Australian companies face an increasing risk of being subject to a class action lawsuit. In particular, they face the growing threat of shareholder class actions proactively identified and supported by commercial litigation funders, sophisticated institutional investors and plaintiff law firms.
Australia is now the jurisdiction outside of the United States in which companies are most at risk of facing shareholder class action litigation.
We set out below a snapshot of the key facts and figures needed to:
- understand this growing threat and the drivers behind it; and
- compare the Australian shareholder class action market with its fully developed US counterpart.
US securities class actions at a glance
Unsurprisingly given comparative economy sizes and class action market maturity, the US securities class action market dwarfs its Australian equivalent.
Since 1996, approximately...
Nonetheless, the US position is informative given increasing recognition among foreign litigation funders and institutional investors that Australia provides:
- a well-developed and liberal class action regime (albeit with several safeguards against unmeritorious claims which do not exist in the US);
- a sophisticated, stable and relatively predictable legal system comprised of high quality legal practitioners; and
- relatively few (easy to satisfy) regulatory restrictions on funding.
Settlement – key facts
The Australian data tells us that, on average, settlements of class actions occur in the range of approximately 30% - 35% of the damages claims.
The US data tells us that, typically, the longer it takes to settle a shareholder class action, the higher the settlement.
In Australia, approximately half of all class actions settle within 2 years of filing.
Increased claim funding has impacted the types of class actions filed and the proportion of class actions which settle.
Continued growth anticipated
We anticipate the growth in shareholder class actions and in litigation funding to continue for the foreseeable future (the two being inextricably linked), due to:
- The continued profitability of litigation funders.
- Greater awareness of Australia’s well-developed and liberal class action regimes.
- The introduction of regimes in additional states.
- Greater recognition that in some respects Australian law permits a broader range of shareholder class actions than are available in the US.
- Judicial acceptance of market based causation and of third party funding.
- The relative lack of regulatory restrictions on funding.
For advice or assistance in relation to your potential class action exposure, please don’t hesitate to contact one of our class action experts.
SOURCES: V. Morabito, An Empirical Study of Australia’s Class Action Regimes Fourth Report: Facts and Figures on Twenty-Four Years of Class Actions in Australia (Monash University, Department of Business Law and Taxation, August 2016); Stanford Law School ‘Securities Class Action Clearinghouse: Key Stats’ http://securities.stanford.edu/stats.html; NERA Economic Consulting 2015 Report.