National Australia Bank Ltd. shareholders must pay the bank A$6.2 million ($6.5 million) as security for its legal costs in a class action lawsuit, a judge said in a decision the stockholders’ lawyer said reduces access to justice in Australia.
The shareholders sued in the Supreme Court of Victoria in Melbourne in November 2010 seeking to recoup A$450 million they claim was lost as the bank’s stock declined because of its exposure to U.S. subprime debt in 2008.
National Australia Bank said it expects to spend more than A$20 million on legal costs until trial and had asked the judge to order the shareholders to pay A$11 million. The plaintiffs challenged it, calling the sum “extraordinary in size and unprecedented in Australian legal history,” according to the ruling by Justice Jennifer Davies, who cut the requested amount by almost half.
The final amount is still “very high,” Jacob Varghese of Maurice Blackburn Lawyers, who represents the shareholders, said today in a phone interview. “It sets a precedent in Victoria” and “reduces access to justice,” he said.
Plaintiffs would usually be unable to put up that much money in security, he said. In this case the lawsuit is being funded by International Litigation Funding Partners Pte, who will pay the amount, Varghese said.
Sharna Rhys-Jones, a spokeswoman at National Australia Bank, said the bank would comment later on the ruling.
National Australia Bank failed to disclose at the beginning of 2008 that it had serious exposure and serious risk of losses, from its subprime mortgage exposure, Andrew Watson, Maurice Blackburn principal, said when the lawsuit was filed.
The bank’s shares fell 36 percent from July 24, 2008, to Sept. 18, 2008, after the Melbourne-based lender boosted provisions for its exposure to U.S. subprime mortgages to A$1 billion from A$181 million in early May of that year. The bank held A$1.2 billion of collateralized debt obligations, structured debt securities that are backed by bonds or loans.
The U.S. subprime-mortgage market collapsed in 2007, triggering a global financial crisis.
About 250 shareholders, including institutions, signed up for the lawsuit.
National Australia Bank had asked a judge to order the plaintiffs to identify the shareholders involved in the class action suit.
Justice Tony Pagone rejected National Australia Bank’s request in a March 5 ruling, saying the bank had other means to identify the shareholders than a judicial order before trial.
The case is Between Pathway Investments Ltd. and National Australia Bank Ltd. (NAB) SCL2010-6249. Supreme Court of Victoria (Melbourne).
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