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Corporate counsel battles rise in class actions

Corporate counsel battles rise in class actions

Corporate counsel in Australia has the constant cloud of potential class actions hanging over their heads, largely due to a growth in litigation funding.

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CORPORATE counsel in Australia has the constant cloud of potential class actions hanging over their heads, largely due to a growth in litigation funding.

Australia has a specific regime supporting class actions leading to "significant concern" among in-house lawyers, reveals the survey of 374 corporate counsel across more than 20 industries, done by law firm Mallesons Stephen Jaques in partnership with general counsel at NAB, AMP, Wesfarmers and Westfield.

Although class actions represent less than 1 per cent of all Federal Court proceedings, corporate counsel see them as a massive risk to their organisations.

Twenty-seven per cent of survey respondents said class actions were an issue for their organisation in the previous 12 months.

The rise of litigation funding is significant, according to the report, given the high degree of concern that class actions have generated for corporate counsel.

Six ASX listed litigation funders are active in the Australian market, and the number of plaintiff law firms is on the rise, with a number of firms announcing that they are investigating potential class actions. Corporate counsel are increasingly exposed to the strategies of funders in defending class actions.

Australia has had a specific regime supporting class action proceedings since 1992, and since then there has been a steady use of the class action framework with Australia seen as having a plaintiff- friendly regime compared to many other countries.

IMF Australia resolved seven matters in the 2009-10 year, produce a net profit of $16.8m before tax. The firm expects to have resolve as many as 14 matters by the end of the 2010-11 tax year.

Funded class actions have resulted in some significant settlements for group members, the report states, such as the Sons of Gwalia Ltd action which settled for in excess of $100m. The proceedings against Aristocrat Leisure Ltd resulted in the largest class action settlement to date of $144.5m.32.

However, unfunded actions have also been successful, such as the May 2011 settlement of the Amcor/Visy class action for $95 million.

Class actions are a concern to corporate counsel not only because of the possibility of liability and the reputation of the organisation, but also because of the costs of defending a class action. In approving the recent settlement of the Amcor/Visy cartel class action, the judge expressed concern at the $25 million in legal costs forming part of the settlement.

Class actions have been largely been launched by shareholders based on the failure to comply with continuous disclosure obligations, such as OZ Minerals and Sigma Pharmaceuticals.

Australia has also seen significant class actions as a result of investigations by the ACCC, such as the Visy/ Amcor cartel, and ASIC, such as Nufarm. Also, there have been actions regarding mass torts and product liability.

However, the report states, shareholders and litigation funders now use class actions as a form of de facto enforcement, whether or not the regulator acts.

As the regime enables group members to take the benefit of the cost and other pressures that class actions place on defendants to settle, without having to make any outlay, the report predicts class actions will remain attractive for individual and institutional group members alike and so continue to raise concerns for corporate counsel.

Corporate counsel battles rise in class actions
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