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High Court confirms use of public examination powers to investigate potential class actions

May 9, 2022

High Court confirms use of public examination powers to investigate potential class actions

The High Court has ruled in favour of shareholders in Walton & Anor v ACN 004 410 833 Ltd (formerly Arrium Limited) (in liq) & Ors. In a 3:2 decision, the majority permitted former shareholders of Arrium Ltd to examine the insolvent company’s officers under s 596A of the Corporations Act 2001 (‘CA’) for the purpose of potentially bringing a class action against the company’s managers. The Road Ahead The High Court (3:2) decision is positive news for shareholder class actions as it confirms that “eligible applicants” can publicly examine corporate officers about a corporation’s affairs, to test the merits of a potential class action against the company. This is even if a liquidator does not intend to investigate or pursue claims against the officers of the company. The approach adopted by the majority is a welcome step forward for corporate accountability in the midst of many attempts by the legislature to constrict the Australian class action landscape. Procedural history The applicants were shareholders in a former mining company, Arrium Ltd (‘Arrium’). The applicants bought shares in Arrium during a capital raising in 2014. Shortly thereafter, Arrium announced an impairment to the value of its business of over $1billion. Arrium was then placed into administration, and then finally liquidation. Under s 596A CA, the Court is to summon a person for examination about a corporation’s ‘examinable affairs’ if an eligible applicant seeks the order, and the court is satisfied that the person subject to the order was an officer or liquidator of the corporation during the prescribed period. With authorisation from ASIC, the applicants sought an order from the Supreme Court of New South Wales summoning a former director of Arrium for public examination. The applicants sought the order,  as they believed that they may have claims against the former directors and auditors of Arrium arising out of the capital raising and the company’s published financial results for the same period. The goal of the examination was to investigate whether pursuing these claims as a class action with other shareholders was viable. The Supreme Court of New South Wales initially granted the order.  However, the Court of Appeal overturned the decision to allow the examination on the basis that it was an abuse of process, as the examination did not benefit Arrium, its creditors, or its contributories. The issue to be determined by the High Court was whether the applicant’s purpose for seeking the order was an abuse of process. This involved considering whether the purpose of the application was consistent with the purpose of s 596A CA. Was the Proposed Examination an abuse of process? The majority (Justices Edelman, Steward and Gageler) allowed the appeal, finding that the application was not an abuse of process. The purpose for the application was held to be within the scope of s 596A CA. In coming to this conclusion, the court considered section 596A CA to ascertain its purpose, which involved lengthy consideration of the preceding iterations of the statutory scheme for public examinations. The High Court acknowledged that earlier laws insisted on public examinations being for the benefit of the company or its creditors, or for bringing criminal or regulatory proceedings in connection with the company. However, the High Court concluded that these requirements did not apply to bringing an application under s 596A CA because s 596A CA has no direct analogy with any former provision in the earlier companies’ legislation. Instead, the court held that s 596A has much broader requirements than the former laws on this issue. This is because: 1.     section 596A CA is drafted differently, and applications under it require less supporting evidence than earlier companies’ legislation and other sections within the same part of the Corporations Act 2001; 2.      section 596A CA was intentionally drafted to have a broad application; 3.     section 596A was enacted in the public interest to facilitate the administration or enforcement of the law concerning a corporation and its officers in public dealings. Therefore, an application under this section will not be an abuse of process if it promotes compliance with the law. On this basis, the High Court concluded that using a compulsory examination to test the merits of a potential class action for corporate misconduct coincides with the purpose of s 596A CA. The fact that the proposed class action would not benefit all of Arrium’s shareholders did not jeopardise the validity of the application, because s 596A CA is directed to enforcing the law, rather than benefitting the company in administration. The judgment is available here: Walton v ACN 004 410 833 (formerly Arrium Ltd) (in liq) [2022] HCA 3, 16 February 2022. About the Authors Lillian Rizio specialises in managing large scale complex litigation, particularly with claims involving multiple parties. Lillian’s emphasis is on corporate disputes, class actions, professional negligence and insurance, across most Australian jurisdictions. Lillian also has extensive experience advising clients in relation to right to information matters, in both federal and state jurisdictions Julia Hegarty is a law clerk in the Dispute Resolution and Litigation team at Piper Alderman in Brisbane. She is currently studying a Bachelor of Commerce/Laws (Hons) at the University of Queensland. Julia has an interest in externally funded litigation and shareholder class actions. For queries or comments in relation to this article please contact Kat Gieras, Litigation Group Project Coordinator | T: +61 7 3220 7765 | E:  kgieras@piperalderman.com.au

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Doorway-Backed Simpson Millar Posts £5m Loss and £41.8m Net Liabilities While Buying Two Practices

Simpson Millar LLP, one of the UK's largest consumer law firms and a flagship investment for specialist legal-sector capital provider Doorway, has reported an annual loss of £5 million and net liabilities of £41.8 million, even as it completed two seven-figure acquisitions over the summer.

As reported by The Law Society Gazette, financial statements for the firm, which operates seven offices across England and Wales, show losses narrowing from £9 million in 2024 to £4.93 million in calendar 2025, with turnover up 11.5% to £24.6 million. As at 31 December, net liabilities stood at £41.8 million, up from £36.9 million, with amounts owed within one year of £88 million.

The LLP's immediate parent is Doorway Holdings Limited and its ultimate parent is Doorway 4 Law Limited, described in the accounts as a specialist equity provider to the legal sector. Both have committed funding to support the business. In 2018 the LLP entered a £25 million five-year loan agreement with Doorway 4 Law, extended during 2023 to £32 million with the maturity deferred and no set repayment date.

The firm has pursued cost savings in recent years, exiting certain private client markets in 2022 to concentrate on public and inquiry work. Its principal business is now personal injury, including clinical negligence, holiday sickness, industrial disease and road traffic accidents. Headcount fell 18% to 294 during the year, with 18 fee earners and 46 administrative staff cut, while investment in marketing continued in order to rebuild case stocks.

Acquisition activity has continued regardless. In June the group bought the trade and assets of Wirral-based Fife PI Limited from Forster Dean for £750,000 in cash plus a performance-related payment of £669,000. In July it acquired the personal injury practice of Manchester firm Clear Law Limited for £900,000 in cash, with a further contingent payment of £1.85 million agreed.

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Hedge Funds Increase Purchases of Los Angeles Wildfire Subrogation Claims as California Restrictions Stall

Hedge funds have stepped up acquisitions of legal claims tied to the 2025 Los Angeles wildfires after a legislative push to restrict the trades lost momentum, with pricing on individual claims ranging from as little as 3 cents on the dollar to roughly 60 cents.

As reported by HedgeCo.Net, citing Bloomberg, the transactions involve subrogation rights, which allow an insurer that has paid out on a policy to pursue a third party such as a utility for its losses. Rather than wait years for litigation to conclude, insurers can sell those rights to investors at a discount in exchange for immediate cash.

According to broker Cherokee Acquisition, claims arising from the Eaton fire are being acquired at 55 to 60 cents on the dollar, while Palisades claims, viewed as riskier because liability is harder to establish, are trading at 3 to 5 cents. Cherokee director Bradley Max said there is "plenty of appetite for buyers and sellers," that most hedge funds active in the market are targeting returns in the low-to-mid teens, and that transactions are typically funded within a couple of weeks. He said Cherokee recently acquired roughly $100 million of Palisades-related claims for less than 10 cents on the dollar.

California adopted a law in 2025 requiring insurers to offer utilities a right of first refusal before selling claims to investors, but it stopped short of banning hedge fund purchases outright. Max said the rule has had little effect on demand.

The fires caused an estimated $40 billion in insured losses. A bellwether jury trial in the Eaton fire litigation is scheduled for January 2027. The spread between Eaton and Palisades pricing illustrates how sharply investors are discounting liability risk, while the legislative impasse has removed, for now, the prospect of the opportunity being closed off entirely.

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High Court Rules Mariana Client Committee Had No Power to Switch Solicitors, Leaving PGMBM and Funder Gramercy in Place

The High Court has ruled that the claimant committee in the Mariana dam litigation had no authority to terminate its retainer with PGMBM, formerly Pogust Goodhead, or to instruct a rival firm in its place, resolving a control fight that had put the funded claim's management in doubt.

As reported by The Law Society Gazette, Mr Justice Waksman delivered an oral judgment finding that the committee could not terminate the collective conditional fee agreements or litigation management agreements covering roughly 420,000 claimants, and therefore could not appoint Bailey Glasser International to take over the next phase. "It is plain to me that Pogust Goodhead's construction is preferred," the judge said, adding that the committee "had no power to instruct BGI." He ordered £300,000 in costs on account within 14 days.

The claim arises from the 2015 collapse of the Fundão dam in Brazil's Mariana municipality. The High Court found in November 2025 that the collapse was foreseeable and that BHP was strictly liable, with a phase 2 trial on quantum listed for next year.

Waksman acknowledged the committee's criticisms, including the departure of the counsel team over a fees dispute, the instruction of Quinn Emanuel while PGMBM remained on the record, and concerns about the firm's funder, Gramercy. The court heard at an earlier two-day hearing that PGMBM estimated claimants would face around £2 billion in costs exposure if the contracts were terminated.

PGMBM chief executive Alicia Alinia called the ruling a "decisive victory," saying "our clients are not commodities to be transferred between law firms." Humphries Kerstetter, acting for the committee, said it would analyse the judgment before deciding its next steps. Permission to appeal was sought at the hearing, which continues on consequential matters.