The AFR’s Marcus Priest had a good front page story today on the High Court, clearing the way for more shareholder class actions.
Australia’s only listed litigation funding company, IMF Australia, rose 2.5c to 55c today as the market reflected on the reduced ability for target companies to stymie class actions on the basis that the law doesn’t tolerate legal success fees or third party funding.
IMF put out this statement explaining the significance of the case yesterday and linking to the judgment. However it remains to be seen whether the state attorneys general will attempt to regulate the industry in the future with measures such as guaranteed solvency levels.
The directors’ club will no doubt be unhappy at the prospect of more class actions given that litigation against Multiplex, Aristocrat, Harris Scarfe, Ion, Concept Sport, Village Life and Sons of Gwalia is currently before the courts.
The big one which really blazed the trail was when Maurice Blackburn, represented by Julian Burnside QC, won a settlement of $112 million from AMP on behalf of GIO shareholders in 2003. The lawyers made many millions because the net settlement was $97 million.
In some respects the GIO case could be seen to have parallels with Slater & Gordon’s pioneering asbestos wins against CSR almost 20 years ago, as Andrew Rule pointed out in his Good Weekend cover story on Peter Gordon two weeks ago. Ironically, Ian Burgess was CEO of CSR and chairman of AMP when both legal battles first started.
While some find shareholder class actions distasteful, I reckon they are a valuable tool in creating a stronger culture of shareholder pressure. Naturally, you don’t want them to get out of hand, but cases like the GIO and Multiplex should be easily accommodated by the law.
Sure, you do get the situation of one group of shareholders effectively suing another group, but often the payouts can come from third parties, as certainly occurred with Enron and Worldcom. That’s why the insurance industry is getting worried, because they’ll end up picking up the bill if the company has gone belly-up.