Media | Article
AWB's $39.5M settlement with shareholders
Wednesday 17 February 2010
The settlement this week (subject to court approval) of the shareholder class action against the grains exporter Australian Wheat Board (AWB) for A$39.5 million again casts the spotlight on the rise of funded shareholder class actions in Australia as a potent but unpredictable means for aggrieved shareholders to force companies to address their concerns.
This settlement is even more relevant when seen in the light of the fact that AWB now joins an ever expanding list of other high profile shareholder class actions which have settled in the complete absence of a court ruling on the issues raised by the cases. Commencing with GIO, the first major shareholder class action, which was settled for A$112 million in 2003 and more recently the Aristocrat Leisure case which was settled for A$144 million in 2008, as well as a plethora of smaller cases in between, not one shareholder class action to date in Australia has gone to judgement. This means therefore that companies and their advisers have no judicial guidance whatsoever on key legal issues such as causation and reliance, let alone the appropriate methodology to be used when calculating damages.
The absence of a court pronouncement on these issues seems to have had the perverse effect of working in the favour of the litigation funders such as the leading funder IMF, which immediately disclosed to the market, following the AWB announcement, that it expected pre-tax profit from the settlement to be between A$6 million and A$7 million. That's not a bad result in circumstances where there remains a complete absence of any knowledge of how a court is likely to deal with these sorts of shareholder claims. Indeed one wonders whether the uncertainty created by the absence of judicial pronouncements on the key legal issues has been a factor contributing to the rise in funded shareholder class actions and the relatively quick (but large) settlements being achieved.
Implications for business
We will now need to await the outcome of other shareholder class actions which are making their way through the court system such as Centro, Oz Minerals, Multiplex and others. A clear unequivocal judgement in only one of these cases is likely to directly impact the future direction and frequency of shareholder class actions generally.
What is clear however, is that for the time being shareholder class actions funded by litigation funders like IMF are here to stay and companies would be well advised to remain vigilant as to the obligations imposed on them in respect of market disclosure of relevant information. Where appropriate, companies ought to review their directors and officers insurance policies, making sure that not only is there a sufficient level of coverage to meet claims but that the policy is appropriately structured such that coverage for both the company itself (side C) and its directors and officers (sides A and B) will not be compromised in the event of a claim.
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