No guidance for companies due to out of court settlements
Litigation funders seizing opportunities
More class actions currently underway
Companies should review insurance coverage.
The settlement this week (subject to court approval) of the
shareholder class action against the grains exporter Australian
Wheat Board (AWB) for A$39.5 million again casts the spotlight on
the rise of funded shareholder class actions in Australia as a
potent but unpredictable means for aggrieved shareholders to force
companies to address their concerns.
This settlement is even more relevant when seen in the light of
the fact that AWB now joins an ever expanding list of other high
profile shareholder class actions which have settled in the
complete absence of a court ruling on the issues raised by the
cases. Commencing with GIO, the first major shareholder class
action, which was settled for A$112 million in 2003 and more
recently the Aristocrat Leisure case which was settled for A$144
million in 2008, as well as a plethora of smaller cases in between,
not one shareholder class action to date in Australia has gone to
judgement. This means therefore that companies and their advisers
have no judicial guidance whatsoever on key legal issues such as
causation and reliance, let alone the appropriate methodology to be
used when calculating damages.
The absence of a court pronouncement on these issues seems to
have had the perverse effect of working in the favour of the
litigation funders such as the leading funder IMF, which
immediately disclosed to the market, following the AWB
announcement, that it expected pre-tax profit from the settlement
to be between A$6 million and A$7 million. That's not a bad
result in circumstances where there remains a complete absence of
any knowledge of how a court is likely to deal with these sorts of
shareholder claims. Indeed one wonders whether the uncertainty
created by the absence of judicial pronouncements on the key legal
issues has been a factor contributing to the rise in funded
shareholder class actions and the relatively quick (but large)
settlements being achieved.
Implications for business
We will now need to await the outcome of other shareholder class
actions which are making their way through the court system such as
Centro, Oz Minerals, Multiplex and others. A clear unequivocal
judgement in only one of these cases is likely to directly impact
the future direction and frequency of shareholder class actions
What is clear however, is that for the time being shareholder
class actions funded by litigation funders like IMF are here to
stay and companies would be well advised to remain vigilant as to
the obligations imposed on them in respect of market disclosure of
relevant information. Where appropriate, companies ought to review
their directors and officers insurance policies, making sure that
not only is there a sufficient level of coverage to meet claims but
that the policy is appropriately structured such that coverage for
both the company itself (side C) and its directors and officers
(sides A and B) will not be compromised in the event of a
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This was an interlocutory decision about the appointment of a tutor for the child appellant, to carry on his proceedings.
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