Evidence unequivocally shows no explosion in shareholder class actions

Vince Morabito’s latest paper addresses a number of facts concerning shareholder class actions in Australia, finding that much commentary on class actions has been inaccurate, and he unequivocally finds there has been no explosion of shareholder class actions in Australia either over the last 27 years or so in recent years.

In the paper he states (at p 10, emphasis in original):

Pointing to alleged instances of abuse or unsatisfactory conduct by those running or supporting shareholder class actions, if substantiated, does not alter the conclusion [that there is no need for restricting the ability of shareholders to bring class action proceedings or to reduce their substantive legal rights].

Such a scenario would only support providing stronger powers to courts presiding over such proceedings to enable them to deal effectively with any instances of unacceptable conduct.

Particularly unpersuasive are calls for reform of this area based on the argument that the fear of being on the receiving end of a shareholder class action will adversely affect the future strategies adopted by numerous company directors and, as a result, adversely affect Australia’s economy.

This line of reasoning displays an unwillingness to accept the behaviour modification/deterrence of illegal conduct goal of class actions. Knowledge that victims of illegal behaviour have at their disposal an effective procedural device for seeking legal redress is intended to make company directors, manufacturers, suppliers of services, employers and others take far greater care (than would otherwise be the case) in ensuring that their activities do not contravene the law and cause harm or loss to others. Furthermore … only a miniscule proportion of listed companies and their directors have been on the receiving end of shareholder class actions.

(PTO)
He also makes the following points:

  • much of the analysis and commentary on shareholder class actions has been inaccurate (p 8);
  • there is no basis at all for the claim that the employment of the class action regime by shareholders was not envisaged, intended or anticipated by the creators of Part IVA (p 9);
  • since Part IVA was introduced, there has been an average of 23 class actions per year, and an average of 46.8 per year over the last five years, debunking the myth that “the floodgates have opened” or that “there has been an explosion of class actions” (pp 12-4);
  • since Part IVA was introduced, there has been a total of 122 shareholder class actions (19.2% of all class actions over that period), albeit in respect of only 63 different companies or groups of companies (and not always against the company itself) (pp 15-6);
  • in recent years, the number of shareholder class actions filed, as a percentage of all class actions filed, has been declining (p 16);
  • in light of the above “it can be confidently concluded that there has been no explosion of shareholder class actions in Australia either over the last 27 years or so or in recent years” (p 16);
  • despite claims to the contrary, directors of companies are only personally sued in a small minority of shareholder class actions (p 19);
  • most shareholder class actions (82.8%) are supported by a litigation funder (p 20); and
  • shareholder class actions have resulted in at least $888.6 million being paid to at least 94,984 shareholders (at an average of $9,355 per class member) (p 21).
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