25 Aug 2011

Litigation lessons from the GFC

What should companies do now to get ready for litigation arising from the next financial downturn? Mark Waller shares some lessons for companies from the GFC with BRR Media.

Transcript

Litigation lessons from the GFC
David Bushby, BRR Media
Mark Waller, Partner, Litigation and Dispute Resolution, Clayton Utz

David Bushby
We're speaking with Mark Waller. He's a partner in the Litigation and Dispute Resolution group at Clayton Utz in Brisbane. Welcome to BRR Mark.

Mark Waller
Thanks David.

David Bushby
Mark, we saw a lot of class action and financial loss litigation stemming from the GFC. What are some of the current lessons that are developing, or have developed, from that litigation so that companies can be prepared in the event that we're entering into another difficult financial cycle?

Mark Waller
Really the lessons learnt from the litigation are that the development of class and group actions means that the usual responses to litigation don't necessarily work when a company is faced with that style of litigation.

The claimants are now represented by very sophisticated plaintiff law firms supported by litigation funders, and the class action procedures allow them to efficiently prepare and run claims that probably couldn't be economically maintained as standalone actions. So that sophistication really starts from the process of identifying potential targets for the class action firms and litigation funders, investigation and preparation of those actions, and the use of novel means of getting access to information to investigate the claims.

These things have all developed out of the recent litigation using pretty sophisticated procedures to get access to information which allows them to assess whether the claim is viable and also whether there is insurance or a fund that will meet the claim.

We've seen in recent times shareholders obtaining orders from the court to compel companies to disclose their liability and D&O insurance as well as information relevant to whether a cause of action exists before they even commence an action. Now that's very unusual and it does give shareholders an advantage over most other litigants who can't compel such access.

David Bushby
So Mark just given that new context of more sophisticated and better funded litigants, what can companies do?

Mark Waller
In that context, it's important for companies to develop plans and procedures to ensure that they're prepared if they perceive they might be a potential target for a class or group action - if there's been an event, some of distress that might expose them as a target.

That ranges from being prepared to communicate with shareholders who may be influential as to whether any class or group action gets momentum to reviewing their liability insurance to ensure that it adequately responds to such an action. The reality is that most liability and D&O insurance policies are not drafted with class actions in mind. So companies should be prepared to develop novel dispute resolution responses to such actions and we've seem some examples that have been public like the Commonwealth Bank dispute resolution scheme in response to the collapse of Storm.

David Bushby
So what do you see as being the number one risk facing companies and their directors?

Mark Waller
In terms of liability risk, I think the number one issue for directors really is the perception of potentially unmanageable risk which is developed following the high-profile James Hardie and Centro cases. It's likely that that perception will affect the ability of companies to attract skilled and professional directors and officers. Although it's not an answer, the perception can be in part addressed by ensuring that the company indemnity and D&O insurance arrangements provide the maximum protection for the directors and officers, so they have some peace of mind if the worst-case scenario develops.

David Bushby
And Mark just finally given that the current economic gyrations there's probably a high likelihood that these issues might come to the fore again.

Mark Waller
Yes that's right and I know it sounds trite David but the answer is really to be prepared. Companies and their directors should maximise the opportunity that's arisen from the last shock we had and put in place plans and procedures and ensure that the sorts of matters that I've been talking about today, like preparing for a group or class action or reviewing your liability insurance arrangements both for the company and the directors and officers, are done before the risk hits the deck. That's really the answer.

David Bushby
Absolutely. We'll certainly keep a close eye on it and let's hope the wheels do stay on but thanks again for your time today Mark. That was Mark Waller, partner in the Litigation and Dispute Resolution group with Clayton Utz in Brisbane. Listeners, if you have any questions for Mark about this interview, please email him on mwaller@claytonutz.com.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.