The number of securities class actions filed in Australia and in the United States of America remains steady, but it is still rare for these class actions to proceed to hearings in both jurisdictions. We explore high level differences in this update, although we anticipate that there will be further law reform in Australia after 2018 given various Law Reform Commission reviews due to report this year.
Securities class actions in Australia and the United States: A snapshot
It has been 26 years since the class action regime was introduced by the Federal Court of Australia, with similar regimes in New South Wales, Victoria and Queensland. Businesses in Australia are most likely to face class action litigation, outside of the United States.
New litigation funders are routinely entering the Australian market, with empirical studies suggesting that there have been 22 new players as class applicant or plaintiff firms in the past three years. The same studies report that more than 500 class actions have been filed since the regime was introduced, with approximately 80 of those being shareholder class actions – the vast majority of which have settled.1
Anywhere from 10-15 new, actual or threatened shareholder class actions are announced each year in Australia, which is dwarfed in comparison to the United States where, in 2017, there were 432 new federal securities class actions filed. This naturally reflects the claims activity in that market (relative to its value and size), but, as is the case in Australia, it remains constant that almost all US cases are either dismissed or settled. In October last year, it was reported that since 1995 only 21 out of over 5000 securities class actions have gone to trial in the US which is less than 1 percent of claims.2 We explore why below.
Key features: Motions to dismiss in the United States but not in Australia?
Whilst there have been many Court approved settlements of shareholder class actions in Australia, the threshold is low to bring a class action claim: there must be seven or more persons with claims against the same defendant; the claims must be in respect of, or arise out of, the same, similar or related circumstances; and the claims must give rise to at least one substantial common issue of law and fact.3
Given the low threshold, it is rare for securities class actions to be dismissed or discontinued in Australia on an interlocutory basis. This compares with the US where commentators report that in 2017 motions to dismiss were filed in 94% of the securities class actions, with approximately 30% granted in full.4
In trying to understand why there are these jurisdictional differences, the Australian regime does not tend to grapple with matters like:
- A lack of personal jurisdiction, which is commonly a feature in US litigation if the defendant has either no connection with the US, in so far as the plaintiffs' claims are concerned, or has otherwise not engaged in continuous and systematic activities within a US state;
- Issues relating to the failure to state a claim and scienter do not arise in Australia. Whilst a US plaintiff must allege facts to support that the misstatement or omission was made with scienter (i.e. with the intent to deceive, manipulate or defraud), in Australia it is not necessary to prove any intent to defraud, mislead investors, or even negligence. These claims simply involve allegations that the respondent company engaged in misleading or deceptive conduct by its statements to the market (or failed to disclose relevant information to the market) and breached its continuous disclosure obligations in relation to material information under the Australian Securities Exchange Listing Rules.
- There is also presently no class
certification process in Australia, as exists in the US. This is an
additional barrier that provides for several prerequisites to be
satisfied before any federal US class action can proceed to trial
- the class is so numerous that joinder of all members is impracticable;
- there are questions of law or fact common to the class – these must predominate over any questions affecting only individual members;
- the claims or defences of the representative parties are typical of the claims or defences of the class; and
- the representative parties will fairly and adequately protect the interest of the class.
Securities class actions in Australia are not presently vulnerable to an interlocutory attack like the US motionto dismiss regime identified above.
The securities class action landscape is continuing to evolve. While the US can provide some insight into the different approaches, law reform is expected in Australia. The Australian Law Reform Commission is presently considering the regulation of litigation funding in Australia and class actions more generally, with recommendations to be delivered to the Australian Attorney-General by 21 December 2018. Similarly, the Victorian Law Reform Commission's recent inquiry into class actions considered the introduction of class certification in Australia in the terms of reference. With the report expected to be published in late April 2018,7 the outcome of the inquiry may impact the requirements to commence a class action (at least in Victoria). We will publish further updates on recommended reforms once the various reports are issued.
1 Prof. Vince Morabito, 'An Empirical Study of Australia's Class Action Regimes: Fifth Report – The First Twenty-Five Years of Class Actions in Australia (2017).
2 Stefan Boettrich and Svetlana Starykh, 'Recent Trends in Securities Class Action Litigation: 2017 Full-Year Review (2018) NERA Economic Consulting.
3 Federal Court of Australia Act 1976 (Cth) s33C.
4 Ibid. Closer to 50% of cases are dismissed if claim certification motions and motions for summary judgment are included in the figures. For example, Cornerstone's 2017 report shows that near or upwards of 50% of cases in the last few years have been dismissed within three years of the filing date.
5 Corporations Act 2001 (Cth) ss 674, 1041H
6 Fed. R. Civ. P. 23(a) and (b).
7 On 3 April 2018, the report was delivered to the Attorney General and will be tabled in Parliament within 14 sitting days. The report will be published after it hasbeen tabled.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.