Class actions began in Australia in the year of 1992 where claims of a group of people are brought by one or a small number of representatives. The amounts claimed are often large with complex proceedings, high costs and adverse publicity.
The expansion and accessibility of litigation funding, greater availability of information, and an increasing number of law firms inclined to represent plaintiffs have added to persistent growth of class actions. During the early 2000s, shareholder class actions started gaining momentum where a group of shareholders in the listed companies join hands to sue boards for violating disclosure requirements.
Some of the significant class actions included the case against National Australia Bank in 2010 over allegations that the bank didn’t disclose its exposure to bad debts related to the global financial crisis and ended up with a payout of $110 million in addition to $12.5 million (in costs) after 2 years of litigation. Another example was of the property group Centro, which was the largest settlement in Australia’s history, where shareholders won $200 million after 4 years of litigation.
In 2020, Myer Holdings Limited (ASX: MYR) was faced by a historic class action by its shareholders with the allegation that the departmental store giant misled shareholders over its forecast profits for the financial year of 2015 and breached its continuous disclosure obligations.
However, there was no loss in its case as market consensus was much lower than the company’s guidance, i.e. shareholders did not have to bear any damage due to hard scepticism amongst analyst that Myer will not achieve its projection to deliver a profit more than its 2014’s financial year profit of $98.5 million.
With the Federal court ordering the parties to pay their own costs, the case was dismissed on 6 May 2020. Myer agreed with the plaintiff TPT Patrol to dismiss the case giving an unexpected end to first-ever Australian class action by shareholders against a listed company to go to judgement.
Myer recorded a share price of $0.275 on 29 May, down by 1.78%.
Another class action lawsuit which was in media for quite some time now is against an Australia’s IOOF Holdings Ltd (ASX: IFL). The Company updated that the lawsuit started in 2019 against the wealth manager about accusations of violating disclosure obligations will not only be dismissed but also no payments will be paid to the plaintiffs. However, separate proceedings against the wealth manager are stepping up.
IOOF is an Australian financial services company based in Melbourne offers financial advice, investment management services and superannuation. The firm was sued by shareholders in April 2019 who claimed that the firm had breached stock market disclosure requirements and was involved in deceptive conduct. The lawsuit was filed by Quinn Emmanuel in New South Wales Supreme Court.
In 2018, a public enquiry by Royal Commission revealed widespread wrongdoing in the financial industry such as customers being charged for non-rendered services and the duplicity of regulators. IOOF was amongst the companies attacked at the royal commission over the fees-for-no-service outrage. It earned a court victory in 2019 when APRA failed to secure director’s duty breaches on the company and have its executives barred from the industry.
In a trading update dated 25 May 2020, IOOF stated that it would not make any payments to claimants, their lawyers, financial backers, or any other supporters of the class action as part of the arrangement.
IOOF shares were trading at $4.84 on 29 May, down by 0.41%.
Treasurer eases continuous disclosure obligations
The bar is set high to comply with the continuous disclosure laws in Australia, which requires companies to immediately inform investors of developments that could alter the price or value of securities. The rules are made to safeguard market integrity so that all investors can access timely information on companies equally. The laws were used an objective test where it was tested whether a person has any knowledge that can have a significant impact on the price of securities. But they have also supported a wave of lawsuits that has annoyed the board of directors and separated the investment group.
This has led to several class actions with most recent IOOF this week and Myer last month where lawsuits were dismissed. While in some cases the trials resulted in multimillion-dollar payouts by companies like NAB, Multiplex and Centro.
Treasurer Josh Frydenberg made a significant change to country’s continuous disclosure laws on 25 May 2020. Now the companies and directors will be liable only if they had knowledge, recklessness or negligence that the information they share is wrong. He also stated that the looming uncertainty on the company’s outlook ahead amid coronavirus endangers companies to the risk of opportunistic class actions to have a conflict with their continuous disclosure obligations if predictions are found to be wrong.
The change in the laws will help ASX-listed entities to abide by continuous disclosure obligations during the present COVID-19 conditions. However, it will make it difficult for the shareholders to prosecute companies if the information given about their future outlook becomes inaccurate as the pandemic makes financial projections uncertain.
This change has an expiry of 6 months and has been effective from 26 May 2020.
Various activists and plaintiff lawyers condemned the Treasury’s move to ease continuous disclosure obligations asserting that this would mean investors would be moving forward with blind eyes and it can damage market integrity. However, many defence lawyers and businesses have welcomed this step claiming that it would eliminate all baseless and costly litigation which majorly benefits for profit litigation funding groups rather than actual shareholders.