Follow on actions and settlement dynamics

published Sep 02, 2014
One trend which has emerged in the last 12 months is listed entities being faced with a second, and sometimes a third, class action. These actions can be parallel actions arising from the same disclosure events, or actions against the same entity but arising from different disclosure events. However, where there is a risk of a follow on action, a certain and final settlement will be difficult to achieve.

One trend which has emerged in the last 12 months is listed entities being faced with a second, and sometimes a third, class action.  These actions can be parallel actions arising from the same disclosure events, or actions against the same entity but arising from different disclosure events.

In 2007, Downer EDI (Downer) was faced with a class action in relation to disclosures regarding a project for Iluka Resources.  Bentham IMF Limited (IMF) funded a class action against Downer which was settled prior to the commencement of proceedings.  In 2011, Downer was faced with a second class action funded by IMF.  This action related to disclosures relating to the Waratah Train Project.  This second claim was also resolved by agreement before the commencement of proceedings.  The settlement of the second claim was closely followed by the commencement of proceedings against Downer by Melbourne City Investments Pty Limited (MCI) relating to disclosures which were the subject of the second settlement with IMF.

The commencement of MCI’s follow on action against Downer will make claims harder to resolve prior to the commencement of proceedings as the respondent company will seek certainty and finality from any settlement. Where there is a risk of a follow on action, a certain and final settlement will be difficult to achieve. Consequently, it is likely that proceedings will need to be commenced and the class opened to achieve settlement.

Other examples of follow on actions include claims against Oz Minerals (for a group of Zinifex shareholders who acquired shares in Oz Minerals via the merger and a group excluded from 2009 and 2010 class actions) and recent claims against Leighton.