In the third-largest securities class action settlement ever in Australia, QBE Insurance has agreed to settle the securities suit pending in the Federal Court of Australia and filed against the company on behalf of QBE investors related to the sharp share price decline the company experienced in December 2013. The amount of the settlement is A$ 132.5 million (US$ 103.5).The company admitted no liability in connection with the settlement. The settlement is subject to Court approval. A copy of QBE’s December 28, 2017 market statement regarding the settlement can be found here.
The class action lawsuit relates to QBE’s December 9, 2013 announcement (here) that the company would not meet earlier profit and financial performance guidance, and that it was expected to incur significant write-downs and post a loss of A $250 million for the 2013 fiscal year, as result of claims provisioning and write-downs of goodwill and intangibles in its North American operations. In February 2014, the company ultimately reported a loss of A$254 million, its first loss since 2001. The lawsuit alleges that the company had been expected to post a profit of approximately A$1 billion based on earlier reports.
According to the Amended Statement of Claim in the case (here), QBE’s share price declined 20% at the time of the initial December 9 announcement, the largest single day share decline in the company’s share price in 12 years, and declined further the next day for a total share price decline over the course of the two days of 30%. (According to press reports about the settlement, the share price decline represented a $5 billion drop in the company’s market capitalization.)
The claimants alleged that from August 20, 2013 until the December 9 announcement, the company breached its continuous disclosure obligations, engaged in misleading or deceptive conduct, and made false or misleading statements, allegedly in contravention of applicable corporate and consumer legislation and the ASX listing requirements. The claimants alleged further that the company was or ought to have been aware of issues that were adversely impacting its North American operations, but failed adequately to disclose those matters, as a result of which the company’s share price allegedly was inflated during the class period.
The company’s press release states that the settlement amount of A$132.5 is to be paid in “full and final settlement of the proceedings including interest and the Applicant’s cost.” The settlement is subject to Court approval.
As for the timing of the settlement, it obviously came at year end, with whatever accounting implications the timing may involve. Press reports noted that trial in the case before Justice Bernard Murphy was scheduled in 2018. Other reports also noted, with respect to the timing of the settlement, that the settlement cleared the decks just before a new chief executive was due to come on board at QBE in the new year.
The QBE settlement apparently represents the third-largest ever securities class action lawsuit settlement in Australia, following only the prior settlements involving the shopping center owner Centro and its auditor PwC in 2012 for A$200 million and Aristocrat in 2008 for A$144.5 million.
QBE’s market statement about the settlement says nothing about the possible contribution of its own D&O insurers to the settlement; rather, the statement says only that the settlement will not have an impact on the company’s 2017 second-half earnings.
However, at least one press report about the settlement did say “It is understood the settlement will be covered by the insurer’s own insurance and provisions,” without specifying who in fact has this understanding or the basis for this understanding or the extent to which the supposed insurance available would cover the amount of the settlement or the expenses the company incurred in defending the claims. (To the extent there are any readers out there with any information about the insurance contribution, I would be grateful if you would be willing to share that with me.)
The amount the members of the class are to receive is subject not only to the attorneys’ fees of the plaintiffs’ law firm, Maurice Blackburn, but also to the reimbursement of the litigation funder that funded the litigation, International Litigation Funding Partners Pte Ltd (ILEP).
According to Maurice Blackburn’s website (here), a “common fund” order was entered in the proceeding, specifying the in the event of a successful outcome in the proceeding (either by way of judgment or settlement), the sum recovered for all group members will be used, prior to distribution to group members, to reimburse the funder for costs and to pay the funder a commission at a rate to be approved by the Court at a later date.
As discussed here, the entry of the “common fund” order in the proceeding represents a “game changer” in the development of class action litigation in Australia, as it permits litigation funders to obtain reimbursement from all class members without having first entered into a funding arrangement with each of the class members. A copy of the Federal Court’s October 26, 2016 “common fund” decision in the QBE case can be found here.
This massive new settlement comes at a time when all signs point toward increasing securities class action claims activity in Australia, in part because of developments such as the courts’ recognition of the “common fund” theory for litigation funding. Certainly, a settlement of this magnitude will encourage and embolden the plaintiffs’ bar in Australia. These developments clearly are of concern to D&O insurers in Australia, even without respect to the extent to which insurers may have been called upon to contribute to the QBE settlement itself.