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The world catches up to securities class actions

Belinda_RandallMany (especially European) jurisdictions eschew the term ‘class actions’, preferring the more genteel descriptors ‘collective investor action’ or ‘collective redress’. Despite the different terminology, the statistics show that the globalisation of securities class actions is taking hold and the trend is set to increase. This trend will have wide ranging implications on the future of D&O claims internationally, according to leading US commentator Kevin LaCroix (of the D&O Diary fame), who spoke at DLA Piper’s third annual Insurance Symposium in Sydney last week.

The rise of collective investor actions outside of the US is most prominent in the UK, Netherlands and Denmark. There is also increasing activity in France, Germany and Sweden. Not to forget the introduction of class action procedures in Thailand from December 2015 (which is significant, given that most legal systems in Asia have historically not supported class actions against companies – where D&O insurance premiums have remained low as a result). Why is the world catching up to the longstanding US dominance in the class actions space? According to LaCroix, there are a few key factors driving this.

Firstly, legislative reform is creating the framework for investor groups and their representatives and funders to seek collective redress. Secondly, the rise of litigation funding (now well established in Australia and Canada, countries leading the charge in this area), which is likely to see an increase in the frequency and severity of class actions. Thirdly, entrepreneurial (and increasingly cross border) activity of powerful and well resourced US based plaintiff law firms. Fourthly, increased regulatory activity in the wake of the GFC (In 2016, 7% of US securities actions in the US followed regulatory inquiries and LaCroix predicts follow on civil actions will spread). Last, but by no means least, a wave of corporate scandals with global impact.

Other trends that may evolve with the globalisation of class actions include cross border class actions (ie Australian consumers partaking in US class actions) and increased litigation exposure for Australian companies listed in the US (2 significant Australian mining and energy corporates have already been the target of US class actions). Increased protections for whistleblowers are also likely to have an impact. Canada, the UK and Australia are the most frequent countries for whistleblower reports. Protections here are likely to increase as a result of the current Parliamentary Committee inquiry into whistleblower protections (due to report by 30 June 2017).

Where this activity all lands remains to be seen – but corporates, directors and their insurers (globally) can expect a bumpy ride.