Australian class-action lawsuit settlements worry company directors because of their size even as such suits account for less than 1 percent of federal court cases, according to a report by law firm King & Wood Mallesons.
About 14 class-action suits are filed each year, two decades after the nation allowed such actions, the firm said today in its review of 2011.
Among cases initiated last year, Australia & New Zealand Banking Group Ltd. (ANZ) customers are seeking to recoup A$50 million ($54 million) in fees they deem illegal. A suit against Centro Properties Ltd., whose shareholders want to recover more than A$200 million from the collapsed mall operator in a trial starting March 5, is a key case to watch in 2012, the firm said.
“Class actions remain a significant concern for both directors and in-house counsel alike due to the scale of many of these claims,” the authors of the report wrote. The total value of settlements in shareholder class actions in 2011 surpassed A$500 million, they said.
The Centro lawsuit is “significant because the applicants seek to get around the common law position that shareholders cannot sue auditors for negligence,” the law firm said.
Centro shareholders allege the company misled them by failing to disclose the full extent of its debts.
The case may also resolve whether each member of the class has to prove they were misled and incurred damages or the group as a whole is entitled to compensation because the market was misled, Roger Forbes, a partner at King & Wood Mallesons and a co-author of the report, said in a telephone interview.
“That’s a great unresolved issue,” he said.
In a class-action suit, one applicant files on behalf of a group of plaintiffs, rather than individuals pursuing claims separately.
Plaintiffs have been more willing to include advisers as defendants in class-action lawsuits, recognizing they may be more willing to settle because they often have professional indemnity insurance and reputations to protect, King & Wood Mallesons said.
Adding defendants boosts the costs of the litigation, said King & Wood Mallesons, whose 21 office locations include Beijing, Hong Kong and Sydney. It also carries the risk the plaintiffs may have to pay the defendants’ legal bills, the law firm said.
“One development that was predicted but has not been common, is the inclusion of company directors as individual defendants to class actions,” the authors wrote. “This reflects the belief that it is the company that has the deeper pockets and reputation to protect.”
Canada, whose legal system, like Australia’s, typically requires the losing side to pay litigation costs, has seen 10 shareholder class-action suits settled for a total of C$100 million ($101 million) since 2005, according to NERA Economic Consulting Ltd.
There were 45 Canadian securities class actions under litigation as of Dec. 31, with plaintiffs seeking a total of about C$24.5 billion in damages, NERA said.
“We haven’t seen that dramatic a spike” in claims in Australia, Forbes said.
He said he expects “a slight and steady increase” in the number of Australian class action lawsuits filed in the future as more law firms enter the field.
The Australian and Canadian settlements remain a fraction of those in the U.S., where trials are generally quicker and held before juries who determine damages.
The biggest verdicts in U.S. securities class action were for $7.1 billion and $6.1 billion resulting from the collapse of Enron Corp. and WorldCom Inc. respectively. Both settlements took place in 2005.
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