The economic downturn has led to an increase in speculation of likely investor and shareholder action. Whilst this may be true for the US, what about in England and Wales or wider Europe? There have been calls for the introduction of a class action system but what form if any will it take? US commentators warn of the impact their class action system has on US industry not to mention the insurance market. Similarly, since 1 October 2007 there has been concern that the Companies Act 2006 will open up the floodgates to shareholder derivative claims in England and Wales. What are the trends?
In November 2007 the European Union Commissioner responsible for consumer policy announced plans to explore an EU wide strategy for collective redress and enforcement. She made it clear that a US system was not on her agenda. In November 2008 the European Commission announced the publication of a Green Paper on consumer collective redress. 1 March 2009 is the deadline for comments on the Green Paper. In England and Wales the Civil Justice Council responsible for advising the Lord Chancellor on the modernisation of the law has called for reform of the group litigation model. Its recommendations published in December 2008 include: expanding the number of bodies with the statutory power to bring class actions; making the judiciary the gate keeper of the procedure; permitting claims to be brought on an opt out basis; and, changing the law to permit the award of aggregate damages.
Many consider that any system introducing class actions will have the effect of increasing claims, which will in turn impact upon the insurance market. There are however, considerable hurdles that will need to be overcome to implement a class action system, whether similar to that in the US or not. In Europe for example there are potentially significant changes required to legal systems which currently differ considerably. Given the importance of this to the insurance market it will be important to monitor the debate and any action taken as a result whether by the European Commission or the Lord Chancellor.
When the provisions as to director's duties and shareholder derivative actions set out in the Companies Act 2006 (the Act) took effect on 1 October 2007 there was a fear that the floodgates would open on claims against directors. So far the safeguards in the Act for shareholder claims appear to be working, principally due to the strict approach adopted by the courts. If, as many suggest, there is to be an increase in investor and shareholder litigation in the next year or so it will be interesting to monitor the courts' approach to shareholder derivative claims. This will be of particular interest to D&O insurers.
These issues will be debated at the C5 16th D&O Liability Insurance conference on 24-25 March. HFW's Costas Frangeskides will be on the panel and other members of our D&O team will be in attendance.
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