It is widely accepted that there has been an increase in the number of class actions in Australia; however there have not been many examples of unmeritorious actions. The litigation funders are not in the business of losing money, and it would be unlikely for them to be funding any claims that in their view did not have merit. Without funding, the cases would not get off the ground. Therefore, there should not be any hysteria about the increasing number of class actions.
Growth of Class Actions in Australia
From a historical perspective in 2007 when the Global Financial Crisis hit, there were a number of corporate collapses so there may now be more financial reporting required as a result. Therefore this may lead to more class actions because the results of the numbers which were forecast over the last few years have come into the actuals now.
The biggest reason why there has been growth in class actions is that shareholders are increasingly becoming aware that class actions are a very reasonable manner in which to address corporate misconduct. In the past there would not have been the knowledge nor understanding associated with the class actions and their roles.
As time has gone on, there is a higher level of sophistication in the class actions such as those relating to the complex financial products that resulted from the Global Financial Crisis and the collapse of those products. Class actions in Australia are more widely recognised as a mechanism to address misleading conduct and corporate mis-selling and related activities.
There is an increase in people willing to become involved in class actions from the corporate side of Australia. Substantial trusts and super funds have become increasingly involved, whereas traditionally class actions were led by applicants such individual investors.
For example, the recent class actions against Lehman’s and Standards & Poors were brought by councils and super funds. Depending on the particular corporate misconduct, some of those institutional investors who may have previously sat behind the others are now more interested in coming forward and being the lead applicant themselves.
These class actions are highly complex as they are financial product orientated. In 2007, all the financial products- billions of dollars of collateralized debt obligations or derivatives -came into Australia. When the financial markets crashed, there were a number of defaults and the investors lost all their capital.
The class actions have been brought in relation to those financial products against the issuers, raters and the arrangers. There are also a number of matters in the managed investment scheme space- for example the collapse of Equititrust, LM, City Pacific -all the major funds that collapsed in Queensland and had investors from Australia and internationally who lost billions of dollars.
Since about 2003, class actions have been arising in the insolvency space. The class action against Lehman’s was a class action in the liquidation and went through to judgment and included all the claims resolution processes and distributions. A further class action against Standard & Poors was settled.
Challenging nature of class actions
The court is taking a greater role in the management of these cases so they don’t drag on and they’re dealt with as efficiently and quickly as possible. That is in everyone’s interest. People who have lost their money want their money back. The funders, of course, want their money and the court wants to deal with the case in an efficient manner.