence by which those facts are to be proved. 'Material facts' are facts that are relied on as establishing the essential elements of the cause of action.

Certain contentions carry heightened pleading requirements. For example, Federal Court Rules (FCR) requires the particularisation of contentions of fraud or as to any 'condition of mind' (eg, deliberate act, malice or recklessness).

Further, solicitors and barristers are obliged under professional conduct rules not to make allegations of criminality, fraud or other serious wrongdoing in court documents without an adequate factual foundation.

  1. What are the procedural mechanisms available to defendants to defeat, dispose of or narrow claims at an early stage of proceedings? What requirements must be satisfied to obtain each form of pretrial resolution?

Parties may apply for summary judgment in a number of circumstances, including where the applicant has no reasonable prospect of successfully prosecuting the proceeding or part of the proceeding, or no reasonable cause of action is disclosed (for example, FCR 26.01). The jurisdiction to summarily terminate an action is sparingly employed and is not used except in a clear case where the court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion. The test has been variously expressed, including 'so obviously untenable that it cannot possibly succeed' (see General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125).

The court rules also make provision for a defendant to seek to strike out all or part of a plaintiff 's claim at an early stage in the proceedings in various circumstances, including where the pleading is ambiguous, fails to disclose a reasonable cause of action or constitutes an abuse of the process of the court (for example, FCR 16.21). It is very rare for a court to strike out a party's pleading without granting leave to re-plead.

A party may apply to the court for an order that a question arising in the proceeding be heard separately from any other questions. Such an application is usually made only if the determination of the preliminary question will substantially dispose of the proceeding or render any further trial of the proceeding unnecessary (for example, FCR 30.01–30.02).

In a representative proceeding, a defendant may also seek to strike out a claim on the basis that the specific requirements for establishing a representative proceeding have not been met (see question 20).

  1. Are the principles of secondary, vicarious or 'controlling person' liability recognised in your jurisdiction?

For claims involving financial services and markets (including misleading or deceptive conduct relating to financial products and services, and misleading or deceptive statements in product disclosure statements and prospectuses), the CA has expanded the Australian common law principles relating to vicarious liability. Section 769B of the CA provides that any conduct engaged in by an employee, agent, director or any 'other person at the direction or with the consent or agreement (whether express or implied) of a director, employee or agent of the body, where the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, employee or agent' is deemed to be engaged in by the body corporate. Similarly, conduct engaged in by a person in relation to an employee, agent, director or other person in the circumstances stated above is also deemed to have been engaged in relation to the body corporate.

  1. What are the special issues in your jurisdiction with respect to securities claims against directors?

A director in Australia includes persons appointed to the position of director, persons acting in that capacity under another name and persons with whose instructions the directors are accustomed to complying. Both executive and non-executive directors are subject to statutory duties of care and diligence and good faith, and are prohibited from misusing their position or information obtained by virtue of it (sections 180–183 of the CA).

A director may delegate certain powers under the CA (section 198D) but will remain responsible for the exercise of the powers (section 190(1)). However, if the director believed, on reasonable grounds, that the delegate would act properly, and that the delegate was competent and reliable, he or she may avoid liability for the delegate's actions (section 190(2)). Similar requirements apply where directors purport to rely on information or advice from others. In such circumstances, directors must exercise independent judgement before reliance on advice or information will be taken as reasonable (section 189).

In recent years there have been a number of high-profile cases brought by ASIC against directors alleging breach of directors duties associated with disclosures to the market. While the regulator has had mixed success, the cases have reinforced the obligations of directors to be aware of what are often highly technical and complex financial matters relating to the company. Although directors have a statutory power of delegation, it is clear that directors cannot substitute reliance on management's advice for their own attention and examination.

  1. What are the special issues in your jurisdiction with respect to securities claims against underwriters?

Express provision is made in the CA for the liability of underwriters (but not sub-underwriters) named in a disclosure document with their consent for a contravention of the prospectus disclosure requirements for an issue of securities (section 729(1) of the CA).

An underwriter may also be liable for a defective product disclosure statement if it is involved in the preparation of the disclosure document and, directly or indirectly, caused the disclosure document to be defective or contributed to it being defective (section 1022B(3)(b)(ii)).

  1. What are the special issues in your jurisdiction with respect to securities claims against auditors?

The auditor's potential liability in securities claims is generally for alleged misleading conduct (under state and federal fair trading legislation and the CA and ASICA), and for breach of contract and negligence if the claim is brought by the audit client. The claim will generally arise out of the yearend audit or half-year review, or both, and possibly due diligence or expert engagements undertaken by the audit firm where knowledge acquired by the audit firm in those engagements is then sought to be imputed to the auditor.

  1. In what circumstances does your jurisdiction allow collective proceedings?

In order to commence a representative proceeding, the following threshold criteria must be satisfied:

  • there must be seven or more persons who have a claim against the same person;
  • the claims must be in respect of, or arise out of, the same or similar circumstances; and
  • the claims must give rise to substantial common issues of law or fact (for example, section 33C of the FCA).
  1. In collective proceedings, are claims opt-in or opt-out?

We have opt-out class action regimes in Australia. Class members can optout by completing and lodging with the court the requisite opt-out notice before the date set by the court (for example, section 33J of the FCA). If a class member does not opt out by the relevant date, he or she will be bound by any judgment of the court.

While we have opt-out regimes in this country, courts permit classes to be defined so as to exclude persons who have not entered funding agreements with third -party funders, thereby effectively allowing 'closed' classes in representative proceedings.

  1. Can damages be determined on a class-wide basis, or must damages be assessed individually?

Court rules give the judiciary broad discretion in relation to damages. The court may:

  • make an award of damages for group members, subgroup members or individual group members, being damages consisting of specified amounts or amounts worked out in such manner as the court specifies;
  • award damages in an aggregate amount or 'class-wide basis', only when satisfied that reasonably accurate assessment can be made of the total amount to which group members will be entitled; or
  • make such other order as it thinks just.
  1. What is the involvement of the court in collective proceedings?

Unlike the position in the United States, it is not necessary for the court to certify the class, as there is no formal certification requirement. The court does, however, have an active role to play.

The court may, on application of the defendant or of its own motion, order that a proceeding no longer continue as a representative action where it is satisfied that it is in the interests of justice to do so because of a number of specified matters, including where the representative proceeding will not provide an efficient and effective means of dealing with the claims of group members (section 33N of the FCA).

If a court is satisfied that a representative party is not able adequately to represent the interests of the group members, the court may substitute another group member as representative party (section 33T of the FCA).

Once a representative proceeding has been commenced, the parties must obtain approval from the court for any settlement of the proceeding or any discontinuance of the proceeding (section 33V of the FCA). When applying for court approval of a settlement, the parties will usually need to persuade the court that: the proposed settlement is fair and reasonable having regard to the claims made on behalf of the group members who will be bound by the settlement; and the proposed settlement has been undertaken in the interests of group members, as well as those of the plaintiff, and not just in the interests of the plaintiff and the defendant.

  1. What role do regulators, professional bodies, and other third parties play in collective proceedings?

Third-party litigation funders play a significant role. Securities class actions are rarely pursued without funding. This means that the defence of representative proceedings often involves strategic considerations that do not arise in conventional litigation.

While ASIC has no formal role in representative proceedings, it has the power to intervene in the proceedings (section 1330 of the CA), though it rarely does so. ASIC can also apply to the court for leave to appear as amicus curiae.

  1. What options are available for plaintiffs to obtain funding for their claims?

As noted above, third-party litigation funding is permitted in Australia. The regulations under the CA exempt funders from the licensing, conduct and disclosure requirements in Chapter 7 of the CA, provided a funder maintains adequate arrangements, and follows certain procedures for managing any conflicts of interest that may arise between the funder, lawyers and the funded parties.

Lawyers are currently prohibited from entering into agreements where the lawyer receives an agreed percentage of the amount recovered by the client owing to concerns that it creates perverse incentives. Lawyers are also prohibited from acting in proceedings in which they have a pecuniary interest in the outcome. They may, however, enter into agreements that enable them to charge an uplift of up to 25 per cent of their fees in the event of success.

  1. Who is liable to pay costs in securities litigation? How are they calculated? Are there other procedural issues relevant to costs?

The usual rule is that costs 'follow the event', that is, the losing party pays the successful party's costs. Costs are usually awarded on a 'party–party' basis, being costs that are reasonably and properly incurred by a party in connection with the litigation. As a rule of thumb, this equates to approximately 60 to 70 per cent of the costs incurred.

The court may also award costs to the successful party on an 'indemnity' or 'solicitor client' basis. This means that the successful party is entitled to its full costs incurred in respect of the litigation. An example where a successful party may receive an award of indemnity costs is where it makes a settlement offer that is rejected and it subsequently achieves an outcome that is no less favourable than the proposed settlement offer. In that case, the successful party will usually receive party-party costs up to the date of the settlement offer and indemnity costs after the date of the settlement offer.

In representative proceedings, the court may not award costs against group members (section 43 (1A) of the FCA). The exception is where a group member becomes a representative of a sub-group or has its own individual issues resolved by the court.

Where an award of damages has been made in a representative proceeding, the representative party may apply to the court for an order that its costs reasonably incurred in bringing the action may be recovered out of damages awarded in the proceedings, where the representative party's costs are likely to exceed costs recoverable from the defendant.

Plaintiffs may be required to provide security for the cost of defending claims, for example, where the plaintiff does not have sufficient assets in Australia to satisfy an adverse costs order or judgment. Nothing in Part IVA of the FCA relating to representative proceedings affects the operation of any law relating to security for costs (section 33ZG(c)(v)). Whenever the litigation is supported by a commercial litigation funder, it is typical for the funder to provide security for costs.

Third parties may be liable to pay costs if the interests of justice require such an order to be made. For example, a non-party may be liable to pay costs if a party is a 'man of straw' (that is, unable to meet any costs order) and the non-party has played an active part in the litigation and has an interest in the subject matter. In one recent decision of the High Court, an insurer was ordered to pay the costs of an appeal pursued for the purposes of reducing the insurer's liability, in circumstances where the cover under the insurance policy was capped and the insurance monies were diverted to cover the insurer's legal costs.

  1. Are there special issues in your jurisdiction with respect to interests in investment funds? What claims are available to investors in a fund against the fund and its directors, and against an investment manager or adviser?

One of the most common investment funds subject to securities litigation in Australia are managed investment schemes. Examples are unit trusts, which may be property trusts holding land, equity trusts holding shares or fixed income trusts. While a number of managed investment schemes are listed on the ASX, the majority are not. Typically, a managed investment scheme must be registered under Chapter 5C of the CA if it has more than 20 members or was promoted by a person, or an associate of a person, who was, when the scheme was promoted, in the business of promoting managed investment schemes, or ASIC determines that certain managed investment schemes are related and the total number of members exceeds 20 (section 601ED of the CA). Chapter 5C of the CA establishes a regulatory framework for managed investment schemes, including statutory duties of officers and employees of the managed investment scheme's responsible entity.

Section 601MA of the CA provides that a member of a registered managed investment scheme who suffers loss or damage because of conduct of the scheme's responsible entity that contravenes Chapter 5C of the CA may recover the amount of the loss or damage by action against the responsible entity. The liability of officers, employees and members of the compliance committee of the responsible entity for contravention of statutory duties (under sections 601FD, 601FE and 601JD respectively) is assessed under the civil penalty provisions of Part 9.4B of the CA.

If a product disclosure statement is required, the liability provisions in relation to defective disclosure documents will apply (see question 3).

  1. Are there special issues in your country in the structured finance context?

There have been number of recent high-profile securities claims in Australia relating to structured finance products. In addition to targeting the issuer of the products, claims have also been brought against those involved in the marketing or sale of such products. Australia has seen the first successful case in the world by investors against a ratings agency for misleading and deceptive conduct. Importantly, the case confirmed that ratings agencies can owe a duty of care to investors. The Australian arm of failed Wall Street Bank Lehman Brothers was also successfully sued for misleading conduct and breach of its fiduciary duty in advising a group of 72 local councils and charities to purchase synthetic collateralised debt obligations.

  1. What are the requirements for foreign residents or for holders of securities purchased in other jurisdictions to bring a successful claim in your jurisdiction?

The operation of the CA outside Australia is based on the legislative power of the Commonwealth under the external affairs power in section 51(xxix) of the Australian Constitution (section 3(3) of the CA). Each provision of the CA applies, according to its tenor, in relation to acts and omissions outside Australia (section 5(4) of the CA). However, the extraterritorial application of the CA is limited in practice by the use of terms that are defined in a way that requires a nexus with Australia (for example, 'company' is defined to be any company registered under the CA (section 9 of the CA)).

The definition of these terms sets the scope of the causes of action and may necessarily exclude some claims by foreign residents. Conversely, some aspects of securities legislation specifically protect foreign shareholders (such as the Cross-Border Insolvency Act 2008 (Cth)).

  1. What are the requirements for investors to bring a successful claim in your jurisdiction against foreign defendants or issuers of securities traded on a foreign exchange?

Investors must seek the leave of the court to commence proceedings against foreign defendants (unless the foreign defendant submits to the jurisdiction of the court). For example, under the FCR, leave will only be granted to commence certain types of proceedings, including proceedings:

  • based on a cause of action arising in Australia;
  • based on a breach of contract in Australia;
  • based on a contravention of an Act that is committed in Australia;
  • based on a contravention of an Act (wherever occurring) seeking relief in relation to damage suffered wholly or partly in Australia; or

Update and trends

Funding of securities class actions continues to be contentious In December 2014, the Productivity Commission (which is established under the Productivity Commission Act), released a report on Access to Justice Arrangements, which recommended the relaxation of legal billing rules to encourage more litigation. The Productivity Commission's recommendations have been the subject of much discussion but little action in 2015.

Separately, lawyers have tried novel ways to circumvent funding restrictions. In Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited (No. 3) [2014] VSC 340 a legal practitioner was restrained from acting in a securities class action for a lead plaintiff in which he was the sole shareholder and sole director. The same legal practitioner was restrained from acting in a separate securities class action in which the plantiffs entered into a litigation funding agreement with a litigation funder of which the legal practitioner was a director and in which he held a substantial interest through a company controlled by him (Bolitho v Banksia Securities Ltd (No. 4) [2014] VSC 582). The court considered that the main risk arising from arrangements of this kind (which essentially skirt the prohibition on contingency fees) is that the lawyer's pecuniary interest in the outcome of the proceedings may result, or appear to result, in a failure to fulfil their duties to the court.

In Blairgowrie Trading Ltd v Allco Finance Group Ltd [2015] FCA 811, the Federal Court of Australia rejected an application by class action proponents to run an 'open class' representative proceeding where the funding terms agreed to by the applicants and the litigation funder are binding on all group members, despite the fact that they had not entered into, or even been invited to enter into, any such funding agreement. The court did not rule out that an application could be granted at an appropriate time or in other circumstances, but indicated that it would be preferable for the issue to be dealt with by way of legislative reform rather than utilisation of a judge's discretionary powers under the FCA.

The High Court resolves the interpretation of proportionate liability laws

In Selig v Wealthsure [2015] HCA 18, the High Court resolved a significant conflict between two decisions by the Full Court of the Federal Court relating to the operation of proportionate liability laws at a federal level. The proportionate liability regime was introduced to prevent claimants from targeting 'deep pockets' (usually professional service providers and public authorities) by commencing litigation against the defendants most able to meet an order to pay damages. Under the principles of joint and several liability, a defendant was liable for all of the loss suffered by a claimant, even if that defendant's share of the responsibility for causing that loss was comparatively small. Put simply, the proportionate liability regime restricts a defendant's liability to its share of responsibility for the loss.

The conflict that the High Court was required to resolve related to the operation of the proportionate liability laws in circumstances where a plaintiff pleads multiple causes of action giving rise to the same loss, and one cause of action is apportionable while the others are not. The court held that loss or damage arising out of non-apportionable claims are not apportionable merely because an apportionable claim gives rise to the same loss or damage.

This decision is a significant one, particularly for insurers and professional service providers, with strategic implications for both plaintiffs and defendants. 'Deep pocket' defendants may now be required to pursue other means to share liability, including by way of contribution or cross-claim.

Causation still to be finally determined

Throughout 2015, a number of decisions have implicitly endorsed market-based causation as at least arguable, with such claims being allowed to proceed to trial. In Caason Investments Pty Lts v Cao [2015] FCAFC 94, market-based causation received its strongest endorsement yet from the Full Court of the Federal Court, which held (in the context of a pleading application) that the theory is 'reasonably arguable' in the context of a securities class action.

The court was not required to finally determine the principles applicable to proof of causation in securities claim, which remains a live issue in securities litigation in Australia.

  • affecting the person against whom the proceedings are commenced in relation to that person's membership of, or office in, a corporation incorporated or carrying on business in Australia.

As evidenced by this (non-exhaustive) list, a successful claim against a foreign defendant must have some connection to Australia. The circumstances in which leave to commence proceedings will be granted depends on the facts.

The provisions relating to unconscionable conduct and consumer protection in the ASICA apply to conduct outside of Australia by bodies corporate incorporated or carrying on business in Australia (section 12AC).

  1. How do courts in your jurisdiction deal with multiple securities claims in different jurisdictions?

If multiple securities claims are commenced in different international jurisdictions, including in Australia, an Australian court would consider it had power to hear the matter if all standing and jurisdiction requirements are met. However, a party to an action could make an application to permanently stay the proceedings in the Australian court; provided that it is established that the proceedings are oppressive and vexatious, the order sought will not effectively be enforced in the country where enforcement must be obtained or the parties have agreed to submit their dispute to the exclusive jurisdiction of another forum.

If multiple securities claims are commenced by different plaintiffs in different Australian jurisdictions, each court would have jurisdiction to hear the respective claims provided standing requirements are met. However, if the claims arise out of the same facts and give rise to similar issues, one or more parties may seek to have the proceedings heard together in a single jurisdiction pursuant to cross-vesting legislation. The number of competing class actions has been increasing, with six actions commenced or comtemplated against two separate companies in the 12 months to June 2015.

  1. What are the requirements in your jurisdiction to enforce foreign-court judgments relating to securities transactions?

The enforcement of foreign judgments in Australia is governed by both statutory regimes and common law principles.

The Foreign Judgments Act 1991 (FJA) and the Foreign Judgments Regulations 1992 (FJR) provide for the procedure and scope of the judgments that can be enforceable under the statutory regime. The FJR include a schedule of countries with which Australia has reciprocal arrangements for enforcement. The FJA applies to enforceable money judgments, which include judgments for an amount of money other than taxes or similar charges, or other penalty (except in relation to a New Zealand tax debt or a Papua New Guinea income tax payment) (section 3). A judgment is not enforceable under the FJA unless it is final and conclusive, although it may be subject to appeal, and was given in a court to which the enforcement provisions extend (sections 5(4) and 5(5)).

In instances when there is no statutory agreement, the foreign judgment must be enforced under common law principles. Foreign judgments may not be enforceable unless they are for the payment of a sum that is fixed or can be calculated (for judgments in personam). In some instances, equity might permit the enforcement of non-monetary judgments.

  1. What alternatives to litigation are available in your jurisdiction to redress losses on securities transactions? What are the advantages and disadvantages of arbitration as compared with litigation in your jurisdiction in securities disputes?

The FCR provide that the parties must consider options for alternative dispute resolution (ADR), including mediation, as early as is reasonably practicable (FCR 28.1).

If the parties consider that ADR is appropriate, they may apply to the court for an order that the proceeding or relevant part of the proceeding be referred to an arbitrator, mediator, or suitable person and that the proceedings be adjourned or stayed until that process concludes or is terminated. The court may also order the parties to attend ADR if it considers it appropriate.

Adjudication is typically not used in securities litigation in Australia.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Most awarded firm and Australian deal of the year
Australasian Legal Business Awards
Employer of Choice for Women
Equal Opportunity for Women
in the Workplace (EOWA)

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.