Super funds beware: class actions gathering momentum

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by Greg Bright

The rapidly developing system of mounting – and fighting – class actions in Australia is taking on a new level of importance for institutional investors, their fund managers and their custodians. The commencement of recent actions is reverberating around the industry and damaged investors need to understand what this means to their own recovery efforts.

Take the case of AMP. Likely to be the first of several which emanates from evidence put before the Royal Commission into Misconduct in Banking, Superannuation and Financial Services, the NSW Supreme Court has decided that law firm Maurice Blackburn should mount the legal action after five firms and their plaintiffs presented applications.

The Court, presided over by Justice Julie Ward, decided that another of the law firms, Slater & Gordon, should have its case “consolidated” with that of Maurice Blackburn, with the latter running the matter.

The AMP case follows evidence that some of its executives provided false and misleading statement to the regulator and also presided over charging some customers with services which were never given. The most infamous of these was the admission that some deceased customers, or their estates, were charged life insurance premiums.

The procedures surrounding it also demonstrate how the Australian system of class actions is rapidly evolving, following similar lines to that in the US. For instance, under certain Court approvals, it has been proposed (by the Law Reform Commission) that lawyers in class actions should be able to charge on the basis of a proportion of the final awards or settlements, rather than the traditional Australian system of lawyers being able to charge clients only on an hourly-plus-costs basis. The selection, by the Court, of a sole legal firm to take the case forward is another part of this evolution, which clearly is more efficient for both plaintiff and defendant organisations.

According to Steven Longley, senior vice president of corporate development at global class action administration firm Financial Recovery Technologies (FRT), the AMP action, along with others likely to follow, shows also the importance for investors and other possible beneficiaries of the actions to have a proper administrative system in place to maximise their possible compensation.

The role of law firms and litigation funders

The two other major groups in class actions, in the US and now Australia, are the lawyers who take on the fight, which may last several years, and their litigation funders. The Courts assess both the law firm’s application and their funding arrangements in determining who should lead the charge.

In the AMP’s case, Maurice Blackburn has been required to submit a $5 million fee to make sure AMP’s costs are covered in the event the defence in the action is the victor. But Justice Julie Ward said, too, she considered funding aspects, such as that there was no funding “commission”, and that there would be “an uplift in fees only if a specified resolution sum was achieved”.

There is a lot of money at stake with this one. According to the allegations, AMP lost more than $1 billion in shareholder value after the initial revelations in March 2018 and subsequent losses in value during the duration of the Royal Commission. AMP is denying that it withheld information from the market with respect to this and says it will vigorously defend the action. It also said it welcomed the Court’s decision to consolidate the proposed actions into one. Everyone likes the new efficiencies around Australian class actions.

FRT’s Longley says that the Australian system with class actions has become more sophisticated and “probably fairer” to both sides of any potential action. “The main thing is that all potential beneficiaries in an action should be aware of what is going on and the possibilities,” he says. “In most cases, the costs to them will be negligible. It’s basically become a system in Australia, like in the US, that beneficiaries don’t pay anything, or much, except as a proportion of a payout in the event of a win.”

FX Australia may offer investors an opportunity against alleged manipulation of the FX market

On the heels of last year’s $2.3 Billion Foreign Exchange Benchmark Rate Antitrust Settlement, it was announced last month that Maurice Blackburn was also mounting an action, on behalf of Australian investors, against a group of the largest custodian banks in the world. The five named in the suit are: Citi, Royal Bank of Scotland, JP Morgan, UBS and Barclays.

The main allegation is that their operatives/traders operated in a “cartel” and communicated, through online chat rooms, with each other to manipulate benchmark rates and control the price of spreads to trigger ‘stop-loss’ orders. There have already been guilty pleas made by some of the banks in a US federal court. The Australian action covers investors who bought or sold more than A$500,000 in foreign currency between January 2008 and October 2013.

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