Plaintiff firm returns fire in class action stoush

Peter Godfrey
by |
The day after it announced its intention to pursue a class action against QBE Insurance, Maurice Blackburn has hit back at suggestions that Australia’s class action regime requires reform and tighter regulation.

Responding to claims made by King & Wood Mallesons in a recent Australasian Lawyer article that Australia’s current system, and particularly its dependence on third party litigators, was vulnerable to inappropriate and abusive use, Maurice Blackburn’s class action principal Jacob Varghese has come to its defence.

“I’ve worked with litigation funders on several class actions before and I have never seen any signs of abuse or conflicts of interest,” Varghese said.  “I don’t see anybody coming up with concrete evidence that we are doing something wrong.”

Varghese argued that the best way to resolve people’s concerns about the third party litigation funding, was not by increasing regulation, but by reducing it instead.
 
“Tighter regulation simply restricts the entry of new players to the market.  We need less regulation if we want to have a competitive, ethical and efficient system that meets all of our high standards,” Varghese told Australasian Lawyer

Varghese also raised the contentious issue of contingency fees, arguing that this would entirely extinguish concerns about litigation funding.

“I think Australia needs to have a think about the question of contingency fees altogether.   The strange thing about our system is that anyone in the world is allowed to fund a class action except for lawyers,” Varghese said. 

Varghese noted that Australia was the lone large English speaking country that did not allow firms to undertake litigation on a contingency fee basis, as Canada, the UK and the USA all permitted the practice. 

As a result Australia has since become the most appealing target for third party litigation funders. 

Opponents of contingency fees believe that allowing them would open the floodgates to a wave of class actions, as firms all attempt to cash in.

Varghese denied this, claiming that media attention on recent large payouts falsely created the impression that class actions were becoming more frequent. 
“There’s no evidence of ‘opening the floodgates,’” Varghese said. 

He also said that a US-style class certification stage suggested by KWM as a way of analysing the initial merits of a claim before actual proceedings commenced was not needed.

“At this stage I think it’s unnecessary.  If a larger firm brings up a class action it’s probably not going to be struck out,” he said. 

Maurice Blackburn yesterday announced that it was accepting registrations for a potential class action against QBE Insurance amidst suggestions the company had breached its continuous disclosure obligations. 

After calling a trading halt on 6 December 2013, QBE announced days later it was expecting to post a loss of $US250 million for FY2013, resulting in its share price nosediving. 

The class action is to be funded by the Singaporean funder, International Litigation Funding Partners.  

What do you think? Should contingency fees be allowed in Australia?  Or should third party litigation funding be regulated instead? Share your thoughts below.  
  • Lawrence on 5/05/2014 11:35:36 AM

    Unless I am mistaken, any action brought, would be brought against the company, not the long term shareholders in personam. Yes they may suffer as investors, but they are not liable directly, nor would they be if the company were insolvent. Similarly, if QBE were to divest part of its business and it misled a purchaser and that purchaser succesfully sued QBE, then the long term shareholders might suffer a similar consequential loss as a result of a drop in share value (assuming that it would affect the share price at all, which is not a given). This would not be due to any 'fault' of those investors either, but it does not mean that the separate legal entity (the company) is not liable for its conduct. It is either a straw man argument or one that lacks an understanding of the coporations law to characterise a shareholder action as an action against shareholders. While I appreciate that shareholders, like myself, can lose value when share prices fall, I participate in that market on the assumption that the companies that I invest in are complying with their disclosure obligations to the market generally and to the counter parties to any agreements they enter into. If they do not, then my issue is with their management, not with those who enforce their rights.

  • Michael on 2/05/2014 5:11:17 PM

    Lawrence's comments are misconceived. If a vendor misleads a purchaser and the purchaser relies on the misleading conduct and thereby suffers loss, the vendor is liable. I have no issue with that.
    However the situation here is entirely different. The longstanding shareholders did nothing to any short term shareholder. The purchaser did not rely on any conduct of the longstanding shareholders. Any loss the short term shareholders incurred (if any) did not flow from any conduct of the long term shareholders. However Lawrence seems to suggest any loss short term shareholders suffered should be underwritten, irrespective of the cause, effectively from the long term shareholders, that the litigation funder should be entitled to recover up to 35% of any recovered amounts and that the solicitors who act should be entitled to not only ordinary fees but also some uplift because the litigation funder is a "sophisticated blue chip client." I do have issues with those propositions. Certainly pushes compensable misleading conduct (by omission) to new extremes and effectively new defendants !

  • Michael on 4/04/2014 1:41:11 PM

    The volatility of QBE's share in the last 12 months suggests the nonsense of the proposed claim -- $10.02 to $17.53. Pick any longer period or nearly any other listed company share and there will be similar or greater volatility.
    Anyone who closely followed QBE knew it had issues in the US relating to crop insurance and lenders' insurance where mortgagers were in default and not effecting their own insurance.
    Who is Maurice Blackburn suggesting suffered any loss by failure to update the market more quickly? IF the market is a perfect market (and share market volatility suggests it is not), the price would have fallen irrespective of any disclosure. Indeed there is probably a case for the market overshooting markedly by the manner in which the disclosure was made after a period of suspension.
    All this demonstrates the parasitical nature of the litigation funders and the solicitors who act for them in relation to share market announcements and continuous disclosure. Why should long term shareholders suffer from the company's management being distracted from their daily operations? Why should the company possibly have to incur defense costs? Which shareholders lost? For how far back can one go? IF successful, how does paying one-third of recovered damages to a litigation funder from company funds help long term shareholders? Why should short term share traders be protected at the cost of long term shareholders? Why didn't the short term traders take advantage of the market volatility to make profits? The shares now trade at about $12.75, up from their low of$10.02 in less than 4 months.
    Unsuccessful class action solicitors and their litigation funders should bear indemnity costs.
    Successful class action solicitors and their litigation funders should be limited to total recovery between them of the usual legal costs without any uplift or "success" fee. They would then have to reflect more closely on the costs of their actions and threatened actions, when the possibility of usurious gains are eliminated.

  • Lawrence on 2/05/2014 3:02:35 PM

    The comment by Michael above is misconceived and seems premised on an idea that it is ok to mislead market participants. As I understand it, the proposed action against QBE turns on whether the Company misled investors by overstating the Company's expected profitability and/or that the company knew earlier than it disclosed that the guidance and market expectations were not going to be met. If that is not the case, then presumably the action will not get up. If this were a commercial transaction between two corporates and one made misleading representations about the EBITDA of a business that it was divesting, then the other company would be well within its rights to seek compensation for any loss suffered or the value of the artificial inflation. The principal here is essentially the same. To suggest that lawyers should bear indemnity costs for unsuccessful claims is also alarmist, unless of course there is some demonstrable fraud or bad faith, but that would be covered by the current costs regime. Further, to suggest that plaintiff lawyers should not be able to obtain an uplift on fees that are subject to the success of an action ignores the fact that this is now a common practice for corporate firms seeking to provide innovative fee structures and is, in my experience, becoming more common in litigious matters. These arrangements are often being requested by sophisticated blue chip clients and they more closely mirror the remuneration of transactional lawyers and advisers who share in the bounty of a successful deal, but bear some of the downside risk of the deal falling over.

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