Today BRR Media speaks with David Hope, he’s a Partner in the Dispute Resolution Group with Middletons in Melbourne, welcome back to BRR Media David.

Thank you very much for that David.

David yesterday we saw Centro Retail Australia conditionally settle a class action relating to the disclosure of the liabilities in its 2007 accounts.  What does the settlement of yet again another securities class action mean for Australian business?

Well from my perspective David I think there are three key issues arising out of the settlement.  Firstly the Australian business community, as with the Australian legal community, is again left not knowing what an Australian court’s position is with respect to applying legal principles of causation, reliance and calculation of loss in a securities class action.  Secondly I think it’s clear that the settlement shows there remains strong incentives for litigation funders to fund substantial securities class actions against Australian businesses.  And thirdly I think there are good commercial reasons for Australia businesses to settle securities class actions prior to judgement, and the uncertainty surrounding the law that I mentioned, I think will continue to be a significant factor for all parties to any negotiated settlement.

Well the quantum of securities class actions settlements in Australia does seem to be on the rise, is that your view as well, or what does this mean for Australian business?

It is my view and I think there is a trend of an increasing number of securities class actions involving very large settlement sums.  To give you some examples in 2003 there was the GIO class action, which settled for $112 million.  In 2008 we had the Aristocrat litigation which settled for $144.5 million.  In 2010 the Brookfield Multiplex class action settled for $110 million, and now of course this year we have Centro with $200 million.  Since 2009 there have been record numbers of securities class action filings in Australia and you know whilst the global financial crisis has been attributed as a cause of that, there are other factors that remain today, such as greater market volatility generally.  I think a legislative intent to protect consumers, a greater public scrutiny and a rise in both shareholder activism and litigation funders.  And I think these sorts of settlement sums set high benchmarks and expectations, they’re also reflective of the fact that more investors are becoming group members in class actions, as these class actions become better known and a regular feature of the legal landscape.  In particular institutions are now becoming group members as they were in the Centro class action, and they can of course control millions of securities which naturally means the number of claimants in these class actions and therefore the size of the claims are going to be larger.  So I think managers of Australian businesses need to be mindful of the negative financial impact that securities class actions can have on their businesses and consequently shareholder wealth.  They need to consider the adequacy of their insurances, for the company and the directors and officers, and it means if an Australian business ever faces unfortunately for them of course, a court proceedings in one of these types of matters, there will need to be significant time and expenses incurred with respect to dealing with lawyers and experts on the measurement of loss.

Well absolutely I guess it relates to my next question, you know why do you think that all Australian security class actions have settled without having gone to judgement?

I think there’s a few common themes which favour settlement and look they do affect the parties in different ways, depending on which side of the fence you’re one.  But just to give you three examples, time is an obvious one.  You know securities class actions take on average around 4 to 5 years to reach trial and of course if they did not settle and appeals followed, which of course this area is ripe for, given the uncertainty and the law, it could become a 6 to 7 year process.  Now on the litigation funders side of the fence, of course that 6 to 7 years both they and the class action group members, are out of funds and of course on the side of the corporate defendants that’s 6 to 7 years of being caught up in public litigation which distracts management from getting on with running the business.  Another factor is risk, you know the lack of judicial pronouncements in this area means both sides, you know, are left with difficulties in terms of assessing their risks having regard to the state of the law.  Now of course once that’s difficult to accurately assess that of course favours commercial settlement as well.  And then obviously quantum; you know the size of these loss claims as we’ve just talked about is so large that the best and worst case scenarios, depending on which side of the fence you’re on, favour commercial settlements.

And just finally David, what messages overall can we take out of the Centro class action?

Well as more litigation funders have entered the market in recent times, meaning of course there’s a greater capacity for these sorts of actions to be funded, I think the settlement of the Centro class action confirms that they’re here to stay.  Securities class actions are now the most common types of class actions filed, and you know more are being funded just to give you an example, I think around 80% of the last 25 securities class actions that have been filed have been funded.  So the Centro action is the first where there were 2 separate classes funded by 2 separate litigation funders and I think it only confirms that these matters are going to continue into the future.  I think the Centro class action also shows there’s clear scope for other advisors, such as auditors, to be drawn into the disputes.  Which, you know, will only lead I think to the size of the claims increasing further.

Indeed and it certainly won’t be an issue that’s going to go away any time soon, with I guess the current economic climate and some of the results that have been coming out.  Thanks again for your time today David.

Thank you.

That was David Hope, a Partner in the Dispute Resolution Group with Middletons in Melbourne.  Listeners if you have any questions for David about this interview, please send a message using the panel on your screen or you can otherwise email through to law@brrmedia.com and we’ll forward your query.