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Posts Tagged ‘australia class action’

NOTE: The following is a copy of a post that I did for the recently-released Baker Hostetler Class Action Lawsuit Defense Blog. Be sure to check out the new blog for other fantastic class-action-related content!

Globalization has brought with it the growing problem of how to deal with mass disputes that transcend jurisdictional boundaries, as well as ever-increasing creativity among the members of the plaintiffs’ bar in bringing ever-larger class and mass actions. There is no single global court or other forum for bringing international or cross-border civil disputes, let alone disputes that involve allegations of mass harm. One of the key challenges for lawyers, policymakers, consumers, and businesses in the 21st century is how to efficiently resolve international mass disputes given the realities of globalization and the lack of any clear forum.

From the late 1990s through the first decade of this century, there were several trends favoring the U.S. courts as a global forum for litigating international disputes. However, recently, that trend has reversed, and the U.S. courts are becoming increasingly reluctant to entertain international class action litigation.

One of the hottest trends in securities litigation in the latter part of the last decade was what became known as foreign-cubed (or “f-cubed”) class actions, securities fraud class actions filed on behalf of foreign investors against foreign companies involving securities traded on a foreign exchange. The trend came to an abrupt halt, however, when the U.S. Supreme Court issued its decision in Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010), holding that section 10(b) of the Securities and Exchange Act does not have an extraterritorial reach and only applies to securities traded on a U.S. exchange or other transactions that occurs within a U.S. state or territory. Although lower court decisions following Morrison, including a recent Second Circuit Court of Appeals decision, may breathe some life back into the idea of litigating a small subset of primarily foreign securities disputes in the U.S. federal courts, Morrison has generally closed the U.S. courts to foreign-cubed class actions.

Another promising avenue for litigating global mass disputes was international arbitration. A developing strategy was for plaintiffs who had signed form arbitration agreements to seek to compel arbitration on behalf of both themselves and others who had signed the same form of agreement. (Several arbitration associations have implemented specific rules for how class arbitrations should be conducted. Here is a link to the AAA Supplemental Rules for Class Arbitration). The Supreme Court put an end to this strategy when it decided the international price-fixing case, Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010). In Stolt-Nielsen, the Court held that a party to an arbitration agreement could not compel class-wide arbitration unless the parties had expressly agreed to allow class, rather than individual, arbitration.

In the human rights area, the U.S. Alien Tort Claims Act has increasingly been used as a tool to litigate international disputes involving alleged violations of international law over the past two decades. Several circuit courts of Appeals have even allowed actions under the ATCA to be brought against private corporations, under the theory that those corporations aided and abetted a foreign government or foreign official in committing human rights abuses. However, the Circuits split on the issue, and the Supreme Court accepted certiorari to resolve the split in the case of Kiobel v. Royal Dutch Petroleum, No. 10-1491. Following an oral argument held last month, the Supreme Court issued an order directing the parties to submit supplemental briefing to address the extent to which the ATCA should permit the exercise of extraterritorial jurisdiction at all over acts that took place within a sovereign jurisdiction other than the United States. Questions posed during oral argument, especially by the conservative wing of the Court, suggest skepticism about the allowing U.S. Courts to adjudicate human rights disputes that have nothing to do with the United States.

At the same time that avenues for global mass redress in the U.S. Courts have been closing, doors have been opening in other parts of the world. Class action law continues to develop in Canada and Australia. Israel has a class action procedure that closely mirrors U.S. law. Dozens of other countries in all corners of the world now have procedures allowing at least some form of mass redress. A very recent example is a class action law enacted in Mexico that permits a form of collective litigation that, while quite different from class actions in the United States, provides express mechanisms for seeking collective redress. In 2006, the Netherlands passed a law that allows mass settlements of claims (although it does not provide a procedure for litigating contested class claims), and arguably allows residents of other EU countries to be included. In other countries, the lack of a specific class or collective action procedure has not kept courts from fashioning remedies for mass redress.

The continuing lack of a single global forum for litigating mass disputes and the proliferation of new procedures permitting collective litigation abroad, are likely to have at least one near term practical impact. That is, the development of areas of law dealing with the enforcement of foreign class or collective action judgments. This has already become a reality in a huge environmental contamination case involving the drilling operations of a formal Chevron subsidiary in Ecuador. In 2010, a court in Ecuador entered an $18 million judgment in the case, and proceedings are ongoing in both the U.S. courts and in international arbitration proceedings relating to the enforceability of the judgment.

In a related vein, U.S. courts increasingly find themselves adjudicating disputes under 28 U.S.C. § 1782, which allows litigants discovery in the United States for use in connection with foreign proceedings (see this recent Second Circuit Court of Appeals decision interpreting the statute).

What does this all mean for potential litigants in global disputes? For any company or even small business that does business internationally, these developments highlight the necessity of keeping up with the constant changes in local laws as well as international trends. The procedures that might have been applicable, and arguments that might have been persuasive a year before, may no longer be viable, but new avenues and theories will have almost certainly taken their place.

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Kevin LaCroix, whose blog The D&O Diary is a premier source for the latest trends in securities-related class action litigation, has an excellent post out today discussing two key developments in an area that is very close to my heart, international class action litigation.  The first part of LaCroix’s post discusses a recent publication from Asia-based International law firm King & Wood Mallesons discussing class action filings in Australia.  According to the report, there are currently only about 14 class action filings filed on average in the Australian federal court, a number that represents less than 1% of all federal filings in that country (this figure does not include filings in the courts of individual states; both Victoria and New South Wales also have civil procedure rules similar to the federal rules).

The second part of the post addresses the potential implications of the recent enactment of a class action law in Mexico.  LaCroix summarizes a recent Jones Day publication on the subject, then adds his own commentary.  In particular, he makes an observation similar to one that international plaintiffs’ class action lawyers Michael Hausfeld and Brian Ratner make in the forthcoming book World Class Actions: that one of the potential implications of the US Supreme Court’s 2010 decision in Morrison v. National Australia Bank, which limited f-cubed securities class actions in the United States, may be an increase in litigation in foreign jurisdictions that allow for securities class actions or some other form of collective redress.

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Third party litigation funding has become intriguing development in the expansion of global class and collective action litigation over the past several years, particularly in Australia.  (For various previous CAB articles addressing third party litigation funding, click here).  The concept of third party litigation funding generally refers to financing of litigation by a private party or corporation that is not a party to the dispute, in exchange for a right to a portion of the recovery if the litigation is successful. 

In the U.S., the ethical rules prohibiting fee-splitting with nonlawyers made most types of third party litigation funding improper (see Model Rules of Prof’l Conduct, R. 5.4(a)), while the existence of law firm funding through contingent fee arrangements (Model Rules of Prof’l Conduct, R. 1.5(c)) made nonlawyer sources of funding unnecessary for the development of class action litigation.

However, in other parts of the world, where contingent fees are prohibited, third party litigation funding has developed as an alternative to provide a means for plaintiffs to pay for class action litigation and to avoid the risks associated with the English rule, or “loser-pays” rule, which requires the loser of a case to pay the other side’s costs and attorneys’ fees.

Sue Lannin, financial reporter for ABC (Australia Broadcasting Corporation) News, published this article on Wednesday discussing the impact that private litigation funding may be having on class action litigation in Australia.  The article quotes one Australian attorney who believes that private litigation funding is responsible for a recent increase in shareholder class actions and will likely continue to generate an explosion of class action litigation in that country.  However, the article also quotes an attorney with a contrary view, that the recent increase in shareholder class actions is simply the result of the financial crisis in the latter part of the last decade.

The combination of deep pockets and the legal ability to pursue class action litigation for profit would appear to be a good recipe for expanding class action litigation anywhere, but whether litigation funding in Australia actually creates a “US-style litigation culture with unregulated legal financiers shopping around for cases” remains to be seen.

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NERA Economic Consulting has published its first study on trends in securities class actions in Australia.  The study covers a variety of topics, including numbers of filings, industries targeted, and settlement amounts.  However, what I found to be of particular interest is the study’s focus on the impact of private litigation funding.

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As we welcome in the first full business week of 2009, two news sources have recent stories discussing trends in securities class action litigation from 2008. 

First, the Wall Street Journal Blog reports that 2008 saw an increase in securities class action filings.   However, the article also notes that suits actually dipped in the second half of the year, despite the drastic worsening of the credit crisis.  A possible explanation offered for this trend is the impact of market volatility and the more general market decline following the credit crisis in obscuring or watering down the effects of individual acts of alleged securities fraud.  The article also touches on the prospect of a decline in securities class actions as the pool of potential defendants in the financial-services sector is exhausted.

Meanwhile, this article from The Australian published this report on a surge in class action filings Down Under during the past year.  The article includes an intersting discussion about the role of litigation funders in class action litigation Down Under and predicts a possible showdown  over licensing requirements between the country’s only licensed litigation funder and potential overseas competitors.

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An article yesterday in the Australian newspaper The Age quotes Australian “climate change lawyer” Renee Garner as predicting a trend in securities class actions for companies’ failure to disclose information about their carbon output, information that she says will arguably impact on a company’s value given the likely implementation of a Carbon Pollution Reduction Scheme in Australia.

Earlier this month, the Australian government issued a green paper recommending the implementation of a “Carbon Pollution Reduction Scheme” as early as 2009.  See this article at Mondaq.com for a summary of the key points of the green paper.  The implementation of these regulations seems essential to the possible securities theory suggested by Ms. Garner, since it would provide a more direct potential link between a company’s carbon output and its stock value.  For the time being, this theory would not appear to be viable in the U.S. (that’s not to say it won’t be attempted).  However, it may only be a matter of time before legislation involving carbon trading and offsets comes to the U.S., and with it may come climate change securities class actions.

As Ms. Garner also points out in yesterday’s article, climate change litigation against the EPA and other regulatory authorities has already been brought in the United States, as have mass tort cases alleging harm caused by greenhouse gas emissions.  For an informative summary of litigation both in Australia and in the U.S. dealing with climate change issues, see this publication, available at Ms. Garner’s law firm, Freehills.

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