As I have noted in prior posts, in recent years, there has been a significant growth in shareholder class action litigation in Australia. There are a number of reasons for this development; among other things, Australia’s class action regime is, by comparison to the procedures available in many other jurisdictions, plaintiff-friendly. For these and other reasons, according to a recent law firm memo, Australia may be poised to become “the forum of choice for plaintiffs seeking redress in the world of securities class actions.” The June 27, 2016 memo, which is written by the Quinn Emanuel law firm and is entitled “Australia: An Increasingly Attractive Plaintiffs’ Forum for Securities Class Actions,” and raises a number of interesting questions, as discussed below, and can be found here.
The memo’s authors begin their analysis by noting that as a result of the U.S. Supreme Court’s decision in Morrison v. National Australia Bank, the U.S., which in the past had “long been the primary home for securities class actions around the world,” has made it more difficult for international litigants to sue in the U.S., which, the authors suggest, has “paved the way for the growth of Australia’s securities class action regime.”
In support of their premise, the authors cite a number of features of Australia’s class action procedures, which, they suggest, are “notoriously plaintiff friendly.” Indeed the authors quote an academic source as having stated that Australia’s class action regime is “one of the most liberal class action regimes in the entire world.”
In support of this proposition, the authors cite the fact that under Australia’s class action procedures, a representative plaintiff can in effect define the class of persons represented, without the need for a separate class action certification process of the type that is required under U.S. class action procedures. In this system, the burden in on the defendant to establish that the case should not proceed as a class action. In addition, the class action system in Australis proceeds on an “opt-out” basis, pursuant to which every person who falls within the class definition is a group member unless he or she opts-out of the procedures.
In addition to the procedural advantages for plaintiffs in the Australian class action regime, shareholder claimants also enjoy a number of advantages under Australia’s substantive securities law. Under the applicable securities laws, a shareholder claimant, asserting that the defendant company’s disclosure is misleading and deceptive, can attempt to make these allegations in reliance on the country’s continuous disclosure requirements. Under these requirements, companies must “immediately” disclose all information that a reasonable person would expect to have a material effect on the company’s share price or valuation. A plaintiff is not required to establish that a failure to disclose was intentional. Moreover, these allegations are typically accompanies by a corresponding action for breach of statutory prohibition of misleading and deceptive conduct. This is, as the memo’s authors note, “a powerful claim,” as there is no need to demonstrate intention, negligence, fraud, or dishonesty.
In addition to these procedural and substantive advantages for plaintiffs, recent case law developments may boost plaintiffs even further. According to the memo’s authors, recent court decisions suggest that Australia’s court are “willing to embrace” the “fraud-on-the-market” theory, which would free the claimants from having to prove that they traded their shares in reliance on the alleged misrepresentation, but rather traded in reliance on the more general assumption that the market price reflected all of the publicly available information about the company.
Although the memo does not acknowledge it, there are certain additional considerations that are driving the growth of securities class action litigation in Australia. As discussed in a May 19, 2016 Lawyers Weekly article entitled “Class Actions Australia’s ‘Fastest Growing Species of Litigation’” (here), a major factor in the growth of class action litigation has been the acceptance by the courts of and resulting growth in litigation funding, which made the pursuit of class action claims financially feasible. In addition, the growth in class action litigation has been driven by the development of an active plaintiffs’ bar focused on pursuing class action claims.
All of these and other “plaintiff friendly aspects” of Australia’s class action regime, as well as the recent developments in other jurisdictions (i.e., the Morrison decision in the U.S.) suggest, the law firm memo’s authors contend, that “Australia is now poised to become a forum of choice for plaintiffs seeking redress in the world of securities class action litigation.”
There is no doubt that under the country’s class action regime and substantive law, Australia may be one of the more favorable jurisdictions for shareholder claimants. And there certainly has been growth in the levels of class action activity in the country.
However, I still think it remains to be seen whether Australia will become a forum of choice for claimants from outside Australia – particularly if the defendant company to be targeted is not an Australian company.
In that regard, I note that the memo’s authors do not identify any specific examples where claimants from outside Australia are choosing to initiate claims in Australia in preference to other jurisdictions. The authors do not cite any examples where claimants have preferred Australia’s courts as the place to pursue claims against target companies from outside Australia. Indeed, the memo’s authors do not even discuss what the relevant law is with respect to the jurisdiction of Australian courts and under Australian law with respect to the assertion in Australian courts of claims against companies domiciled outside of Australia and whose shared do not trade on Australian securities exchanges.
By contrast, there are numerous recent examples where shareholder claimants have, for example, launched proceedings in The Netherlands against a variety of companies, including of particular note, companies from outside The Netherlands, under the country’s collective settlement procedures. (Recent high-profile examples of this phenomenon include proceedings targeting Petrobras, Tesco, and Volkswagen.)
By the same token, the possibilities for shareholder claimants to try to use the Dutch procedures are strongly reinforced by the March 2016 settlement of the Fortis shareholder claims for $1.3 billion. There is nothing in the track record for claims in Australia remotely like this settlement (resolving as it did shareholder claims that were pending both inside and outside The Netherlands and on behalf of claimants both inside and outside The Netherlands).
It may well be that in the wake of the U.S. Supreme Court’s claim that prospective shareholder claimants are seeking to find a new preferred forum to be accessed when U.S. courts are unavailable. And it may also well be that Australia’s class action procedures and substantive law offer shareholder claimants certain advantages compared to other jurisdictions. However, it remains to be seen whether or not Australia will become a preferred forum for shareholder claimants from outside Australia and for prospective claims to be filed against companies domiciled outside of Australia.
I think there is every possibility that a preferred forum outside of the U.S. will develop for prospective international shareholder claimants. It may well be that Australia is among the candidates to become the preferred alternative forum. For now, I think the stronger case may be that The Netherlands is the likeliest place to become the preferred alternative forum for shareholder claims – although, there are, to be sure, limitations on the usability of the Dutch collective settlement procedures, as well.
Upcoming Event Down Under: Speaking of Australia, on September 1, 2016, I will be presenting as a keynote speaker at the annual conference of the Australia Professional Indemnity Group, in Sydney. Information about the conference can be found here. I look forward to meeting the many Australian readers of this blog, and, if the possibility arises, discussing the issues raised in this blog post about Australian shareholder class action litigation.