The Australian Alternative: A View from Abroad of Recent Developments in Securities Class Actions

Abstract

The United States, which has long been the primary destination for global securities litigation, has begun restricting access to its courts, making their discovery rules, threat of jury trial, and attorney compensation structures that are very favorable to plaintiffs harder to reach for foreign plaintiffs. After the Supreme Court’s decision in Morrison v. National Australia Bank, so-called "f-cubed" cases — involving foreign plaintiffs and foreign issuers of stock that are traded on foreign exchanges — are increasingly unwelcome in the United States. Furthermore, lower courts have responded enthusiastically to Morrison’s holding, further limiting foreign actors’ access to American courts. Effective regulation of securities in jurisdictions outside of the United States will, therefore, have to occur in the courts of those jurisdictions. For various reasons, Australia has recently experienced substantial growth in the number and scope of class actions. As the Australian class action regime takes center stage, it becomes more important to identify its problems and discover innovative solutions that will increase access to justice in an efficient and administrable way. The simple fact is that the chief downside to bringing class actions in Australia is the difficulty of funding the litigation given the loser-pays system and the prohibition on contingency fees. Third party funding is doubtlessly an innovative response, but creates its own set of concerns. Plaintiffs still do not have access to courts for several important types of claims where the profit is too slim or damages too small and diffuse. Furthermore, this system has imposed new sets of costs: Defendants are significantly less likely to settle with closed classes when second, third, and fourth classes might be right on their heels; courts must expend resources trying to manage these repetitive lawsuits; and third party funders command hefty portions of damage awards and settlements away from those who were injured and their representatives. Wrestling with these issues will become increasingly important as the fallout from Morrison continues to push foreign litigants into foreign courts, and as the Australian courts and plaintiffs’ bar continue to create new, innovative ways to improve the Australian class action system.