As you have probably noticed, over the last year various risks and liabilities have emerged for company directors and officers; as well as several other legal developments of note. In particular:
We provide below a summary of four specific developments in the insurance law area in 2015 which may interest directors and officers.
"The rules have just changed. Effective today, if a company wants any consideration for its cooperation, it must give up the individuals, no matter where they sit within the company. And we’re not going to let corporations plead ignorance. If they don’t know who is responsible, they will need to find out. If they want any cooperation credit, they will need to investigate and identify the responsible parties, then provide all non-privileged evidence implicating those individuals. . . .There may be instances where the company’s continued cooperation with respect to individuals will be necessary post-resolution"2
"This guideline represents a significant break from the current DOJ practice of focusing on the actions of corporations, rather than individual employees. It serves as a reminder that fear of individual prosecution can be potent motivation to tell the truth in hopes of receiving credit for cooperation."4
The contrast with Australia is stark. The DOJ has recovered billions of dollars in settlements, yet
the DOJ by the Yates memorandum, is seeking to “change corporate culture.”10. Conversely in
Australia, the Chair of ASIC Greg Medcraft described Australia as “soft on crime” – with much
ensuing controversy. Still, press reports indicate that almost all submissions to the current
Commonwealth of Australia’s Parliamentary Foreign Bribery Inquiry are to the effect that this area
"needs major reform.”11
The focus in Australia arises not only from the prosecution of the former chairman of the Australian
Wheat Board, but other alleged cases of foreign bribery involving Leighton, Reserve Bank /
Securency and BHP (amongst others). A survey by Deloitte found one-third of companies
operating in high risk destinations like Asia, Africa and the Middle-East, had uncovered bribery or
corruption incidents over the past 5 years.
What, if any direction, Australian reform will take, is guesswork. Submissions to the Parliamentary
Foreign Bribery Inquiry included: (a) an enforcement approach akin to the UK Bribery Act, in which
a company at which corrupt activity has occurred is automatically liable, unless it can show a
culture of anti-corruption culture; and (b) a return to where we started, the effective (perhaps past)
US system of deferred prosecutions, where a deal is struck between the regulator and the
company, often with substantial fines being paid and a “period of good behaviour”.
The following table sets out major litigation over the last 12 years (which is a matter of public record). Each action has either involved company directors or officers as parties to the litigation (denoted by an *) and/or could have concerned the company Board and/or executives, given its nature and circumstances:
Date | Name | Claim Outcome | Claim Details | ||||
---|---|---|---|---|---|---|---|
Amount | |||||||
Claimed | Paid | ||||||
2003 | GIO | [$600m] | $112m | S | Misleading representations – acquisition. Insolvency. | ||
2006 | Harris Scarfe | [~$70m] | $3m | * | S | Securities class action – misleading or deceptive conduct re financial reporting, continuous disclosure. Insolvency. | |
2007 | Telstra | [$300m] | $5m | S | Securities class action – continuous disclosure, past expenditure and revenue forecast. | ||
2008 | Aristocrat | [~$396m] | $144.5m | S | Securities class action – continuous disclosure, profit downgrade. | ||
2008 | Downer EDI | [~$100m] | ~ $20m | S | Securities class action – continuous disclosure, profit downgrade. | ||
2009 | Sons of Gwalia | [LIQ$800m] | $70m | * | S | Continuous disclosure, misleading or deceptive conduct inducing purchase of shares. Insolvency. | |
2010 | AWB | [~$100m] | $39.5m | * | S | Securities class action – continuous disclosure, business risk. NB – Flugge | |
2010 | Multiplex | [~$300m] | $110m | * | S | Securities class action – continuous disclosure, misleading or deceptive conduct, profit downgrade. | |
2011 | GPT | [~$100m] | $70m | S | Continuous disclosure, profit downgrade. | ||
2011 | Gunns Ltd | [$75m] | Stayed | (*) | O | Continuous disclosure re profit downgrade | |
2011 | Oz Minerals | [~$187.5m] | $60m | S | Securities class action – continuous disclosure re debt position. | ||
2011 | Babcock & Brown | [$158m] | $40m | * | S | Wrongful dividend payment. Insolvency. Note that a similar claim was later made against the Company and was unsuccessful at trial in 2015 | |
2012 | Centro | [~$1bn] | $200m | S | Continuous disclosure re debt position. | ||
2012 | Nufarm | $46.6m | S | Securities class action re profit downgrade. | |||
2012 | James Hardie | $35m | * | DC | (Jackson) Royal Commission, ASIC prosecution. | ||
2012 | NAB | [~$450m] | $115m | S | Securities class action – continuous disclosure re business risk. | ||
2012 | Sigma | $57.5m | * | S | Securities class action - continuous disclosure as part of rights issue, profit downgrade. | ||
2012 | Transpacific | $35m | S | Securities class action – continuous disclosure, profit downgrade. | |||
2013 | GPT | $75m | S | Securities class action - continuous disclosure, profit downgrade. | |||
2014 | One Tel | [$244m] | $40m | * | S | Directors’ duties, rights issue. Insolvency. | |
2014 | Asahi/PEP | [~$500m] | $199m | S | Misleading conduct re acquisition. | ||
2014 | Leighton | $69.45m | S | Securities class action – continuous disclosure, misleading or deceptive conduct. | |||
2014 | Victorian Bushfires | $494m | S | Negligence class action, breach of statutory duty, nuisance. | |||
2014 | ABC Learning | [$450m] | UD | * | S | Directors' duties, convertible note. Insolvency. | |
2015 | BHP | $31.6m | S | Foreign bribery. SEC prosecution. | |||
2015 | Securrency | O | Foreign bribery and corruption. AFP prosecution. | ||||
2015 | Flugge (AWB) | * | O | Director's duties. ASIC prosecution. | |||
2015 | Worley Parsons | [$50m] | O | Securities class action – misleading or deceptive conduct – profit guidance | |||
2015 | Forge Group | [LIQ$800m] | O | Misleading and deceptive conduct, continuous disclosure re profit downgrade. Insolvency. | |||
2015 | Hastie Group | [LIQ$503m] | (*) | O | Continuous disclosure re profit downgrade claim being investigated. Insolvency. |
Several aspects jump out from this table of recent litigation/losses:
In the class action sphere, there have been two important developments over the last year, both involving litigation funding and both providing some welcome news for defendants (but not plaintiffs and litigation funders):
Under s 33ZF of the Federal Court of Australia Act 1976 (Cth) (FCA Act), the Court has general power to make any order it deems appropriate or necessary to ensure that justice is done. The trial judge (Wigney J) held at pp.55 – 56 (dot points inserted for ease of reference):
Although a setback for litigation funders and the concept of a “common fund arrangement", the Allco decision kept this possibility open, either later in the proceedings and/or through potential legislative reform. The judgment expressly noted that this decision did not mean that "the common fund" order sought "cannot, or will not, ever be made in any representative proceedings under Pt IVCA of the FCA Act." – per Wigney J at p. 56.
In the decision of Bonham v Iluka Resources Limited [2015] FCA 713, this application was dismissed because:
Kerr J held that the beliefs of the applicant's solicitors were not enough. When an application for
preliminary discovery is made, the prospective application must personally believe that they have a
right to obtain relief – in Mr Bonham's case this was necessary to give credence to the proposition
that other shareholders or investors may have held the same belief.13"
Notably Kerr J went on to criticise the applicant's solicitors for seeking preliminary discovery (to assist in deciding whether to commence proceedings) while at the same time making statements in the course of the "book-build" process to the effect that they had already decided to commence a proceeding.
There were a number of developments in the insurance law area in 2015, some of which include: