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Class actions report tips surge in shareholder claims

Michael Pelly
Michael PellyLegal editor

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Big consumer businesses with data breaches or product recalls have taken over banks as the most likely target of class actions, according to an industry report from leading law firm Allens.

The report, Class Action Risk 2023, says there is increasing scope for shareholder claims involving environmental, social and governance (ESG) issues and also for public interest matters such as public housing and strip searches at music festivals.

The number of class actions filed in federal and state courts was “materially down” in 2022 after litigation funders fast-tracked cases in late 2021 to get ahead of proposed reforms by the Morrison government.

However, the report said there were “clear indicators that the funding industry remains active and more funded claims are likely in 2023” due to capital raisings and a less hostile approach by the Albanese government.

“The risk for corporate Australia remains real and, for some sectors, is hitting new highs,” the report said.

Speculation that shareholder claims would drop following the Coalition’s reforms to the continuous disclosure framework had not played out, and there was “a growing appetite” for proceedings on various fronts.

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It said class action promoters were looking past “conventional catalysts” such as revisions to earnings guidance and accounting issues.

“ESG disclosures and representations regarding the adequacy of safeguards protecting against data breach risks loom large as issues that may come under the microscope in future claims ...” it said.

“Hand in hand with an increase in regulatory scrutiny of ‘greenwashing’ and ‘bluewashing’, we expect a heightened focus by class action promoters on disclosures relating to climate change and the transition to net zero, and on social and governance factors such as the management and reporting of modern slavery risks in supply chains.”

And more of these claims could proceed to trial given the reluctance of defendants to face court was fading.

“Before 2022, only two shareholder class actions had progressed to judgment,” the report said.

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“That number increased to three in 2022, and with judgment currently reserved in two further proceedings, it appears that perceptions of shareholder class action risk are continuing to shift as more matters work their way through the courts.”

The report said there had been a “paradigm shift” in the types of claims, with no class actions being filed against the banks in 2022 – largely because cases arising from the Hayne royal commission had been resolved.

“While the trends in 2022 are less obvious, the biggest indicator of risk is being a consumer-facing business (particularly in the wake of a product recall or publicised service or data issue) and/or a listed company,” it said.

“We have seen a steady increase in the proportion of class actions filed in the technology sector over the past few years – this is a trend we expect to continue, given the increasing focus on data/privacy issues, and also that many businesses in this sector are mass consumer-facing businesses.”

It cited the Optus and Medibank data breaches, with the Medibank action having been filed two weeks ago.

The report also noted a “a clear trend of increasing claims against auto manufacturers – with these claims accounting for 80 per cent of filings in the industrials sector in 2022”.

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One such claim involving airbags in BMW cars led to common fund orders (CFOs) being banned by the High Court when they are made at the start of proceedings. A Full Federal Court hearing next week will look at whether the court has the power to make a CFO at the point of settlement.

This would permit a litigation funder to extract a commission from any claim proceeds, which the report said could “resolve an element of uncertainty which may have impacted recent funding activity”.

It said more funded claims were likely in 2023, after the Labor government said it would not proceed with Coalition plans to cap returns at 30 per cent of any settlement and to ban CFOs.

Funders are also no longer required to hold an Australian financial services licence or comply with the rules for managed investment schemes – two steps introduced by the Coalition in 2020.

Michael Pelly is the legal editor, based in our Sydney newsroom. He has been a senior adviser to federal and state attorneys-general and written two books, one a biography of former High Court Chief Justice Murray Gleeson. Email Michael at michael.pelly@afr.com

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