Lessons to learn
03 September 2014
Failing to monitor and participate in class actions internationally should not happen, says Goal Group’s Brian Slade, who takes a look at the case in New Zealand
Image: Shutterstock
Securities class actions have developed at a rapid rate outside of the US in recent years, with investors seeking alternative jurisdictions in which to pursue claims. Unlike the judicial powerhouses of the US and Australia, the New Zealand legislature does not currently permit class actions to be pursued in the same way as the US. Yet that by no means implies that New Zealand investors should not actively be seeking participation in global class actions abroad. Greater emphasis must then be placed on the importance of fiduciary duty and the monitoring of opportunities internationally.
In the US, F-cubed actions—which involve a non-US shareholder suing a non-US company, whose stock was purchased on a non-US stock exchange, and who is bringing a case in a US federal court—have effectively been excluded by the US Supreme Court’s 2010 ruling in the National Australia Bank case. As a result, securities class actions are no longer solely focused in the US, but group and collective litigations are being filed in multiple legal systems throughout the world.
Therefore, New Zealand investors still need to be aware of securities class actions against US companies (and against foreign companies in which US investors have a substantial interest), as well as other collective redress participation opportunities in other countries. Canada and the Netherlands, for example, have legal systems where there are more developed securities class action and collective redress options available to global investors.
With the typical New Zealander equities portfolio now investing 47 percent in foreign shares, it is clear that there is a duty to monitor and participate in securities class action and collective redress opportunities in various countries around the world. Goal Group’s analysis of its class actions knowledge base predicts that by 2020, annual securities class action, groups and collective redress settlements outside of the US will reach $8.3 billion annually. However, it is also estimated that $2.02 billion of global investors’ rightful returns will be left unclaimed each year because of non-participation.
With the rise in prominence of neighbouring Australia, it may not be too long before we see New Zealand follow suit and adopt legislation that will allow securities class actions on home soil. In Australia, class action litigation took off when the Federal Court of Australia Act was amended in 1992, and with 22 percent of New Zealand investment in Australia, this is clearly an area in which New Zealand investors can be very active.
Despite the continued prominence of class actions in nearby Australia, New Zealand has so far not followed suit. The absence of clear litigation is the main reason behind this. In 2008, the rules committee issued a draft Class Actions Bill, which was subsequently sent to the secretary for justice in 2009. Despite the draft bill, little political progress has been made.
Securities class action litigation in New Zealand seems inevitable in the coming years as most of the expansion features needed are also present in litigation in Australia. Not only do class action laws act as a handbrake to corporate mischief, but a class action allows investors who would never have brought an individual action against a company to seek recovery from alleged wrongdoing. They allow shareholders to compete on a level playing field with corporations that are well funded and supported. A class action process in New Zealand would help to encourage corporate governance best practice.
New Zealanders, nevertheless, do have legislation for a group action by way of representative action under the High Court Rules. Rule 4.24 provides that one or more persons may sue on behalf of, or for the benefit of, all persons “with the same interest in the subject matter of a proceeding”, either with the consent of the represented parties or with court approval.
The courts have permitted plaintiffs to use this mechanism to commence class actions. The Court of Appeals ruling in Saunders v Houghton in 2010 highlighted how there is the ability to bring representative proceedings on behalf of a group of plaintiffs, although this can still not be applied to securities class actions. The 2011 Commerce Committee Report issued to the New Zealand House of Representatives, setting forth various proposed reforms as result of the widespread failures of finance companies, underlined the importance of regulating corporate governance rules and increasing New Zealanders’ understanding of financial issues.
It is the responsibility of fund managers and advisors to actively pursue opportunities around the world, particularly in the US and Australia, to claim money to which they are entitled. So whilse class action legislation would be beneficial in New Zealand, investors still need to be aware of the opportunities worldwide that are available to them and actively participate in class actions where they hold stocks in those markets. Failure to engage in class actions can leave billions in unclaimed settlements, compromise fiduciary integrity and portfolio returns, and prejudice clients’ potential entitlement to legal redress.
Failing to monitor and participate in class actions internationally should not happen, as there are a number of services commercially available that minimise the complexity and cost of effective participation and recovery.
In the US, F-cubed actions—which involve a non-US shareholder suing a non-US company, whose stock was purchased on a non-US stock exchange, and who is bringing a case in a US federal court—have effectively been excluded by the US Supreme Court’s 2010 ruling in the National Australia Bank case. As a result, securities class actions are no longer solely focused in the US, but group and collective litigations are being filed in multiple legal systems throughout the world.
Therefore, New Zealand investors still need to be aware of securities class actions against US companies (and against foreign companies in which US investors have a substantial interest), as well as other collective redress participation opportunities in other countries. Canada and the Netherlands, for example, have legal systems where there are more developed securities class action and collective redress options available to global investors.
With the typical New Zealander equities portfolio now investing 47 percent in foreign shares, it is clear that there is a duty to monitor and participate in securities class action and collective redress opportunities in various countries around the world. Goal Group’s analysis of its class actions knowledge base predicts that by 2020, annual securities class action, groups and collective redress settlements outside of the US will reach $8.3 billion annually. However, it is also estimated that $2.02 billion of global investors’ rightful returns will be left unclaimed each year because of non-participation.
With the rise in prominence of neighbouring Australia, it may not be too long before we see New Zealand follow suit and adopt legislation that will allow securities class actions on home soil. In Australia, class action litigation took off when the Federal Court of Australia Act was amended in 1992, and with 22 percent of New Zealand investment in Australia, this is clearly an area in which New Zealand investors can be very active.
Despite the continued prominence of class actions in nearby Australia, New Zealand has so far not followed suit. The absence of clear litigation is the main reason behind this. In 2008, the rules committee issued a draft Class Actions Bill, which was subsequently sent to the secretary for justice in 2009. Despite the draft bill, little political progress has been made.
Securities class action litigation in New Zealand seems inevitable in the coming years as most of the expansion features needed are also present in litigation in Australia. Not only do class action laws act as a handbrake to corporate mischief, but a class action allows investors who would never have brought an individual action against a company to seek recovery from alleged wrongdoing. They allow shareholders to compete on a level playing field with corporations that are well funded and supported. A class action process in New Zealand would help to encourage corporate governance best practice.
New Zealanders, nevertheless, do have legislation for a group action by way of representative action under the High Court Rules. Rule 4.24 provides that one or more persons may sue on behalf of, or for the benefit of, all persons “with the same interest in the subject matter of a proceeding”, either with the consent of the represented parties or with court approval.
The courts have permitted plaintiffs to use this mechanism to commence class actions. The Court of Appeals ruling in Saunders v Houghton in 2010 highlighted how there is the ability to bring representative proceedings on behalf of a group of plaintiffs, although this can still not be applied to securities class actions. The 2011 Commerce Committee Report issued to the New Zealand House of Representatives, setting forth various proposed reforms as result of the widespread failures of finance companies, underlined the importance of regulating corporate governance rules and increasing New Zealanders’ understanding of financial issues.
It is the responsibility of fund managers and advisors to actively pursue opportunities around the world, particularly in the US and Australia, to claim money to which they are entitled. So whilse class action legislation would be beneficial in New Zealand, investors still need to be aware of the opportunities worldwide that are available to them and actively participate in class actions where they hold stocks in those markets. Failure to engage in class actions can leave billions in unclaimed settlements, compromise fiduciary integrity and portfolio returns, and prejudice clients’ potential entitlement to legal redress.
Failing to monitor and participate in class actions internationally should not happen, as there are a number of services commercially available that minimise the complexity and cost of effective participation and recovery.
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