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Australia Litigation Funders Spur Record 2012 Settlements

The value of securities class action settlements in Australia in 2012 was a record A$480 million ($495 million), almost as much as the total since group lawsuits were introduced, law firm King & Wood Mallesons said.

Total settlements since the country allowed class actions 20 years ago now stand at just over A$1 billion, the firm said in a report today, citing a growth in litigation funders as a key reason.

Although the U.S. is seen as the birth place of class actions, Australia has taken the lead in a number of areas. That includes the first class action lawsuit examining the conduct of an investment bank in relation to the sale of collateralized debt obligations when a Lehman Brothers Holdings Inc. unit was found liable for losses incurred by three towns from buying failed securities, King & Wood Mallesons said.

Australia was also the first jurisdiction in which proceedings were successfully brought against a rating company, when Standard & Poor’s was found liable in November for misleading Australian towns with its investment ratings, the law firm said.

“After 20 years, the risk profile for Australian companies has been permanently altered,” King & Wood Mallesons said. “Class actions pose a significant threat to any listed company and its directors and officers.”

Last year also saw more settlements than any other year in Australia, with 13 class actions settled, the firm said. King & Wood Mallesons, with 2,200 legal professionals, was formed last year by the merger of Sydney-based and Beijing-based firms.

Centro, Argentum

The record settlement value was led by the highest ever reached in the Australia in May when Centro Retail Australia and PricewaterhouseCoopers agreed to pay A$200 million to shareholders who claimed they were misled by company statements in 2007 that failed to disclose its debt levels.

U.K.-based Argentum Investment Management Ltd. entered the country last year, bringing the number of active litigation funders to at least eight, King & Wood Mallesons said.

“More funders will inevitably drive more class action litigation as they compete for market share,” it said.

Litigation funding has proven to be a good business model, the law firm said, with IMF (Australia) Ltd. (IMF) generating A$1.2 billion since listing in January 2000 and making a gross return on investment of 304 percent, King & Wood Mallesons said.

Litigation funders say they can get as much as half the compensation awarded to the group members, according to the law firm.

“With the potential profits involved, it is unsurprising that new players, including both lawyers and funders, are looking for opportunities to capitalize on this lucrative form of litigation,” King & Wood Mallesons said.

To contact the reporter on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net

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