In an interesting and provocative article, an Australian attorney has sounded the alarm on escalating securities class action litigation in his country. The May 2014 article, written by John Emmerig of the Jones Day la firm’s Sydney office, is entitled “Securities Class Actions Escalate in Australia” (here). The article suggests that in light of recent litigation activity Australia may now be as litigious as the United States, a development that is all the more surprising given the differences in class action litigation between the two countries.
The author opens his article by asserting that in the last seven months there has been “yet another increase in the level of securities class actions in Australia.” According to the author, during the last seven months “there have been 12 new class actions threatened or filed” involving companies listed on the ASX. Of these, nine have been alleged to have violated their continuous disclosure obligations or engaged in misleading or deceptive conduct.
Referencing the relative population size of Australia and of the United States, the author notes that the 12 securities class actions is roughly as proportionate to Australia’s population of 24 million as the 166 securities class action lawsuits filed in the U.S. in 2013 are to the population of 315 million in the United States. Given the recent increasing levels of securities class action litigation activity in the country, Australia “looks very likely to be outstripping that ratio in the short term.”
The author comments that the idea that the litigation rate in Australia would exceed that of the United States is “sobering” and he asks rhetorically “is it really suggested that corporate governance standards and legal compliance suddenly deteriorated to warrant this position?”
The level of litigation activity in Australia is “all the more remarkable” given the litigation-friendly features of the American legal system that are not present in Australia. For example, the U.S. has the so-called American rule pursuant to which each party to a lawsuit bears its own legal costs. Australia, by contrast, has a “loser pays” model, in which the unsuccessful litigant must pay the other party’s legal costs. In addition, the U.S., unlike Australia, allows contingency fees, and the U.S., again unlike Australia, allows jury trials.
On the other hand, as the author acknowledges, Australia does have a well-developed litigation financing industry, “which is much more active in class actions here than in the U.S.” In addition, under the Australian securities laws, a securities claimant does not have to plead or prove “fault or state of mind,” unlike in the U.S. where, at least in securities lawsuits under Section 10 of the ’34 Act, plaintiffs must plead and prove scienter.
The author notes that as if prospective litigants did not have enough to encourage them to pursue litigation, the Australian Productivity Commission in its recently issued Access to Justice Arrangements, recommended the introduction of contingency fees while making no distinction between class actions and other forms of litigation. The author contends that “allowing contingency fees would be like throwing fuel on a fire as Australia moved closer to the American model of litigation.” The introduction of contingency fees would make class action litigation, which allows claims to be aggregated, “even more attractive as lawyers are able to take a cut from each claim.”
The author concludes by noting that the commonplace assumptions that Australia does not have a litigious culture “may now need to be re-evaluated” given that “perhaps Americans are about to lose their mantle as the ‘most litigious people in the world.’”
The author’s observations and commentary are interesting. it is certainly worth asking whether recent litigation trends may mean. I do think it is important to note, however, that the alarm that the author is trying to sound is based only on litigation developments over the last seven months. I know that even in the horribly litigious country in which I live, litigation levels ebb and flow, and even though everybody tries to make generalizations about short term litigation patterns, litigation trends in the United States can only be understood meaningfully over long periods of time.
The author is correct that there are features in the U.S. legal system that contribute to our litigiousness. However, the litigation funding industry is better established and more significant in Australia, and as I have noted in prior posts, is a significant factor in the growth of class action litigation in that country. Indeed, even though Australia has a “loser pays” model, the presence of litigation funding helps reduce this factor’s deterrent effect. I suspect the author is correct when he argues that the introduction of contingency fees could fuel increased litigation activity.
I will say that I find it amusing how horrified the rest of the world is with the litigation system in the United States. As I have traveled around the world in recent years, I have heard these same tones of revulsion about American litigiousness numerous times. It is true that in the U.S. all too often disputes that could be resolved by other means wind up in court, and I recognize that there unquestionably are cases that are filed that should not be filed and outcomes that are excessive, unreasonable and unfair. All of that said, however, courts in the United States are highly respected here. In our country, everyone knows that they have rights and that if they are aggrieved they can go to court and their rights will be enforced and protected. So, while I understand that our system of litigation appalls the rest of the world, as I travel around the world and hear the disparaging comments, I do not apologize to anyone for it.
In fact, though I hear the steady criticism of the U.S. legal system, what I see is a slow but steady convergence, where over time many attributes of the U.S. legal system are gradually being adopted in a large number of countries. These trends accelerate whenever aggrieved parties believe existing mechanisms are insufficient for them to obtain redress. That is, in fact, what seems to be happening in Australia, Or to put it another way, the increase in litigation in Australia may be less of a reflection of some kind of cultural deterioration, and more of a factor of an increase in the number of persons who believe they have harmed and who feel they are entitled to redress.
Professional Liability Underwriting Society to Host Regional Symposium in Hong Kong on May 27, 2014: On May 27, 2014, the Professional Liability Underwriting Society (PLUS) will host its 2014 Professional Liability Regional Symposium in Hong Kong. This half-day program will focus on regulatory and corporate fraud issues facing the Asian marketplace. PLUS’s presentation of this event marks the third year that PLUS has hosted a regional educational and networking event in Hong Kong.
The event will be held from 2:00 pm to 6:00 pm on Tuesday May 27, 2014 at the Hong Kong Football Club. The event will be followed by a networking reception. The event program includes several distinguished speakers and panelists. The keynote speakers include Mark Robert Steward, who is a member of Hong Kong’s Securities and Futures Commission and Executive Director with responsibility for the Enforcement Division. The keynote speakers will also include Kenneth Morrison of Mazars CPA Limited and Richard Hancock of NYA International Limited. A full listing of the event speakers and panelists can be found here.
This annual event has attracted insurance industry professionals, attorneys and many others in the past and the event promises to be well-attended again this year. Industry professionals in Hong Kong and elsewhere throughout the region will not want to miss this important educational and networking event. I strongly urge everyone to join their industry colleagues and to help support PLUS’s efforts to help develop the professional liability community in Hong Kong. Space is limited so registration now is well-advised. To register or for further information, please refer here.