Shareholder class actions continue to be brought and settled: the RiverCity and Billabong cases are recent examples. Recent data suggests that, while there has not been an “opening of the [class action] floodgates” in recent years, the success of litigation funders has caused a steady increase in these claims.i Further, the recent HIH decisionii supports the view that shareholders don’t need to prove that they even read the misleading information. We’ll see if that view is taken up in the higher courts. For now it is likely to encourage securities claimants and may lead to higher settlements.
Another trend we are seeing is that litigation funders, liquidators, and other claimants are pursuing more creative approaches to maximise recovery, particularly from insured defendants. This, and the proportionate liability regime, is encouraging claimants to adopt a “shotgun” like approach, making various claims against multiple parties. In February, the High Court heard a case where liquidators sought to join a D&O insurer to the liquidators’ insolvent trading case against three former directors. iii The insurer had denied the directors’ claim for coverage. The High Court allowed the liquidators to join the insurer, and to seek a declaration that the directors’ claim was covered. (As a side note, insolvent trading is often one of the first claims against directors that liquidators look at, and during the year the Federal Treasury sought comments on legal reforms that would provide some protections to directors.iv Another possible development to monitor carefully).
In response to these trends and tactics, there is now a growing tendency to seek to quarantine the various insurance protections afforded to directors and their companies. Companies are adopting separate coverage for shareholder class actions, so that these claims do not erode the directors’ coverage. Directors and officers are also being split into different groups and afforded their own quarantined excess cover to ensure that they have coverage if other individuals/groups in the company are sued. As the diagram below illustrates, this developing and structured approach has several advantages. However it won’t suit all companies and there are drawbacks: cover that is set aside for one sort of claim may not be accessible where there is a large claim of a different sort.
The current climate of increased activism is testing corporations law here and abroad:
The last major trend worth mentioning, and a welcome one, is the greater readiness of corporate litigants, on both sides of the bar table, to be receptive to innovative and tailored solutions for dispute resolution. Mediation and negotiated settlements prior to trial continue to be common. In addition, there appears to be a greater willingness for business to entertain private justice, whether that be a determination or non-binding evaluation of the entire dispute, or that portion of the dispute which is preventing the parties from negotiating a commercial agreement. A good example is arbitration, with corporations in particular seeking to arbitrate disputes in respect of cross-border projects and transactions.
i See Professor Morabito, An Empirical Study of Australia's Class Action Regimes: Fourth Report, "Facts and Figures on Twenty-Four Years of Class Actions In Australia". The Report discloses a gradual increase in class actions over time, taking account of the various Australian jurisdictions where class actions are now available. In terms of the success of commercial litigation funders, the report noted that funded Federal class actions achieve settlements over 92% of the time, compared with 42.7% for their unfunded counterparts.
ii In the matter of HIH Insurance Limited (in liquidation) & Ors  NSWSC 482.
iii CGU Insurance Ltd v Blakeley & Ors  HCA 2.
iv Federal Treasury, Improving bankruptcy and insolvency laws (Proposal Paper), April 2016.
v Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia  FCAFC 80.
vi In BFSL 2007 Ltd (in liquidation) v Steigrad  NZSC 156, New Zealand’s highest court determined that, where a claim exceeds the available insurance, a statutory charge may be asserted to prevent the payment of defence costs in defending the claim. Similar statutory provisions exist in Australia, and there is some risk that a similar position could be determined by an Australian court. In answer to this, some corporations have sought to implement separate defence costs insurance policies that should not be impacted by an asserted statutory charge.