Key Points: For those who are potentially exposed to GFC-related
litigation, now is the time to get litigation-ready. Decisions made
today will affect how their litigation plays out in six months'
While many are taking a deep breath and relaxing that the worst
of the GFC is over, the fallout for many in the financial services
world is just beginning, which could result in a rise in
Aggrieved investors or creditors will look for someone to blame,
and when a company collapses they start looking around for someone
with deep pockets - and liquidators and regulators won't be far
Add to that the rise of litigation funders (assuming they can
overcome the recent Full Federal Court decision in the Brookfield
Multiplex case), increased regulator activity, and more retail
investors than ever before who can form part of the pool of
potential plaintiffs for the litigation funders, and you could have
an increase in litigation matters in this country.
We think the floodgates will soon open up. For example, now that
the Full Federal Court has held that the Lehman Brothers Deed of
Company Arrangement is invalid, we expect there to be more
litigation against Lehman Brothers.
So who are the likely targets? The answer is almost anyone with
deep pockets who had professional dealings with these failed
companies, or with those who invested in them.
This can include targets such as financial planners who
recommended investments in failed companies, auditors, and
directors of the failed companies, but can also extend to retail or
investment banks, insurers, superannuation trustees, and ratings
The allegations might seem straightforward - negligence,
misleading and deceptive conduct and breach of contract - but as we
found when acting for Lehman Brothers in its CDO litigation, you
need a deep understanding of the financial products and the
circumstances in which they are structured, marketed and
For those who are potentially exposed to such litigation, now is
the time to get litigation-ready. Decisions made today will affect
how their litigation plays out in six months' time.
Ideally, as a starting point, they should be reviewing their
potential exposure, and their past and present conduct.
Realistically, most defendants fail to act until actually served
with a writ. As most defendants are unprepared at this time, it
becomes easy to lose sight of key issues - issues such as what were
investors told about the risks, as well as benefits, of these
products? Were investors tempted by visions of unrealistic
Potential defendants should also be careful not to do anything
which could compromise their defence. This might include making
unhelpful admissions about wrongdoing or their practices. Or it
might entail accidentally waiving legal professional privilege in
documents in the rush to talk up the vigorous defence which will be
filed. Such concerns may be especially relevant if a regulator is
also involved, as they have extensive investigative powers by which
they can compel the production of relevant documents. These
documents could be used as the basis for further civil action from
unhappy creditors and investors.
Even as the economy improves, the fallout from the financial
services world may continue for some years to come.
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.
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