Key Takeaways from LFJ’s Podcast with Ben Phi
On the latest episode of the LFJ Podcast, Ben Phi, Partner at Australian class action law firm Phi Finney McDonald, discussed his recent response to the Senate Economics Committee in regard to the proposed regulation of class actions. Ben outlined his response to the ‘rising D&O insurance’ and ‘social inflation’ arguments being made by Big Insurance, and the negative consequences that could emerge if large class actions are over-regulated. Ben's summary of his testimony regarding Australia’s continuous disclosure laws: BP: Our position is that the proposed changes are both misconceived and dangerous. Essentially, what the government is trying to do is to make it more difficult to bring shareholder class actions in Australia. Their thinking requires plaintiffs to establish fraud, recklessness, or negligence to establish a continuous disclosure breach. And they also require the regulator to establish those elements to pursue civil penalty claims. This is something the regulator is definitely opposed to. Our position is that this is going to weaken the regulatory framework that governs corporate disclosure in Australia. LFJ: I want to ask about the notion of Social Inflation. This is something the insurance industry has been pushing lately. It’s the idea of a perfect storm of litigation funding, what they call aggressive tactics being used by plaintiff’s attorneys, and rising anti-corporate sentiment that is influencing the size of jury awards. What’s your response to this argument? BP: That is an argument that may carry some weight in other jurisdictions, but it simply doesn’t apply in Australia. At the threshold level, we don’t have jury trials in Australia for class actions, all of the class actions that have been before the courts have been in front of our judiciary, which is excellent and independent. Shareholder class actions rarely go to trial. The vast majority of cases settle here and they do so for sizable amounts, and provide really strong returns to group members--even after accounting for legal costs, solicitors, and litigation funding costs. One of the key differences in our jurisdiction is that we’ve got an adverse costs regime that takes a lot of the excesses out of the system and also most of the entrepreneurship. Basically, anybody that’s involved in financing or conducting shareholder class action litigation—there’s no interest in taking on speculative claims. The thresholds that get jumped through before a claim is actually commenced are very very high. LFJ: A potential consequence of this regulation is increased corporate malfeasance, because at the heart of these class actions is that issue—corporate malfeasance. Essentially if you’re looking to regulate class actions, you want to make it harder to hold corporations accountable. So to me...I hear that and think that’s an argument the public can get behind. From your perspective, is there a PR push being made by plaintiff law firms, litigation funders, and others, or is the issue just too esoteric for the general public to care about? BP: There have been PR campaigns at least in relation to the previous round of class action reforms. And there’s absolutely no doubt that the Australian public is against corporate misconduct and malfeasance with a high degree of sensitivity to that. In particular, Australians have been conditioned by a series of commissions like these judicial inquiries into the financial services industries—and each of those inquiries has exposed absolutely disgraceful conduct on behalf of corporations. And that’s been met with widespread outrage, and followed by class actions supported by litigation funders. I actually think there is scope for this to become an issue in the next federal election—and that election is due to take place sometime in the next twelve months. LFJ: Where do you think the government is ultimately going to come down on this? Do you think there will be enough of a pushback to stem onerous regulation, or—how do you think this will play out? BP: Those who follow the Australian market will know how dangerous it is to predict the future. One thing I can say for certain, is that I really don’t see the government’s position changing—the government has really put a stake in the ground and we don’t expect them to shift from that position, particularly in an election year, and particularly given the promises that have clearly been made to the insurance industry and areas of big business. There doesn’t appear to be any political advantage in them backing down. Click here to listen to the entire episode.
