A landmark year
2017 marked the 25th anniversary of the federal class action regime in Australia and saw the 500th class action filed. In this Review we reflect on activity in Australian class actions and what the future may hold.
The rise of the securities class action (2016/17: 16) and the size of settlements that have resulted from actions taken by shareholders, is something that few would have envisaged 25 years ago, when the focus was more on righting consumer wrongs arising from product liability, misleading or deceptive conduct and negligence claims. It is now essential that listed entities factor in class action risk as part of their business planning.
Another major contributor to the increasing level of class action activity in Australia is the use of third party litigation funding to finance cases, which has increased significantly over the last five years. While only a small number of the funders active in Australia are listed on the ASX, their published returns show it to be a lucrative business for those entities and their shareholders. With 58% of class actions filed in 2016/17 supported by litigation funding (66% 2017/18 YTD), the appropriate level of regulation for litigation funders remains a topic of debate in Australia and is currently the subject of two inquiries.
The higher level of class action activity is also rightly a concern for directors and officers. While only a proportion of securities class actions involve claims against directors (2016/17: 18%) and tend to be limited to companies in distress as shareholders look for alternate deep pockets, some reports note that the cost of D&O insurance has increased more than 200% in the last 12 to 18 months as the D&O premium pool struggles to cover the number of securities class actions filed each year.
Download The Review: Class Actions in Australia 2016/2017 to find out more.