Setting the pace
17 September 2014
With South Africa setting the standard for other African countries, it is reasonable
to expect this momentum will have a positive effect on introducing class
actions legislature into their laws, says Pat Bingham-Peters of Goal Group
Image: Shutterstock
While class actions in South Africa are in their infancy, securities class actions globally have developed at an unprecedented rate outside of the original class actions powerhouse, the US. Investors around the world have been seeking alternative jurisdictions in which to pursue claims.
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 2010 ruling in Morrison v National Australia Bank by the US Supreme Court. 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. South African investors and fiduciaries must, therefore, be aware of collective redress participation opportunities in the EU, as well as in the US, where jurisdictions permit.
Since the Supreme Court of Appeal confirmed class actions were possible in South Africa, they have been on the rise and, as a result, there have been a handful of applications brought forward, which are now pending in the high courts. This new approach has seen class actions become accepted, and claims are now handled by the South African High Court Rules and the Constitution of the Republic in South Africa of 1996. Given their relatively new status, courts are expected to take into account past class actions in overseas jurisdictions while they develop a law appropriate to their country.
Recently, the Constitutional Court delivered a judgement in Mukaddam v Pioneer Foods (2013) regarding class actions. The judgement will serve as a guide to courts of first instance when tasked with deciding whether a class action should be certified and in assessing whether the discretion was exercised judicially. It is likely that, in time, this recent activity will lead to the processing of securities class actions.
With South African equities investors now investing $146 billion in foreign shares, up from $135 billion at the end of 2011 and $64 billion in 2008, 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. Investment in the UK in 2013 from South African investors was $76billIon: $19 billion was invested in the US, $15 billion in Luxembourg and $13 billion in Bermuda.
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, with $3.7 billion of this being attributed to the Europe, Middle East and Africa region. However, Goal Group’s research has also estimated that $2.02 billon of global investors’ rightful returns will be left unclaimed each year because of non-participation.
With a significant amount unclaimed due to non-participation every year, it can be argued that fund managers and advisors have a moral duty as part of good corporate governance to actively pursue opportunities around the world to recoup funds to which they are entitled. So South African 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.
As shown above, 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. There are also a number of specialist services commercially available that minimise the complexity and cost of effective participation and recovery, so there is no viable excuse for non-participation.
With South African legislature setting the standard for other African countries, it is reasonable to expect this momentum will have a positive effect on introducing class actions legislature into their laws. Securities class actions are fast becoming a truly global phenomenon and countries that previously did not allow class actions are now taking note. Goal Group’s analysis predicted annual class action settlements in 2020 as $258 million in Africa—including Egypt, Morocco and South Africa. While Europe and America still lead the way in global class actions, Africa has the potential to follow suit.
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 2010 ruling in Morrison v National Australia Bank by the US Supreme Court. 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. South African investors and fiduciaries must, therefore, be aware of collective redress participation opportunities in the EU, as well as in the US, where jurisdictions permit.
Since the Supreme Court of Appeal confirmed class actions were possible in South Africa, they have been on the rise and, as a result, there have been a handful of applications brought forward, which are now pending in the high courts. This new approach has seen class actions become accepted, and claims are now handled by the South African High Court Rules and the Constitution of the Republic in South Africa of 1996. Given their relatively new status, courts are expected to take into account past class actions in overseas jurisdictions while they develop a law appropriate to their country.
Recently, the Constitutional Court delivered a judgement in Mukaddam v Pioneer Foods (2013) regarding class actions. The judgement will serve as a guide to courts of first instance when tasked with deciding whether a class action should be certified and in assessing whether the discretion was exercised judicially. It is likely that, in time, this recent activity will lead to the processing of securities class actions.
With South African equities investors now investing $146 billion in foreign shares, up from $135 billion at the end of 2011 and $64 billion in 2008, 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. Investment in the UK in 2013 from South African investors was $76billIon: $19 billion was invested in the US, $15 billion in Luxembourg and $13 billion in Bermuda.
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, with $3.7 billion of this being attributed to the Europe, Middle East and Africa region. However, Goal Group’s research has also estimated that $2.02 billon of global investors’ rightful returns will be left unclaimed each year because of non-participation.
With a significant amount unclaimed due to non-participation every year, it can be argued that fund managers and advisors have a moral duty as part of good corporate governance to actively pursue opportunities around the world to recoup funds to which they are entitled. So South African 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.
As shown above, 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. There are also a number of specialist services commercially available that minimise the complexity and cost of effective participation and recovery, so there is no viable excuse for non-participation.
With South African legislature setting the standard for other African countries, it is reasonable to expect this momentum will have a positive effect on introducing class actions legislature into their laws. Securities class actions are fast becoming a truly global phenomenon and countries that previously did not allow class actions are now taking note. Goal Group’s analysis predicted annual class action settlements in 2020 as $258 million in Africa—including Egypt, Morocco and South Africa. While Europe and America still lead the way in global class actions, Africa has the potential to follow suit.
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